Highlights of  Current Economic Scene

AGRICULTURE  

According to the report by US department of agriculture (USDA), global supplies would drop to 11.1 million tonnes by May 31, 2008. India ’s wheat production is predicted to be at 74.9 million tonnes by the year ending March 31, 2008 while consumption would reach a record high of 75.9 million tonnes.. Imports of wheat in the year till June 30,2008 would fall to 2 million tonnes.

State Trading Corporation (STC) has floated a tender for import of 1.4 lakh tonnes of yellow peas, which is expected to be shipped between February-April, 2008. The last date for submitting bids has been January 21, 2008.

According to the data complied by the Solvent Extractor Association of India (SEA), India’s total imports of edible oil have risen marginally by 0.72 per cent to 624,102 tonnes during November-December 2007 from 619,630 tonnes in the corresponding period last year. The overall imports of vegetable oils for the same period is reported to be at 733,188 tonnes as compared to 742,312 tonnes for the previous year consisting of 624,102 tonnes of edible oil and 109,086 tonnes of non edible oil. The contribution of non-edible oil has declined from 96 per cent (596,641 tonnes) of last year to 92 per cent (582,069 tonnes) this year, with the share of refined oil standing at 8 per cent to 42,033 tonnes compared with 4 per cent (22,989 tonnes) of last year. Palm oil imports during November-December, 2007 have stood at 616,602 tonnes compared with 523,204 tonnes imported during the same period last year. India annually consumes 13 million tonnes of vegetable oil and imports 5.5 million tonnes.

According to Soybean Processor Association of India, transport delays occurring, due to shortage of freight wagons, congestion and berthing at ports, have slowed down the exports of soymeal from India . It is expected that, these delays would indirectly help in boosting overseas sales of the other exporting countries in the international market.  India had exported about 3.4 million tonnes of soymeal in the year that ended on September 2007 and exports are further expected to reach 4.5 million tonnes during this year (October – September) 2007-08. As per the official, 2.5 million tones of soymeal exports have been contracted so far this crop year, out of which 1.5 million tonnes had been shipped. About 150,000 tonnes of soymeal have already got accumulated at ports, while another 150,000 tonnes were still at factories waiting for railway wagons.

According to cotton advisory board (CAB), the acreage under Bt cotton has increased to 6.33 million hectares in the current cotton year from 3.69 million hectares last year. The total cotton sowing has stood at 9.53 million hectares, which is up by 4.23 per cent from last year’s 9.14 million hectares. The rise in Bt cotton acreage during the crop year (October-September) 2007-08-would help the country to produce 31 million bales (1 bale =170 kg) of cotton. The hybrid variety has captured over two third growing areas this crop year as compared with one third of the area in the previous cotton year. The average yield for the current year was 553.05 kg per hectare against 520.67 kg per hectare last year. The country is expected to export 6.5 million bales and its own consumption would be around 24.5 million bales. The closing stock at the end of the current year is estimated at 5.4 million bales against last year’s 4.75 million bales. As per the latest statistic report by International Cotton Advisory Committee (ICAC), the production of cotton in India in the next cotton year would reach 33.2 million bales with yield increasing to 589 kg per hectare from the current 553 kg per hectare.

According to Spices board, the production of cumin seed (jeera) is likely to rise by 20 per cent in 2007-08 due to increase in area under cultivation, higher price realisation and tight supply situation in the global market. The price in the domestic market has risen more than 25 per cent to 11,200 per 100 kg during the last one-year. Total production is expected to be around 1.8 million bags (1 bag=70 kg) in 2007-08 from 1.5 million bags last year. The area under cultivation has increased by 25-30 per cent in Rajasthan, while in Gujarat it has increased by about 15 per cent. In 2006-07, exports of jeera had doubled to 26,000 tonnes from 12,879 tonnes from a year ago, while in 2007-08 exports are estimated to touch 25,000 tonnes.

The Spices Board has chalked out plans to set up a series of spices parks in the country in order to attain spices export worth US $10 billion by 2017. The board would set up chilli park in Andhra Pradesh, mint park in Uttar Pradesh, sweet spices park in Rajasthan, garlic and Coriander leaf park in Madhya Pradesh, organic spices parks in Meghalaya and Assam and turmeric park in Tamil Nadu. The Kerala government is yet to complete the land acquisition procedures for the parks for which MoU has been signed between Spices Board and Kerala Industrial Infrastructure Development Corporation on February 13, 2007. The chilli park is coming up in 122 acres and is expected to be launched on January 21, 2008. The opening of the spices park in Madhya Pradesh is slated for April 21, 2008. The Spices Board would invest minimum of Rs 10 crore in these parks mainly to set up the infrastructure facilities while private players are expected to bring in sizeable investment.

According to Rubber Board, natural rubber imports are likely to rise by 12 per cent to 95,000 tonnes. Imports had jumped by a whopping 90 per cent to 850,048 in 2006-07 against 45,285 tonnes in 2005-06. During April- December 2007 the imports of natural rubber have touched 67,070 tonnes as compared with 45,266 tonnes during the same period in the previous year. The country is expected to import around 24,000 tones in the last three month of the current financial year. As per the automotive tyre manufacturers association (ATMA), the tyre industry is estimated to import more than 80,000 tonnes of natural rubber in the current financial year, while non-tyre sector is estimated to account for the rest 15,000 tonnes.

Groundnut prices are falling rapidly in Andhra Pradesh due to heavy rains, which had hit many districts damaging the crop drastically. This has delayed harvesting operations in the state. It is also expected that prices would fall below thee MSP of Rs 1,550 per quintal.  Around 1.8 million tonnes of groundnut have been harvested from about 1.5 million hectares during this kharif season and nearly 20,000 hectares are yet need to be harvested.

The preliminary test undertaken on dead birds by High Security Animal Disease Laboratory in Bhopal as on January 11, 2008 has confirmed that there is an outbreak of bird flu in two districts of west Bengal namely birbhum district and dinajpur district. As a result, prices of broiler chicken and egg have declined by 25-30 per cent in various parts of the country. According to initial assessment undertaken by the state government of west Bengal as on January 15, 2008, approximately 35,525 poultry in 102 villages of birbhum district and 288 poultry in one state poultry farm in south dinajpur district have died since the outbreak. 

According to the Joint Director of Agriculture of Tamil Nadu state, erratic rainfall during the post monsoon season 2007 is reported to have severely affected the cultivation of paddy in Ramanathapuram and Sivaganga districts. It is expected that out of 1,25,950 hectares of paddy crops, nearly 96,500 hectares in Ramanthapuram District have been identified as drought-hit or under the drought situation. In Sivaganga district also withering of crop has been reported on around 65,000 hectares.

The Namakkal Zonal Committee of the National Egg Coordination Committee (NECC), as on January 14, 2008, had cut procurement price on wholesale egg by slicing the rate by 10 paise per egg to Rs 1.75 and further on January 17, 2008 it has reduced the farm-gate price of shell eggs by 15 paise to Rs 1.60 per piece. The price reduction, with in four days, was undertaken due to the reports of bird flu hitting the poultry farms in West Bengal .

The Central Government on January 17, 2008 has approved the release of Rs 530 crore towards waiver of interest on agriculture loans in 31 debt-ridden districts across states of Maharashtra , Andhra Pradesh, Karnataka and Kerala. The decision would benefit the borrowers whose loans were overdue as on July 1, 2006 in these debt-stressed districts. The central government has already paid Rs 1,359 crore out of its total commitment of Rs 1,889 crore. The total outlay on the waiver scheme, including the share of the states, was Rs 3,778 crore.

Industry

The slow down in the growth of all the three sector pushed down the index of industrial production to 5.3 per cent in November 2007, a 13 month low as compared to 9.2 per cent last year.. Mining sector and electricity sector grew by 3.5 per cent and 5.8 per cent during the month. Slow down in the growth of manufacturing sector is almost one third recorded in November 2006. Out of the 17 industries, four industries declined and four industries registered double digit growth.. As per use-based classification, the sect oral growth rates in November 2007 over November 2006 are 4.8 per cent in basic goods industries, 24.5 per cent in capital goods and 7.3 per cent in intermediate goods. Consumer goods decline by 2.6 per cent due to substantial fall in the production of consumer durables and consumer non-durables.

Infrastructure

The index of six core infrastructure industries having a combined weight of 26.7 per cent in the index of industrial production registered a slower growth of 5.3 per cent as compared to 9.6 per cent in November 2007. The dismal performance of crude petroleum rose only by 0.3 per cent as against a growth of 9.8 per cent last year, and comparatively lower growth performance of refinery products, electricity, cement, steel all contributed for the lower rate of growth. However, coal production for the third month in succession registered a faster growth with its production rate registering a growth of 7.7 per cent in November 2007 as against a low growth of 4.9 per cent in November 2006

Inflation

The annual rate of inflation calculated on a point to point basis, rose by 0.3 per cent for the week ended January 05,2008 as compared 5.89 per cent as on December 30, 2006.

Primary Articles group rose marginally to 222.2 from 222.1 for the previous week. Food articles group declined due to lower price of bajra, jowar, urad, and fruits and vegetables. However, prices of maize,gram and arhar moved up. In non-food articles group, which moved up by 05 per cent ; prices of tobacco, fodder, sunflower and raw cotton and rape and mustard seed and copra gone up.

Substantial increase of 1.2 per cent in index of fuel, power, light and lubricants witnessed mainly die to increase in prices of coking coal, non-cocking coal, bitumen, furnace oil, light diesel oil and naphtha.

The index of manufactured products rose by 0.1 per cent due to higher prices of baby food, cattle feed, oil cakes, gingely oil, rice bran oil, coffee powder and imported edible oils.. However, prices of bagasse, rawa and khandasari and maida declined..

The final WPI for all commodities had been revised upward from 215.4 to 215.8 for the week ended November 10, 2007. As a result the rate of inflation calculated on a point to pint basis stood at 3.20 per cent as compared to 3.01 per cent provisional.

Banking

The Western Union (WU) company, a world-wide leader in money transfer services announced the opening of its 50,000^th agent location in India at the State Bank of India in Delhi . Western Union, together with it affiliates, Orlandi Valuta and Vigo , is a leading provider of global money transfer services. Consumer demand for WU services has grown due to increase in long-term global migration trends, which have resulted in increasing cross-border remittances. India is one of the world’s largest receivers of remittances with more than $26.9 billion remitted into India in 2006-07, according to RBI.

Grameen Trust (GT), an arm of the Mohammed Yunus-promoted Grameen Bank of Bangladesh , will soon launch its maiden micro-credit project on a built-operate-transfer (BoT) basis in Tejpur district of Assam. The GT, which opened its office in India in 2007, will invest over Rs 10 crore and operate the project by training the locals before a subsequent formal handover. The project will be implemented in two phases within a three-year timeframe and is targeted to cover 18,000 families. Under this project, only those families falling in the below-poverty-line will be covered with emphasis on women. Microcredit will be extended to enable them to undertake productive activities such as dairy and poultry farms, piggeries, basked making and minor food processing projects. The dispensation of credit to the targeted families will be done by replicating the Grameen methodology wherein credit will be collateral-free and will be given on basis of group solidarity. The GT proposes to undertake similar projects in India where the proportion of population below the poverty line is very high.

SBI will be launching its rights offer soon by offering rights shares to its shareholders. The rights share with a face value of Rs 10 each will be offered at a premium of Rs 1,580. The ratio for the rights issue has been fixed at 1:5, that is, one share for every five shares held by the eligible shareholders on the record date, which has been fixed as February 4, 2008.

Nabard has sought the intervention of the parliamentary standing committee on finance for the creation of National Rural Credit fund with a corpus of Rs 15,000 crore to bring down the cost of credit for the farmers. Nabard also wants the committee’s help for increasing its share capital to Rs 5,000 crore to strengthen the equity base.

Most of the public sector banks (PSBs), in a bid to increase their deposit bases, raised interest rates for bulk and fixed deposits during the January - March quarter of 2006-07. Thus the PSBs are likely to witness a 15-30 per cent increase in interest payment to depositors in 2007-08, due to a surge in high-cost deposits. It is estimated that each bank has might have to cough up an additional Rs 800-1,000 crore of interest this fiscal, depending on its high cost deposit portfolio, which has reached a level of about 18-20 per cent of the total deposit portfolio. The higher interest payment may have an impact of the profit margins as well.

ICICI Bank has reported a 35 per cent rise in its net profit at Rs 1,230 crore for the quarter ended December 31, 2007 as against Rs 910 crore earned during the corresponding period last year. Unsecured lending in credit card and personal loans segment rose from 10 per cent as on December 31, 2006 to 17 per cent during the reporting quarter. Net non-performing assets increased from around 1 per cent to 1.47 per cent during the quarter.

Financial Market

Capital Markets

Primary Market

The success of Reliance Power’s initial public offer (IPO) has attracted more issuers to the primary market with 19 more companies lining up IPOs within the span of a month. The offers are expected to mop up a whopping Rs 9,900 crore. The majority in the list includes real estate and infrastructure firms like J Kumar Infraprojects Ltd, with an issue size of Rs 100 crore, Gammon Infra Projects (Rs 350 cr), KNR Construction Ltd (Rs 150 Cr), IRB Infra Developers Ltd (Rs 1,150 cr) and SVEC Construction Ltd (Rs 50 crore). J Kumar Infra and Gammon Infra. Cords Cable Industries and KNR Constructions are expected to hit the market between January 18 and January 27. Meanwhile, IPOs of Wockhard Hospital, with an issue size of Rs 1,000 crore, Manjushree Extrusion Ltd, Techpro Systems, IRB Infra Developers, Globus Spirits Ltd and SVEC Constructions Ltd are expected during last week of January or the first week of February. Other prominent Companies whose IPO will be hitting the market include Rural Electrification Corporation, with an issue size of Rs 957 crore, EMAAR MGF (Rs 5,000 crore). The issues are expected around February-March.

With the excitement catching up with the ongoing Reliance Power IPO, and with many more block buster IPOs slated to hit the capital Markets in 2008, activities in the grey Markets are expected to gain prominence. Though the functioning of the entire grey market for the IPO is unofficial, activities in these Markets have been going on for a very long time. According to experts, the grey market becomes active once the company announces its book building dates. The players in the market fix a price for the company shares and rest depends upon the simple law of demand and supply. If the numbers of buyers are more than the sellers, the premium increases and vice versa, if the sellers out number the buyers, the premium decreases or there is a possibility that the stock may trade at a discount to the issue price.

The IPO of Reliance Power Ltd, considered the largest in the history of the Indian capital market, was fully subscribed within minutes of opening on Tuesday January 15, 2008. NSE data showed that the book-built issue was oversold 10.64 times, receiving bids for 242.67 crore equity shares. The company plans to sell only 26 crore shares. The bids for shares received at the cut-off price numbered 3.69 crore. The company expects to mobilise Rs 11,700 crore through this issue. The issue, which closed on January 18, has been subscribed 72 times, with the retail investor segment subscribed 16 times. The IPO has generated demand for Rs 752,000 crore.

Reliance Power IPO’s issue price has been fixed at the top end of the price band at Rs 450 per equity share of Rs 10; the issue is likely to be listed some time in February after the allotment of shares to applicants. According to Mr Anil Ambani, Chairman, Reliance Anil Dhirubhai Ambani Group, on the prospects of retail investors getting allotment of shares, it will be ensured that each and every applicant is allotted a bare minimum number of shares. The issue received a record 50 lakh retail applications and the retail investors made a commitment of Rs 44,000 crore, which was enough for the issue to have been fully subscribed by the retail investors itself. In terms of total application money deposited in banks, again the Reliance Power IPO set a record by mobilising Rs 1.15 lakh crore. The largest IPO in terms of money being raised, at Rs 11,700 crore, drew a phenomenal response from both institutional and retail investors.

Cords Cable Industries Ltd, a manufacturer of specialised cable for a variety of industries, entered the capital markets with an IPO of 30,85,000 equity shares of Rs 10 each for cash at a price to be decided through a 100 per cent book-building process. The issue will be open for subscription from January 21-24. The price band has been fixed between Rs 125 and Rs 135 per equity share.

Kumar Infraprojects Ltd, a civil engineering and infrastructure development company, entered the capital market with an IPO of 65-lakh equity shares of Rs 10 each for cash. The issue, which is being made through a 100 per cent book building process, opened on January 18 and closes on January 23. The price band has been fixed at Rs 110-Rs 120.

The initial public offering (IPO) of Kishore Biyani-led Future Capital Holdings has been receiving overwhelming response since day one. The issue has been subscribed 132.10 times across the price band, on January 16,2008. The issue received bids for 84,14,51,848 equity shares as against 64.22-lakh shares on offer.

The Government said on Thursday January 15 2008, that an IPO by Bharat Sanchar Nigam Ltd will be considered only if it was appropriate. According to the Minister of Communications and IT, the matter would be discussed internally in the Ministry and with various stake holders and then a suitable decision would be taken in this regard. IPO for BSNL would be issued, if considered appropriate.

OnMobile Global Ltd, a provider of telecommunications value added software products and services in India with an expanding international presence, is to enter the capital market with an IPO of 1.09 crore equity shares of Rs 10 each for cash at a price to be determined through a book building process. The issue will open for subscription between January 24 and January 29. The price band has been fixed between Rs 425-450 per equity share.

KNR Constructions Ltd, an infrastructure projects development company, will enter the capital markets with an IPO of 78-lakh equity shares of Rs 10 each at a price to be decided through a 100 per cent book-building process. The issue will open on January 24 and will close on January 29. The price band for the issue is fixed between Rs 170 and Rs 180.      

ICICI Bank will dilute up to 15 per cent stake in its wholly owned subsidiary ICICI Securities through an IPO and a private placement of equity shares over the next six months. This was approved by the ICICI Securities board in its meeting on January 19,2008.

Secondary Market

In a move to check significant price and volume spikes on listing days, the Securities and Exchange Board of India (Sebi) on Thursday put out a draft policy for imposing a price band of 25 per cent on the issue price for initial public offers (IPO) of issue size up to Rs 250 crore.  The proposal, which is open for public comments till January 31, does not apply in the case of re-commencement of trading of a company’s shares.  The proposal has been put out after Sebi observed that in case of several such IPOs where the stock available for trading, or the free float, is about 25 to 30 per cent of the equity capital of the company, the price does not sustain on subsequent days, leaving long-term investors to become dissatisfied with the dramatic activity on listing day.  As per the policy draft, this would not only assist in a more orderly price discovery process over a period of time but, more importantly, also have a salutary impact on potential abnormal price movements on the day of listing.  

According to a senior official, the new company law is likely to stipulate that specific provisions on corporate governance for listed companies, including the number of independent directors on the board, will be outlined by the Sebi. This would help curb the possible overlaps between Sebi and the Ministry of Corporate Affairs (MCA). Sebi will have the liberty to prescribe higher standards of corporate governance for listed companies. Certain provisions of the new law, to be placed in Parliament soon, had seen the Finance Ministry and the Comptroller and Auditor -General (C&AG) expressing concern. The Ministry was of the view that the law should make only enabling provisions and prescribe a minimum threshold limit. On the issue pertaining to trading in securities and non-payment of dividend, the new law is likely to provide an enabling provision and leave precise details for unlisted companies to the Ministry and for listed companies to Sebi.

It was the worst-ever week for Indian investors after the benchmark Bombay Stock Exchange Sensitive Index (Sensex) plunged to its biggest weekly points loss on Friday on growing fears of a US economic slowdown, big sales by foreign funds and heavy unwinding of leveraged positions by investors in the derivatives market. The fall saw market capitalisation dipping by Rs 5,30,444 crore during the week with real-estate, oil & gas, banking and metals stocks losing nearly 8 to 10 per cent of their values in the last five sessions. Markets tanked last week following weak trends in the global market as US market slumped on recession fears. Sensex tumbled 1,813.75 points to 19,013.70 and Nifty declined 494.8 points to 5,705.30-the second-largest continuous dip since its inception.

All the sectoral indices of BSE sharply declined over the week which saw the BSE- Sensex suffer its sharpest ever continuous drop Three sectoral indices- BSE-Realty, Oil and Gas, and Bankex led the sharp fall in stock prices in the last five days.  The three indices fell nearly 9 per cent each between January 14 and January 18, 2008 due to profit booking. Among the three, Bse-Reality has fallen the highest by 10.84 per cent during the week.  Power, metals, IT, capital goods and consumer goods indices also declined by 5-8 per cent during the week. 

The markets went into a tailspin last week mainly on account of heavy selling in heavyweights such as Reliance, Bharti Airtel, ONGC, Infosys, ICICI Bank, NTPC and DLF.  The Sensex, which began the week on a positive note at 20,918, managed to touch a high of 20,986. A downward bias, thereafter, saw the index tumble to a low of 18,930 - an intra-week loss of 2055 points. The Sensex ended the week with a hefty loss of 8.7 per cent (1,814 points) at 19,014.  The intensity of the fall was so severe that the index broke quite a few support levels last week.

Foreign Institutional Investors (FII’s) sell off was one of the major contributions to cause the BSE Sensex post its fourth greatest fall on Friday. According to provisional data available from the Stock Exchanges (SE’s) FII’s were net sellers of Rs 2,146.92 crore on Friday while the Domestic Institutional Investors (DII’s) were net buyers to the tune of Rs 695.56 crore on Friday. Segments of the market believe that the ongoing sub prime issue, which has forced major banks to write-off their loses due to exposure to the credit market in the US, and which also form a major chunk of FII’s, are withdrawing money to shore up their balance sheets

Derivatives

At the beginning of the week, a heavy short built up was created in the Nifty current month contract, as the open interest (OI) increased by 6.81 crore and the Nifty January series was trading at a discount of 153.35 points or 2.46 per cent from its previous close, on the derivatives segment, while it was trading at a discount of 16 points to its spot price.

Indicators in the derivatives market suggest that although the market bulls have taken a hammering, they still harbour some hope. At close on Friday, the Nifty January put-call ratio (PCR) was at an oversold level of 1.04. In the past, the Nifty has invariably managed to find support and bounce back from 0.95-1.05 levels. Similarly, in spite of the fall on Friday, the Nifty futures contracts due to expire in January added more than 11 lakh shares in open interest to end at a premium of over 25 points, up from a premium of 18 points the day before.

As per the report Business standard, the Nifty, on Friday, retraced 100 per cent of the move from 5,677 to 6,388, as per the Fibonacci charts. This is a popular tool used by traders to identify target prices and stop losses. The next Fibonacci level for the Nifty is 5,238, which is 161.8 per cent retracement of the movement from 5,238 to 6,388.  The levels are created by drawing a trend-line between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6 per cent, 38.2 per cent, 50 per cent, 61.8 per cent, 100 per cent, 161.8 per cent and 261.8 per cent.   

The Fibonacci retracement tool is favoured by many traders because of its ability to identify a price level that a correction may reach before the markets reverse and continue in the direction of the original trend.  The built-up in Nifty options open interest suggests a support at 5,700 and 5,500 as fresh Put writing was seen at these levels.  There is a strong resistance at 6,000 and 6,400, with the Call options OI increasing by 33.95 lakh shares and accounting for 73 per cent of the total Call options open interest, which stood at 46.47 lakh shares.  The Nifty January futures settled at a premium of 25 on Friday as against 19 in the previous session.  The Nifty futures OI increased by 9.24 million shares to 45.35 million shares. Out of the total rise of 9.24 million shares, the FIIs added 4.73 million shares in open interest. 

Since the Nifty fell about 8 per cent last week, it’s understandable the derivatives market is buzzing. Indian players remained active holding a collective 64 per cent of outstanding positions. Index futures saw enhanced liquidity and expanding open interest across most indices, which normally means a bullish undertone. This was confirmed when most index futures settled at significant premiums to the spot levels. This is usually a short-term bullish signal. The Nifty closed at 5,705 in spot and it was settled at 5,730, 5,729 and 5,740 in the January, February and March contracts respectively, with open interest expanding across all three series. The Mini Nifty was held at 5,732 (Jan), 5,744 (Feb) and 5,764 (Mar) with good open interest in all three series. There is a calendar bull spread in the Mini with long Jan-short Feb.  The Junior closed at 11,497 in spot and it was held at 11,582 (Jan) and 11,402 (Feb) though February liquidity was token. The Midcaps closed at 3,442 and it was held at 3,483 (Jan) and 3,474 (Feb) with little February open interest. The BankNifty closed at 9,740 and it was settled at 9,812.6 (Jan) and 9,869 (Feb) with decent open interest in both series. The CNXIT closed at 4,060 and it was settled at 4,074 (Jan) and 4,098 (Feb) with good open interest.  The BankNifty offers a calendar bull spread with long Jan-short Feb. The CNXIT has a similar percentage differential but the IT index has a more bearish feel technically. The underlying weakness makes one hesitate.   

In the options market, a lot of Nifty puts were cashed out. The put-call ratio (PCR) has dropped to 1.04 in terms of open interest, which is low and it’s been dropping through the week

Government Securities Market

Primary Market

On January 16, 2008, RBI auctioned 91-day and 364-day T-bills for the notified amounts of Rs.3,500 crore (out of which Rs.3,000 crore under MSS) and Rs.3,000 crore (out of which Rs 2,000 crore under MSS), respectively. The cut-off yields for 91-day and 364-day T-bills were 7.10 per cent and 7.39 per cent respectively.

RBI re-issued 11.30 per cent 2010 for Rs.4,000 crore out of which Rs.3,000 crore under MSS on January 17, 2008 at the cut-off yields of 7.55 per cent .

RBI is to re-issue 6.57 per cent 2011 and 12.25 per cent 2010 for Rs.3,000 crore each on January 18, 2008 through price based auctions using multiple price method.  

Secondary Market

The RBI purchased spot and sold forwards to minimise the liquidity impact. The liquidity impact due to NRI flows was evident from the first weekend LAF auction that saw recourse to the Reverse repurchase window for Rs 17,320 crore by 13 bank and primary dealers.

Call rates stuck to a steady range just above 6 per cent throughout the week except for the sharp spike late in the week. Call rate quotes rocketed to 60 per cent due to a late mismatch faced by banks on Friday following a technical delay in payment clearances in the real time gross settlement (RTGS) system of the Reserve Bank of India .  According to dealers, banks panicked as they felt they might default on CRR payments when the fund flow stopped due to a technical snag in the RTGS for almost an hour. All transactions in the money and government securities market are settled under RTGS.  However, the rates calmed down to close around 7-7.5 per cent after RBI conducted a special liquidity adjustment facility to infuse funds into the system at 7.75 per cent under repo. The RBI extended trading hours on the electronic cash trading facility by one hour. The RBI also held a special LAF auction late on Friday to help banks out of the squeeze. Through the repo window, RBI infused Rs 5,400 crore into the market. Before this auction, LAF reverse repos received bids worth on an average of Rs 24,161 crore from Rs 13,259 crore over the previous week.

Bond Market

During the week under review, two development finance institutions and 3 non-banking financial companies have tapped the market by issuing bonds.  Housing Development Finance Corp Ltd tapped the market by issuing bonds to mobilise Rs 150 crore by offering 9.08 per cent for 5 years. The bond has been rated AAA by Crisil and Icra.

IDFC Ltd tapped the market by issuing bonds to mobilise Rs 200 crore by offering 8.95 per cent for 10 years. Fitch and Icra have rated the bond AAA.

PNB Housing Finance Ltd tapped the market by issuing bonds to mobilise Rs 150 crore by offering 9.20 per cent for 15 years. Crisil and Care have rated the bond AAA.

LIC Housing Finance Ltd tapped the market by issuing bonds to mobilise Rs 400 crore by offering8.94 and 9.14 per cent for 3 and 10years respectively. The bond has been rated AAA by Crisil and Care.

The government has announced the issue of 7.95 per cent oil marketing India special bonds 2025 for Rs 11,257 crore. The special bonds are issued to three oil marketing companies as a compensation towards estimated under recoveries on account of sale of sensitive petroleum products during 2007-08. They were issued at par to Indian oil corporation ltd for Rs 6,362 crore, Bharat petroleum corporation Ltd for Rs 2,539 crore, Hindustan petroleum corporation Ltd for Rs 2,356 crore on Friday. Investment in the bonds by banks and insurance firms will not be eligible in government securities for their statutory requirements.

That moderating capital flows into the country is expected to top the agenda for Budget 2008-09 is clear from the finance ministry’s plans to tax the interest earned on external commercial borrowings (ECBs). This would make foreign debt more expensive and help moderate the surplus on the capital account—expected to touch $103 billion in this fiscal, against an initial estimate of $58 billion. ECBs were the largest component of this. This can be a short-term measure, the aim of which will obviously not be to garner resources. But the government, while imposing such a tax, must spell out the important milestones on the achievement of which this tax will be withdrawn.” Arvind Virmani, chief economic adviser in the finance ministry, has also recommended imposing a tax on the interest paid on ECBs and auctioning such debt.

Foreign Exchange Market

The rupee lost marginally to 39.30 per dollar from 39.29 per dollar during the week. There was large arbitrage flows into the country was on account of the drop in US interest rates and high returns for Indian papers. The effect of the arbitrage flows lifted the rupee to Rs 39.27. The Reserve Bank of India continued to intervene in the spot market to curb the rupee appreciation through purchase of dollars.  The RBI interventions, though, prevented the rupee from making any sharp ascent. The arbitrage flows led to the firming of forward premia. One-month forward premia firmed to 1.07 per cent in this week from 0.92 per cent the previous week. Forward premia for longer tenures — 3, 6 and 12 months also moved to 1.84 per cent (1.53 per cent), 1.89 per cent (1.78 per cent) and 1.63 per cent (1.53) per cent) respectively.

India would see massive capital flows and faster appreciation of rupee if the US cuts interest rates drastically to avoid a recession, finance minister P Chidabaram said on Thursday. He said though a slight slowdown of the US Economy will not immediately affect India , it would have some impact on India 's growth prospects. "If the US , in response to a slowdown, cuts interest rates drastically, that will widen the differential between the interest rates in the US and in India . This has consequences like capital flows and faster appreciation of rupee,"

Commodities Futures derivatives

Futures prices of crude oil, gold, and select base metals on the MCX platform, traded on the lower side last week, on a weak dollar supported by a slowing world Economy. Bullion prices fell and reacted at the higher levels on weak sentiments. The recent rally in bullion prices was overdone. Lower crude prices were also contributing to the decline in bullion prices. Now, the focus of the Markets is on the outcome of the FOMC meeting on January 31. Base metals futures continued to trade sluggish on exchange buoyed by US recessionary fears and a housing market slump that could suffer physical demand.

Sugar futures and spot prices are expected to rule firm in the next few days in anticipation of lower sugar crop for the current season amid steady demand from bulk consumers. The January 2008 contracts for sugar medium grade (ex-Muzaffarnagar) on NCDEX have jumped by nearly Rs 100 per quintal to trade at Rs 1,429 per quintal on Wednesday during the current month on continued support while February 2008 contracts for medium grade (Kolhapur) also gained by about Rs 120 per quintal to trade at Rs 1,470 per quintal on Wednesday during the current month.

London-based GFMS Ltd expect gold prices to trend upwards again, with investors likely to take gold to the $1,000 level this year, as investor enthusiasm pushes aside forecast slump in jewellery fabrication and higher scrap. The consultancy expect the surge in investment to be driven by those factors that fuelled the boom witnessed in the final four months of 2007, namely a weak dollar, record oil prices and their inflationary consequences, the US subprime crisis and its threat to GDP growth in the US, and geopolitical tensions.

Commodity markets regulator Forward Markets Commission (FMC) has asked the futures exchanges to relax the delivery parameters and permit deliveries outside the demat format. Demat is a system where securities like shares, debentures and even commodity futures are converted from the physical form into electronic data and stored in the computers of a depository. FMC chairman BC Khatua feels that the demat system is not ideal for commodities. He suggested that investors should be allowed to keep their material in their own godowns if they choose to do so. This could be either because they want to avoid the incremental costs of transferring to exchange-approved warehouses, or lack of storage space in exchange warehouses. Currently, this is not permitted by exchanges when deliveries have to be carried out.

The Multi Commodity Exchange of India (MCX) began live trading of carbon credit futures from Monday. In an interview, Massey said MCX will focus on environment products like carbon credit, along with its energy portfolio, in 2008 to boost trading. This will be the first carbon credit futures contract to be listed in India ....as well as Asia . The contract carbon credits - ECX-CFI Mini started trading with a contract that will expire Dec 15, 2008. The contract lot size is 200 tonnes and has a initial margin of 6 per cent. The daily price fluctuation limit is 4 per cent. Carbon credits are permits developed nations buy to meet emission obligations under the Kyoto Protocol. Each unit of credit, which now sells at 13-15 euros, represents a reduction of greenhouse gas emission by one metric tonne. India is the world's second biggest source of the tradeable pollution permits and carbon credit revenue may touch 150 billion rupees 2012, according to Ernst & Young.

The National Commodity and Derivative Exchange (NCDEX) is unlikely to go ahead with onion futures trading while it is set to launch spot trading in coffee and maize, an exchange official said. “We have received approval from the Forward Market Commission (FMC) for futures trading in onion, but have decided to stay away,” NCDEX managing director PH Ravikumar said here. Onion is highly politicised, Mr Ravikumar said, adding, besides onion “is also difficult to store as the commodity is mainly dry outside”. Onion prices, which had shot up sharply a few months ago, have now tumbled on mounting arrivals and subdued export demand, and are expected to remain weak for the next few months, traders said. Wholesale price in the country’s largest onion trading hub, Lasalgaon in Maharashtra, fell to its lowest level at Rs 365 per 100 kg, from a peak of Rs 1,951 on October 1. Onion prices slipped following the government’s announcement of an action plan to check rising prices and increase onion supply, said commission agents. Onion prices are likely to drop as output is projected to go up by 14 per cent in 2007-08, with the area under onion crop likely to increase in the ongoing kharif season. Production in the current kharif season is likely to be at 1.5 million tonnes, with as much as 20 per cent of the total output being produced in the kharif season.

The smooth and unhampered functioning of a commodities market would be an asset to the economy of any country, Sebi chairman M Damodaran has maintained even as the government continues to dither over crucial questions regarding commexes and the commodity markets here, such as FDI and continuing bans on key trading (wheat, rice and select pulses). Mr Damodaran acknowledged that both markets catered to different asset classes and that both were used as a barometer of a market infrastructure and market economy. He said, “In some mature markets, in fact, investors prefer to invest in commodities rather than stocks. There’s a preference for real assets such as real estate and gold as opposed to holdings of stocks.” The debate on whether FMC and Sebi should be merged or Sebi should regulate the commodities futures markets also refused to die down completely and FMC has still not achieved full autonomy in functioning, unlike the capital markets watchdog. Sebi has often been credited with the view that their should be a single super watchdog for both capital and commodities market. Mr Damodaran, however, chose to assert that FMC was the only regulator here for the commodities futures market. “Basically, the government has made FMC the sole regulator” he opined.

Prices of tur dal, moong dal, gram dal and sugar moved up, while sooji edged down in the wholesale foodgrain market during the week under review, ending on Saturday. All other commodities ruled steady during the week. Moong dal moved up by Rs 100 per quintal to Rs 3,300 against previous week-end level of Rs 3,200. Both tur dal and gram dal went up by Rs 50 each per quintal to Rs 3,950 and Rs 2,550 respectively. Sugar edged up by Rs 30 to Rs 1,550 from Rs 1,520. Sooji (90 Kg) slipped down by Rs 50 to Rs 1,450 from Rs 1,500. Prices of urad dal, wheat and maida remained unchanged at Rs 3,450, Rs 1,450 and Rs 1,400 respectively.

By 2010, the commodity market will grow 30 per cent to cross Rs 74,00,000 cr.  Trade volume at the country’s commodity exchanges is likely to more than double by 2010, with rising participation by people attracted by the soaring prices of commodities such as gold, silver and crude oil, industry body Assocham said.  ‘Indian commodity market, which expanded 50 times in a span of five years, is now expected to grow by 30 per cent to touch Rs 74,15,613 crore by 2010,’ Assocham said in a release.    The futures market grew by 23 per cent to Rs 33,753,36 crore last year from Rs 27,39,340 crore in 2006, it said.    The jump in turnover of commodity exchanges are expected on the back of people’s participation in such trade, which will continue, according to the finding of a survey jointly carried by Assocham and Evalueserve.    In 2003, the size of futures trading carried on commodity exchanges such as MCX, NCDEX and NMCE stood at Rs 1,29,364 crore. The turnover went up to Rs 5,71,759 crore in 2004 and to Rs 21,55,122 crore in 2005.  The turnover as proportion to GDP of commodity trade increased from 4.7 per cent in 2004 to 18.3 per cent in 2006 and is expected to go up many folds since commodity markets would remain friendly to its subscribers, Assocham President Venugopal N Dhoot said while releasing the survey.    The daily average volume of trade in commodity exchanges was over Rs 12,000 crore in December 2007, it said, adding that gold, silver and crude recorded the highest turnover at MCX while at NCDEX, soya oil, guar seed and soyabean were the most actively traded commodities.  Pepper, rubber and raw jute were some of the items that performed better compared with other commodities at NMCE.

MCX gold and silver futures are expected to dip further from current levels in line with COMEX bullion, which has been correcting since Tuesday after the US PPI data showed prices paid to producers dropped unexpectedly by 0.1 per cent in December, analysts said. There are also expectations that the US CPI data to be released on Wednesday would show that retail prices rose at a slower pace in December, analysts said, adding that was among the main reasons for the correction in gold.  The sell-off in financial markets is also having an impact on gold prices, analysts added.   

Corporate Sector

In the largest commercial property deal in India , the Essar group has bought Peninsula Land ’s (PLL) Kurla commercial project measuring 9 lakh sq. ft. office space for about Rs 1,200 crore at the rate of Rs 14,000 per sq. ft. The deal is slightly bigger than Reliance Industries’ purchase of convention-cum-commercial space at Bandra Kurla complex for Rs 1,100 crore last year. Essar Realty is expected to use this property to house its group companies. Currently, Essar has several offices in Mumbai apart from Essar House, which is located at Mahalaxmi.

Buoyed by 25 per cent higher revenues from the refining business and high gross refining margins at $15.4 a barrel, India ’s largest private sector company, Reliance Industries Ltd (RIL)’s third-quarter profits rose by 26 per cent. RIL’s net profit, excluding exceptional income of Rs 4,733 crore, stood at Rs 3,882 crore for the quarter, compared to Rs 3,081 crore a year before.

The country’s largest drug maker by sales, Ranbaxy Laboratories Ltd has posted 53 per cent rise in its net profit at Rs 790 crore for the year ended December 31, 2007, as compared to Rs 607 crore for the corresponding period last year. The company’s consolidated revenues for the year grew at over 20 per cent to Rs 6,400 crore and are likely to grow at the same rate over the next year.

Anil Ambani controlled Reliance Energy’s net profit for the third quarter ended December 31, 2007 rose by 50 per cent to Rs 301 crore from Rs 201 crore in the corresponding previous period. Its net income increased by a paltry 1.8 per cent to Rs 1,853 crore from Rs 1,820 crore. Its net sales increased to Rs 1,229 crore from Rs 915 crore, a rise of 34.4 per cent. The cost of electrical energy purchased rose sharply by 42.2 to Rs 648 crore from Rs 456 core.

Sony Max, along with World Sport Group (WSG), has bagged the Board of Control for Cricket in India (BCCI)-backed Indian Premier League (IPL) media and production rights for the next 10 years (2008-17) in a deal worth $1.026 billion. The duo will initially have to shell out $59 million in the next year. This comes despite Sony Entertainment Television (SET), which owns Sony Max, reportedly incurring losses of around Rs 200 crore on televising the International Cricket Council (ICC) World Cup last year. Under the agreement, WSG gets the international media rights for Internet, mobile and radio, while Sony Max bags the South Asia audio-visual rights.

Tata Steel has signed a joint venture (JV) agreement in Muscat with members of the Al Bahja group, a leading business house in Oman , for the development of the Uyun limestone deposits at Salalah in the Sultanate of Oman. The steel major will be holding 70 per cent stake in Al Rimal Mining LLC, through its subsidiaries TS global Minerals Holdings Pte Ltd.

Telecom

State-owned BSNL is planning to launch the country’s biggest IPO to raise about Rs 40,000 crore (over $10 billion). The company has an equity base of Rs 5,000 crore, which translates to a shareholding structure of 5600 crore shares at a face value of Rs 10 each.

After picking up a 20 per cent stake in Sun TV Network’s DTH arm, SunDirect for a consideration of close to $150 million, Malaysia-based Astro, a multi-billion dollar diversified group owned by T Anadalar Krishnan, has picked up 7 per cent stake in Sun TV Network’s FM radio arm – South Asia FM Ltd for an undisclosed amount. The deal is expected to conclude in the next 15 days. Sun Network, which holds licences for 45 FM radio stations across the nation, has rolled out 18 FM stations through its subsidiaries.

Information Technology

India ’s largest software company, TCS has posted 19 per cent growth in profit after tax for the third quarter of fiscal 2008 to Rs 1327 crore, from Rs 1,116 crore in the corresponding quarter of the previous year. Total income increased by 23 per cent to Rs 6042 crore, compared to Rs 4,910 crore. The company has declared a third interim dividend of Rs 3 per equity share.

Infosys BPO, the outsourcing arm of the second largest software company Infosys, has set up a new unit for its foray in the domestic business process outsourcing (BPO) business in 2008. Currently, the company doesn’t have any Indian clients. As an increased number of Indian companies are trying to focus on their core business by outsourcing specialized functions to third parties with domain experience, companies such as IBM Daksh, Mphasis, HTMT, Intelnet, EXL Service, VCustomer, Firstsource as well as some banks, through their subsidiaries, are also eyeing a pie of this market.

NIIT Technologies Ltd has announced that the company has reported an increase of 1 per cent in its net profit to Rs 34.7 crore in the quarter ended December 31, 2007 as compared to Rs 34.6 crore in the corresponding quarter of the previous year.