Current Economic Statistics and Review For the Week 
Ended December 10, 2005 (50^th Weekly Report of 2005)

I

Theme of the week:

Corporate Investment: Growth in 2004-05 and Prospects for 2005-06*

Introduction:

This note summarises of RBI study on the private corporate investment during 2005-06**. The study attempts to capture in some detail, growth of fixed capital investment in the private corporate sector in 2004-05 based on the projects sanctioned assistance by banks and financial institutions during 2004-05 and the previous years. Capital investment is essential for modernisation of productive capacity and adding new capacity for current and future industrial growth. 

According to the study there was a buoyant growth in investment by corporate sector during 2004-05 over 2003-04. Keeping up with the trend in 2003-04, the corporate sector had undertaken various expansion, modernisation, acquisition and upgradation plans requiring a great amount of investment. Banks and financial institutions have played a crucial role in providing loans for these companies.

Growth of Corporate investment 2004-05

             The estimated corporate investment in the year 2004-05 has been worked out by aggregating the data on the time phasing of capital expenditure over the individual years for the duration of projects. For this purpose, all the corporate projects, which have been sanctioned financial assistance by the banks and financial institutions in 2004-05 and in the previous years were considered.

             In cases where a company approached more than one institution for project assistance, care was taken to avoid double counting in the compilation. Efforts were made to incorporate the revisions in the phasing of projects sanctioned earlier, to the extent possible. The data consolidated on these lines, are presented in Table 1. When horizontally read, it shows the capital expenditure that are expected to be incurred in various years on the projects for which assistance has been sanctioned in a given year. Vertically read, it shows the capital expenditure that are expected to be incurred in a year on the projects which were assisted in that year and in the previous year.

 Capital expenditure of Rs 32,101 crore are expected to have been incurred during 2004-05 in case of projects sanctioned up to 2003-04 (coloum 12, Table 1). Thus, the total capital expenditure that might have been incurred during 2004-05 is estimated at   Rs 69,140 crore. The capital expenditure planned by the private corporate sector during 2004-05 is likely to have risen by 40.6 per cent as compared with the rise of 17.7 per cent in 2003-04.

Industrial pattern of Projects

Table 2 depicts industry wise classification of projects and cost in 2003-04 and 2004-05.

 The projects are divided into three industries namely, infrastructure, engineering and chemicals. The share of infrastructure industry among projects was lower in 2004-05 at 33.5 per cent compared to 56.5 per cent in 2003-04, though there has been rise in the number of projects in the sector. In case of infrastructure industry, the share of telecom has declined drastically to 16.3 per cent in 2004-05 as compared to 39.3 per cent in 2003-04. However, the share of power sector has shown marginal improvement to 14.1 per cent in 2004-05 as against 13.2 per cent in 2003-04.

 Among industries, the share of engineering sector has surged to 30 per cent in 2004-05 as compared to 19.5 in 2003-04, and investment boom has been witnessed in metals and metal products. The share of automobile and auto ancillary has remained same though their has been rise in the number of projects and the cost of projects. The share of chemical industry exhibited a marginal rise of 2.9 per cent in 2004-05 compared to 2.1 in 2003-04. A marginal rise has been witnessed in the share of cement industry to 3.7 per cent in 2004-05 as compared to 2.3 per cent in 2003-04. The share of textile industry also has increased to 7.7 per cent in 2004-05 over 5.0 per cent in 2003-04. In deed, removal of quota constraint from January 2005 has opened up substantial opportunities for the textile sector, which is expecting a rise in investment. However, a decelerating trend has been witnessed in the Information Technology (IT) industry as the share came down to just 1.0 per cent in 2004-05 from 2.2 per cent in 2003-04.

State-wise distribution of projects

  Table 3 shows the classification of projects based on the location of the projects in respective states. In 2004-05 the investment has remained concentrated to only few states. Among all the states, Maharashtra is leading with 12.3 per cent share, with an amount of Rs 11927 crore followed by Gujarat (11.3 per cent), Tamil Nadu and Chhattisgarh (10.2 per cent each) in 2004-05. The share of Orissa in total investment has risen drastically from just 2.1 in 2003-04 to 9.5 in 2004-05.  The companies are showing great interest in setting up plants in Orissa because of availability of erstwhile, unexploited coal mines and iron ore.

            Thus according to the study, the overall investment climate that distinctly improved in 2003-04 stayed favourable during 2004-05. The upward momentum in corporate investment in 2004-05 was reinforced by a variety of factors including accelerated growth in the industrial sector, infrastructure development in the form of roads, ports, telecom and power, high credit off-take from the banking sector, and benign interest and inflation rates.

Table 4 reveals purpose wise distribution of project and projects cost in 2004-05 and 2003-04. The table exhibits that in 2004-05, there has been a 33.4 per cent rise in the cost of projects,

 which have been financed by the banks or financial institutions over 2003-04. These institutions have provided financial assistance to 722 projects in 2004-05 at a cost of Rs 97,270 crore. The number of new projects was higher in 2004-05 as compared to the previous year. An enormous rise both in terms of number of projects and the amount sanctioned has been witnessed in the expansion and modernisation projects.

A rising trend has been seen in the bank credit to the corporate sector in the fiscal year 2004-05 over 2003-04. According RBI Report on ‘Trend and Progress of Banking in India 2004-05, non-food credit has jumped by 28.8 per cent to Rs 9,31,466 crore. Bank credit to small-scale industries has also risen by 15.6 per cent to Rs 76,114 crore and large industries borrowed Rs 2,90,180 crore on March 2005 as compared with Rs 2,47,210 crore in the same period previous year. A buoyant rise in the capital expenditure to Rs 69,160 crore in 2004-05, a rise of 40.6 per cent, from Rs 49,157 crore in 2003-04 when rise was at 17.7 per cent over in 2002-03. The Indian economy had undergone through a prolonged period of recession during 1998-2001 incurring huge amount of losses. There was a declining trend in the capital expenditure during 1997-98 to 2001-02.

Prospects for 2005-06

            According to the RBI study, the prospects for the Indian economy remain encouraging, given the base effect arising from low growth last year and the fact that rabi crop now is almost as important as kharif and agriculture is expected to contribute positively to the overall growth in 2005-06. There has been healthy growth in non-food credit off-take that supports the momentum in industrial production coupled with buoyancy in export growth. Business surveys point to high levels of both business confidence and capacity utilisation. Since business conditions remain conductive to support corporate investment demand and lending rates remain low while corporate balance sheets are generally in a sound position, higher amount of investment on new projects for what assistance has been sanctioned assistance seems to be very likely. In other words, the year 2005-06 may witness an increase in corporate investment when compared to 2004-05.

            The above estimates are related only to the private corporate sector based on the proposals submitted to the banks and financial institutions and aggregate private sector investment in the economy could be much larger. There are however, no other proximate indicators that provide information on aggregate investment in the private corporate sector.

            The study does not cover estimates before 1994-95 as they include previous projects sectioned after it. Even so, the estimates made in the study by RBI in case of the corporate sector in the past years have provided useful broad macro-economic trends. For example, the upsurge of investment activities in 1994-95 (25.5 per cent) and 1995-96 (53.3 per cent) were well represented in the data and in RBI study. Most of the industries have experienced an investment crunch continuously during 1996-97 to 2002-03 that had been depicted in the study. The rate of growth of investment reduced during this period.

Finally, all the indicators have suggested an upward trend in the investment during 2003-04 and 2004-05, particularly in the, private corporate sector which is clearly seen from the study. The rate of growth of investment was 17.7 per cent in 2003-04 and zoomed to 40.6 per cent in 2004-05.

*This note is prepared by Vidya Kanitkar

** The approach adopted is based on the methodology developed by Dr. C Rangarajan in an article captioned ‘Forecasting Capital Expenditure in the Corporate Sector’ published in the December 13, 1970 issue of the ‘Economic and Political Weekly’.

Highlights of  Current Economic Scene

AGRICULTURE     

Tobacco exports during April-October 2005 have touched 97,809 tonne at Rs 774.08 crore against 87,739 tonne, worth Rs 746.65 crore, recorded during corresponding period of last year. The exports comprised of 85,885 tonne of unmanufactured tobacco worth Rs 601.02 crore and 11,924 tonne of tobacco products valued at Rs 173.06 crore. While the export of unmanufactured tobacco was up by 17 per cent in terms of quantity and 14 per cent in terms of monetary value, exports of tobacco products, however, declined in 2005-06 by 16 per cent quantity-wise and 12 per cent value-wise. West Europe continued to the largest importer of unmanufactured tobacco with its import share of about 33 per cent, followed by East Europe (import share of 27.3 per cent) and South & South East Asia (import share 24.3 per cent).

Government wheat stocks on December 05, 205 have stood at 74.3 lakh tonnes compared with 107 lakh tonnes a year ago and 146 lakh tonnes two years ago. This is also much lower than the buffer stock norm of keeping 110 lakh tonnes as on Oct 01, 05 and 82 lakh tonnes on Jan 01, 06. Domestic wheat prices are rising on account of supply crunch and they are expected to strengthen further since there is yet time for the new crop to arrive in the market. The wheat stocks with the government on April 01, 2006 are expected to fall down to around 10 lakh tonnes, much lower than the minimum buffer stock level of 40 lakh tonnes. However, driven by the expectations of excellent wheat crop in 2006, the chances of importing wheat seem to be meager. The Union Government has planed to sell around 4 lakh tones of wheat in the open marketing 4 months to March to ensure price stability and ample supplies to domestic consumers.

According to Solvent extractors’ Association of India (SEAI), total oilmeals exports have augmented by 16 per cent during April-November 2005-06 to stand at 18,22,425 tonnes. Exports of major oilmeals are as follows:

Exports were much lower in April and May as compared to last year, mainly due to lower crushing margin and production. However, with improvement in crushing margin, production has increased leading to revival of exports. Fresh demand from Taiwan , South Korea and Vietnam helped increasing the exports.

On behalf of Agriculture Ministry, National institute of Agricultural Marketing has invited Expression of Interest fro companies and co-operatives for setting up 8 agri marketing centres for perishable commodities like fruits, vegetables, flowers, aromatics, herbs, meat and poultry products in the country. Each of these marketing complex would act as a wholesale market, equipped with facilities for electronic auction, grading of farm produce, washing and packing lines, packaging, processing and banking. Each of these complex would cost around Rs 60-Rs 120 crore and would be located at Mumbai, Kolkata, Patna , Bhopal , Nagpur , Nasik and Rai in Haryana.

INDUSTRY

Overall

The government has said that it is committed to cutting industrial tariffs to bring India into line with members of the ASEAN, where rates are between 5-10 per cent. India ’s average rate on manufactured products has come down from about 72 per cent in 1990 to about 15 per cent while the peak rate of import duty has been reduced to 20 per cent. Yet, further progress in market access seems to be an uphill task.

 Pharmaceuticals

World Trade Organisation (WTO) members have finally approved a change in WTO intellectual property rights rules so as to make it easier for poor countries to import cheap copies of life saving drugs. While previously countries could only break patents for drugs produced by domestic manufacturers to serve the home market, the new rule will enable poor nations that lack capacity to produce their own medicines to import generic copies of branded drugs under compulsory license.

 INFRASTRUCTURE

Overall

 All infrastructure sectors, except roads, crude oil, refined oil and fertilisers, have recorded positive growth during April-September 2005. Cement, railways and ports were the only sectors with higher growth rates than they achieved in the corresponding period last year while the growth rates in the sectors of coal, power, steel and civil aviation have fallen from last year.  

 Power

 The planning commission has floated an idea of supplying subsidised power to the population below the poverty line, which would be exempted from paying for the first few hundred units of power consumed and subsequent units would be charged at a marginal rate.

The National Advisory Council (NAC) has observed privatisation of electricity distribution as being unsuccessful, after a review of the Delhi and Orissa examples as well as questioned the efficacy of the Rajiv Gandhi Grameen Vidyutikaran programme. It has recommended the public sector undertakings to play a more meaningful role in the energy sector and has advised against the unbundling of state electricity boards. Additionally, it has suggested the setting up of an energy policy board and also recommended scaling down the current goal of 10 per cent share of nuclear energy by 2010 to about 5-6 per cent.

The Rajasthan government has decided to set up a Rs 1750 crore, 500 mw thermal power near Kota . The state government will fund 10 per cent of the total project cost and the remaining amount of Rs 1575 crore will be raised from financial institutions in the form of loans.

Non-Conventional Energy

Haryana has introduced a policy for setting up power projects based on renewable energy sources targeting a minimum of 10 per cent capacity addition i.e. 500 mw of the total 5000 mw of conventional power to be generated through renewable energy sources by 2012.

Entrepreneurs in Punjab are increasingly setting up biomass (wheat husk/rice husk) based independent power generation projects or cogeneration (husk and steam based) projects.

Petroleum, Petroleum Products and Natural Gas

Natural gas shortages have resulted in shutting down of the gas linkage committee. Almost one-third of the installed gas based power capacity - 39 gas-based power projects with total installed capacity of 10335.63 mw - is presently lying idle due to want of gas. Also, more than 2000 mw private power capacity based on gas, involving investments of about Rs 8000 crore, have achieved financial closure due to unavailability of gas in the country.

India and Russia have agreed that their oil and gas companies would work together for exploration and production activities in third world countries through joint ventures or equity participation in such ventures.

Railways

Indian Railways and Seimens are jointly exploring the possibility of earning carbon credits for the railways, by taking up projects expected to cut rail electricity consumption by 10-30 per cent. The plan involves two energy regeneration projects for which Seimens will supply special locomotives that utilise the momentum of trains running on electricity to regenerate the energy dissipated during breaking that can then be utilised by another train running on the same overhead cables.

Roads

The ministry of roads, highways and shipping is at loggerheads with the Prime Minister’s task force on infrastructure regarding the model concession agreement (MCA) for the national highways development project on issues like tariff policy for local traffic and amount of neutralisation of inflated maintenance costs. As per the MCA, the toll on national highways would be 57 paise per km for cars and vans, Re 1 per km for light commercial vehicles and Rs 2 per km for trucks and buses.

Aviation

 The civil aviation sector is set for developments in intra state connectivity given the plans of Indian Airlines on signing agreements with at least two states, Karnataka and Jharkhand, for regional services. Indian Airlines is also in talks with other states among which Maharashtra and Uttar Pradesh have evinced some interest in the project.

 INFLATION

The annual point-to-point inflation rate based on wholesale price index has gone up to 4.54 per cent during the week ended November 26, 2005 from 4.32 per cent registered during the previous week. The inflation rate was at 7.30 per cent in the corresponding week last year.

The WPI in the week under review has risen marginally by 0.1 per cent to 198.2 from the previous week’s level of 198.1 (Base: 1993-94=100). The index of primary articles’ group has increased a tad by 0.1 per cent to 198.2 from the previous week’s level of 198.1, mainly due to an increase in the price indices of food articles by 0.3 per cent to 200.1 from 199.5 in the last week. The higher prices of food articles are attributed to rise in the prices of eggs, fruits and vegetables, condiments and spices, maize, moong, gram, bajra and tea. The index of ‘fuel, power, light and lubricants’ group has remained unchanged at the previous week’s level of 312.1. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen a tad by 0.1 per cent to 172.8 from the previous week’s level of 172.7. The higher index of this group is attributed to higher prices of food products, textiles and machinery.

The latest final index of WPI for the week ended October 1, 2005 has 0been revised upwards; as a result both, the absolute index and the implied inflation rate moved up to 197.6 and 4.61 per cent instead of the provisional levels of 196.9 and 4.24 per cent, respectively.

Overall, the rate of inflation has remained reasonably contained in the range of 4 to 4.5 per cent in the month of November. Moreover, the Finance Minister has also assured over price stability 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. However, a potential threat to current moderate inflation may arise from increasing prices of manufactured products in the last couple of weeks.

BANKING

The Reserve Bank of India (RBI) has decided to exempt state cooperative banks (SCBs) and regional rural banks (RRBs) from having cash reserve ratio (CRR) requirements on collateralised borrowing and bending obligation (CBLO). However, SCBs have to maintain a statutory CRR of 3 per cent.  The move is aimed at developing CBLO as a money market instrument.  Accordingly, SCBs and RRBs are required to include borrowing under CBLO under their net demand and time liabilities (NDTL).

ICICI Bank’s Rs.5000 crore domestic issue of equity shares, received bids worth over Rs.35,000 crore. However, the retail portion went unsubscribed by nearly 50 per cent despite a 5 per cent discount being offered to retail investors on the issue price.

IDBI Bank has set up a 12,000 square feet data centre in Navi Mumbai, to function as a centralised back office of the bank. The centre has been established at a cost of Rs.56 crore. In addition, IDBI Bank is setting up a specialised dealing room at the IDBI headquarters at Cuffe Parade in Mumbai. The dealing room will accommodate around 700-100 dealers and will be connected to the Belapur data centre.

Bank of India has announced a 25-50 basis points (bps) hike in domestic rupee term deposits rates. The rates will be effective from December 1, 2005. For all deposits with maturity above a year, the bank has hiked rates by 50 bps.

PUBLIC FINANCE

 Tax Collections

 Direct tax collection during April-November 2005 has increased by more than 25 per cent to Rs 71,235 crore, according to estimates of the revenue department. Advance payment of corporate tax was up 24.2 per cent till the month-end to Rs 39,437 crore, while personal income tax collections were up about 27 per cent. About half the growth of personal income tax collection came from fringe benefit tax, securities transaction tax and banking cash transaction tax. A buoyant stock market has yielded the government Rs 1,520 crore as STT so far. Collections of tax on securities trading was a little more than Rs 200 crore in November. Collections under FBT and  banking cash transaction tax amounted to Rs 1,740 crore and Rs 155 crore, respectively.

 The share of direct taxes n total tax revenue, which was 28 per cent four years ago, has increased to 48 per cent in financial year 2004-05 and is expected to rise up to 52 per cent in the current financial year. The ratio of direct taxes in total tax revenue ranges between 70 per cent and 80 per cent in the advanced countries.

 Stamp Duty

 The Maharashtra government has ordered banks and bond houses, to pay stamp duty on all direct security deals done over the past 10 years. Earlier, the duty was capped  at Rs 1,000 a deal. The revised rate is Rs 50 for a Rs1-crore deal. 

 Charge on 3G Spectrum

 Trai had offered to pay a one-time entry fee of Rs 1,500 crore because it was a scarce resource. The ministry, in its proposal, says the entry fee should not be so high that compensation is throttled and the price of services becomes high. The fee should not also be so low that non-serious players accumulate the frequency. Ratan Tata’s offer to pay Rs 1,500 crore a entry fee for 3G spectrum would have made the exchequer richer by Rs 9,000 crore, assuming the five big operators apart from Tata teleservices paid the same licence fee. The Tatas believe that the market must place a value to scarce resource like spectrum. Besides, it is only a one-time fee which will get amortised over 15-20 years.

 Income Tax

 Income Tax (IT) department, has disallowed the depreciation benefit on membership cards to cover 300 corporatised brokers. These brokers have been claiming this benefit since 1998. The brokers have filed an appeal before the Income Tax Appellate Tribunal (ITAT) against the department’s move. IT authorities contest that a membership card is not an asset and is a personal privilege. Brokers, however, feel that the card should be treated as a capital asset as it is used for carrying out trading activity.

 Tax Evasion

 The income tax department has sought details of high value transactions entered into by individuals over the financial year 2004-05. This information is being used to cross check whether the persons listed have paid their share of tax and filed returns. Action could be taken against those who have not paid or unpaid taxes. These letters will also enable the I-T department to track down people who have declared wrong PAN in tiers transactions. Third-party reporting is one of the tools being used by the I-T department to ensure greater compliance  on the payment of taxes and filing of returns. The message has gone out that the tax department has more information than people expected through the AIR filed by specified entities and the banking tax transaction tax. The FM felt this has helped improve collections in last two months. He said that the information culled from the AIR is being “used selectively, carefully and on a need-to-know basis” to crack down tax evaders.

 Introduction of special schemes to unearth black money remains important to the government. Revenue  authorities of major zone contributing a substantial chunk of revenues to the government’s kitty have proposed an institutional mechanism that will allow evaders to come clean by declaring their “income from undisclosed sources”  as “income from other sources”. Tax has to be paid on this income under section 56 of the Income-Tax Act 1961. Interest will be charged for not paying advance tax on this amount. No questions will be asked on the source of funds and money declared from undisclosed sources will be brought into the books of account of the assessee.

 Allocation of revenue resources

 Even as the finance ministry has agreed to increase the gross budgetary support (GBS) for 2006-07 from the proposed 15 per cent to 23 per cent in the financial year 2005-06, the planning commission wants a further 35 per cent increase in GBS to meet the government’s social sector commitments. The planning commission’s demand would translate into an additional funding requirement Rs 50,224 crore for the finance ministry for 2006-07. The total GBS for the current financial year is Rs 1,43,497 crore (budgetary estimates). It is argued thathuge resources are required  to fulfill the government’s social commitments.

 Just the eighth flagship programmes of the UPA government would require about Rs 92,000 crore in 2006-07, up over 53 per cent from Rs 60,000 crore in 2005-06. These are the Sarva Shiksha Abiyyan, Mid-day Meal Scheme, National Rural Health Mission, Bharat Nirman, agriculture development, road transport, the National Employment Guarantee Scheme and those for the railways. In other schemes, such as the National Urban Renewal Mission and programmes related to education and labour security are added, the resource requirements would be given even more. Besides priority programmes, huge funds would be required for centrally sponsored programmes and central sector schemes.

 Though the finance ministry has proposed undertaking a zero-base budgeting exercise to cut flab in the existing schemes and weeding out the irrelevant ones, the planning commission has said that effective weeding out of ongoing developmental programmes can be achieved only in the Eleventh Plan. At that time, the commission would be in a position to drop some programmes. The government would not like to weed out schemes now as it could lead to severe protests from the political parties. 

 VAT

 Chief Ministers of the BJP-ruled states are expected to meet during the midst of this month to decide upon implementing the value added tax (VAT) regime to replace local sales tax. Of the 5 BJP ruled states, only Jharkhand has, so far announced intention to implement VAT on January 1. Rajasthan, Madhya Pradesh, Chattisgrah and Gujarat are yet to announce date.  State governments may seek to bring imports and three items – sugar, tobacco and textiles-covered by additional excise duty (AED) into the value added tax (VAT) net as a  package of measures to offset losses that will arise from halving central sales tax (CST) rate to 2 per cent. They will also seek “adequate devolution” of service tax revenues of the Centre, if not the power to tax services.  The finance ministry may have to set aside a minimum of Rs 2,000 crore in the budget for cash compensation. States get 30.5 per cent share of net proceeds of divisible pool of central taxes under the recommendation of the Twelfth Finance Commission. Once the power to levy VAT or sales tax on the three items  revert to states, their share in the divisible pool will stand reduced to 29.5 per cent. The white paper on VAT has recommended that AED on the three items –sugar, tobacco and textiles-should be reviewed at the end of first year of VAT. Also, the white paper has stated that imports should be brought into the VAT chain. This was to ensure a level playing field  for domestic manufacturers. The levy of VAT on imports is unlikely to generate much incremental revenues the tax paid would be set off later in the chain. The empowered committee wants the CST rate to be cut from the existing  4 per cent rate to 2 per cent on April 1, 2006. The rate cut is incumbent of states and the finance ministry agreeing to a compensation package for CST revenue losses.

 Customs procedure eased

 The government has eased customs procedures to ensure faster clearance of cargo and reduce congestion at ports as part of its efforts to boost trade and industry. The measures relate to risk assessment based speedier customs clearance of goods and accredited clients programme for faster delivery with reduced dwell time. The entire exercise is the result of the ongoing business process reengineering project of the Central Board of Excise and Customs.

 Stable cost of advertisement

 The cost of inserting an advertisement in newspapers will not go up as the finance ministry formally dropped a proposal to bring print media indirectly into the service tax net. A draft circular issued by the Central Board of Excise and Customs early October proposing inclusion of the cost of media in the gross billings of an advertising agency to its client for the purpose of calculating service tax liability will not be pursued.

FINANCIAL  MARKET

Capital Markets

Primary Market

Punj Llyod has tapped the market to partly expand its investment in capital equipments, investments in projects, joint ventures and to retire its high cost debt. A total 91.72 lakh shares are on offer including a fresh issue of 83.55 lakh shares and offer for sale from management of 8.17 lakh shares.

PVR limited, India ’s largest multiplex operator, is raising funds through an IPO in the price band of Rs 200-240 per share. The company is raising the funds to finance new cinema and multiplex projects, expand its distribution business and upgrade its existing multiplexes. The issue will constitute 33.66 per cent of the fully diluted post-issue capital of the company.

IT infrastructure and connectivity provider Tulip It Services’ IPO consists of a issue of 90 lakh shares offered in a price band of Rs 100-120 per share.       

Between April-October 2005, the Indian companies have mobilised Rs 51,459 crore through public offers, rights issues and private placements. In contrast, over the same period, banks have lent Rs 42,976 crore to medium and large industries as a whole. 

Secondary Market

Despite the FIIs turning net sellers for the first three session of the week, the BSE sensex closed above the 9000 mark for the first time in history by recording gains of 105.67 points over the week, similarly, NSE nifty gained 58.5 points to touch its peak level of 2756.45. The buoyant sentiments have been due to the Bombay High Court’s approval of the demerger of the Reliance Industries. The market breadth was positive with 18 out of 30 BSE sensex stocks ended in the positive territory. The sectoral indices of BSE also reflected the positive sentiments with most of them registering gains during the week; BSE consumer durables index outperformed all of them by registering a 12 per cent gains.

 In the first seven sessions of December, FIIs have been net buyers of equities to the extent of Rs 1118 crore with purchases of Rs 8486 crore and sales of Rs 7368 crore. However, the mutual funds have been net sellers during the period to the extent of Rs 483 crore with sales of Rs 2810 crore and purchases of Rs 2327 crore.

 The report of expert group on “Encouraging FII inflows and checking vulnerability of capital markets to speculative flow’s prepared for finance ministry has recommended that

§         FII should be allowed to switch between equity and debt investments.

§         The government must fix an annual cap on overall FII flows rather restricting FII flows in debt alone.

§         FII investment ceilings should be over and above the sectoral FDI caps.

§         Restrict an individual FIIs holding together with all its sub-accounts in a company at 20 per cent by December 2005.

 Bombay Rayon Fashions debuted at the bourses at a premium over its issue price of Rs 70 as the stock closed at Rs 83.50.

 NSE has warned the members against entering into financing arrangements other than permitted by margin trading norms, as the exchange discovered certain financing arrangements through which, under a general authorization, brokers receive and transfer the securities and funds of clients routinely to and from joint accounts of financiers and clients. The exchange has also found out that some brokers operated clients bank and depository accounts under a financing arrangement. Further, the exchange has asked brokers to wind up such arrangements and end the practice before February 10, 2006. 

 Derivatives                                  

 Given the bullishness in the cash market, the derivatives market also turned buoyant with average daily volume ranging around Rs 20,000 crore. The discount of nifty futures to nifty  has narrowed from 12 basis points to 4 basis points due to a combination of short covering and fresh long positions.

Government Securities Market

 Primary Market

The RBI auctioned 8.07 per cent 2017 and 7.40 per cent 2035 for notified amounts of Rs 5,000 crore and Rs 3,000 crore, respectively; the cut-off yields have been set at 7.24 per cent for the former and 7.56 per cent for the latter paper.

Secondary Market

The market sentiments remained cautious due to the forthcoming advance tax payments and India Millennium Bonds (IMD) redemptions could put pressure on liquidity in the coming weeks. However, during the week under, the call rates ruled around 5.25-5.35 per cent and also the daily subscriptions to the reverse repo bids under LAF increased from around Rs 7,500 crore to Rs 17,500 crore. Also, weighted average YTM on 8.07 per cent 2017 has remained steady around 7.22 per cent for the two weeks of December 2 and 9 each. Nevertheless, the bounce back in the global oil prices due to higher US demand revived concerns over inflation here and cautioned the buoyant sentiments.

 Bond Market

 Food Corporation of India is tapping the market to mobilize an amount of Rs 1,000 crore by offering a coupon rate of 7.28 per cent and 7.58 per cent for 5 and 10 years, respectively.

 Foreign Exchange Market

 The rupee-dollar exchange rate depreciated from Rs 46.12 on December 2 to Rs 46.33 on December 8, however, it appreciated to Rs 46.22 on December 9, as the expectations of higher inflows were fuelled due to slight retreat in dollar against the yen and euro.

  The six-month forward premia remained steady around 0.80 per cent as in the previous week.

 Due to appreciation of the rupee against the dollar, the SBI may end up paying less as the IMD is due for redemption on December 29 as the rupee was at Rs 46.65 in 2000 when the bonds were issued.

 Commodities Futures derivatives

 National Commodity and Derivatives Exchange (NCDEX) is now taking up the challenge of launching futures contracts for perishable commodities, beginning with potatoes and onions.

 World pepper production is projected to decrease by 33,200 tonnes next year and it seems to reflect in domestic prices, which have shot up by Rs 600 a quintal in less than a fortnight.

 The production in the International Pepper Community (IPC) countries next year is estimated at 2.11 lakh tonnes as against 2.45 lakh tonnes in 2005, less 33,200 tonnes. However, in non-IPC countries it will be 17,400 tonnes compared with 17,270 tonnes this year, a marginal increase of 130 tonnes, according to IPC sources. As reported earlier, production in India will be lower by 25,000 tonnes. As against 70,000 tonnes in 2005, production next year is estimated at 45,000 tonnes, the sources said. There has been international demand for Indian pepper during the past few weeks but the increase in domestic prices during the week has weakened it. In less than a fortnight, spot prices shot up by Rs 600 a quintal, while the futures soared by Rs 692 to Rs 744 a quintal on Thursday.

 The NCDEX’s Agricultural index  NCDEXAGRI has fallen from 1308.96 on December 3 to 1294.99 on December 10.

 MCX has along with BSNL and MTNL have launched the SMS services for disseminating information on commodities through mobile phones; this initiative is considered to be an effort to bring forth the benefits of futures prices to participants in the commodities markets at large. Farmers, traders, exporters, importers and processors will derive unparalleled benefits from this facility. The extensive reach and subscriber base of BSNL and MTNL, cellular users provides a readymade platform to launch this service. This information initiative will empower market participants with prices of commodity prices on a real-time basis. This is another stride of MCX towards harnessing technological advancement for the benefit of markets at large.”   

 CREDIT RATING

 Icra has assigned an’ A1+’ rating to the Rs. 8 billion short -term debt programme of ABN Amro Securities (India) Private Limited (ABN Amro Securities). The rating draws strength from the adequate capitalisation and the risk management systems that follow ABN Amro’s global risk management policies.

Icra has assigned an ‘A1+’ rating to the proposed Rs 10 billion certificate of deposit (CD) programme and an ‘LAAA’ rating to the proposed Rs 2.5 billion Tier II bond programme of State Bank of Mysore (SBM). The agency has also reaffirmed the ‘LAAA’ rating assigned to the Rs 1.75 billion and Rs 600 million Tier II bond programme of SBM. The ratings take into account SBM’s strong presence in the corporate assets, its growing retail asset portfolio, improving asset quality, lower cost of funds and comfortable liquidity lent by its steady deposit accretion as well as excess liquid gilt investments.

Icra has retained the ‘A1+’ rating assigned to the Rs. 500 million commercial paper (CP) programme of Wheels India ltd. (WIL). The ratings takes into account WIL’s status as dominant wheel rim manufacturer in the country, its diversified and established OEM customer and product profile, its leading market shares across automotive segments and its improving product mix.

Icra has retained the ‘MA’ rating assigned to the fixed deposit programme of Pyramid Finance Limited (PFL). The rating takes into consideration PFL’s stable market position in financing small and medium sized companies in Goa , its ability to maintain asset quality, and its favourable funding profile.

Icra has reaffirmed the ‘A1+’ rating to the Rs. 5,000 million short-term debt (including commercial paper) programme of SBI Capital Markets Limited (SBICAPS). The highest safety ratings take into account SBICAPS strong parentage, its sound capitalisation, and its position as one of the leading investment banking companies in the country.

Crisil has assigned ‘P1+’ rating to the State Bank of Travancore’s Rs. 20 billion certificate of deposit programme (enhanced from Rs. 10 billion). The assigned rating reflects the benefits that the bank derives from its high levels of operational and financial integration with India 's largest bank, the State Bank of India (SBI).

Crisil has reaffirmed the ‘AA +’ rating assigned to the BoB Housing Finance Limited’s (BoB Housing) Rs. 200 Million subordinated bond issue.  The rating continues to reflect the company’s majority ownership (67.1 per cent stake) by the Bank of Baroda (BoB), and the strength derived from its impending merger with its parent.

Crisil has also reaffirmed the ‘P1+’ rating assigned to BHW Birla Home Finance Limited’s Rs. 3.5 Billion Short Term Debt Programme The rating on BHW Birla Home Finance Limited centrally reflects the benefits of 100 per cent ownership by BHW Holding AG (BHW AG). It is also based on BHW Birla's healthy capital adequacy, adequate resource profile and expectation of improvement in inherent asset quality.

CORPORATE SECTOR

Automobile major Mahindra & Mahindra has opened a new plant at Haridwar Industrial Estate. The plant has been set up primarily to manufacture three-wheelers of different load capacities and range.

Adlabs Films, entertainment company of Anil Ambani group, has raised nearly $100 million (approximately Rs 460 crore) through foreign currency convertible bonds.

Bharat Forge, the world’s second largest forgings, has entered into a joint venture with the Chinese automotive major FAW Corporation. Bharat Forge will own 52 per cent in FAW Forge, which will manufacture a wide range of highly engineered forged auto components for the commercial vehicles, passenger cars and light truck markets for China and across the globe. The joint venture will add 1,00,000 tonne capacity to India ’s largest manufacturer of forgings.

Hitachi Construction Machinery Company (HCM) has acquired another 20 per cent shares in the Telco Construction Equipment Company  (Telcon) from its joint venture partner Tata motors to scale up its holding to 40 per cent.

GHCL has acquired a majority shares in Romanian based company S C Bega Upsom for US $ 20 million.

The Mumbai-based Asian Electronics has signed a Memorandum of Understanding (MoU) to buy 50 per cent equity of the US based Westinghouse Lighting Corporation (WLC) for Rs 100 crore. A partnership with WLC would help Asian Electronics to penetrate the global market especially the US and the EU and it would help WLC to make India as a global hub of its outsourcing operations, replacing China .

Dollex Industries has received an order worth Rs 10 crore from Penguin Distilleries, a bottling major in Goa , for supplying extra neutral alcohol (ENA) for their premium product, Old Monk Whisky. The supply programme would start in January 2006 and would spread over the first 9 months of the year, entailing a total supply of 3 million litres of ENA.

Coca-Cola has signed a cooperation agreement with Eastday , China ’s largest internet bar company. The online game world of Warcraft, previously promoted by Coca-Cola, would be promoted by Eastday in its shops and bars ad Coca-Cola products will be sold in 300 internet bars in Shanghai in next 3 years.

Indian Infrastructure Equipment Ltd (IIEL) and Oil Technologies Overseas (OTO), Moscow , have signed a MoU to develop projects jointly in drilling and related services for Russian and Indian Oil and Gas sector.

Larsen & Toubro (L&T) has been selected by Reliance for the supply of equipments valued at Rs 303 crore for Jamnagar export refinery project. L&T will supply a wide range of equipments like fluidized catalytic cracker (FCC) regenerator and FCC reactor, large size vacuum and crude columns and thick walled stainless steel clad alloy steel reactor etc.

Oriental Structural Engineers has received three projects worth Rs 952 crore from National Highway Authority of India to construct highways.

Ashok Leyland has received order for 400 vehicles from Vijayanand Roadways Limited. The order includes 200 Ecomet vehicles, 150 trucks chassis and 50 ‘12M’-bus chassis.

LABOUR

After having number of negotiating meetings in the Labour Ministry, the Employees’ Provident Fund Organisation (EPFO) has finally decided to cut the interest rate payable to its 40 million subscribers, by 1 percentage point to 8.5 per cent from 9.5 per cent for the current financial year. The trade unions demanding 9.5 per cent interest rate, have obviously shown their discontent on the decision. At 8.5 per cent, the EPFO faces a shortfall of around Rs 370 crore during the year as its income is estimated at Rs 6,523 crore while the liability is pegged at Rs 6,889 crore. The EPFO’s Finance and Investment Committee had recommended an 8 per cent interest rate, which would have left a surplus of Rs 39.35 crore. 

 The Finance Ministry has decided to set up a high level committee to monitor the progress of state-level pension reforms. The committee would help in bringing uniformity among states in their reform process. Fifteen states have already showed interest in joining the New Pension Scheme (NPS). However, according to official sources, the states are not yet fully prepared to shift from the defined benefit to defined contribution system. The purpose of the said committee is to direct the states to shift to the new system.   

EXTERNAL SECTOR

 Procedural hassles and high transaction costs may soon become a thing of the past for exporters and importers in India . The Prime Minister’s office (PMO) is considering a host of suggestions made by a high-level study group constituted by the commerce ministry including establishment of one-stop documentation centres and simplified trans-shipment procedures.

 Commerce and industry minister indicated that India and Asean were likely to finalise a Free Trade Agreement soon.

 According to AT Kearney’s confidence index India has displaced the US as the second-most favoured destination for foreign direct investment in the world after China . The US has slipped to third place, which was occupied by India last year. AT Kearney ’s confidence index is an annual survey of executives of the world’s largest companies. However, India should maintain its reform process to continue attracting more FDI. Last year FDI in India reached $5.3 billion compared with China ’s $60.6 billion.

  India and China have reached an advance stage for finalising a Regional Trade Agreement.

 In the NAMA negotiations at WTO, India and Brazil have taken the lead by proposing to cut their bound tariffs on industrial products 50 per cent on condition that developed countries agree to take on matching commitments. India ’s bound tariff is about 34 per cent at present. A 50 per cent cut would lower the bound tariff to 17 per cent. The deal suits Indian industry if implementation period is long and back loaded.

 INFORMATION  TECHNOLOGY

 TCS will set up a global delivery centre in Brazil by March 2006.

 Intel Corporation will spend around $800 million on expanding its business operations in India over the next five years. The company has earmarked $250 million for setting up a venture capital fund – Intel Capital India Technology – to invest in start-ups. The fund will focus on Indian hardware and software companies, aiming at developing technology for local use.

 Microsoft Corporation has announced its plan to invest around $1.7 billion in India over next 4 years. As part of the expansion plan the company will be setting up its first innovation centre in Bangalore . Microsoft has also intended to spend $850 million on research and development at its 5 centres in India . The company will also increase its staff strength in India from 4,000 employees to 7,000 over the next 4 years. The $40 billion software major also announced that it would set up 700 retail outlets across in the country and open offices in 33 cities to provide support services to its channel partners. In addition, Microsoft has also announced the launch of low-cost operating system Starter Edition in

TCS has signed a global partnership with SAP AG to deliver adaptive manufacturing solutions to enterprise customers spread globally.

 TELECOM

 In yet another move to increase the rural tele-density, the Telecom Regulatory Authority of India (Trai) has recommended that the government create a national rural telecom licence, which would allow companies to operate all kinds of telecom services, exclusively in rural areas. The regulator has proposed that companies which offer services under the new licence be charged only a nominal entry fee and be exempted from all other charges, including licence fee, spectrum fee and revenue share.  Trai had earlier recommended that niche operators be permitted in rural areas without any licence and spectrum fee. For existing telecom operators, the regulator has reiterated that the government abolish spectrum charges for rural operations. But it has added that semi-urban and semi-rural areas in the periphery of large towns be excluded from the definition of ‘rural’.  The regulator also favours eliminating licence fee for existing operators “in areas that are genuinely rural” but at the same time has raised concern regarding the elimination which need to be worked out carefully in the case of licence fees that are based on revenues. It said that the possibility of mis-specification of revenues from semi-urban as rural by operators must be guarded against.

 Reliance Infocomm has tied up with China Telecom to provide direct telecom connectivity between India and China .

*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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