Current Economic Statistics and Review For the Week Ended September 15

In the past decade, there has been paradigm shift in the operations of the securities market, which has witnessed the state of art technology making the system more sophisticated with better rules and regulations. The domestic market has been recognised worldwide for its operational efficiencies, better process and systems. Yet, the retail participation has not increased over years and that has been a gnawing concern for the regulators. Though Sebi has been continuously endeavouring to attract more retail investors and it has been with this concern that the initial public offering (IPO) grading was introduced initially as an optional measure, which was latter, made mandatory for all the fresh public offerings from May 2007. It was expected that it would be a useful tool for retail investors. However, a number of issues have been raised about the process followed and its actual benefit to the retail investors.

Since the early 1990s, there has been a paradigm shift from merit-based regulation to disclosure-based regime. It was perceived that the information asymmetry leads to market failures, as there prevails uncertainty, so decisions are subject to moral hazard and adverse selection. It was considered then that timely and accurate disclosures would reduce complexity of risk faced by stakeholders and provide a means of maintaining fair, efficient and competitive markets. Transparency of information in the Market would facilitate market discipline, which in turn maintains standards of conduct.

Thus, Sebi issued the Disclosure and Investors Protection (DIP) guidelines in 2000, which regulate issuances and sale of stocks and other securities to the public, have emphasized disclosure in a printed prospectus that must be distributed to offerees and buyers. These guidelines have been amended over the years with a view to ensure that the disclousers are made as comprehensive as possible. It has been endeavoured that the disclosures in IPO should be sufficient so that investors can take informed decisions. Also, in terms of the International Organization of Securities Commission’s (IOSCO) principles of regulations pertaining to issuers, there should be full, accurate and timely disclosure of financial results and other information, which is material to investors’ decisions so as to ensure both investor protection and a fair, orderly and efficient market.

Thus, the companies accessing the capital market, through public issues, have to comply with adequate disclosure norms on initial as well as continuous basis. India ’s disclosure norms are considered as one of the best in the world and are often cited as benchmark for the global standards.

Retail participation

Yet, the retail participation in the market has been low. Only 2 per cent of the financial savings of the households were being invested in the shares and debentures. According to the preliminary estimates of RBI, there was a quantum jump of gross household financial savings being invested in shares and debentures to 4.9 per cent in 2005-06. According to the Sebi-NCAER survey, only 7.4 per cent of the households directly participated in the securities market in 2000. This has been an area of concern for the Sebi and it has been endeavouring to address this issue.

Issues with disclosures

The voluminous data, disclosure agreements, due diligence and hordes of standard legal documents makes the IPO a less attractive investment option and a big challenge for retail investors. To interpret this maze of IPO data, the average investor is required to possess an amount of technical knowledge and considerable amount of time. Moreover, these disclosures demand fairly high levels of analytical sophistication, which generally is not the domain of ordinary investors. The requisite knowledge of technical data such as P/E value, operating income, diluted post-issue share capital, market capital EPS (earning per share), return on net worth (RONW) pertaining to the shares and the financial data and the other valuation pertaining to the company, are expected from the investor. The quality and the experience of the management, capacity to fulfil large orders and meeting deadlines are also important considerations. This is required to be known by the average investor in order to effectively achieve the goal of information dissemination.

Though there is a lot of information available on IPOs on websites, media and other sources, investors often prefer structured, consistent and unbiased analysis to aid their investment decisions. Moreover, information available on new companies varies with the size of the issue, the market conditions and the industry to which the issuing company belongs.

CRISIL has been the originator of this concept and has been at the forefront in developing the IPO grading model into a usable form. IPO grading aims to bridge this gap and facilitate more informed investment decisions. It is designed to provide investors an independent, reliable and consistent assessment of the fundamentals of new public issues. This offering may be especially useful to retail investors who are seeking to invest in companies that are unknown in the equity markets.

IPO Grading – the process

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the IPO of equity shares or any other security, which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India . Such grading is generally assigned on a five-point scale with a higher score indicating stronger fundamentals and vice versa as below.

This has been introduced as an endeavour to make additional information available for the investors in order to facilitate their assessment of equity issues offered which is mandatory for all the issuers after May 1, 2007 and the expenses towards grading has to be borne by the company itself. Irrespective of whether the issuer finds the grade given by the rating agency acceptable or not, the grade has to be disclosed as required under the DIP Guidelines. Hence, the grades are not to be rejected and any further ratings are also required to be disclosed in the prospectus.

Factors for Evaluation

The factors that are evaluated to assess the fundamentals of the issue, while arriving at the IPO grade, are the prospects of the industry in which the company operates, the competitive strengths of the company that would allow it to address the risks inherent in the business(es) and capitalise on the opportunities available, as well as the company’s financial position. Some of these factors are:

It may be noted that the above is only indicative of some of the factors considered and may vary on a case to case basis.

Grading impervious of the price

IPO grading is done without taking into account the price at which the security is offered in the IPO. Since IPO grading does not consider the issue price, the investor needs to make an independent judgment regarding the price at which to bid for/subscribe to the shares offered through the IPO.

Also, the grade is not a suggestion or recommendation as to whether one should subscribe to the IPO or not. IPO grade needs to be read together with the disclosures made in the prospectus including the risk factors as well as the price at which the shares are offered in the issue.

The grading is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like business and financial prospects, management quality and corporate governance practices, etc. However, irrespective of the grade obtained by the issuer, the investor needs to make his/her own independent decision regarding investing in any issue after studying carefully the contents of the prospectus including risk factors. The grading is intended to be an independent and unbiased opinion of a rating agency.

Use of IPO Grading

IPO grading is a unique concept in the domestic market, the first of its kind world over. It is to be considered as an additional decision-making tool for retail investors where in they subscribe for a 35 per cent of the issue while 50 per cent of each issue is allotted to non-institutional investors. The grading is expected to simplify the decision-making process for retail investors.

The Ratings of Crisil and ICRA

Table 1: IPO Grading Given by Crisil and Icra as Displayed on their Respective Websites
Company Name	Crisil IPO Grade Over 5	Company Name	Icra IPO Grading Over 5
Bhagwati Banquets and Hotels Ltd.	1	SRS Entertainment Limited	2
Celestial Labs Ltd.	1	Tube KnitFashions Limited.	3
Kiri Dyes and Chemicals Ltd.	2	Indo Asia Leisure Services Limited	2
MBL Infrastructures Ltd.	1	Saamya Biotech ( India ) Limited	1
Minar International Ltd.	2	Ankit Metal & Power Limited	1
Shree Ashtavinayak Cine Vision Ltd.	2	Hilton Metal Forging Limited	2
Suryachakra Power Corporation Ltd.	2	Allied Computers International ( Asia ) Limited	1
SVP Industries Ltd.	1	Consolidated Construction Consortium Ltd.	3

The post listing performance of some these issues shows interesting developments. For instance, Ankit Metal and Power limited was given a rating of 1 over 5 implying poor fundamentals, yet, the stock was listed on the stock exchanges at a marginal premium and over a month the share price has nearly doubled within a month of the issue which could be partly attributed to the bull phase in the stock prices. But even after witnessing correction in the stock indices after spreading weaknesses in global markets due to US subprime mortgages losses, the stock is ruling above the issue price despite the rating of 1. (Issue price of Ankit Metal and Power Ltd at Rs 36 on July 10 and touched a peak of 64.20 on August 14; currently ruling at Rs 48)

Issues in IPO Grading

The Sebi’s decision to make a IPO grading by credit rating agencies mandatory, has resulted in a number of experts contending that is not workable idea, as it is completely different from rating bond issuances. Susan Thomas, Assistant Professor at Indira Gandhi Institute of Development Research, has said “There is universal consensus that this is a bad idea.”

Prithvi Haldea, chairman and managing director, Prime Database has said that: “Credit rating agencies have expertise in rating debt — grading an equity instrument is a different paradigm altogether.” Haldea, who is also on the Primary Markets Advisory Committee of Sebi, has pointed out that IPO grading is not done anywhere else in the world simply because a grading of equity issuances cannot be done.

Concerns about price

Since the grading is not done on the basis of price, the investors have to undertake additional effort to make an informed decision. As Haldea had said that even if a good company could be a bad investment if its shares are offered at bad price while a bad company may turn out to be a good investment at a good price.

However, managing director of Crisil says that a fair grading will spell out for investors whether the concerned company is fundamentally good or bad, would certainly provide investors an additional source of comfort. Amit Tandon, managing director, Fitch Ratings says, “Execution holds the key.” To be sure, a wrong call by rating agencies would have enormous consequences. Thomas says, “In the credit rating field, it is known that agencies often make mistakes. In the IPO grading situation, now, some IPOs will be blocked by rating agencies. The full costs of this to the economy will be hard to comprehend”.

Issues in Information Gaps

The reason for introducing grading has been that there is a number of bad quality IPOs and grading is supposed to address it. However, the stringent entry norms for companies and compulsory 50 per cent of the issue size to be allotted to qualified institutional investors. Further, as there are information gaps and if the valuations are dubious and disclosures incomplete, then they should be addressed and regulators should fix them.

By introducing grading, it is considered that the small investor would be tempted to move away from the stated objective of “informed decision making” especially those investors who have peripheral knowledge about markets and those who are amateurs. It is necessary that all these investors are aware that equity is risk capital, and investors should know about the company they invest in.

Price not included in Grading

It is possible that these grades would become an all important number for making investment decision and many small investors will only look at this number as it will give them a false sense of security. They will reject a low-grade IPO and invest in a high-grade one. But if subsequently share prices of those companies, the barometer of performance, move in the opposite direction than the grades assigned to them, they will complain.

If low-grade IPOs do well after listing, they will complain about missed opportunities. If they lose money in high-grade IPOs, they will say they were misled. In equity, unlike debt, it is not safety, but the attractiveness of a company at a particular price for capital appreciation that drives the investment decision. Four recent low-grade IPOs were handsomely over-subscribed and are quoting above their offer prices, despite the market crash, while the IPO that got the highest grade nose-dived. Equity assessment, by its very nature, is subjective and a moving target, which IPO grading doesn’t acknowledge.

Further, Haldea fears that IPO grading, by blocking issues, will throttle entrepreneurship and growth, for which, rating agencies won’t be held accountable. Issuers will now have to get their IPO vetted thrice. He feels that concept is loaded against the issuers, with no accountability of rating agencies, giving them the status of God. He considers that if at all IPOs have to be graded, let it be voluntary and let companies seek value in grading and let investors reject non-graded issues.

Haldea Prithiv (2007): ‘My grade to IPO grading : 0’ www.expressmoney.in , April 9 Sebi Bulletin

India

would establish seven Modern Terminal Markets in Chandigarh , Nasik , Nagpur , Mumbai and Bhopal and two more cities that would help farmers realise maximum returns for their produce, by removing middlemen and ensure lower prices for end-consumer. Terminal market is structured with modern infrastructure - such as electronic auctioning of commodities, grading and standardisation, where farmers would send their products directly or through collection centers. The market would not only provide a backward linkage to the farmers but forward linkage to the wholesale agents, distribution centers, retail sectors, cash-and-carry stores, processing units and exports.

As per the Spices Board, chilli exports from the nation is increasing at faster rate. During April-July, 2007, exports have been around 52,000 tonnes, reporting an increase of 39 per cent in volume terms and 43 per cent in value terms from last year. The estimated exports for the current fiscal year 2007-08 is 1,35,000 tonnes, and is expected to exceed by 15 per cent. At present, India is the only the main country that exports red chillies in bulk in the international market.

National Horticulture Research and Development [NHRDF] has revealed that the sown acreage under the garlic for the season 2007-08 would increase. The areas under garlic have increased to 1.39 lakh hectares in 2006-07 from 1.14 lakh hectares in the previous year. The production of garlic was estimated to 7.51 lakh tonnes in 2006-07 against the country’s annual requirement of 6.5 to 7 lakh tonnes, while the output was projected to 5.68 lakh tonnes a year ago. The substantial increase in sown acreages is seen in state of Madhya Pradesh, where it has risen to 45,000 hectares from 29,000 during 2006-07. Whereas, with the high production of garlic, its demand have increased both locally and globally, due to which its prices have increased drastically. In July 2007 prices have risen to Rs 3,500-3,900 per quintal as against Rs 2,900-3,400 per quintal a year ago.

The Energy and Resources Institute (Teri) has developed a plant-extract based bio-pesticide formulation ‘Bollcure’, against cotton bollworm (Helicoverpa armigera), a common larvae affecting cotton crop yield. It is a major insect pest of many crop species and attacks many economically important crops like cotton, pigeonpea, chickpea, tomato, and sunflower.

According to Cashew Export Promotion Council, cashew exports have dropped by 10 per cent during the first quarter period of current fiscal year 2007-08 as compared to same period last year. The estimated value of exports during April-June of this fiscal year has been Rs 750.29 crore as against Rs 843 crore a year ago due to appreciation of rupee, lesser demand from the major market of U.S, cutthroat competition from Vietnam and viral fever in cashew producing regions. India exported 1,18,540 tonnes of cashew, valued at Rs 2,455.15 crore in 2006-07, while last year exports accounted to 1,14,143 tonnes valued at Rs 2,514.86 crore.

India would lose onion exports markets because of frequent rise in minimum export price (MEP) that were announced on August 20, 2007. The latest round of MEP hike, by US $100 to US $445 per tonne is more than double compared to the prices offered by China and Pakistan at US $200 per tonne to east and west Asian traders. India ’s onion exports have declined by 2.78 lakh tonnes till July 28, 2007 in the current fiscal year, i.e., 27.79 per cent decrease against 3.85 lakh tonnes in the same period a year ago. India has already lost Malaysian, Indonesian and Sri Lankan markets completely, though there is little hope to increase exports in west Asia . However, due to cheaper export prices offered by China and Pakistan India tend to lose its market share in west Asia as well.

As per the information by the Council for Leather Exports, exports of leather and its products have registered growth of 8.33 per cent in terms of US dollar and 10.72 per cent in terms of rupee. Exports have moved up by US $ 2,752.50 million to US $ 2,981.79 million i.e. from Rs 12,186.28 crore to Rs 13,492.44 crore during 2006-07. Under which Leather footwear, accounted for 31.89 per cent of exports, i.e., it have touched US $4302.77 million in 06-07, showing 17.71 per cent growth in dollar terms and 20.31 per cent in rupee terms. Countries like U.K, U.S, Germany , Italy , France , Spain , and Netherlands were the major footwear markets for India . These countries have accounted for 81 per cent of the total leather exports in 2006-07. Exports to these countries have touched US $ 690.66 million (Rs 370.50 crore) marking an increase of 4.62 per cent in dollar terms and 6.92 per cent in rupee terms.

According to tobacco industry, large players like ITC and GPI, along with the Tobacco Board and institutions like the Tobacco Institute of India (TII) have urged the state government of Karnataka to ensure and take responsibility for maintaining a stable market (in terms of auction prices) and take up bulk-shed initiatives through sizeable subsidies and loans to tobacco farmers.

Prices of dried ginger are likely to go up during the next couple of months due to increase in demand from west Asia and the northern part of the country. The average price of ginger has moved up to Rs 6,000-6,200 per quintal because of the additional and continuous demand. Lower price realisation and higher demand of raw ginger during the last season have forced farmers to avoid cultivation of dried ginger. Moreover, major global players such as Nigeria are not active on the global market except for China , which is quoting much cheaper rates, i.e., $1350 per tonne.

The central government has plans to float new wheat import tender by the end of August 2007 to augment wheat stocks in the central government inventories and to keep wheat prices under control. Despite of high global prices, government would import 3-5 million tonnes of grains in 2007. The country bought 5.5 million tonnes of wheat in 2006, first import within 6 years and have contracted 5,11,000 tonnes this year. The government procurement agencies have bought about 11 million tonnes of wheat from local farmers in the marketing year 2007-08, which is around 9 million tonnes higher from last year.

According to Cochin Oil Merchants Association (COMA), Kerala government has taken decision to withdraw VAT on coconut oil, copra and copra cake in the state, which would boost copra crushing, coconut oil trading and milling sectors. Moreover, Coconut Development Board (CDB) has also planned some encouraging schemes such as provision of 25 per cent subsidy for milling units and marketing assistance of Rs 10 lakh. A quality-testing laboratory of CDB with modern facilities would be operational at Vazhakkulam, near Kochi , putting an end to the serious problem of testing coconut oil. Whereas, coconut oil is quoted around Rs 5,100 per quintal, up by Rs 200 from current ongoing price in the market. As a result, supplies have increased recently and 50 tonnes of coconut oil is being offered for sale on a daily basis in Kochi market. It is also predicted that prices will fall after the onam festival.

Indian Council of Agricultural Research (ICAR) have submitted a report to Planning Commission revealing that country’s total output of cultivated mushrooms is reckoned to have spurted to over 1lakh tonnes last year from a mere 5 thousand tonnes in 1990, i.e., jump by nearly 20 times. Significantly, this output can potentially be pushed up further by 10 times to one million tonnes in the near future by whopping 3 million tonnes in the long run. So it has pointed out some perfected technologies for cultivation of various types of mushrooms, including button, oyster, milky, paddy straw and Reishi (the most popular medicinal mushroom in the world). Besides, techniques have also been perfected for growing some special variety of mushrooms like Shiitake, Wood ear and medicinal mushrooms for the pharmaceutical industry. It has also suggested some creation of infrastructure for training of farmers and other entrepreneurs in commercial mushroom cultivation. It has also involved state agricultural universities in this task.

International Grains Council has stated that global wheat output in 2006-07 has been 607 million tonnes, up by 16 million tonnes from last year, but down by 7 million tonnes as per the estimation, due to lower output in European Union and Canada. This has pushed up global wheat prices; as a result, global wheat demand also has reduced to 614 million tonnes, down by 3 million tonnes as per the estimates of July 2007. It is projected that by the end of 2007-08 wheat carryover stocks at global level would be around 2 million tonnes lower than that in the previous year t, i.e., 111 million tonnes and have been the smallest since 1979-80. All the major wheat producing countries, except Argentina , Australia , Canada , the EU and the US , have experienced decline in their wheat production, which would result in reduction in the world wheat crop. It is also predicted that global trade in wheat and its flour would likely be lower by 107.4 million tonnes, i.e., down by 3.3 million tonnes from the July estimate, in spite of higher production in India and Brazil .

Canola oil, fastest growing edible oil in the world is expected to create a separate edible oil segment by snapping dreadful competition to other edible oils in Indian market. Currently, India is importing around 5 lakh tonnes of various edible oil, while producing 6 lakh tonnes locally to meet its total requirement of 11 lakh tonnes per annum. It is predicted that canola oil market in India would climb to Rs 500 crore by 2012 from the current Rs 5 crore, in value terms. Whereas, Canola Council Of Canada (CCC) the trade bodies of the Canadian canola industry and the Canadian government have appealed Indian government to reduce import duty on canola oil, which at present is 85 per cent. Indian government is expected to bring down the duty to 40-45 per cent in the near future. Indian canola oil market size stands at 200 tonnes and is expected to cross 26,000 tonnes by 2012 in volume terms.

Infrastructure

Bharat Heavy Electricals (BHEL) has won international competitive bidding contracts of Rs 6,500 crore for setting up two units of 500 mw each at Koderma Thermal Power Station (TPS) in Jharkhand and two units of 500 mw each at durgapur Steel TPS in West Bengal , both on turnkey basis. Damodar Valley Corporation has placed both these orders on BHEL.

According to Indian Oil Corp (IOC), Italy ’s ENI and KazMunayGas of Kazakhstan may join its proposed 3,00,000 barrels per day refinery in Turkey . IOC and Calik Enerji have formed a 51:49 joint venture costing $ 4.9 billion to build the new export oriented refinery which has been approved by Turkey ’s energy watchdog.

Chambal Infrastructure Ventures (CIVL), a fully owned subsidiary of Chambal Fertilisers and Chemicals (CFCL), a KK Birla group company is likely to sign an MoU with the Orissa government for setting up a 2000 mw thermal power project with an investment of Rs 8000 crore in the state. The project will come up at Saria in Dhenkanal district in Orissa. CIVIL has applied to the Industrial Investment Promotion Corporation of Orissa for 2000 acres for the project and has also applied to the coal ministry for allotment of a coal block.

All Nippon Airways Co (ANA), Japan ’s largest domestic carrier is planning to add flights

to New Delhi and Bangalore in India to benefit from rising travel demand in the world’s second fastest growing major economy.

The government has announced that during the 11 th plan, Captive plants are expected to add 12,000 mw of power and no licence is required for supply of electricity from such plant to any licensee. The requirement of the licence has been removed as per the Electricity (Amendment) Act, 2007, notified on June 15,2007.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 4.10 percent for the week ended August 11,2007. During the comparable week of the earlier year, it was 5.07 per cent.

During the week under review, the WPI rose to 213.4 from 213.1 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), rose by 0.4 percent to 223.5 from its previous week’s level of 222.5, mainly due to higher prices fruits and vegetables, bjra, masur,and gram.

The price index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) registered remained unchanged at the last weeks level.

The index of ‘manufactured products’ group gone up by 0.1 per cent to 185.7 from 185.6 during the week under review. The higher prices of kraft and poster paper, liquid chlorine, caustic soda, cement contributed for pushing up the prices of manufactured products.

The latest final index of WPI for the week ended June 16 26, 2007 has undergone upward revision; as a result both, the absolute index and the implied inflation rate stood at 211.9 and 4.13 per cent as against the provisional data of 211.7 and 4.03 per cent..

A RBI working group report has suggested that the compulsory crop insurance schemes for farmers may be made optional. The working group was set up to examine the procedures and processes of ‘agricultural loans’ especially for small and marginal farmers under the Chairmanship of Shri C P Swarnkar. The group has made this recommendation keeping the suggestions in the mind received from farmers. The crop insurance adds to their cost without much benefiting accruing to them and therefore wanted that it should immediately be removed. RBI had implemented some of the recommendations of the committee in its annual policy statement announced in April 2007. It then advised banks to immediately dispense with the requirement of ‘no dues’ certificate (NDC) for small loans up to Rs 50,000 to small and marginal farmers, share-croppers and the like and, instead, obtain self declaration from the borrower. The group has recommended that the application form needs to be simple and uniform across the banks containing two parts (a) basic application form and (b) the relevant annexure depending on the activity. The group also recommended, on a pilot basis, issuing of Kisan Smart Cards loaded with all the necessary information pertaining to their borrowings, land holdings etc. This will make all the information pertaining to an individual borrower available at a single point.

State Bank of India has finally kicked off the much-awaited consolidation process among the public sector banks by proposing to amalgamate its smallest associate bank, State Bank of Saurashtra (SBS) with itself. This is seen as the first step towards the country’s largest bank merging all six associates with it. The central board of SBI has approved the merger proposal and planned to seek the approval of RBI in a couple of days.

Financial Markets

The initial public offering (IPO) of Motilal Oswal Financial Services got subscribed by 1.96 times, according to the NSE website. Nearly 1 per cent of the total bids received were at the cut-off price. The shares were priced in a band of Rs 725 to Rs 825.

The Securities and Exchange Board of India (Sebi) put equity float by large-cap companies on the fast track. A new scheme called the ‘fast track share issuance programme’ says companies with a three-year listing track record on the National Stock Exchange and the Bombay Stock Exchange, and with free-float market capitalisation of at least Rs 10,000 crore, can raise funds through rights and follow-on issues, without having to wait for the market regulator’s clearance. There are only 35 companies listed on the BSE and NSE having a free float market cap of Rs 10,000 crore or above. The list includes Reliance Industries, ICICI Bank, Infosys Technologies, Larsen & Toubro, Bharti Airtel, HDFC, ITC, Reliance Capital, among others.

Market nudged higher last week tracking recovery in Asian markets on speculation that the US Federal Reserve will cut benchmark rates sooner rather than later. But the domestic bourses underperformed its Asian peers as they failed to sustain the early momentum and ended losing nearly half of the gains after investors booked profits due the UPA-Left impasse on the Indo-US nuclear deal, causing a political stalemate. World stock markets had fallen sharply in recent weeks as problems in the risky US subprime mortgage sector spread to other markets.

The 30-share BSE Sensex rose 283.35 points or 2 per cent to settle at 14,424.87 in the week ended Friday, 24 August 2007. The S&P CNX Nifty rose 82.10 points or 1.99 per cent to settle at 4,190.15 in the week.

Refex Refrigerants ended at Rs 62 on BSE on Monday, 20 August 2007, a discount of 4.61 per cent over the IPO price of Rs 65. The scrip debuted at Rs 69.10. Refex Refrigerants refills non-ozone depleting refrigerant gases, or hydro fluorocarbons (HFCs).

Central Bank of India settled at Rs 115.40 on BSE on Tuesday, 21 August 2007, a premium of 13.13 per cent over the IPO price of Rs 102. The stock debuted at Rs 130.10 at a premium of 27.54 per cent over the IPO price of Rs 102. The share price touched a high of Rs 133.25 and a low of Rs 114.

SEL Manufacturing Company ended at Rs 142.80 on BSE on Tuesday, 21 August 2007, a premium of 58.67 per cent over the IPO price of Rs 90. SEL Manufacturing had debuted at Rs 87.90, a discount of 2.33 per cent over the IPO price. SEL Manufacturing Company manufactures and exports knitted garments, fabrics and combed and carded yarn.

Asian Granito India settled at Rs 94.75 on BSE on Thursday, 23 August 2007, a discount of 2.3 per cent over the IPO price of Rs 97. The stock debuted at Rs 100.15, a premium of 3.2 per cent over the IPO price of Rs 97. Asian Granito India manufactures vitrified tiles.

BSE said on Monday, 20 August 2007, that it has decided to shift a total of 143 stocks to trade-to-trade segment with effect from Friday, 24 August 2007. The stocks transferred to trade-to-trade segment include Aurangabad Paper Mills, Bharat Fertilizer Industries, Eltrol, G.P. Electronics, G.R.Cables, Harig Crankshafts, HOV Services, Kilburn Engineering, LML, Nath Pulp & Paper Mills, SIEL, Trishakti Electronics & Industries, Bajaj Hindustan Sugar & Industries, Ion Exchange (India), among others.

Invest India Income and Savings Survey 2007 produced by IIMS Dataworks suggests that just around 15 per cent of the country’s equity investors are speculators, entering and exiting the market several times during a year. Almost 75 per cent of them have been there since 2003, that is, they have ridden out many ups and downs in the past. And around a sixth of the investment made by individuals directly in the country’s stock markets is made by individuals who earn under Rs 20,000 a month- a twentieth is invested by those earning less than Rs 8,000 a month.

Apart from giving valuable insights into the investment habits of investors, the findings are especially relevant in the context of the plethora of stories that talk of the small investor losing thousands of crore each time the market crashes. IIMS Dataworks’ survey asked questions about why investors entered the market and those classified as speculators answered in the affirmative to questions such as ‘I don’t want to miss out on a boom, ‘I like to speculate’, and so on. Collectively, the equity portfolio of the speculator group is around Rs 26,000 crore, according to the survey.

According to the survey, there are at present a little over 7.2 million individuals in India with equity market positions. Over half of them have only mutual fund investments’ in either balanced or mainly equity funds. Nearly two million have equity positions only, and the rest have investments in mutual funds as well as directly in the market. At the time of the survey, around four months ago, the aggregate financial savings and investment portfolio of these 7.2 million investors stood at roughly Rs 400,000 crore while their aggregate equity portfolio value stood at Rs120,000 crore (29.7 per cent of their total portfolios). In other words, around 2 per cent to 3 per cent of the total market capitalisation is held by small investors, while promoters hold around 50 per cent to 60 per cent of outstanding shares, FIIs hold another 15 per cent to 20 per cent, banks/mutual funds/insurance firms hold the rest.

The Securities and Exchange Board of India (Sebi) has proposed to do away with the ‘entry load’ fee for investors if they buy mutual fund schemes directly from fund houses. A Sebi concept paper put out today for feedback from the public said investors buying mutual fund products need not pay entry load for applications filed online or through collection centres of asset management companies (AMCs). Mutual fund houses generally charge fees from investors as ‘entry load’ to pay distributors’ commission. If implemented, this proposal would be a severe blow to the distribution business, since it would encourage investors to buy directly from AMCs. Distribution channels play a major role in popularising fund schemes and making them accessible for investors. Industry executives say the move may be designed to promote online transactions. It is good for those who can take decisions themselves and do not need a financial advisor. But there is a flip side for the distribution business.

The Sebi has put several eligibility conditions for National Securities Depository Ltd (NSDL) to act as the Central Recordkeeping Agency (CRA) for pension funds, under the new pension scheme for central and state government employees. According to the decision, taken by the Sebi board, at its meeting, NSDL could act as the CRA only through a separate strategic business unit (SBU). Further, the depository will have to hive off other activities within three years to a separate entity without any financial and legal links with NSDL. Another eligibility condition is that NSDL’s other activity should not erode the net worth required for carrying out the NSDL’s activity in securities. NSDL is required to get the approvals from its board and sponsor for carrying on other activities. Sebi stipulations also require NSDL to get additional insurance cover for risks, if any, of other activities. The depository will also have to meet other financial conditions, if required, in the interest of beneficial owners, said sources. Earlier, Sebi had expressed its reservations on NSDL acting as a recordkeeper for pension funds. The regulator had said the new responsibility will be outside the assigned role as a depository, and that the Depository Act prohibited such activities.

The spot Nifty closed at 4190.15 on Friday with the August contract being settled at 4177.95 while the September contract was settled at 4161.55. The Nifty Junior and the Bank Nifty were the only other liquid indices with the Junior spot closing at 7982 while the August future closed at 7965 and the September future was settled at 7968. The Bank Nifty closed at 6176 in spot while it was settled at 6190 in theAugust future and 6223 in the September future

RBI conducted the auction of 7.27 per cent 2013 and 7.99 per cent 2017 for the notified amounts of Rs. 5000 crore and Rs.2000 crore respectively. The cut-off yields for the 7.27 per cent 2013 and 7.99 per cent 2017 were 7.8711 per cent and 7.9093 per cent respectively.

RBI conducted the sale (re-issue) of 5.48 per cent 2009 for Rs.4000 crore under the Market Stabilisation Scheme (MSS) on August 22, 2007. The cut-off yield of the security was set at 7.9149 per cent.

Liquidity in the short to medium term remains a concern among market players. Currently, the liquidity is just about adequate. If there is a major sell-off in the equity market and the dollar demand goes up for foreign banks, there might be a shortage in liquidity, which may require the Reserve Bank of India (RBI) to use its repo window to infuse funds. While there has been no major supply of liquidity in the market, either through forex inflows or the government expenditure, the RBI has been consistently sucking out excess liquidity through treasury bill issuance under the Market Stabilisation Scheme (MSS). The trigger for the sell-off next week may be political developments, where coalition partners are yet to take a final stance on the Indo-US nuclear deal. Besides, if the yen appreciates or the global liquidity tightens, increased dollar demand may require funds to sell in the Indian markets.

The government securities market may continue to witness firmness in yields since liquidity remains a concern. If the sell-off continues in the equity market and banks swap rupees for dollars, liquidity then will be an issue. Banks are even wary of investing for excess SLR requirement since the view is quite uncertain towards the short-term interest rate, says a dealer. If there is no pressure on liquidity, the yield on the ten-year benchmark paper may even touch 7.91-7.92 per cent. Inflation, however, remains a positive trigger for the market and is, in fact, likely to rule below 3.5 per cent towards the end of August or the beginning of September due to the huge base effect, says a bank

dealer. The 1-10 year YTM spreads decreased by 24 bps to 26 bps. The yield of the benchmark 10 year security - 7.99 per cent 2017 was at 7.8956 per cent as against 7.9814 per cent during the previous week.

The People's Bank of China raised its oneyear lending rate by 18 basis points to 7.02 per cent and the one-year deposit rate by 27 basis points to 3.60 per cent with effect from August 22, 2007.

The long-term corporate debt market may witness primary issues from public sector undertakings such as Rural Electrification Corporation, Indian Railways Finance Corporation (IRFC) and financial institution Nabard. According to dealers, REC and Nabard propose to raise Rs 1,000 crore each, while IRFC is planning a bond issue for Rs 300-400 crore. Dealers point out that interest rates, both in the long- and short-term ends of the maturity, have gone up, albeit a steeper rise in the short term. As a result, the yield curve is flat since one-year funds are available for around 8.75-9 per cent and 5-7-year funds at 9.75 per cent.

The US Fed’s decision to reduce the rate has pushed the one-month and 3-month forward premia down to the sub one per cent level, a level that had prevailed four weeks ago. But 6 and 12 months have remained above one per cent. Despite the drop in forward premia, bankers said oil companies did not take advantage of the situation. This was despite the fact, that oil prices remained above $72 a barrel and were forecast to rise further, in line with the dollar’s depreciation.

But the drop in premia signalled capital inflows were likely to pick up. In fact, even during the worst of the FII selling, capital inflows was little effected. FIIs’ sale of equities between August 13 and August 17 was Rs 13,241 crore. But banking flows, implying inward remittances from non-resident Indians, neutralised the FII impact considerably. This was also one of the reasons for forward premia softening.

The country’s forex reserves fell by $2.551 billion to $226.445 billion for the seven days ended August 17, dipping for the second consecutive week. This was due both to FII outflows resulting from the US sub-prime loan crisis, as well as the Reserve Bank of India ’s recent curbs on external commercial borrowings.

RBI has notified that the reporting platform developed by CCIL for capturing the transactions in OTC interest rate derivatives (Interest Rate Swaps and Forward Rate Agreements (IRS/FRA)), would be operationalised by August 30, 2007. All banks and primary dealers are required to report all their IRS/FRA trades on the reporting platform within 30 minutes from the deal time.

Trading volumes on domestic commodity exchanges are rising with the entry of giant corporates from across all sectors, especially in global commodities such as base metals, precious metals, steel and energy. Corporates contributed enormously to the volume and turnover growth in Indian commodity exchanges, which have together recorded a 41 per cent turnover growth at Rs 1,64,920.40 crore in the second fortnight of July compared with Rs 1,17,028.78 crore in the previous fortnight.

‘Corporates form a big part of the physical markets, and as they start increasingly using the National Commodities and Derivatives Exchange (NCDEX) platform, the volumes will rise,’ said an NCDEX official. An increase in corporate volumes would stabilise prices and help in anchoring the physical markets to the futures market, he said. For effective price discovery, it was important for speculators, hedgers and arbitrageurs to be present in the market, the official added.

The Multi Commodity Exchange (MCX) cloaks the maximum market share in metal futures in India , and traders would like to hedge on this platform where the cost is lower because of higher liquidity. Hence, the entry of corporates, especially for metals on the MCX, would help them in better price discovery said Anjani Sinha, director, MCX. Although, the volume of corporate hedgers has not reached a significant level, sources believe that within a short span of time it would overtake the volume of small hedgers. In base metals, players like Binani Zinc (BZL) has been keen, hedging approximately 2000 tonnes of zinc on the MCX. However, the company does not have any plans to hedge on the NCDEX. Depending on the price movement, we put our products on forward contracts purely for hedging purposes, which is squared off towards the expiry of the contract and that the company’s focus was not to trade on a daily basis but to hedge at an opportune time. Reportedly, Binani Zinc, the second-largest zinc producer in the country after Hindustan Zinc, has traded to the value of Rs 1,500 crore and booked a profit of Rs 150 crore since it started hedging on the MCX last year. Other players that are currently hedging on the domestic exchanges include Essar and Polycab Wire, while metal and energy majors, including Hindustan Copper (HCL), Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are in various stages of negotiations to begin hedging in the near future. Many corporates hedge on global commodity exchanges, with metal majors trading primarily on the London Metal Exchange (LME) and the New York Mercantile Exchange (Nymex), and energy majors on the Intercontinental Exchange (ICE), among others.

National Commodity and Derivatives Exchange is launching futures trading in robusta coffee cherry AB variety on September 10, an official with the exchange said. NCDEX is launching five contracts expiring in January, March, May, July and September 2008. It has already secured approval from the market regulator Forward Markets Commission to launch futures trading in robusta Cherry AB.

Corporate Sector

JSW Steel has acquired Jindal United Steel Corporation, Saw Pipes USA and Jindal Enterprises LLC, Baytown , Texas , for Rs 3,854 crore. These companies will be integrated under one company JSW Steel US. The cost of acquisition consists of Rs 3,321 crore for purchasing 90 per cent stake in these companies and Rs 533 crore for taking over of inventory. This acquisition will enable JSW to foray into the growing oil and gas sector in North America .

In order to start overseas operation Kingfisher airlines has decided to start co-branded flights with Air Deccan to US. Under the government norms an airline is not allowed to fly abroad unless it has a minimum of five years experience flying domestic routes. Since Kingfisher airline is at present only a little more than two years old it has decided to start co-branded flights with Air Deccan in which it has acquired 26 per cent stake and which is going to complete five years of operation in August 2008.The Airline has filed an application with the American department of transportation for slots in the San Francisco and John F Kennedy International airport in New York.

After launching Reliance Fresh, Reliance Retail is now set to launch a new format for lifestyle shopping with the first outlet to start either in Bangalore or in Gurgaon. The first lifestyle format will have close to 30,000 sq ft in size and will stock products across categories such as books, music, toys, stationary, fragrances, sporting goods, jewellery and watches.

The RPG group promoted Spencer’s is now planning to enter into joint ventures with international retail companies to foray into new formats of retailing in India . The company is investing Rs 1,100 crore in setting up 1,350 Spencer hypermarkets in 44 cities in the next two years.

After implementing Rs 24,000 crore joint venture with Hindustan Petroleum Corporation (HPCL) at Bhatinda in Punjab, L N Mittal is now planning to team up with Total SA of France and HPCL to set up a mega greenfield refinery cum petrochemical project near Visakhapatnam in Andhra Pradesh. The proposed greenfield project will cost over 30,000 crore and GAIL ( India ) and OIL India are expected to be the other joint venture partners in the project.

Holcim, the world’s second-largest cement company is planning to invest around $1.34 billion to buy a controlling stake in Ambuja Cements. Holcim is buying 3.9 per cent stake from founding families and also plans to acquire another 20 per cent stake via an open offer. If the open offer is successful Holcim’s stake in Ambuja cement could go up from current 32.3 per cent to 56 per cent.

FMCG major Procter and Gamble Hygiene and Health Care (PGHHC) has reported a net profit of Rs 89.8 crore for the year ended June 2007 as compared to Rs 109 crore for the year ended June, 2006.

Information Technology

HCL Infosystems has bagged a multi-technology, multi year system integration contract of Rs 500 crore from the state-owned telecom operator Bharat Sanchar Nigam (BSNL). The project to be executed over the next 18 months will help BSNL rollout various value-added services for its subscribers and provide it a technology lead in the market.

Bharti Airtel is planning to set up 40,000 towers in the country by 2008 taking the total number of towers set up by the company to 80,000. Some of these towers could be capacity filling towers, while most of them will be coming up in new rural areas. For this expansion of transmission towers the company has decided to spend Rs 4,300 crore.

*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.