Growth of the Primary Market

Highlights of  Current Economic Scene

AGRICULTURE  

According to the estimation of Food and Agriculture Organisation (FAO), India ’s cereal output in 2007-08 is likely to rise by 3.5 per cent to 249.9 million tonnes compared with 241.7 million tonnes last year. Production of paddy is expected to rise marginally to 140 million tonnes in 2007 against 139.1 million tonnes previous year. Similarly, coarse grains output is estimated to rise by 5.12 per cent to 34.9 million tonnes. While wheat output is expected to augment by 8 per cent to 75 million tonnes against the government estimates of 72 million tonnes.

As per Food and Public Distribution, central government has allowed the state governments; through an advisory to supply 50 per cent of wheat supplied through public distribution system (ration shops) in the form of flour.

According to International Grains Council Estimates, India would import 3 million tonnes of wheat in the next fiscal year 2008-09, as its production is likely to fall below the target of 75 million tonnes. Further it would have to import wheat for the next three-four years to meet shortages occurring with in the country. The country is importing 1.8 million tonnes of wheat in 2007-08. However, it is expected that India wont be a major wheat importer in the long run.

The central government is currently negotiating with wheat growing countries, so that it would help to import grain at lower cost. State agencies are likely to purchase 400,000 tonnes of wheat from Kazakhstan to replenish stocks.

As per Food and Disaster Management, central government has banned exports of non-basmati rice on February 7, 2008, to keep prices stable in domestic market. The ban put forth would not affect the deal assigned with Bangladesh , last year after affecting by cyclone. West Bengal Essential Commodities Supply Corporation Limited would be supplying 500,000 tonnes of non-basmati rice to Bangladesh with an average price of US $ 399 per tonne.

According to data compiled by Solvent Extractor Association (SEA), India’s vegetable oil imports totalled at 12,46,441 tonnes during the first quarter of the current oil year (November- January) 2007-08, as compared with 10,91,006 tonnes a year ago. Edible oil imports during the same period increased by 16 per cent to 1,081,703 tonnes as compared to that of 932,214 tonnes during the corresponding period last year. Imports of non-edible oil raised marginally by 4 per cent to 164,738 tonnes during November- January 2007-08 from 158,792 tonnes previous year. Imports of refined oil grew by 4 per cent to 48,032 tonnes in the period, while crude oil imports increased from 908,725 tonnes to 1,033671 tonnes. Palm oil import during the same period was up by 13 per cent to 990,453 tonnes compared with 737,528 tonnes for the corresponding period a year ago. On the other hand, soft oil imports declined sharply from 194,686 tonnes to 91,250 tonnes.  

According to commissioner of sugar from Maharashtra , the state is likely to produce 6 million tonnes of sugar for the year ending September 2009, showing a drop of 30 per cent against that of revised estimates for the current year. This drop in output would be due to lower coverage under cane crop and possible diversion of sugarcane directly to ethanol production. The state has produced 4.6 million tonnes of sugar from October 2007 upto February 11, 2008. The crushing of sugarcane was delayed by more than one month during the current season, leading to fall in the production at 8.5-8.6 million tonnes against that of 9.1 million tonnes a year ago.

As per the figures available from Office of Textile Commissioner, total production of yarn including cotton and blended yarns in India increased by 6.41 per cent to 2,339.3 million kg during the period between April-October 2007-08 as against 2,198.2 million kg during the same period previous year. Production of cotton yarn went up by 6.45 per cent at 1721.6 million kg as compared with 1,617.4 million kg a year ago during the same period. While, blended and non-cotton yarn production increased by 6.35 per cent at 617.7 million kg from 580.8 million kg over last year. During the review period yarn stock has increased to 166.7 million kg in September 2007 from 130.1 million kg in April 2007, showing an increase of 36.6 million kg. 

Coir Board has launched a scheme for promotion and marketing of coir products, under which it would set up authorized retail outlets (AROs) across the country in the phased manner. Under the scheme, quality coir products would be sold through the AROs. Consumer can purchase coir products as well as place orders with these outlets. Initially, few outlets would be selected in Kerala for promotion and marketing of coir products.

The regional station of Indian Agricultural Research Institute (IARI) would be releasing new hybrid cabbage seed in March 2008 for commercial cultivation, which would boost yield upto 40 per cent. Further they are concentrating to develop seeds for cauliflower, capsicum, carrot, paprika and tomato.

 According to the data compiled by the Tea Board, India ’s tea production has declined fractionally by 1.2 per cent in 2007 to 944.7 million kg as compared with 955.9 million kg a year ago, due to prolonged dry weather followed by heavy rains affecting the tea crops in almost all growing areas. In north India , tea output declined by 4.9 million kg to 724.7 million kg, of this Assam reported a fall of 3.8 million kg to 479.9 million kg. While in south, the output dipped by 6.3 million kg to 220 million kg, out of this Tamil Nadu had a marginal increase of 0.9 million kg to 153.2 million kg, on the other hand Kerala witnessed a fall of 6.9 million kg to 61.8 million kg. Exports of tea have been dropped by 30 per cent to 156.71 million kg in 2007 as compared with 218.74 million kg a year ago, due to fall in shipments to Iraq and Pakistan .

According to Marine Products Export Development (MPEDA), India’s fish exports have fallen by 19.3 per cent in the period between April- December 2007 to 392,939 tonnes valued at Rs 5,701.42 crore as compared with 486,895 tonnes valued at Rs 6,659.22 crore during the same period a year ago. This downfall is attributed due to poor fish landing and harvesting in costal areas of eastern and western regions. 

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 sect oral 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 4.07 per cent for the week ended February 02,2008 as compared 4.11 per cent as on February 3,2007.

Index of Primary Articles group remained stationary at 223.6 the same as in  the previous week. Food articles group declined by 0.2 per cent. Index of non-food articles rose by 0.6 per cent mainly due to higher prices sunflower, soybean and niger seed.

The index for the major group Fuel, Power, Light and Lubricants declined by 0.1 per cent due to lower prices of furnace oil and aviation turbine fuel and naphtha.

The index of manufactured products declined by 0.1 per cent due to lower prices of blended tealeaf, oil cakes maida ghee.

The final WPI for all commodities had been revised upward from 215.9 to 216.3 for the week ended December 08,2007. As a result the rate of inflation calculated on a point to point basis stood at 3.84 per cent as compared to 3.65 per cent provisional.

Banking

State Bank of India and Canara Bank has cut their benchmark prime lending rate (PLR) by 25 basis points to stimulate demand for credit which has slowed down. While SBI has cut its PLR to 12.5 per cent, Canara Bank has reduced it to 13 per cent. The new lending rates will be effective from February 16, 2008.

Bank of India plans to use the capital it has recently raised through qualified institutional placement (QIP) for funding credit growth, new business such as insurance and asset management and acquiring a small bank overseas. The bank has recently mopped up Rs 1,360 crore by placing 3.77 crore shares, each of Rs 10 face value, at a premium of Rs 350 a share.

Financial Market

Capital Markets

Primary Market

A somber mood prevailed at the listing ceremony of the Anil Dhirubhai Ambani Group (ADAG) company Reliance Power at BSE on February 11,2008 with the share price falling to as low as Rs 355.30 on the NSE before recovering to Rs 372.30 against the IPO price of Rs 430 (for retail investors). The Reliance Power listing was a big disappointment for retail investors, who applied heavily for the initial public offers (IPO). Reliance Power, whose IPO made history on the Indian stock exchanges in January, sent ripples through the market when it closed 17 per cent below allotment price on listing day.         With R-Power stock struggling to close above the Rs 350 level against the issue price of Rs 450, some of the clients are refusing to honour the deals in grey market for (IPO). A similar payment crisis in the grey market was witnessed in 1992-93, when a scheme of Morgan Stanley was listed on the stock bourses. In an unprecedented move, Reliance Power is considering a bonus issue for its non-promoter investors, to appease those who had lost out after the company’s IPO fared poorly on listing. A board meeting to finalise the modalities has been convened on February 24. A company release said the bonus shares would reduce the holding cost of the investors in the IPO. On January 18,2008 the issue had raised a record Rs 7.50 lakh crore from around 500 institutional and five million retail investors before closing.

        Following the withdrawal of high-profile IPOs – Emaar MGF and Wockhardt due to poor investor response last week, the lead mangers of Hyderabad based SVEC Constructions Ltd have also decided to withdraw the IPO, which was to close on Wednesday, February 13,2008. As on Tuesday, despite the company had reduced the price band and extended the deadline, the issue was subscribed only by 25 per cent.

          GSS America Infotech Ltd IPO opened on February 11,2008 and closed on February 15. The company is offering 34.9-lakh equity shares to the public and the price band is fixed between Rs 400 to Rs 440. Another company that is braving the choppy markets is Kerala based V-Guard Industries Ltd. The company has set the IPO dates for February 18 with an issue size of 80-lakh equity shares. The price band is fixed between Rs 80 and Rs 85.The company is expecting to raise Rs 68 crore at the upper end of the price band and Rs 64 crore at the lower end.

          Rural Electrification Corporation too will be going ahead with its issue, which will be opened on February 19 and close on February 22. The company plans to raise about Rs 1,600 crore from the issue. The company has fixed the price band between Rs 90 and Rs 105. The company is a state-run non-banking financial company that extends credit to power projects primarily in rural areas.

         Financial services company Artherstone Capital Markets has announced the launch of two IPO indices that are expected to serve as a new investment class for the global institutional investors in India . Artherstone is a SEBI registered investment bank providing investment banking and advisory services to corporates and institutions.

        Globus Spirits, a company involved in the business of manufacture, sales and marketing of Indian made foreign liquor, industrial alcohol and country liquor, is planning to tap the capital markets with an IPO of Rs 68 crore. The company has not set any definite dates for the issue and has not decided on the price band yet but the IPO will hit the markets in another two to three weeks time.

          Hyderabad-based infrastructure and real estate company Indu Projects (IPL) is planning to launch a IPO, in the range of Rs 700 crore-Rs 1,000 crore, in the next couple of months.  The company is in the process of submitting a draft red herring prospectus (DRHP) to the SEBI.

Secondary Market

          The Reliance Power IPO debacle almost decided the volatile fate of the bourses at the beginning of the week. Moreover, the week started on a lower note, the BSE Sensex covered some lost ground in the later sessions. India ’s benchmark index reversed early losses to post its first weekly gain in five weeks after Prime Minister Manmohan Singh said that record economic growth would be maintained. The index was also helped by inflation, which accelerated less than anticipated. Overall, the BSE Sensex gained 650.4 points or 3.7 per cent to end the week at 18,115.3 points, while the NSE Nifty followed suit with a gain of 182.6 points. However, the mid-caps and small-caps were steady.

         Among the sectoral indices of BSE most of the indices gained over the week with the exception of BSE Teck and Consumer durable. The hike in fuel prices ensured good time for oil stocks while power, capital goods and real estate remained in the limelight over domestic growth. Among the gainers, reality stands for the highest with 7.29 per cent followed by bankex and metal at 7.14 and 6.96 per cent respectively.

          From the beginning of calendar year 2008, FIIs have reduced their exposure to the Indian market by selling equities worth Rs 13,666 crore (over $3.5 billion) till February 15,2008. But the number of FIIs registered with SEBI has risen significantly. In the first one-and-half-months of the year, 68 new FIIs have registered. Of the 68 new FIIs, those from the US continue to lead the pack with 22 entities. This number is noteworthy as it is almost a third of the total number of FIIs registered with SEBI as compared with the calendar year 2007. In 2007, 226 new FIIs entered the Indian market and pumped over $17 billion which has now jumped to 1,287 against 1,219 until December 2007. Subsequently, the number of sub-accounts registered with SEBI has also gone up by 194 to 3,838 in February 2008 from 3,644 in December.

        Foreign capital flows into India ’s debt markets will continue to be controlled till wedges on account of higher inflation and interest rates narrow significantly, according to Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan. RBI’s approach with regard to capital account has made a distinction between debt and equity, with greater preference for liberalisation of equity markets vis-a-vis debt markets. Equity markets provide risk capital and this can be beneficial for growth.   

        The Parliamentary Standing Committee on Finance is understood to have called for a meeting of various regulators, market participants and exchanges to look into various operations and guidelines prevalent in stock markets in view of the recent volatility and declining indices. The drop in the stock market started on January and has continued since then. The panel’s move follows complaints by brokers that the steep margining system of exchanges had led to a cascading fall in the equity market.   

      The stock market regulator, SEBI has stated that art funds cannot be set up without obtaining a certificate of registration from it. Failing this, the regulator can take civil or criminal action against the funds or companies. Art funds raise resources to invest in works of art that are later sold depending on the time horizon of the fund to garner returns for its investors. According to SEBI, art funds are collective investment schemes (CIS) as defined under Section 11AA (2) of the SEBI Act, 1992. Only a company that has been granted certificate of registration by SEBI can launch or sponsor a CIS. 

      The Central Board of Direct Taxes (CBDT) has proposed several measures that are expected to have far-reaching implications for the capital market. In its pre-Budget proposals to the finance ministry, CBDT has sought an amendment to Section 115 AD of the Income Tax Act so that all foreign institutional investors (FIIs) pay capital gains tax on their profits in India . The apex tax body has said that the exemption of income from long-term capital gains on sale of shares be restricted to the stocks in the BSE 500 index to avoid rampant manipulation in so-called penny stocks. CBDT has also sought a clarification from the ministry on whether derivative market transactions should be taxed as speculative deals, capital gains, or business income.   

       According to financial market data provider Standard and Poor’s, India became the fourth worst performer among the emerging markets in the first month of 2008, with a loss of nearly 16 per cent, after emerged as one of the top performers in the equity markets in 2007. The global stock markets lost a whopping 5.2 billion dollars as bearish sentiment prevailed across both emerging and developed markets, marking one of the worst ever starts to a new year.  While the developed markets registered a loss of 7.83 per cent during the month, the emerging markets lost 12.44 per cent.  All the 26 developed markets posted negative returns, with 16 of them losing over 10 per cent. The overall trend in emerging markets was also disappointing despite the gains seen by Morocco (10.17 per cent) and Jordan (3.11 per cent). Among the developed markets, the US and UK lost 6.07 and 8.85 per cent respectively.                

Derivatives

        The derivatives market continued its pattern of low-volume allied to high-volatility. The action in derivatives has mirrored the pattern in the cash market. Volatility remains very high with the Nifty swinging over 3.3 per cent on a daily basis. Low volumes have exacerbated this volatility and in turn, it has led to high premiums and margins. Both foreign and domestic institutional investors were net sellers through most of the week in the cash market. The key indices saw a pattern of futures trading at discounts to spot. The Nifty was held at 5303 in cash and settled at 5291 in the February contract and at 5273 in March and 5277 in April. A large number (2.8 lakh) of February contracts were extinguished while 1.9 lakh new March contracts were opened. The Mini Nifty settled at 5292, 5277 and 5279 in the three respective contracts with lower open interest in all three. However, in absolute terms open interest was healthy across all three months. 

       In other index futures series, there was no liquidity in the mid-term or long-term contracts. The Nifty Junior closed at 9927 in spot and settled at 9875 in the February contract. The Midcaps closed at 2801 with the February contract settled at 2805. The Bank Nifty held at 9380 in spot and settled at 9375 in February and at 9424 in March with negligible triple-digit open interest. The CNX IT closed at 3956 and settled at 3941 in the February contract. 

Government Securities Market

Primary Market

        On February 13, 2008, RBI auctioned 91-day and 364-day T-bills for the notified amounts of Rs.2,500 crore (out of which Rs.2,000 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 7.27 per cent and 7.48 per cent respectively.

       Under Market Stabilisation Scheme (MSS), RBI auctioned 6.57 per cent 2011, for the notified amounts of Rs.4,000 crore at the cut-off yields of 7.48 per cent on February 14, 2008.

       Thirteen State Governments auctioned 10-year paper maturing in 2018, through an yield based auction using multiple price auction method on February 15, 2008 at cut-off yields ranging from 7.93-8.02 for an aggregate amount of Rs. 7,778.98 crore.

Secondary Market

       Call rates held to a steady range of 5.64- 6.21 per cent. The market was not flush with surplus cash, but the situation was comfortable to meet demand. The liquidity adjustment facility (LAF) window indicated that surplus cash was not spread widely in the system. Late in the week, the RBI also received a repo bid.  On a daily average, the RBI absorbed Rs 9,870 crore through reverse repos over the week. Cash was sucked out by a slew of auctions in the last fortnight. The short-term tightening was evident from the reduced recourse to the reverse repurchase window at the weekend LAF auction. There were only four bids for Rs 7,585 crore at the reverse repo window. But there was a single bid for Rs 100 crore for the repurchase window.

       The secondary market activity remained subdued in the second week of the month on account of liquidity crunch. Average daily volumes continue to hover around Rs 350 crore.

Bond Market

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

       Punjab and Sind Bank tapped the market by issuing lower tier II bonds to mobilise Rs. 100 crore by offering 9.10 per cent for 10 years and 3 months. The bond has been rated AA-& AA by Crisil and Icra.

       Rural Electrification Corp Ltd tapped the market by issuing bonds to mobilise Rs. 500 crore by offering 9.07 per cent for 10 year. The bond has been rated AAA by Crisil.

        Kotak Mahindra Prime Ltd tapped the market by issuing bonds to mobilise Rs. 50 crore by offering 10 per cent for 10 year. The bond has been rated AAA by Crisil and Care.

        Himachal Pradesh State Electricity Board tapped the market by issuing bonds to mobilise Rs.78 crore by offering 9.30 per cent for 7 year with call at the end of 5^th year. The bond has been unrated.

       Andhra Pradesh State Finance Corporation Ltd tapped the market by issuing bonds  to mobilise Rs.150 crore for 10 year by offering 8.50 per cent with a step-up of 20 bps if call is not exercised at the end of 5^th  year. The bond has been rated A(SO) and A+(SO) by Crisil and Fitch.

          Housing Development and Infrastructure Ltd tapped the market by issuing bonds to mobilise Rs. 300 crore by offering 13.25 per cent for 2 year. The bond has been rated A Care.

         The mood in the bond market was insipid due to limited trading interest. Marginal profit booking was witnessed across the curve, widening the spreads accordingly. Much anticipated hike in fuel prices received muted response from bonds.

         The finance ministry is considering a proposal to abolish the stamp duty on electronic issuances of bonds and debts by corporate houses. Capital market regulator SEBI had, proposed the abolition of stamp duty for such debt issues in the forthcoming Union Budget. SEBI wants to introduce electronic issuances for the bond market and has already held preliminary discussions with the stock exchanges. Trading in the corporate debt market is mainly undertaken through private placement.

        According to a crisil study the default rates of debt issuers have declined over the past 8 years (2000-2007) compared with those considered for the period between 1992 and 2007.  The rating agency has released the study on its ratings experience in the default and transition ratings of both short-term and structured securities in the country in the last 16 years.  The data used for the study covers a period of weakened credit quality (1995-1999) as well as one of improving credit quality (2000-2007).  In the current edition of the Default Study (2007), Crisil has considered the data relating to 1,669 issuers for structured finance securities spread over a period of 11 years from 1997 to 2007.   

Foreign Exchange Market

          The rupee-dollar forward premia reversed the shrinking trend as international oil prices moved up. The discounts, forward dollar being cheaper than spot, narrowed, as the rush for forward cover grew. Public sector refinery purchases pushed up spot dollar higher to Rs 39.66, up 11 paise over the previous week-end. The forward discount for one month shrank to 0.91 per cent from the previous week’s 2.43 per cent. Similarly, the discount of 1.01 per cent for three months turned to a premium of 0.2 per cent. For six months and one year, the premium widened to 0.78 per cent (0.66 per cent) and 1.08 per cent (1.01 per cent). With the rupee moving down, there was little intervention from the RBI. In fact, during the whole week, RBI did not intervene in the foreign exchange markets.

       The Reserve Bank of India (RBI) has raised several concerns over the government’s proposal to use the existing infrastructure of stock exchanges for introducing currency futures. In its technical advisory committee meeting with market participants on February 13, 2008, RBI said that foreign exchange and related activities should be isolated from all other businesses of exchanges and for the participants in the market like banks or brokers. Further, any existing exchange, even if allowed to float a platform for currency futures, should have a diversified shareholding pattern. NSE and MCX have reportedly applied for currency futures trading. Besides the regulations and the use of the trading platform, all other norms for currency futures in the final draft will remain similar to the draft guidelines issued by RBI.  In its draft proposal, RBI had favoured the standalone platform for currency futures while the government is supporting use of existing exchange infrastructure.  According to the government, it will involve lot of additional cost and time to develop independent platforms just for currency futures trading. In response to this, RBI said that exchanges could float separate bourses for the currency futures business, as it would become a wholly owned independent subsidiary with separate books. The structure will be similar to the Chinese wall maintained by banks in their primary dealer business. There should separate prudential and operational guidelines for the participants and platforms independent of the exchanges. Moreover, the authority for regulating such platforms should be clearly spelt out since foreign exchange management is an sole purview of the central bank.  Further, RBI regulates banks who would be the major participants in the currency futures business.

Commodities Futures derivatives

         NYSE Euronext, the parent company of the New York Stock Exchange, has bought 5 per cent stake in the MCX, from Financial Technologies (FTIL) for about Rs 220 crore. This will be NYSE Euronext's second foray in India after buying 5 per cent in NSE for $115 million in 2007 .The deal was signed at an enterprise value of $1.1 billion (Rs 4,400 crore) at which FTIL recently divested equity to ICICI Venture, Kotak and IL&FS. With this strategic equity sale, the total foreign direct investment (FDI) in MCX has gone up to 22 per cent while FTIL’s holding has come down to 32 per cent.   

             Rapid rural infrastructure development may be the cornerstone for the big push in agriculture, but the government is disinclined to accord an across-the-board infrastructure status for commexes and their subsidiaries as well as corporate houses that invest substantially in rural infrastructure building and upkeep. The government could announce more incentives to states to amend their APMC Acts speedily which allow easier modes of land lease by farmers to industries. According to Former FM Yashwant Sinha, some agri infra sectors are open to 100 per cent FDI already. An across-the-board Infra status, with all accompanying tax benefits, vis a vis all rural infrastructure, is liable to be misused, cautions to be taken to go, segment by segment.  Provision of Infrastructure status to commodity exchanges, and allied agricultural infrastructure facilities and declaration of investment in spot and futures exchanges, warehouses and quality test labs as infrastructure investment are the two key decisions which commixes have been pushing aggressively.

         The National Multi-Commodity Exchange (NMCE) has launched new series for futures contract in turmeric, soy oil and guar seed with effect from Monday, February 11. The three new series, called June 2008 contracts in respective commodities will expire on June 20, 2008, while the delivery period for each will begin three days prior to that on June 17. ). At present NMCE runs futures contracts in 104 series in 27 commodities, notably rubber, pepper, cardamom, raw jute, sacking, menthol crystal, metals, castor seed, other oilseeds and their derivatives.

         The Multi Commodity Exchange (MCX), the country’s largest commodity exchange, is planning a sub-registry to keep accounts of carbon-emission reduction receipts (CERs) a certificate issued by the United Nations Framework Classification for Fossil Energy and Mineral Resources (UNFC) for reducing the release of obnoxious gases into the environment. MCX is exploring the possibility of keeping such confidential records in order to avoid dependence on others.  Meanwhile, the exchange is also scouting for financial institutions, including non-banking financial companies, to trade large-scale in carbon credits, an intangible commodity.   

           The higher than estimated output coupled with the weakening domestic and overseas demand for the new cumin seed (jeera) crop have seen the commodity decline substantially in the spot as well as the futures market.  Jeera slumped 10 per cent in one week as traders kept away from the domestic market because of the cold weather conditions. At the National Commodity & Derivatives Commodity Exchange (NCDEX), however, the commodity is trading at Rs 9,000, Rs 9,282, Rs 9,463 and Rs 9,761 a quintal for February, March, April and May delivery, respectively.

         Trading in agri commodities on the futures platform received a boost following the decision of the Forward Markets Commission (FMC), the commodity markets regulator, to increase the open position limit and reduce the daily price limit on all commodities on February 12, 2008. The FMC has decided to cut the daily limit by which a commodity can rise or fall by 2 percentage points to 4 per cent to reduce volatility. According to the National Commodity Exchange statement, the new limit will be effective from February 18, 2008. The regulator has also raised the absolute number of contracts that exchange members and their clients may hold in farm commodities. The figures vary by commodity, like for sugar it will be doubled to 60,000 contracts. The move is expected to increase market participation and rationalise the price discovery mechanism.  The enlarged holding limits may help the country’s 23 exchanges boost trade in farm commodities after a ban on wheat and lentil trading and curbs on the size of investors bets stalled growth. According to analysts, this would sent the right message to the market and confirm the government’s commitment towards farmers to enable them discover a fair price for their commodities in the futures platform.

          Despite record prices, gold continued to appeal Indian investors throughout 2007 with total demand increasing 7 per cent to 773.6 tonnes from 2006. According to data compiled by London-based Gold Field Minerals Services (GFMS) for the World Gold Council (WGC), the combination of a robust economy and buoyant stock market helped fuel purchases of the metal during the first eight to nine months of the year, despite gold breaching the psychologically significant level of Rs 9,000 per 10 grams in September. Jewellery demand in 2007 accounted for 558.2 tonnes, a rise of 6 per cent from 2006. Investment demand continues to be encouraged by the rising price of gold, which generated returns of around 16 per cent in rupee terms during 2007. Indeed, during 2007, annual investment demand in India was the highest on record having more than doubled since 2004.

        FMC has rejected the samples of cumin seed (jeera) collected from the National Commodity and Derivatives Exchange (NCDEX) godown on September 2007.  According to B C Khatua, FMC Chairman the jeera samples have failed and they have sought clarification from NCDEX. The quality of jeera at the NCDEX godown had stirred a hornet’s nest, with traders in Gujarat going on a day-long strike alleging that cumin seed of inferior quality was being dumped in Jodhpur godowns.  Meanwhile, a senior NCDEX official clarified that the commodity exchange and FMC had taken measures to resolve the issue of inferior quality cumin seed and that buyers had taken deliveries.   

      On February 16, 2008 National Multi-Commodity Exchange(NMCE) has relaunched its mustard seed futures with changes in contract specifications as per industry demands. Acording to Kailash Gupta, managing director, a re-launch of the mustard contract was necessary as the earlier specifications were found unsuitable by industry players, as they had multiple basis delivery centres and small trading units. The old basis centres and trading units have been done away with and replaced with those more in sync with industry requirements.

Corporate Sector

Power equipment maker Thermax has entered into a technical collaboration with Babcock and Wilcox Power Generation (B&W PGG) to foray into manufacturing and supply of utility boilers of up to 800 MW used to power thermal plants. B&W PGG, based in the US , is one of the oldest power equipment manufacturers in the world. The deal gives Thermax the right to design, manufacture and sell sub critical B&W Radiant utility boilers in India .

HDFC Bank has signed a $7.4 million, three-year strategic enterprise agreement with Symantec for IT compliance, enterprise security and storage management solutions. Symantec will also provide HDFC with consulting and implementation services.

Aircraft manufacturer Boeing is negotiating with the country’s two major carriers Air India and Jet Airways for 60 aircrafts. The combined deals are expected to be valued at $15 billion. Most of these aircraft are being bought for use on international routes.

Videsh Sanchar Nigam Ltd (VSNL) has been rechristened as Tata Communications. The decision to rename the company was approved by the board of directors. The company will be investing over $2 billion (Rs 8,000 crore) in the next three years for global expansion plans. VSNL will make the investments in submarine cables, network expansion and rolling out of WiMax services.

Jalgaon-based Rs 1,800 crore Jain Irrigation, which provides solutions in water distribution, water treatment and water recycling has signed a memorandum of understanding (MoU) with Israel ’s Mekorot for undertaking projects in the field of water infrastructure in the country.

Telecom

The Department of Telecommunications (DoT) has mooted a proposal for increasing additional spectrum charges and has also suggested slashing of one-time fixed spectrum charges. The spectrum charges under the new proposal are lower than the earlier suggestions of the TRAI. The department’s Wireless Planning and Coordination (WPC) cell is seeking to define service area on the basis of population, compared with the TRAI’s earlier proposed economic potential criteria. Moreover, WPC has suggested the one-time fixed per Mhz spectrum charge of Rs 2 crore for Category ‘A’ circles, Rs 1 crore for category ‘B’ and Rs 35 lakh for category ‘C’ circles. While Trai had recommended Rs 16 crore, Rs 8 crore and Rs 3 crore per annum as charges for categories ‘A’, ‘B’ and ‘C’ respectively.

Information Technology

The information technology (IT) industry has increased its contribution to the country’s GDP from 1.2 per cent in 1997-98 to 5.2 percent in 2006-07, according to a Nasscom-Deolitte study. The report-titled, Indian IT Industry: Impacting the Economy and Society, further says that export earnings in 2007-08 will hit $40 billion, a growth of 36 per cent. Meanwhile, direct employment is expected to be 2 million in 2007-08, growing at a CAGR of 26 per cent in the last decade.

*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.