Current Economic Statistics and Review For the Week 
Ended October 20, 2008 (42^nd Weekly Report of 2007)

Theme of the week:

The transformation of the Indian economy from a foreign exchange scarce economy to the one of enjoying abundance in external inflows and reserves, has indeed been a remarkable story of apparent success in managing the macro economy This story of success has no doubt to be tempered with some sober thoughts on the features which do not appear as unmitigated success.

            First, unlike in the case of China and many south and east Asian economies, Indian suffers from sizeable merchandise deficit; export growth and the size of exports are weak, while imports are relatively high.  As a result, despite sizeable expansions in invisible receipts the current account on BoP remains in deficit.  This is understandable because India being a developing country and a country with scarcity of domestic savings requires external resources.  Secondly, a part of the merchandise deficit is occurring because of the unusually high levels of imports of gold and silver, for which India has become an “endless fit” (Table 1).  Finally, and more importantly, unlike in the above-mentioned countries, a large part of the financing of the current account deficit,  is done with the help of portfolio capital inflows and not foreign direct investment.

Recent BoP Trends   

            Table 2 presents data on merchandise imports and exports as per RBI’s balance of payment (BoP) data and trade data produced by the DGCI&S.  While the export size remains by and large similar, levels of imports differ as between the two sources of data.  But, interestingly, the rates of growth in exports, and even in imports, do not differ much.

            As per BoP data, India ’s merchandise exports have posted a relatively moderate growth of 17.8 per cent in the first quarter of 2007-08, the same as in DGCI&S data, while import growth at 20.6 per cent as per BoP data in Q1 of 2007-08 has been much lower than

that at 34.4 per cent as per DGCI&S data for the same quarter.  As per BoP data, both export and import growth have decelerated in Q₁  of 2007-08 as compared with the growth in Q₁  of 2006-07 , but as per DGCI & S data while export growth has decelerated. Imports have

shown an improvement in growth. In imports, the moderation in growth has been brought about due to a drastic reduction in the growth of oil imports (which had a meagre rise of 4.2 per cent in Q₁ of 2007-08 as ompared with 50.7 per cent in Q₁ of 2006-07) whereas non-oil imports experienced a strong growth

of 50.4 per cent in contrast to a negligible growth of 7.6 per cent in Q₁ of 2006-07.  The stability in the price of crude oil as between the two quarters has helped moderate the value of crude oil imports.  The Indian basket of crude oil prices averaged at US $ 66.3 per barrel during Q₁ of 2007-08 as compared with US $ 66.8 per barrel in Q₁ of 2006-07.  In fact, the whole of 2006-07 the crude oil prices had been moderated.

            As per the BoP data, trade deficit has increased to US $ 21.6 billion in Q₁ of 2007-08 from US $ 16.9 billion in Q₁ of 2006-07.   As the data cited above, inferentially, the increase in deficit was primarily because of the non-oil imports.  Maintenance imports may have gone up as a result of supply shortages of agricultural commodities domestically, and likewise, imports of investment goods have gone up due to the general improvement in the economy, including possible improvement in investment.

Invisibles

A major factor in strengthening India ’s BoP has continued to be buoyant receipts in invisibles consisting of services, current transfers and income. Net invisible receipts have risen by 36.4 per cent in Q₁ of 2007-08 as against 23.2 per cent in the corresponding quarter

of 2006-07.  Gross receipts have risen by 27.5 per cent in Q₁ of 2007-08, while outgo has risen by 18.6 per cent (Table 4). 

It is the items of invisibles with relatively large inflows and small outgo, which have kept up the momentum of growth (Table 5).  A 20 per cent increase in gross receipts under software services from $ 7.04 billion in Q₁ of 2006-07 to $ 8.44 billion in Q₁ of 2007-08 and a 45.4 per cent rise in private remittance from $5.92 billion to $8.61 billion during the same period, are indeed quite commendable. 

On the other hand, there are some more items like travel transportation, business services and investment income under which gross receipts are sizeable but there are  

substantial outgo under them. These four items together receipts worth $11.25 billion during Q₁ of 2007-08 but also had outgo worth $11.14 billion, thus providing practically no positive support to the BoP (Table 6).  Amongst them, investment income has an outgo of $2.96 billion, that is, somewhat higher than the gross receipt under the same head at $2.48 billion, while ‘business services’ has an outgo of $3.61 billion against a gross receipt of $ 4.48 billion.

Despite large foreign exchange reserves and sizeable increases in earnings on them, the investment income shows a negative balance in Q₁ of 2007-08.  In fact, this has always been so in the Indian situation.  During the whole of 2006-07, for instance, gross receipts under investment income was $8.57 billion but there was an outgo of $12.86 billion during the same year, as a result of repatriation of profits by FDI and other companies and also earnings by FIIs. 

As for business services, receipts and payments are mainly driven by trade-related services, business and management consultancy services, architectural and engineering services and other technical services, and office-maintenance services.  Payments under all of them together constitute over 80 per cent of receipts (Table 7).

Capital Flows

            Recent period has seen substantial improvement in capital flows.  Net capital flows were of the order of $15.3 billion in Q₁ of 2007-08 – a rise of 44 per cent over that ($10.6 billion) in Q₁ of 2006-07.

            The sizeable increase in gross FDI flows began in the whole of 2006-07 when they aggregated $19.44 billion against $7.66 billion during 2005-06.  What is equally interesting is the sudden leap in direct investments made by Indian entrepreneurs abroad.  Such investments abroad have aggregated US $11.89 billion during 2006-07 against $3.15 billion in 2005-06 (Appendix Table 2). (Appendix Table 1)

“Banking capital” is an item in capital account that absorbs the shocks of interest rate differentials as between India and abroad. In it, non-resident Indian deposits respond

to the RBI’s interest rate policy stance.  Recently in July and April 2007, the ceiling rates on NRI deposits were lowered so as to moderate flows and hence, there have been net outflows on NRI deposit accounts.  Apparently, while there were net inflows under foreign currency non-resident (Banks) deposits [FCNR (B)], there occurred higher magnitudes of outflows under non-resident external rupee account [NR(E)RA] deposits.

Highlights of  Current Economic Scene

AGRICULTURE  

According to Food and Agricultural Organisation (FAO), global cereals supply and demand situation has continued to tighten up in recent times reflecting the deterioration of prospects for the 2007-08-world cereal production. It is estimated that global cereal production would be at 2.11 billion tonnes during 2007-08 as against that of 2 billion tonnes during 2006-07, indicating rise by 5.3 per cent. Wheat output is estimated to increase by 1.7 per cent at 604.8 million tonnes while that of rice would rise by 0.2 per cent at 428.9 million tonnes. Coarse grains production is seen to increase at 1.08 billion tonnes, up by 9.7 per cent annually. Global cereal trade is expected to be 253 million tonnes 2007-08, lower by 5 million tonnes as compared to that of last year. While, world trade in coarse cereals in 2007-08 (July - June) is forecasted to be 113 million tonnes sustaining at the level attained during last year. World trade in wheat in the during July - June 2007-08, is projected to be 109 million tonnes down by 4.6 million tonnes from last year and its prices are likely to remain highly vulnerable due to the tight supply situation prevailing in the international market. While, rice trade is set to rise by 4 per cent to 30.4 million tonnes during the same period, and would be under pressure in the upcoming months, as many important rice producing countries are expected to harvest higher output.

As per the forecast of Food and Agricultural Organisation (FAO), paddy production in India is likely to be 140 million tonnes, close to last year’s harvest, even tough there have been floods in September 2007 in some eastern states. Further, as per FAO statistics, before implementation of ban on non-basmati rice, India had exported nearly 4.6 million tonnes of rice. Production of maize is tentatively projected to be at 15.5 million tonnes in 2007-08, up by 2 million tonnes from last year’s output reflecting increase in planting driven by high maize prices earlier this year.

The Cabinet Committee on Economic Affairs (CCEA) has approved to grant bailout package to sugar industries, under which special bank loans would be provided to sugar mills equivalent to the actual excise duty paid by them during the 2006-07 (October-September) season and the estimated amount payable in the current 2007-08 season. The interest on these loans of 5-year tenure with a 2-year repayment moratorium would be borne by the centre. At the same time, the loans can be used by mills only for paying off their cane repayment dues.  Further the interest subvention from the centre would be only on the portion of arrears of sugarcane price. This package is likely to benefit mainly mills situated in Maharashtra, Gujarat, Karnataka, and Andhra Pradesh where growers are eligible to pay only the central government’s statutory minimum price (SMP) for cane as against that of mills in Uttar Pradesh (UP), Tamil Nadu (TN), Punjab and Haryana that are obliged to pay the higher cane state advised price (SAP) imposed by the state governments concerned.

As per US government report, sugar mills in India would face a severe storage crisis and have to leave the sweetener open due to large carry over stocks and bumper production expected in year 2007. Total storage capacity available with the sugar industry is estimated to be about 15 million tonnes, while ending stocks after the 2007-08 season is expected to be around 17 million tonnes as against that of last season when it had stood at 11.5 million tonnes. It is estimated that production in 2007-08 is likely to be around 29.3 million tonnes and domestic consumption would be of 21.5 million tonnes.

As per Solvent Extractor association, India ’s edible oil import bill would go up in the oil year (November-October) 2007-08 because of soaring global prices caused by diversion of oils to produce biofuel. It is expected that India would be paying one third more, i.e., nearly Rs 12, 000 crore (US$3 billion) in the oil year 2007-08, out of which imports of 5.6 - 5.8 million tonnes would be of vegetable oil including edible and non-edible oil which would be up from Rs 9000 crore last year.

According to Solvent Extractors Association (SEA), with the landed price of crude palm oil US $ 1032 being cheaper than crude soyabean oil by US $ 1162, importers are likely to encourage importing more of it. The data compiled by (SEA) has indicated that country’s vegetable oil imports in the first 11 months of the oil year (November-September) has jumped by 9.5 per cent to 4,802,153 tonnes from 4,385,723 tonnes recorded a year-ago, due to rising demand for edible oil in the domestic economy. A total edible oil import during the period has witnessed a growth of 11.47 per cent to 4,213,724 tonnes compared with 3,780,112 tonnes in the corresponding period last year. However, non-edible oil imports have declined by 2.84 per cent to 5,88,429 tonnes from 6,05,611 tonnes.

  National Agricultural Cooperative Marketing Federation of India (Nafed) has planned to import 15,000 tonnes of crude palm oil before November 20, 2007, to keep a check on edible oil prices by boosting supplies. The imports would be sourced either from Malaysia or Indonesia . In the first week of October 2007, MMTC has purchased 5,500 tonnes of crude palm oil at US $ 800 per tonne, because of continuous increase in the demand for the same. MMTC and State Trading Corporation (STC) have further decided to invite bids to buy crude palm oil and the contract would be finalised by the end of October.

As per National Agricultural Cooperative Marketing Federation of India (Nafed) mustard oil price has increased from Rs 49 to Rs 52 per kg on an average as mustard seed price rose form Rs 2,150 to Rs 2,275 per quintal, as its production has declined to 7.10 million tonnes as against that of 8.13 million tonnes. Increase in mustard oil price by 6 per cent is seen not only due to festive demand and anticipation of decline in rabi sowings of mustard but as farmers would shift to cultivation of wheat, minimum support price (MSP) of which has been hiked by Rs 250 per quintal to Rs 1000 per quintal, as against mustard seeds that has witnessed an increase of just Rs 85 per quintal in its MSP to Rs 1800 par quintal. 

As per report of KPMG-FICCI , India ’s total exports of processed food has jumped by 194 per cent in the last four years to Euro 13.8 billion in 2006-07 from Euro 4.7 billion in 2002-03, while processed food market has accounted for 32 per cent of the total food market valued at Euro 67.9 billion. Ministry of food processing Industries (MOFPI) has estimated that it would grow by 9-12 per cent in the near future and would aimed to increase India ’s share in the global processed food trade to 3 per cent in the next eight years. The share of fruit and vegetables processing, which currently accounts for around 2 per cent of the total production, is likely to increase to 10 per cent by 2010 and further to 25 per cent by 2025; while value addition in food products is expected to increase from 8 per cent to 35 per cent by the end of 2025.

Export of cashew kernels during April - September 2007-08 has declined by 2 to 3 per cent due to production loss in the industry and workers not being able to report for work due to widespread viral fever (chikungunya). Shipments during the first six months of the current fiscal stood at 57,157 tonnes valued at Rs 1,097.06 crore as against that of 58,210 tonnes worth Rs 1,222.93 crore in the corresponding period a year ago. The average unit value in April–September 2007 dropped to Rs 191.94 per kg from Rs 210.09 per kg. Meanwhile, import of raw nuts increased during the first half of the current fiscal to 3,90,686 tonnes valued at Rs 954.72 crore from 3,56,240 tonnes worth Rs 1,081.71 crore in the corresponding year. The unit value of raw nuts imported also dropped to Rs 24.44 per kg from Rs 30.36 per kg in the first half of last fiscal.

Mother Dairy India Ltd and Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF) have raised prices of milk sold in Delhi by Rs 1 per litre. Since February 2006, prices of full-cream milk have gone up from Rs 19 to Rs 24 per litre, while toned milk prices (3 per cent fat and 8.5 per cent SNF) have risen from Rs 15 to Rs 20 pert litre. It is perceived that increase in milk price by Rs 1 would add around Rs 80 crore to Mother Dairy's topline as it sells nearly 22-23 lakh litres per day (LLPD) of liquid milk in the capital region, while GCMMF selling 6.5-7 LLPD under 'Amul brand' would add around Rs 25 crore. It is predicted that profit margins would likely go up further in the near future.

As per Marine Products Export Development Authority (MPEDA), Tuna fishing in India has gathered a momentum, after sustained efforts by the government and the fishery industry. They have estimated to achieve the target of US $ 500 million of export earnings, for which they have formulated a scheme for setting up tuna handling centers with a sizable subsidy component and acquisition of new vessels for tuna fishing. At present, they introduced the scheme for conversion of existing vessels for tuna long line fishing with a subsidy of 50 per cent, subject to a limit of Rs 15 lakh.

Exhibition Advisory Committee (EAC) and the Indian Poultry Equipment Manufacturers’ Association (IPEMA) would be jointly organising India’s largest poultry exhibition that would be held during November 2 to 4 2007, in the Hitex Exhibition Centre, Hyderabad, which it would be titled as ‘Poultry India 2007’. This would create a platform and strengthen the Indian poultry industry to find export potential opportunities and development. During this event, the latest technology, machinery and equipment will be displayed to showcase various aspects of poultry production such as breeding, housing, management, nutrition, packaging, preservation and marketing of eggs and poultry meat products. This decision was undertaken as India has the potential to have high quality poultry breeds, balanced feed, most advanced vaccines, medicines and efficient world-class machinery and equipments and skilled manpower, which can match up with any advanced country of the world and would create the self-employment opportunities and upliftment of the rural economy.

Excess rainfall in July and August 2007 has damaged lots of kharif horticultural crops nearly worth Rs 154 crore in the state of Karnataka.. Crops like Potato, tomato, chilli, onion, banana, mango, coconut, areca nut, pepper, cardamom, and betel vine have been affected the most besides hampering almost 48,826 hectares and making80,485 farmers to suffer losses.  The worst affected areas include western ghats districts of Dakshina Kannada, Udupi, Kodagu, Chikmagalur followed by north interior parts of the state, comprising districts of Haveri, Belgaum , Bagalkot, Dharwad and Gadag.

As per International Coffee Organisation, world coffee exports for the October - August 2006-2007 have totalled to 89.5 million 60- kilogram bags, which have been higher by 10.71 per cent from the same period in the previous year. Reduction has been seen in coffee exports from its producing countries Brazil and Vietnam in August 2007 that has led to 12.6 per cent fall in world exports. For instance, nearly 7.6 million bags have been exported in August 2007 in comparison to 8.7 million bags exported in August last year. It is estimated that world coffee consumption in 2007-08 would be around 122 million bags as compared with that of 122 million bags in 2006, while production is estimated to be around 114 million bags.

The Amsterdam based common fund for commodities (CFC), an inter governmental financial institution of UN, has approved the fund of US $2.91 million to finance a project on ‘Increasing the resilience of coffee production to leaf rust and other diseases’ in India and some African countries. India would receive aid of US $ 5,94349 from this fund to check diseases like leaf rust founded in coffee crop, which would be released from International Coffee Organisation.

Australian Centre for International Agricultural Research (ACIAR) and Indian Council of Agricultural Research (ICAR) have jointly decided a medium term strategy to increase the yield of wheat to an optimum level by developing resistance to pests and diseases and several biotic and abiotic stresses. The researchers do not have any plans to develop transgenic crops at present.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) declined to 3.07 percent for the week ended September 22,2007. During the comparable week of the earlier year, it was 5.36 per cent.

During the week under review, the WPI declined by 0.2 per cent to 214.7 from 215.1 at the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), dipped  by 0.8 percent to 224.7 from its previous week’s level of 226.4, mainly due to lower prices of fruits and vegetables, bajra, amize, moong, eggs and fish and raw cotton raw rubber some oil seeds.

Marginal rise in the index of  ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) was witnessed due to aviation fuel price increase.

The index of ‘manufactured products’ group (weight 63.75 per cent) dipped  by 0.1 per cent to 187.2 from 187.4 for the previous week due to decline in the prices of gur, oilcakes cotton yarn etc.

The latest final index of WPI for the week ended August 11,2007 has undergone upward revision; as a result, both the absolute index and the implied inflation rate stood at 213.7 and 4.24 per cent as against the provisional data of 213.4 and 4.10 per cent.

Banking

HDFC Bank’s net profit rose to Rs 368 crore during the second quarter of the current financial year ended September 30, 2007 registering an increase of 40 per cent over the same period of last year.

UCO Bank has posted a 50 per cent rise in net profit at Rs 243 crore for the half year ended September 2007 from Rs 162 crore in the corresponding period last year.

Indian Bank has reported a 46 per cent growth in net profit at Rs 248 crore in September 2007 quarter on the back of higher growth in interest income and fee-based income.

IFCI, a term lending institution which is now classified as a non-banking finance company, has reported a four-fold rise in its net profit for the second quarter of 2007-08 compared with a year earlier, on account of income received from the sale of assets. The company’s profit in the second quarter of 2007-08 was Rs 497 crore, up from Rs 116 crore a year earlier.

ICICI Bank’s three-year long wait to open a branch in the US has finally ended with the Federal Reserve Board approving its application for opening a branch in New York . ICICI Bank would engage in wholesale banking, including trade financing and factoring services, to US-based factoring services, to US-based subsidiaries of Indian firms.

Financial Sector

Capital Market

Primary Market

Varun Industries Ltd, the largest exporter of stainless steel kitchenware and house ware items, is to enter the capital markets with an IPO of 90 lakh equity shares with an issue price of Rs 60 of face value Rs 10 each aggregating to Rs 54 crore between October 25 and October 31. The company plans to use the funds raised to meet the expenditure for brand building in the domestic market and to meet working capital requirements.

Leading paper products manufacturer of South India, SVPCL Ltd, is to enter the markets with a public issue of Rs 34.50 crore through a 100 per cent book-building process between October 22 and October 26. The price band is fixed at Rs 40-45 per equity share of Rs 10 each. The company plans to use the net proceeds from the issue to expand its existing manufacturing facilities in Hyderabad , Vijayawada and Visakhapatnam , to set up marketing infrastructure in 10 identified locations in the country, to enhance its long-term working capital requirements and to meet expenses of the issue.

The Ministry of Corporate Affairs (MCA) is likely to refer the complaints received on the proposed initial public offering of the Anil Ambani Group company Reliance Power Ltd to the capital market regulator, Securities and Exchange Board of India. According to the complaints, the proposal to transfer all projects from REL to Reliance Power has not been taken to the shareholders of Reliance Energy.

Secondary Market

 On 16,October 2007 market regulator Sebi, proposed restrictions on the issue of participatory notes (PNs) by Foreign Institutional Investors, in an apparent bid to stem the unceasing inflows into the booming Indian stock market. In a surprise development Sebi late in the day, a discussion paper suggesting an immediate ban on issue of PNs by FIIs against underlying derivatives (futures and options on shares) while also restricting issue of PNs in the cash segment was displayed on its website.

Subsequently, following the massive crash of the market, the Sebi Chairman clarified that it is considering a proposal to allow proprietary sub-accounts to issue participatory notes (P-notes) that could be of some relief to foreign institutional investors (FIIs).

 Sebi in order to clear the doubts hanging over participatory notes by making the registration process for foreign institutional investors swifter and hassle-free. For this, Sebi may upload a road map on its website on Monday October 22.2007. A senior Sebi official said the regulator was also expected to clear pending applications of at least 40 to 50 FIIs in one tranche some time this week. This was aimed at telling the market that the regulator should not be faulted for FII registration delays and was, in fact, encouraging certain funds to register instead of taking the participatory notes route

BSE sensex hit another milestone on October 15 2007, crossing 19,000 points. It took just five trading days to reach the mark from the 18,000 level on October 9. Still it is one of the most tumultuous weeks for the stock markets as it ended on a volatile note on October 19, 2007 as foreign investors continued to dump stocks and derivatives positions for the third day running on fears that the proposed curbs on stock investments through participatory notes, (P-notes) may come into force on October 25, 2007. The index, which hit a new record of 19,058.67 early in the week, saw three days of sharp falls. While on October 17 2007, the stock market suffered a big scare, the benchmark Sensex plunged to 10 per cent following Sebi’s move on restricting PNs, forcing a one-hour trading halt for the third time in the history of the markets, but recovered dramatically following clarifications from the finance minister and market regulator and buying interest from domestic institutions. BSE sensex closed the week at 17,559.98 with a loss of 860 points or 4.66 per cent on October 19,2007. The Nifty shot up to 5,736 points before dropping to 5,215, for a corresponding loss of 3.92 per cent.

On October 17, the BSE Sensex tanked 1744 points following Sebi’s proposal to tighten rules for the purchase of shares and bonds through offshore derivative instruments, including participatory notes. FM said the move was part of a series of steps aimed at moderating inflows of overseas capital and only trying to cap the proportion of money coming in through participatory notes vis-a-vis the derivative position.

 On October 19,2007 Finance Minister P Chidambaram told global investors that no further measures were in the offing to curb capital inflows, even as India would ease procedures for foreign institutional investors (FIIs) to register and do business in the country. He would urge Sebi to meet potential FIIs to explore ways and means to make registration even simpler, He added that Sebi had reserved the right to extend the 18-month deadline, during which time FIIs can roll over derivate exposures through P-notes.   

Over 270 applications from foreign institutional investors (FIIs) are awaiting the Securities and Exchange Board of India’s (Sebi) clearance as the debate on the speedy clearance of registrations by the capital market regulator rages on.   

All the BSE Sectoral indices have fell down over the week with the highest decline in BSE- Reality of 8.35 per cent followed by the BSE Capital goods 7.13 per cent, BSE  FMCG 5.62 per cent and BSE-PSU 5.33 per cent.

The metal sector stocks, a relative under performer until last month, were the fastest gainer on October 16, 2007 buoyed by a surge in inflows from international commodity funds. The BSEs metal index skyrocketed by 9.16 per cent or 1,358.74 points to close at a record 16,200. According to brokers, the industrial production data released by the Central Statistical Organisation on Friday was another trigger.

The Sebi has asked for data from the NSE and the BSE, regarding the transactions on October 16 and 17,2007.  The market regulator’s query follows the 1,700-point crash in the market on October 16 within minutes of opening. The objective of the investigation is to find out trades done on behalf the foreign institutional investors, domestic institutions and on the proprietary accounts of the broking houses.  Incidentally, the Nifty futures ended at a premium reflecting buying trend. Dealers explained that on a day when markets crash, the Nifty ends with a discount. Sources said the crash on Thursday followed rumours that NSE may hike margins. The exchange should have issued a clarification immediately.   

Consolidated Construction Consortium Ltd listed their shares in both the BSE and the NSE on October 15,2007. In the NSE, the stock closed at Rs 792.10 and the total traded quantity was 3995119 shares at an average price of Rs 768.98 with a turnover of Rs 3,0721.67 lakh. Whereas, on the BSE, it closed at Rs 791.45.

Supreme Infrastructure India Ltd made its debut on the NSE and BSE at a premium of 73.61 per cent and 75 per cent respectively, compared with the offer price of Rs 108. On the NSE, it closed at Rs 166.10 and traded 6,900,423 shares. Whereas on the BSE it traded a total of 4,728,152 shares and closed at Rs 175.25. Supreme Infrastructure India has listed its 1.38 crore shares at an issue price of Rs 108 each on bourses on October 18, 2007. The initial public offering of the company was subscribed over 52 times. The company had offered 34.75 lakh shares in the IPO in a price-band of Rs 95-108 per share.

Communications services company, Dhanus Technologies Ltd, listed its shares on BSE and NSE on October 17,2007. On the NSE, it opened at Rs 295 and stood at a price of Rs 309.75. The total number of shares traded in the NSE was 4,370,615 shares and it made a turnover of Rs 1,34,108.80 lakh. On the BSE, it opened with a premium of 1.76 per cent and closed at Rs 311.15. It traded 4,017,705 shares on the BSE.

Derivatives 

The extreme volatility has been seen this week, which is likely to continue into the settlement. The spot Nifty closed at 5,215 while the October contract was held at 5,193, November was held at 5,174 and December at 5173. Open interest fell by 18.8 lakh in the October futures but it expanded even more in November (25.9 lakh). However, the FII component of index futures shrank overall while index options expanded slightly.  Among other indices, the CNX-IT is at 4,847.60 in the October futures and at 4,894 in spot. The BankNifty is at 7,409.75 in October, 7,445.8 in November and at 7,424 in spot. Open interest dropped in the October contract and expanded only marginally in November. However, liquidity is just about adequate.

 The Nifty Junior lost 9 per cent in the spot market to close at 9,116. The October contract is 9,101.20 while November is almost illiquid and sitting at 9,197. It will be difficult to lock the difference due to lack of liquidity.

In the options market, the put-call ratio in terms of outstanding Nifty options dropped to 1.1, which is on the verge of bearish. Many new calls were opened while puts were cashed and put open interest fell.  According to Yogesh Radke, derivative analyst, Edelweiss Securities, there was unwinding of position in the derivative segment. The implied volatility in Nifty 5,200 option in the intra-day had shot up to 56-57%, indicating that the market will continue to witness a high amount of volatility in the coming days.

Long-term derivative products may soon make a debut in the Indian capital markets. Having imposed restrictions on fresh investments through participatory notes (PNs), the government is now working with market regulator SEBI to identify new instruments like long-term derivatives to attract investors through the regulated route. This is being done mainly to discourage complex derivatives of nine months and above being traded outside the country by foreign investors through PN route. SEBI’s actions on Wednesday were aimed primarily at preventing exotic derivatives based on Nifty and blue chip Indian stocks being traded through the PN route. Such derivatives don’t exist in the domestic market. The idea is to bring all such transactions within Indian jurisdiction, benefiting Indian players and improving tax revenues.

Government Securities Market

Primary Market

               On October 17, 2007, RBI auctioned 91-day and 182-day T-bills for the notified amounts of Rs.3,500 crore (out of which Rs.3,000 crore under MSS) and Rs.2,500 crore (out of which Rs.2,000 crore under MSS), respectively. The cut-off yields for 91-day and 364-day T-bills were 7.10 per cent and 7.45 per cent respectively.  

              RBI re-issued 3 year maturing paper of 5.87 per cent 2010 and 11.30 per cent 2010 for Rs.5,000 each with the cut-off yields of 7.80 per cent and 7.86 per cent, respectively. Both the auctions were held on October 18, 2007 under the Market Stabilisation Scheme (MSS). 

              Under the Market Stabilisation Scheme (MSS) on October 25, 2007, the RBI will re-issue 5.87 per cent 2010 and 11.30 per cent 2010 for Rs.3,000 crore each through a price based auction using multiple price method.

Secondary Market

Market participants have been cautious ahead of the mid-term review of credit policy and RBIs aggressive interventions to mop up liquidity. However, the market remained impervious of the spiraling international crude oil prices.  The heavy intervention by the RBI in the forex market had impinged on the yields. The yield on 10-year benchmark security has declined by two basis points. 

 Foreign exchange inflows resulted in banks taking recourse to the reverse repurchase window at the weekend liquidity adjustment facility auctions. The recourse to the reverse repo window was Rs 31,950 crore from 30 bids.

Bond Market

ICRA has reaffirmed the LAAA rating, indicating highest credit quality, to the Bonds programmes of GAIL ( India ) Limited (GAIL) aggregating Rs 15 billion. The rating reflects GAIL’s leadership position in natural gas transmission business, the low level of business risks in this business, its robust financial position and strengths derived from the significant sovereign ownership. While the profitability outlook for its petrochemicals and LPG businesses is moderate, the company core operations are characterised by stable and profitable margins and benefits from the favorable demand outlook for natural gas.

During the week under review, State Bank of Bikener and Jaipur tapped the market by issuing upper tier-II bonds by offering 10.28 per cent with a step-up of 50 bps if call is not exercised at the end of 10-years for an amount of Rs 100 crore. The issue has been rated AAA  by Crisil.

Despite the law ministry clearance for investing forex reserves in the overseas subsidiary of India Infrastructure Finance Company (IIFCL), which is meant to provide easy funding access to domestic infrastructure companies, the RBI has rejected the proposal, announced by the finance minister in his Budget speech.  Reiterating its earlier view, the RBI, in a letter to the finance ministry, has said while refinancing loans by the IIFCL’s overseas subsidiary is feasible and can be implemented with ease, buying its securities is against its current policy.   The RBI has suggested that the subsidiary should borrow from the market, which the bank will refinance. However, the finance ministry feels the subsidiary will not be viable if it borrows from the market.

Foreign Exchange Market

According to Citigroup Inc, the world’s third-biggest trader of foreign exchange, India ’s plan to restrict money coming into the stock market may fail to cap the rupee’s gains as the pace of economic growth will keep attracting funds from overseas. It is sticking with its rupee forecast of 39 to the dollar by the end of March.

RBI continued its interventions in the foreign exchange markets, though entirely through swaps. The swaps were mostly for one-month duration, through spot purchases and 30-day forward sales. As result, one-month forward premium remained soft at 0.6 per cent. RBI intervention and oil companies’ purchases pushed down spot dollar-rupee exchange rates to Rs 39.79 last weekend from Rs 39.33. Long forward premia however remained soft with three month, six month and 12 month at 1.31, 1.11 and 1.16 percent respectively, implying that the outlook remained firm for the rupee. This was largely on account of inflows through banks, mostly from non-resident Indians for subscription to the proposed equity sell-offs from public sector enterprises, including the power sector financier Rural Electrification Corporation. The outflows by hedge funds notwithstanding, the net inflows in the form of short-term capital remained positive. According to data from the Sebi, last week the net FII inflow was in excess of $1 billion.

RBI will be the regulatory authority for currency futures trading, the draft guidelines for which will be issued soon by the central bank.  In a meeting between the central bank and market participants, it was also decided that futures would be introduced both as an exchange-traded product and over the counter (OTC). 

Amidst frequent demands for the capital convertibility to neutralise the impact of heavy capital inflow, RBI governor YV Reddy has said the approach towards fuller capital account convertibility will be with focus on the enabling conditions for minimising the risks and maximising the benefits.

Commodities Futures derivatives

Forward Markets Commission (FMC), a regulator for commodity futures market, has decided to reorganise market holidays for all the national and regional exchanges soon. All the commodity futures exchanges including national and regional have different holidays during the year due to its regional importance. Some exchanges are closed on a particular day while others are not. Under such conditions, Members or market participants who have multiple memberships in the different exchanges will face inconvenience and cannot trade in more than one exchange. According to BC Khatua, chairman of Forward Markets Commission, all the exchanges should follow a similar holiday pattern like the government.

The National Commodity & Derivatives Exchange (NCDEX) an Indian commodity exchange, part-owned by Goldman Sachs Group and Intercontinental Exchange, plans to trade raw sugar futures as output of the sweetener is expected to rise further. It would model the contract on the global benchmark offered by New York-based Intercontinental Exchange.

The commodity futures panel, the five-member panel, under the chairmanship of Abhijit Sen, member, Planning Commission, was expected to submit its report by end of the current month may take at least one more month to submit its much-awaited report to the government on the impact of futures trade on the prices of essential commodities. According to Sharad Joshi a member of the panel, it will take some more time, as the members need to go through 500 pages of the draft report to prepare a 50-page final report.   

National Commodity and Derivatives Exchange (NCDEX) on October 19,2007 announce the final settlement prices (FSP) for red chilli, maize and turmeric for October contract. It has fixed FSP for red chilli at Rs 4,249.30 per quintal while the prices of maize and turmeric would be Rs 657.45 per quintal and Rs 2,041.30 per quintal respectively.

Corporate Sector

Leading television networks that are members of the Indian Broadcasting Foundation (IBF) have decided to drop all spot advertisements from their channels from October 15, 2007 if the advertisers and their media agencies do not agree to pay the 25 per cent surcharge levied on them.

World Bank arm International Finance Corporation (IFC) has planned to buy 12.5 per cent stake in Mumbai-based brokerage house Angel Broking for Rs 150 crore.

BHEL has secured a Rs 150 crore order from the UAE, for the supply of two 42 MW gas turbine generating units to the Al Ghail Power LLC.

Nagarjuna Construction Company Ltd., in a joint venture with South Korean steelmaker Posco, has bagged an Rs 1,560 crore order from SAIL.

Riding on high crude oil refining margins, the country’s largest private sector company Reliance Industries Ltd (RIL) has posted a 28 per cent increase in its net profit to Rs 3,837 crore for the second quarter ended September 30, 2007. Last year’s profit for the same period was Rs 3,000 crore which was restated to account for the amalgamation of its unit IPCL. Total sales during the period were up by 6 per cent at Rs 33,402 crore.

With intense competition from direct-to-home (DTH) companies and the continuing adverse impact of regulations, the average revenue per user (ARPU) for the country’s 60,000 cable operators has declined by around 30 per cent across the top 30 cities in 10 months. A year ago, the ARPU for the cable operators ranged between Rs 150 – 200. This has now come down to between Rs 130 – 160.

Bicon Ltd, Bangalore-based biotech company, propelled by sales of self-developed insulin products, has reported 20 per cent higher profits at Rs 54 crore for the second quarter ended September 30, 2007, compared with the corresponding period last year.

ACC, the country’s largest cement maker, has posted a rise of 30 per cent in its net profit for the quarter ended September 30, 2007, at Rs 292 crore compared with Rs 225 crore in the corresponding quarter last year. Higher sales, improved realization coupled with good demand scenario helped the company offset the increase in inputs costs mainly in coal. The company is in the process of expanding its cement manufacturing capacity from the current 20 million tones per annum to over 27 million tones, within 2 years with an overall investment of around Rs 4,000 crore.

Information Technology

HCL Technologies, the country’s fifth largest software exporter has posted a 23.3 per cent increase in its net income year-on-year to Rs 308 crore for the first quarter ended September 30, 2007, on the back of robust outsourcing deals and growth in the number of new clients.

3i Infotech, the Rs 670 crore IT products and services company, has acquired US-based J&B Software and its subsidiaries for $25.25 million (around Rs 100 crore). J&B is engaged in the business of providing software products and services related to remittance processing in the US .

TCS has announced the largest outsourcing deal in the domestic IT industry, worth $1.2 billion (around Rs 4,800 crore), with the Netherlands-based Nielsen – a leading provider of consumer and media information services. The deal will enhance TCS’s presence in media consulting.

*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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