Highlights of  Current Economic Scene

AGRICULTURE  

As per the second advanced estimates released by ministry of agriculture, overall foodgrain output during 2007-08 would marginally rise by 0.9 per cent as compared to the output of last year, driven by expected record production of rice, maize, soyabean and cotton. Production of foodgrains as well as that of non-food crops is estimated to decline during the rabi season for the crop year 2007-08 as compared to that of kharif season. Rice output is projected to rise by 0.8 percent as compared a year ago. Wheat production is expected to touch 74.81 million tonnes, lower than last year’s production of 75.8 million tonnes. Coarse cereals production is likely to grow by 6.4 to 36 million tonnes and that of pulses by 0.9 per cent to 14.3 million tonnes as compared to that of 2006-07. Total Output of all the oilseeds is estimated to soar by 11.8 per cent to 27.2 million tonnes higher from last year, though rabi production of all the major oilseeds is expected to fall. Among commercial crops, cotton is expected to augment by 3.3 per cent to 23.24 lakh bales, due to the reported increase in coverage under Bt cotton. On the contrary, output of sugarcane would fall down by 4.3 per cent to 340.3 million tonnes (Table), due to fall in sugar realisations.

According to Director General Of Foreign Trade, the central government has allowed exports of 22,100 tonnes of wheat flour to Maldives through public sector trading firms STC and MMTC during 2008-09, in spite of continuation of the ban on overseas sales of wheat and wheat flour. Out of the permitted export quantity, 17,00 tonnes of wheat flour have been exported in January to Maldives .

According to Spice Board, India has exported 318,635 tonnes of spices worth of Rs 3,155 crore (US $ 781.07 million) during April-December 2007-08, registering a growth of 19 per cent in volume and 23 per cent in value. Exports of chilli, black pepper, coriander, fennel, fenugreek, mint products and curry products have risen moderately during April-December 2007-08. Those of garlic, cardamom, cumin, turmeric, nutmeg, mace and celery have declined sharply. As per the Spice Board, so far it has achieved 84 per cent of the 380,000 tonnes and 88 per cent of the Rs 3,600 crore (US $ 875 million) of the target set for the ongoing financial year.

  According to data compiled by the Soybean Processors Association of India (SOPA), exports of soymeal in India has recorded a growth of 13.89 per cent in the period between October-January 2007-08, on account of growing demand from overseas countries. Total exports have jumped to 19,77,628 tonnes during the same period as compared with 17,36,407 tonnes in the corresponding period of the last year. The shipments to Vietnam and Japan have grown by 51.66 per cent and 78.23 per cent, respectively.

According to International Coffee Organisation (ICO), global coffee production in the crop year 2006-07 has increased by 14 per cent to 125 million bags as compared with 110 million bags in the previous year. The worldwide exports for the year has gone up by 9.6 per cent to 96.7 million bags against 88.2 million bags in 2005-06.The increase in export was significant in the case of Robusta, that is, 14.3 per cent and for Arabica, it has been 7.3 per cent. The total value of exports in 2006-07 is estimated to be at US $ 12.3 billion against US $ 10.1 billion in 2005-06. Production in Brazil has increased by 29 per cent to 42.5 million bags against 32.9 million bags in the previous year. In India , it has risen by 4 per cent.

According to International Cotton Advisory Committee (ICAC), the world cotton acreage is projected to be around 33.9 million hectares in 2008-09, similar to that in 2007-08. Acreages under cotton are projected to decline in US by 11 per cent and are likely to show slight improvement in China and India . Sown acreages in Pakistan , Uzbekistan and Turkey are unlikely to display any significant variation over the area covered last year. World cotton yields are expected to rise to 794 kg per hectare in 2008-09. World cotton production is estimated to rise by 1 million tonnes to 26.9 million tonnes for the year and consumption is set to rise to 27.4 million tonnes. Cotton production would lag behind its consumption by half a million tonnes, as result of which, global stocks would reduce further.

Maharashtra sugar mills have posted 50 basis point increase in sugar recovery rates, thereby partially neutralising the lower level of cane crushing so far during sugar season (October-September) 2007-08. The mills has crushed 372.41 lakh tonnes of cane in sugar season 2007-08, which has been 7.6 per cent below the 402.98-lakh tonnes of sugarcane crushed during corresponding period of the 2006-07 season.  On the other hand, sugar production has dropped by 2.8 per cent form 44.15 lakh tonnes to 42.91 lakh tonnes in the current sugar season. This has resulted in  average sugar recovery of 11.52 per cent so far in this season as compared with 10.96 per cent cumulative figure for 2006-07. This, in turn, is expected to offset the lower cane yield resulting in rise in total sugar output, which would be around 90.95 lakh tonnes.

Persistent cold weather conditions prevailing in Maharashtra during the current winter season are likely to hit grape production by 8-10 per cent this year. Decline of 10 per cent in the area covered under grape during last year, due to farmers switching to fresh fruits and unseasonal rain affecting the output adversely have also been responsible for this fall in the output. Apart from unfavorable weather, leafroll and rugose virus have been detected in a few imported plants at Baramati, Sangli and Narayangaon regions in Maharashtra , which would possibly hamper the production further. In 2008, Maharashtra is expected to produce 20 lakh tonnes against the 18-lakh tonnes of last year. Maharashtra contributes almost 94 per cent of total grape production in the country.

According to officials of Bihar's Director of Animal Husbandry department, villages falling within 5 km. of West Bengal borders have compelled to undertake culling operations in the state as precautionary measure to check the spread of bird flu in these regions. Over 12 thousand chickens have been culled in Katihar, Kishanganj and Purnia districts of Bihar, for the same purpose though not a single case of avian influenza has been reported from anywhere in the state so far.

The poultry industry has requested the central government for two-year moratorium on repayment of outstanding loans and 7 per cent interest subvention for conversion operations of outstanding working capital loans into long-term loans and sanction of fresh working capital for farmers to restart operations. Further, they have asked to allocate 5 lakh tonnes of maize at a subsidised price, due to outbreak of bird flu in West Bengal and high prices of maize prevailing in the domestic market.

Bahrain and Iran have imposed a ban on imports of live birds from India , due to out break of bird flu virus in northeastern regions, though import of eggs and other products from the two countries would continue.

According to Marine Products Export Development Authority (MPEDA) seafood exports have fallen  sharply during April-December 2007-08 in volume and value terms by 19 per cent and 14 per cent, respectively, as compared to the corresponding period in the last fiscal year. India has exported 392,939 tonnes of marine products in April-December 2007-08 valuing at Rs 5701.42 crore, as compared with 486,895 tonnes valued at Rs 6652.22 crore during the same period last year. This  decline seems to be on account of lesser availability of fish, appreciation of rupee and competition from other countries.

As per the draft prepared by petroleum ministry under natural gas utilisation policy, fertiliser plants would get first right over the domestic natural gas followed by petrochemical and power units. On approval of this draft, natural gas produced from field like eastern offshore KG D6 field of reliance industries or Panna /Mukta and Tapti field of Mumbai would first be given to the fertiliser sector as existing gas based fertiliser units are running at less than designed capacity because of shortage of gas.

Industry

A pick up in the production of all the major group during December pushed up the index of industrial production from 5.1 per cent in November to 7.6 per cent in December 2007. As a result during the fiscal so far registered an increase of 9.0 per cent as against 11.2 per cent last year. Mining sector and electricity sector grew by 3.0 per cent and 3.8 per cent during the month. The growth of manufacturing sector is at 8.4 per cent during December is much below to that of 14.5 per cent recorded last December. Out of the 17 industries, four industries declined and five industries registered double digit growth.. As per use-based classification, the sectoral growth rates in December 2007 over December 2006 are 3.1 per cent in basic goods industries, 16.6 per cent in capital goods and 7.2 per cent in intermediate goods. Consumer goods recorded an increase of 8.7 per cent.

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 4.0 per cent as compared to 9.0 per cent in December 2007. The dismal performance of crude petroleum which registered a negative growth of 1.5 per cent  against a growth of 6.0 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 fourth month in succession registered a faster growth with its production rate registering a growth of 8.4 per cent in December 2007 as against a low growth of 2.9 per cent in November 2006

Inflation

The annual rate of inflation calculated on a point to point basis, rose by 4.11 per cent for the week ended January 26,2008 as compared 6.69 per cent as on January 27.2007.

Marginal rise 0.4 per cent in has been witnessed in Index of Primary Articles group from 223.6 from 222.8 for the previous week. Food articles group rose by 0.2 per cent. Index of non-food articles rose by 0.5 per cent mainly due to higher prices raw cotton, cstor seed and groundnut.

The index for the major group Fuel, Power, Light and Lubricants remained stationary.

The index of manufactured products rose by 0.3 per cent due to higher prices of many edible oils..

The final WPI for all commodities had been revised upward from 216.3 to 216.0 for the week ended December 01,2007. As a result the rate of inflation calculated on a point to point basis stood at 3.89 per cent as compared to 3.75 per cent provisional.

Banking

Public sector banks Canara Bank, Corporation Bank and Allahabad Bank have decided to lower interest rates on housing loans, preferring to keep their prime lending rates unchanged. Canara Bank, which had reduced interest rates by 50 basis points on fresh home loans in October 2007, will cut floating interest rates by 25 basis points for new as well as existing borrowers from February 7, 2008. Allahabad Bank has also cut interest rates only for new borrowers by 50-100 basis points on home loans, loans for consumer durables, car loans and education loans from February 10, 2008.

Financial Market

Capital Markets

Primary Market

         The initial public offering (IPO) of Wockhardt Hospitals withdrew on February 07, 2008, after the company decided to pullout the issue, which has been, subscribed only 20 per cent on its last day. Wockhardt Hospitals became the first IPO casualty since July 2006, to be unable to gather sufficient investor interest. This can be explained partly by an offer price that was perceived to be stiff in the current primary market conditions and partly by the unexciting performance of the listed companies in this space. The offer was unable to garner subscriptions despite a downward revision in price band and an extension in the period of offer.

           Following the withdrawal of Wockhardt Hospitals issue, Emaar MGF Land also withdrew its IPO on February 08, 2008 due to lack of adequate response from investors citing adverse market conditions. NSE data showed that Emaar MGF IPO was subscribed 0.39 times. According to Mr Shravan Gupta, Executive Vice-Chairman and Managing Director, Emaar MGF Land , the decision to withdraw the IPO would help them in the long run rather than going ahead at this stage with an uncertain post-listing scenario, and they do not want investors to lose their money in the short term because of the prevailing market conditions.

           As per Thomson Financial, the global initial public offer (IPO) activity dipped to a three-year low in January 2008, with just 45 offers making their debut with volumes totaling $6.32 billion. The year-on-year IPO volumes in 2008 declined by 15.4 per cent from $7.46 billion mobilised in January 2007 from 65 issues. The data compiled by Thomson Financial show that if not for India ’s Reliance Power IPO, which raised nearly $3 billion, the global IPO market should have experienced a more significant decline.  Surprisingly, China and the US did not reach billion dollar proceeds in IPO mobilisations in January. Both nations experienced huge declines in amounts raised through IPO from China about 72.6 per cent and the US for 46.1 per cent. India topped the table globally with mobilisations of $3.12 billion from four issues this year, while Saudi Arabia (with $1.23 billion from a single issue), China ($706 million), the US ($690 million) and the UK ($170 million) ranked second, third, four and fifth, respectively.  India ’s share of the global primary market was 49.5 per cent, followed by Saudi Arabia (19.5 per cent), China (11.2 per cent), the US 10.9 per cent and the UK (2.7 per cent). Lower IPO volumes were attributed to the meltdown of equity prices worldwide by over 20 per cent in the middle of January 2008

          Risk aversion by investors towards the equity Markets, owing to the recent meltdown, along with high volatility has battered the recent IPO launches of Companies. For instance, the IPO of Tulsi Extrusion Ltd and IRB Infrastructures Developers Ltd, which closed on  February 05,2008, was fully subscribed but failed to elicit favourable response from retail investors. Similarly, the IPO of IRB Infrastructure Developers Ltd witnessed poor response from the retail category even when the issue managed to get subscribed by 4.30 times. The retail portion remained undersubscribed at 0.05 times with the issue receiving bids for 8.71 lakh shares against the reserved size of 1.52 crore shares.

          The city-based Microsec Financial Services Ltd, a diversified financial services company engaged in investment banking, retail brokerage (equity and commodities), wealth management, insurance broking, IPO and mutual funds distribution, proposes to enter the capital market with a public issue of Rs 160 crore. The company has filed the Draft Red Herring Prospectus (DRHP) with SEBI for the purpose.

          Bangalore-based Archidply Industries plans to raise about Rs 55 crore in the capital market through an IPO sometime in April. According to Mr Shyam Daga, Joint Managing Director, Archidply, the proceeds of the issue will be utilised to set up a Rs 43-crore manufacturing unit for plain particle, pre-laminated and decorative boards at Chintamani, near Bangalore and a Rs 32-crore manufacturing unit for medium-density fibreboard at Rudrapur in Uttarkand.

            Reliance Infratel, the tower subsidiary of Reliance Communications, has proposed to raise Rs 6,000 crore through an Initial Public Offering (IPO) and has filed the DRHP with the Securities and Exchange Board of India (SEBI). According to the DRHP, Reliance Infratel has proposed to offload 8,91,64,100 equity shares of Rs 5 each at a price that will be decided through the book building process.

           State-owned Rural Electrification Corporation proposes to raise up to Rs 1,640 crore through an IPO of 15.61 crore equity shares. The IPO opens on February 19 and closes on February 22. The price band has been set at Rs 90-105. At the lower end of the band, the company will raise Rs 1,400 crore and at the cap Rs 1,640 crore.

          Reliance Power is set to make its debut in the stock markets on February 11. The equity shares of the company will be listed on both the BSE and the NSE. The IPO was the largest to hit the Indian markets, where the issue was subscribed by about 70 times. Analysts and investors are wondering whether Reliance Power will list below the issue price in the current bear market, or above the issue price despite the bear market. The issue price was Rs 450 a share; retail investors received allotment at Rs 430 a share. The concern extends to whether the Reliance Power price will sustain, even if the company lists at a premium to the issue price.

Secondary Market

           There was immense volatility in the markets during the week despite a positive start the markets extended their losses for the fourth straight week as the major indices succumbed to unabated selling pressure in the latter half of the trading week as investors opted to book profits rather than making fresh commitments on slew of negative factors. According to market participants, fall in GDP growth, rise in inflation, sluggish global markets, a feeble response to the IPOs and fears of recession in the US took its toll on the share indices. The BSE Sensex, which, rallied to an intra-week high of 18,895, tumbled to a low of 17,203 - a fall of 1,692 points - and finally settled with a significant loss of 769 points (4.2 per cent) at 17,645. The NSE Nifty was also down by 3.7 per cent losing 197 points to 5,120.4 points on Friday, February 8. The BSE Sensex is down almost 18.5 per cent (3,363 points) in the last four weeks and is down by a whopping 3,741.88 points from a record high of 21,206.77 registered on January 10.

         BSE has decided to change the eligibility criteria for inclusion of scrip in A group effective from March 03, 2008.  The revised list would be announced on February 18. A total of 200 companies would find place in 'A' group. The BSE has also discontinued the division of group B into group B1 and B2. All companies not included in-group A, S or Z, will constitute group B.

         Mirae Asset Mutual Fund, an arm of South Korean asset manager Mirae Investments, is launching a diversified equity fund to mark its foray into the Indian market on February 11, 2008. Subscriptions to the Mirae Asset India Opportunities Fund’s new fund offer will close on March 10.  The open-ended diversified equity scheme will invest at least 65 per cent of its corpus in Indian shares and the rest in fixed income securities.  According to Arindam Ghosh Chief Executive Officer the fund house is bullish on the prospects of banking and financial services companies and also finds investments in power, capital goods and infrastructure sectors exciting.

         The Group on Review of Issue Process (Grip), the SEBI-appointed committee, on reforming the IPO process has suggested a vast number of measures to minimise the cost and time involved in the IPO process. These include using an ‘indicative price’ for the stock price discovery instead of the price band, mandating qualified institutional buyers (QIBs) to deposit 100 percent of the bid amount, in contrast to 10 per cent at present, and minimising the period between close of the issue and its listing to 7 days from 21 days. The committee has further suggested that Companies should be permitted to file draft offer with the SEBI even if they are yet to receive authority for issue of capital and the High Court approvals for mergers or de-mergers. The report suggests doubling the amount for retail investors to Rs 2 lakh of the application value. It has also recommended that allotment of shares to investors should be made on ‘proportionate basis’ using a software formula, rather than on discretionary basis and the issuer, or Companies going for IPO, should mention the ‘indicative price’ in the red herring prospectus instead of the price band. Retail investors can be given the option participating at a maximum of 1.2 times the indicative price. Retail investors can be given the option of participating at a maximum of 1.2 times the indicative price QIBs should submit 100 per cent of their bid amount, at par with retail investors. The report has also recommended reserving a separate quota for private insurers.  

         On January 30, 2008 SEBI given approval for the proposal, which states that henceforth, all mutual funds schemes shall meet the sales, marketing and other such expenses connected with sales and distribution of schemes from the entry load. The move by the market regulator SEBI for removal of charging and amortisation of initial issue expense in closed-ended mutual fund (MF) schemes has prompted fund houses to rush with their new fund offers (NFOs) under closed-ended category before the proposal comes in to force. Out of the 11 equity-linked NFOs, floated by major fund houses that are currently opened for subscription, 9 NFOs, are closed-ended funds.

         After missing the February 1 deadline, institutional investors may have to wait longer before they can sell short. Putting the onus back on market regulator SEBI for the delay in introducing short-selling by these investors, the Central Board of Direct Taxes (CBDT) has said it will make a move only after the scheme is launched.

         Despite the market mayhem, assets managed by MFs have dipped by a marginal

Rs 2,200 crore, or 0.4 per cent. As on January 31, they had assets worth Rs 5,52,000 crore under management from Rs 5,54,000 crore, including fund of funds, from a month ago, says a report of rating agency Crisil. NSE Nifty lost more than 16 per cent in January 2008 over the previous month. Of the 32 fund houses, 14 posted an increase in AUMs in January. Even though the market fall in January, mutual funds bought Rs 7,700 crore more equities. They bought shares worth Rs 3,000 crore in December 2007

          After 13 years, Morgan Stanley Investment Managers on February 7,2008 launched its second fund, Morgan Stanley ACE (Across Capitalisations Equity) Fund, which will invest in a portfolio of equity and equity-related securities, including equity derivatives.  The fund will be benchmarked against the BSE-200 and will be managed by Jayesh Gandhi, formerly with Birla Sun life Asset Management Company.

        On February 07, 2008 the stock market regulator of France, Autorite des Marches Financiers (AMF) and SEBI announced terms of cooperation and collaboration in order to promote efficient and transparent capital markets in India and France . The collaboration between the two authorities would include promotion of mutual regulatory understanding .The regulators would organise seminars in both countries to provide an in-depth presentation of their regulatory regimes. There would also be study visits, public conferences, visists of delegations, internships and improved cooperation in cross-border securities enforcement matters.

          SEBI started to reviewing share margin requirement system which has been receiving feedback on it. According to market players stiff margin norms accentuated the recent sharp correction on bourses. Market intermediaries are keen on SEBI introducing longer tenure of stock lending and borrowing contracts and inclusion of more stocks for short selling.

Derivatives

                  The derivatives market continued to exhibit a dangerous combination of low volumes and high volatility leading to a rise in the implied volatility of option premiums. The Nifty continues to swing by over 3 per cent per session, which means that day traders must reckon with 150-200 point moves. Volumes have started to concentrate in the index derivatives with the smaller F&O stocks all losing liquidity. In this situation, where even overnight positions may be dangerous, very few traders are prepared to even investigate the possibilities of the far-term and mid-term futures.  All the other indices had negligible liquidity in the mid or far term futures. Most were trading at discounts to the spot rates, which does suggest the short-term sentiment remains bearish.  The spot Nifty closed at 5,120 while the Feb Nifty futures was settled at 5,090 and the March and April series at 5,086 and 5,082 respectively. Open interest expanded across all three series but April open interest was not much in absolute terms. The differential between the spot and near-term was exceedingly high. But there are no calendar trades available with the current differentials between the futures' series. The Mini Nifty was settled at 5,091 (Feb), 5,087(Mar) and 5,100 (April) with very little open interest except in the near month.  The Junior closed at 9,740 in spot and it was settled at 9,706 in the near-term futures. A few contracts were cashed out leading to a small reduction in near-term open interest. The Bank Nifty closed at 8,817 in spot and it was settled at 8,814.6 near-term with a few contracts in the March futures at 8,952.4. The CNXIT closed at 3,961 and it was settled at 3,926. The Midcaps closed at 2,796.8 with the Feb contract settled at 2,809.

         In the Nifty options market, premiums are unsurprisingly high, given the extreme volatility. The put-call ratio is at 0.95, which is quite bearish. Both put and call open interest has been expanding. But there is lots of liquidity above and below the money.  A bull spread with long 5,200c (208.5) versus short 5,300c (166) costs 43 and pays a maximum of 57. A bear spread with long 5,000p (226.7) and short 4,900p (181) costs 45 and pays a maximum of 55.

Government Securities Market

Primary Market

         Under Market Stabilisation Scheme (MSS), RBI auctioned 12.25 per cent 2010, for the notified amounts of Rs.4,000 crore at the cut-off yields of 7.52 per cent on February 07, 2008.

      On February 06, 2008, 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 7.27 per cent each respectively.

          RBI re-issued 8.20 per cent 2022 and 8.33 per cent 2036 for Rs. 5,000 crore and Rs. 4,000 crore on February 08, 2008, at the cut-off yields of 7.62 per cent and 7.77 per cent, respectively.

Secondary Market

       The call money rates ruled during the week at a lower range of 5.9-6.37 per cent , up from the previous week’s range of 6.86-7.35 per cent. Even on the second reporting Friday of the month, the call rate ruled at 6.02 per cent as banks had already covered their positions.

         Trading in India ’s government bonds rose to a record in the month of January as demand for debt increased on speculation that policy makers will cut borrowing costs for the first time in five years.  According to data from Clearing Corporation of India , transactions climbed to Rs 3.14 trillion ($80 billion), triple the monthly average for 2007. The benchmark yields fell to the lowest in a year in January on speculation that slower inflation and signs of faltering global growth will add pressure on India ’s central bank to lower its benchmark rate.  Trading increased from Rs 1.38 trillion in December and Rs 867 billion in January 2007. The previous monthly record for trading of Indian debt was Rs 2.3 trillion in July. Transactions totaled more than Rs 219 billion on January 22, the most in a day. The yield on the most-traded 7.99 per cent 2017 fell 28 basis points on January, the most since July. The weighted average ten-year YTM ended the weekend at 7.46 per cent, down from the previous week’s 7.52 per cent.

         Despite MSS absorptions, the reverse repo bids tendered and accepted ranged between Rs 6,690 crore and Rs 43,150 crore implying improved liquidity situation.  Even dated securities were auctioned during the week for an aggregate amount of Rs 13,000 crore: 8.20 per cent 2022, 8.33 per cent 2036 and 12.25 per cent 2010 at cut-off yields of 7.62 per cent, 7.77 per cent and 7.52 per cent respectively.

Bond Market

          During the week under review, two development finance institutions and two non-banking financial companies have tapped the market by issuance of bonds. 

          Housing Development Finance Corp Ltd tapped the market by issuing bonds to mobilise Rs 700 crore by offering 9.20 per cent for 18 months. The bond has been rated AAA by Crisil and Icra.

        Infrastructure Development Finance Co Ltd tapped the market by issuing bonds to mobilise Rs 150crore by offering 9.05 per cent and 9.10 per cent for 5and 10 years respectively. The bond has been rated AAA by Crisil, Icra, and Fitch.

        National Capital Region Planning Board tapped the market by the issuance of bonds by offering 8.98 per cent for call at the end of 10 years for an amount of Rs 200 crore.  The bond has been rated AAA, AAA (so) by Crisil and Fitch.

        Power Finance Corporation tapped the market by the issuance of bonds by offering 8.96 per cent and 8.98 per cent for 3 years and 5 years respectively, with a step-up of 50 bps through book building for an amount of Rs 300 crore. The issue has been rated AAA by Crisil and Icra.

         According to research report of City of London Corporation, on the Indian corporate debt market, is that a true corporate debt market in India was even smaller than it appeared because much of what was classed as corporate debt was either raised by the public sector or by financial institutions to lend on to the corporate sector. In its suggestions on a practical model for the bond market, the report said that stamp duty, being the largest barrier to the development of corporate debt and securitisation markets, should be reformed at the first place. It also recommended relaxing exchange controls on corporate bonds and suggested reforming the disclosure for public offers.  The research report on development of India ’s corporate debt market advocates less rigid investment mandates for life assurance and pension sector institutions.

Foreign Exchange Market

           Despite the large flows, the rupee-dollar exchange rate depreciated. The reason stemmed from bunched payment dues of public sector oil companies. In addition, there were also large debt service outflows on corporate external commercial borrowings. The dollar, as a result, firmed to Rs 39.55 towards the week-end. Forward premia, despite this trend, went into a premium up to three months. The premium implied that forward dollars were cheaper than spot. Traditionally, forward rupee has remained at a discount or more expensive than spot against the dollar. The switch to a premium was largely on account of forward cover by exporters. As a result, forward premia for one month and three months were at a premium of 2.43 per cent (1.52 per cent discount) and 1.01 per cent (2.34 per cent) respectively. The discounts for six months and 12 months crashed to 0.66 per cent (2.08 per cent) and 1.01 per cent (1.78 per cent). The RBI’s interventions in the foreign exchange markets were restrained in view of large purchases by oil companies.

The Reserve Bank of India (RBI) has stopped banks from selling exotic foreign exchange derivatives amid a flood of complaints by companies hurt by large losses. The central bank has told banks that they should sell only vanilla rupee-dollar derivative products from now on and that too only for hedging corporate foreign currency exposures, not for trading. The regulator's Foreign Exchange Department recently pulled up representatives of banks against whom the RBI had received complaints for selling their clients exotic products when they were supposed to offer plain vanilla products. Estimated losses suffered by companies that had opted for complex derivative products exceed Rs 1,000 crore.

Commodities Futures derivatives

          The Foward Markets Commission (FMC) has become an independent regulator after President Pratibha Patil signed the ordinance amending the Forward Contracts (Regulation) Act (FCRA), 1952, on January 31. According to FMC Chairman B C Khatua, there were no changes in the bill, and the ordinance would be tabled as a bill in Parliament in the forthcoming budget session. The ordinance will pave the way for introducing options trading in commodities and index-based futures and options. FMC and FCRA were conceptualised in the fifties.

          Financial Technologies is in talks with the Singapore government to set up a bourse in the south-east Asian country after successfully operating a commodity exchange in Dubai dealing primarily in gold. In the joint venture, Financial Technology, which is the main promoter of India 's largest commodity exchange MCX, is likely to have a 49 per cent stake. The Singapore Exchange would be modelled on the lines of Dubai Gold and Commodities Exchange (DGCX). There are two commodity exchanges in Singapore - Joint Asian Derivatives Exchange and Singapore Commodity Exchange, which trades in rubber and crude palm oil. There are reports that Financial Technologies are in talks with the Monetary Authority of Singapore to set up a commodity exchange in Singapore . It is expected to be ready for launch in the next few days. In India , FT group promoted MCX, a demutualised national commodity exchange. The exchange started its operations in November 2003 and at present; it is the top commodity exchange in the country with 70 per cent market share. The exchange ranks among the top three bullion, energy and copper exchanges in the world in terms of contracts traded.

         Chana spot and futures prices on the national bourses may rule firm due to continued buying by millers and stockists amid concerns of a likely lower acreage in current Rabi season. MCX February and April 2008 contract traded around Rs 2,280 a quintal and Rs 2,430 a quintal, respectively, mainly on expectation that this season's output may fall between 2 lakh tonne and 2.5 lakh tonne. Chana acreage for Rabi crop is slightly lower at 79.31 lakh hectares against last year's area of 83.08 lakh hectares as on January 28, 2008.

Insurance

Societe Generale has entered into a joint venture with IndiaBulls Financial Services for a life insurance joint venture in India through its French life insurance company Sogecap.

Corporate Sector

As part of its expansion plans, IT services company, KPIT Cummins is planning to set up a new development facility at Pune at an investment of close to Rs 80 crore, is expected to be operational by September 2008.

Volkswagen plans to launch the mid-sized sedan and Jetta by mid-2008 and an India-specific small car by 2009.

Swiss cement maker Holcim is investing about Rs 10,000 crore in the next five years to set up plants and raise capacity by 25 million tonnes in the country. The company is in India through ACC and Ambuja Cements, in which it had acquired controlling stakes. As on December 31, 2007, the company had a production capacity of 45 million tones. The company has 24 plants in the country and enjoys a market share of about 23-25 per cent. Holcim has manufacturing facilities in 70 countries with a capacity of over 200 million tonnes.

Japanese firm Suzuki plans to roll out a 125cc scooter by September, a 150cc motorcycle and its flagship pro bike Hayabusa by March 2008.

Mahindra and Mahindra (M&M) will launch a premium SUV, a multi-utility vehicle-Ingenio, LCV's and heavy duty trucks and trailers in collaboration with International Truck and Engine Corporation (ITEC), and passenger cars in a JV with Renault.

Telecom

Reliance Infratel, the tower subsidiary of Reliance Communication (RCom), will build 56,596 telecom towers by financial year 2010, increasing the total number of towers of 1 lakh.

  India ’s booming mobile services market will see investments of over Rs 100,000 crore (around $24 billion) by 2010, the fastest investment ramp-up seen in any telecom market globally. The investments include between Rs 48,000 crore and 60,000 crore from six new telecom companies (including Reliance and Tata’s proposed GSM mobile services) over 12-24 months to create capacity for 250 million more mobile subscribers.

The Department of Telecom (DoT) has offered letters of intent (LoIs) for unified access service licences (UASL) to 9 companies among 45 applicants. Around eight of these companies paid the required licence fees and bank guarantees. However, DoT has not yet allocated spectrum to the new players. As a result, the new aspirants are unable to launch mobile services as a specified band of spectrum, i.e. radio frequencies, are required to enable wireless communications. Telecom analysts estimate that the government has received around Rs 6,500 crore from non-refundable licence fees from these nine companies.

At the end of December 2007 the total broadband connections in the country have        reached 3.13 million as against 2.05 million in December 2006 (Table 5.3). The additions during the first nine months of the current financial year was 0.79 million as compared to 0.70 million during the corresponding period in the previous financial year. The total increase in broadband subscribers from January to December 2007 has been 1.08 million as compared to addition of 1.20 million during 2006.   

*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.