Current Economic Statistics and Review For the Week 
Ended December 02, 2006 (49^th Weekly Report of 2006)

Theme of the week:

First Quarter Performance: Sector-wise Review*

Introduction

According to data released by Central Statistical Organisation (CSO), Indian economy has witnessed a robust growth of 8.9 per cent during the first quarter (April-June) of 2006-07 – highest first quarter growth since 2000-01 – on top of a healthy 8.5 per cent growth during the same period previous year. Another indicator of economic performance, Index of Industrial Production (IIP), has continued with its growth momentum posting a robust growth of 10.1 per cent during April-June 2006 though a marginal slowdown from a 10.4 per cent growth in the first quarter of the previous year. The manufacturing sector with a growth of 11.2 per cent has remained the key driver of the industrial activity.

This is also reflected in the vibrant first quarter (2006-07) performance of the corporate sector, which has been in continuation of the steady financial growth registered by Indian companies during 2005-06. The overall buoyancy witnessed in the profitability of the companies during 2005-06 has continued in the current financial year (2006-07) also and the corporates have recorded yet another quarter (April-June 2006) of satisfactory growth despite significant cost pressure such as escalating raw material prices and interest rates. As per few large sized sample studies by various media sources, the first quarter of the current financial year has been the best in the last three years.

In this note we have analysed the financial performances of 400 private and public limited companies, listed on BSE 500 Index, based on their unaudited/audited financial results collected from the website of Bombay Stock Exchange. The sample companies consist of 368 manufacturing and IT companies and 32 banks and non-bank financial institutions. These 400 companies are classified among 16 sectors namely capital goods, textiles, oil and gas, chemicals and petrochemicals, metals, automobiles, pharmaceuticals, information technology (IT), fast moving consumer goods (FMCG), cement, shipping, power, consumer durables, banks and financial institutions, agriculture and miscellaneous and diversified.

Financial Performance of 368 Companies (Manufacturing and IT Companies)

The financial performance of corporate sector during April-June 2006-07 has improved significantly over April-June 2005-06 as indicated by sales and profit figures given in Table 1. All the 15 sectors (excluding banks and financial institutions) have registered double-digit growth in net sales, except textiles and transport services, which includes shipping services. One of the reasons for the robust growth in both sales and net profit could be the low base of Q1 2005-06, which saw a relatively slower growth of sales and profits.

As we see from table 1, the net sales of 368 companies has grown considerably by 29.7 per cent to Rs 3,34,596 crore during April-June 2006 as compared to Rs 2,58,054 crore over the same period a year ago. The total expenditure incurred by these companies has shot up by 30.8 per cent to Rs 2,86,939 crore, at a higher rate than that of net sales (29.7 per cent), exhibiting some failure in controlling costs by these companies. The ratio of total expenditure to sales has risen marginally to 85.8 per cent during April-June 2006 as compared with 85 per cent in the same period a year ago. In the case of manufacturing companies, expenditure have grown due to rise in input cost whereas for IT and services sector it is due to increased spending on salaries. Net profit of these companies has surged by 35.6 per cent to Rs 31,742 crore as against Rs 23,408 crore. A significant highlight of this study is a substantial rise in interest payments of these companies, which has grown heavily by 34.6 per cent to Rs 4,293 crore as against Rs 3,188 crore and is a cause of concern. The net profit to sales ratio has stood at 9.5 per cent during April-June 2006 as compared to 9.1 per cent from April-June 2005 implying enhanced profitability, despite a lower gross profit margin (gross profits to sales) on sales ratio at around 15 per cent as compared to 16.1 per cent during April-June 2005.

Performance of Banks and Financial Institutions

A similar trend witnessed in case of performance of 368 manufacturing and IT companies has also been seen in the growth of banks and financial institutions. The profitability of banks has been getting stronger due to higher interest and other income. The interest income of 32 banks and financial institutions indicates a healthy 21.8 per cent growth at Rs 41,425 crore during April-June 2006 from Rs 34,015 crore over the same period a year ago. Other income has also increased by 15.5 per cent to Rs 6,730 crore from Rs 5,829 crore. The 32 banks studied here have posted an increase of 6 per cent in net profit at Rs 4,899 crore (Table 2).

Among these banks, State Bank of India has registered the highest net profit of Rs 798 crore, though a decline of 34 per cent in profit from the previous year. ICICI has stood second in net profit after SBI; it has reported a 17 per cent rise at Rs 600 crore from Rs 530 crore. Vijaya Bank, despite registering a decline of 66 per cent in net profit during 2005-06, has posted a 36 per cent rise in net profit at Rs 102 crore during the quarter under review over Rs 75 crore. Among the private sector banks, two worst performers have been Indusind bank and Federal bank. While Indusind’s net profit during the quarter ended June 2006 has been a single-digit figure of Rs 8 crore from Rs 40 crore much lower (around 80 per cent) than the previous year’s figure. Capital adequacy ratio is the key reflector of financial strength of the bank. In case of ICICI it has increased to 12.46 per cent for the quarter ended June 2006 from 12.04 per cent over the same period a year ago. For SBI it stood at 12 per cent from 11.63 per cent.

Sectoral Performances

A general observation shows that broadly all sectors have participated in the growth. Sectors that registered growth between 30-50 per cent have been oil and gas, metals, chemicals and petrochemicals, IT, capital goods and miscellaneous and diversified. The engineering and construction sectors have seen huge order books. Sectors like agriculture, cement and consumer durables have reported more than 80 per cent growth in net profits. Automobiles, FMCG and Pharmaceuticals companies have posted growth between 16-23 per cent. On the other hand, shipping and textile companies have witnessed subdued performances due to a sharp rise in interest payments. The cement sector has been the best performer with the growth impetus arising out of demand from housing and infrastructure development. On the back of robust semi-urban and rural demand, the consumer durables companies have recorded robust growth in profit during the quarter under review. The sectors, which were largely distressed by rising interest cost, include capital goods, IT, Pharmaceuticals, metal, power and shipping. Despite the sharp rise in interest cost, interest to sales ratio at 1.28 per cent has been marginally higher compared to 1.24 per cent during the quarter ended June 2006. The interest cost has moved up due to the combined effect of increasing interest rates as well as increasing level of borrowings by companies.

Automobile

Automobile industry in India is amongst the main drivers of growth of Indian economy. The Indian automobile industry has grown significantly from past few years with total domestic sales reaching to approximately 9 million vehicles in 2005-06. According to SAIM, during the quarter under review, domestic sales have grown by 20 per cent to 24 lakh units as compared to 20 lakh units over the same period a year ago. At the same time, exports have surged by 27.3 per cent to 2.47 lakh units against 1.94 lakh units.

Table 3 reveals the healthy performance of automobile companies; the net sales of 41 automobile companies comprising auto ancillary companies have increased by 26.9 per cent to Rs 27,970 crore during April-June 2006 from Rs 22,046 crore a year ago. A healthy rise in sales has resulted from robust domestic and export demand conditions, volume growth and excise duty reduction. A sharp rise of 26.6 per cent in total expenditure of these companies has been due to higher input costs mainly aluminium, steel, rubber and plastic. However, overall auto companies have shown a strong performance even though their margins are under pressure due to increase in component prices. The net profit of these companies has risen by 16.6 per cent to Rs 2,213 crore from Rs 1,897 crore during April-June 2005.

Cement

Cement is one of the six core infrastructure industries in India and according to the Cement Manufacturers Associations; the country currently has an installed capacity of about 160 million tones for its production. The production of cement during April -June 2006 has stood at 40.45 MT, higher than the target as well as the production for the corresponding period of the previous year by 5.6 per cent and 9.7 per cent, respectively. However, the growth rate at 9.7 per cent has been remained lower as compared to 13.9 per cent achieved during April -June 2005.

During April-June 2006, 23 cement companies have shown a strong growth of around 40 per cent in net sales at Rs 9,367 crore from Rs 6,697 crore over the same period a year ago (Table 4). Strong demand on the back of intense housing and infrastructure development activities have led the cement companies to post a robust growth of 81 per cent in net profit to Rs 1,727 crore from Rs 954 crore. The country’s biggest cement maker ACC has reported a whooping 191 per cent jump in its net profit on the back of increase in price realisation and Rs 140 crore gains from the sale of land and Rs 40 crore gain from sale of Mancherial cement works. Ultratech Cement, an Aditya Birla group company, has reported a net profit of Rs 210 crore for the quarter ended June 2006 from a low base of R 60 crore over the same period a year ago. The cement despatches of four giants, ACC, Ultratech, Gujarat Ambuja, and Grasim for the quarter ended June 2006 has risen by 7.4 per cent to 162.33 lakh tonne.

FMCG

The FMCG sector that witnessed a scenario of sluggish growth from past 2-3 years has reached at a level of one of the largest growing sectors in India . The surging FMCG growth is the end result of rising disposable income and purchasing power of the consumers. The domestic consumption is growing both on urban and rural front. The rural India is becoming the major growth driver for the FMCG industry. Products that have seen significant growth in rural markets mainly including home and personal care products like toothpaste, hair oils and shampoos.

The buoyant performance of FMCG sector has also been reflected in the aggregate results for April-June 2006 of 27 FMCG companies with net sales of Rs 12,782 crore, a 16.8 per cent rise and the net profit of Rs 1,650 crore, a rise of 17.7 per cent (Table 5). Companies have been benefiting from hiking product prices to offset higher input costs. Hindustan Lever Limited (HLL), has posted 35 per cent growth in net profit at Rs 380 crore benefited mainly from healthy growth in its home and personal care businesses, while sale of beverages declined during the quarter under review. Similarly, ITC has also registered a rise of 16.8 per cent to Rs 652 crore from its cigarettes business and also from other divisions like hotels, agri-products and paper. The companies have continued to spend more on advertisement and publicity and product innovations. Most of these companies have reported sound volume growth in rural areas. Also, price increase has been marginal during the first quarter.

Another interesting thing regarding the FMCG companies has been growing FII (foreign institutional investors) holdings in these companies. FII holdings in most of the Indian FMCG companies like Godrej Consumer Products Limited (GCPL), Colgate-Palmolive, Britannia and Dabur India Limited has risen considerably. The rising prices and rural market growth have been the reasons behind the growing investment. FII’s have been targeting companies with relatively smaller market capitalisations such as GCPL, Marico and Dabur and have sold their holdings in large market capitalisation companies like HLL and ITC.

Pharmaceutical

The pharmaceutical companies have shown mixed results during April-June 2006. Sector majors like Ranbaxy Laboratories, Dr. Reddy’s Laboratories Cipla, Aurobindo Pharma have reported a double-digit growth in net profit. While Nicholas Piramal, GlaxoSmithKline, Novartis and Wockhardt have recorded a decline in net profit.

Our study of 38 pharmaceutical companies indicates a healthy increase of 17 per cent in net sales at Rs 9,065 crore during April-June 2006 as against Rs 7,737 crore over the same period previous year. Net profit has recorded a growth of 23 per cent at Rs 1,469 crore from Rs 1,191 crore. Cipla has delivered impressive results with a 53 per cent increase in net profit to Rs 170 crore on the back of two products its generic version of Pfizer’s anti-depressant drug Zoloft and Merck’s prostate drug Proscar. Ranbaxy Lab has posted a 31 per cent increase in net profits to Rs 99 crore on a revival of generic medicine sales in the US .

On the contrary, GlaxoSmithKline, Nicholas Piramal, Novartis, Torrent Pharma and Glenmark pharma have registered subdued performance for the quarter ended June 2006. Nicholas Piramal has reported a 6 per cent decline in net profit to Rs 51 crore as compared to the previous year. The acquisition of Avecia and an increase in expenditure on research and development led to a slip in margins for the quarter ended June 2006. A draft of a new drug policy suggests that the number of drugs to be brought under price control will include 354 formulations, in addition to the 74 already in the list. If implemented, then the companies that depend on the domestic market will suffer badly.

Metals

Riding high on soaring metal prises and burgeoning demand, non-ferrous companies have reported robust growth in sales and profit for the quarter ended June 2006. Even the steel companies have also posted positive growth in profits after three quarters of decline in net profits.

Our study of 35 metal companies inclusive of steel, zinc, copper, aluminium companies indicate a substantial growth of 34.7 per cent in net sales to Rs 32,977 crore for the quarter ended June 2006 from Rs 24,481 crore over the same period a year ago. Modernisation and expansion plans by various steel companies have resulted in a slowdown in their profitability during the quarter under review. Companies like SAIL, Essar Steel, Tata Steel and Uttam Galva have reduced their interest payments substantially. Non-ferrous metals had their share of buoyancy on the back of higher LME prices for aluminium, zinc, copper, etc. Among the non-ferrous metal companies Hindustan Zine has registered a whooping 572 per cent increase in net profit at Rs 874 crore followed by Hindalco Industries has reported a 85 per cent growth in net profit at Rs 601 crore and NALCO has registered 121 per cent growth at Rs 622 crore over the quarter ended June 2005.

India ’s steel giant SAIL has recorded brilliant 23 per cent increase in net profit at Rs 1,386 crore; this is the highest net profit achieved by SAIL in the Q1 of any fiscal year. The improved financial performance has been achieved despite a rise in price of imported coking coal; prices of other metallic inputs like zinc and aluminium have also been very high. The company’s interest outgo during the period has fallen substantially by 27 per cent at Rs 94 crore against Rs 129 crore over the same period a year ago. Tata Steel has registered a significant increase in its volume of production; the first quarter sales at 1.12 MT have recorded a year-on-year increase of 28 per cent. The company’s sales to the auto sector has risen substantially by 32 per cent to 0.19 MT. Tata Steel’s sales of branded products, Tata Tiscon, has showed a notable increase of 42 per cent. The company has registered a 12 per cent growth in exports at Rs 457 crore compared to Rs 408 crore a year ago.

Information Technology

The information technology (IT) companies have posted vibrant growth in April-June 2006, driven mainly by sizeable outsourcing business, largely from Europe and the US . Our study of 32 IT companies has shown encouraging trend with several IT companies recording robust growth. Aggregate net sales of these companies have grown substantially by 42 per cent to Rs 15,401 crore during April-June 2006 from Rs 10,812 crore over the same period a year ago. Net profit has galloped by 51 per cent to Rs 3,222 crore over Rs 2,127 crore. The four IT giants have reported excellent first quarter results; they have accounted for 38.6 per cent of the $ 22 billion Indian software service exports.

India ’s leading IT company Tata Consultancy Services (TCS) has registered robust growth of 57 per cent in sales revenue and a 40 per cent increase in net profit. The company has performed well across all its traditional domain of activities such as, financial services, telecom and retail as well as across its new services such as, infrastructure support and consulting. The company has hired 7,095 employees during the first quarter of the current fiscal year. Infosys has posted a healthy growth of 50 per cent in its net profit at Rs 800 crore. The company has added 38 new clients and over 8,000 employees during the first quarter of 2006. Wipro has also posted striking 45 per cent growth in net profit at Rs 620 crore; its global IT revenue has grown by 42 per cent year-on-year and has accounted for 78 per cent of its total revenues to stand at $539.3 million (Rs 2,451 crore). The company has added 62 new clients during Q1 2006. From 2002, Moser Bear had reported a constant decline in its profit, but the scenario has changed now; it has posted a net profit of Rs 6 crore for the quarter ended June 2006 from a loss of Rs 11 crore over the same period previous year.

Telecom

The telecommunication sector has been growing rapidly on the back of strong subscriber base. At the end of June 2006, the gross subscribers’ base has touched 153.37 million, of which mobile subscribers have accounted for around 105.95 million and fixed line subscribers about 47.42 million. The aggregate sales of 9 telecom companies have increased by 28.6 per cent to Rs 692 crore for the quarter ended June 2006 from Rs 538 crore and net profit has surged by a healthy 57 per cent to Rs 849 crore.  Bharti Airtel, GTL and Finolex Cables have been the major achievers.

The mobile phone sector had another quarter of high growth, with subscriber base increasing by 14.5 per cent quarter on quarter and 80.3 per cent year on year to reach 102.6 million at the end of June 2006. The extended coverage to new towns and cities has helped increase telecom revenue. The new (net) telephone connections (land lines) provided both by public and private sectors during April- June 2006 has stood at 17.95 lakh, an increase of 76.2 per cent as compared to 10.19 lakh connections provided during April -June 2005. During this period while private sector provided 24.20 lakh wired telephones, the public sector surrendered 6.25 lakh wired telephones.

Capital Goods

The engineering sector is the integral part of the Indian industrial sector. India has a strong engineering and capital goods base. The important groups within the engineering industry include machinery & instruments and electronic goods. According to use-based classification of industries, the first quarter data of 2006 reflects an investment demand led growth in the industrial sector; capital goods industries have forged ahead at a near 23 per cent over an already substantial growth of 13.8 per cent in the same quarter a year ago.

Our study of 34 capital goods companies reflect a healthy growth of 27 per cent in net sales at Rs 13,834 crore for the quarter ended June 2006 from Rs 10832 crore over the same period a year ago. These companies have reported a 12 per cent increase in interest payment at Rs 98 crore from Rs 86 crore. The net profit has surged by 56 per cent to Rs 1123 crore from Rs 716 crore. A robust growth in this segment has continued on the back of healthy order book positions for several companies like Thermax, Bharat Heavy Electricals Limited, L&T, etc and a strong demand both, in the domestic as well as the export markets. Thermax Limited, a leading player in energy and environment sectors, announced a 60 percent rise in net profit in the first quarter of 2006 at. Rs. 318.6 crores. The company's order book position has stood at Rs 2,449 crores at the end of June 2006 as compared to Rs 1,056 crores. Larsen and Toubro has also reported an increase of 10 per cent in net rofit at Rs 157 crore for the quarter under review. The company's engineering and construction segment has recorded an impressive 121 per cent growth in order booking at Rs 6324 crore. International orders have constituted 16 per cent of the total value of orders booked during the quarter. Major portion of orders are accrued from infrastructure and refinery sectors.

Oil and Gas

India is one of the largest oil consumers in Asia-Pacific region and it imports around 70 per cent of its total oil requirement. The performance of oil marketing and refining companies have remained subdued though international crude oil prices have started coming down from their high since last two months.

The combined net sales of 18 oil refining and marketing companies exhibited good growth of 32 per cent for the quarter ended June 2006 at Rs 1,59,855 crore from Rs 1,20,54 crore over the same period previous year. The ratio of total expenditure to net sales has risen substantially to 92 per cent in April-June 2006 from an already high of 90 per cent over the same period a year ago. The profit margins have reduced at operating and gross level over the previous year, but the net profit margin has marginally improved to stand at 5.1 per cent compared to 4.6 per cent. Rising crude oil prices have had a mixed impact; refiners like HPCL and BPCL have posted losses of over Rs 600 crore during the quarter due to under-recovery of prices.

Oil and Natural Gas Corporation Limited (ONGC) has posted sales turnover of Rs 14,677 crore for the quarter ended June 2006 from Rs 10,954 crore over April-June 2005. The increase in turnover has been due to higher price realisation for crude oil, natural gas and naphtha, and also marginal increase in production. The subsidy burden borne by the company during April-June 2006 has stood at Rs 3,120 crore as against Rs 1,748 crore. Despite, the heavy burden of subsidies, ONGC's net profit has risen by 24 per cent to Rs 4,118 crore from Rs 3,318 crore. Reliance Industries Limited has posted only 10.7 per cent increase in net profit due to refinery maintenance and fall in retail fuel sales. The company’s exports of manufacturing products have risen substantially by 86 per cent at 13,270 crore during the quarter ended June 2006 from Rs 7,144 crore. Indian Oil Corporation has registered a turnaround performance by posting a net profit of Rs 1,780 crore for the quarter ended June 2006 from a net loss of Rs 54 crore over the same period a year ago; after considering the profit of Rs 3,225 crore from sale of 20 per cent of its investment in ONGC.

Shipping

One of the exception to the robust financial growth of corporates, has been the shipping industry which has been constantly been reporting paltry profits and sales. Shipping plays an important role in the Indian economy, yet only 30-32 per cent of India ’s sea-borne trade is carried out by Indian shipping companies. The study includes 7 shipping companies namely Bharti Shipyard, Essar Shipping, Gateway Distriparks, Shipping Corporation of India Limited (SCI), Varun Shipping, Great Eastern (GE) Shipping and Mercator Lines.

Table 8 show that, the net profit of all the leading shipping companies have been adversely affected during April-June 2006-07 over April-June 2005-06. The major factors responsible for the deteriorating performance of the Indian shipping companies during Q1 2006-07 have been relatively softer global freight rates, spiralling bunker prices as well as higher interest and depreciation cost. Essar Shipping has recorded the biggest drop of 67 per cent with net profit falling to Rs 37 crore as against Rs 110 crore over a year ago. Similarly, Shipping Corporation’s (SCI) net profit has suffered by 33.6 per cent to Rs 182 crore for the quarter ended June 2006 from Rs 274 crore. One of the reasons for the fall has been the increasing cost of bunkers that has hit vessels on spot voyages. During the quarter under review, SCI’s cost has increased by 53 per cent to Rs 142 crore over the same period a year ago. The average spot shipping freight rate in the key tanker segment has been higher in the quarter ended June 2006 on a year-on-year basis. For instance, within the tanker segment, the average spot freight rate of VLCC (ships uses for transporting crude oil from the Middle East to large refiners across the globe) has stood at $ 50,000 a day during Q1 2006, almost double of the $ 26, 519 a day over Q1 2005. In the Suzemax segment (ships uses to transport products for relatively shorter journeys), the average spot freight stood at $ 40,000 per day in April-June 2006, much higher than $ 29,670 per day from a year ago.

Indian shipping companies are on a massive vessel acquisition spree. SCI is planning to acquire 37 vessels for Rs 6,500 crore; it has chalked out a mega plan to buy 72 vessels with Rs 13,300 crore by 2012. The country’s largest private shipping company, Great Eastern Shipping Company (GE shipping) has recently placed an order for four Long range One (LRI) and five Medium range (MR) product tankers. The group has also ordered four Anchor handling tug cum supply vessels and one platform supply vessel which will be handled by Great offshore after demerger. Essar shipping, which has recently raised $ 200 million abroad to fund its $ 300 million vessel acquisition has plans to source another $ 100 million from internal accruals. Varun shipping is planning to purchase second hand offshore supply vessels, platform supply vessels and multi support vessels for Rs 450 crore.

The shipping companies are on the verge of diversification, venturing into new areas like port development, dry docks, offshore business and logistics. Mercator Lines has forayed into offshore business by placing an order worth Rs 810 crore for premium offshore oil-rig for worldwide drilling. Varun shipping, a major LPG carrier with 77 per cent market share in India , will invest Rs 450 crore by the end of this calendar year on acquiring vessels to support offshore activities.

Prospects for 2006-07

Based on general observations, it is expected that the domestic demand-driven growth momentum would continue during 2006-07. The automobile companies will maintain their growth momentum on the basis of strong growth in domestic and export sales volumes. However, profit margins may remain subdued due to higher input costs mainly aluminium, steel, rubber and plastic and there by raise total cost of production. During 2005-06, the domestic pharmaceutical industry has shown a strong growth. However, in order to sustain growth it is imperative for pharma companies to be internationally competitive. The prospects for 2006-07 are as brighter as it was for 2005-06 on the back of mergers and acquisitions, new product patent and foreign direct investment inflows, etc. A healthy growth in the revenues of capital goods, construction and engineering companies given their ever-enlarging order books is expected to be sustained, assisted by strong investment activity in the economy. The fast moving consumer goods companies are expected to distend their growth rally. Despite a rise in cement prices, demand for cement is expected to be unaltered, due to increased infrastructure activities, mega investments in retail and real estate sector. The invigorating activity in the infrastructure and construction sectors is projected to provide the demand backed revenue growth impetus to the cement sector. The international crude oil prices have started falling down from past two months (September 2006) also government’s decision to issue oil bonds to oil companies would result in better performance of the oil marketing and refining companies. The rising prices of copper, aluminium and zinc in the international market or at London Metal Exchange are expected to benefit the domestic companies.

Reference

BSE (www.bseindia.com); Various media sources

* This note is prepared by Vidya Kanitkar

Highlights of  Current Economic Scene

AGRICULTURE  

The exports of spices and spice-based products from the country have surged by 23 per cent during the April-October 2006 in value terms to touch Rs 1,725.15 crore as against Rs 1,406.2 crore during the same period in the previous, driven by a sharp increase in cumin exports to Rs 136.8 crore against Rs 40.32 crore. In terms of quantity, however, the exports have registered a 2 per cent decline to 195,432 tonnes from 199,477 tonnes a year ago, mainly due to a 6 per cent drop in chilli exports from 70,540 tonnes to 66,250 tonnes during the period under consideration.

As per the monthly forecast of International Grain Council (IGC), the total global grain output in 2006-07 (July-June) is likely to be 1,557 million tonnes. While consumption is projected at 1,623 million tonnes, the world carryover stocks are pegged at 242 million tonnes, which are at a 10-year low. Thus, the global grain market is expected to witness a very tight supply situation due to second successive fall in world grain output coupled with a further rise in consumption.

As per the estimates of the US Department of Agriculture (USDA), sugar output of the country for the sugar season October-September 2006-07 is likely to be 25.1 million tonnes.  It has estimated sugar consumption at 21.0 million tonnes, while export are expected to be 2 million tonnes. With stocks of 4.7 million tonnes at the start of the current sugar season, the total sugar availability has been pegged at 29.8 million tonnes.  The global sugar output, according to USDA, is expected to increase to 155.2 million tonnes, 10.5 million tonnes higher from last year. The consumption is likely to be 146 million tonnes, up 3.2 million tonnes from a year ago.  The exports are forecast at 47.7 million tonnes (down 3 million tonne from a record 50.7 million tonne in 2005-06) and year-end global stocks at 33.2 million tonnes, up 4.2 million tonnes from a year ago. The report has attributed the rise in global sugar output to higher production in Brazil , India , China and Thailand . 

The continuation of ban on sugar exports is likely to benefit sugar industry in Thiland, as sugar importing countries like Indonesia, Sri Lanka and Bangladesh are likely to buy more from Thailand than from India. The central government, with a view to control the rising prices of essential commodities, has banned the export of sugar till from July 04, 2006 to March 31, 2007. Thailand is the biggest sugar exporting country in Asia and it is expected to have a bumper crop of sugarcane. Thailand ’s Cane and Sugar Board has revised up its forecast for 2006-07 sugarcane production by 4 per cent to 59.78 million tonnes from the July projection of 57.30 million tonnes.

Black pepper exports from the country to the US have increased by 80.1 per cent to 4,395 tonnes, compared with 2,440 tonnes exported in the same period in 2005.  A subsidy scheme introduced in November 2005 has helped in boosting Indian exports to the US . An ocean freight subsidy of Rs 5 per kg for the exports has helped the exporters to compete with other pepper producing countries like Vietnam on the price front. However, Vietnam has continued to be the main supplier, shipping 15,108 tonnes followed by Indonesia supplying 8,541 tonnes and Brazil with 8,317 tonnes.  According to latest reports of International Pepper Community, India has been the largest exporter of ground pepper to the US . The US has imported 5,359 tonnes of ground pepper during January – September 2006, reporting an increase of 3.7 per cent when compared to imports for the same period last year.

The Union Ministry of Environment and Forests has notified empowering testing of seeds of genetically modified crops by the State seed inspectors. Under this exercise, the seed inspectors have been allowed to take samples of genetically modified crops for analysis and also to regulate the quality as per the provisions of the Environmental (Protection) Act.

Industry

Overall

Industrial sickness that has been plaguing India Inc ever since liberalisation is on the downslide for the past few years. However, notably, the decline in sickness is not due to “improved economic efficiency by the firms, but due to consolidation and restructuring in a prey-predator environment”, say experts. Standing high in 2000, the number increased at a high rate till 2002, after which year the number of companies turning sick as reported by BIFR started declining (See table). The number of cases of sickness reported has hit the nadir in 2006; till October 2006, the number of companies against which cases have been registered by BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 stood at just 74.

Textiles

The Confederation of Indian Textile Industry (CITI) has asked the finance ministry to extend the `optional' excise duty scheme to all textile producers including the man-made fibre consuming industry. To facilitate this, it wants the excise duty on man-made fibre products cut from the present 8 per cent to 4 per cent at par with products from cotton. The delegation has also suggested the total removal of the import duty on polyester/viscose fibre to make imports viable. Another plea from the apex textile body is to remove the excise and customs duty on furnace oil used by the textile industry for captive generation, which, is expected to bring about the parity in the power costs between India and those in the other competing countries. Making specific fiscal measures to make Indian textiles globally competitive, the CITI has also favoured scaling down in the excise duty on all textile machinery from 16 per cent to 8 per cent and the customs duty to 5 per cent which will assist the domestic machinery industry in capacity building and also smooth sourcing of machinery from international suppliers. Among the other fiscal sops sought areexemption from service tax for all export activities, removal of the textiles committee cess and lowering of the central sales tax to 2 per cent immediately. The CITI delegation wants the government to extend the TUFS up to the 11^th Plan and make available sufficient funds for the scheme.

Infrastructure

Power

Buoyed by the steady progress on the Indo-US civilian nuclear deal, the central government is firming up plans to set up around 5 new coastal nuclear power stations using high-end reactors of 1,000 MWe and above. The stations would be designed to accommodate up to 6-8 such reactors so that the overall capacity of each station can be gradually ramped up to almost 8,000 MWe. A 12 member site selection committee under the department of atomic energy (DAE), which recommends locations for setting up nuclear plants, has visited a number of coastal areas in the country and is likely to select sites in Gujarat, Andhra Pradesh, Orissa and West Bengal . In all, the state-owned Nuclear Power Corporation of India Ltd (NPCIL) would take up a total of 4-5 coastal nuclear stations based on the committee's final recommendations. The projects are expected to use light water reactors and are most likely to be run using imported fuel and hence these coastal sites are being selected. With the possibility of transfer of technology from the US appearing brighter given the progress on the Indo-US deal, importing reactors larger than the 700 MWe ones developed by NPCIL is being planned for these new projects. All the new probable sites are being examined in terms of their suitability for setting up large nuclear stations and technical data including soil test, availability of water, flood data, and geo-morphological data is being collated for each one of them. NPCIL, the sole utility implementing nuclear power projects in the country, has a total of 16 operational plants with a capacity to generate around 3,900 MW. Six more plants with a combined capacity of 3,000 MW are in an advanced stage of construction, the first of which is expected to be operational by March 2007.

Petroleum, Petroleum Products and Natural Gas

The government has announced that petrol would be cheaper by Rs 2 per litre and diesel by Re 1 a litre, on the heels of the Congress President, Ms Sonia Gandhi's suggestion and pressure from the left parties to consider reducing the prices of the two products in order to protect the consumer. The Petroleum Minister, Mr Murli Deora, has informed the Parliament that it had been decided to reduce the retail selling prices of petrol and diesel with effect from 29th Nov 2006 midnight for the state-owned oil marketing companies (OMCs). As per the minister, the government had evolved a policy of equitable burden sharing to deal with the consequences of high international oil prices so as to put least burden on the common man and also to protect the health of navratna oil companies. Though the move would bring respite to the consumers, the margins of the state-owned oil marketing companies may take a hit. According to analysts, while petrol margins would come down by Rs 2, margins in the case of diesel would be negative and if crude prices again surge ahead, the situation could worsen unless domestic prices are revised accordingly. They argued that under recovery has a direct co-relation with profitability. The under recovery suffered by OMCs for the first half of the current fiscal year on sale of the four petroleum products stands at about Rs 33,200 crore. As per estimates based on current crude prices, the under recovery for 2006-07 is now expected around Rs 50,000 crore (including the Rs 2,000 crore additional impact due to price cut announced).

Carbon Fibre

A Rs 30-crore, indigenous carbon fibre manufacturing plant, which will feed the Light Combat Aircraft (LCA) as well as civilian SARAS aircraft, among other applications, is ready for commercial production. The process of quality certification of the carbon fibres is under way and it is expected to be ready by March 2007. The plant with an annual capacity of 20 tonnes at the NAL campus is a joint initiative of the Defence Research and Development Organisation and NAL. It will be able to meet the demands of LCA, Agni missile, projects of the Indian Space Research Organisation as strategic material and also some commercial industry. In NAL's passenger aircraft SARAS, whose third prototype is under development, a conscious decision has been taken to reduce the weight which is to be achieved by the use of carbon fibres. Similarly, in the missiles and civilian aircraft, the use of this lightweight, tough and anti-corrosive carbon fibre-based composite is underway. The demand for carbon fibres is so high that aircraft major like Boeing has booked large portion of the material from wherever it is produced. With the civil aviation sector to boom in India , the demand for the material would be high. As strategic use, the Indian missiles will be a major customer.

Coal

The ministries of power and coal and the Central Electricity Authority (CEA) are finalising new norms to remove various constraints faced by power utilities in procurement of coal. The regulatory utilities may be allowed up to 100 per cent of their certified requirement through fuel supply and transportation agreement (FSTA). To ensure fuel security to coal-based power plants, a tripartite FSTA would be signed by the coal company, railways ministry (for rail fed coal-based stations) and power utilities. CEA has brought to the notice of power and coal ministries that self-regulations imposed by power utilities and unloading constraints at some thermal stations are critically affecting power production. In the past, some of the power stations had requested companies to restrict the supply of coal due to excessive stocks or lack of storage space. CEA has argued that power stations have adequate unloading capacity and rakes can be unloaded in free time allowed. However, oversized coal, stones and boulders and sticky coal during monsoon result in high detention of rakes. Bunching of rakes by railways also results in high detention of rakes.

Railways

A key point raised by the 14th Parliamentary standing committee report on land management by the railways is that even though the Indian Railways owns 4.31 lakh hectares (ha) of prime land, it is not working towards developing them for supplementing its internal resource generation. The committee has criticised the railways ministry for not having formulated a business model for development of its vacant land, despite this being a key component of the Ninth Plan for Railways. The Committee has also censured the Railways regarding the fact that the ministry has not been able to set up the Rail Land Development Authority (RLDA) even after a period of 10 years. While the ministry has already notified setting up of the RLDA, it has not been approved by the law ministry, which wants rules for the proposed body to be framed first. As far as the development of surplus land is concerned, the panel has recommended that surplus railway land for commercial development should be leased on short-term basis only, for a maximum period of 30 years. This will ensure that railways will be able to retrieve it easily, if required, in the future. About 2,033 ha of railway land, mainly in metros and urban areas, has been encroached upon. However, the committee has reported that Railways is preparing a unified policy to deal with such encroachments.

Ports

The Maharashtra coastline is to soon have five new ports to cater to the needs of automobile and manufacturing industries and also benefit the special economic zones being set up in the state. All the ports are being constructed on a built-operate-transfer (BOT) basis. The ports, coming up at Rewas, Dighi, Jaigarh, Ratnagiri and Vijaydurg, along the Konkan coastline will address needs of various industries in the region as well as those being set up across the state. The work on two ports, Rewas and Dighi, has already started; for the other three ports the state government proposes to invite bids from private parties are Jaigarh, Vijaydurg and Ratnagiri. Currently, Maharashtra houses two of the country’s biggest ports— Jawaharlal Nehru Port at Nhava Sheva near Mumbai and Mumbai Port in the metropolis.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 5.45 percent for the week ended November 18,2006 as compared to 5.29 per cent in the last week or at a lower rate of 4.27 per cent during the corresponding week last year.

During the week under review, the WPI declined to 208.8 from 208.9 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.5 percent to 213.4 from its previous week’s level of 214.5, mainly due to decline  in prices of ‘food article like jowar, fruits and vegetables , urad and fish marine and arhar. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained unchanged at 329.4. The index of ‘manufactured products’ group rose by 0.1 per cent to 180.3 from 180.1 during the week under review. Food Products like oil cake, rice bran oil, groundnut oil, rape and mustard oil, chemicals and chemical products prices rose.

The latest final index of WPI for the week ended September 23,2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 207.9 and 5.43 per cent as against their provisional levels of 206.6 and 4.77 per cent, respectively.

Banking

With a view to liberalise procedure related to current account transactions, the RBI has permitted authorized dealers (DC) category – I banks to permit drawal of foreign exchange by person for purchase of trademark of franchise in India, without approval of the RBI.

Plagued with the problem of rising defaults estimated to be around Rs 4,000 to Rs 5,000 crore by many state governments undertakings, public sector banks (PSBs) have sought the RBI’s intervention to recover their dues. The state government corporations either have defaulted on both SLR and non-SLR bonds. The Indian Banks Association (IBA) has also studied the matter and submitted its report to the RBI a month ago detailing the possible action plans by the central bank.

Financial Markets

Capital Markets

Primary Market

The Bangalore-based Sobha Developers, SDL was open for subscription with a public issue of 88,93,332 equity shares of Rs 10 each through book building process in the price band of Rs 550 - 640 per share. The issue closed on November 29. The issue comprised a reservation of upto 8,89,300 equity shares for SDL's permanent employees and a net issue to the public of 80,04,032 equity shares. It constitutes 12.20 per cent of the post-issue paid-up capital of the company. The issue was oversubscribed among all the categories and the portion reserved for qualified institutional buyers (QIBs) was oversubscribed by about 169 times.

LT Overseas, maker of Dawat brand of rice, was open for subscription with an initial public offering, IPO of 70,35,714 equity shares of Rs 10 each for cash at a premium to be decided through the book-building process. The issue price was fixed between Rs 50 and Rs 56 per equity share of Rs 10 each. The issue closed on November 30, 2006.

 Secondary Market

The market kept its rally intact as investors continued to mop-up shares at higher levels. The BSE sensex advanced 141.45 points (1.03 per cent) during the week ended 1 December, to 13,844.78, a record closing high. The S&P CNX Nifty rose 46.75 points (1.18 per cent), to settle at 3,997.60, an all-time closing high. Trading for the week began on a firm note. On Monday (27 November), the sensex rose by 70.26 points, to 13,773.59, a record closing, partly on steady-to-firm Asian markets and partly due to short covering in the derivatives segment. However, it fell by 171.64 points, to 13,601.95, tracking weak global markets on 28 November 2006. The BSE sensex rose marginally by 14.78 points, to 13,616.73 on 29 November, amid a mixed trend in its constituents. On 30 November 2006, the sensex closed with a gain of 79.58 points, at 13,696.31.  The sensex jumped 148.47 points to 13,844.78 on Friday (1 December), a record closing following a smooth rollover of November contracts and the subsequent build up for December series, coupled with robust GDP figures.

Oil & refinery stocks slipped after the government announced a cut in retail prices of diesel and petrol by Re 1 and Rs 2, respectively, on Wednesday. Also crude oil prices moved near $62 per barrel, leading to a further fall in these stocks. Indian Oil Corporation (down 11.10 per cent to Rs 445.50), Hindustan Petroleum Corporation (down 7.30 per cent to Rs 289.75) and Bharat Petroleum Corporation (down 9.15 per cent to Rs 342) declined.

The Government is likely to come up with foreign direct investment norms for stock exchanges. The notification specifying the FDI limit is expected within in a week. It will mention separately the FDI limit as well as the FII limit for investment in the stock exchanges," Mr K.P. Krishnan, Joint Secretary in the Finance Ministry, told newspersons on the sidelines of the India Economic Summit 2006 here on Monday. The Securities and Exchange Board of India had recently issued new guidelines for corporatisation of stock exchanges. These guidelines stipulate that the public should continuously hold at least 51 per cent of the equity in such exchanges. The capital market regulator has also capped the individual investment, direct or indirect, in such exchanges at five per cent.

The stock of Lanco Infratech, an infrastructure development company with interests in power, construction and property development, made a debut on the bourses at Rs 270, at a premium of 12.5 per cent to the issue price of Rs 240. At the BSE, the stock touched an intra-day high of Rs 275 and low of Rs 239.55 before closing at Rs 241.40. The stock touched an intra-day high at Rs 290 on the NSE before settling at Rs 241.40. The public issue of the company was oversubscribed 11.88 times. The company entered the capital markets with an initial public issue of 4.44 crore equity shares of Rs 10 each at a premium to be decided by the book building process. The company plans to use the proceeds for capitalising its power and property subsidiaries. Part of the issue proceeds will go into the equity of Nagarjuna power project, payment for acquisition of 13.3 per cent stake in Aban power and payments to Globeleq for acquiring its 25.1 per cent equity stake in Lanco Kondapalli, an independent power project located near Vijaywada.

The book building process for de-listing of shares from the stock exchanges is proposed to be scrapped by the SEBI, which has put in place an alternative pricing mechanism. Under this, the offer price shall be higher than the fixed price, which would be the floor price plus a premium of 25 per cent. The floor price would be determined by Regulation 20 of SEBI (Substantial Acquisition of Shares and Takeover). Regulation 20 sets down the norms for the determination of the minimum offer price (in this case floor price). Under the second option, the offer price will have to be over the fair value determined by an accredited rating agency plus a premium of 25 per cent.

Derivatives                                  

The settlement went off smoothly with unusually low volatility across both cash and F&O sections. The new settlement seems to have started with a well-distributed bull-run.The spot Nifty touched 4001 and closed at 3997-plus. The December Nifty futures were settled at 4007 and January Nifty was settled at 4012.

Government Securities Market

Primary Market

Under the weekly T-Bill auctions, the RBI mopped up Rs.2563 crore and Rs.2273.18 crore through 91-day T-Bill and 182-day T-Bill. From this, the RBI raised Rs.1500 crore and Rs.1000 crore under the Market Stabilisation Scheme (MSS) through 91-day T-Bill and 182-day T-Bill respectively. The cut-off yields for the 91-day and 182-day T-Bill were 6.6877 per cent and 6.8869 per cent respectively.

The Government of India have announced the sale (re-issue) of 7.37 per cent 2014 and 8.33 per cent 2036 for notified amounts of Rs.5,000 crore and Rs.4,000 crore, respectively through price based auction using multiple price method on December 8, 2006.

RBI issued 7.75 per cent Oil Marketing Companies Government of India Special Bonds 2021 for Rs.5,000 crore to three Oil Marketing Companies as compensation. The Special Bonds were issued to three Oil Marketing Companies as compensation for under-recoveries in their domestic LPG and Kerosene (PDS) operations during the current financial year. The second tranche of the Special Bonds was issued at par to Indian Oil Corporation Ltd. (including IBP) for Rs.2,838 crore, Bharat Petroleum Corporation Limited for  Rs.1,135 crore and Hindusthan Petroleum Corporation Limited for Rs.1,027 crore.

Secondary Market

Call rates during the period ranged between 6.14 per cent and 6.25 per cent, while repo rates ranged between 5.13 per cent and 6.15 per cent and the CBLO rates ranged between 5.19 per cent and 6.05 per cent. The daily average outstanding amounts in the LAF (reverse repo) operations conducted during the period were Rs.15,684 crore vis-à-vis Rs.17,279 crore and Rs. 16,350 crore for CBLO and Call market respectively.  

The weighted average YTM of G.S 2016 7.59 per cent bond was 7.4171 per cent on December 01, 2006 as compared to 7.4425 per cent on November 24, 2006. The 1-10 year YTM spreads decreased by 5 bps to 53bps.

Bond Market

Speaking at a session on Financial Markets at the India Economic Summit 2006, Mr Krishnan, Joint Secretary in the Finance Ministry said that, post-Patil committee recommendations on corporate bond market, the Finance Ministry had asked a law firm to identify the legislative changes that may be required to implement the recommendations of the committee. "It was found that about 78 pieces of legislation require a change. These changes include administrative as well as legislative change. We are now identifying those that could be done through executive orders and those that may require change in law," Mr Krishnan said. He pointed out that an issue like definition of "corporate bond" needs attention. "There is no specific definition of a corporate bond. We may have to amend the Companies Act and the SCRA Act for this," he said. On the issue of deepening the capital market, he underscored the need for more good quality issues to tap the capital market.

Foreign Exchange Market

The rupee-dollar exchange rate depreciated from Rs 44.87 on November 24 to Rs 44.67 as on December 1. The six-month forward premia closed at 2.1 per cent (annualized) on December 01, 2006 vis-à-vis 1.96 per cent on November 24, 2006.

Commodities Futures derivatives

The businesses on the national commodity exchanges are witnessing a declining trend amidst rising commodity prices. The aggregate turnover on NCDEX plunged fromRs 1,17,47,142 crore in September to Rs 94,12,513 crore in October. Similarly, the turnover on MCX fell from Rs 1,90,128 crore in September to Rs 1,76,185.2 crore in October. One of the major reasons for declining trading volumes could be due to losses incurred by investors in the last several months because of high volatility. In addition, new market participants have turned rather wary of entering this market without gaining adequate knowledge of the market and products. The futures market regulator - Forward Markets Commission (FMC) - has played a key part in the slowdown by tightening regulatory oversight through higher margins, penalties and so on. Systemic risks - bad and / or delayed deliveries - too have scared participants away. The regulator has cut open interest position on many commodities forcing many investors to liquidate their positions to meet the norms. The imposition of additional margins on volatile commodities has also scared away many small investors.

Insurance

Life Insurance Corporation of India (LIC) has launched “Corporate Active Data Warehouse (CADW), the world’s largest warehouse in the life insurance sector and world class data centre to house its entire IT infrastructure relating to its core applications. The CADW has been fed with data related to 28 crore policies and their transactions over the past 5 years of which 19 crore policies are live. Under the project, LIC’s 2048 branches, 71 pension and group business units, 7 zonal offices and the corporate office have been centralized CADW.

Corporate Sector

Tata Power has registered a 13.8 per cent increase in sales revenue at Rs 1200 crore for the quarter ended September 2006 and its net profit surged by 61 per cent to Rs 202 crore over the same period a year ago.

Reliance Communications has awarded $ 700 million equipment contract to Chinese telecommunications vendor ZTE Corporation. Under the contract, the Chinese company will supply GSM equipment, including base transceiver stations (BTS), receivers, soft switches and other equipment, to the Indian company.

Tata Consultancy Services (TCS) has signed $ 65 million, seven-year agreement to provide a full range of managed IT services to Somerfield, a leading UK-based small-format food retailer. Under the new agreement, TCS will takeover the entire IT operations, asset management and planning for Somerfield and provide a fully managed IT infrastructure and applications service within Somerfield, aimed at meeting its current and future business demands. 

Ranbaxy Laboratories has strengthen its position in the South African pharmaceutical market by acquiring Be-Tabs Pharmaceuticals (Pty) Limited, the fifth largest generic player in the country for $70 million. This is the fourth major overseas acquisition of the company.

Thomas Cook ( India ) Limited (TCIL), has acquired Travel Corporation ( India ) Private Limited (TCI) in an all cash deal worth Rs 182.45 crore. TCIL proposes to acquire the entire shareholding of TCI, which, post acquisition will be a wholly owned subsidiary. TCIL will also purchase 76 per cent in visa facilitation services (VFS) company TT Enterprises Private Limited for Rs 16.91 crore.

External Sector

The government is considering a proposal to raise the foreign investment cap in domestic carriers from 49 per cent to 74 per cent. This has been necessitated following the failure of the existing regime to bring in substantial foreign direct investment in the sector.

A Group of Ministers has cleared a proposed legislation that will allow foreign universities to set up campuses in India . Once approved by the Cabinet and passed as law, the Foreign Education Providers (Regulation) Bill will grant deemed university status to such institutions.

The finance ministry has cleared 17 FDI proposals worth 3536 crores including Italian auto major Fiat SPAs proposal to enhance investment in its Indian arm.

Telecom

BSNL is tying up with the world’s largest chipmaker, Intel, to deploy the country’s first wireless broadband and telecom service on WiMAX.

*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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