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Current Economic Statistics and Review For the
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Theme
of the week:
The Exchange Rate Movements*
The
rupee-dollar exchange rate has appreciated rather sharply in the current
fiscal year so far, that is, from Rs 43.13 per dollar on April 3, 2007 to
Rs 39.27 on November 7, 2007, an appreciation of Rs 3.86 or by 9.8 per
cent in a span of about seven months. This sharp appreciation has been
brought about by weaknesses in the US dollar, which has depreciated
against major currencies, as it remained affected by sub-prime crisis, but
more significantly due to huge inflows of foreign currency assets because
of phenomenal growth in current account deficit of the Though
the government has extended a number of sops, exporters are facing tough
competition in view of the sharp and rapid appreciation of the rupee,
which is impinging on their margins. In the case of the textile sector,
there are reports of substantial job losses. The RBI has acknowledged that
the biggest challenge is the management of capital flows and the attendant
implications for liquidity and overall stability (Mid-term Review of
Credit Policy, October 31, 2007; pp 55). It has liberally encouraged
outward flows by relaxing limits on Indian companies for foreign
investments, increased the limit on prepayment of ECB borrowings, enhanced
limits on mutual funds investments and increased remittances for
individuals. Further, it has imposed limits on borrowings through ECBs so
that further inflows through them are contained. Apart from these, RBI has
been actively intervening in the market through spot as well as forward
market. Yet,
the rupee’s movement has been a cause for concern for the authorities as
the Finance Minister admitted that the rupee’s movements have been above
the comfort zone though he considers that exporters have to bear with
rupee appreciation. The RBI
has been caught in a difficult situation wherein, it allowed the rupee to
appreciate as an instrument of inflation containment measures initially
and now is faced with a challenge to retain rupee’s competitiveness
against huge capital inflows.
Brief
Historical Background Following
the 1990-91 balance of payments crisis, Movement
of the Exchange Rate
The exchange rate policy followed in the recent period has been enumerated in the mid-term review of credit policy (October 2007; pg 26): The exchange rate policy in recent years has been guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, coupled with the ability to intervene, if and when necessary. The overall approach to the management of India’s foreign exchange reserves takes into account the changing composition of the balance of payments and endeavours to reflect the ‘liquidity risks’ associated with different types of flows and other requirements. The rupee has generally depreciated against the dollar during the period between 1993-94 and 2002-03. Though there have been periods of volatilities but they have been less as compared with those in other emerging countries as the exchange rate policy has been guided by the need to reduce excess volatility, prevent the emergence of destabilising speculative activities, help maintain adequate level of reserves and develop an orderly foreign exchange market (Report on Currency and Finance (RCF), 2005-06; pp 236).
Recently, since the beginning of the financial year 2007-08, the rupee has appreciated against the dollar, rather rapidly and sharply. The rate have ruled at Rs 43.59 at end March 2007, appreciated thereafter to reach Rs 41.24 at end-August 2007 and strengthened further to Rs 39.51 in October and to Rs 39.43 in November. The appreciation of the rupee has been allowed by the RBI in reversal to the earlier policy of allowing gentle nominal appreciation to one of rapid appreciation as a measure to contain inflation. This situation has become more difficult due to the emerging weaknesses in the US dollar, which has depreciated against all most all the currencies in the wake of deepening US sub-prime mortgage crisis and the resultant contagion effect, but more significant has the impact of huge capital flows. In the mid-term review of credit policy (October 27, 2007; pg 55), the RBI governor state that a visible reflection of the sheer magnitude of the inflows is the accretion to the foreign exchange reserves which has been of the order of US $ 62 billion during the current financial year up to October 19, of which US $ 48 billion has been built up since end-June 2007.
RBI
Interventions
Given
the volatilities in the exchange rate movements, central banks have been
intervening in the markets in order to ensure orderly conditions. It is
worth noting the observations of Bimal Jalan (2003; pg 248): “In recent
times, there has been a large increase in international capital movements.
In emerging market economies, particularly, their capital flows are very
volatile, and largely sentiment driven exposing financial markets to large
risks.” Thus, RBI has been intervening in the foreign exchange markets to contain the volatility. Table 3 shows the RBI’s purchases and sales in spot and forward market. In the fiscal year so far for 2007-08, the RBI purchase have touched US $ 34.78 billion which is the second highest purchases of the RBI with the highest being of US $ 55.4 billion in 2003-04 in the wake of Resurgent India Bonds redemption.
As shown in Table 1, though the rupee appreciated from Rs 43.59 in end-March 2007 to Rs 42.15 in April and further to Rs 40.77 in June, RBI has intervened in the market only to the extent of US $ 9,673 million wherein the rupee appreciated by Rs 2.82 in a span of about two months. But from July to September 2007, RBI has intervened aggressively to the extent of US $ 25,110 million as inflows gathered momentum. In October 2007, RBI intervention in spot market has been accompanied by holding positions in forward markets for which the data are, as of now, not available; but it is expected that it would be large, given the huge inflows. REER/
NEER movements
The Chart 2, shows that the REER (base year 2005-06 and base value = 100) for 6 currency trade based weight has ruled below 100 between 1993-94 and 2005-2006. But thereafter particularly in 2007-08, so far up to October 19, 2007, the REER has begun ruling above 100 indicating overvaluation of the rupee against these six-currency countries. Even in terms of NEER with same base year and value, the index has been again ruling above 100
indicating that the rupee has appreciated in both the nominal and real terms. Similar appreciation is also evident in the case of the 36-currency indices based on trade based weights and export-based weights. REER has ruled above 100 on both trade-based weights and export-based weights which shows that the appreciation is not restricted to the 6-major currencies but against major trading partners in the financial year upto August 2007. (Appendix 1) IMF
Data
This is also evident from the data put out by the IMF on major currencies per US dollar which shows that among the emerging countries, the Indian rupee has appreciated the most by about 11 per cent between March 30, 2007 and November 30, 2007 while the Indonesian rupiah, South Korean won, Malaysian ringgit and Thai baht have appreciated to a much lesser extent (Table 5). Issues In
view of the above, the exporters have been repeatedly expressing their
grievances as their margins have been compressed in a short span that has
not provided them with space to adjust to these sharp movements amidst
firm interest rate regime. Rupee
appreciation has had its impact on a host of industries including IT, IT
enables services, textiles, garments, and leather goods especially while
vying to corner a larger slice of the trade internationally after the
quota regime in EU has come to an end. Here again, the Indian textile
products turned non-competitive owing to the escalation in rupee value.
Also, in ITes sector for instance, A US based company, which started its
operations since two years, has closed its operations in view of the
strengthening of the rupee. Mukhtarul Amin, the chairman of the Council
for Learther Exports, says In response, the government has extended various fiscal sops, relief from service tax to exporters and hike in Duty drawback rates. RBI has permitted all exporters as a temporary measure to earn interest on their Exchange Earners’ Foreign Currency (EEFC) accounts to the extent of outstanding balances of US $ 1 million per exporter. Also, the coverage of the interest subvention scheme in respect of rupee export credit to specified categories of exporters has been widened. Further, the government has scaled down its export target for 2007-08 by over 12.5 per cent to US $ 140 billion, acknowledging the impact of the rising rupee on shipments. The commerce ministry had set an export target of US $ 160 billion at the beginning of this fiscal year. The commerce ministry would propose sector specific sops after realisation of the export figures for September 2007 and would also urge the finance ministry to include more services for refund of tax paid by exporters. Appendix: 1
*
This note has prepared by Piyusha D. Hukeri.
Highlights of Current Economic Scene AGRICULTURE PEC
Ltd has issued a tender on November 26, 2007 to import 3.50 lakh tonnes of
wheat to help the government to boost its stockpiles. Bids have been
invited for issuing tender, which would sought the imports either in bulk
or in containers and the same would require to be delivered on the basis
of cost and freight before March 10, 2008. The tender would be
opened on December 3,2007 and would be closed on December 8, 2007. It is
expected that the delivery would be forwarded as per the schedule at the
ports of Mundra,
Area
under wheat plantings has been affected severely due to bad climate and
dry weather. It is projected that area under wheat sowing has fallen in
almost all the wheat producing states. In Madhya Pradesh and Rajasthan, it
has dropped by 38 per cent and 63 per cent, respectively. Most of the
private corporate’s accumulate a large quantity of wheat from these two
states. Therefore, it is expected that this year corporate buyers would
have to secure a greater part of their requirement from the Punjab-Haryana
belt. As
per Confederation of Indian Industry and Ministry of Commerce, cashew
kernels, salted & roasted cashew and around 40 varieties of fish,
would be included in the negative list of items for European Union Free
Trade Agreement (FTA). According
to latest Crop Weather Watch Report published by Ministry of Agriculture
as on November 29, 2007 wheat crop plantation has been declined to145.59
lakh hectares as compared with 180.17 lakh hectares during the same period
last year. Area under rapeseed-mustard is dropped down at 52.76 lakh
hectares as against that of 61.31 lakh hectares during the same
corresponding period last year. The total area sown so far under rabi
oilseeds is lower at 69.70 lakh hectares over last year cumulative figure
of 81.31-lakh hectares. Beside rapeseed-mustard, acreages have also
declined for sunflower from 9.08 lakh hectares to 7.40 lakh hectares this
year, form 2.79 lakh hectares to 2.41lakh hectares for groundnut, from
3.41 lakh hectares to 2.69-lakh hectares for safflower and for linseed it
has been dropped to 3.38 lakh hectares from 3.81 lakh hectares. The
overall area of rabi pulses have fallen from 93.87 lakh hectares to 91.55
lakh hectares with these being 10.86 lakh hectares to 10.62 lakh hectares
for lentil (masur), 5.89 lakh hectares to 5.21 lakh hectares for peas,
4.64 lakh hectares to 4.00 lakh hectares for kulthi, 4.01 lakh hectares to
3.49 lakh hectares for lathyrus and 1.09 lakh hectares to 1.08 lakh
hectares for moong. However, extra area has been sown under the plantation
of urad from 2.40 lakh hectares to 2.64 lakh hectares and other pulses
from 3.59 lakh hectares to 3.63 lakh hectares.
According to Central Organisation for Oil Industry & Trade (COOIT) and Solvent Extractors’ Association (SEA), favourable weather conditions in the kharif season 2007-08, coupled with the expectation that farmers would get a better price, has boosted the crop estimates of oilseeds by about 25 per cent during kharif season 2007 as against 13.5-14 million tonnes produced during the same season last year. It is also expected that output of oilseeds during kharif season, would stand between 16.5 -17 million tonnes. However, during the rabi sowing season 2007,area covered under the major oilseeds especially mustard seed would fall, as farmers would prefer cultivating wheat and barely to oilseeds due to better realisations prospects. According to Dorab Ministry, world oilseed production is likely to decline by 4.5 per cent in the current oil year (November-October) 2007-08 to 379 million tonnes as compared with 397 million tonnes produced last year. The fall would be seen mainly because of decline in soyabean output by 6.7 per cent from 238 million tonnes to 222 million tonnes this year. However, cottonseed and coconut output would remain unchanged at 44 million tonnes and 5 million tonnes, respectively. On the other hand output of sunflower oilseed and rapeseed is likely to drop to 27 million tonnes and 46 million tonnes from 30 million tonnes and 47 million tonnes, respectively. Soyabean Processor Association (SOPA) has stated that
soymeal exports have declined by over 30 per cent to 1.7 lakh tonnes in
October 2007 as compared with 2.44 lakh tonnes in the same period a year
ago. The fall is attributed to delay in commencement of soybean processing
in major areas of Madhya Pradesh and
According
to Cotton Corporation of The
private sugar mills in Uttar Pradesh are expected to owe about Rs 3,000
crore in arrears to cane
farmers at the start of next (sugarcane) season as against that of 1000 at
the start of the current season. . While the state government had
announced a state advised price (SAP) of Rs 125-130 per quintal. On the
other hand the Allahbad court had announced an interim price of Rs 110 per
quintal. It is expected that
the private mills would purchase cane worth of Rs 12,000 crore this year
due to reductions in sugar prices and addition of new area under cane
production as against that of 9,091 crore last season. The total crushing
capacity in the state for the current season is estimated to be 8,02,779
tonnes crushed daily showing a rise of 12.87 per cent from last season
7,11,279 tonnes crushed daily. As
per the Spice Board, spice exports have surged by 50 per cent in value
terms during April-October 2007-08. The country has shipped 262.250 tonnes
of spices valued at US $ 625.23 million (Rs 2,540.15 crore) in the
April-October 2007-08 as against 206,150 tonnes valued at US $ 417.97
million (Rs 1918.94 crore) during the corresponding period of last year.
The Spice Board had set an export target of 380,000 tonnes valued at US $
875 million (Rs 3600 crore) for the fiscal year 2007-08. So far, the
country has achieved 71 per cent of this target in value terms. Chilly
exports have risen by 77 per cent to 120,000 tonnes during the period
April-October 2007-08 at Rs 651.72 crore as against that of 15,050 tonnes
last year. Whereas, earnings form the exports of black pepper have
increased tremendously, i.e., from Rs 140.36 crore in 2006-07 to Rs 303.68
crore, showing a growth of 116 per cent. Exports of spices like cardamom
(large), coriander, celery, fennel and fenugreek have increased marginally
from last year. Value added spices such as curry powder; spices oil,
oleoresins and mint products have also witnessed a rise in their exports.
However, exports of garlic nutmeg, mace and vanilla exports have declined
during the period under consideration. The import of spices during the
same period, however, has declined by 15 per cent to 45,875 tonnes (worth
Rs 320.64 crore) as against that of 53,508 tonnes (worth Rs 367.63 crore)
imported during last year. Saffron
prices in the international market are showing no signs of softening
despite 50 per cent of estimated growth in output so far during 2007-08.Implementation
of the kisan credit card (KCC) scheme was better in Andhra Pradesh,
Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu and
Uttar Pradesh. These States accounted for 75 per cent of the total cards
issued by banks. The report also noted that the progress was tardy in Goa,
At present prices are
ruling around Rs 1.15 lakh per kg against last year price of Rs 45,000 per
kg which shows that there is jump in prices over 150 per cent owing to
drop in production in India and Iran. The National Dairy Development Board has prepared a National Dairy Plan to achieve their goal of becoming largest milk producer by doubling the production by 180 million tonnes by 2021-22 from an existing 1000 million tonnes per annum. The plan, costing Rs 17,300 crore, is expected to be funded through a consortium. These investments would focus on productivity measures to enhance milk production at the pace required and expand the infrastructure to procure, process and market milk through existing and new institutional structures. Seafood
Exporters Association of India (SEAI) and Marine Products Export
Development Authority (MPEDA) would jointly initiate a project costing
more than Rs 1 crore, under which 3 farm level antibiotic testing
laboratories for aquaculture would be set up in the According
to the report by the Reserve Bank of India (RBI) as on November 27, 2007
on Trends and Progress of Banking in India 2006-07, accounted that the
total number of kisan credit cards issued by various banks has touched
66.56 million cards. The number of cards issued in 2006-07 alone was
slightly lower at 7.47 million cards compared with 8 million cards issued
in the previous year. On an average, about 9 million cards have been
issued with in the duration of five years. Of the 66.56 million cards,
co-operative banks have issued about 32.71 million cards, Regional rural
banks have issued about 12 million cards while commercial banks about 25.5
million cards. As per the state wise implementation and progress of the
kisan credit card (KCC) scheme was up to the mark in states of Andhra
Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil
Nadu and Uttar Pradesh. These States accounted for 75 per cent of the
total cards issued by banks. While, progress was tardy in states of Goa, WTO’s meeting held on November 21, 2007 in Geneva had
a discussion on the issues of sugar exporters, as most of the leading
sugar producing countries had approached the organisation asking details
from India on subsidy provided to exporters at a time when the country is
set to double the exports of the sweetener. So, WTO had asked Banking The
RBI has constituted a high level committee under the chairmanship of Usha
Thorat, Deputy Governor, RBI to review the lead bank scheme and to improve
its effectiveness with focus on financial inclusion and recent
developments in the banking sector. Tata
Steel and Reliance Communications has raised $1.375 billion through
overseas borrowings and convertible bonds in September, according to data
released by RBI. Tata Steel has raised around $875 million for its
overseas acquisition through FCCBs while $500 million were raised through
the automatic route. Reliance Communication has raised $500 million
through ECBs to refinance existing debt. As well, Reliance Petroleum
borrowed $275 million from overseas market in the month of September. xim
Bank is raising Rs 250 crore by selling 3-year bonds. The bonds carry a
coupon of 9.10 per cent, payable annually and are rated ‘AAA’ by
Crisil and Care. Financial SectorFinancial
Market Developments Capital
Markets Primary Market The primary market for equities is set to witness further reforms over the next few months aiming to ensure raising funds through public offerings, which would turn out to be easier, faster and cost-effective. According to policy managers a proposal is now being considered that seeks to ease the burden for listed firms. The plan envisages creation of a separate dedicated portal, maintained by either the securities market regulator or the stock exchanges, which will have all disclosures by listed firms. BGR Energy Systems Ltd, a supplier of systems and equipment for the power, oil and gas, refinery, petrochemical and process industries, is to enter the capital market with an initial public offering of 91.36-lakh equity shares of face value Rs 10 each. The issue, which is to be made through a 100 per cent book building process, which opens on December 5 and will closes on December 12. The price band has been fixed at Rs 425- 480. The equity shares are to be listed on both the BSE and NSE. The company plans to raise between Rs 388.28 crore and Rs 438.53 crore, in order to augment long-term working capital requirements and expand production capacity by establishing additional manufacturing facilities.
eClerx Services Ltd, a provider of data analytics and customised
process solutions to global enterprise clients from its offshore delivery
centres in West Bengal-based cement manufacturer, Burnpur Cement Ltd, is entered the capital market with an IPO of 2,19,00,000 equity shares of Rs 10 each for cash at a premium of Rs 2 per share. The issue opened on November 28, 2007 and closes on December 3, 2007. The company proposes to list its shares on both BSE and NSE. The IPO of Jyothy Laboratories was subscribed 45.83 times, according to NSE. It received bids for 20.30 crore equity shares across the price band, as against 44.30 lakh shares on offer. The company entered capital market with a face value of Rs 5 each at a price band between Rs 620 and Rs 690 per equity share. The issue had been subscribed 2.14 times by qualified institutional buyers, 0.05 times by non-institutional buyers and 0.54 times in the retail section. Its investors including Canzone Limited, ICICI Bank Canada, ICICI Bank UK PLC, South Asia Regional Fund and CDC Investments Holdings are selling their stakes through this offer.
On November 27,2007 In spite of a curb on P-notes and markets being generally volatile thoughout November, IPOs have bucked the trend by most of them getting listed at a premium. It seems that FIIs have entered more aggressively into primary market after this move. There had been concerns about a slowdown in the demand for IPOs particularly from QIBs who bid in large chunk for these issues. But almost all the issues in November have seen enormous investor interest. Circuit Systems, the first IPO to be listed after the P-note shock, which managed to get a decent premium of 20 per cent over its offer price. The issue was subscribed 5.58 times. Secondary Market NSE is preparing the groundwork for roping in the next set of investors within a year. The move follows a 26 per cent stake sale by the existing investors to overseas investors in two tranches early this year. According to market information, the valuation this time is likely to exceed $3 billion compared with a valuation of around $2.5 billion in the first tranche, when the New York Stock Exchange (NYSE) and three others picked up 20 per cent (5 per cent each). Foreign investors can buy 49 per cent stake in Indian stock exchanges (26 per cent through the foreign direct investment route and another 23 per cent through the foreign institutional investor (FII) route). No single investor is allowed to own more than 5 per cent in an exchange.
NSE has climbed to the number-one spot in stock futures contracts
in the world, beating On November 29, 2007, the Securities and Exchange Board of India (Sebi) allowed companies to offer up to 10 per cent discount to retail investors in initial public offers. The discount was so far restricted to follow-on offers. Sebi has also redefined the term ‘retail investor’ as one who makes application or bids in a public issue for value not exceeding Rs 1,00,000 up from the existing Rs 50,000 and above. The new norms have made submission of PAN (Permanent Account Number) mandatory for all share applications, removing the existing rule of Rs 50,000 and above. On discount to issue price, the Sebi statement said: Companies making public issues are permitted to issue securities to retail individual investors/retail individual shareholders at a discount price, provided that such discount does not exceed 10 percent of the price at which securities are issued to other categories of public. In yet another major change in the share issuance norms, the regulator allowed big corporate houses to raise funds through a fast track issue (FTI). A company eligible for a FTI must have an average market capitalization of Rs 10,000 crore of public shareholding for a period of one year. In the first phase, about 30 companies will become eligible for fast-track issuances of rights and follow-on offers. The companies will be decided on the basis of a minimum market capitalization of public holding, trading turnover on the stock exchanges, track record of compliance with listing requirements and investor grievance redressal. Sebi is considering a proposal to allow funds, which are not managed by foreign institutional investors (FIIs) to get themselves registered as FIIs, sub-accounts with the Indian regulator. The move will open the doors for several individual-run India-specific offshore funds. According to sources, Sebi will allow entry to such funds on a case-to-case basis, provided the FII concerned gives an undertaking that it will be responsible for all the activities of that sub-account. In addition, these sub-accounts will also have to be a broad-based fund that it should have at least 20 investors, and no single investor should hold more than 49 per cent. The Sebi move comes after the curbs on P-notes since October-end, which have virtually blocked all fresh investments by several India-specific long-only hedge funds, and other overseas funds, which are managed by reputed fund managers. According to a finance ministry official, the government is unlikely to put fresh curbs on capital inflows before January next year, when it will assess the impact of the measures already taken by the Sebi. To arrest the surge in capital inflows, Sebi had last month put some curbs on issuance of P-notes.
A record number of foreign institutional investors (FIIs)
registered with Sebi in November after the regulator banned fresh
investments through P-notes. Forty
six new FIIs opened their offices in
The BSE Sensex posted a weekly gain of 510.32 points and NSE Nifty
recorded a gain of 128.15 points. On Friday 30, November 2007 BSE Sensex
closed at 19363.19 points up by 2.71 per cent and NSE Nifty at 5,762.75
points up by 2.75 per cent at over a week. Stock markets rose for the
second day running on strong global cues of rising expectation of an
interest rate cut by US Fed and healthy economic growth data, which saw
buoyancy in key sectors. The Cabinet clearance for State Bank of Among the BSE sectoral indices, BSE-Reality, BSE-Metal and BSE-Consumer Durables were the best performers by gaining 8.6 per cent, 6.8 per cent and 5.2 per cent respectively over the week. Derivatives According to analysts, many corporates are going in for exotic derivatives, without realising the inherent risks involved in such deals. A recent Ernst & Young survey reports that 44 per cent of Indian corporates have exposure to such exotic derivatives. The most commonly structured exotic derivatives are Barrier Options, Leveraged Collars, Collars, Caps, Floors and cross currency swaps. According to Mr Nandlal Bhatkar, Chief Executive Officer, Pyxis Systems, which provides IT solutions for derivatives risk management such products require banks to keep their clients constantly updated as they are based on complex mathematical models. Eleven out of the 15 new entrants in the derivatives segment of the NSE did well despite being heavily priced in term of price to earnings (PE) ratio. The remaining four failed to move with the markets and showed moderate losses. The day one turnover of the new entrants aggregated to Rs 1,045 crore, which was 2 per cent of the total turnover on the NSE derivatives segment. The total carried forward trades, as open interest was minuscule at Rs 305 crore. The majority of the new stocks which were cleared for trading in the December series contracts have done well in the six months ended September 2007, as many as four do not have PE multiple because they are in losses. Three companies have a PE above 88, two companies have PE above 50, two with PE above 20 and in case of the remaining, the PE is less than 20. While the Sensex and Nifty stocks are trading at a price to book value (P/B) of 6.37 times, the average P/B of the 15 new entrants is more than 7 times. Of the 15 new entrants, 5 are trading at P/B of seven times, while it is above six times in case of 2 companies. Only Hindustan Oil Exploration is trading cheap, with P/B of 1.4 times. Among the entrants, the state owned metal company Hindustan Zinc has a sizeable market cap of over Rs 30,000 crore, while the auto ancillaries giant Motor Industries ranks second at Rs 14,000 crore. Ispat is a distant third, with market cap of 5,000 crore. In terms of index futures-spot movements, the spot Nifty closed at 5,762 while the November future was settled at 5,803, December at 5,792 and January at 5,787. There was significant increase in open interest (OI) across both December and January. Among other indices, the spot CNXIT closed at 4,431 with the November contract settled at 4,438.95. The Bank Nifty closed at 9,375 and it was settled at 9,461. The Junior closed at 11,431 with the futures settled at 11,517. In the index options market, both the outstanding OI and the volumes were fair on Friday, November 30, 2007. More puts were opened than calls and the put-call ratio (in terms of open interest) rose to 1.33, which is a good signal. Close-to-money premiums have dropped a little from the exorbitant levels of November but implied volatility (IV) is still a little higher than historical volatility (HV). Government Securities
Market Primary Market On November 28, 2007, RBI auctioned 91-day and 182-day T-bills for the notified amounts of Rs.2,000 crore (out of which Rs.1,500 crore under MSS) and Rs.1,500 crore (out of which Rs.1,000 crore under MSS), respectively. The cut-off yields for 91-day and 182-day T-bills were 7.52 per cent and 7.70 per cent respectively.
Six State Governments auctioned 10-year paper maturing in 2017,
through an yield based auction using multiple price auction method on
November 30, 2007 at cut-off yields ranging from 8.45-8.50 with the lowest
for Rajasthan and the highest for
Secondary Market The Government of India has notified December 1, 2007 as the appointed date on which the Government Securities Act, 2006 and Government Securities Regulations, 2007 come into effect. The government securities market is set to get a boost with the new regulations in the Government Securities Act, 2006 which will improve liquidity in the G-Sec market. According to RBI’s press release, the Act would help in deepening and widening of G-Sec market and also help in effective regulation by the RBI. Some of the provisions of the Act allow for stripping or reconstitution of government securities, facility of pledge or hypothecation or lien of government securities for availing of loan; extension of nomination facility to hold the securities or receive the amount thereof in the event of death of the holder and statutory powers to the RBI to call for information, cause inspection and issue directions in relation to Government securities. According to a bond dealer, the provisions are on expected lines, as the passing of the Act had been pending for over a year after Parliament approved it. By allowing stripping or reconstitution of G-Secs, a lot of high premium securities which are not getting traded can now be broken into parts - coupon and principal - and can be traded as zero coupon securities.
Overnight call rates ended at 7.70-7.80 per cent on the last day of
a holiday-shortened week. Call rates reached at 7.75-7.85 per cent in the
middle of the week. At the weekend liquidity adjustment facility auctions,
recourse to the reverse repurchase window reduced to just Rs 1,320 crore
from just 3 bidders, as oil refiners drew on their credit lines. The
weekly Treasury bill auctions yields remained firm. The cut-off yield on
the 91-day T-bill was 7.52 per cent, unchanged and the weighted yield
levelled to 7.52 per cent from 7.48 per cent over the week. The undertone
in the markets was weak in view of the tightening liquidity. Trading
interest remained low, apparent from the thin average daily trade volume
of Rs 3,200 crore. Besides, the narrow yield spread between the 91 day
T-bill and the 10-year paper, was just about 42 basis points. Bond Market
Bonds were shaky in listless trading this week as outflows from
foreign portfolio investors gathered pace ahead of the year-end and fears
of tightening global liquidity.
Resource mobilization through debt or bonds on private placement
basis by institutions and corporate has witnessed a dip of around 8 per
cent during the first six months of financial year (FY) 2007-08. During
the period around 59 institutions and corporates raised debt resources on
private placement basis and garnered 48164 crore which is lower compared
to Rs 52,220 crore of FY 2007.
NABARD and Export Import Bank of Foreign Exchange
Market
In the week under review, there is a slow down on the rupee
appreciation as rupee depreciated against the dollar, due to the
intervention by RBI and selling of stocks by foreign investors. Rupee
moved between Rs. 39.67 and Rs.39.85 and closed at Rs.39.67/USD on
November 30, 2007 with a standard deviation of 8 paise during the week.
Since the entire public sector oil companies make purchases from the spot
markets, the dollar-rupee exchange rates dipped to Rs 39.67, down about
6.5 per cent or 34 paise on an annualised basis from October 13. According
to Dr Abheek Barua, Chief Economist of HDFC Bank, the exchange rate will
breach Rs 40 over the next few weeks because FIIs have sold the equivalent
of $398.1 million of equities and debt, in which equities alone comprised
$345.7 million during the period. Besides, exporters have begun holding
back inward remittances and canceling forward covers. As a result, one
month forward premia jumped to 1.51 per cent during the week, up from the
previous week’s 0.3 per cent. But three, six and 12 month premia
remained soft in view of anticipated flows from non-resident Indians ahead
of the mega equity floats by entities such as State Bank of Commodities Futures
derivatives Production of pulses for the kharif season is expected to improve to around 5 million tonnes due to higher acreage. But inadequate rains in September-October are expected to play spoilsport as far as rabi crop is concerned. As a result, the overall production in the year is expected to remain at last year’s level of 13.5 to 14.5 million tonnes. This means even after imports, the country will continue to face a shortfall of around 2 million tonnes. The domestic consumption is expected to remain at 17-18 million tonnes. According to trade sources, estimate output figure for rabi at 9 million tones, which is lower than last year’s. Prices of pulses in the next six months are expected to remain steady. According to K C Bhartiya, president, Pulses Importers' Association, though the pulses crop in the kharif season is good, there are doubts as far as the rabi crop is concerned. The initial slowdown in chana sowing (this constitutes over 60 per cent of the total pulse crop) is worrying the market. According to Narendra Singh, project co-ordinator (chana), Indian Institute of Pulses Research, there could be a reduction of 15-20 per cent in the acreage under chana in the country in the rabi season.
According to Dorab Mistry, Director, Godrej International world
oilseed production is likely to decline by 4.5 per cent in the current oil
year (November-October) to 379 million tonnes compared with 397 million
tonnes last year. According to
him, the fall was mainly because of the estimated 6.7 per cent decline in
soybean output. Mistry said
unfavorable weather due to La Nina in the Brazilian
Zinc, the worst-performer on the London Metal Exchange this year,
will drop 11 per cent in 2008, according to Gerard Burg, minerals and
energy economist of Melbourne-based National Australia Bank as the market
returns to surplus. Output of
zinc will rise 7.8 per cent next year on growth in Corporate SectorTata
Steel is planning to buy 35 per cent stake in its newly formed Information
Technology
Capita
Group Plc, Telecom Idea
Cellular has selected Swedish telecom equipment vendor Ericsson as the
sole supplier of its GSM network and managed services in Mumbai.
*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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Since.
there was a sudden but brief 5 per cent appreciation of the rupee vis- a-
vis the US dollar in 2003-04 but remained stable for the next four years
until 2006-07. This period has been characterised by excess supply in the
foreign exchange market due to surge in capital inflows. The earlier
Governor of RBI, Bimal Jalan, has said (2003) ‘Intervention by most
Asian central banks in foreign exchange markets has become necessary from
time to time primarily because of the growing importance of capital flows
in determining exchange rate movements in these economies as against trade
deficits and economic growth, which were important in the earlier days.
The latter does matter, but only over a period’.
The
RBI has been using two indicators of external competitiveness: Nominal
Effecttive Exchange Rate (NEER) and Real Effective Exchange Rate (REER).
NEER is the weighted average of bilateral nominal exchange rates of the
home currency in terms of foreign currencies. REER is defined as a
weighted average of nominal exchange rate adjusted for relative price
differential between domestic and foreign countries, related to the
purchasing power parity (PPP) hypothesis.
