Current Economic Statistics and Review For the Week Ended September 15

The Indian economy has been making steady progress on a dynamic growth path over the past couple of years. There has been a fundamental shift in sectoral shares underlying the present growth momentum with increased contribution of the services sector as well as the industrial sector, specifically manufacturing industries. The role of manufacturing industries in fuelling future growth has been stressed with renowned vigour by economic thinkers and policy makers. Within the manufacturing group of industries certain industries are emerging as strong potential drivers of economic growth – the automobiles industry features as a prominent placeholder in this list with the auto-ancillaries sector a significant component of the industry. The industry is capable of being a driver of economic growth with a strong multiplier effect given its deep forward and backward linkages to several segments of the economy – iron and steel, heavy machinery and equipment, fuel and energy, road infrastructure, to list a few.

The automobile industry comprising automobiles and the auto-components sectors has spiralled upwards forcefully over the past few years and is expected to exceed the production of 10 million vehicles in the next couple of years. With a total investment exceeding Rs 50000 crore, it provides direct employment to 4.5 lakhs and generates indirect employment of 1 crore. There are nearly 20 automobile manufacturers in India of which 16 manufacture cars. There are 13 manufacturers of passenger vehicles, 10 of multi-utility vehicles, 9 of commercial vehicles, 12 of two-wheelers, 6 of three-wheelers and 14 of tractors. The brilliant performance of the automotive sector is attributed to better performance of the economy and high all round growth leading to robust GDP growth, improved infrastructure development, excise duty reduction on passenger vehicles, low interest rates and improved financing of second hand vehicles, availability of finance in rural and semi – urban areas and emergence of India as a manufacturing hub for automotive industry.

A Historical View and Automobiles Policy Evolution

The six-decade old industry perpetuated obsolete technology and produced low volumes of output, remaining out of sync with the world automotive industry for a very long period. The automobiles sector was highly protected by government-controlled by means of licenses and regulations for more than three decades since independence, comprising of two large players – Hindustan Motors and Premier Automobiles. Standard Motors was a marginal player for a few years before it was eventually wound up.

Beginning the early nineties, the industry witnessed a series of reforms initiated by the government that changed the face of the industry. The First Automobile Policy, announced in June 1993, by the abolition of license requirements to set up an auto-manufacturing unit in India , initiated a slew of changes to allow the entrance of private and foreign investment into the automobiles industry. Several new players, including Suzuki, General Motors, Ford, Hyundai, Honda and several others made an entry into the Indian automobiles industry during the period. A company-specific Memorandum of Understanding (MoU) route for manufacture of cars and multi-utility vehicles was introduced in 1995, allowing for investments in the automobile industry with a capitalisation restriction of at least US $ 50 million over a three year period. From April 2001 Quantitative Restrictions (QRs) on import of automobiles were removed, thereby making the MoU policy redundant and resulting in complete freedom to manufacturer’s for import of cars both in kit form as well as completely built units (CBU). A three tiered import tariff structure was introduced: a duty of 60 per cent on Completely Built Units (CBU); 20 per cent on Completely Knocked Down Units (CKD) / Semi Knocked Down Units (SKD) and; 20 per cent on Components.

In 2002, a comprehensive Automotive Policy was approved aimed to make India an international manufacturing hub for small affordable passenger cars, tractors and two-wheelers; to promote indigenous design, research and development; and to develop safety and environmental standards at par with international standards. The government identified lack of volumes, in both the automotive and auto-components sectors, to be a major constraining factor for the improvement in efficiency of production and made the following policy prescriptions:

§ Permitting up to 100 per cent foreign equity investment in the manufacture of automobiles and components.

§ An import tariff structure facilitating the development of manufacturing capabilities in automobiles.

§ Adequate incentives to automobile companies for undertaking encouraging research and development activities like a rebate on the applicable excise duty for every 1 per cent of eth gross turnover of the company expended during the year on R&D.

§ Fiscal incentives to promote the use of low emission auto fuel technology in line with the Auto Fuel Policy and attempting to align domestic environmental standards to international norms.

§ Other measures like fiscal incentives enabling manufacturer’s to exploit India ’s potential as an international hub for small cars manufacturing, promoting the MUV segment in rural and semi-urban areas, etc.

The automotive sector is broadly categorised into passenger vehicles, commercial vehicles, two-wheelers, three wheelers and the auto ancillaries segments. Over the years there has been near negligible change in the market shares of these categories. The two-wheeler segment captures the largest portion of total volumes in the industry, constituting nearly 79 per cent of the total vehicle output by the sector. The share of passenger vehicles is the second largest at a little above 13 per cent. The remaining 8 per cent is divided between commercial vehicles and three wheeler vehicles. (Refer to C2 on the next page)

Current Scenario

Initially a losing sector of the Indian economy, the industry took an about turn in the post liberalisation period. It grew at a CAGR of 22 per cent between 1992 and 1997. Progressive liberalisation norms and import of technology, helped the sector forge ahead on a high growth path with production of total vehicles increasing from 4.2 million in 1998-99 to 8.5 million in 2004-05. Up to April-December of the current financial year 2005-06, production in the industry has grown by 14 per cent, domestic sales by 11 per cent and exports by 32 per cent. (Refer to C1)

The sale of passenger cars in India has surpassed the one million mark, placing India among the select group of prosperous countries selling passenger cars in very high numbers. The performance of passenger vehicles segment has been healthy in the year 2004-05, with production growing at 22 per cent, domestic sales above 17 per cent and exports nearly 29 per cent. Yet, this is a deceleration from the previous years’ growth momentum where the corresponding growth figures were 36.8 per cent, 27.5 per cent and 79.5 per cent respectively. This lofty growth momentum was mainly on the back of an excise duty reduction on electric vehicles from 16 per cent to 8 per cent in the union budget of 2003-04, which resulted in a substantial reduction in acquisition costs to customers (Refer to C3). Within the segment, the growth of mid-size and premium cars is specifically expected to spiral and, in fact, outpace the overall automobile market growth.

Commercial Vehicles

The total commercial vehicles category grew by nearly 30 per cent during 2004-05 and so did both its sub-segments of medium and heavy commercial vehicles (M&H CVs) as well as light commercial vehicles (LCVs). The growth in the sector as been fuelled by improved economic performance, specifically in the agriculture sector and also improved road infrastructure in the form of highways and expressways.

Tractors

Given the fundamental significance of the agricultural sector in the Indian economy, tractors are an important segment of vehicles that demand specific attention. Though Indian agriculture is not yet highly mechanised, India today accounts for one-third of the total production of tractors in the world. The segment witnessed negative growth during the period of 2000-2003, but has picked up pace in the last two years. It grew at a robust rate of 30 per cent in 2004-05 (Refer to C4). The sector comprises of 25 HP, 26-45 HP and above 45 HP sub-categories with the second being the most competitive and constituting 60 per cent of the total market share of tractors, while the remaining market being equally divided between the extreme categories. The removal of import duty on second hand tractors has increased competitiveness and yet efficient, indigenous manufacturing on a low cost base have ensured reasonable pricing of locally manufactured vehicles and has worked to the benefit of domestic tractor companies. The market leader for tractor production in the country is Mahindra and Mahindra, followed by Bajaj Auto, Eicher and HMT.

Two Wheelers

India

is one of the largest two-wheeler markets in the world today with an estimated size of 6.5 million units during 2004-05. Amongst the various automobiles categories two wheelers are the largest and fastest growing segment in India (Refer to C3) and constitute nearly 79 per cent of the automobile production (Refer to C2). Within the two wheelers category, motorcycles comprise 75 per cent of the market, while mopeds and scooters add up to the remaining 25 per cent. The main impetus to growth in this segment comes from increased purchasing power of the village economy, changes in consumption patterns from food to non-food items among rural population, improved rural roads, better connectivity between major towns and cities, increased exposure to simplified loan facilities.

The two-wheeler market comprises of three larger players controlling more than 90 per cent of the market and hence enjoying oligopolistic powers – Hero Honda Motors Limited controls around 49 per cent of the market, Bajaj Auto about 24 per cent and TVS Motor Company another 18 per cent of the market (Refer to C5). The remaining 9 per cent of the market is catered to by other players including Kinetic, LML and Majestic Auto.

Auto Components

The auto–components industry is on a speedy and strong growth path. Nearly two-thirds of the auto–components production is consumed directly by original equipment manufacturers (OEM)[1], around one-fifth goes to after market sales and remaining is exported. Recently, exports have been growing rapidly and the proportion of exports has risen from around 10 per cent of total production in 1997-98 to over 16 per cent in 2004-05 (Refer to C6). Also, investment in the auto-parts industry is growing at a healthy rate – it has grown at 17.3 per cent during 2004-05 to $ 3750 million. According to ACMA reports, currently a $ 8.7 billion industry, the Indian auto-components industry is projected to grow at a CAGR of 15 per cent and by 2012 expected to be $ 17 billion industry.

Investment in Automobiles

The data on investment in the automobiles and auto components industries, as published in the Review on Investment Projects, conducted on a quarterly basis by CMIE, gives a very positive outlook for the sector. Not only has total investment in the automobiles industry spiralled by nearly 82 per cent in October 2005 year-on-year, there is also a marked rise in the rate of implementation from 15 per cent in October 2004 to near 35 per cent in October 2005, implying an improvement in terms of a larger proportion of proposed investments actually seeing the light of day. Resultantly, the year-on-year percentage rise in investment under implementation exhibits a phenomenal rise from Rs 1038 crore in October 2004 to Rs 4261 crore in October 2005 – a 310 per cent year-on-year rise.

T1: Trends in Investment in Automobiles Sector
(in Rs crore)
	Apr 2005	Jul 2005	Oct 2005
Automobiles
Total Investment	10015	11532	12357
(per cent change)	(-11.3)	(68.4)	(81.9)
Under Implementation	1656	3664	4261
(per cent change)	(-52.6)	(308.0)	(310.5)
Rate of Implementation	16.54	31.77	34.48
Auto-Components
Total Investment	4747	4837	5010
(per cent change)	(11.1)	(20.7)	(10.2)
Under Implementation	953	809	833
(per cent change)	(-3.4)	(68.5)	(25.8)
Rate of Implementation	20.08	16.73	16.63
Source: CapEx, CMIE (Dec 2005)

Growing Exports: A Long Way To Go

Total automobile exports have spiralled by 56 per cent during 2003-04. In the same financial year, the exports of passenger vehicles grew at 80 per cent of around 13 thousand vehicles, 1.7 thousand commercial vehicles were exported resulting in a growth of around 40 per cent over the previous year, and exports of two and three wheelers spiralled by over 49 per cent selling over 33 thousand vehicles in the global market. The export of auto ancillaries too has grown at a CAGR of 26 per cent in the five-year period from 1999-00 to 2003-04. The efforts of the Indian automotive export industry towards attaining international standards in quality, reliability and technology seem to have borne fruit.

Yet, one glance at absolute figures reveals a caveat to the euphoria of export growth figures (Refer to C1). Exports constitute but a miniscule proportion of total production. One rationale for the low export share is the huge and spiraling domestic demand resulting in a massive turnover in the home market itself. Yet, there is a gigantic untapped international demand for automobiles and auto-parts of which, India constitutes an undersized portion. Though India is already a preferred outsourcing destination for several OEMs and suppliers internationally. There is a pressing need, in order to be able to tap global automobile markets, for large-scale aggressive marketing by domestic companies.

Conclusion

The Indian automotive industry has been on a high growth path in the domestic market, given strong demand-push factors and coupled with an encouraging policy environment. Additionally, the industry has been gaining increasing recognition worldwide and phenomenal export growth has been witnessed in both the automobiles as well as auto-components sectors over the past few years. This has been on the back of the industries growing expertise in the areas of design, engineering, process and management capabilities required to undertake production of vehicles and components adhering to international standards in every way.

Sources

[1] An original equipment manufacturer (OEM) is a company that builds products or components that are used in products sold by another company (often called a value-added reseller or VAR). The term could be misleading since they are not original manufacturer’s but customisers who buy in bulk and customise for a particular application and then sell the customised product under their own name.

The Central government has stayed the implementation of decision to cut the food subsidy bill for the current fiscal by Rs 4,524 crore, in response to the opposition it has faced over the period. The government had decided to reduce the monthly grain entitlement for families below the poverty line from 35 kg to 30 kg and for the families above poverty line, from 35 kg to 20 kg. The Centre had decided to cut the food subsidy from current Rs 26,200 crore to around Rs 24,200 crore. However, although non-Plan subsidy expenditure in 2005-06 is budgeted at Rs 47,432 crore, rise in cost of inputs, namely naphtha and crude oil, might force the government to increase the petroleum and fertiliser subisidies.

World rice trade is projected at 25.5 million tonne in calendar year 2006, an 8 per cent drop from a year earlier, mainly due to weak exports by India, Vietnam and Pakistan among others and lower imports primarily by several major buyers primarily the Philippines, sub-Saharan Africa, Bangladesh, Saudi Arabia, and Indonesia. On the export side, weaker shipments from India , Vietnam , Pakistan , China , and Egypt are projected to more than offset stronger shipments from Thailand , Argentina , Australia , and Uruguay .

The government of Tamil Nadu has put forth a proposal to the Union textile ministry to set up a jute weavers' model village near Chennai. The plan is to set up 30 houses and worksheds with one loom each, for families engaged in weaving dress materials and furnishing clothes from a mixture of jute, cotton and silk yarn. This would help modernisation and diversification and increase sales of jute products.

According to annual review report of the US-based International Service for the Acquisition of Agri-biotech Application (ISAAA), the area under cultivation of genetically modified (GM) Bt cotton in 2005-06 (October-September) has been estimated at 1.3 million hectares, up 160 per cent from 0.5 million hectares in 2004-05. Countries like US, Argentina , Brazil , Canada , China and Paraguay have higher area coverage under GM crops with area coverage estimated at 49.8 million hectares, 17.1 million hectares, 9.4 million hectares, 5.8 million hectares and 1.8 million hectares, respectively. Despite the low area coverage, India is considered among 14 ‘mega biotech countries’, which has the highest acreage growth among 21 countries growing GM crops in 2005-06.

INDUSTRY

The growth of the general index of industrial production has slowed down to 6.9 per cent in November 2005 from 7.7 per cent in the same month a year ago. The cumulative growth during April-November 2005 has also declined to 8.3 per cent from 8.6 per cent in the corresponding period of 2004.

The finance minister has indicated that this year’s budget would provide special incentives to employment generating industries like textiles, chemicals, pharmaceuticals and automobiles as well as value addition industries like metals, petroleum, information technology and food processing.

INFRASTRUCTURE

Power generation during calendar year 2005 has registered a paltry 4 per cent growth, mainly due to shortage of gas and liquefied natural gas. It is estimated that had gas been available, 26 billion units (BU) of electricity could have been generated resulting in a growth rate of 8.4 per cent in electricity generation. The total power generation has been recorded at 605.92 BU comprising thermal (490.84 BU), hydro (99.07 BU) and nuclear (17.69 BU).

Beginning March this year, over 36000 industrial units in Maharashtra Industrial Development Corporation (MIDC) might have to shut operations for one more day every week, in addition to their weekly off so as to tackle the ever-increasing gap between demand and supply of power – currently, Maharashtra is facing a daily power shortfall of around 4400 megawatt.

The finance ministry has out rightly refused to waive custom duty on LNG for the power sector. Presently, LNG attracts a custom duty of 5 per cent with nil countervailing duty, same as other competing fuels like coal and crude petroleum – the department commented that reduction in customs duty would distort the duty structure and involve a revenue loss of about Rs 1000 crore. Additionally, this would be an end-use based exemption providing an indirect subsidy, which is difficult to administer and more prone to misuse. The ministry has also rejected the proposal to grant declared good status to LNG/R-LNG (re-gassified LNG) and natural gas on the premise that this would result in a revenue loss to states – as against the 12.5 per cent VAT rate on these items, state sales tax or VAT on declared goods status would not exceed 4 per cent.

Railways

The railway ministry has termed the current fiscal year to be a turnaround year in terms of financial gains, wherein its revenue generation went up by 14.47 per cent during the period April 1-November 30, 2005. The total goods earnings amounted to Rs 22798.99 crore, showing an increase of 17.39 per cent over Rs 19,421.42 crore for the corresponding period last year while total passenger revenue earnings added up to Rs 10197.92 crore, with an increase of 8.95 per cent over Rs 9,359.82 crore during the same period last year.

Aviation

The Shreedharan committee, which set up to re-evaluate the technical bids for the modernisation plans of the Delhi and Mumbai airports, has eliminated Reliance-ASA by downgrading its bid. This was one of the two consortia short listed by the advisor, the other being GMR-Franport. Further the committee has endorsed the Airports Authority of India’s proposal to set up a special purpose vehicle for modernising the two airports. The views of the committee are not binding on the EGoM and according to sources the EGoM is likely to consider two options – continue the process with the originally two short listed bidders or to enlarge the scope by including 2-3 more bidders in the race. The Committee of Secretaries has sided with the Shreedharan committee recommendations, has suggested that either fresh bids be invited or the current process be scrapped altogether and go back to the request for proposal stage.

INFLATION

The annual point-to-point inflation rate based on wholesale price index has remained unchanged at the previous weeks’ level of 4.40 per cent during the week ended December 31, 2005. The inflation rate was higher at 5.72 per cent in the corresponding week last year.

The WPI in the week under review has remained constant at previous week’s level at 196.8 (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen a tad by 0.1 per cent to 194.4 from the previous week’s level of 194.3, due to an increase in the price index of food articles and minerals group. The index of food articles increased marginally by 0.1 per cent to 196.5 from 196.3 in the last week, mainly due to higher prices of urad, bajra, barley, wheat, fish marine, jowar, eggs and fish-inland. Similarly, the index of minerals has risen mainly due to higher prices of felspar, magnesite and fluorite. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has remained unchanged at the previous weeks level of 311.1. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has declined a tad by 0.1 per cent to 172.1 from the previous week’s level of 172.2, mainly due to lower prices of ‘chemicals and chemical products’, base metals and machinery.

The latest final index of WPI for the week ended November 5, 2005 has been revised downwards; as a result both, the absolute index and the implied inflation rate declined to 198.3 and 4.04 per cent respectively, as compared to their provisional week’s level of 198.5 and 4.14 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 and December. 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.

The ailing Kolhapur-based, private sector bank Ganesh Bank of Kurundwad (GKB), has been put under moratorium by the Reserve Bank of India (RBI) for three months till April 6, 2006. The apex bank would now consider various options such as amalgamation of GBK with a strong bank, restructuring or winding up its operations. When RBI puts a bank under moratorium, all business activities of the concerned bank are suspended except loan recoveries and withdrawals upto the maximum amount permitted. GBK’s depositors would now be able to withdraw a maximum of Rs.5,000 from their accounts, during the moratorium period. GBK has deposits of Rs.217.43 crore and advances of Rs.105.73 crore. According to the apex banks GKB has failed to come up with a credible plan to raise fresh capital. Its net worth and capital adequacy ratio have turned negative. The bank has a negative net worth of Rs.3.05 crore and capital adequacy of a negative 5.83 per cent as on March 31, 2005, which had resulted in the erosion of depositors’ money. The bank has gross non-performing assets (NPAs) of 18.04 per cent and net NPAs of 8.32 per cent. The central government has given the moratorium order in the interest of depositors, public and the banking system. A Joshi family holds over 30 per cent of the bank’s stake. Its total income in 2004-05 declined to Rs.17.43 crore from Rs.22.89 crore in 2003-04. The bank has a network of 32 branches and its operations are concentrated in Sangli and Kolhapur in Maharashtra and Belgaum in Karnataka.

The State Bank of India (SBI) has handed over a sticky loan account of its former managing director, Y Radhakrishnan, to the Central Bureau of Investigation (CBI). The bank moved the CBI in consultation with RBI. According to sources, Radhakrishnan has taken a clean loan of around Rs 6.5 crore from one of SBI branches in Secunderabad for an educational project. However, the project never took off and the borrower has no means to repay the money. The account has become a non-performing asset as the borrower is in no position to repay the loan, which was disbursed in 2005 without any collateral. Till now there has not been any sign of the project. Meanwhile, the bank branch manager concerned has been suspended.

ICICI Bank has become the first bank in the UK to offer mobile banking services. The bank also recently got regulatory approvals for launching private banking operations in UK .

UTI Bank’s quarterly net profit has increased by 30.2 per cent to Rs.131.71 crore for the period ended December 31, 2005 as against Rs.101.15 crore in the corresponding quarter of last fiscal.

Total indirect tax collection increased 15.7 per cent to Rs 1,36,516 crore during April-December 2005. It is expected that the excise collection for the financial year 2005-06 may be just about 90 per cent of the budgeted target of Rs 1,21,533 crore. Overall, indirect tax revenue is expected to meet the budget estimate of Rs 1,92,215 crore as customs collections have been above expectations, increasingly nearly 16 per cent. Service tax revenue is growing at a robust 65 per cent. Total indirect tax collection during April-December 2005 has reached 71 per cent of the budget estimate. These estimates are based on press reports.

The government is expecting an additional Rs 1,500 crore from dividends from 16 public sector companies, including BHEL, NTPC, Nalco and Gail. Discussions were held with executives of Hindustan Aeronautics, NTPC, Power Finance Corporation, Rural Electrification Corporation, Shipping Corporation of India . Discussions were also held with Oil India, Neyveli Lignite, Coal India, National Mineral Development Corporation, MTNL, SAIL, Gail and Nalco. The meetings were held to access the financial position of profit-making PSUs, how much money they need for expansion and how much they can give as dividend to the government.

The government gathered Rs 1,567.6 crore by offloading 8 per cent of its stake in Maruti Udyog to eight public sector banks and financial institutions. The Life Insurance Corporation picked up more than 50 per cent of the 2.31 crore shares on sale.

The Chamber of Tax Consultants (CTC) has recommended amendments to the Income Tax (I-T) Act and Service Tax Act. In its pre-budget memorandum, CTC made a strong plea for abolishing income tax on fringe benefits, increase in the threshold limit of paying advance tax from Rs 5,000 to Rs 15,000, exemption from capital gains tax in respect to transfer of shares subject to Security Transaction Tax (STT). To avoid double taxation, CTC has sought clarification that excise duty should not be levied on same transaction. This apart, CTC has called for changes in the service tax laws wherein taxable service would include service that has already been provided and not ‘service to be provided’. Furthermore, the method of calculation of service tax for payments received in advance should be reinstated.

Industry associations like Ficci, CII and Assocham in their pre-budget meeting said that Fringe Benefit Tax (FBT) was regressive in nature and affected performance of companies.

The finance ministry wants gross budgetary support (GBS) for 2006-07 capped at a maximum of around Rs 1,25,000 crore, an increase of 15 per cent over Rs 1,10,385 crore finalized for the present year. The ministry was of the view that a 12 per cent increase in the GBS appeared feasible, keeping in mind a seven per cent increase in the budgetary support and the present five per cent inflation. A final decision on budgetary support is being left to Prime Minister in the wake of continued differences between the finance ministry and the Planning Commission on the issue. The Planning Commission had recommended that the Budgetary support for central schemes be enhanced by 35 per cent to around Rs 1,50,000 crore.

Dynemic Products Ltd. (DPL) has announced that it will float an initial public offer to raise Rs. 15.47 crore from the market. the issue will open on January 18 and close on January 25 2006.

Sebi has unearthed another benami demat scam where Roopalben Panchal along with other three investors have cornered 8.29 per cent of the retail category of the IDFC public offer. These four entities had opened more than 42,000 benami demat account with similar bank addresses with a common depository participants (DP), Karvy Stock Broking.

In wake of the unusual trading carried out in the stock of Tulip IT Services Ltd. Sebi has asked both BSE as well as NSE to impose a circuit filter of 50 per cent on the first day of the listing of IPOs.

During the week the BSE sensex registered a decline of 2.76 per cent over its previous week closing value as it closed at 9374.13 points on December 13. As compared with sensex, BSE small –cap index as well as BSE mid –cap index registered a gain of 1.45 per cent and 0.43 per cent, respectively. Likewise the S & P CNX Nifty also registered a decline of 2.18 per cent over its previous week closing value as it closed at 2850.55 points; CNX Midcap registered a gain of 0.21 per cent over its previous week closing value.

Among the sectoral indices of BSE, the BSE IT index registered the highest decline at 4.14 per cent followed by BSE TECK and BANKEX.

The expectations of a dip in the net profit of Reliance Industries Ltd. (RIL) for the third quarter and subsequent dip in the net profit by 15 per cent and profit booking kept the market volatile as the sensex shed 138 points to close at 9445.30 points on January 10. Despite FIIs being net sellers on January 13 to the extent of Rs. 1029 crore, sensex registered a fall of 0.07 per cent.

The net investment by FIIs in the cash market stood at around Rs.2, 180.70 crore with purchases worth Rs. 15,493.70 crore and sales of Rs. 13,313 crore till January 13, 2006.

The mutual funds remained net seller to the extent of Rs. 506.13 crore with purchases worth Rs. 3579.68 crore and sale worth Rs. 4085.81 crore.

During the week the total turnover at the NSE’s F & O segment stood at Rs. 19,859 crore, with the futures trading at Rs. 17,286 crore and options at Rs. 2,573 crore.

Under the regular auction, the RBI has mopped up Rs. 507.48 crore and Rs. 500 crore through 91-day treasury bills and 182-day treasury bills, respectively. The cut –off yield for 91-day and 182-day treasury bills were 6.1906 per cent and 6.2239 per cent, respectively.

RBI conducted the sale (re –issue) of 9.39 per cent 2011 paper and 7.40 per cent 2035 paper for notified amount of Rs. 6,000 crore and Rs. 4,000 crore, respectively. The cut –off yields of the 9.39 per cent 2011 paper and 7.40 per cent 2035 paper were 6.6964 per cent and 7.4323 per cent, respectively.

The States of Andhra Pradesh and Haryana have announced the sale of 10-year State Development Loans for an aggregate amount of Rs. 482.458 crore through a yield based auction using multiple price method on January 19.

The market continued to witness tight liquidity conditions on account of auction outflows of Rs. 10,000 crore. The average amount received under RBI’s daily reverse repo auction was a meagre Rs. 23 crore, in contrast to Rs. 18,000 crore injected by RBI through its repo window. Given the steady tightness in the market the call rates shot up and touched a high of 8 per cent towards the close of the week, though it moved between 6.17 per cent and 7.55 per cent during the week. Meanwhile, the inflation rate during the week ended December 31 stood at 4.40 per cent unchanged form the previous week.

The weighted average YTM of 8.07 per cent 2017 paper was 7.1764 per cent on January 13 as compared with 7.1722 per cent on January 6.

The current spread on a five-year triple-A rated corporate bond stands at 56.42 basis points.

In the forex market, the rupee ended the week at Rs. 44.25 per dollar from December 9 close of Rs. 44.29. The rupee touched a three-month peak on December 12 to close at Rs. 44.13/14 per dollar but it fell on December 13 as the dollar rose against the yen and other Asian currencies after data showed the US trade deficit had narrowed down in November coupled with the news of the European Central Bank leaving its interest rates unchanged. The six–month forward premia closed at 1.86 per cent on January 13 as compared with 1.51 per cent on January 6.

The foreign exchange reserves have increased by US $2,146 million and stood at US $139,352 billion for the week ending January 6.

On January 9, NCDEX has launched futures contracts in groundnut expeller oil and groundnut (in shell). The initial contracts available for trading in both the products would be for expiry in the months of March 2006, April 2006 and May 2006. The basis price for groundnut (in shell) will be ex-warehouse Junagadh (Gujarat) and for groundnut expeller oil will be ex-warehouse Rajkot ( Gujarat ), both exclusive of sales tax/VAT.

MCX and NCDEX have tightened trading norms for mentha oil contract to curb volatility as directed by FMC. Both the exchanges will levy a penalty of 5 per cent on failure to tender/take delivery in mentha oil contracts. Further, open positions shall not be increased during the last five days of the contract expiry in the mentha oil contracts.

FMC has issued guidelines for the regional commodity exchanges (RCEs) which is to be implemented with immediate effect. The guidelines can be summarised as:

Permission for only such commodities futures will be granted for which a large and active ready market within 50 km radius exists.

Regional commodity exchange should have in-house electronic clearing system with an accredited bank.

Compulsory physical delivery of outstanding positions after contract expiration.

Warehouse receipts have to be described and framed so as to used as tenderable and transferable instrument by hedgers,

FMC in its another guidelines issued on January 12 has permitted regional commodity exchanges to take up membership of national level exchanges through subsidiary route as prevalent in the case of regional stock exchanges.

Icra has reaffirmed the ‘LAAA’ rating to the Rs.55.50 billion long-term debt programme of Infrastructure Development Finance Company Limited (IDFC). It has also retained ‘A1+’ rating assigned to the Rs. 13 billion short-term debt programme including commercial paper, of IDFC. The ratings factor in the strength of IDFC’s promoter institutions, besides the company’s strong capitalisation, comfortable liquidity position, and strong focus on risk management systems.

Icra has assigned an ‘LAAA’ rating to the proposed Rs. 5 billion subordinated bond programme and an ‘A1+’rating to the proposed Rs. 15 billion certificate of deposit programme of State Bank of Hyderabad (SBH). The agency has also reaffirmed the ‘LAAA’ rating to the Rs 1.50 billion long-term subordinate bond programme of SBH.

Icra has assigned a rating of ‘LBBB+’to Rs. 100 million long-term debenture programme of Arch Pharmalabs Limited (APL). It has also assigned a rating of ‘A1’ to Rs. 300 million short-term debt (including commercial paper) programme of APL. The rating takes into account APL’s global leadership in Isoxazole side chain of semi synthetic penicillin and strong growth in revenues and profitability achieved by the company.

Care has withdrawn the ‘AA (FD)’ rating assigned to the fixed deposit programme of UCAL Fuel Systems Ltd (UCAL). The rating stands withdrawn as UCAL has redeemed all existing deposits except for an outstanding of Rs.2 lakh (as on November 8, 2005) which pertained to unclaimed deposits.

Care has upgraded the ratings assigned to outstanding non-convertible debentures (NCDs) and non-convertible portion of PCDs of Gujarat Alkalies and Chemicals Limited (GACL) from ‘ A+’ to ‘AA-’. The agency has also assigned a ‘PR1+’ rating to the commercial paper programme of the company for an enhanced amount up to Rs.50 crore. The rating takes into account company’s leadership position in many chlor-alkali products, higher cash accruals, improved margins & gearing levels and comfortable liquidity position.

Care has assigned a ‘A+’ rating to the secured non-convertible debenture issue of Rs.50 crore of Raipur Alloys and Steel Limited (RASL). The rating takes into account the experience of the promoters in the steel industry, good effective capacity utilisation, prospective benefits in terms of power costs to be derived as a result of the proposed merger with RASL’s associate company [Chattisgarh Electricity Company Limited (CECL)], successful completion of the sponge iron project, ongoing development of iron ore mines, allotment of coal mines by the Chhattisgarh Government and improved financials in FY’05.

Care has retained ‘PR1’ rating assigned to Welspun India Ltd’s. (WIL) commercial paper programme for an enhanced amount of Rs.50 crore (enhanced from Rs.25 crore). The rating factors in WIL’s experienced management, global leadership position of the company in the Terry Towel business, state-of-the art fully integrated operations, well established distribution network in international market, low cost of debt, opportunities available due to dismantling of quota restrictions, successful completion of phase I expansion, product quality, and healthy profitability margins.

Care has assigned a ‘AAA’ rating to the proposed Tier II Bond issue of Rs.200 Crore of State Bank of Saurashtra (SBS). The rating factors in the bank’s sustained business growth in the past, high technology orientation characterised by 100 per cent implementation of Core Banking Solution (CBS), good asset quality, improving core profitability aided by falling cost of deposits amidst pressure on overall profitability due to investment depreciation and moderate but stable capital adequacy position.

Care has assigned a ‘PR2’ rating to the proposed commercial paper programme of Shrachi Securities Ltd. (SSL) for an amount up to Rs.8 crore for maturity up to three months. The rating factors in SSL’s presence in retail financing business, moderate credit quality of its customers, trading in equity and equity related instruments, moderate collection efficiency, improving but relatively high cost of borrowing and increasing competition in the asset financing business.

Reliance Industries Limited has announced its results for the quarter ended December 2005. Its net sales have risen marginally by 2.3 per cent to Rs 18,168 crore over the same period previous year. However, its net profit has dipped by 15 per cent to Rs 1,776 crore. The reduction in net profit was mainly due to the drop in profit before interest and tax (PBIT) from refining. The reduction could be attributed to the closure of Jamnagar refinery for maintenance in October and November 2005. Due to the closure, the company managed to process 6.70 million tonne crude during October-December 2005, down from 7.95 million tonne in the corresponding period of the last year.

Infosys Technologies has reported a 30.6 per cent rise in the net profit to Rs 649 crore for the third quarter ended (December) 2005. The company has added 36 clients and 3226 employees during the quarter under review.

Tata Consultancy Services (TCS), the country’s largest software company, has declared its third quarter result. Income from operations during October-December 2005, has risen by a 29.6 per cent to Rs 2,720 crore and net profit has reported 5.6 per cent increase at Rs 679.6 crore over the same period previous year.

Aztec Software has reported a strong 114 per cent increase in net profit to Rs 9.96 crore for the third quarter ended 2005. During the third quarter of 2005, the company has added 10 new clients.

Bharat Earth Movers Limited has posted a 129 per cent increase in its net profit to Rs 55.8 crore in the quarter ended December 2005.

Skumars Nationwide has announced net profit at Rs 25.8 crore for the quarter ended December 2005, compared to a loss of Rs 5.8 crore in the corresponding period previous year.

Castrol India has reported a 15 per cent growth in its net profit at Rs 147 crore for the financial year ended December 2005.

Tata Sponge Iron has reported 48 per cent declined in its net sales to Rs 41.3 crore for the quarter ended December 2005 and its net profit has also diminished by 84.4 per cent to Rs 2.4 crore over the same period previous year.

H&R Johnson has planned Rs 200 crore capital expenditure plans for the current year. It has decided to double its floor tile plants capacity at Vijayawada from 12,500 square meter a day to 25,000 square meter a day with an investment of Rs 50 crore. It will be operational by January end. Among the other capacity addition plan in progress now are a Rs 40 crore expansion at its Rajkot vitrified unit, to be operational by July and a Rs 110 crore greenfield project at Rajasthan to be operational by December.

Larsen and Toubro’s (L&T) Muskat based subsidiary, L&T (Oman), has won order of Rs 96.5 crore order from the Ministry of Regional Municipalities Environment and Water Resources for the construction of a sewage treatment plant including a sewerage network at Willayat Nizwa, Oman.

Nagarjuna Construction Company has secured an order of Rs 520 crore from National Highways Authority of India for the construction of highways in north India .

Delhi based DS Constructions Limited, one of the leading infrastructure developers in the country, has won Rs 190 crore Raipur-Aurang road project, which is part of the National Highway number six.

IVRCL Infrastructure and Projects has received orders worth Rs 477.4 crore for construction of roads and pipelines in Rajasthan.

Himalya International has received an order of 80 containers valued at $ 1.7 million for supplying canned mushrooms to a US food service company.

Jain Irrigation Systems plastic piping division has got Rs 16.9 crore order for rehabilitation of water distribution system for the Karnataka urban water sector improvement project.

Simplex Infrastructure has received Rs 67.5 crore order from Rail Vikas Nigam for construction of bridges across river Mahanadi and new broad gauge line between Haridaspur and Paradip of East Coast Railway in Orissa.

Dishman Pharma is investing in a Greenfield manufacturing factory in Shanghai with a total investment of Rs 45 crore. The company plans to manufacturer 11 drugs at the China plant for Europe and the US . The company has acquired 80,000 square meter land in Shanghai Chemical Industry park for Rs 18 crore.

GVK Biosciences, one of the leading contract research organisations in India has entered into a research partnership agreement with the US based pharma multinational Wyeth pharmaceuticals.

Sponge iron manufacturer Monnet Ispat has signed a Memorandum of Understanding with Italian company Scandiuzzi to set up a joint venture firm that will focus on energy and infrastructure sectors. The company would invest Rs 100 crore for the project.

Tata Interactive Systems (TIS) has acquired two software companies namely, Tertia Edusoft Gmbh in Germany and Tertia Edusoft AG in Switzerland from the Terita Group of companies for an undisclosed amount.

The Centre is expected to finalise the policy document on social security plan for unorganised workers, once the Labour Ministry accommodates the changes in the draft policy as per the suggestion of Prime Ministers Office (PMO). Around 92 per cent of workers are employed in unorganised sector in India . The social security policy is likely to cover old age pension to all workers above the age of 60 years, health insurance for all, maternity benefits for women workers, accident benefits etc. The government is planning to create a national social security fund for this purpose. In addition to grants and loans from the centre, the fund will receive contributions from workers and employers as well. Moreover, all financial contributions made by individuals and institutions to the fund may be given tax exemption under the Income Tax Act.

After the decision of Employees’ Provident Fund Organsiation (EPFO) to fix the interest rate on EPF accounts at 8.5 per cent for its 40 million subscribers for the year 2005-06, the disappointed trade unions have threatened to call on a nationwide strike on January 20 in protest against Labour Ministry’s notification. They have said that it is regrettable when the workers’ share is being reduced when the economy is growing at a robust rate of 8 per cent. The labour representatives have asked the Finance Minister to increase the rate of interest paid on 80 per cent of PF money invested in a special deposit schemes. Accordingly, the Finance Minster has told trade unions that the central government could consider taping cash reserves of public sector undertakings (PSUs) which are solely owned by the government. He added that these PSUs hold high levels of liquid reserves to finance expenditure on the social sector or infrastructure.

Ahmedabad-based real estate business major group has proposed to set up a special economic zone at the cost of Rs 200 crore for industrial machinery and ancillaries between Changodar and Bavla on the Ahmedabad-Kandla highway.

The government is actively considering allowing 100 per cent FDI in airports through the automatic route, doing away with the FIPB clearance, however this is subject to evaluation of pros and cons.

Despite record growth in the use of cellular phones over the last couple of months and an overall increase of 58.13 per cent in the subscriber base in the last calendar year, India ’s mobile users’ population is well below projections. During the year 2005 about 27.91 million mobile subscribers were added, making it a total of 75.92 million subscribers at the end of December 2005, falling well short of its target of 100 million cellular subscribers by the end of the year. In March 2003, the Telecom Authority of India (TRAI) had set a target of 100 million mobile subscribers by December 2005. More importantly, the country, which increased its mobile subscriber base by 27.91 million in 2005, will now have to grow at double this pace over the next two years to meet the government’s target of 200 million users by 2007.

*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.