Current Economic Statistics and Review For the Week 
Ended December 15, 2007 (50^th Weekly Report of 2007)

Theme of the week:

The present note attempts to review the performance of the non-government financial and non-financial public limited companies during 2006-07, at the back of the decelerated growth in their production during the current year so far. According to the RBI’s study on “Performance of Private Corporate Business Sector during 2006-07”, the corporate sector has maintained its growth momentum during the review period, i.e., April 2006 to March 2007, in terms of high growth in sales and profit, despite high growth in interest payments, depreciation and tax provision. While the first two quarters (April-September 2006) reported excellent results, the third and fourth quarters (October 2006 – March 2007) experienced some set-back in the form of increasing interest burden on companies as a spin-off of the central bank’s inflation fighting measures.

Interestingly, interest burden, though varied considerably across the industries, was lighter than that in the previous year. The share of consumption of raw materials as well as staff cost in sales was higher as compared with those in the previous year, reflecting input and wage cost pressures. 

By and large corporate activity has been vibrant during the year in terms of nominal growth of domestic sales and exports as well. The year has also seen substantial expansion in corporate activity, both domestic and overseas. The Indian corporate sector with an urge to increase its global footprint is right now on a merger and acquisition (M&A) spree. The rise in cross-border M&A activity is backed by healthy performance in the domestic market.

The study covers data relating to 2,388 non-government, non-financial, public limited companies for the financial year 2006-07 based on abridged un-audited financial results submitted by listed companies to the stock exchanges. As indicated in Table 1, the sales of 2,388 companies have grown considerably by 26.2 per cent to Rs 10,41,894 crore during 2006-07 from Rs 8,25,364 crore in 2005-06, owing to increased production levels and better price realisation. Concurrently, net profits have registered a robust growth of 45.2 per cent to Rs 1,11,107 crore in 2006-07 due to a more moderate growth in interest burden (17.4 per cent) following lower debt-equity ratio and inventory to sales ratio.

On account of considerable rise in expenditure, particularly of cost of raw materials, power and fuel in the case of manufacturing companies and increased spending on salaries of the employees by IT and services sector companies, the total expenditure incurred by the selected companies has shot up by 23.5 per cent to Rs 8.72 lakh crore in 2006-07. However, it is slightly lower than the increase in net sales (26.2 per cent), which is indicative of some success of companies in controlling cost.

The aggregate depreciation of the 2,388 companies stood at Rs 37,095 crore in 2006-07 as against Rs 32,156 crore in the previous fiscal year, registering a rise of 15.4 per cent. The aggregate tax provisioning of the 2,388 companies rose by 49.8 per cent to Rs 29,410 crore as against Rs 19,634 crore in 2005-06 because of sizeable growth in profits combined with increase in tax rates. The other income has improved by 42.3 per cent from Rs 1,19,250 crore to Rs 1,69,726 crore in 2006-07 conceivably attributable to higher returns on investments in the stock market.

Industry-wise Performance

            The key indicators of performance across the industries have exhibited considerable variations in their growth during 2006-07. Performance of companies in the services sector has been better than that of the manufacturing sector. The services sector posted 28.7 per cent rise in sales vis-à-vis 25.6 per cent posted by manufacturing sector. In 2006-07, the cost of raw materials of manufacturing companies has risen sharply by 26.6 per cent in relation to the increase in total expenditure at 23.3 per cent reflecting higher input prices. While the companies in the services sector have witnessed a steep rise of 39.8 per cent in staff cost owing to wage costs and enlarged business activity.

Of the 30 industries analysed, twelve industries have recorded very high sales growth of more than 25 per cent while 11 industries recorded an impressive net profits growth of more than 50 per cent and 13 industries recorded more than 20 per cent growth in their interest payments while depreciation provision increased by more than 20 per cent for the seven industries. Cement industry registered an impressive sales growth of 50.5 per cent during 2006-07 due to higher output as also higher prices observed during the year. As a result, net profit margin for the cement industry has improved from 9.2 per cent to 17.3 per cent in 2006-07. Iron and steel industry has recorded the sales growth of 28.5 per cent.

Companies in pharmaceuticals and medicine industry have recorded sales growth of 23.7 per cent and their net profits have grown by 44 per cent, primarily owing to a relatively lower growth of 18.4 per cent in their expenditure. Motor vehicles and other transport equipments industry has recorded lower net profits growth of 17.3 per cent despite of 24.4 per cent turnover growth on account of higher input cost during the year. The sales of machinery and machine tools industry surged by around 30 per cent, accordingly their net profits have increased by 45.3 per cent reflecting increased investment demand from almost all the sectors.

Among the services sector companies, the construction companies posted the highest rise of 35.7 per cent in sales, and accordingly their net profits galloped by 67.7 per cent. The computer and related activities industry continued to perform well with 34.6 per cent increase in revenue resulting in 52 per cent rise in net profits.

The transport, storage and communication industry has registered revenue growth of 34.5 per cent, and consequently, the net profits increased by 44.4 per cent. This rise could be attributed primarily to the robust performance of the telecom companies. Currently, India continues to be one of the fastest growing major telecom markets in the world. The rapid growth in the telecom sector can be attributed to various policy measures taken by the government, decline in handset prices and the expansion of network infrastructure as well as the series of price cuts in voice minutes and the introduction of low - one nation call rate plans in 2006.

During 2006-07, of the 30 sectors, four sectors have registered a more than 100 per cent growth in their profits after tax and around 19 sectors have registered high growth rates ranging from 17 per cent to 60 per cent, whereas the wholesale and retail trade industry has registered a fall of around 27.6 per cent in its profit after tax compared to those of the corresponding period of the previous year. The sugar and basic industrial chemical industries have also recorded marginal fall in their net profits by around 1.1 and 2.4 per cent, respectively.

The industries like cement and cement products, paints and varnishes have more than doubled their levels of profits after tax while industries like electrical machinery and apparatus, rubber and plastic products, edible oils and computer related activities have recorded more than 50 per cent increase in their net profits.

Table 3 indicates that in 2006-07, the profits after tax (PAT) to sales ratio has increased to 10.7 per cent (9.3 per cent in 2005-06). At the same time, the interest to sales ratio at 2.2 per cent has remained nearly the same as that (2.1 per cent) in 2005-06 despite the interest payment has increased by 17.4 per cent in absolute terms.

Profits after Tax (PAT) to sales ratio of the cement and paint industry has witnessed a phenomenal rise to 17.3 per cent and 13.5 per cent, during 2006-07 as against 9.2 per cent and 5.5 per cent, respectively, in 2005-06, whereas in the case of sugar industry, this ratio has declined to 7.8 per cent from 8.9 per cent.

Performance of Non-Government Financial Companies

The non-government financial public limited companies continued to improve during 2006-07 in terms of growth in income from operations and net profits, according to the RBI’s study on 352 non-government financial public limited companies.  The study indicated that the selected companies have recorded 35.1 per cent growth in income from operations while interest expenditure increased by almost 50 per cent (Table 4). However, the net profits of these companies increased by 24.6 per cent. Over the four quarters, financial companies performed better in the first and third quarter compared to second and fourth quarters.

Issues

In order to increase its export competitiveness in the global market, of late, Indian companies have been investing heavily so as to raise the scale of operations to global size capacities. As per their expansion programme, the companies are acquiring on a large-scale land to set up special economic zones (SEZs). Recently, Reliance Industries have acquired land to set up two SEZ’s in Navi Mumbai and Haryana. As well, the Mahindra Group has signed an agreement with the Maharashtra government to develop a 3,000-acre special economic zone (SEZ) at Karla near Pune. However, the companies are facing a number of impediments for establishing SEZs, like acquisition of land, rehabilitation of the landowners, etc.

* This note has been prepared by Bipin K. Deokar

Highlights of  Current Economic Scene

AGRICULTURE  

According to latest Crop Weather Watch Report published by Ministry of Agriculture as on December 14, 2007 rabi sowings of wheat, oilseeds, pulses and coarse cereals have continued lagging behind that of the previous season, due to dry weather and severe shortage of di-ammonium phosphate (DAP) at the time of sowing. The total area sown, so far, under all rabi oilseeds has stood at 77.39 lakh hectares, lower compared to last year’s cumulative figure of 87.29 lakh hectares. The wheat plantation, so far during this year, has covered 206.32 lakh hectares as against that of 234.48 lakh hectares during the same period last year. Area under rapeseed-mustard has dropped down at 57.25 lakh hectares as against that of 64.27-lakh a year ago. Besides, acreages for sunflower have declined from 9.86 lakh hectares to 8.30 lakh hectares, for groundnut from 3.64 to 3.46 lakh hectares, for safflower from 3.36 to 2.82 lakh hectares and for linseed from 4.60 to 4.21 lakh hectares. While are covered under gram has fallen from 75.95 lakh hectares to 70.77 lakh hectares, the total area sown under all the rabi pulses has dipped from 121.46 lakh hectares to 113.49 lakh hectares. However, area under the plantation of urad has gone up from 4.97 lakh hectares to 5.34 lakh hectares, that of moong from 2.60 lakh hectares to 4.30 lakh hectares and lathyrus from 4.10 lakh hectares to 4.57 lakh hectares. On the other hand, area under coarse cereals like jowar has touched 44.51 lakh hectares, 2.3 lakh hectares lower than 46.81-lakh hectares of the corresponding period of 2006, while acreage under Maize has gone up from 6.96 lakh hectares to 7.77 lakh hectares and barley from 6.25 lakh hectares to 6.43 lakh hectares.

The Agricultural and Processed Food Products Export Development Agency (Apeda) has dissatisfied with the overall performance of 60 Agri Export Zones (AEZs) spread across 20 states. So, it has decided to handover the development of five AEZs to Infrastructure Leasing & Financial Services Ltd (IL&FS), as they would attract investment and promote exports from these zones. Of the 5 zones, 2 are located in Andhra Pradesh (mango pulp and fresh vegetables, gherkins), while the remaining 3 are in Maharashtra (onion), Madhya Pradesh (oranges) and Tripura (pineapples). At present, Yes bank is developing 3 AEZs located in Punjab (vegetables), Andhra Pradesh (mangoes) and West Bengal (vegetables).

MMTC has issued a tender to import 24,000 tonnes of pulses to be delivered during January – February 2008. Of the total import-quantity, the company has planned to import 6,000 tonnes of red gram (Arhar), chickpeas (chana), red lentils (moosor) and dun peas. The bids on tender have been opened on December 8, 2007 and last date for submitting the bids is December 18, 2007.

According to Commission for Agriculture Costs and Prices (CACP), there are certain limitations on calculating support price. The data provided for its calculation do not involve any ascertaining cost of cultivation due to which actual cost remains unknown. To find out a solution to this problem, the commission has suggested that the organisation should be allowed to collect the data directly in order to reflect the actual cost.

According to the data compiled by the Soybean Processors Association of India (SOPA) exports of soymeal grew by 47.18 per cent to 5.3 lakh tonnes during November 2007 as compared with 3.6 lakh tonnes in the same month during last year, due to the increased demand from countries such as Vietnam, Japan, Thailand, China and Indonesia. However, exports in the April-November 2007-08 period have fallen by 28.16 per cent to 14.6 lakh tonnes as against that of 20.4 lakh tonnes during the same period last year.

The central government has decided to provide bank loans at a lower interest rate to sugar mills in private, public and cooperative sectors to tide over the crisis of falling prices of the sweetener. The government has already created a buffer stock of 20 lakh tonnes of sugar involving a buffer subsidy of Rs 378 crore in the current fiscal year (2007-08).

According to Indian Sugar Mills Association (ISMA), sugar exports of India are likely to double at around 30 lakh tonnes in the sugarcane season (October to September) 2007-08 as it enjoys freight advantage over Brazil for certain destinations. While exports of raw sugar are estimated to be around 20 lakh tonnes, those of white sugar at 10 lakh tonnes during the same period.

The country’s chilli output estimates for 2007-08 has been revised to 25-26 million bags (each of 40 kg), which is 10 per cent less than that of the earlier estimates of 28 million bags. This downward revision is due to fall in yield and rains in southern states. However, chilli output was 23 million bags last year and is projected to increase further in the current year, ruling out any potential surge in prices.

Exports of onion are expected to rise by 6.57 per cent to 12 lakh tonnes during the current financial year against last year’s 11.26 lakh tonnes. The country has exported around 4.45 lakh tonnes of onions by October 2007. India produces around 66 lakh tonnes of onion annually, from which 17.07 per cent is exported to countries such as Malaysia , Saudi Arabia , Sri Lanka and Bangladesh . Maharashtra contributes 32 per cent of the country’s total onion production and 70 per cent of the total exports. The country’s onion exports has increased by 17.29 per cent to 11.26 lakh tonnes in 2006-07 against 9.60 lakh tonnes in 2005-06.

Nearly 40 per cent of the estimated 41-lakh bales of fresh cotton have arrived in various markets of Andhra Pradesh. The best variety of (32mm) cotton is fetching a price of Rs 1,950-2,000 per quintal, while the (28 mm) variety has been priced at Rs 1,700 per quintal. The domestic market has received a boost, as there is demand from overseas countries especially from countries like China , Bangladesh and Malaysia .

Marine exports from the country have dropped by 20 per cent during April-October 2007-08. The country has exported 268,254 tonnes of seafood as compared with 333,834 tonnes in the same period last year. The earnings from exports have dropped by 14.21 per cent to Rs 4,280 crore in the current financial year as against that of Rs 4,990.44 crore in 2006-07. However, in dollar terms, the earnings have remained stagnant. The country’s total export in 2006-07 had been 612,641 tonnes valued at Rs 8363.53 crore. In terms of volume, China is the country’s largest export market, accounting for 33.22 per cent of the total exports and in value terms and in terms of value, the EU has emerged as the largest importer contributing 24.44 per cent of the country’s exports earnings. During 2006-07, marine exports to the US have dropped by 21.60 per cent to 43,851 tonnes as against that of 55,817 tonnes in the previous year and even the earnings from export have declined to Rs 1347.80 crore, down by 17.78 per cent as against that of Rs 1639.24 crore in 2005-06. This was largely due to the anti-dumping duty and stringent quality norms.

According to official data, the crop loss in 2005-06 is estimated to be in the range of Rs 15,000 to 1.48 lakh crore. The crop loses, due to pests, weeds and diseases, have assessed to be 10-30 per cent of the crop production. Pests are mostly affecting the standing crop and grains across the country. The estimated loss in rice is the highest of over US $ 2 billion. According to one of the experts, to contain loss of 10-30 per cent of crops produced in the country due to pest attacks, there is need to widen the plant protection umbrella and propagate the judicious use of pesticide. Currently, the plant protection coverage is merely 20-25 per cent of the cultivated area and government should take a policy decision to increase it to 50 per cent in the next five years.

The state government of Kerala has drawn up scheme worth of Rs 20 crore for protection of rivers in 7 districts of the state, namely, Kannur, Kozhikode , Palakkad, Thrissur, Ernakulam, Kottayam and Alappuzha. This project would also include construction of a check dam in Baharatapuzha at Cheruthuruthy at a cost of Rs 5 crore. While, another project at Ottappalam in Palakkad district would also be completed under this scheme.

The International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) and Global Crop Diversity Trust (GCDT) have set up a fund of US $10-million that would be utilised for genetic resources conservation and management activities at the institute.

Praj Industries has joined International Crops Research Institute for Semi Arid Tropics (ICRISAT)-backed consortium for promoting ethanol production using sweet sorghum to further refine their bio-ethanol engineering activities. Along with that, it has also signed a memorandum of understanding to become a member of Sweet Sorghum Ethanol Research Consortium. It is projected that this partnership would go a long way in enhancing the commercialisation of sweet sorghum for bio-ethanol production globally.

The Indira Gandhi National Open University (IGNOU), along with the Ministry of Agriculture, would be introducing courses targetting post-harvest management and food processing activities to dovetail growth in the food processing industry. The target group for the programme includes rural youth, farm women, skilled workers in food industries, SMEs and members of fruit and vegetable associations. These courses have been developed particularly to enhance the skills and up gradation of workers in the food processing industry. Besides creating a workforce at the technician level, the courses have also been targeted at emerging disciplines such as food safety and standards, marketing and World Trade Organisation (WTO) implications etc.

Banking

Union Bank of India, Dena Bank and Oriental Bank of Commerce are considering rights issues to raise capital for the Basell-II norms and support business growth. The government has given clearance for SBI’s proposed Rs 17,000 crore rights issue by agreeing to invest Rs 10,000 crore to maintain its stake at the current level of 59.73 per cent.

State Bank of India has cut the peak term deposit rate by 25 basis points (bps) to 8.5 per cent for the second time in just over a month. It has also slashed rates on short term deposits of less than a year to improve asset-liability management and reduce the cost of funds. The new rates are effective from December 12.

Financial Sector

Financial Market Developments

Capital Markets

Primary Market

Leisure hospitality provider Mahindra Holidays & Resorts India Ltd has filed draft red herring prospectus with Sebi for its initial public offering. The parent company, Mahindra & Mahindra Ltd, informed BSE on December13, 2007 that the price for 10,719,347 equity shares of Rs 10 each is to be decided through a 100 per cent book-building process.

Manaksia Ltd expects to raise around Rs 248 crore through a follow-on net public issue of 1,54,00,000 shares of Rs 2 each for cash at a price band of Rs 140-Rs 160 to expand its metal business. The issue is to open on December 17 and close on December 19.

The initial public offering (IPO) of BGR Energy Systems was subscribed by 119.54 times by the closing day of December 12. The issue received total bids for 109.21 crore of equity shares against the offer of 91.36 lakh equity shares. The total demand exceeded Rs 52,000 crore as against the offering of Rs 438 crore. The IPO opened for subscription on December 5.

The Insurance Regulatory Development Authority may soon allow insurers more flexibility in investing in highly rated initial public offerings. Currently, initial public offerings (IPO) fall within the ‘other than approved’ category and the insurance regulator could now look at making it easier for insurance companies by putting highly rated IPOs within the ‘approved’ category of investments.

Aries Agro Ltd, a fertiliser manufacturing company, is making a public offer of 45 lakh equity shares to raise Rs 169.05 crore. The price-band is fixed at Rs 120-130 per share. The promoter group, owned by the Mirchandani’s will make an equity dilution from 76.97 per cent to 50.33 per cent in public offering to raise the required capital. The proceeds of the IPO will be used for setting up four new manufacturing units in Ahemdabad, Lucknow , Medak (Andhra Pradesh), and in Maharashtra .

Gokul Refoils and Solvent Ltd (GRSL), an oilseed processing major, is set to expand its activities in the country and overseas and is raising up to Rs 160 crore through an initial public offer (IPO) in the next few weeks. The company has already filed a Draft Red Herring Prospectus (DRHP) with Sebi.

Secondary Market

The BSE Sensex touched its first weekly close over 20,000 points. Both the Sensex and the Nifty touched new highs during this week, but due to bouts of profit booking and concerns over the global liquidity situations, they dipped from the peaks. The week started with a small correction, followed up with two massively bullish sessions and then correction was set in. The market hit new highs of 20375.87 on Wednesday, December 12, 2007,and consolidated at higher level gives an clear indication that the major trend continues up.  The BSE Sensex closed at 20,030 points for a week-on-week gain of just 0.32 per cent but the S&P CNX Nifty was up 1.23 per cent at 6,047.70 points. India 's equity indices closed marginally lower on Monday as investors became cautious ahead of the US Fed meet, which is expected to cut the key interest rate by at least 25 basis points, on Tuesday. The 30-share Sensex of Bombay Stock Exchange (BSE) moved above and under 20,000 level amid volatility before ending 35.32 points, or 0.18%, down at 19,930.68 points.)

Small- and mid-cap stocks are shining on the bourses compared with large-cap scrips by posting a higher price appreciation and cornering a bigger share in turnover on both BSE and NSE.  The BSE Small-Cap Index (up 34 per cent) and the BSE Mid-Cap Index (up 28 per cent) have outperformed the Sensex (up 16 per cent) in the last two-and-a-half months. While the NSE Junior Nifty (up 25.4 per cent) and the NSE Mid-Cap Index (up 30.2 per cent) have beaten the S&P CNX Nifty (up 20.4 per cent) during the same period.  The frenzied buying in small- and mid-cap stocks is also reflected in the turnover, which has gone up substantially during the period.  The small- and mid-cap stocks (non-A group), which accounted for 38 per cent share in the total turnover of BSE prior to October 2007, account for 53 per cent now.    On NSE, the share in turnover of small- and mid-cap stocks has increased from 49.3 per cent to 64.4 per cent in the same period.  

The Securities and Exchange Board of India (Sebi) has assured full co-operation to the financial market participants in developing India ’s municipal bond market for financing the projects of the local bodies. According to Sebi chairman M Damodaran   there needs to be a flexibility in developing municipal bonds and the local bodies must have a team of experts who can issue and manage these bonds for an effective resource utilisation.

State-run lending institution Finance Corporation of India (IFCI) has fixed December 17 as the date for determining the price of shares to be issued upon conversion of zero coupon bonds into equities. The exact number of shares proposed to be issued on conversion would be determined after the date, IFCI has informed the Bombay Stock Exchange. The IFCI board in its last meeting earlier this month allowed 30 financial institutions and public sector banks to convert zero coupon convertible bonds worth Rs 1,300 crore into equity at a price which would be determined as per Sebi guidelines. The board has also fixed December 14 as the last date of receiving financial bids from Companies and consortium interested 26 per cent stake in the company. IFCI board is likely to announce the strategic partner by December 20. Initially, IFCI proposed conversion of only 30 per cent of convertible bonds worth Rs 1,479 crore into equity, but most financial institutions and banks barring LIC and GIC have opposed the move.

Derivatives

Investors’ interest in derivative counters is in evidence from the National Stock Exchange’s derivative segment where individual stock futures are witnessing build-up of huge open interest positions compared to Nifty futures. According to market players, a broader participation from stock futures coupled with positive global cues would help the market touch new highs on a sustainable basis. The total open interest in individual stock futures stands at around 70,000 crore shares which make up around 65 per cent of the total market wide position

The big bounce in stock indices on Wednesday led to frantic short-covering and the sell-off in the following session caused more volatility in the futures and options (F&O) market. However, volumes did not expand very much and daily volatility actually fell by the weekend because there were two sessions (Monday and Friday) of very low net movement.  

The Nifty made net gains through the week but it was outshone by the Nifty Junior and by the midcaps, as usual. The Bank Nifty saw marginal gains while the CNX IT lost ground as the rupee strengthened after the US Fed rates cut was less than expected.  In the cash market, the Nifty closed at 6,047 while the December contract was settled at 6,072, January at 6,059 and February at 6,051. Approximately, 15 lakh was added in total open interest including around 7.5 lakh open interest added in the January contract.  Among the other indices, the Nifty Junior closed at 12,289 in spot and it was settled at 12,330 in the December futures.    The Bank Nifty closed at 9,803 in spot and the December was settled at 9,881. The CNX IT closed at 4,570 and it was settled at 4,579.  None of these three had any liquidity in the January futures. It is normal for the Bank Nifty and the CNX IT futures to trade at premiums but the Bank Nifty premium appears a little higher than usual.  

In the Nifty options segment, the put-call ratio in terms of open interest remained in the range of 1.23, which was not much of a change and by definition, bullish. In technical terms, the index has a possible target of 6,350 upside and strong supports at 5,950 as well as 5,850.         

According to Siddhartha Bhamre, a derivatives and equity analyst at Angel Broking, FIIs are inactive and not buying large-cap stocks on account of their stretched valuation and also because of many lucrative large-cap public offerings in the last three months.  

Government Securities Market

Primary Market

RBI conducted the auction of 7.99 per cent 2017 and 8.33 per cent 2036 for the notified amounts of Rs.5,000 crore and Rs.2,000 crore, respectively on December 14,2007. The cut-off yields for 7.99 per cent 2017 and 8.33 per cent 2036 were 7.92 per cent and 8.26 per cent respectively.

On December 12,2007, RBI auctioned 91-day and 182-day T-bills for the notified amounts of Rs.500 crore each and the cut-off yields for 91-day and 182-day T-bills were 7.44 per cent and 7.60 per cent, respectively.

Eleven State Governments is to auction 10 year paper maturing in 2017 for Rs.2,963 on December 18, 2007 through a yield based auction using multiple price auction method.

Secondary Market

Overnight cash rates ended at 7.50-7.75 per cent, significantly higher than the 6 per cent levels when cash conditions were comfortable. Call rates touched 8 per cent intra-week with banks looking to cover in advance the big outflows lined up in the coming days. The cash situation has remained under pressure since mid-November after the CRR hike took effect and FII inflows turned negative. At the end of the week, 10 bids worth Rs 6,015 crore were received at the repo window while only a single bid worth of Rs 10 crore was received at the reverse repo window.

Bonds were stuck in a tight range, since tax outflows and auction scheduled during the week weighed on sentiment. Bonds firmed marginally in thin and listless trading on year-end profit taking by foreign institutional investors and draw down on credit lines by refiners. According to traders the 0.25 per cent cut in the Federal Funds rate to 4.25 per cent also triggered banking flows into the country particularly from non-resident depositors. The ten-year yield firmed to 7.91 per cent on a weighted average basis, up from the previous week’s 7.88 per cent.

The Clearing Corporation of India (CCIL) has been entrusted the task of developing a platform for e-auctions of government bonds. The Reserve Bank of India (RBI) has mandated the task to CCIL, on which government securities would be auctioned. The move is expected to reduce the burden of RBI, which is time consuming and involves tedious paperwork.

Bond Market 

During the week under review, UCO Bank tapped the market by issuing upper tier-II bonds by offering 9.35 per cent for 15 years, with a step-up of 50 bps if call is not exercised at the end of 10-years for an amount of Rs 320 crore. The issue had been rated AA- by crisil,fitch and care.

Global Trade Finance Ltd is tapping the market by issuing bonds to mobilize 15 crore by offering 10.30 per cent for 67 months, which has been rated AA by crisil and icra.

A committee of directors of IFCI Ltd has decided to issue about 12.374 crore new equity shares at a price of Rs 107 per share (including premium of Rs 97 per share) to public sector banks and financial institutions (FIs). These shares are to be issued towards the conversion of zero coupon optionally convertible debentures (ZCOCDs) amounting to Rs 1,323.99 crore held by various public sector banks and FIs.

Foreign Exchange Market

The rupee remained bound in a tight range, throughout the week, as a positive mood over flows was offset by dollar demand. The rupee had its third weekly gain on speculation declining interest rates in the US will prompt global funds to boost holdings of high-yielding emerging-market assets and managed to end the week at Rs.39.35/USD on December 14,2007 that is 6 paise stronger as compared with Rs. 39.41/USD as on December 07, 2007. The Rupee moved between Rs. 39.35 and Rs.39.38, with a standard deviation of around 1 paise during the week The six-month forward premia closed at 2.02 per cent (annualized) on December 14, 2007 vis-à-vis 1.59 per cent on December 07,2007. The Federal Reserve cut its key interest rate this week to the lowest in almost two years. Funds based abroad bought record Indian debt this year, more than doubling holdings, as the nation's economic growth accelerated to the fastest since 1989. The rupee rose 0.2 per cent this week to 39.345 per dollar according to data compiled by Bloomberg. Its 12.4 per cent gain this year is the second-best performance by an Asian currency after the Philippine peso.

Commodities Futures derivatives

According to Spices Board chairman VJ Kurian, the board will empower farmers to play a part in the futures market through active participation in the spices park, to provide common facilities and give an encouragement to value addition. The proposed spices parks in various parts of the nation will have warehousing facilities and could inculcate the habit of warehousing receipts and trade. The board is also thinking of asking the commodity exchanges to invest and be part of the various parks. Farmers will have the option of storing their commodities in the warehouses and the receipts can be used to get credit until he manages to sell at the desired price

Commodity Markets regulator Forward Markets Commission (FMC) is coming out with a set of recommendations on ownership pattern in commodity exchange soon. According to FMC chairman BC Khatua, the chief of the Markets regulator is in favour of market participants like owners of the warehouses and corporates in the interest of larger participation of the physical market players for the diversification of the equity base of the exchanges.

Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year by 12 per cent on “technological and political uncertainty.” Goldman increased its average 2008 forecast for West Texas Intermediate crude oil to $95 per barrel, up from a previous $85-a- barrel estimate. WTI oil futures, traded on New York Mercantile Exchange, may rise to as much as $105 a barrel by the end of next year. According to a team of Goldman analysts cost inflation and technological and political uncertainty, continue to increase the price required to motivate capacity investment.

Corporate Sector

Sweden-based Volvo AB and Delhi-based Eicher motors have announced their joint venture plan in India , the fifth biggest commercial vehicles market in the world, which will take on leaders Tata Motors and Ashok Leyland by selling the full range. Volvo, the world’s second largest truck maker, will be investing around $350 million for a direct holding of 45.6 per cent and spend an undisclosed amount to buy 8.1 per cent in Eicher Motors for a total control of 50 per cent in the new company.

The Essar group is initiating discussions for acquiring 50 per cent stake in Kenyan refinery from international oil players as part of its move for a global footprint. The refinery in Mombasa , in which the government of Kenya owns a 50 per cent stake, has an annual production capacity of about 4 million tones.

Eton Park , the US-based global multi-strategy investment organization, has bought 5 per cent equity in Reliance Capital Asset Management, the wholly owned mutual fund arm of Reliance Capital for Rs 501 crore. The deal values the Anil Ambani-controlled AMC at over Rs 10,000 crore.

Praj Industries has signed an agreement to form a joint venture with Brazlian engineering company Jaragua Equipamentos Industriais to foray into Brazil ’s ethanol manufacturing sector. Praj will hold 54 per cent in the joint venture while Jaragua will hold the rest.

AES, the US power company, plans to build power plants worth $2.8 billion in India , marking the biggest move by a foreign company into the country’s electricity sector since the high-profile failure of Enron more than six years ago. The company is finalising the land acquisition for a $1.4 billion coal-powered plant in Chhattisgarh. The company will be investing $400 million in the 1,200 megawatt project and will fund the rest through loans.

Information Technology

Despite the clouds of rupee appreciation, attrition and policy issues hovering over the Indian outsourcing industry, a recent report by Gartner showed that India remains the undisputed leader in offshore services. However, Gartner’s analysis of 30 countries revealed that countries like China , Russia and Brazil are providing credible alternatives to India .

Telecom

Anil Ambani-led Reliance Communications has filed applications seeking some information under the Rights to Information (RTI) Act. It has sought information on the basis of allocation of additional spectrum to GSM operators. The company also wants to know at what level the decision while distributing the additional spectrum.

*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

We will be grateful if you could kindly send us your feed back at epwrf@vsnl.com