Current Economic Statistics and Review For the Week 
Ended May 20, 2006 (20^th Weekly Report of 2006)

Theme of the week:

Macroeconomic Perspectives on the Growth of Commodity Futures in India*

Motivation for the study

As part of our macro-economic database studies, we have been tracking, at a simplistic level, the trends in commodity futures market in India. We have found that the recent trends have been an eye-opener. The growth has been phenomenally large so much so that with a period of 8-9 months, the overall turnover has already touched 44 per cent of projected GDP for 2005-06 at current market prices. We realise that in it, the sudden upsurge has been essentially due to precious metals such as gold and silver, which are internationally traded commodities and which require much more systematic work.

For the present, our curiosity regarding the role of futures market has been aroused by number of factors concerning agricultural commodities. Therefore, our focus in this note is on these commodities.

Again, at a simplistic level, we have posed a few questions: (1) What are the levels of output (and imports) in respect of traded commodities and what is the relationship between the amount of futures trading and such output? (2) Is there any norm for such relationship so as to achieve the basic objectives of undertaking futures trading in specific commodities such as price discovery, risk management and support to the farmers in the form of information dissemination? (3) How do we distinguish between genuine hedging and risk management and outright speculative activities, which are of an unproductive nature? (4) What are the criteria and how scientific are they for the selection of commodities permitted?

Artefacts

First, as shown in Table 1, the total turnover in all 23 commodity exchanges    has galloped year–by-year. Skipping the initial low base years, the increase in 2005-06 has been mind-boggling: from about Rs 572,000 crore in the previous year to Rs 2257182 crore – a near 3-fold level.

As is widely known, just two exchanges – MCX and NCDEX – account for over 92 per cent of total turnover amongst 23 exchanges (Table 2). There are commodity specialisations of some exchanges with which are not concerned here.

No doubt, this phenomenal rise has been due to the trading in gold and silver, which constitute 18 per cent and 15 per cent, respectively, of total turnover during May 2005-March 2006 (Table 3). But, curiously, some of the agricultural commodities that have miniscule levels of output, show large futures trading: guar seed Rs 299,305 crore; chana Rs 221,679 crore; and urad 182,928 crore. Even tradings in commodities like soya oil (Rs 93,038 crore), kapas (Rs 28,568 crore), guar gum (Rs 26,741 crore) and mentha oil (Rs 26,162 crore) have not been meagre.

Should output and size of futures trading have any relationship?   

Extending the database further, we have made a heroic attempt to examine as to the relationship between recent futures trading and possible estimates of output for 16 commodities for which data on output could be so estimated. These output estimates, as officially known, are for the years up to 2003-04 (Table 4).

Using the trend growth in the official statistics, we have made a projection of the possible output in the above 16 agricultural commodities during 2005-06. Juxtaposition of these output data against the value of trading in the futures market for the partial period May 2005 to March 2006 (the only period for which the data are available), provides an interesting set of results, as depicted in Table 5.

For any inquisitive observer, the results presented in Table 5 would appear startling. For instance, guar seed, which would have had an annual output of Rs 1,238 crore during 2005-06 (June – July), enjoyed a futures turnover of Rs 299,305 crore – 242 times. This, no doubt, is an extreme case in the system of futures trading. But, the other cases in our tabular data are equally mind tickling: chana (gram) has a turnover of Rs 221, 678 crore for an output of 20 times less – Rs 10,900 crore; urad which has an output of Rs 2,563 crore enjoys futures trading which 71 times the output – Rs 182,928 crore; and black pepper and castor seed have trading equivalent to 5 to 6 times their outputs.

FMC data support our heroic estimates 

Significantly, our broad assessment of the trading being mind-boggling multiples of output in respect of many agriculture commodities, is getting buttressed by the data put out on the Forward Markets Commission (FMC) on its website. The relevant statistics has been reproduced in Table 6. While the data presented in this table on the volume of futures trading does not appear to be corresponding to the output data in terms of the duration covered, the broad judgement that the trading is massively higher than output, in physical quantities, is proven beyond doubt. In the case of guar seed, for instance, the production reported by FMC is 6 lakh tonnes, while the volume of futures trade in the commodity has been placed at 1692.6 lakh tonnes – a multiple of 282. Similar results, though not so sharply wide, are found in respect of gram, soya oil, urad and castor seed (Table 6).

Hedging and excessive speculation: Where do we draw the line?

                                    (i)      We realise that total trading may not bear any relationship with a commodity’s output; we should rather look at the open positions in individual commodities. Massive transactions take place, the bulk of which get extinguished and only minuscule amounts remain as open position.

                                  (ii)      We also realise that trading will depend upon market expectations, and therefore, it can range from a small amount to a very large amount, in different market situations, but the question is: Is there a limit?  and What is the norm for that limit so as to achieve the avowed objectives of the futures market, namely, price discovery and risk management? Given the role of commodities futures market to facilitate hedging, is there a way to differentiate genuine hedging from excessive speculation so that checks and balances can be put in place so that systemic fault lines get signalled.

                                 (iii)      There seems to be some sort of a competition between the two national level exchanges to introduce newer and newer varieties of commodities, while it would expand the basket of commodities available for trading, it appears to be devoid of market research as out of the 90 commodities available only 28 are traded.

                                (iv)      We have no answers for these questions as our study as yet incomplete. But as preliminary examination we have looked at other country experiences:

a)      In all major exchanges abroad, far fewer commodities are traded:  CBOT – 6 agricultural commodities,  euronext Liffe–7, Tokyo Grain Exchange – 9.

b)      The exchanges make a distinction between commercial and non-commercial trading, impliedly; there are specific interventions in cases of excessive speculations.

c)      It is found that exchanges impose maximum limits on the positions of all individual traders in specific commodities.  For instance, Chicago Board of Trade has placed the maximum number of futures that can be held in a single month.

Reach in the rural areas

While the technology driven exchanges have showered a variety of benefits, it remains costly for individual farmers to take up the membership of the exchanges, which includes various costs such as membership fees, and the burden of setting-up the required infrastructure – all of which can be quiet large. Hence, inevitably, the farm community can derive the benefit only if there is a joint institutional arrangement like a cooperative.

 A case in point is the reported success of NCDEX in Adilabad in Andhra Pradesh, where the tribal farmers formed a marketing – focused soya and gram cooperative, that too, under the guidance of an NGO (Centre for Collective Development). It is in that environment that the NCDEX have set-up a price ticker and have evoked interest of the farmers there, such co-operatives are few in the country. What is the alternative mechanism through which the reach of these exchanges in the rural areas can be enhanced?

MCX along with Financial Technologies and National Agricultural Co-operative Marketing Federation (NAFED) has set up India’s first electronic exchange for spot trading in commodities, called the National Spot Exchange for Agricultural Produce (NSEAP) which has linked the national level electronic exchange with agriculture produce marketing co-operatives (APMC) and other physical market players. But how far the farmers are able to use this information is not known, as mere availability of information is not sufficient, they should also be able to use it to their advantage. 

*  Prepared by Ms Piyusha Hukeri, the author expresses her gratitude to Dr S L Shetty for the support and guidance, and wishes to thank Ms Nileshwari Engineer and Ms Pallavi Oak for help in the compilation of the required data

Highlights of  Current Economic Scene

AGRICULTURE  

 Undertaking a major juggling of figures, the agriculture ministry has revised the fourth advanced estimates of foodgrains for 2004-05 as well as the second advanced estimates for 2005-06 released on February 22, 2006. It has drastically reduced the foodgrains production estimate for 2004-05 by a whopping 6 million tonnes to show a substantial 5.8 per cent output growth in 2005-06. The revised estimates are as follows:

However, ministry has not provided any explanation for this downward revision. This is likely to result in an upward revision of the 8.1 per cent GDP growth estimated for 2005-06.

Shipments of the wheat consignment due for export to India have been delayed due to quality concerns raised by the country. The two consignments of imported wheat (quantifying to about 91,000 tonnes), part of a 5 lakh tonnes contract have already been unloaded at southern ports in the country. However, the remaining consignment have been put on hold due to stringent quality specifications in the contract and might be diverted to other countries. The domestic wheat prices are likely to move upwards on account of these delays.

The Cabinet Committee on Economic Affairs (CCEA) has approved a minimum support price (MSP) of Rs 1000 per quintal for TD –5 grade of jute ex – Assam for 2006-07 season. The new MSP has been higher by Rs 90 as against MSP of Rs 910 per quintal specified for 2005-06.

The government has given permission to the Indian Sugar Exim Corporation (ISEC) to export 1.5 lakh tonne of sugar to the Trading Corporation of Pakistan. ISEC would not be allowed to export to private traders in Pakistan. As per Indian bylaws, mills, which had imported raw sugar, are required to export same quantity of white sugar, without any customs duty, in a 24 months period.  Presently, ISEC holds orders to the tune of 2 lakh tonne, from TCP, out of which 95,000 tonne has been shipped from Mumbai and Chennai ports. ISEC can source grain from any sugar mill in the country, , but on the condition that the exports would take place against the TCP tenders. In the current sugar year, TCP has already contracted 4 lakh tonne of white sugar from various sources like the Dubai-based Al Khaleej and India’s ISEC.  As per Tobacco Board, total tobacco exports from the country, in the financial year 2005-06, have surged by 2 per cent in terms of quantity and 3 per cent in terms of value. Exports have touched 1,65,882 tonnes in volume terms and are valued at Rs 1,404.72 crore ($320.49 million).

While 1,09,244 tonnes flue-cured Virginia (FCV) tobacco (Rs 849.33 crore) formed the biggest component of unmanufactured tobacco exports, hookah tobacco paste (9,678 tonne) led the exports of tobacco products followed by cigarettes (5,857 tonne). The other tobacco products exported were bidis (650 tonne), chewing tobacco/zarda (5,669 tonne) and cut tobacco 2,638 tonne. Compared with 2004-05, export of tobacco products has come down in 2005-06. Russia has been the highest importer, with import at 26,771 tonnes of tobacco (leaf and products). Among groups of nations, West Europe, with an import of importing 31 per cent (43,352 tonne),has been the highest importer of Indian tobacco.

Mustard procurement by the National Agricultural Cooperative Marketing Federation of India Ltd (Nafed) has ended at 19 lakh tonne. Nafed has procured 19 lakh tonne till Sunday (May 7), compared with 20.09 lakh tonne last year,  at a minimum support price of Rs 1,715 per quintal for this season, compared with last year’s Rs 1,700. However, it may resume procurement due to pressure from states like Rajasthan,  as it is the largest producer of mustard and  has a huge stock of seed. in the state. Mustard procurement had started on March 1, 2006, a month earlier than usual. It was done in Rajasthan, Madhya Pradesh, Haryana, Uttar Pradesh, Gujarat and Punjab.

The Indian Council of Agricultural Research (ICAR) had identified the country’s first improved and oil-rich variety of jatropha for commercial cultivation. Named SDAUJI (Chatrapati) the new variety is fit for commercial cultivation in the arid belt of Rajasthan and Gujarat. Its seeds contain as much as 49.2 per cent oil, while the seed cake left after oil extraction contains 47.8 per cent non-edible protein. The average seed-yield of this variety is estimated to be 1,000-1,100 kg per hectare without any irrigation. The plant grows up to about 8 feet and is immune to attack by all major pests.

INDUSTRY

Overall

The commerce ministry has asked the planning commission to enhance allocation for the scheme providing assistance to states for infrastructure development for exports (Aside) to Rs 1,000 crore per annum during the Eleventh Plan period beginning in the next fiscal year from the current Rs 550 crore. About two-thirds of the fund had been going to five already successful states, including Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh. A need to ensure a sizeable portion of Aside funds for development of backward states like Uttaranchal, Bihar, Jharkhand, Chhattisgarh and the north-eastern states with great export potential but poor infrastructure has been acknowledged. The ministry has also announced that the market development assistance and the market assistance initiative schemes would be revamped to ensure that the focus is on promoting specific industry and not all industries across the board.

The Ascon survey, carried out by the Associations Council of the Confederation of Indian Industry (CII), for April-March 2005-06 over April-March 2004-05, has indicated that the manufacturing sector has reported rapid growth. Out of the 143 sectors reporting production, 36 sectors recorded an excellent growth rate of more than 20 per cent, 36 sectors recorded a high growth rate of 10-20 per cent, 56 sectors registered moderate growth rate of 0-10 per cent and 15 sectors reported negative growth. A larger number of sectors have shifted to the excellent growth category from the high growth category after the Q3 results were announced. Also, the manufacturing industry has shown a recovery on the export front as compared to the Q3 results. The survey indicates that 18 sectors have shown excellent growth in exports. There were seven sectors in the high growth category, 15 sectors recorded moderate growth, while 10 sectors registered a fall in exports.

Textiles

According to a survey conducted by the Confederation of Indian Textile Industry (Citi), the Indian textile industry is expected to attract an investment of Rs 5,951 crore in 2006-07. The maximum investment inflows would be in the spinning sector amounting to Rs 2,201 crore followed by the processing segment (Rs 1,581 crore).

The Citi has urged the government to speed up clearances of projects under the technology up-gradation fund scheme (TUFS), stressing that if immediate remedial measures are not taken then the momentum achieved in modernisation and expansion of the industry would be affected. While a large number of claims for TUFS assistance for the October-December 2005 quarter have yet not been cleared, there has practically been no disbursement for the January-March 2006 quarter. The backlog from 2005-06 amounts to more than Rs 200 crore and the funds available for the current year out of the allocation of Rs 535 crore made in the Union Budget will, therefore, be less than Rs 353 crore.

Automobiles

The automobiles industry has begun the financial year 2006-07 on a positive note as per expectations. Passenger car sales have grown at a robust 16.59 per cent in April 2006, more than twice of the 7.55 per cent growth in April 2005; while commercial vehicle sales too have grown at an impressive 68.59 per cent in April 2006. Interestingly, growth in the medium and heavy commercial vehicle (M&HCV) segment at 83.99 per cent has outstripped the light commercial vehicle (LCV) segment that has grown by 48.42 per cent. Two-wheeler sales have grown by 12 per cent in April 2006.

Industry in Maharashtra

The Maharashtra government is formulating a comprehensive industrial policy, in order to regain its prominent status in attracting investments and to compete particularly with Gujarat, Andhra Pradesh, Tamil Nadu, Karnataka, Orissa and Chhattisgarh. It proposes to lay emphasis on infrastructure development by adopting the cluster approach, providing more incentives which can match with other competing states and making the entire investment process hassle free. The government estimates to get investment proposals in manufacturing and engineering sectors ranging between Rs 15,000 crore and Rs 19,267 crore by March 31, 2007, excluding the proposed unit wise investments which run into crores in the upcoming SEZs – 26 approved by the Centre and another 11 to be developed by Maharashtra Industrial Development Corporation (MIDC). As per commerce and industry ministry’s data in January 2006, Maharashtra ranked fifth with proposed investments of Rs 1,184 crore through 81 industrial entrepreneur memoranda (IEMs) largely for manufacturing and special economic zone (SEZs).

INFRASTRUCTURE

Power

The North Delhi Power Limited (NDPL) has managed to over-achieve its target for reduction in aggregate tariff and commercial losses for the second year in a row; the losses for the year 2005-06 in the NDPL area have been brought down to 28 per cent against the target of 35.35 per cent set by the Delhi Electricity Regulatory Commission (DERC).As per the privatization agreement the company was to reduce its losses by 17 per cent in five years time, which it has achieved in less than four years.

Petroleum and Petroleum Products

In view of spiralling crude prices, the centre plans to make blending of 5 per cent ethanol with petrol mandatory by oil companies from October 2006 and, depending upon its success, expects to increase it to 10 per cent from October 2007. Currently, there are a total of 125 ethanol producers with an annual capacity of 125 crore litres in Maharashtra, UP, Gujarat, TN, AP and Karnataka, who have demanded Rs 27 per litre ex-distillery.

Railways

For the first time in 60 years, the share of rail loading of all major commodities has shown an across the board increase (see table). The growth in freight traffic is a result of the booming economy and the railways’ expanding capacity. Additionally, a Supreme Court order directing sates to stop the golden pass systems under which over laden trucks were allowed to pass through on payment of a special fee, has resulted in many major customers using trucks to transport their goods have now turned to the railways as a more stable system of cargo transportation.

Aviation

Following the rapid growth of air cargo business, airlines including Jet Airways, Kingfisher Airlines and GoAir have been planning to launch dedicated freighter planes while national carriers Air-India and Indian Airlines have been in the process of ramping up their cargo operations in a phased manner. Cargo movements at Indian airports have grown up to 12,89,912 tonnes during 2004-05 from 10,68,202 tonnes in 2003-04, a growth of above 20 per cent and with the boom in Indian trade, the air cargo movements are expected to grow manifold in the next three years.

The GMR-Fraport consortium has appointed UK based Mott MacDonald Group, one of the top five management, engineering and development consultants in the world, as the leading technical advisor for modernising Delhi airport at a cost of Rs 60 crore. Mott MacDonald has, in turn, appointed leading global architect HOK International, to design the airport. According to civil aviation ministry sources, the consultant would be required to submit a master development plan to the Airports Authority of India (AAI) within six months. AAI holds a 26 per cent in the joint venture company - Delhi International Airport Limited. The consortium, comprising GMR group, Fraport, Malaysia Airports and India Development Fund, owns 74 per cent stake in the JV.

Rising aviation turbine fuel (ATF) prices have forced Air-India to increase fuel surcharge in select routes, including the US and Europe, with immediate effect. The fuel surcharge has been increased to $65 per passenger from $55 in UK and Europe and that for US and Canada to $115 per passenger from $100. The surcharge for other sectors has been kept unchanged. Also, Air-India has become the first airlines in India to hedge it jet fuel price risk by using derivatives contract on international commodity markets.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has marginally gone up to 3.59 per cent for the week ended April 29, 2006 from 3.54 per cent during the previous week. The inflation rate was at 5.67 per cent in the corresponding week last year.

The WPI in the week under review has increased a tad by 0.1 per cent to 199 from 198.8 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen by 0.4 per cent to 195.4 from the previous week’s level of 194.7, mainly due to an increase in the price index of food and non-food articles by 0.5 per cent and 0.1 per cent, respectively.  The index of ‘food articles’ has gone up to 198.2 from 197.3 in the previous week, mainly due to higher prices of poultry chicken, eggs, wheat, barley, fruits and vegetables, 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. Similarly, the index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also remained unchanged at the previous weeks’ level of 173.9.

The latest final index of WPI for the week ended March 4, 2006 has been revised downwards; as a result both, the absolute index and the implied inflation rate stood at 196.5 and 3.86 per cent as against their provisional levels of 196.8 and 4.02 pe cent, respectively.

BANKING

The Reserve Bank of India (RBI), in a letter to all nationalised banks including the State Bank of India and some private sector ones like ICICI Bank, UTI Bank, HDFC Bank has expressed its concern over the deficient information provided by them to the income tax department in the Annual Information Returns (AIR) for the financial year 2004-05. The central bank has asked the banks to re-check the accuracy of the data and ensure all the columns are correctly filled-in and submit a ‘Supplementary Information Report’ to the I-T department.

The RBI on acting on the representations by the banks doing the government business has revised the commission system for banks doing government business in the other payment category. It has changed the system to 9 paise per Rs 100 from the existing Rs 50 per transaction.

The RBI, has cancelled the certificate of registration granted to Confidence Credit and Investment Ltd., having its registered office at Chennai for carrying on the business of a non-banking financial institution.

Small Industries Development Bank of India (SIDBI) has posted a net profit of Rs 270.9 crore in 2005-06 as compared to Rs 225.23 crore in the previous year, registering a growth of 20 per cent.

FINANCIAL  MARKET

Capital Markets

Primary Market

Deccan Aviation Limited will be tapping the market on May 18 2006, with its public offer of 24.5 lakh equity share in a price band of Rs 150 to Rs 175 per equity share and the issue would closes on May 23.

DLF Ltd (Delhi Land and Finance) has filed its draft prospectus with Sebi for the largest IPO in the country’s primary market history. The company has offered to sell 20.2 crore shares with a greenshoe option of 1.7 crore shares.

Secondary Market

During the week, after touching the lifetime high level of 12671.11 during the intra-day trading on April 11, the market has succumbed to the pressure of profit booking on the news of the Left parties’ victory in the assembly elections in Kerala and West Bengal, hike in interest rates by the US Federal Reserve and the likelihood of a rise in the domestic oil prices by the government. Over the week, sensex has lost 74.59 points or 0.6 per cent to settle at 12285 and the nifty has shed 13.9 points or 0.37 per cent to settle at 3650.05. In comparison to sensex, the BSE Small-Cap has registered a weekly gain of 2.27 per cent to settle at 7700.63. Meanwhile, amongst the sectoral indices, BSE FMC has registered a decline of 3.08 per cent to close the week at 2263.29, followed by BSE OIL and GAS at 1.75 per cent to close at 5945.98. on the other hand, the BSE METAL index has registered a weekly gain of 2.07 per cent to close at 11125.67.

During the week, the FIIs have been net buyers to the extent of Rs 1058.9 crore in the equity market with purchases of Rs 12747.2 crore and sales of Rs 11688.4 crore. On May 12, the FIIs were net sellers to the extent of Rs 1199.1 crore. Meanwhile, the mutual funds have continued to remain net buyers in the equity market to the tune of Rs 797.21 crore with purchases worth Rs 3344.31 crore and sales of Rs 2547.1 crore.

Sebi appointed panel headed by Sebi’s whole time member G.Anantharaman, to study the future of the regional stock exchanges (RSEs) post-demutualisation has recommended shifting about 500 companies complaint with the continuous listing requirements and listed on RSEs to the BSE or the Inter-connected Stock Exchange (ISE). The panel has also recommended closing down RSEs as they do not have any potential to remain in business and has also put forward divestment guidelines for stock exchanges (SEs).

In order to make domestic markets more competitive and efficient, Sebi has issued a detailed guidelines allowing companies listed on bourses with trading terminals nationwide, and complying with the prescribed requirement of minimum public shareholdings of the listing agreement, to raise funds by placing securities with Qualified Institutional Buyers (QIBs) in the form of Qualified Institutions Placements (QIP).

Derivatives

The NSE’s F & O segment has witnessed an increase in its total turnover on a weekly basis Rs 168,106 crore for the week ending May 12 from Rs 134,188 crore during week ending May 6. The stock futures continued to contribute the bulk of the trading with Rs 106,300 crore, followed by index future at Rs 44129 crore.

Government Securities Market

Primary Market

During the week, the RBI has mopped up Rs.2, 641 crore and Rs.1, 000 crore through 91-day treasury bill and 364-day treasury bill, respectively and the cut-off yields for the 91-day and 364-day treasury bill have been 5.6539 per cent and 6.2532 per cent, respectively.

RBI has conducted the auctions of State Development Loan (SDL), 2016 for sixteen states for an aggregate amount of Rs.5, 584.98 crore. The cut-off yield of SDL 2016 for Arunachal Pradesh and Uttar Pradesh was 8.00 per cent, for Assam, Madhya Pradesh, Meghalaya, Uttaranchal and Nagaland was 7.95 per cent, for Punjab and West Bengal was 7.93 per cent, for Andhra Pradesh, Jammu & Kashmir, Jharkhand, Kerala, Maharashtra, Manipur and Mizoram were 7.89 per cent, 8.04 per cent, 7.96 per cent, 7.87 per cent, 7.91 per cent, 7.98 per cent and 8.05 per cent, respectively.

Secondary Market

During the week lingering concerns about higher inflation rate and the likelihood of a rise in the domestic oil prices by the government has led to a further rise in the yields of government securities. The yield on the actively traded 7.59 per cent 2016 paper has risen to 7.55 per cent form 7.53 per cent in the previous week. The weighted average YTM on 8.07 per cent 2017 paper has risen to 7.5902 per cent on May 12 as compared to 7.5762 per cent on May 05. Meanwhile, the call rates have traded around the reverse repo rates to close the week at 5.50-5.60 per cent. The daily average outstanding amounts in the LAF (reverse repo) operations conducted during the period have been at Rs.62, 362 crore vis-à-vis Rs.16, 833 crore and Rs.10, 297 crore for CBLO and Call market respectively.

Bond Market 

IDBI Ltd is planning to raise Rs 300 crore by issuing omni bonds on private placement basis, the bonds will have a tenure of 5-11 years and the issue, open till May 19, will have a green shoe option to retain additional subscription.

SBI is planning to raise Rs 500 crore via bonds through private placement or book building process. Also, the bonds would be issue with a greenshoe option to retain over subscription.

Foreign Exchange Market

In the forex market, the rupee started the week on a strong note against the dollar mainly due to dollar weakness against other foreign currencies, but suspected RBI intervention through state run banks capped the rupee movement and it closed at Rs 44.87/88 against dollar on May 8. The rupee continued to decline against dollar due to strong dollar demand by the oil companies and some foreign fund outflows and it fell to its lowest level in two weeks as the dollar gained against other major currencies after the US Treasury stopped short of calling China currency manipulator as well as decision on yet another rate hike of 25 basis points to 5 per cent, the rupee closed at 45.08/09 per dollar on May 11.However, the rupee rose on the last day of the week aided by the dollar’s fall to a one-year low against the euro and an 8-month low against the yen. Nevertheless, dollar demand, particularly from the oil companies capped the rupee movement and the rupee ended at Rs 45.04/05 per dollar, above the previous day's close at 45.08/09, a two-week low. Meanwhile, in the forward premia market, the premia has eased as it tracked the spot rupee movement with the six-month annualised premia closing at 1.11 per cent on May 12 as compared to 1.19 per cent as on May 5.

Commodities Futures Derivatives

In an attempt to curb speculation in 13 agricultural commodities, FMC has directed the exchanges to reduce the circuit filter by around 30 per cent. The commodity bourses have been directed to reduce the limit on daily price-fluctuation with immediate effect to 4 per cent initially and 2 per cent after a cooling off period of 15 minutes with respect to all contracts, including currently traded contracts and also those permitted but not yet being traded. The new circuit filter will be applicable to wheat, rice, maize, sugar, guar seed, guar gum, urad, tur, chana, peas, potato, moong, and massor.

The trading volumes in brent crude oil, guar gum and turmeric has declined after the NCDEX imposed a special margin of 10 per cent on all long positions of guar, 5 per cent on all long position of brent crude oil and 4 per cent on turmeric effective from May 11. The special margins for crude and guar have been levied on May contract, due to expire on April 20.  However, special margin on turmeric has been levied for all long positions of June and August contracts, as contract prices have risen by 20 per cent since their launch.

CREDIT RATING

Care has reaffirmed the ‘ BBB+ (SO)’ rating assigned to the outstanding non-SLR bonds of Rs 40.74 crore and Rs 9.26 crore of West Bengal Financial Corporation (WBFC). The rating is primarily based on the credit enhancement in the form of unconditional and irrevocable guarantee of West Bengal for repayment of principle and payment of interest during the full tenure of such bonds. Further, the assigned rating also factors in persistent levels of revenue and fiscal deficit of the state government, continued high level of committed expenditure and high debt level in relation to revenue receipts, deteriorating debt servicing indicators and steps being taken by the state government to improve the present position of its finance by containing revenue expenditures and boosting recovery of user charges.

Care has retained the ‘PR1+’ rating assigned to the commercial paper programme of Rs 40 crore of Amtek Auto Limited (AAL); the agency has also reaffirmed the ‘AA+’ rating assigned to the non-convertible debenture programme of Rs 55 crore of AAL. The ratings take into consideration the continuous growth in operation of the company, steady profitability margins over the year, healthy cash accruals, comfortable coverage ratio, and financial profile of the company.

Care has reaffirmed the ‘AA’ rating assigned to the long-term bond programme of Rs 3,000 crore (umbrella rating for financial year 2005) of Housing and Urban Development Corporation Limited (HUDCO) and the agency ahs reaffirmed the ‘ AA+’ rating assigned to fixed deposit programme upto a limit of Rs 3,000 crore. The ratings take into account the 100 per cent government of India ownership of HUDCO and the strategic role played by HUDCO in financing housing and urban development projects in the country, demonstrated government support in the form of regular equity infusions and satisfactory capital adequacy ratio.

Care has assigned ‘PR1’ rating to the proposed commercial paper programme of Ramsarup Industries Limited (RIL) for an amount upto Rs 20 crore. The rating draws strength from company’s long and satisfactory track record, experience of its promoters, ability of the company to offer various grades and sizes of black and galvanised wires.

Care has assigned ‘PR1+’ rating to DCHL’s proposed short-term debt issue of Rs 100 crore and a ‘PR1+’ to DCHL’s short-term non-convertible debenture issue of Rs 50 crore. The assigned ratings takes into account the company’s leadership position of its flagship publication ‘Deccan Chronicle’ in Andhra Pradesh, distinction of being one of the low cost publishers for advertiser’s in the country and successful implementation of a part of its modernisation cum expansion project.

Icra has reaffirmed the ‘A1+’ rating for an enhanced amount of Rs 3 billion, to the short-term debt (including commercial paper) programme of Aditya Birla Nuvo Ltd (ABNL). The rating takes into consideration the stability that the diversified businesses of ABNL provide to its cash flows, the favourable competitive position that ABNL has in its core businesses, the improving performance, and value of the new businesses, and its conservative financial structure.

Icra has reaffirmed the ‘LAAA (SO)’ ratings to the outstanding Rs. 84.63 billion 6.75 per cent Tax-free US64 Bonds programme and Rs. 59.70 billion 6.60 per cent ARS Bonds of the Specified Undertaking of the UTI (SUUTI). These bonds are guaranteed by the government of India (GoI) and were offered as conversion options for the unit holders of US64 and the various Assured Return Schemes (ARS) in June 2003 and April 2004. The rating factors in the unconditional, irrevocable and the continuing guarantee of the GOI for servicing the interest and principal on these bonds.

Icra has assigned an ‘A1+’ rating to the Rs. 20 billion (enhanced from Rs.10 billion) certificates of deposit programme of Union Bank of India (UBI). The ratings take into account UBI’s improving core operating profitability, its satisfactory capitalisation, and liquidity. The rating also factors in the relatively lower, though growing fee based income, as compared to peers, moderate asset quality and the bank’s need to raise capital for meeting its growth plans.

CORPORATE SECTOR

According to a report by global consultancy firm Grant Thornton, in the first four months (January-April) of 2006, the mergers and acquisitions value of Indian corporate sector have stood at $ 8.2 billion. The total number of cross border deals during the period has recorded at 77, valued at $ 5.6 billion. Inbound (domestic) deals have recorded to 25, valued at $ 2 billion as against a total of 52 outbound (international) deals valued at $ 3.6 billion. In calendar year 2005, 192 cross border deals have made valued at $ 9.5 billion. The number of acquisitions made by Indian companies abroad has stood at 136, which has been more than double the number of acquisitions made by international companies in India, which stood at 56.

Reliance Petrochemicals Limited has taken the Reliance group’s market capitalisation to over Rs 2 lakh crore. The aggregate market capitalisation of Reliance Industries, Reliance Industrial Infrastructure, IPCL and Reliance Petroleum has surged to Rs 2.01 lakh crore.

Hindustan Zinc Limited, the largest domestic zinc producer, has raised prices of its zinc products yet again by Rs 5,900 a tonne across all categories. This is its second price hike in this month. Earlier, the company had raised prices by Rs 8,100 a tonne on May 5, 2006.

Tata Steel has acquired 3,000 acres land for its 6 million tonne project in Orissa, which has been expected to start construction within two months. The Orissa project is part of the Rs 67,000 crore that the steel major is investing for three greenfield projects. The other two are the Rs 12,000 crore project in Chattisgarh with a capacity of 5 million tonne per annum and the third greenfield plant in Jharkhand, entailing an investment of Rs 40,000 crore for a 12 million tonne capacity. Tata Steel is also investing Rs 4,500 crore to expand its Jamshedpur plant capacity by 1.8 million tonne, which should be completed by August 2008, added Muthuraman.

Passenger car sales for April 2006 have grown by 16.59 per cent, with sales at 74,536 units, as against 63,932 units sold in April 2005. However, two-wheeler sales have risen by 12 per cent in April 2006, with total volumes at 6.05 lakh units as against 13.63 per cent in a year ago. Commercial vehicle sales have too posted an impressive 68.59 per cent growth in April 2006, with total volume at 28,475 units. Moped sales have risen by 14 per cent in April 2006, with sales at 27,121 units over April 2004.

Titan Industries has acquired marginal 5 per cent equity shares in Innoviti Embedded Solutions at an undisclosed amount.

India Cements Limited has signed a deal with the Himachal Pradesh government for setting up a Rs 750 crore cement plant.

Genpact has signed a five year contract with global pharma major GlaxoSmithKline to provide finance and accounting functions for its US operations.

Gangotri Textiles has formed a strategic with the Switzerland based apparel company Trailer. Under the agreement the alliance will jointly market Gangorti’s Tibre and the Swiss company’s Trailer brands in Europe and Asia.

Aker Kvaerner has secured a largest sub-sea equipment contract worth $ 400 million from Reliance Industries Limited. According to the contract, Aker Kvaerner will provide 18 well sub-sea system for the exploration and production in deepwater block in the Krishna Godavari basin.

Tata Motors has launched its mini truck, Tata Ace, in Sri Lanka. Ace is powered by a small and efficient unique twin cylinder 16PS IDI 700cc diesel engine.

Voltas has posted 5.36 per cent rise in net sales to Rs 513.92 crore for the fourth quarter ended March 2006 and net profit has increased by 3.94 per cent at Rs 23.73 crore compared with Rs 22.83 crore in the corresponding quarter of the previous year. The company is in the process of expanding its manufacturing capacity and is setting up two plants in Uttaranchal.

Asian Paints has reported 27.56 per cent growth in net sales to Rs 564.48 crore for the quarter ended March 2006 and has posted net profit of Rs 20.28 crore, 50.65 per cent lower as compared with Rs 41.10 crore for the same period previous year. The fall in net profit is due to an exceptional item of Rs 33.6 crore which is a provision for diminution on the value of long-term investments in the company’s wholly owned subsidiary Asian Paints (International).

EXTERNAL SECTOR

India’s oil import bill has swelled by 52 per cent in 2005-06 to $44.64 billion (Rs 200165.76 crore) due to high global oil prices. According to latest petroleum ministry data, India has imported 99.4 million tonne (mt) of crude oil for $38.77 billion (Rs 171,702 crore) and 11.67 mt of petroleum products for $5.86 billion (Rs 25,575 crore) in 2005-06. In 2004-05, India had spent $25.98 billion (Rs 117,006 crore) on import of 95.86 mt of crude oil and $3.28 billion (Rs 14,930 crore) on import of 10.47 mt of petroleum products. The country has exported 21.50 mt of petroleum products for $10.54 billion (Rs 46,785 crore) in 2005-06 as against oil product exports of 17.57 mt worth $6.33 billion (Rs 28,474 crore) a year ago. India’s net oil import bill has stood at Rs 1,50,492 crore in 2005-06 as opposed to a net oil import bill of Rs 1,03,462 crore in the previous fiscal. While imports have risen, domestic consumption has remained almost flat at 111.92 mt as compared to consumption of 1,11.634 mt oil products in 2004-05. Demand for diesel, the mainstay fuel, has grown by 1.3 per cent to 40.15 mt, while that for industrial fuel like naphtha and light diesel oil has fallen.

Bilateral trade between India and China, which accounts for only 1 per cent of the two countries’ global trade, is expected to touch $100 billion by 2015, according to apex industrial bodies of the two nations.

The US under secretary of commerce for international trade has said that India needs to further liberalise its FDI norms and address the issues related to intellectual property rights to attract American investment.

Not withstanding the finance ministry’s insistence on increase in minimum size of special economic zones (SEZs) in IT, biotech and gems and jewellery, the empowered group of ministers (EGoM) have resolved to do away with the minimum physical area requirement for IT SEZs and retain the minimum built up area at 1 million square feet. It has been also made explicit by the EGoM that existing units in the domestic tariff area would not be allowed to convert to SEZs by shifting plant and machinery. Only new investment would qualify for SEZ benefits.

LABOUR

According to the report released by International Labour Organisation (ILO) on May 4, 2006 titled ‘The End of Child Labour: Within Reach’, there are signs of decline in the child labour globally. For the first time, there has been 11 per cent fall in child labour to 218 million in 2004 from 246 million in 2000, which was mainly evident in hazardous occupations. While the sharpest decline was seen in Latin America and the Caribbean where it has declined by two-thirds, the Asia Pacific (which includes India) has exhibited only a marginal decline of 0.6 per cent during the same period. Currently, the Asia-Pacific has the highest number of child labour at around 122 million. India, with the largest child population in the world is yet to consent the ILO convention of minimum age. (Indian Census defines ‘child’ as the one in the age group of 5-14 years, whereas ILO extends it to 15 years of age.) Since the report has no country-specific data, the ILO has said that the children working in Asia-Pacific are high as the children working in farm have also been included. In this region, about 69 per cent of children work in agricultural fields, 22 per cent in services and the rest in other industries.

INSURANCE

The government is considering a proposal to increase the minimum capital base norm for the Life Insurance Corporation of India (LIC) to Rs 100 crore or more from the current Rs 5 crore. While all other insurance companies require minimum capital base of Rs 100 crore, LIC’s minimum capital base is Rs 5 crore, as per the LIC Act. The government is considering amending the LIC Act. The finance ministry has also sought the advice of the Insurance Regulatory and Development Authority (Irda) on this issue.

INFORMATION TECHNOLOGY

Data Solution provider Scentric has opened a development centre in Pune. The new centre will focus on engineering, Microsoft exchange and databases. Scentric, a provider of universal data classification solutions, headquartered in Atlanta, is helping companies transform organisation’s data into into an agile corporate resource by making it simpler and easier to find, know and move information to meet complex business needs with its solution Scentric Destiny.

TELCOM

Bharti Airtel Ltd., India’s largest mobile phone services company, is doubling its workforce to 20,000 from the current level of 10,000 by absorbing contracted employees like direct sales agents with an aim to improve customer service and, in turn, perception of its brand. The company has created a 100 per cent subsidiary, Bharti Comtel, which will take on its rolls such outsourced workers, and expects to finish absorbing 10,000 employees this financial year. The impact of employee costs would be 10 – 15 per cent more. In order to provide better quality customer assistance Bharti Airtel has shifted customer call support from low-cost call centres to more established ones like BFL-Mphasis, IBM, Hinduja TMT and US’ Teletech. Consequently the cost of such services has almost doubled.

According to Cellular Operators Association of India (COAI), the all-India GSM mobile subscriber base has touched 72.12 million in April on the back of 2.93 million additions during the month. Bharti Airtel continued to be the largest in terms of subscriber base and market share. At end-April, the company’s total subscriber base stood at 20.68 million, as it added 1.1 million subscribers during April having a total market share of 28.7 per cent. State-owned Bharat Sanchar Nigam Ltd. (BSNL) the second largest player added around 0.43 million subscribers during the month, with this the total base has crossed 17.59 million accounting for 24.4 per cent market share.

*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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