Current Economic Statistics and Review For the
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Theme
of the week: India’s Outward - Foreign Direct Investment (O-FDI)*
An
important and noteworthy development in Based
on the nature and cross-border production activities undertaken by Indian
firms, the emergence of O-FDI from (1) From 1975 to 1990 (Pre-liberalisation period) (2) 1991 onwards (Post liberalisation period) (3) 2001 onwards The
First Phase (From 1975 to 1990) During the first phase, around 230 O-FDI activities were registered, of which 128 were from the manufacturing sector and 99 from the services sector. In the initial 10 years, i.e. during the period 1975 to 1985 the outflow of O-FDI was around US$116 million and from 1986 to 1990 the outflow stood at US$ 106 million. The Second Phase (From 1990 to 2000) One of the significant features of the Indian economy during the 1990s has been the phenomenal rise of O-FDI activity of Indian companies. Measured by the value of O-FDI as per the balance of payments (BoP) data, the period 1996 – 2001 witnessed a sharp rise in outflow to US$ 3,529 million compared to mere US$ 733 million during 1991-95.
The post-liberalisation period has coincided with the emergence of the services sector as a fast growing area, and in it IT and software segments have exhibited vast comparative advantages. From 1975 to 1995, the O-FDI outflow for manufacturing sector was higher than the services sector; on the contrary, during 1996 to 2001 the services sector O-FDI flows have risen at a faster pace than the flow to manufacturing sector. Predominantly, the software segment of the service sector led the O-FDI outflow. The contribution of the services sector enterprises in O-FDI flows has sharply increased from a meagre 20 per cent during 1975-85 to 62 per cent in 1996-2001. The
Third Phase (2001 onwards) The
liberalisation of O-FDI policy of Factors Fuelling Acquisition by Indian companies abroadFavorable
economic conditions, liberal trade policies and huge foreign exchange
reserves are the major factors, which has led to rise in number of
overseas acquisitions. Liberal Policies Several rules, regulations and restrictions that had a prohibitive effect on Indian companies going abroad, have been lifted or relaxed since the economic liberalization of the country. The regime for Indian investments overseas has been substantially liberalised in order to provide Indian industry access to new markets and technologies, including research and development, with a view to increase competitiveness globally and for strengthening exports. For instance, Indian companies and registered partnership firms are now allowed upto 100 per cent of their net worth investment in joint ventures and wholly owned subsidiaries overseas, without any separate monetary ceiling. Foreign
exchange reserves As
on December 1, 2006 Sizeable cash reservesThe Indian corporate sector has registered remarkable growth in revenues and profits during the past 2–3 years. In case of non-government non-financial public limited companies, the healthy growth in profits has accompanied by lower interest burden and tax provision. The robust performance has reflected through lower debt-equity ratio and inventory to sales ratio, with a substantial growth in exports. As a result, Indian companies are having sizeable free cash reserves, which they are using it for making acquisitions both in the domestic as well as international markets. Sector-wise
Indian Investment Abroad In recent years, Indian companies have increased its export competitiveness in the global market by investing heavily so as to raise the scale of operations to global size capacities. Total (equity and loans) investment abroad by Indian companies in 2005-06 stood at US$ 2.7 billion, most of which went to the manufacturing sector (57.4 per cent). thus, during the third phase, it is the share of manufacturing sector in O-FDI is witnessing a buoyant growth; such outflows have increased to US$ 1,538 million in 2005-06 from US$ 169 million in 2000-01.
Cumulative
outward FDI flows crossed US $ 9 billion in 2005-06. In terms of the
outward FDI stock, Benefits of O-FDIA rise in FDI outflows has enabled Indian companies to expand and diversify their operations across a wider spectrum of countries for diffusion of technical innovations and managerial expertise. Some of the major benefits arising out of overseas investments are as follows: 1) Access to wider global markets and backward intergration 2) Source of increased exports of goods and services; 3) Transfer of technology and skill; 4) Sharing of infrastructure & R&D expenditure, moreover sharing of results of R&D; 5) Promotion of brand image; 6)
Utilisation of raw materials available in
7) Employment generation; Investments
in joint ventures (JVs) and wholly-owned subsidiaries (WOS) abroad have
emerged as important avenues for promoting global business by Indian
enterprises. Overseas investment is being funded through a variety of
sources such as drawal of foreign exchange in Cross-Border
Mergers and Acquisitions –
O-FDI has begun to grow rapidly, particularly through mergers and acquisitions (M&As). As per the RBI’s annual report for 2004-05, in 2003 Indian enterprises total cross border acquisitions were worth US $ 1,362 million. As per a recent study made by Ficci, Indian companies made over 300 overseas acquisitions between 2000-2006 with deals worth over $10 billion. Of a cumulative 306 outbound acquisitions by Indian companies during the period under study, the IT-ITeS sector accounted for 28 per cent. The targeted firms are being used as platforms to gain access into foreign markets by leveraging the market positions already established by these firms in their respective domestic market. Most of the Indian companies have followed an inorganic route to expand their overseas business. Destination
of
Destination-wise,
the
A list of some major acquisition made by Indian enterprises in the last 3 – 5 years has been provided in Table No. 5.
Challenges
Ahead During
the third phase (2001 onwards) With increasing globalisation, Indian companies will have to continuously adapt themselves to successfully counter increasing competition. To manage technology as a global firm, Indian firms need to take up technology, when it is in the growth stage, develop design capabilities, bring out product innovations and differentiate their products/services with technology. The large R&D expenditure of companies in developed countries translates into substantial competitive strength for them. Indian companies suffer the disadvantage of inadequate expenditure on R&D to develop process know-how and engineering skills Another
issue that hampers trade is the lack of protection for Intellectual
Property Rights (IPR). Generally, countries and companies trading with As
well though Indians filed a large number of patents in Not many Indian consulting firms have ISO accreditation that can enhance the quality image of Indian firms in the eyes of overseas buyers. Project export companies have made impressive progress in areas like civil construction, turnkey projects, technical services, and earned a niche for themselves. The projects range from power generation, transmission and distribution, dams, tunnels, oil exploration, operation and maintenance to export of capital goods, transport equipment and consultancy services. But, presently, the Indian companies have been facing competition primarily from, exporters from developed countries and newly industrialising countries. Simultaneously
at the macro level, “the boom in the outward investments is likely to
increase external pressure on ReferencesGOI
(2006): ‘Annual Report 2005-06, Information Technology’, Ministry of
Communications and Information Technology, Department of Information
Technology, IBEF,
‘Going Global, India Inc. in IBEF,
‘Going Global, R. Nagaraj (2006): ‘Indian Investments Abroad: What Explains the Boom?”, EPW, November 18, 2006. Pradhan
J P (2005): ‘Outward Foreign Direct Investment from Pradhan J P
(2003): ‘Rise of Services Sector Outward Foreign Direct Investment from Open Trade, July-September 2006, Vol.1, Issue No. 1, Mumbai. RBI (2006): Annual Report 2005-06, August 30. RBI (2005): Annual Report 2004-05, August 29. RBI (2004): Annual Report 2003-04, August 30.
* This note is prepared by Bipin K. Deokar
Highlights of Current Economic Scene AGRICULTURE
Marine
exports from the country to the According to ministry of Consumer Affairs, Food and Public Distribution, the cumulative quantity of wheat imported in the country, as on November 28, 2006, have touched 33.3 lakh tonnes. While a total 27.4 lakh tonnes have so far been discharged or are under discharge in various ports of the country, 5.89 lakh tonnes of wheat have been lying at the ports and 20.02 lakh tonnes have already been moved to various depots of Food Corporation of India (FCI). The weighted average price, at which STC has contracted the 55 lakh tonnes of wheat, has been $205.31 per tonne CIF (cost, insurance, freight) or nearly Rs 9.25 per kg. and it would entail a foreign exchange outflow of $1.13 billion or Rs 5,075 crore. As
per Tea Board, production of tea, during January-September, 2006, has
fallen in southern states by 5.82 million kg to171 million kg with Tamil
Nadu posting the largest decline, where tea production has decreased by 6
million kg to 117 million kg. As against this, tea production has
registered an increase of 29.7 million kg to 539 million kg in northern
part of the country with The spices exports from the country during April-October 2006 have increased by Rs 318.96 crore in terms of value, though they have fallen by 4,045 tonnes over the corresponding period of the last year. Total shipments have stood at 1,95,432 tonnes valued at Rs 1,725.15 crore compared with 1,99,477 tonnes worth Rs 1,406.19 crore in the same period a year ago. Exports of value-added products such as curry powder/paste, mint products and spice oils and oleoresins have risen by Rs 74.05 crore to Rs 813.18 crore from Rs 739.13 crore in April-October 2005. Sharp fall in some of the items such as chilli, coriander has led to the drop in total quantity exported. Pepper exports, for the first time since 2002-03, have increased to 13,825 tonnes, valued at Rs 128.78 crore, against 8,971 tonnes, valued at Rs 76.32 crore of last year, due to tight supply position in the global market and competitive price achieved through availability of export subsidy. As per the Solvent Extractions' Association of India (SEA), oilmeal/extraction exports during November 2006 have been 5.8 lakh tonnes, 2.6 lakh tonnes higher than 3.2 lakh tonnes a year ago. Soyabean extraction has continued to dominate the basket of oilmeal exports. Oilmeal exports have reported a robust increase of 40 per cent to 25.5 lakh tones during April-November 2006 from 18.2 lakh tonnes a year ago. Soyabean and rapeseed meals have contributed towards export figures with 16 lakh tonnes and 5.9 lakh tonnes respectively in the first 8 months. Consortium of Indian Farmers’ Association (CIFA) has demanded a whopping Rs 18,000 crore one-time investment for the irrigation sector, farm loans at 4 per cent and a complete loan waiver on two successive crop failures. CIFA has also asked for fixing crop insurance premium at 1 per cent and requested that the assessment of damage be done on an individual crop basis. The
government has no plans of banning the genetically modified crops
including Bt cotton, which has been the only genetically modified crop
approved by the designated authority, Genetic Engineering Approval
Committee, for commercial cultivation.
According to the official updates, the area under cultivation of Bt
cotton has risen by 154 per cent to 30.84 lakh acres in 2005 from 12.13
lakh acres in 2004 due to impressive increase in Bt cotton acreage in
major producing states of The finance ministry has extended the `nil' import duty regime on pulses to July 31, 2007 with the aim of reducing inflationary pressure. It had earlier allowed duty-free imports of pulses up to March 31, 2007. IndustryAutomobiles As
per figures released by Pharmaceuticals The ministry of commerce and industry has refused to support the draft legislation for the National Pharma Policy put forth by the ministry of chemicals. According to the commerce ministry, the move is against the directives being pursued by the government since 1995 as per which the policy had been to steadily reduce the number of drugs under price control. The commerce ministry said "the policy regime has increased competition and ensured that prices remain affordable. Further, our domestic industry for generic drugs has become globally competitive. In this context, the commerce ministry has said that keeping medicine prices under control as proposed would not be beneficial for the industry. InfrastructureInfrastructure
Sector Regulator The country’s infrastructure sector may get a complete makeover with the Planning Commission mulling terms of bringing about a uniform law to deal with regulatory issues in the sector that would supplement the existing sector specific legislations. As per the commission, a uniform regulator would help eliminate proliferation of regulatory commissions, help build capacity and expertise, promote consistency of approach and save on costs. It adds that regulation must be laid in areas where there is only one dominant player, particularly railways, oil and natural gas and coal. The commission is trying to define the role of the regulator as well as working to bring about a consensus on the matter among various ministries. An approach paper has recommended that three sectoral regulators be created - one to deal with electricity and gas, another for transport and the third for communications. Another key recommendation of the approach paper is the setting up of separate appellate tribunals for the three sectors. The need for a uniform framework in the infrastructure sector has arisen due to the fact that sectoral approach in creating regulators has led to uneven regulatory environment as well as delayed economic growth. The fact that the issue of a uniform regulatory framework for the sector is part of the UPA government’s common minimum programme has also given it an impetus. Power The
western region of Coal The
government has earmarked 10 coal blocks to be allocated to the central and
state undertakings like State Trading Corporation and Mineral Development.
These blocks with coal reserves of 6,072.15 million tonnes are situated in
north Karanpura, Rajmahal Gr, Ib Valley and Talcher coal fields. The coal
ministry would allot these coal blocks through government dispensation
route, provided the central and state undertakings or companies or
corporation are authorised to undertake coal mining. They should be
entitled for coal mining as per the provisions under their memorandum of
articles of association and the allocation of these 10 blocks will be as
per the relevant provisions of the Coal Mines (Nationalisation) Act, 1973.
Some of these coal blocks are not explored in detail and only regional
prospecting has been done. The coal ministry’s move is quite crucial,
especially when the mismatch between demand and supply of coal has been
increasing quite rapidly. Demand for non-coking coal, which accounts for
more than 90 per cent of the total demand, is expected to increase at a
compounded average growth rate of 8 per cent, driven by increasing
consumption from cement sectors. The growth of the power sector, which
accounts for 80 per cent of total non-coking coal demand, would be aided
by the aggressive capacity addition expected during the 11th
Plan period. Demand for coal from the cement sector will be driven by
capacity expansions and captive power plants. Demand for coking coal,
mainly from large integrated steel players, is expected to double to 55.8
million tonnes in 2011-12. Railways’
Bio-Diesel Initiative The railways has announced that they would float expressions of interest (EoI) within one month for farmers, cooperative societies and others to spur growth of fuel oil plantations over 40,000 hectares of their wasteland, aimed at production of bio-diesel. To fetch meaningful response to the EOIs, the ministry will create a special purpose vehicle offering incentives to farmers and growers of fuel oil plants since the railways would be the largest buyer for bio-diesel; the Indian railways have already created a special public-private partnership cell for this purpose. About 2 billion litres of diesel fuel are consumed annually by nearly 4,000 freight and passenger locomotives, around 100-120 are added to the fleet every year and the annual expenditure of the Indian Railways on diesel fuel is about Rs 4,400 crore. As per the ministry, bio-diesel, blended with petro-diesel, can serve as an alternate cheaper fuel option for the railways. Bio-diesel could be used in medium-speed diesel engines with a blend of 10 per cent bio-diesel and 90 per cent petro-diesel. With increased bio-diesel supply, the railways will not only save on operating costs but also check the pollution levels. However, the EoIs would be floated for only 40,000 hectares of wasteland as the railways would like to keep 4,000 hectares for its other users like farmers who would be permitted to grow oil fuel plants like jatropha curcas and others. The railways have already signed an MoU with Indian Oil Corporation, offering it 500 hectares of land for cultivating jatropha curcas, about 80 hectares are under plantation and normal yield is expected from 2008. Shipping The government has plans to soon forward the draft cruise shipping policy to various ministries for inter-ministerial consultations. A steering group on cruise shipping under the chairmanship of shipping minister TR Baalu and co-chaired by tourism minister Ambika Soni and attended by officials from the finance ministry for giving a final shape to the policy has discussed the draft policy formulated on the basis of the recommendations given by five different working groups constituted to look into the matters concerning taxation, immigration, connectivity and identification of ports to be developed for cruise shipping and custom issues. The group will also take measures to promote cruise shipping in the eastern part of the country. The policy would be forwarded to the other ministries for inter-ministerial consultations only after incorporation of inputs on river cruising from the Inland Waterways Authority of India (IWAI) and considering the environmental concerns of the ministry of environment and forests. The shipping minister has presented the Prime Minister Manmohan Singh a cheque for Rs 504 crore as negative grant to the government. The amount was paid by IDAA Infrastructure to NHAI as an upfront payment towards road improvement work on a 65 km stretch on NH-8 under NHDP Phase V. Aviation Delhi
International Airport Ltd (DIAL) would provide Rs 350 crore towards the
extension of the metro rail project from the city centre to the airport
since it has agreed to provide 10 per cent of the total cost of the
project which is estimated to cost about Rs 3,500-Rs 3,800 crore.
Meanwhile, DIAL has unveiled the model of the new airport being
constructed in which it envisages the construction of a new integrated
terminal that is capable of catering to both domestic and international
passengers. The new terminal (Terminal 3), to be ready before the
Commonwealth Games that would be staged at InflationThe annual point-to-point inflation rate based on wholesale price index (WPI) rose by 5.30 percent for the week ended November 25,2006 as compared to 5.45 per cent in the last week or at a lower rate of 4.48 per cent during the corresponding week last year.
During the week under review, the WPI declined to 208.6 from 208.8 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.4 percent to 212.5 from its previous week’s level of 21.4, mainly due to decline in prices of ‘food article like fruits and vegetables , urad and fish marine. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) declined by 0.2 per cent to 328.8 due to lower prices of aviation turbine fuel. The index of ‘manufactured products’ group rose by 0.1 per cent to 180.5 from 180.3 during the week under review. The rise in prices of food products like oil cake, rice bran oil, groundnut oil, sunflower oil, imported edible oil, coconut oil, gur, khandsari, textiles, chemicals and chemical products etc. is the main reason for the up-trend in manufactured products. The latest final index of WPI for the week ended September 30,2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 208.3 and 5.41 per cent as against their provisional levels of 207.8 and 5.16 per cent, respectively. BankingIn
a significant move to curb overheating in the economy, check inflationary
expectations and suck out excess liquidity from the system, the Reserve
Bank of India (RBI) has announced a 50 basis point hike in the cash
reserve ratio (CRR) maintained by banks to 5.5 per cent, to be undertaken
in two stages. The move will absorb Rs 13,500 crore from the system. As a
first step, the CRR will be raised from the present 5 per cent to 5.25 per
cent effective from the fortnight beginning December 23, 2006. The second
25-basis point hike will be effective from the fortnight beginning January
6, 2007. The hike in CRR comes close on the heels of inflation reaching
the 5.54 per cent mark. Besides, there had been intense debate over the
past several weeks whether the economy was witnessing overheating in some
sectors. In October, the RBI had hiked the repo rate, the rate at which
RBI lends to banks, by 25 basis points to 7.25 per cent in a signal that
liquidity management was the need of the hour for banks. Punjab
National Bank has received RBI’s approval for setting up subsidiary
banks in Private sector bank Yes Bank has rolled out its micro-finance division ‘Yes MicroFinance India Ltd.’ by signing a memorandum of understanding (MoU) for technical collabaration with ACCION International. The bank is targeting to cover close to 3 lakh households in the next five years and plans to double its micro-finance loan portfolio to Rs 120 crore in the next twelve months from Rs 60 crore currently. The board of directors of ICICI Bank and Sangli Bank has approved an all-stock amalgamation of the later with ICICI Bank. The deal will be in the ratio of one share of ICICI Bank for 9.25 shares of the privately owned, non-listed Sangli Bank. The proposed merger will result in issuance of additional 3.45 million shares of ICICI Bank, equivalent to about 0.4 per cent of its existing issued equity share capital. Public Finance Tax collections appear to be on the increase during the current fiscal year. With the hike of 40 per cent, tax collections up to November 2006, the finance ministry has expected a net whopping Rs 30,000 crore extra by way of direct and indirect taxes during the financial year 2006-07. Of this, Rs 20,000 crore would come from direct taxes while the remaining has been expected to come from higher customs and service tax collections. With corporate tax collections up to November 2006 touching Rs 60,000 crore, the annual collections for 2006-07 has expected to touch Rs 1,50,000 crore against the Budget estimate of Rs 1,33,010 crore. Similarly, income-tax collection during April-November crossed Rs 40,000 crore and expected to touch Rs 80,000 crore this fiscal against the Budget estimate of Rs 77,409 crore. Overall direct tax collections have been likely to touch Rs 2,30,000 crore in 2006-07 compared with an expected Rs 2,10,000 crore. On the indirect tax collection side, the customs collections up to November have touched Rs 56,900 crore. This has been expected to increase to Rs 87,000 crore by the end of March 2007 against the budget estimate of Rs 77,000 crore. While excise collections are expected to meet the Budget estimate of Rs 1,19,000 crore, the service tax collection for the fiscal year has expected to touch Rs 38,000 crore against the Budget estimate of Rs 34,500 crore. Overall, the indirect tax collection would be higher by Rs 10,000 to Rs 13,000 crore. The Government is unlikely to go in for any hike in direct or indirect tax rates in the forthcoming Budget, but may initiate steps to widen the tax base by rationalising the tax exemptions. The government has been planning to make systemic changes in the machinery for enlarging tax base. The efforts would be made to be rationalised the tax exemptions and to carry out the business process restructuring in the tax system. Indian Council for Research on International Economic Relations and the National Institute of Public Finance and Policy have been asked to study the cost-benefits of various direct and indirect tax exemptions and come up with recommendations A healthy 30 per cent growth in revenue collections has helped the government sustain its fiscal deficit at Rs 87,100 crore up to October 2006, which has been around 59 per cent of the budget estimate for the entire fiscal year 2006-07. The revenue deficit had also been lower at Rs 67,299 crore during April-October 2006 against Rs 70,284 crore during the corresponding period of 2005-06. The government has expressed the confidence to achieve the budget estimate figures on fiscal and revenue deficit and of meeting the target laid down under the Fiscal Responsibility and Budget Management Act (FRBM) as per which the revenue deficit is to be brought down to nil by 2008-09 and fiscal deficit to three per cent or below by 2008-09. Both plan and non-plan expenditure has displayed a rise according to the expectation. The departments of agriculture, elementary and secondary education, power, rural development, ministry of tribal affairs had all spent more than what they had spent during April-October 2005-06. The department of road transport and highways and the department of urban development had however spent lower than last year. Total expenditure during April-October was Rs 2,89,269 crore, compared with Rs 2,52,358 crore during the same period a year ago. The transfer to the states and union territories has stood at Rs 16,601 crore this year as compared to Rs 14,536 crore during previous year. Financial MarketsCapital
Markets Primary
Market Pyramid
Saimira Theatre Ltd is to tap the market between December 11-18, Shree
Ashtavinayak Cine Vision Ltd is on tap between December 14-20 and Cairn
India Ltd between December 11-15. Secondary
Market The
market ended a loser during the week, the first time after six straight
victorious weeks. The BSE Sensex lost 45.29 points for the week ended
Friday (8th December),
to settle at 13,799.49. The Nifty lost 35.60 points, to settle at 3,962
during the week. On 4th
December, the BSE Sensex rose 29.55 points, to 13,874.33, as shares
from auto, metal and sugar sectors were bought. The 30-share BSE Sensex
gained 63.32 points, to 13,937.65 on 5th
December, as buying continued, shares from the metal and IT sector
at forefront. On 6th December,
the BSE Sensex settled marginally higher by 11.35 points, to 13,937.65,
after witnessing high volatility throughout the day’s trading session.
It also surged to an all-time high of 14,035.30 on the same day. The
Sensex rose 23.03 points to 13,972.03 on 7 December, a record closing high
amid a mixed trend in the Sensex's constituents. The BSE Sensex plunged
172.54 points, to 13,799.49 on 8 December, tracking weak global markets. Securities
and Exchange Board of India (Sebi) will set up an Investor Protection Fund
(IPF) for educating small and medium investors, as said by Sebi chairman
which would be operational by mid-2007.
The money collected as fines and penalties by Sebi would be set
apart as corpus for the fund and the Sebi Act of 1992 would be amended to
introduce this soon. Sebi
had proposed the amendments mostly in line with the Securitisation Act of
USA. The Sebi chairman that Sebi had already launched the process of
de-listing shares of companies and had invited feedback from various
firms, investors and the general public.
A large number of un-traded shares had locked huge investment of
the public, especially of small and medium investors.
Infosys
Technologies has become the first Indian company to book a place in the
reputed Nasdaq-100 Index, - the world’s most recognised benchmark -
after the annual re-ranking of the Nasdaq-100 Index, to be made effective
from December 18. The Nasdaq-100 Index is composed of the 100 largest
non-financial stocks on the Nasdaq stock market and dates to January 1985
when it was launched along with the Nasdaq Financial-100 Index, which
comprises of 100 largest financial stocks on the Nasdaq. Derivatives
The Spot Nifty has declined to 3962, while the December futures contract is held at 3965, January is at 3972.75 and the February Nifty is at 3978.20. The futures contracts are still at premium with respect to each other and to the spot price, which is very unusual even in a bull market. The CNX IT closed at 5244 in the spot segment and it was settled at 5245 in the December futures. This is the first time in several months that the index futures have not traded at substantial premium to the spot levels and that suggests that expectations have become more bearish. In the options market, the Nifty put-call ratio has dropped but it’s still well above the oversold mark at around 1.3. That means the balance of expectations is still bullish. New entrants in the futures and options (F&O) segment are becoming investors’ most-sought-after instruments. Recently, Parsvnath Developers and Lanco Infratech got into the F&O segment immediately after listing on the cash segment, and the turnover has been soaring ever since. On November 30 – the day of listing–Parsvnath saw 2,235 contracts worth Rs 88.98 crore being transacted on the National Stock Exchange, making it the third-highest among the single-stock futures list. Lanco Infratech saw 9,912 contracts worth Rs 210 crore on the day of its listing. Open interest, the carry-forward position of stock market participants, increased by Rs 18,000 crore — nearly 50 per cent — in the first six days of the December contract, whose trading began on the first day of this month. This increase — from Rs 35,400 crore on the last day of the November contract to Rs 53,300 crore on December 8 — is the sharpest in any near month contract in the last six months Government
Securities Market
Primary
Market Under
the weekly T-Bill auctions, the RBI mopped up Rs.3500 crore and Rs.2000
crore through 91-day T-Bill and 364-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 364-day T-Bill respectively. The cut-off
yields for the 91-day and 364-day T-Bill were 6.6462 per cent and 6.9366
per cent respectively. RBI
conducted the sale (re-issue) of “7.37 per cent G.S. 2014” and “8.33
per cent G.S. 2036” for a
notified amount of Rs.5,000 crore and Rs.4,000 crore respectively. The
cut-off yield for “7.37 per cent G.S. 2014” and “8.33 per cent G.S.
2036” was 7.3104 per cent and 7.6312 per cent respectively. Eight
state governments have announced the sale of 10-year State Development
Loans (SDLs) for an aggregate amount of Rs.1963.24 crore through a yield
based auction using multiple price auction method on December 14, 2006. RBI
has fixed the rate of interest on the FRB, 2009 applicable for the
half-year (December 6, 2006 to June 5, 2007) at 6.92 per cent per annum. Secondary
Market Call
rates during the period ranged between 6.10 per cent
and 6.13 per cent while repo rates ranged between 5.50 per cent
and 6.11 per cent and the CBLO rates ranged between 5.52 per cent
and 6.03 per cent. The daily average outstanding amounts in the LAF
(reverse repo) operations conducted during the period were Rs.28,020 crore
vis-ŕ-vis Rs.16,222 crore and Rs. 13,947 crore for CBLO and Call market
respectively. The
weighted average YTM of G.S 2016 7.59 per cent bond was 7.3936 per cent on
December 08, 2006 as compared to 7.4171 per cent on December 01, 2006. The
1-10 year YTM spreads decreased by 5 bps to 48bps. Bond
Market RBI
has raised the borrowing limit for corporates through external commercial
borrowings (ECBs) by an additional US$250mn with average maturity of more
than 10 years under the approval route, over and above the existing limit
of US$500mn under the automatic route, during a financial year. Further,
with a view to providing greater flexibility to the corporates in managing
their liquidity and interest costs, the RBI has also raised the limit on
prepayment of ECBs, without RBI’s prior approval, to US$300mn from the
existing limit of US$200mn. Foreign
Exchange Market
The
rupee-dollar exchange rate appreciated to Rs 44.51 on December 6 from Rs
44.67 on December 1 but again depreciated to Rs 44.69 on December 8. The
six-month forward premia closed at 2.20 per cent (annualized) on Dec 08,
2006 vis-ŕ-vis 2.10 per cent on Dec 01, 2006. Commodities
Futures derivatives
The
spot prices of rice and wheat dropped in the The
International Grain Council (IGC) has raised the global grain consumption
by 2 million tonne. The recent
report of the IGC has pegged the total global grain output in 2006-07
(July-June) at 1,557 million tonne against the consumption of 1,623
million tonne. The report said
the current carry-over stocks at 242 million tonne is at a 10-year low.
According to the IGC’s projections, the world wheat output will
go slightly up by 2 million tonne to 587 million tonne from October –
still 31 million tonne short from the actual output of 2005-06.
The
Forward Markets Commission (FMC) has suspended four brokers from trading
in any of the country’s commodity exchanges owing to repeated violation
of open position limits. Sushilkumar
Ratanlal Khowal and BM Agro Industries have been suspended for a week
between January 9 and14, 2007, while Madhya Bharat (International). and
Dayal Agro Products have been suspended for three days between January 9
and 11, 2007. Three members
— Globe Comex, Bhagyashree Commodity & Derivatives and Kunvarji
Commodities Brokers — have been issued warning.
The parties concerned are brokers of the National Commodity &
Derivatives Exchange (Ncdex) and Multi Commodity Exchange (MCX).
“Penalty was pronounced not on the basis of commodities in which they
violated the open position limit prescribed by the regulator, but the
nature of offence,” said Anupam Mishra, director, FMC.
These members have violated an open position limit in a number of
commodities, he added. In a press note, the regulator stated the members
have been restricted from trading on all exchanges under sub-section (1)
of 12(B) of the Forward Contracts (Regulation) Act, 1952. The release
further said the members facing suspension from membership of all the
recognised commodity exchanges and also prohibited from entering into any
forward contract for the sale or purchase of goods.
Defending its action, the FMC said the regulator has taken these
violations very seriously and has taken action to bring discipline in the
fast growing commodity markets. The
suspensions have been ordered after giving the parties opportunities to
explain their actions in writing and in person, the release added.
The regulator will continue to deal very strictly with any
violations of the regulatory mechanisms being put in place by the
commission, it added. The
Forward Market Commission (FMC) and the National Commodity &
Derivatives Exchange (NCDEX) of India Ltd jointly organised an awareness
programme in The
Forward Markets Commission (FMC) Chairman S Sundareshan said the commodity
markets regulator will issue guidelines for advisory services in commodity
futures as quickly as possible. Addressing media persons here on Friday,
the chairman said the FMC had so far not issued guidelines for advisory
services and brokers are not entitled to do so under any circumstance.
However, portfolio management services will not be allowed in
commodity futures trading, as this will endanger the functioning of the
market. Unlike securities trading, commodity futures are sensitive and the
FMC will closely watch the movement of the market in the light of some
recent issues, he said. It has
come to the notice of the FMC that some brokers had collected money for
portfolio services, which they are not allowed to do.
Hence, the regulator has warned the members of exchanges not to
offer portfolio services, he added. The
chairman said the contracts of non-trading and marginally traded
commodities have been extended till June next year. A decision on the
trading in these commodities will be taken after June. A total of 90
commodities have been allowed to trade in the futures market and the FMC
has no reservations on continuing with the present product portfolio and
starting trade in new commodities. Sundareshan
hoped the Forward Contracts (Regulation) Amendment Bill would be enacted
in the next session of the Parliament, as the draft Bill is under the
consideration of a Parliamentary committee.
The main objective of the Bill is to empower the FMC to regulate
the market in a better manner. A proposal for allowing entry to FIIs,
mutual funds and banks in futures trading is also under the consideration
of the Cabinet and a decision is expected soon, he added.
“This (the entry of FIIs) is not connected with the amendment of
the Act. But, we will not permit their entry in agro-commodities in the
first phase. They will initially be allowed only in bullion, crude oil and
metals. For agro-commodities, there should be the enactment so that the
FMC can regulate the market tightly,” he said.
He further added that the FMC had not received any complaints about
price manipulation and clarified that one cannot stop speculative trading
in the market. “We
cannot compare speculation with manipulation of prices. Speculation is an
active component of the market, which creates position in trading.
Otherwise, the very existence of futures market will be difficult,”
Sundareshan said. Faced
with tremendous delivery problems owing to quality levels not matching the
stringent exchange specifications, the National Commodity &
Derivatives Exchange (Ncdex) has eased the quality norms for the
forthcoming chana contracts. The
contracts to be launched on December 11 for expiry in May and thereafter
have been made more broad-based by striking off the region-specific origin
of chana. In the earlier
specifications, chana was meant for Mumbai or Rajasthan or Madhya Pradesh.
The regional specification has been removed, making it desi chana.
The biggest advantage of this change is to make the delivery of
commodities easy, irrespective of their origin. According to the new
contracts, Mumbai chana can be delivered in place of Rajasthan or Madhya
Pradesh chana and vice versa. The
second important change that has been effected is the expansion in foreign
origin. In the previous specifications, imported commodities were limited
up to only 1 per cent of the total delivery.
This has been extended up to 3 per cent in the new specifications
at a discount of 1:1. In the
new specifications, the varietal admixture (other mixture) will be
permitted up to 3 per cent as against 1 per cent earlier.
On collecting samples from the market in the recent past, the Ncdex
found that the commodity available in the spot market does not match with
the quality specifications chalked out by the exchange. As a result, open
interest kept on mounting month after month, creating an acute shortage of
quality goods. The aim of the
Ncdex is to bring goods deliverable on the futures closer to the spot
market to make it more acceptable to traders, a source said.
“Liberalising quality specifications would surely boost the
delivery, as traders were facing problems earlier
Insurance Paternoster,
a UK-based insurance company, has decided to set up a specialist team in Corporate SectorAccording to the data released by the Society of Indian Automobile Manufacturers (SIAM), domestic car sales have risen by 28.5 per cent to 88,473 units in November 2006 from 68,841 units in the same month a year ago. Total sales of two-wheelers, including motorcycles, scooters and mopeds, have grown by 14.8 per cent to 6.74 lakh units compared to 5.87 lakh units in the same month a year ago. Commercial vehicles sales have increased by 43 per cent to 40,317 units as against 28,174 units in November 2005. Automobile companies have continued to register double-digit growth in the month of November 2006. Passenger car market leader Maruti Udyog Ltd (MUL) has witnessed a sales growth at 21.4 per cent to 52,333 units in November 2006. The company’s top-selling models such as Alto, WagonR and Swift have led the sales growth. The second largest passenger car manufacturer Hyundai Motor India Limited (HMI) has sold 16,506 units of cars during November 2006, up 17.8 per cent compared to 14,010 units over the same period last year. Tata Motors has posted a sales growth of 45.8 per cent to 19,475 units of passenger vehicles during the period under review against 13,126 units in the corresponding month a year ago. IVRCL
Infrastructure and Projects Limited has received orders worth Rs 608 crore
for power as well as water distribution projects from the state
governments of Jharkhand and Essar Steel has completed the expansion of is steel manufacturing capacity at its Hazira complex in Gujarat, to 4.6 million tonne entailing an investment of Rs 1,975 crore; with this, the company becomes India’s largest producer of flat steel in the private sector. Information TechnologyTata
Consultancy Services (TCS) has bagged the first major IT contract worth
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companies, which are bidding for government contracts in TCS
is setting up the first ever centre by in the North Eastern region, the
company has already hired 50 people for centre at Guwahati in Adding
one more to its list of firsts, Infosys Technologies is all set to become
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part of the prestigious list that represents the most traded and liquid
stocks of non-financial companies on the Nasdaq stock exchange, from
December 18, 2006 after an annual re-ranking of the index.
*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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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