Current Economic Statistics and Review For the Week 
Ended November 24, 2007 (47^th Weekly Report of 2007)

Theme of the week:

The world’s oldest civilisations, India and China today stand among the major countries, which drive the global economy. Both the nations have experienced a long colonisation and today contribute for about 40 per cent of the world’s population. Rapid economic growth, large foreign direct investments and growing trade with all countries across the world are the peculiar characteristics of both the countries. Yet, both differ from each other immensely with respect to - the nature of development, adoption of various approaches towards development, as well as political background. Against this backdrop a comparison between the two, along with their trade relations with each other and with the rest of the world becomes worthy of note.

This note focuses on the trends in merchandise trade of both countries in consideration with the comparison between their positions in the world trade.

Historical background:

China and India both had attained the liberation from imperialist domination over a century. The impact of this imperialist rule had a different corollary on the two nations as the nature of this imperialist rule differed in both the countries. British had taken over the power in India when the then existing Indian rule was on the way of its decline. In contrast, when foreign powers arrived in China , the Ching dynasty was well established and it gave a tough fight to foreigners.

For over a period of hundred years, India had endured a single imperialist rule of Britain , whereas, Chinese empire had witnessed five imperialist rulers. The British rule felt a need to establish basic infrastructure and to spread basic literacy among people to make their way in India easier. Thus, India had more elaborate and established infrastructure facilities such as railways, roads etc., and advance communication systems than that of China . Even India was ahead in literacy rate and higher education. However, the Indian agriculture had been exploited by the British Raj; most of the irrigation facilities and fertilisers had been diverted to cash crops as a part of British policy. Unlike India , China had focussed more on developing a particular agricultural pattern, known as an operating crop rotation system. As a result, despite the neglect of investments in agriculture, China achieved a significant improvement in the growth rate of foodgrains, which was about six times higher than that of India by 1952. China had more stabilised agricultural system, whereas Indian agriculture was developed as per the needs and requirements of British rule.

The post liberation developments in India and China had this distinct background. Thus, around 1950, after liberation of both the countries, when India and China have formed their republics, China had a relatively comfortable food surplus, which accelerated its industrial growth on the other hand, India suffered badly experiencing foodgrain crises for a long period, which restrained the rapid industrialisation growth in the country.

Both India and China had traversed on a similar growth trajectory between 1952 and 1978, as their economic growth rate in was almost the same, i.e. around 3.8 per cent per annum for India and 4 per cent for China. However’ India had a fast growing services sector whereas Chinese growth was mainly based on manufacturing sector. The performance of agriculture remained on similar lines during the same period but the per capita output was much higher in China due to low level of population as compared with India .

In 1978, China began reforming its closed, centrally planned, non-market economy with an aim to create a price driven market economy. The reforms focused on opening trade with the rest of the world, by which farmers could sell their surplus crops in the open market. India , on the other hand, began with small deregulations at first as it has a large private sector which was subject to rigid state controls and then in 1980, it started opening up gradually with more liberalised imports. However, the more systematic and systemic reforms in India have been introduced only after 1991 when it has experienced the severe macroeconomic crisis…

The political environments under which reforms were initiated and implemented in the two countries were very different; same is the case with their consequences. India had adopted an open, participatory, multiparty democracy, while China had been ruled by an authoritarian, one party regime.

China ’s economic growth has averaged at 8 per cent per annum since 1978, whereas India 's economic growth, after adoption of major liberalisation measures in 1991, has been averaged at achieved average growth of 6 per cent a year. Today, China has outpaced India in almost all sectors that are considered as key indicators of economic growth. The only exception to it is information technology (IT). The standard of living in China has been more than twice than that of India with gross domestic product (GDP) of China crossing twice the level of India ’s GDP.

There have been two major differences other than political background, which play a crucial role in deciding the economic environment of both the countries. First, the approach towards economic development adopted by each country and the second , the exchange rate arrangements opted for by both the countries.

Approach towards development

The approach towards the development in both the countries has been distinctly different from each other. India has adopted services based growth model whereas China had preferred manufacturing led growth strategy. The share of industrial output in GDP of China has gone up remarkably than that in India during last 15 years or so,. whereas service sector in India contributed the majority of GDP growth.

For the fiscal year 2007-08, as per the revised estimates of IMF, China is expected to grow at 11.2 per cent, 1.2 percentage points higher than the forecast made in April 2007, whereas India's growth rate has been revised upwardly by 0.6 percentage points to 9.0 per cent for the same year. 

Exchange Arrangement

In India , the exchange rate of rupee has been determined in the interbank market. The Reserve Bank of India (RBI) has the authority to intervene in the interbank market, when it feels the necessity, in the form of purchasing and selling spot and forward US dollars from and to authorised dealers in the interbank market at the market exchange rate.

China has adopted ‘conventional pegged exchange rate arrangement’. The exchange rate of renminbi (currency of China ) gets determined in the interbank foreign exchange market. The state administration of foreign exchange (SAFE), which is managed by the People’s Bank of China (PBC), announces a benchmark rate for renminbi against the Hong Kong dollar, the US dollar, the euro and the yen, based on the weighted average exchange rate that prevailed in foreign exchange transactions on the previous day.

China 's foreign exchange regime is one of the major topics in the strategic economic dialogue between China and the United States , which began in September 2006. While almost all other currencies are appreciating against dollar, China , though facing pressure from the rest of the world, has been able to keep its currency stable. The rupee on the other hand has appreciated by almost 10 per cent in recent years.

Trends in external trade

Trade pattern of both the countries reveal that China is a net exporter having a continuously souring trade surplus; on the contrary, India is a net importer with an evident trade deficit for last several years. China has mainly been dependent on exports for stimulating growth as compared to India . China ’s export has a lager share in its GDP compared to the contribution of India ’s exports in its GDP. Table 1 displays the export-import data of China and India with the rest of the world. Both exports and imports in terms of value have been huge in China as compared with India . China ’s exports have seen a continuous rise in the growth during the period from 1999-00 to 2006-07 whereas India ’s exports have varied in between 14 per cent to 20 per cent during the same period.

As per the latest data available through various media sources, China ’s exports during October 2007 have grown by 22.3 per cent over the corresponding month of the previous year, while imports have gone up by 25.5 per cent during the same month. Reflecting a slowdown in economy, the exports growth of China has been expected to decelerate below 20 per cent during 2008. Alternatively, according to DGCI&S, India 's exports also have increased substantially by 19.26 per cent during September 2007. However, the continuous appreciation in the Indian Rupee has somewhat restrained the exports growth of India .

Chart 1 reveals the stark difference in both the countries considering the external trade balance. China has witnessed a huge trade surplus during 1999-00 to 2006-07, where as India ’s trade deficit has been widening continuously during the period under consideration. China ’s surplus during 1999-00 has stood at US $ 34 billion while during that year India ’s deficit has stood at US $ 17 billion.

The souring trade surplus of China has resulted in growing pressure from the United States and the European Union to reduce the imbalance between the currencies. It has recorded a surplus for October 2007 at US $ 27.05 billion, surpassing the record of US $ 26.9 billion set in June 2007 (Media sources). It has also topped September's US $ 23.9 billion surplus but has remained well below forecasts of US $ 30 billion.

India ’s trade deficit during the month of September 2007 has declined by 27.5 per cent to US $ 4.42 billion over a year ago. However, it has increased by 41.9 per cent during the first six months of the current fiscal year to stand at US $ 36.92 billion.

China – India Trade

India and China are in a position to achieve US $ 20 billion bilateral trade turnover by the end of the year 2007, a year before the completion of the target period set earlier, i.e. end of fiscal year 2008. During the visit of Premier of the State Council of the People's Republic of China to Republic of India in April 2005, both the countries have agreed to make joint efforts to increase the bilateral trade volume to US $ 20 billion or higher by 2008. Since 1997-98, Indo-China trade has registered a growth of 260 per cent, i.e., average yearly growth of around 33 per cent.

India-China border trade opened in Uttaranchal on July 15, 1993; second border trade point opened in Himachal Pradesh in 1994 and a memorandum for third border trade in Sikkim was  signed in Beijing , in June 2003. During 2004, the cross border trade amounted to Rs.1846 lakh.

The volume of trade with China during the last 5 years, i.e., from 2002-03 to 2006-07 has increased by 440.2 per cent, registering an annual average growth of around 53.3 per cent. During 2004-05, India 's total trade with China has seen a huge growth of 81.4 per cent totalling to US $ 12.71 billion. Table 3 reveals the whole picture of India ’s trade with China for the last five years.

 The latest available data has revealed that trade between India and China has grown by 56.8 per cent during January-April 2007, and has crossed US $ 11.4 billion.

Considering the exports of various commodities from India to China for the last five years, the exports of gems and jewellery have gone up to US $ 18.13 million in 2006-07 from 2.07 million in 2002-03. Exports of commodities like cotton yarn, fabrics, petroleum (crude & products), machinery and instruments, etc., have also seen improvements during the period under consideration. As against this, exports of commodities like manufactures of metals, primary & semi-finished iron & steel have registered a decline during the period (Table 3).

As far as imports from China are concerned, the principle commodities like electronic goods machinery except electric and electronic, organic chemicals coal, coke & briquettes, iron and steel etc. have seen a sharp rise during 2000-01 to 2006-07. The share of China in total imports of India has gone up significantly from 3 per cent in 2000-01 to 9.1 per cent in 2006-07 (Table 4).

To Sum Up

China and India are now emerging as major countries not only in the Asia but also in the global economy. At the back of slow down in US economy, the economic activities in these countries have become increasingly significant at the global level . Both the countries need to accelerate the development to expand their economic base. India though lag behind China in many respects, has a potential to achieve the level of China in near future. The annual report of Unctad, 2007 has estimated India ’s to growth rate at 8.5 per cent, similar to the forecast made by the Reserve Bank of India , and China at 10.5 per cent during 2007-08. Both the countries are making efforts to improve their trade between the two. Recently, India and China have decided to set up a working group that will prepare a framework to resolve the decades-old border dispute.

References:

 Dr. Swamy S (2003) ‘Economic Reforms And Performance China And India In Comparative Perspective’.

Harris N. (1974), ‘ India China Underdevelopment And Revolution’

International Monetary Fund (2005), ‘Annual Report On Exchange Rate Arrangement And Exchange Restrictions’

Morgan Stanley (2006), ‘ India And China : New Tigers Of Asia , Part II, Special Economic Analysis’, June.

Various Media Sources

*  This note has prepared by Snehal Nagori.

Highlights of  Current Economic Scene

AGRICULTURE  

The tender floated by MMTC, for import of 3.5 lakh tonnes of wheat has got moderate response with only 8 companies offering an aggregate quantity of 10.60 lakh tonnes at prices ranging from US $ 397.03 to US $ 487.95 per tonne on cost and freight basis. Cargill is the lowest bidder offering 65,000 tonnes at Mundra port at US $ 37.03 per tonne. This US based commodity giant has also offered 35,000 tonnes at US $ 408.43 per tonne to be delivered at Kandla port and 50,000 tonnes at US $ 412.98 at Kakinada port. On the other hand, in terms of volumes Glencore International AG has offered the highest quantum of 3.60 lakh tonnes for Kandla delivery at US $ 410.50 per tonne. The Swiss trader has also quoted a rate of US $ 407 per tonne for 3.25 lakh tonnes at Mundra and US $ 422 per tonne for 3.5 lakh tonnes for delivery at Kakinada . The final decision taken on November 24,2007 by the central government has revealed that Cargill and Glencore, two of the eight bidders have bagged the latest MMTC wheat tender for purchase of 3.5 lakh tonnes at a weighted average price of US $ 400.19 per tonne, cost and freight. Of which Cargill has been allotted 1.80 lakh tones and remaining has been allotted to Glencore. It is projected that Glencore would ship the cargo in three vessels; all of which are expected to be unloaded at Kandla while Cargill would bring cargo in four vessels of which 3 would be discharged at Mundra port and one at Kandla port.

As per the central government, India is likely to face a domestic shortfall of wheat for three years upto 2010. Wheat output is estimated to be around 73.44 million tonnes in 2010 leaving a potential shortfall of 82,000 tonnes. Wheat production in 2007-08 crop year has stood at 71.78 million tonnes against that of 74.89 million tonnes recorded in previous year. It is also projected that the production of the grain would touch 72.60 million tonnes for 2008-09.

As per Food Corporation of India , government owned agencies have procured nearly 12.49 million tonnes of paddy by November 21, 2007 as compared with 13.43 million tonnes during the same period last year. India ’s farm ministry estimates indicate that the summer-sown rice output in 2007 was 80.15 million tonnes against that of 80.11 million tonnes a year ago. India ’s rice stock in its stockpiles as on November 1, 2007, has stood at 10.62 million tonnes.

The central government has officially ruled out any increase in the issue prices of foodgrains channelised through the public distribution system (PDS), in the view of upcoming pressure of elections. The prices have not been revised since July 01, 2002, and they had been fixed for the population below poverty line at Rs 4.15 per kg in case of wheat and Rs 5.65 per kg in case of rice. The rates for population leaving above poverty line have similarly been set at Rs 6.10 per kg for wheat, Rs 7.95 for common rice and Rs 8.30 for grade ‘A’ rice. As per the Food Corporation of India , the requirement of funds under the food subsidy is likely to increase by Rs 15,563.11 crore over the Budget Estimate of Rs 25,424.89 crore.

As per the report by Ag Resource Co, world wheat production would rise to a record next year as the harvest would rise radically in the countries like the US, European Union and Australia. Supply from the major producing countries would advance to 648.1 million tonnes in the marketing year 2008-09, as against an estimated production of 605.1 million tonnes. Whereas, world wheat consumption during the whole year is expected to jump to 626.5 million tonnes from 613.3 million tonnes.

State Trading Corporation of India Ltd (STC) has issued a tender to import 15,000 tonnes of palm oil by December 2007. Out of which, the company would import 6,000 tonnes of RBD palmolein and 9,000 tonnes of crude palm oil.

MMTC has issued a tender to import 50,000 tonnes of pulses by January 2008. Of the total import-quantity, the company has plans to import 30,000 tonnes of yellow peas of Canadian origin, 12,000 tonnes of pigeon peas of Myanmar , Malawi and Mozambique origin and 8,000 tonnes of chickpeas of Australian origin. Bids have been started and last date for submitting the bids is November 29,2007.

National Agricultural Cooperative Marketing Federation (Nafed) has cut down minimum export price (MEP) of onion by US $ 75 per tonne from November 19, 2007 and at present it stands at US $ 420 per tonne and further it has ban export licence restriction for overseas sale of onion. This decision was taken as prices of onion in the domestic market have started to decline due to increase of new arrivals.

The State Trading Corporation (STC), National Agricultural Cooperative Marketing Federation (Nafed) and Spices Board have joined hands to form a special purpose vehicle (SPV) for the first agricultural services zone in Madhya Pradesh which would be dedicated for the trade of chilli and vegetables.

The kharif production in Gujarat has exceeded the target set in 2007-08. Kharif crops in the state have stood at 82.04 lakh tonnes against the target of 78.13 lakh tonnes. Total foodgrain output during kharif season 2007 has been 31.14 lakh tonnes against the target of 29.66 lakh tonnes. Cotton production has been at 110 lakh bales, which exceeded the target of 85.94 lakh bales by a whopping 24.06-lakh tonnes. Cereals have accounted for 26.68 lakh tonnes against the target of 25.17 lakh tonnes. Whereas pulses have shot downwards to 4.46 lakh tonnes against the target of 4.48 lakh tonnes. While, groundnut production this season has been 85.94 lakh tonnes higher than the target set by 1.27 lakh tonnes. Vegetable output has also exceeded the target of 24.33 lakh tonnes to 25.30 lakh tonnes. Other horticultural crops including summer fruit crops have stood at 60,000 tonnes against the projected 52,000 tonnes.

As per US Foreign Agricultural Service, soybean production in India would rise by 20 per cent as farmers have planted more land under soybean during monsoon season 2007 and due to which yields are expected to be better. Soyabean production would climb to 9.25 million tonnes in the marketing year that began in October- September 2007-08 from 7.69 million tonnes last year. India ’s animal feed production would rise to a record of 6.37 million tonnes from 5.29 million tonnes and protein feed exports would rise by 26 per cent to 4.4 million tonnes from 3.46 million tonnes. While domestic production of cooking oil from soybean would rise by 21 per cent to 1.4 million, soybean oil import would fall by 11 per cent to 1.3 million tonnes from an estimated 1.46 million tonnes during the same period.

The state of Tamil Nadu has permitted its 5 private sector sugar mills to raise alcohol output apart from allowing 3 standalone distilleries to increase their output by 30 kilolitres per day, as the state has witnessed bumper sugarcane output in the current year 2007-08. The revenue to the state government from excise and sales tax on liquor has grown by 23 per cent to Rs 7473.62 crore in 2006-07 as against that of Rs 6030 crore in the previous year. Even in the period between April-July 2007-08, the revenue has touched Rs 2851.02 crore representing a potential income of more than Rs 8,500 crore for the entire year.

Exports of Indian coir products are likely to rise by 16 per cent in the current financial year 2007-08 and are expected to touch Rs 700 crore. It is projected that if current trend would be followed then coir exports would touch to Rs 1,000 crore by 2009. In order to boost the exports, Coir Board is in the process of launching a new loan scheme called ‘Golden Fiber Plus’ along with the assistance from the state bank of Travancore. Under the scheme bank would provide loans up to Rs 35,000 to coir workers to construct spinning sheds and to procure raw material and equipment. The board would also provide subsidy of 25 per cent on the loan amount and workers would have to repay only Rs 25,000 over a 7-year period for maximum loan of Rs 35,000. The board has tied-up with Indian Oil Corporation to promote coir products in the domestic market through its retail outlets.

            Shortfall in the production of tea in the domestic market have led its prices to decline, even exports have dropped down rapidly in terms of quantity. However, tea exports have gained in terms of value, as unit export price of the same have remained higher compared to that prevailing in the international market. During January-September 2007, country’s overall production of tea has been down by 17,534 thousand kgs. Whereas, exports during the same period has also fallen by 37,159 thousand kgs. The unit export price, on the other hand, has risen to Rs 98.60 as against that of Rs 91.56 over the same period last year.

The World Organisation for Animal Health (OIE) has declared India free from bird flu, which had outburst in July 2007 in poultry farm in the northeastern Indian village due to which many overseas countries had banned the imports of Indian poultry products. Therefore, countries like Oman and Bhutan have lifted the ban on imports of Indian poultry and its products.

International Crops Research Institute for Semi Arid Tropics (ICRISAT) and Inter Governmental Panel on Climate (IPCC) have pointed out that climate change would have threatening adverse effects on crops particularly on dry land areas as temperatures at flowering stage is already close to the maximum. Experts at the international conference on climate change have warned that climate change would have awful impact on crops and especially on yields of rice. So all nations have been asked to adopt action plan within 15 years to address the problem.

The central government has envisaged that effective utilisation of cashew apple can help the country in big way to achieve energy security, as it has tremendous potential to produce bio-fuel, like ethanol. In India , it is grown in almost all states having 8.37 lakh hectares of acreage under its cultivation where 5.73 lakh tonnes of raw nuts are produced. It is projected that nearly 3.21 lakh tonnes of ethanol can be produced from 40.11 lakh tonnes of cashew apple.

The National Bank for Agriculture and Rural Development (NABARD) has released Rs 5.26 crore subsidies to Kerala under the central government’s ‘Capital Investment Subsidy Scheme under which the farmers would be assisted in the way of subsidy ranging from 15 per cent to 33.33 per cent of the project cost for construction of rural godowns, cold storages and creation of other marketing infrastructure in rural areas. This scheme would also aim to promote enhancement of returns to the producers through reduction of market intermediaries, standardisation and quality certification. The government has also provided financial assistance worth Rs 15.24 lakh under the National Project on Organic Farming.

Banking

The RBI has permitted banks to provide internet-based operations on the rupee vostro accounts maintained by exchange houses or banks outside India with them, provided the banks in India ensure that the software will prevent any unauthorized operation. Banks will remain responsible for secrecy, confidentiality and integrity of data.

Insurance

Metlife India Insurance will be infusing Rs 119 crore by December-end for meeting the solvency requirements and expanding its reach. After the infusion, the capital base of the company will be Rs 880 crore. The number of agents will triple to 30,000, while the number of branches will increase to 110 by this year.

Financial Sector

Financial Market Developments

Capital Markets

Primary Market

           HDFC Standard Life Insurance, the country’s private sector life insurer, is planning to dilute over 10 per cent equity through an initial public offer (IPO). The public issue will make HDFC Standard Life the country’s first life insurance company to be listed on the Indian stock market. According to, Deepak Satwalekar, managing director and CEO, HDFC Standard Life Insurance, the company need to raise funds for capital requirement for the life insurance business of around Rs 600 crore for the current year and the IPO size would be above Rs 100 crore. 

          Power and infrastructure development company Rithwik Projects Ltd has already filed the Draft Red Herring Prospectus and is awaiting nod for the book-building process in order to enter the capital market to part-fund its expansion plans. The Hyderabad-based company, which is currently executing infrastructure projects both directly and as a service provider along with some hydel-generation power plants. The company has also been attracted by private equity players who are interested in investing in infrastructure companies.

        The financial services company, Edelweiss public issue has been subscribed 111 times, which offered 83.86 lakh shares. The subscription at the cut-off price of Rs 825 was for 3.97 crore shares. The non-institutional investors segment, for whom 8.18 lakh shares were allotted, saw applications for 154 times the number of shares allotted. Similarly, the retail portion (24.54 lakh shares) was subscribed 20 times. Qualified institutional bidders (QIBs) (49.08 lakh shares) was subscribed 145 times and ‘employees’ (2.04 lakh shares), 10 times.

         On November 22, 2007 Varun Industries Ltd, an exporter of stainless steel products, made its debut in the capital markets at a premium of 75 per cent against the issue price of Rs 60 on the NSE. It closed at Rs 112.2. Total number of shares traded was 1.41 crore shares On the BSE, it closed at Rs 112.65, trading a total of 1.11 crore shares. The company raised Rs 54 crore through its sale of 90 lakh shares. The funds will be used for brand building, launching products in the domestic market and for working capital.

Secondary Market    

      In the week under review, the market participants were gripped by volatile swings throughout the period before finally closing lower by 4.29 per cent.  The Bse sensex fell for six consecutive days, despite the 327-point rally on Friday (the last trading day of the week); the index lost 845.49 points over the week to 18,852.87. The Nse nifty, similarly, registered loss of nearly 300 points to 5608.60 for the week ended November 23. However, in the last trading session, major stock indices recorded their best single-day performance for the week, by rising close to 2 per cent.

Indian stock markets in sync with the other Asian markets declined on Wednesday with the 30-share BSE sensex posting its biggest decline in a month after crude oil approached $100 a barrel and the US Federal Reserve cut its forecast for US economic growth from 2.5-2.75 to 1.8-2.5 per cent.  The recovery in the US markets on Wednesday did not have an effect on the BSE sensex which lost 678 points, or 3.52 per cent, to close at 18,602 points.  The 50-share Nifty lost 219.85 points, or 3.80 per cent, to close at 5,561 points on Wednesday.

             All the Sectoral indices of BSE have declined over the week, with the highest decline in BSE- PSU index of 10.11 per cent, followed by the BSE Reality 7.02 per cent, BSE-Capital goods 6.43 per cent, BSE- FMCG and BSE -Bankex both at 5.35 per cent.

         On November 23, 2007, the Securities Appellate Tribunal (SAT) set aside last year’s disgorgement order of Securities and Exchange Board of India (Sebi) against National Securities Depository Ltd and nine other entities, saying the regulator cannot issue the order at an interim stage. In its judgment the tribunal said that all the accused entities should be given a chance for hearing, besides asking Sebi to establish whether these entities have made any unlawful gains through the IPO scam, which saw several entities cornering huge allotments during initial share issuances by applying for shares through thousands of illegal accounts. The tribunal also wants Sebi to prove that these entities are indeed guilty. SAT also disposed off Sebi’s instruction to NSDL board to revamp the management, after the counsel for the regulator told the tribunal that this was just “advisory” in nature.       

           Sebi chairman M Damodaran on November 23, 2007 cautioned Asian economies at conference organised by Asian Securities Analysts Federation, about the decisions of “certain categories of investors from matured markets” leading to volatility in their markets. He urged regulators of these countries to make the first move to make rules and principle-based regulations to avoid any systemic risks. The Sebi chief also called upon analysts to have industry code of conduct for objective and fair assessment of stocks. According to him, there are certain categories of investors from the matured markets, where returns are not as good as in the past. So, for greener pastures they have ended up in our backyards as our markets give them good returns. They will abandon our markets when we do not give such returns. This will lead to volatility in our markets.

         More than six asset management companies (AMCs), including ICICI Prudential, UTI Mutual Fund and others, have plans to tie up with foreign players to raise offshore funds to invest in Indian equities. The total assets under management of these offshore funds are conservatively pegged at $5-7 billion. Domestic fund houses are only allowed to provide advisory services, according Sebi guidelines. Interest from overseas investors wanting to latch on to the India growth story has gone up, particularly after Sebi’s participatory notes (P-notes) regulation. 

            Securities Appellate Tribunal (SAT) set aside the capital market regulator’s order asking the German cement major, Heidelberg, to increase its open offer price for Mysore Cements by 25 per cent on November 20, 2007.  Sebi has been given eight weeks to file its report on the issue to SAT.  Nearly a year ago, Heidelberg challenged the Sebi order, which asked the company to pay Rs 14.50 more for a share for the open offer of Mysore Cements.   

          The chairman of the Sebi M Damodaran on November 21, 2007 said the regulator was considering proposals to allow real estate investment trusts (REIT) in India .  Speaking at a conference on capital markets organised by the CII, the Sebi chief also said the rules on listing and trading of securitised debt market instruments will be finalised by December. 

Rating agency Crisil, whose majority is owned by the US-based Standard & Poor’s (S&P) Rating Services, and NSE will join hands to develop a volatility index for the Indian market.  Sebi last week gave the in-principle go-ahead for derivatives trading on volatility index (VIX).

Singapore Exchange Ltd (SGX) has reduced the contract size for the SGX Nifty India Index Futures from $10 to $2 from Monday November 19,2007. The SGX has, however, increased the position limit to 25,000 contracts from 5,000. The minimum lot size has gone up from 10 to 100. According to SGX, these measures “have been taken to meet different risk and investment needs” of its market retail, institutional participants and traders as also “to allow greater affordability and tradability”.

SBI Mutual Fund is planning to launch gold exchange traded fund (ETF) early next year. According to Mr O.P. Bhatt, SBI Chairman, the fund expects to mobilise not less than Rs 200 crore, as a country like India , which is a large consumer of gold with an annual consumption of 900 tonnes, is also one where the vast majority of the population is yet to experience the actual buying of gold. “We will launch the product as soon as we can address the issue of why it (ETF) has not taken off,” he said.

NSE, arguably the world’s second largest platform (after the Johannesburg Stock Exchange) for single stock futures, needs to change the rules of the game to keep the field open for the small investors as the cash market price rise overtakes the administered valuations by handsome margins.

Derivatives 

The sudden reversal in the bull rally last week pushed the Nifty Index down by 5.3 per cent. The Nifty November future also closed with sharp losses but at a premium of about 11 points to the spot close. The Nifty December future, however, ended at a discount of about two points to the spot close. Rollover of positions was modest at 22 per cent, capturing the cautious mood of the market. However, most of the short positions were covered during the Friday rally. Though there was smooth accumulation in overall open interest (OI) position, the Nifty November future saw a sharp decline.

Prices likely to recover till Nifty 5750 ahead of settlement. Four negative sessions were followed by a partial recovery on Friday but week-on-week, the market lost considerable ground. The Nifty ended down 5.05 per cent at 5608 points after hitting an intra-day low of 5394 on Thursday.  The BSE sensex was down 4.29 per cent. The Defty lost 5.75 per cent as the rupee softened somewhat. The broad BSE 500 was down 4.06 per cent while the CNX Midcap lost 4.07 per cent. The Nifty Junior was the best performing index with a loss of only 1.55 per cent. Volumes were low through the week and lowest on Friday during the recovery.   

           In terms of index futures, the Nifty was held at 5608 in spot while the November futures were settled at 5619.75 and December at 5606. January was settled at 5602. There is reasonable open interest in all three contracts and, while 20.8 lakh November contracts were closed, open interest grew by 24 lakh in December.  Unusually for this stage of settlement, about 3,800 January contracts (out of previous open interest of 158,000) were closed out. The Nifty Junior was 10949 in spot and November settled at 10958.75. The Junior incidentally was the index that lost the least ground last week.  The CNX IT was at 4239 in both spot and November with December (open interest of 4900) held at 4213. The Bank Nifty was 8978 in spot, 9043 in October and 9049 in November (1100 open interest).

The cumulative FII positions as percentage of total market positions on the derivative segment as on November 22 was 33.59 per cent (34.10 per cent). FIIs indulged in heavy selling in F&O segment. They now hold index futures worth Rs 18,216 crore (improved from last week’s Rs 16,089.78 crore) and stock futures Rs 44,346 crore (Rs 43,028.61 crore). This indicates that they have rolled over short position on index futures.

Government Securities Market

 Primary Market

On November 21, 2007, RBI auctioned 91-day and 364-day T-bills for the notified amounts of Rs.2,000 crore each. Out of which Rs.1,500 crore for 91-day T-bills and Rs.1,000 crore for 364-day T-bills under MSS. The cut-off yields for both the T-bills were 7.52 per cent and 7.75 per cent respectively.  

RBI re-issued 7.99 per cent 2017 and 8.35 per cent 2022 for Rs.3,000 crore and 4,000 crore on November 23, 2007 at the cut-off yields of 7.90 per cent and 8.20 per cent, respectively.  

Secondary Market

The call money rates, during the week, touched a peak of 7.69 per cent on November 19 and dipped to 5.93 per cent on November 23, on the reporting Friday, as banks had already covered their positions. The share of NDS-Call segment in the total call turnover has ruled around 75 per cent in the week under review.

The yields at the short-end firmed up during the week, while that on the medium and long-end securities remained steady, resulting in a somewhat flat yield curve. The yield of the benchmark 10 year security -7.99 per cent 2017 was at 7.89 per cent as against 7.91 per cent during the previous week. Bond yields softened on the back of liquidity driven by merchandise inflows and weak credit offtake. Traders ignored the current spate of outflows driven by foreign institutional investors and high international oil prices.     

At the liquidity adjustment facility (LAF) auction, banks and primary dealers returned to the reverse repurchase window. At the three-day weekend LAF auction, the central bank accepted 9 bids for reverse repurchases for Rs 8,710 crore. Besides, at the auction of the 10-year (7.99 per cent 2017) and the 15-year (8.35 per cent 2022) papers, the bids were in excess of the notified amount. The cut-off yield to maturities on both the securities was favourable at 7.90 per cent and 8.20 per cent, respectively.

The 8.20 per cent 2024 oil bond was picked up by insurers at an YTM of 8.69 per cent. As a result, the outlook for bonds remained positive. Bankers said that liquidity may further increase in the coming weeks, as investments from the long-term investors flow.

The finance ministry has sought approval for additional funds of Rs.33,291 crores including a cash outgo of Rs.11,870 crores for 2007-08 to cover the cost of issuing bonds worth Rs.11,257 crores to the oil marketing firms for offsetting their losses, and interest payments on various market stabilization bonds.

Bond Market        

LIC Housing Finance Ltd is tapping the market to mobilise Rs 300 crore through the issuance of bonds by offering 9.35 per cent for 7 years with a put and call end of 5^th year. The bond has been rated AAA by crisil and icra.

          High net worth investors lap up structured products sold by foreign banks. Bonds linked to the Nifty, the 50-stock composite index of the NSE, are gaining popularity among high net worth individuals (HNIs) and ultra HNIs.  Efforts of foreign banks and wealth management divisions of local banks to sell these structured products to investors have led to the popularity of such products.

           Maharashtra is all set to float bonds worth around Rs 1,000 crore to fund irrigation projects. The state Cabinet is likely to give its nod for the same before the end of this fiscal, sources in the finance ministry said. It is estimated that the state would require around Rs 30,000 crore over the next five years to complete the projects. It had, therefore, decided to fund the projects equally through budgetary allocation and bonds.   

Foreign Exchange Market

          At the beginning of the week, Inflows and heavy sale of dollars by the exporters pushed the rupee up to an intraday high of 39.27/28. Towards the end of trading session, the dollar demand by oil importing companies led the rupee to close at 39.3/34 to a dollar. The combined effect of both oil demand and FII exits pulled down the rupee this week to Rs 39.57.  The rupee slumped by around 18 paise against the greenback on weekend as FII-related outflows led to sustained dollar buying by banks. The domestic currency has fallen by over 30 paise in two consecutive days. The rupee opened at 39.48/49, slipped to 39.58/59 and climbed back to 39.51/52. It then dropped to close the day at 39.72; against Thursday’s close at 39.53. According to dealers in spite of FII outflows, there was dollar buying due to defence-related and ‘month-end’ payments. Nationalised banks were also seen buying dollars, possibly on behalf of the RBI.

Commodities Futures derivatives

          The National Commodity and Derivatives Exchange (NCDEX) witnessed record deliveries at the expiry of November contracts with 18 commodities out of 20 delivered posting a 100 per cent deliveries-to-open interest ratio, the exchange said in a statement.  November contracts had a total delivery of 43,052 MT. In metals contracts, the exchange saw deliveries of 270 MT in steel. Mentha oil logged 25,920 kg, while the furnace oil contract broke the previous record with deliveries of 40 tonnes. Meanwhile, NCDEX announced the final settlement prices (FSP) of 42 commodities, including nine commodities in the oilseeds and edible oils category, five in pulses, four in spices, three each in precious metals and polymers, and the rest in the agri commodities category. 

           The Forward Markets Commission (FMC), country’s commodity futures regulator, intends to put up electronic boards that display spot and future prices of various agricultural commodities in the market yards of 2,500 Agricultural Produce Marketing Committees (APMCs) in the next couple of years. FMC chairman, BC Khatua, said the commission would eventually put up such display boards in all the 7,500 APMC market yards in the country for the benefit of farmers. It has chosen to cover 2,500 market yards in the first phase as they already have computer facilities. 

         According to traders and analysts Castor seed futures are expected to trade firm in the next one week reflecting the positive sentiment in vegetable oils. They are expected to receive buying support amid high global crude and soyoil prices.  Spot prices will continue to get support from export buying.   

          ‘Day Trading’ in bullion on an electronic trading platform may become a reality for Indian investors if a proposal to set up an exchange for ‘spot’ trading in gold gets Governmental clearance. The Government currently permits the concept of a spot exchange in gold with settlement for transactions being done on a ‘trade for trade’ basis.

         With the objective of educating farmers on commodity markets, the National Multi Commodity Exchange of India (NMCE) is considering setting up a Knowledge Management Center in Kochi . The center is expected to become operational by the beginning of the next fiscal and would impart a perfect learning programme on commodity markets. The learning programme designed to dispel misgivings on futures trade and impart correct knowledge of commodity markets to the farmers of the country. The exchange is also planning an exclusive academy, in association with a leading international business school, for commodity market with the intention of producing ‘professionals of excellence in commodity management and trade.’ For this, the exchange has already roped in professionals with proven prominence in the field of commodity trading.

           RiddhiSiddhi Bullions Ltd (RSBL), one of the largest bullion dealers in India , is set to launch online bullion spot trading. The initiative will be done through a newly floated company RiddhiSiddhi SPOT (Spot Precious-metals Online Trading) Ltd. According to Mr Prithviraj Kothari, Director, RiddhiSiddhi Bullions Ltd, they have already started demo trading and the venture will go live in the next 10 to 20 days. The company is an “authorised participant” (AP) of all gold exchange traded funds (ETF) in India , which has invested about $1 million in the new initiative. AP provides guaranteed liquidity for ETFs. To begin with trading can be done at Mumbai, Ahmedabad and Hyderabad , where delivery centers have been established. By April 1, Chennai, Coimbatore , Bangalore , Mangalore, Delhi and Indore can also log on to the platform by when delivery canters will be in place there.

            According to Dr Kewal Ram, a member of the Abhijit Sen Committee, the report of the Commodity futures panel, which has been asked to look into whether the futures in food-grains contribute to the rise in their prices, is likely to submit its report in a month. He refused to divulge any details about what the report might contain. The Committee’s report, which was first expected to submit its report in May and has since received several extensions of the deadline, is much awaited because its recommendations would have a bearing on many aspects of the futures market for agri commodities.

As per the latest assessment of London-based International Grains Council (IGC), world wheat output in 2007-08 will bounce back from the previous year by some 12 mt to 603 mt, while consumption will rise by a modest 2 mt to 611 mt and ending stocks will reach a recent low of 110 mt.

Corporate Sector 

United Spirit Ltd (USL) will invest about Rs 140 crore in the next 3-4 years to increase wine production in India and France as its plans to flood the domestic market with about 100 brands.

Kishore Biyani’s Future Group expansion expect a revenue target of Rs 30,000 crore by 2010. The current retail turnover stands at about Rs 4000 crore. At present there are 76 Big Bazaar stores, plans to increase it to 250.

Lodha Developers, a Mumbai-based realty company, plans to raise Rs 6000 – Rs 8000 crore through a public issue within the next 12 months, offloading 10-15 per cent stake.

Information Technology

3i Infotech expects its sales to increase 25 – 30 per cent organically for the next two years led by strong growth in emerging markets.

Telecom

Nokia India is likely to ramp up its Chennai facility with an investment of $170 million over the next 18 months to upgrade machinery and enhance capacity.

*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project.

LIST OF WEEKLY THEMES

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