Current Economic Statistics and Review For the Week 
Ended May 13, 2006 (19^th Weekly Report of 2006)

Theme of the week:

Mutual Funds in India
A fresh new beginning or just incidental growth

Introduction

Mutual funds (MFs), as institutions of mobilising savings, have been gained their creditability in the past few years as their mobilisations have increased substantially; these are of course to a large extent due to the on-going bull run in the stock market. Moreover, they are now being considered as countervailing forces to withstand the onslaught frequently perpetrated by the FII sales in the domestic equity markets. The asset under MF management, which had remained sticky as around Rs 1-1.50 lakh crore for the past four-five years, have suddenly surged in 2005-06 to almost double the amount. The new fund offers (NFOs) have been touted as an opportunity for those who have missed the bullish rally in the stocks, as they are being offered at par and are considered as a relatively easier method to enter the stock markets, which are currently ruling at unprecedented levels. Also, the Sebi has been introducing various rules and regulations with the objective of improving the functioning of mutual funds as well as to ensure that the investors’ interests are being protected. The perceived strength of the MFs has been based on the mobilisations from NFOs, while the existing schemes have suffered huge redemptions. Interestingly, some of the NFOs are being designed in somewhat similar patterns to those of existing ones. Also, in the recent past, the NFOs do seem not to adhere to the objective of the fund or sometimes those of the purposes for which the funds have been framed (in a manner so as to include all types of investments). In addition, the reach of mutual funds in terms of geographical coverage still leaves much to be desired.

Development of mutual funds                     

As shown in Table 1, the assets under management have increased from Rs 100,594 crore in 2001-02 to Rs 149,600 crore in 2004-05 and further to Rs 231,863 crore by the end of 2005-06. The gross mobilisations have increased from Rs 164,523 crore to Rs 1,098,149 crore during the same period. But, what equally stand out are the redemptions which have been equally large, so much so that in 2004-05 despite the bullish stock market, the net inflow has been meagre at Rs  2,200 crore with sales of Rs 839,708 crore and redemptions of Rs 837,508 crore. In 2005-06, the net inflows have jumped to Rs 52,779 crore as some of the private sector NFOs have mobilised huge amounts.

Scheme-wise analysis shows that with buoyancy in the equity market, the investor preferences have moved in favour of risky assets. The share of growth schemes has jumped from 16 per cent of the assets under management (AUM) in April 2004 to 40 per cent in March 2006, while that of the income schemes across under management has declined from 44 per cent to 26 per cent. What stands out is that despite the firming up of interest rates impinging on the money market, the liquid and money market funds have managed to retain a share of above 30 per cent until recently; it has been only in March 2006 that it fell to 27 per cent (Table 2).

The monthly net inflow from the existing schemes between April 2004 and March 2006 show that on there have been outflows 13 occasions out of the total 24 occasions; this has been happening at a time when investors have been investing huge amounts through the NFOs. Interestingly, in March 2006, the outflows from the existing schemes have been Rs 15,061 crore and inflows through the existing schemes have been Rs 22,868 crore. This churning of funds has larger implications for the investor proclivity to play in the equity market.

Table 3 shows the increasing role that is being played by the private sector mutual funds in mobilising huge amounts. In 2005-06, private MFs have mobilised Rs 59,399 crore as against Rs 10,329 crore by the bank – this has happened after the UTI lost its lustre – sponsored and Rs 855 by the institutions-backed ones. Together all have mobilised Rs 70,583 crore in 2005-06 as against Rs 25,811 crore in 2004-05.

Policy initiatives

The original Sebi regulation of allowing MFs to amortise the issue expense over a period of five years has affected the returns profile of long-term investors as many of the funds have seen huge redemptions leading to a fall in the AUM, which automatically implied that the existing unit holders would have to be bear the issue expense. Sebi has directed that all NFOs post-April 2006, would have to frontload all of their issue expenses, that is, all initial issue expenses have to be charged as entry load and not amortised over five years as was previously possible. This would curb the tendencies to overcharge the existing unit holders and would also encourage investor to invest in schemes post-NFO period.

New fund offers

Reliance Equity Fund has achieved something, which no other Indian mutual fund has been able to do so far; it has mobilized such a large amount of Rs 6,259 crore which exceeded the earlier high of Rs 4,780 crore achieved by Unit Trust of India's Mastergain Fund which was launched in 1992. Even SBI mutual funds, through the issue of three new schemes, have raised Rs 5,900 crore with highest amount mobilized by SBI Bluechip Fund at Rs 2,850 crore. Also, UTI Leadership Equity Fund has raised around Rs 2,000 crore, UTI Contra Fund has raised Rs 1,200 crore and UTI Dividend Yield Growth Fund has raised Rs 700 crore. (Table 4).

This sudden rush of investors to subscribe to mutual fund units is understandable. Individual investors have realised that investments in stock markets are really attractive and the heady rise of stock indices is enticing them, but they also perceive that mutual funds are better options given the fact that the institutions have better expertise in understanding the market dynamics even as the investors on their part do not want to miss the bull run in the stock indices; the media too are actively encouraging investors to look at mutual funds as an alternative investment option as the domestic interest rates have turned unattractive. Moreover, the higher commission involved with respect to selling units of NFOs with handsome target-based incentives could be the motivating factor.

 No doubt, the mutual funds have performed better, but, the fact that despite the huge mobilisations through NFOs, the redemptions are equally high (Table 5). Some of the new offers had some uniqueness in terms of objectives, which adds value to the portfolio, but the rest have been no different from the existing schemes. For instance, SBI Magnum Contra Fund has been giving impressive results, but the stocks selected by the fund do not appear to be contrarian; in fact, the fund remains bullish on engineering and infrastructure stocks, which have been part of the portfolios of many diversified funds.

In a buoyant market situation, undoubtedly the new schemes get more visibility than the existing ones, thus attracting the investor. During a bull run, the performance of the recently launched NFO has also been quite satisfactory as they are giving positive results, but when benchmarked against the BSE sensex’s rate of return, we find that some of the funds have delivered lower returns (Table 6).

Conclusion:

It is expected that with the new regulation in place, the investors in existing schemes would prefer to patronise them and not exit out of them for the lure of investing in NFOs. If credibility of mutual funds with the investing public has to be sustained, they have to ensure some relative stability in the rates of return on their net asset values (NAVs). The basic objective of preferring a MF as a saving device is to protect one’s asset values and also to earn on them irrespective of the bull-bear gyrations in the equity prices. The past experience of investors in this respect has been disappointing, to say the least. Besides, the mutual funds have got to broaden their functional as well as geographical reach.

Highlights of  Current Economic Scene

AGRICULTURE

Higher purchases by wheat-based industry and trade coupled with relatively lower crop yields in Punjab and Haryana and withholding of stocks by large farmers have caused a shortfall of nearly 4.5 million tonne in wheat procurement so far this year. While total wheat procurement as on May 04, 2006 has been estimated little less than 9 million tonne, against 13.5 million tonne last year, overall market arrivals of wheat, too, are anticipated to shrink to 12 million tonnes in 2005-06 from 14.3 million tonne in the corresponding period last year. Consequently, the wheat prices are expected to remain firm this year. On the contrary some mandies in major wheat growing states like Punjab, Haryana, Gujarat, Rajasthan, Maharashtra have reported farmers selling their wheat at prices below the minimum support price (MSP) during April 2006 on account of the poor quality of the harvested grain.

The central government is likely to float tenders for importing 3 million tonnes of wheat in the third week of May 2006 after getting the final figures for the wheat procured during the marketing season 2006-07.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

United States department of agriculture (USDA) has revised up its estimates on wheat import by India to 4.5 million tonnes during April – March 2006-07, from the earlier forecast of 2-2.5 million tonnes. The imports are estimated to be on higher side in the view of decline in wheat procurement by government agencies and record low carry-over stocks.

Cashew processing operators in Palasa and Kasibugga, the largest cashew markets in the state, have incurred a loss of more than Rs 3 crore during the period of one month since the onset of cashew marketing season from April 2006 due to fall in prices of cashew nuts. Each cashew-processing operator had purchased 200-1,000 bags of nuts at Rs 3,200 per bag (each bag contains 80 kg), and the prices have crashed to Rs 2,600 per bag. The situation has worsened for the processing units rendering the entire business to be unprofitable considering the fall in the rates of kernels. Normally, each bag of cashew nuts yields 24 kg of kernel after processing, but this season the yield has slipped to 22 kg.

The Agricultural and Processed Food Products Export Development Authority (APEDA) has put forth a proposal to the central government for the developing direct contact of producers of agricultural and processed food products with big retailers like Walmart to facilitate direct marketing of these products at their stores in India . APEDA also has plans of bringing up a cold storage facility, primarily meant for fruits and cereals, at Haldia port at the cost of Rs 2-3 crore.  It is also considering to set up organised auction centre for flowers in Kolkata for which, Rs 10 crore has already been sanctioned by the Commerce.

The government of Maharashtra has decided to provide farm loans at 6 per cent rate of interest to the farmers seeking loans up to Rs 3 lakh; from the Kharif season 2006-07.The decision has been taken in the background of Centre’s proposal to provide farm loans at 7 per cent, announced in the Union Budget 2006-07. At present these loans have been provided at the interest rate ranging between 14-21 per cent. As a result the state treasury is expected to bear the additional burden of Rs 40-45 crore.

INDUSTRY

Pharmaceuticals

The chemicals and fertilisers ministry has plans to revamp the functioning of the National Pharmaceutical Pricing Authority by including industry associations, consumer groups and state governments in an interactive forum with the pharma watchdog.

Small Scale Industries

The ministry of small scale industries has plans to propose an increase in foreign direct investment (FDI) limit in SSI industries, including labour - intensive sectors such as auto components and textiles, to 74 per cent. Under the present FDI norms, a small scale unit cannot have more than 49 per cent of its paid up equity capital subscribed to by any non-SSI industrial undertaking, either foreign or domestic. Currently, 536 items are reserved for the small scale sector.

INFRASTRUCTURE

Power

Power shortages in north India this summer have been pegged at around 4500 megawatts, which would require northern states to strictly follow grid norms and discipline so as to avert a grid collapse.

The government has plans for five mega hydroelectric power generation plants, close on the heels of the ambitious ultra mega (thermal) power projects. The projects may come up in Uttaranchal, Himachal Pradesh Sikkim and Arunachal Pradesh. Major power corporations are working on identifying the sites and the process to be followed for competitive bidding; Power Finance Corporation may be the nodal agency for execution of these projects.

The power ministry along with the Power Finance Corporation has initiated discussions with global coal companies for securing long term coal concessions for the proposed ultra mega power projects of 4,000 mega watt capacity each. The anticipated requirement for a single 4,000 mw project has been pegged at over 800 million tonnes for a 25 year period resulting in an annual requirement close to 20 million tonnes.

The government has plans to increase the number of ultra mega power projects from five to seven as states like Orissa and Andhra have approached the power ministry for setting up similar projects. If the plans materialise, there will be seven power projects of 4,000 mw each that will be set up in Madhya Pradesh, Gujarat, Maharashtra , Karnataka, Orissa, Andhra Pradesh and Chhattisgarh. PFC, the nodal agency for these projects, has already invited expressions of interests (EoIs) for the first four of these projects.

Petroleum and Petroleum Products

The Gujarat government has proposed to pick up a 20 per cent stake in the gas discovery made by Gujarat State Petroleum Corporation (GSPC) in the Krishna-Godavari basin. The 20 trillion cubic feet gas discovery made by GSPC in June 2005 is considered to be worth over $50 billion at today's international gas prices; thus, the Gujarat government's interest could be valued at $10 billion. Even as the Gujarat government is eyeing a 20 per cent stake in the block, GSPC, which discovered gas in the KG basin in the middle of last year, has offered a 20 per cent stake to a leading oil major against the development of the field. If both the deals happen, GSPC's stake could come down from the current 80 per cent to 40 per cent. Several leading oil companies have expressed interest in the development of the KG basin gas field. The list includes Shell, ExxonMobil, British Petroleum, British Gas, ENI of Italy, Total of France and Anadarko.

Maharashtra , the country’s highly industrialised state, has been facing a huge power shortfall of 4500 Mw daily. Even post generation being resumed at the 740 Mw block II of the 2,184 Mw Dabhol power project the state is far from bridging the demand-supply gap.

The state cabinet has given approval to Mahagenco’s proposal to set up power plants aimed at generating 2,000 Mw electricity in 4-5 years. The cost of the projects has been pegged at Rs 8,609 crore, 80 per cent of which would be raised through loans from the power finance corporation and rural electrification corporation and the rest in the form of equity from the state government.

Cement

Cement prices have peaked at Rs 240 per kg in the Mumbai retail market, while in Delhi it is about Rs 235; since November last year the prices have gone up by more than 50 per cent. While the government has suggested a rein on prices commenting that prices have increased more than the increase in input costs and need to be corrected, the cement manufacturers have reacted saying that the hike is a natural market reaction to high demand and increasing input costs and that they have been operating at more than 100 per cent capacity with no hoarding either. In fact, they have further commented that taxes account up to 33 per cent of the costs and there is a case for a reduction in taxes to bring down prices.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down marginally to 3.54 per cent for the week ended April 22, 2006 from 3.55 per cent during the previous week. The inflation rate was at 5.96 per cent in the corresponding week last year.

The WPI in the week under review has increased by 0.2 per cent to 198.8 from 198.5 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen by 0.2 per cent to 194.7 from the previous week’s level of 194.3, mainly due to an increase in the price index of food articles by 0.3 per cent.  The index of ‘food articles’ has gone up to 197.3 from 196.7 in the previous week, mainly due to higher prices of eggs, condiments and spices, wheat, barley, bajra and gram. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has remained unchanged at the previous weeks’ level at 316.8. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also gone up by 0.2 per cent to 173.9 from the previous week’s level of 173.5. The major groups, which contributed to this increase, were the food products, ‘chemical and chemical products’, ‘non-metallic mineral products’, base metals and machinery tools.

The latest final index of WPI for the week ended February 25, 2006 has been revised downwards; as a result both, the absolute index and the implied inflation rate stood at 196.8 and 4.18 per cent as against their provisional levels of 197.0 and 4.29 per cent, respectively.

BANKING

ICICI Bank has reported 29 per cent rise in net profit to Rs 789.93 crore in the fourth quarter ended March 2006 from Rs 614.70 crore a year earlier. For the full year ended March 2006, the bank reported 27 per cent increase in net profit at Rs 2,540 crore from Rs 2,005 crore in the previous year. The sharp rise in net profit was despite higher general provisioning to 0.40 per cent from 0.25 per cent.

Infrastructure Development Finance Corporation (IDFC) will pick up 33.33 per cent equity interest in S S Kantilal Ishwaral Securities (SSKI), a privately held domestic corporate finance and institutional securities company. Through this investment, IDFC and SSKI plan to work together by pooling their relationships and expertise to provide investment banking and capital markets solutions to clients.

Public sector banks, Bank of India (BoI) and Andhra Bank has raised their benchmark prime lending rates (PLRs) by 50 basis points. Mumbai-based BoI’s PLR will be 11.25 per cent and Hyderabad-based Andhra Bank’s 11 per cent.

FINANCIAL  MARKET

Capital Markets

Primary Market

Patel Engineering Limited has tapped the market with its public offer of 85 lakh equity shares within a price band of Rs 400 to Rs 440 per equity shares. The issue closes on May 9.

Deccan Aviation Limited will be tapping the market on May 18 with its public offer of Rs 2.5 crore equity shares in the price band of Rs 150 to Rs 175.

Secondary Market

During the week, robust financial performance, strong Asian markets trends and resumption of FII buying has resulted into an overall positive sentiments, however, the market movements were highly volatile. Amidst the positive sentiments, the sensex has touched its highest ever level of 12482.91 in intra-day trade on May 4, before ending the week at 12359.70, a week-on week gain of 4.28 per cent. Likewise, the S&P CNX Nifty has also risen by 106.35 points to close at an all-time high level of 3663.95 points, a gain of 2.99 per cent. Among the sectoral indices, all of them ended the week in the positive territory. BANKEX has registered the highest gain of 9.81 per cent, followed by consumer durables index at 9.45 per cent and oil and gas index at 7.20 per cent.

Meanwhile, Karvy Stock Broking Limited which was hit by the Sebi interim order on the IPO demat scam, has received a temporary relief as the Andhra Pradesh High Court ordered a stay on the part of the Sebi order with respect of transferring the accounts and has lifted the ban on opening fresh DP accounts.

As a part of its effort to plug all the loopholes in the IPO market, Sebi has directed both the depositories – the National Securities Depository Ltd. (NSDL) and the Central Depository Services Ltd. (CDSL)- to form a co-ordination committee to liaise with its own surveillance department for monitoring abnormal transactions in the dematerialised accounts. The co-ordination committee will be set up on the lines of Surveillance Committee for the cash market and it will have representatives of depositories and Sebi’s surveillance department.

During the week, FIIs have turned net buyers in the equity market to the extent of Rs 1509.2 crore with purchases worth Rs 8807 crore and sales of Rs 7297.7 crore. Meanwhile, the mutual funds have remained net buyers to the tune of Rs 700.53 crore with purchases to the extent of Rs 2883.58 crore and sales of Rs 2183.05 crore.

Derivatives

During the week the total turnover of the NSE’s F&O segment has declined to Rs 134188 crore with a daily average of Rs 33547 crore as against Rs 259464 crore in the previous week Correspondingly, the turnover in both stock futures as well index future have also declined to Rs 91500 crore and Rs 31403 crore, respectively as compared to Rs 158201 crore and Rs 77532 crore in the previous week.

Government Securities Market

Primary Market

RBI conducted auction of 7.59 per cent 2016 and 7.50 per cent 2034 for a notified amount of Rs. 6,000 crore and Rs. 4,000 crore respectively. The cut-off yield of the 7.59 per cent 2016 paper and 7.50 per cent 2034 paper were 7.5512 per cent and 8.1442 per cent, respectively. Meanwhile, under the regular auction, the RBI has mopped up Rs 3444.37 crore and Rs 1102.99 crore through 91-day and 182-day treasury bills, respectively. The cut-off yields for 91-day treasury bill was 5.7364 per cent and that of 182-day treasury bill was 5.9471 per cent.

RBI issued the guidelines on trading in Central Government securities on ‘When Issued’ basis by select participants. The salient features of the guidelines are as follows:

i) When-issued (WI) trades will be permitted in case of re-issued securities. WI trading for issue of new securities will be considered at a later date. WI transactions may be undertaken only in NDS-OM.

ii) WI transactions would commence on the notification date and it would cease on the working day immediately preceding the date of issue.

iii) All WI transactions for all trade dates will be contracted for settlement on the date of issue.

iv) At the time of settlement on the date of issue, trades in the WI security can be netted off with trades in the existing security.

v) Only primary dealers will be allowed to take short positions in WI securities, and every WI transaction will require at least one Primary Dealer as counterparty.

vi) Participants will be able to undertake WI positions within prescribed limits. Prescribed limits on WI positions are: primary dealer: 10 per cent (long or short positions) and non primary dealers: 5 per cent long positions

vii) In case a PD is unable to deliver securities to the buyer after the auction on the settlement (or issue) date, the transaction will be settled as per the default settlement mechanism of CCIL.

Secondary Market

The rise in the international crude oil prices coupled with the auction of dated securities aggregating to Rs 10,000 crore has rendered the market sentiments cautious; even the decision of the Moody’s Investor Service to upgrade the outlook on the India’s debt to ‘stable’ from ‘negative’ has failed to boost the market sentiments. Moreover, the RBI governor’s announcement of a need to adopt monetary measure to keep abreast of global developments has further dampened the market sentiments. The call rates have ended the week at 5.55-5.65 per cent as compared 5.50-5.60 per cent in the previous week. Meanwhile, the average daily subscriptions at the reverse repo auction have risen to Rs 62,456 crore from Rs 62,036 crore. The weighted average YTM on 8.07 per cent 2017 paper has firmed up to 7.5762 per cent as on May 5 as compared to 7.4949 per cent as on April 29.

Bond Market

The yields on corporate bonds have risen marginally over the week. The triple-A 5-year benchmark yield has risen to 8.18 per cent from 8.15 per cent while its spread over comparable gilt has widened by 103 basis points from 100 basis points in the previous week.

Foreign Exchange Market

In the forex market the rupee has remained range bound during the week amidst the surge in the international crude oil prices and the dollar demand from the PSU banks. However, the rally in the stock market, robust FIIs inflows in the equity market as well as the dollar weakness in the overseas market and suspected RBI intervention in the market has provided support to the rupee movement as it closed the week at Rs 44.94 per dollar as compared to Rs 44.97 per dollar in the previous week. In the forward premia market, the premia have eased as it tracked the spot rupee movement. The six-month annualised forward premia has eased to 1.19 per cent as on May 5 from 1.24 per cent as on April 29.

Commodities Futures Derivatives

During the week, the rally in rubber prices has continued, while the spices has witnessed a mixed trend as except turmeric almost all spices were witnessing aggressive trend. On the other hand, both chilli and jeera were steady over the week and the prices of pepper witnessed a downward trend. Meanwhile, the oil market has remained somewhat calm for most of the sessions despite concerns that the weekend can bring some surprise movement in oil to factor in the Iranian development. The oil has rebounded to above $70 a barrel towards weekend as bargain-hunting traders and persistent geo-political risks stemmed high volatility in the market.

On May 2, the FMC has stated that in keeping with its stand to ban individuals and entities restricted by other regulators like Sebi, it has asked the bourses to identify such participants and disallow them from trading on commodity futures exchanges. Meanwhile, FMC has also sated that it will began investigations, whether Ketan Parekh actually operates in the commodity market as reported by certain section of press only after it receives preliminary report from the commodity exchanges based on facts and figures.

NCDEX will be re-introducing the futures contracts in urad and tur with changed specifications sometimes next week. One of the important changes in the specifications would be the abolition of the distinction between desi and imported varieties in urad and between lemon tur and Maharashtra lal tur varieties of tur.

Indore-based National Board of Trade has started online trading in commodities on May 1; the exchange has registered a volume of Rs 350 million in a special trading session under the new system. Currently, the exchange offers futures trading in refined soya oil, soymeal, soyabean and mustard and has a membership base of 102, of which around 70-75 are active members.

CREDIT RATING

Icra has assigned the ‘LAAA’ rating to the Rs. 46.70 billion long-term borrowing programme of Indian Railway Finance Corporation Limited (IRFC) for the financial year 2006-07. The rating factors in IRFC’s sovereign ownership and its strategically important role as a sole arranger of lease finance for the Ministry of Railways (MoR).

Icra has retained the ‘A1+’ rating, to the Rs. 150 million commercial paper programme of Timken India Limited (TIL). The rating takes into account TIL’s established position in the domestic bearings industry, the strong export prospects driven by the global sourcing policy of its parent viz. The Timken Company USA (Timken), favourable growth prospect of the domestic commercial vehicle and tractor industry, its strong profitability and financial profile.

Icra has assigned ‘A1+’ rating for the Rs.3,000 million short-term debt programme (enhanced from Rs.1,000 million) of TGS Investment & Trade Private Limited (TGS). The rating factors in TGS’s strong parentage and the financial flexibility enjoyed by the company by virtue of it being part of the Aditya Birla group. The rating also factors in the strong liquidity position of the company backed by the market value of holdings in listed group entities and the strategic holdings of non-listed companies in various Aditya Birla group companies.

Icra has reaffirmed ‘A1+’ rating assigned to Rs. 1000 million short-term debt programme of Hero Honda Finlease Limited (HHFL) (enhanced from Rs 550 million). The rating takes into account HHFL’s strong parentage (ownership by HERO Honda Motors Limited (HHML) and its associates) as well as the strong linkages of its business with that of HHML. The rating also draws comfort from the liquidity position of the company as reflected by a favourable asset liability maturity profile and the relatively high financial flexibility.

Care has assigned the ‘Grade 1’ grading to ‘ Fire Prevention and Fire Fighting’ and the ‘Elementary First Aid’ courses offered by the Marine Engineering Training Institute (METI) of Cochin Shipyard Limited (CSL). The grading indicated that the ability of the institute to meet the requirements of the respective course is ‘outstanding’. The grading factors in METI’s long standing track record in providing maritime training, its franchisee strengths arising mainly from its association with CSL through excellent course infrastructure, good faculty profile, and 100 per cent government of India ownership (through CSL), ensuring the necessary financial strength and sustainability of operations.

Care has retained the ‘PR1’ rating assigned to commercial paper/short-term debt issue of Secure Meters Limited (SML) for amount upto Rs 20 crore. The assigned rating takes into account the company’s strong financials as reflected by low gearing, satisfactory liquidity and comfortable interest coverage apart from its market leadership position in the electronic metering industry in India .

CORPORATE SECTOR

Reliance Industries Ltd is planning to set up a bio-diesel refining plant near its existing 33 million tonne per annum (MTPA) crude oil refinery at Jamnagar , Gujarat . The plant is expected to be ready for production by 2008, around the same time when the proposed 27 MTPA Reliance Petroleum refinery gets completed at the Jamnagar special economic zone. The cost of the project, including the cultivation of jatropha, will be around Rs 2,000 crore. RIL would invest Rs 500 crore for the plant and Rs 1,500 crore for jatropha cultivation and extract development.

Bajaj Auto’s motorcycles sales have reported a 37 per cent jump in April 2006 to 1.88 lakh units as compared with only about 7.5 per cent growth for Hero Honda. Bajaj Auto’s new plant in Pantnagar, Uttaranchal, will start production in the last quarter of 2006-07.

ITC Limited is setting up a Rs 70 crore biscuit manufacturing unit with a capacity of 2500 tonnes per month at Haridwar in Uttaranchal. The manufacturing facility will be spread over 10 acres and the plant is expected to be operational by March 2007.

Domestic steel producers have raised their carbon steel and galvanised steel prices by 5-7 per cent effective from May 1, 2006. The price rise is aimed at maintaining the profit margin, which has been otherwise under squeeze due to rising input costs. Essar Steel, JSW Steel, Ispat Industries and Uttam Galva have raised the prices in the range of Rs 1500 to Rs 2,000 per tonne. JSW Steel has hiked the price of hot rolled coils by Rs 1,750 per tonne and that of galvanised products by Rs 2,000 per tonne. Essar Steel has increased hot rolled coil and galvanised products prices by Rs 1,500-1,700 per tonne. Ispat Industries has raised its hot rolled coils prices by Rs 1,750 per tonne and galvanised steel prices by Rs 2,000 per tonne. However, Tata Steel has not raised its prices.

Glenmark Pharmaceuticals Inc (GPI), the wholly owned US subsidiary of Glenmark Pharmaceuticals, has signed a supply and marketing agreement with Lehigh Valley Technologies Inc (LVT) for the manufacturing and marketing of two liquid generic pharmaceutical products for the US market. In accordance with the agreement, LVT will manufacture and supply the products to GPI, which will market them under the Glenmark label. Glenmark expects to launch these products over a three-month period starting August 2006.

Wipro Consumer Care Limited has acquired Delhi-based North-West Switchgear Limited for Rs 102 crore in an all-cash deal. Under the contract, North-West will be manufacturer for Wipro for the next five years with a no-compete clause.

State owned National Aluminium Company has posted 40.01 per cent increase in net profit at Rs 608.02 crore for the quarter ended March 2006, as compared with Rs 434.24 crore for the same quarter last fiscal. For the year ended March 31, the company has posted 26.70 per cent increase in net profit at Rs 1564.65 crore.

Hindalco Industries, the flagship company of the Aditya Birla Group, has reported 45 per cent growth in net sales at Rs 3,657.4 crore for the quarter ended March 2006 over the same period previous year and net profit at Rs 626.3 crore has augmented by 40 per cent.

JK Cement has registered 165 per cent rise in net profit for the quarter ended March 2006 to Rs 16.4 crore. The company's plans to increase production capacity at its grey cement plant at Nimbahera by 5 lakh tonne is in an advanced stage of completion and is likely to be completed by June 2006. In the white cement category, the company has completed the first phase of expansion of 50,000 tonne to take the total capacity to 3.5 lakh tonne. The second phase of expansion is in progress and would be completed by June. Thus, by June, the company’s grey cement output will stand at 40 lakh tonne and white cement at 4 lakh tonne.

BASF India, a leading player in the domestic chemicals sector, has posted 5.73 per cent increase in net profit at Rs 4.98 crore for the quarter ended March 2006. For the year ended March 2006, the company has registered a net profit of Rs 45.41 crore as compared with Rs 37.97 crore in 2004-05. The company's revenue for the year has increased to Rs 688.10 crore as against Rs 662.50 crore in 2004-05.

Century Enka has posted net profit at Rs 3.66 crore for the quarter ended March 2006, an 86 per cent decline in growth. For the year ended March 2006, the company’s net sales have increased to Rs 1,005 crore, a growth of 4.24 per cent and net profit has declined by 66 per cent to Rs 17.59 crore.

Raymond has reported 58.42 per cent jump in net profit to Rs 121 crore for the financial year ended March 2006 compared with Rs 76.38 crore recorded last year. Total sales revenue of the company has increased by 19 per cent to Rs 1,793 crore. The growth in profitability has been mainly due to strong performance of the textile division and growth in the denim business. Revenues from the textile division have registered a 13 per cent growth to touch Rs 868 crore, while export sales have risen by 9 per cent to Rs 100 crore. The denim division’s revenues have grown by 32 per cent to Rs 294 crore. Both the branded and apparel subsidiaries of the company have posted strong growth in profitability driven by product innovation and enhanced brand image.

Century Textiles and Industries has reported 40 per cent decrease in net profits to Rs 25.21 crore for the quarter ended March 2006. For the year ended March 2006, its net profit has remained almost unchanged at Rs 109.05 crore from Rs 109.6 crore in the previous year due to poor performance of its textile division. The company will reduce production at its textile mill in Mumbai by bringing down the number of looms to 500 from the present 1,200. It has also decided to bring down the production of fabrics gradually and has also scaled down the requisite number of spindles and ancillary machineries needed to continue the operations. Its cement business continues to be the revenue driver contributing Rs 1,295 crore in yearly sales. The company has commissioned new captive thermal power plants of 15 mw at Maihar facility and 10 mw at Century Cement, taking its total installed capacity to 75 mw. It has also announced a capital expenditure of Rs 20 crore for the erection and commissioning of a 60 tonne per day fluidised bed combustion boiler for its Century Rayon division.

Gillette India has reported net loss of Rs 13.81 crore for the first quarter ended March 2006 compared with net profit of Rs 16.87 crore in the corresponding quarter of the previous year. The loss was due to exceptional business restructuring expenses of Rs 12.29 crore incurred during the quarter. The restructuring exercise also affected net sales during the quarter, which dropped to Rs 37.95 crore against Rs 107.55 crore reported for the same period a year ago.

Jindal Stainless has reported 64.80 per cent decline in net profit to Rs 32.69 crore for the quarter ended March 2006. For the year ended March 2006, the company has posted net profit of Rs 163.61 crore compared with Rs 245.85 crore a year ago.

Ashok Leyland has reported 6.5 per cent decline in its net profit at Rs 133.4 crore during January-March 2006, over the same period a year ago.

LABOUR

The government has planned to introduce long-delayed bill for social security to unorganised sector workers in the upcoming session of parliament. The major provisions of the Bill that the government intends to bring in are likely to include setting up of a welfare fund with contributions from the workers, employers and central and the state governments. There could also be provisions for formulation of social security schemes covering health and medical care, employment injury benefits, group insurance, housing and old-age pension. The Labour Minister has said that a comprehensive legislation for unorganised workers would be prepared after consultations with the states and consideration of recommendations made by the Arjun Sengupta Committee. The Ministry of Small Scale Industries had constituted a ‘National Commission for the Enterprises in the Unorganised/ Informal Sector’ under the chairmanship of Dr. Arjun Sengupta in September 2004 to examine the problems faced by enterprises in the unorganised/informal sector and make recommendations to provide technical, marketing and credit support to these enterprises. Accordingly, the Commission has recommended formulation of the following two Bills:

1. Unorganised Sector Workers Social Security Bill, 2005, and

2. Unorganised Sector Workers (Conditions of Work and Livelihood Promotion)Bill, 2005.

The rationale underlying this division in the form of two bills is to ensure a smooth and effective implementation of the proposed legislation, in view of the fact that the objectives sought to be achieved through these two Bills are different in nature. The Commission has also worked out the financial implications of the proposed Social Security Scheme 2005. To cover 30 crore workers as per the plan, the total contribution is estimated at Rs.32,850 crore, of which the share of the central government will be Rs.17,548 crore and that of the state governments Rs 5010 crore. This adds up to a total of Rs.22,558 crore to be spent by the central and state governments, which was equivalent to 0.8 per cent of the GDP of the country in 2004-05. Taking into account administrative expenses, as well as expenses for capacity building and related activities, the upper limit of the public outlay on the scheme will not exceed 1 per cent of the GDP.  In the view of the Commission, full coverage can be reached within a period of five years.

HOUSING

The country’s biggest mortgage lender, Housing Development and Finance Corporation (HDFC), has announced 0.50 basis points increase across the board in its interest rates in home loans for the second time in three months. HDFC has hiked its lending rates 3 months ago on February 1, 2006 by a similar margin.

ICICI Bank, the country’s second largest bank, has raised the home loan rates by 50 basis points. The floating rate on home loans has been increased to 9 per cent from 8.5 per cent and fixed rate to 10.25 per cent from 9.75 per cent. ICICI Bank followed market leader HDFC and third-largest home loan provider, State Bank of India , in effecting second increase in home loan rates.

TELCOM

As per the latest report of Telecom Regulatory Authority of India (TRAI) during the month of April 2006, the subscriber base for telephony services has continued to maintain its rapid growth. At the end of April 2006 the gross subscribers base consisting of fixed and mobile, has touched 144.43 million of which mobile subscribers have accounted for around 96.92 million and fixed line subscribers about 47.51 million. As a result, the telecom sector has attained an overall tele-density of around 13.16 per cent as compared to 12.73 at the end of the previous month. Within the mobile segment, around 3.88 million new subscribers have been added during April as compared to 53.65 million in the corresponding period last year. In the fixed line segment, a total of 0.73 million subscribers have been added during April, which were predominantly WLL (fixed). With this the total subscriber base of fixed lines have crossed 47.51 million.

*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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