Current Economic Statistics and Review For the Week 
Ended November 19, 2005 (47^th Weekly Report of 2005)

I

Theme of the week:

T+1 Settlement in Equity Trading:
Issues and Concerns in Plunging Into It

Introduction

Clearing and settlement of securities is a core financial function, determining fundamental confidence in the financial markets. It is the backbone of the financial system and its efficiency is crucial. An efficient settlement process is one where the risks of default are considerably minimised as settlement of trades requires moving securities / funds physically / electronically from the buyers / sellers in the shortest possible span. As the settlement process itself is wrought with various risks such as default risk, replacement risk, liquidity risk, third party risks and system risks, in view of these, it has been considered pertinent to reduce the settlement cycle. This has been particularly possible in the recent period due to the extensive use of information technology not only in the trading system but also in the settlement process; in India the cycle has been reduced, in various stages from 14–days to 2–days cycle in the present scenario. While, it was expected that the system would move to T+1, there have been many problems in ushering the new system. The most important among them was the absence of real time gross settlement (RTGS) across the country. However, as the RBI has said that the RTGS is now operational across 500 centers in the country, it is being considered whether the new T+1 settlement should soon be introduced. While it is considered to be a better system, it is expected to impose enormous burden on the market participants. In view of this, we review the pros and cons of its introduction.

G-30 recommendations

The securities markets have been experiencing rapid growth, profound technical and structural change, and infrequent but severe market shocks. For instance, the events of September 11, 2001, demonstrated that global clearing and settlement arrangements are vulnerable to physical disruption and threats previously considered improbable. The group of 30 countries (G-30) has recommended various changes, which endeavour to make the settlement and clearing process safe and efficient. Among them, two have gained widespread acceptance, they relate to delivery versus payments (DvP) and rolling settlement. The G-30 recommends that DvP should be employed as the method of settling all securities transactions. DvP means simultaneous, final and irrevocable exchange of securities and cash on a continuous basis through-out the day. This aims to reduce or eliminate the principal risk in securities settlement, that is, the risk where the seller of a security would deliver the securities and not receive payment, or where the buyer of securities would make payment but not receive securities. They also recommend that all markets should adopt a rolling settlement system. Final settlement of all trades should occur not later than T+3, that is, trade date plus three days for settlement. Taking into account recent developments in market and technologies, International Securities Services Association (ISSA) has recommended five key measures to mitigate major risks in securities settlement systems. These include implementation of real DvP and adoption of a trade date plus one (T+1) settlement cycle. Bank of International Settlement (BIS) and International Organisation of Securities Commission (IOSCO) have also prescribed similar measures. These recommendations aim at finality of settlement soon after execution of trade and without any risk to system or participants. In pursuit of these standards / objectives, the markets abroad are moving towards shorter settlement cycle. All the advanced markets and even many emerging markets have adopted the recommendations of G-30 relating to rolling settlement and that too, with number of days for settlement getting gradually reduced from T+5 to T+3, T+2 and T+1 eventually.

Developments in Domestic Market

The Indian market has been successful in not only introducing rolling settlement but also reducing the number of days from T+14 to T+2 in a relatively short span of time. But, so far, most markets have been moving in their own way towards DvP. An impediment to introduction of DvP in India is slow movement of funds, which has not kept pace with the speed of movement of securities. While clearing and settlement agencies, namely Clearing Corporations/Clearing Houses, can move securities (except for inter-depository transfer of securities) electronically on a real time basis with the help of depositories, it cannot move funds so expeditiously. RBI and SEBI are continuously endeavouring to speed up movement of funds and securities for smooth settlement of securities transactions.

The more the time gap between trade day and settlement day, the more the time risk. This means the regulators need to ensure market integrity. Margins have to be higher than the necessary, which entail lock-up of additional capital of stakeholders for the settlement period. This increases the transactions costs, impacting liquidity and returns. Volatility and trade volumes are not determinable by the regulators but the settlement time gap is. Hence, various attempts are being made to implement shorter settlement cycles.

The investors’ benefit directly from shorter settlement cycles due to comparatively reduced margins and capital requirements. Also, they will have to make much faster payments to the brokers for their purchases and will get paid equally faster in case of sales. However, delivery of transaction slips for security pay-in would be critical. The current system also has the investor chasing the settlement time lines; auction losses are heavy due to volatility. For shorter settlement cycles, the pay-in of securities would have to be done before the sale, i.e. T-1.

Spread of RTGS

Recently, RBI has said that it is ready with the RTGS in more than 10,000 bank branches in around 500 centres. Though the concentration of branches is at the top 25 major centres, even small towns in the states are covered under the new system. The RTGS is an online electronic system designed with a view to transmitting, processing, clearing and settling inter-bank payments on a real time gross basis. It provides a powerful mechanism for limiting settlement and systemic risks in the interbank settlement process by ensuring final settlement of individual fund transfers on a continuous basis during the processing day.

Benefits of Shorter Settlement System

Against this backdrop, many of the market participants in India perceive that with the RTGS in place, the Sebi should introduce T+1 settlement and should take lead in this area ahead of other countries as almost all the countries either have T+2 or T+3; even US exchanges follows T+3. Prof J R Verma, Dean, IIM-Ahmedabad, says that India ’s strengths in information technology gives it the ability to assume a leadership role in faster settlements and move towards T+1 settlement. He further says that we have best trading systems are coupled with poor settlement system, where in layers of settlement guarantees, auctions, penalties and needed to achieve a tolerable level of performance of the settlement system.

International Scenario

The present T+2 system is considered to be the best system in the world, which is being practised in a majority of the markets throughout the world. As mentioned, the securities market in US has a T+3 settlement system. Already the country has been the first or among the best in various areas such as using the state of the art technology for the trading as well as settlement process, introducing the non-manual Straight Through Processing (STP) in the securities transactions and the first major market to have implemented the T+2 rolling settlement. Yet, it needs to be reviewed whether there is need for the country to lead when the country has been slow to adopt STP and reach of RTGS is not extensive.

Issues and Concerns

Given the increase in volatility and in the number of trades, prima facie, it does makes a strong case for moving towards T+1 settlement as soon as possible. However, with the widespread expanse of the country and trading spreading at newer places, it is necessary to analyse the impact of its implementation on brokers and investors. Brokers are likely to benefit the most from these shorter settlement cycles as the capital and margin requirements would be equally lower. They could thus engage in higher value trades for the given capital. In turn, investors will have to pay the brokers much faster for their sales. However, delivery of transaction slips for security pay-in would be critical. The current system also has the investor chasing the settlement time lines; auction losses are very heavy due to volatility. So, the pay-in of securities would have to be done before the sale, that is, T-1. Shorter settlement cycles will mean more pressure on trade processing systems so that funds/securities are ready for pay-in/pay-out on the next day. In a manual environment, with the current volumes, it is almost impossible to meet tighter settlement deadlines without automating trade processing and removal or reduction of manual intervention. Also, financial markets world wide have been moving cautiously towards adopting STP, which eliminates all the manual process in the trading and settlement cycle. As a result, there is a need for a complete overhaul of the system.

Some segments like the retail brokers will be hit, as the stock exchanges’ dues will have to be deposited before they are realised from investors and remitted by banks from outstation locations. Hence, their working capital needs will atleast double. The RTGS is the fastest transfer mechanism, but remains a very costly system of sending money. The investor has to pay to the bank to receive money, besides payment being made by the sender of money, that too, several times more than the investor pay-ins towards brokerage and depository services. It is claimed that in value terms over 90 per cent of exchange volume centers have the RTGS network. But in terms of geographical spread, coverage is close to 50–60 per cent. Collection of funds from investors also is messy. Cash Management Systems are again expensive and spread is in very few centers. 

The shorter settlement cycles requires an efficient securities lending mechanism to reduce settlement failures. But, securities lending is needed even without T+1 settlement.

The most important obstacle is that the FII investors have difficulty in confirming and settling trades in other countries. It is expected to be overcome with extensive use of STP across countries. But, the need, to/ from convert foreign currency into domestic currency would remain, as there is a mismatch in the settlement cycles of the securities market and foreign exchange market. According to Prof J R Verma, this problem can be solved by letting FIIs hold rupee accounts in India ; to prevent them being used for currency speculation, RBI could mandate the use of swaps to ensure that the overnight rupee balance earns only the rate of return of a dollar deposit.

The Sebi is apprehensive about the implementation of T+1 system for it thinks that the new system may not function smoothly when strained liquidity-like situation would emerge at certain time. Sebi is also reviewing whether the market players can manage their fund flow in a very short time, as T+1 system would squeeze the settlement time to a single day. The benefits of the new system in facilitating speedier market transactions would be realised, only if the system is applied universally throughout the country. Introducing the system in 500 centres may not serve its purpose. The purpose of introducing electronic payments system like T+2 was to reduce the settlement time so that any market participant cannot manipulate the market mechanism.

Conclusion

While safe and efficient clearing and settlement systems are necessary, but further shortening of settlement cycle has to be viewed against the need for and its impact on the overall functioning of the securities market. Thus, while the Sebi is considering its applicability in the current scenario, there is an urgent need for Sebi to focus on more broader issues relating to small investors and address their concerns rather than be concerned about adopting practices when the world over markets are apprehensive of switching to this new system.  

Highlights of  Current Economic Scene

AGRICULTURE     

The Agriculture Ministry has put forth the proposal to provide 50 per cent subsidy for micro irrigation project such as sprinkler and drip irrigation system. The Centre is expected to bear 40 per cent, where as the states are expected to bear 10 per cent, of total subsidy share. The proposed subsidy would be extended to farmers for setting up irrigation system for a maximum of five hectares.

Imports of Edible oils, which comprised of palm oil, soyabean oil and Vanaspati, during the oil season 2004-05 (November-October) have increased by 15 per cent to 50.42 lakh tonnes compared to 43.96 lakh tonnes in the last season. The 10 per cent duty differential between crude and refined oils has encouraged the larger import of non-refined oils over refined oils. Refined oils share has declined by 9 per cent from 18 per cent while crude oils has gone up to 91 per cent from 82 per cent for the same period of the last year. This has supported domestic vegetable oil processing industry through improved availability of raw materials and increased capacity utilisation.

ICICI Lombard, the general insurance company, has introduced weather insurance cover for wheat crop in Punjab and Haryana to protect wheat growers from the possible crop yield losses arising out of extreme temperature conditions. The insurance cover is available for three months, from January 01 - March 31, 2006. The claims would be settled as per the payout chart within 28 days after expiry of the cover period based on the temperature data collected from Indian Meteorological Department. The premium per acre including service tax would be Rs 375. The farmers, who are cultivating wheat on owned or leased land in units of one acre, with no limits on number of acres, can take the cover.

INDUSTRY

Pharmaceuticals

The government is set to cap the trade margins for unbranded drugs at 15 per cent for wholesalers and 35 per cent for retailers; trade margins for generic drugs are as high as 1500 per cent of the ex-factory price.

INFRASTRUCTURE

Power

As per current plans, by 2012 Maharashtra could have a total installed capacity for power generation of 23000 megawatt, well above the projected shortfall of 10000 mw. The new power projects include 7540 mw from independent power producers, 6000 mw from the proposed Jaitapur nuclear power plant and another 2150 from Ratnagiri gas and power private limited.

Petroleum, Petroleum Products and Natural Gas 

Nigeria has awarded ONGC Mittal Energy Ltd (OMEL) deep-water oil exploration blocks with a potential of producing 650,000 barrels per day (bpd) of crude oil for the next 25 years and also an assured supply of 120000 bpd. In exchange, OMEL’s plans to invest $ 6 billion in Nigeria on 2000 mw coal or gas based power plant, railway systems and capacity building.

The public sector oil marketing companies in India , making losses due to peaking of oil prices in the international markets in recent months, are now selling petrol and diesel at a small profit, for the first time in the current year, following some price stabilisation. During the first fortnight of November (1^st – 15^th), international price of diesel fell to $ 57.33 a barrel, down sharply from the October average of $ 67.97 a barrel; for petrol the fall was lesser from $ 62.85 a barrel in October to $ 61.18 a barrel during November 1-15.

India ’s domestic oil product sales fell 3.4 per cent year-on-year in October 2005, contracting for the second consecutive month, due to floods, low inventories and trucker’s strike hitting demand. Diesel sales fell by 6 per cent on the back of floods in south India and a slowdown in the mining sector, which is the biggest user of trucks; petrol sales rose by 3 per cent because of greater use of cars; jet fuel sales rose nearly 14 per cent as domestic airlines continue to expand operations and attract more passengers; and naphtha sales fell 2.4 per cent because of power plants and fertilizers switching to gas.

Coal

The committee of secretaries, looking into pricing issues in the coal sector, has approved a proposal to quadruple the quantity of coal to be sold under the e-auction route to 40 million tonne (mt) in 2006-07 from 10 mt in the current fiscal.

Steel

Magnitogorsk Iron and Steel Works (MMK), the largest Russian steel maker, has sought the Orissa government’s approval for setting up a 10 million tonne integrated steel plant with an estimated investment of over Rs 30,000 crore.

Railways

The government plans to set up a special purpose vehicle (SPV) for the proposed Rs 22,000 crore rail-freight corridors on the Delhi-Mumbai and Delhi-Howrah routes by March 2006. With a proposed debt-equity ratio of 70:30, the SPV will be able to raise around Rs 15400 crore while the rest would be provided through equity.

Indian railways’ earnings has grown by 14.83 per cent during April-October 2005 to Rs 29,933 crore compared with Rs 26,067 crore during the corresponding period last year - revenue from transport freight went up by 17.32 per cent and passenger earnings went up by 8.89 per cent.

Roads

The national highway authority of India (NHAI), five years after starting the NHDP, expects to make Rs 728.9 crore through toll collection during 2005-06; a near 63 per cent jump in revenue through toll collection on public funded projects from last year’s Rs 445.2 crore. However, the per kilometre earnings are expected to decline by nearly 7 per cent from Rs 30 lakh to Rs 28 lakh due to progressively more stretches in interior regions with low traffic density are coming under toll; nearly 78 per cent of the revenues are projected to be yielded by stretches under the golden quadrilateral, which connects the four metro cities.

An inter-ministerial group on roads is considering a proposal to grant the NHAI more autonomy and freer decision-making powers vis-à-vis the ministry of road transport and highways in clearance of projects. It is recommended that the NHAI should have full autonomy to clear government funded projects with a cost of up to Rs 200 crore and public-private partnership projects worth up to Rs 500 crore. As part of the restructuring, it is suggested that the NHAI should have separate departments for land acquisition, legal affairs and safety and also recommends some changes in the appointment procedure and office tenure of the NHAI chairman.

Aviation

Air passenger traffic grew by 20.1 per cent in August 2005, the highest monthly growth in 2005, mainly aided by the start of full-fledged operations by low-cost carriers and increased services by international airlines to new Indian cities.

The airports authority of India has allotted a further Rs 10 crore to the existing 37 crore infrastructure upgradation plan to develop Surat into an international airport. – BS

Airports authority of India plans to raise funds from the capital market for funding the modernisation of about 30 non-metro airports across the country with an estimated cost of around Rs 40000 crore.

The government plans to disinvest up to 20 per cent of its stake in Indian Airlines and Air India by the first quarter of 2006, although the public sector status of both the carriers would be maintained.

INFLATION

The annual point-to-point inflation rate based on wholesale price index has gone down to 4.14 per cent during the week ended November 5, 2005 from 4.75 per cent registered during the previous week. The inflation rate was at 7.93 per cent in the corresponding week last year.

The WPI in the week under review has risen marginally to 198.5 from the previous week’s level of 198.3 (Base: 1993-94=100). The index of primary articles’ group has risen by 0.2 per cent to 199.7 from the previous week’s level of 199.3, due to an increase in the price indices of both, food articles by 1.8 per cent to 201.5 from 197.9 in the previous week and non-food articles by 0.2 per cent to 182.6 from 182.2 in the previous week. The higher prices of food articles are attributed to the increase in the prices of urad, moong, wheat, condiments and spices, eggs and gram. Similarly, the higher prices of non-food articles are attributed to a rise in the prices of groundnut seeds, mesta and soybean. The index of ‘fuel, power, light and lubricants’ group has increased a tad to 312.5 from the previous week’s level of 312.4. The index of manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also risen marginally by 0.1 per cent to 172.7 from 172.5 of the previous week’s level, primarily due to increase in the prices of food products, ‘chemical and chemical products’ and ‘machinery and machine tools’.

The latest final index of WPI for the week ended September 10, 2005 has been revised upwards; as a result both, the absolute index and the implied inflation rate moved up to 197.5 and 4.11 per cent instead of the provisional levels of 196.4 and 3.53 per cent, respectively.

Overall, the rate of inflation has now gradually started firming up due to the reducing impact of high base effect coupled with rising prices of food articles in the last couple of weeks. The hike in the prices of petroleum products by the government, which has been effective from September 6th, and its consequent spiraling effects on the related sectors like transport, has also been partly responsible in stimulating inflationary pressures on the economy. However, the Reserve Bank of India has assured in it’s Mid-Term Review 2005-06, that it would keep a close watch on inflationary movements in the near future and if necessary, would use fiscal and monetary measures in order to contain the same. Moreover, the Finance Minister has also assured by emphasising on fiscal measures if necessary. He added that the current rate of inflation, which is below 5 per cent is not a cause of concern.   

BANKING

In a bid to regulate the entire payment and settlement system in the country, including financial transactions of credit card issuers, the government is planning to accord additional powers to the Reserve Bank of India (RBI) to regulate and oversee various payment and settlement systems. The finance ministry has finalised the draft payment and settlement Bill, and will be introduced in the winter session of Parliament. According to official sources, the Bill would also enable RBI to regulate entities like the Clearing Corporation of India .

With a view to developing a commercial market for micro finance receivables, the country's largest private sector bank, ICICI bank has tied up with Grameen Foundation USA to set up Grameen Capital India (GCI) which will work with the micro finance institutions (MFIs) to access primary and secondary debt markets. GCI will also provide credit enhancements to the portfolios of MFIs to help them access funds from the banks. ICICI Bank, has a micro finance portfolio of Rs 1200 crore, catering to 14 million people through 61 MFI/NGO partners. The partnership model enables the bank to service the poor clients effectively, with substantial risk sharing between the bank and the partner NGO/MFI. Under this model, ICICI Bank forges an alliance with existing MFIs wherein the MFI undertakes the promotional role of identifying, training and promoting the micro finance clients and ICICI Bank finances the clients directly on the recommendation of the MFI.

PUBLIC FINANCE

Value Added Tax (VAT)

The finance ministry is deliberating on the road map for transition to a single rate of tax. At present, 81 services are taxed at 10 per cent; the median central value added tax (Cenvat) has been fixed  at 16 per cent for goods, while states levy 12.5 per cent VAT on goods. A hike in the service tax rate seems unlikely this year, given that the rate was hiked to 10 per cent in Budget 2005-06.

The alignment of goods and services tax into a single rate will take about three years according to a presumption. The case for a uniform tax on good and services becomes more compelling in a view of India proposing to sign a spate of free trade agreements (FTAs) with its neighbours, Asean countries and the Gulf nations by the end of 2006.

Recently, a report prepared by the National Manufacturing Competitiveness Council, had also recommended a move towards goods and services tax (GST) as a means to make the domestic industry more competitive. Earlier, the Kelkar committee appointed by the finance ministry had recommended  integration of excise and service tax legislation. It had also recommended that at the central level, there could be 12 per cent GST to replace the current Cenvat and service tax. States should be allowed to level a state-level GST of 8 per cent, the report had suggested. This will bring down the tax rate to 20 per cent, which is at par with VAT in most OECD (Organisation for Economic Co-operation and Development) countries. As against that, the combined incidence of a tax on industry is about 30 per cent at present. Over that, they have to pay several other taxes such as octroi, entry tax and stamp duties.

Finance Minister has said that the centre would begin consultation with states on the implementation of a common GST after all states shifted to VAT regime. He said that all states must be on board by January. Once VAT is implemented, then the discussions on GST, which require constitutional amendment and legal changes  could begin. He also said that the expert committee on amendments to the income-tax Act was expected to submit a draft bill during the early part of 2006.

The PHD Chamber of Commerce and Industry (PHDCCI) has asked the government to initiate steps towards integration of the central Value-Added Tax with the State-level VAT. In its pre-Budget memorandum submitted to the Ministry of Finance, the chamber said that multiplicity of taxes such as sales tax, VAT, excise, service tax an octroi prevented rapid industrial growth. It said that imports should be brought under the VAT net to provide a level playing field to indigenous manufacturers. It added that all the taxes combined together at present constituted around 40 per cent of the product price. It also stated that there should be a 5 per cent gap between customs duties on finished goods and that on raw material components to help manufacturing competitiveness.

Nine states which include the BJP governed states are yet to introduce VAT. It is expected that many of these states would migrate from the local sales tax (LST) regime to VAT by January 1. Jharkhand, a BJP governed state, has already announced that it will introduce VAT in the new year. Indications are the other BJP governed states and Uttar Pradesh  too would replace LST with VAT  on that date. Tamil Nadu and Pondicherry are unlike to move to the VAT regime soon.

Funding Development Programmes

Prime Minister will step in to bridge the differences between  the Planning Commission deputy chairman and finance minister over plan support in next year’s budget. The Commission has expressed doubt over the finance ministry’s proposal to zero-based budgeting as this would cut into existing schemes. The plan panel had argued that any such move could weaken ongoing development programmes for the poor. While the Planning Commission is insisting on a 30-35 per cent increase in the gross budgetary support from the finance ministry to meet the plan allocation for central ministries, the latter has expressed his inability to raise resources beyond 15 per cent.

It is unlikely that the government will downsize priority programmes such as Sarva Shiksha Abhiyan (SSA), Mid-day Meal Scheme (MMS), National Rural Health Commission, Bharat Nirman and Schemes for agriculture, transport and railway sectors. According to an estimate, priority sectors alone may need about Rs 1,00,000 crore in 2006-07, an increase of over 50 per cent from the current year.       

Service Tax

Central Board of Excise and Customs (CBEC) is considering bringing charitable societies and not-for-profit companies under service tax net next year. If the proposal is implemented, charitable societies and not-for-profit companies providing any of the 81 taxable services would be required to collect from their clients and pay service tax at the rate of 10.2 per cent. However, such entities with a turnover of less than Rs 4 lakh will continue  to enjoy the exemption. Similarly, services provided by an individual whose turnover is less than Rs 4 lakh may continue to be exempt.

Exporters may soon get some respite from their cash flow problems. The finance ministry is set to ease procedures to allow easier and faster refund of service tax paid by them on inputs used for manufacturing goods or delivering services. A study group has been set up by the Central Board of Excise and Customs (CBEC) to identify problems faced by exporters in getting refund of service tax and suggest corrective measures.

Other Taxes

The Central Board of Direct Taxes (CBDT) is expecting to cross the projected target of Rs 1.76 lakh crore this year, according to member (revenue), CBDT. Corporate Tax Collection (CTC) by October 2005 has already increased by 26 per cent while total direct tax collection, including personal tax, has increased 27 per cent over the corresponding period last year. The member said that one of the noticeable features of this year’s CTC figures is that the tax from auto industry is substantially higher than last year’s. There is also a 29.4 per cent increase in personal tax collection. Other forms of taxation comprising Securities Transaction Tax (STT), Fringe Benefit Tax (FBT) and Banking Cash Transaction Tax (BCTT) together generated 196 crore. The direct tax collection is over Rs 66,000 crore as it marks a 27 per cent increase.

Perk’s that employees get are now taxed in the hands of the employer. But the FBT scope-from entertainment, hospitality and sales promotion to conveyance, boarding, telephones-could well apply to political parties. They use phones, cars, helicopters, meetings, promotions, like any other corporate. But there’s no FBT for them. Political parties need not even pay income tax. Moreover, any-one who gives donations to these parties gets an I-T exemption as they are considered as ‘charity organisations’.

Budget 2006-07 may bring in new duty structure for the oil sector. The government is open to bringing in duty changes to cushion the impact of spiraling crude oil prices and contain inflation. The government has appointed a high level committee chaired by C. Rangarajan, chairman of the Economic Advisory Council to look into petroleum product prices.

FINANCIAL  MARKET

Capital Markets

Primary Market

ABG Shipyard’s IPO has been oversubscribed as on November 14. The section reserved for qualified institutional buyers being oversubscribed by 20.4 per cent. In the retail segment, bids for 83,895 shares have been received. A total of 85 lakh shares are on offer in the IPO, which closes on November 24.

Similarly, Triveni Engineering and Industries Limited’s IPO has also been oversubscribed. The section reserved for qualified institutional buyers being oversubscribed by 8.2 times with bids being received for 20.5 crore shares as against 2.5 crore shares on offer. The IPO will close on November 25.

Piramyd Retail Limited has fixed the issue price of it IPO at Rs. 120 per equity share of Rs. 10 each. The issue, which closed on November 16, was oversubscribed 11.62 times.

Patni Computers Systems has filed a registration statement with the Sebi for its IPO of 68.8 lakh ADSs. Each ADS represents two equity shares of Rs. 2 each and the offering also includes a primary offering of 51.25 lakh ADSs by the company and 17.5 lakh ADSs offering by the selling shareholders under sponsored ADS offering.

The board of Indiabulls Financial Services Limited has approved the proposal for the buy-back of equity shares of Rs. 2 each of company, to the extent of or less than 10 per cent of paid-up capital and free reserves of the company. The price, in the offer would not exceed Rs. 210 per share, while the amount would not exceed Rs. 38 crore.

Secondary Market

During the period November 11 and 18, the BSE sensex registered a gain of 215.61 points as it closed at 8686.65 on November 18, while BSE 500 registered a gain of 77.91 points during the same period. Meanwhile, BSE small-cap witnessed a gain of 105.95 points. Among the sectoral indices, BANKEX registered the highest gain at 214.73 points, followed by BSE AUTO at 142.98 points and BSE OIL and GAS at 107.72 points.

Between November 1 and 18, the FIIs have been net buyers of equities to the extent of Rs 1688 crore with purchases of Rs 12663 crore and sales of Rs 10975 crore.

S&P CNX defty index is S&P CNX nifty, measured in US dollar terms. Currently defty is computed based on nifty index and end of previous day Exchange Rate (US $-Re). This exchange rate is used for defty index value computation during trading hours.

With effect from 14th November 2005 it is proposed to compute defty index value based on Real time Exchange Rate (US $-Re).

As a part of efforts to curb intra-day volatility in share prices, Sebi has announced a separate ‘block deal window’ on NSE and BSE to execute such big deals transparently within half-an-hour of morning trade.

Derivatives                                  

As of November 17, the FIIs net investment in futures has been Rs. 1790.72 crore, out of which they bought futures worth Rs. 6784.32 crore and sold futures worth Rs. 4993.60 crore. Meanwhile, they were net seller in option to the tune of Rs. 12.83 crore out of which they bought Rs. 440.78 crore and sold options worth Rs. 453.61 crore.

Government Securities Market

Primary Market

RBI announced the interest rate on the Floating Rate Bonds, 2006 (FRB 2006) applicable from November 22,2005 to May 21,2006 at 5.71 per cent per annum.

Under regular auction, the RBI has mopped up Rs. 721.65 crore and Rs. 500 crore through 91-day Treasury bill and 182-day treasury bill, respectively. The cut-off yields for the 91-day and 182-day treasury bills were 5.8189 per cent and 5.9046 per cent, respectively.

RBI auctioned the Andhra Pradesh State Government Loans, 2015 for a notified amount of Rs. 375 crore, at a cut-off yield of 7.34 per cent.

Secondary Market

During the week under review, the liquidity situation continued to remain an area of concern with the amount received under LAF reverse repo fell to as low as Rs 100 crore, concurrently, RBI injected liquidity through repo of around Rs 2,300 crore on a daily basis. As a result of this tightness, the call rates ruled firm in the range of 6-6.25 per cent. Also, the RBI has cancelled the treasury bill auction under MSS, which boosted the market sentiments. Further, appreciation of rupee, easing of oil prices, declining US treasury yields and benign inflation kept the market sentiments positive. As a result, the weighted average yield of 8.07 per cent 2017 bond of 7.25 per cent on November 18 remained almost near to 7.26 per cent as on November 11. Meanwhile, the spread between one year and 12 year paper has increased by 2 basis points to 131 basis points.

Bond Market

The State Bank of India has announced its plan to raise Rs. 3,300 crore through bonds on receiving approval from its board.

Foreign Exchange Market

The rupee-dollar exchange rate witnessed a range bound movement after witnessing a steep depreciation last week; it ranged between Rs 45.67 and Rs 45.82. As a result, the six- month forward premia closed at 0.53 per cent on November 18, as against 0.54 per cent on November 11.

Commodities Futures derivatives

Given the dwindling mentha stock, its daily trading on MCX has increased from Rs 40 crore to Rs 400 crore.

CREDIT  RATINGS

Crisil has assigned ‘P1+’ rating to the Rs. 200 million (enhanced from Rs. 150 million) short-term debt programme of Sunbeam Auto Limited. The rating reflects Sunbeam Auto’s strong position as a major supplier of aluminium die-cast components to the Hero Honda Motors Limited.

Crisil has assigned ‘AAA (SO)’ rating to the pass through certificates worth Rs. 500 million issued under the HSBC’s maiden mortgage backed securitisation transaction. The ratings are based on the strength of the credit quality of the pool cash flow; HSBC’s servicing capabilities and the credit enhancements in the structure and the structure’s legal soundness.

Crisil has assigned ‘AA’ rating to the proposed Tier-II bond worth Rs. 300 crore of Jammu and Kashmir Bank Limited (JKBL). The rating factors the bank’s majority ownership by J&K government, important business position in Jammu & Kashmir (J&K) state, healthy capitalisation, improving asset quality and growing deposit base.

In an another exercise, the agency has reaffirmed its ‘AA-/Stable’ rating assigned to Insilco Limited’s Rs. 180 million non-convertible debentures programme. The rating reflects the company’s strong marketing, technological and financial support provided by its parent company-Degussa AG, Germany .

Crisil has reaffirmed the ‘AA’ rating assigned to the outstanding secured non-convertible debenture issue of Jindal Stainless Limited for an amount aggregating Rs. 300 crore.

Crisil has reaffirmed the ‘P1+’ rating assigned to Rs. 960 million short-term debt programme of Sundram Fasteners Limited. The rating follows the company’s announcement of its intentions to acquire 100 per cent shareholding in Peiner Unformtechnik Gmbh, Germany (Peiner).

Icra has reaffirmed the rating assigned to the enhanced Rs.100 million commercial paper programme of Hydro S&S Industries Limited (HSSIL) at ‘A1’. The rating factors in HSSIL’s established track record in the reinforced PP (polypropylene) compounding business, its strong customer relationships and the ongoing efforts being made by the company to trim costs and improve quality.

Icra has reaffirmed its ‘A1+’ rating assigned to Kirloskar Oil Engines Limited (KOEL) Rs. 250 million commercial paper programme. The rating takes into account KOEL’s broad based product portfolio, its strong market position in the small and medium engines segments, favourable cost structure and its improved financial position reflected in its strong profitability and low levels of financial risk.

CORPORATE SECTOR

Magnitogorsk Iron and Steel Works (MMK), the largest Russian steel manufacturer, has signed a Memorandum of Association (MoU) with the Orissa government to set up a 10 million tonne steel plant with an investment of around Rs 30,000 crore.

The Tractor and Farm Equipment Limited will invest Rs 100 crore in its Mandideep plant to broden its product portfolio and to capture major share of the tractor market in Madhya Pradesh.

Mahindra British Telecom, the Rs 950 crore telecom software company, has acquired Axes Technologies for Rs 240 crore.

Hindustan Zinc has reported a 35.2 per cent rise in its net profit to Rs 196 crore for the quarter ended September 2005 as against Rs 145 crore in the corresponding period previous year.

Alps Industries has obtained a major order for supply of home furnishing products worth $ 2.4 million from US based Springs Industries Inc.

The Rs 860 crore textile and apparel company S Kumars , will invest Rs 130 crore to set up a plant for manufacturing high-value cotton fibre. The plant with a production capacity of 14 million metres of premium cotton will set up in Vapi, Gujarat .

KPIT Cummins Infosystems Limited has signed a five-year agreement with Business Objects (BO), a Paris based software product company for providing technical support to BO’s global customers from its Pune factory.

Grabal Alok Impex has acquired 16 per cent share of UK based retail firm Hamsard for Rs 30 crore. This acquisition will give the company an opportunity to outsource from India . The company will acquire further 10 per cent shares in the next one year.

Jaiprakash Associates has embarked on Rs 900 crore cement expansion plan. Its total capacity would be enhanced from the current 7 million tonne to 10 million tonne. The new unit with a capacity of 3 million tonne will be set up in Himachal Pradesh and is expected to be completed by 2007.

The two state-owned companies GAIL and HPCL has signed an agreement for forming separate joint venture companies for implementation of city gas projects in Madhya Pradesh, Rajasthan and Gujarat for supply of piped natural gas to domestic, commercial and industrial consumers and compressed natural gas (CNG) and auto LPG to automobiles.

Biocon Limited has entered in a pact with US-based Bentley Pharmaceuticals for development of an intra-nasal insulin spray. It will also supply the drug for the product and take up joint regional marketing of the same.

LABOUR

Several entities have expressed interest in taking up the role of central-record-keeping authority (CRA), which will be the most crucial link in the new Pension System (NPS). Some of them are National Securities Depository Services Ltd., UTI Investor Services Ltd. and Hewitt Associates, a global leader in pension administration and human resources consulting. The Chairman of Pension Fund Regulatory Development Authority (PFRDA), has already made it clear that the PFRDA is likely to have only one CRA in the initial phase of NPS. The authority’s responsibilities are expected to include reconciliation of all instructions and information received from the points of presence (PoP). The CRA will be responsible for efficient collection and timely transfer of member contributions by PoPs and pay accounts offices, timely collection of these funds by pension fund managers and accurately crediting and reporting allocation of units into each personal retirement account.  

To carry out the New Pension System (NPS), the government has proposed a scheme that would offer a minimum rate of assured return to its subscribers. However, the subscribers would be required to pay a fee for this risk-free option. The Pension Fund Regulatory Development Authority (PFRDA) would be empowered to determine the portfolio composition with regard to the schemes to be offered under the NPS. The NPS which includes a remarkable shift from a concept of defined benefit to defined contribution, would have a 100 per cent government securities scheme, which implies that the subscriber will have the option to put his entire fund in such securities. The scheme would be a low-risk return one. Such a low-risk or risk-free schemes have been proposed due to a constant pressure from left to incorporate a scheme, which would guarantee some safety to subscribers in the form of assured returns.

For the first time after 1989, the government is planning to check the membership of Central Trade Union Organisations (CTUs). According to the last general verification, the total membership of the 12 CTUs along with that of 16,279 affiliates, was more than one crore and twenty-three lakhs. The Labour Ministry has now started the general verification process of CTUs and has completed the first stage.   

EXTERNAL SECTOR

The finance ministry has finalised a Cabinet note to allow 26 per cent foreign investment in the pension business. The proposal is part of the redrafted Pension Fund Regulatory and Development Authority Bill, which is expected to be introduced in Parliament during the winter session.

The DGCI&S has found that, besides small exporters, top firms including Ford India , LG Electronics, Cipla, Larsen and Toubro and Ranbaxy have been reporting incorrect data codes.

According to World Federation of Diamond Bourses (WFDB), global diamond sales will increase an average 3-4 per cent in the current calendar year that is 2005. the WFDB officials also said that India will emerge as a big consumption center in coming years.

The Cabinet will review the FDI policy framework during this week. According to sources, specific proposals to be considered include allowing 100 per cent FDI in airports, permitting transfers of shares by NRIs under the automatic route, opening up the coal sector to FDI up to 49 per cent and allowing 100 per cent FDI in the petroleum, power and mining sectors.

RBI has hiked the interest rate ceiling on non-resident (external) deposits. According to the RBI, rates on fresh repatriable NRE rupee deposits for one to three years effective November 17 should not exceed 75 basis point (against 50 basis point effective since November 1, 2004) above Libor/swap rates for US Dollar of corresponding maturity.

According to the World Bank global economic prospects (GEP), with recorded inflows of $2.17 billion in 2004, India is among the top three countries to receive the maximum amount of remittances along with China and Mexico .

INFORMATION TECHNOLOGY

The country's largest software exporter, Tata Consultancy Services (TCS), and the country's largest commercial bank, State Bank of India (SBI), has announced a joint venture in the technology space for the banking domain. TCS and SBI will have a 51 per cent and 49 per cent stake holding respectively in the new venture to be called C-Edge Technologies Ltd (CETL). Initially CETL will have an authorised capital of Rs 40 crore and will also provide high-end domain consulting and will create knowledge both in the IT and BPO space.

*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project.

LIST OF WEEKLY THEMES

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