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Current Economic Statistics and Review For the
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Theme
of the week:
Changing Phase in Indian Retail Market* Retailing, essentially being a part of tertiary sector activities, has always been a catalyst to provide an impetus to overall economic growth. Through its strong backward linkages to primary sectors like agriculture and industry, and forward linkages to marketing, packaging, storage and transport operations, retail sector accelerates growth of supply side elements in the economy on one hand and provides consumers with a wide range of products on the other hand, helping them improving their standard of living.
As per the estimates of Ernst and Young, the retail sector is likely to grow by 9.5 per cent on annual basis accounting for over 10 per cent of the country’s gross domestic product (GDP). Fuelled by the entry of large modern retailers over the last few years, the organised retail market is expected to grow rapidly to account for 5 per cent of the total market from its current share of around 3 per cent. The report has, further, pointed out that within the organised retail segment, consumer durables and apparel categories have gained higher penetration levels of over 5 per cent and 15 per cent, respectively, while that of food and grocery retail category has stood at around 1 per cent, in spite of being the largest category as far as consumers are concerned. As per A.T. Kearney’s Global Retail Development Index (GRDI) 2007, an annual study of retail investment attractiveness among 30 emerging markets, India has retained its position as the as the world’s most attractive market for mass merchant and food retailers seeking overseas growth for the third consecutive year. The origin of retailing business can be traced back to ancient period, whereby various trading activities used to be carried out in weekly markets, village and rural melas. This was followed by the emergence of kirana stores or mom-and-pop stores (which occupy a large portion of the Indian retail sector even today). Eventually, with the government supporting, the rural retail business, many indigenous franchise stores came up with the help of Khadi and Village Industries Commission. Similar stores also had been established under public distribution system and some under cooperative movement to make the essential commodities available to the masses at affordable prices. The evolution process continued with the economy opening up slowly and gradually indicating an onset of a radical transformation in the sector with the textile manufacturers like Bombay Dyeing, S Kumar's, Raymonds, etc., starting their retail outlets; thus, marking a beginning of organised retailing in the country, though its share in the total domestic retail business was almost negligible at that time. With the passage of time new entrants in the sector moved on from manufacturing to pure retailing paving way for modern retail formats such as department stores, specialty stores, discount stores, etc. With the increasing consumerism and vibrant economic growth, the sector further witnessed entry of new formats like the exclusive brand outlets, hypermarkets and supermarkets and shopping malls. Thus, these formats have started retailing heterogeneous groups of commodities under one roof enabling the consumers to fetch everything he or she needs. Thus, the traditional retail formats like mom-n-pop stores or kirana shops (which are highly fragmented and unorganized in nature) and modern retail formats (organized segment) co-exist in Indian retail sector. The traditional retail formats continue to dominate the retail landscape accounting for almost 97 per cent of the Indian retail market, on account of their high degree of consumer orientation, which take the form of personal touch in attending their customers, provision of credit facilities and quick home delivery, etc., and with their presence in the local areas, the commutation time of their consumers is saved. However, of late, with organised retailing gaining pace slowly and gradually, these traditional stores have started facing increasing competition from modern retail stores like Apana Bazaar, Food World, Food Bazaar, Subhiksha, etc. The growth of the organised retail segment has mainly been fuelled by a dramatic transition the country has undergone; that is from being a supply-constrained to a demand-driven economy since the beginning liberalisation process in early nineties. The structural shift in the economic growth pattern with services sector emerging as the largest contributor to GDP, leaving behind the manufacturing sector has far reaching consequences in terms of accelerating consumerism in the economy. The growth in the services sector led by the IT, ITES and recent BPO segments, have not only generated huge job volumes but also offered pay scales that were never before. Proliferation of this improved salary structure to the other sectors in the economy has left consumers with higher disposable incomes bringing out changes in their consumption habits and composition of consumption basket, with consumers demanding better products, better services and a better shopping environment. A closer look at the consumption basket reveals that non-essential commodities like clothing and accessories, electrical/electronic items such as laptops and mobile phones are accounting for increasing share in consumer expenditure with rising incomes and changing lifestyle. Even expenditure on entertainment such as movies as well as other material possessions such as gold and jewellery, is on the rise. At the same time, with the rise in beauty and health consciousness, there is also heightened expenditure on related products such as skin care, colour cosmetics and health supplements. On the other hand, consumer expenditure on essential items such as food as a share of income has dropped from over 42 per cent in 2001 to 33 per cent in 2006 (India Retail Report 2007). Thus, there has been a transition from price consideration to quality and design, because of change in the focus of the customers’ preferences. The upper and middle- class population of today needs a feel good experience even if they have to spend a little more for that. People are moving towards luxury and want to experiment with fashion and technology. The other factors such as demographic structure dominated by younger population, who, in general, are more inclined towards spending, rapid urbanisation, increasing number of nuclear families, changing lifestyle with increasing western influence, etc., also have indirectly facilitated the transformation in consumption pattern. Exposure of the consumers to more number of debt instruments and facilities along with the change in the mindset of masses making indebtedness a more acceptable phenomenon moving away from the traditional attitude of being hesitant about debt, also has made significant impact on consumption behaviour. The concept of Equal Monthly Installments (EMIs) with predictable and planned outflows, provision of consumer loans from banks for a variety of purposes ranging from purchase of cars to holidaying, increasing utilisation of credit and debit cards on large scale, etc., have encouraged spending culture in the economy. Consumer aspirations have also been driven by education and awareness brought forth by a barrage of advertising, touring in foreign countries, increased usage of internet facilities and cable television. Trade volumes via e-commerce have been surging steadily; railways and airlines have witnessed their booking operations being carried out through card-based internet transactions to a large extent. With malls or large air-conditioned shopping complexes, which provide their customers with food, entertainment, and shopping experiences - all under one roof, mushrooming all over urban India, shopping has become a past time activity for shoppers as well as for window-shoppers. This leads to impulse buying, particularly purchase of fashion accessories, books and music. The
entry of corporate majors in the sector has been another very important
factor that has geared up the pace of growth of organised retail in the
country. Apart from the retail company like Nilgiri's of Future Group: Pantaloons*
A market leader that has started as
a garment manufacturing company almost 20 years ago, entered modern retail
with Pantaloon Retail outlet in Kolkata in 1997.
*
It has now grown into a retail giant
establishing hypermarket chain Big
Bazaar, supermarket chain Food
Bazaar and malls called Central.
Pantaloons
retail concentrates solely on apparels and accessories. Food Bazaar is an
array of food products. Big Bazaar provides a variety of consumer goods at
one place which include both apparel and non-apparel segments, while Central
is a chain of stores that stock music, books, global fashion brands,
lifestyle and leisure accessories, restaurants and lounges.
*
A few additional formats, which the
Pantaloons operates, comprise of Collection (home improvement products),
E-zone (consumer electronics), Depot (books, music, stationery and gifts),
Blue Sky (fashion accessories) and Shoe Factory (footwear). The company has
also launched a retailing venture known as ‘futurebazaar.com’ for
catering to those who prefer to do their shopping online.
Raheja Group: Shoppers’ Stop
RPG Group
Tata
Group: Westside
Piramals
Globus
Lifestyle
Landmark
Fame
Adlabs, Inox -
the multiplex retail chain giants.
Reliance
Industries
The
Aditya Birla Group: More
Apart
from these, there are several big and medium retail players, who are doing
brisk business, be it in consumer products or in fashion apparels. They
include Titan, Café Coffee Day, Provogue, Trinethra etc. Others like ITC (a
big player in its own right), the Godrej group, Century Textiles and Raymond
as well as mid-size players like Vishal Megamart, Subhiksha and Sabka Bazaar
are busy increasing their footprint. With
the developed markets reaching their saturation levels on one side and the
Indian economy displaying a vast untapped potential coupled with a
burgeoning middle class having higher disposable income and a vibrant
economic growth in the last 2 yeras, India has attracted various foreign
players into the Indian retail sector through licensee or franchisee route.
For instance, with liberalization, several international watch-brands like
Dior, Casio, Giordano, Swatch, Tommy Hilfiger, Cartier, Rolex, Tissot,
Omega, Esprit and Citizen have entered the market. In the case of footwear
category, global players like Reebok, Nike and Adidas have successfully
established themselves with the help of their aggressive expansion
strategies in tier II and III cities, supplemented duly by their value
merchandise offerings. Food and beverage has been another category where
international brands like McDonald's, Pizza Hut and Pepsi have managed to
gain widespread acceptance and higher penetration level by customising their
offerings as per tastes of Indian consumers. With Pepsi offering customised
snack food like kurkure and Pizza Hut launching their range of tandoori
pizzas, they have become highly popular, thus posing strong competition to
Indian restaurant chains. On the other hand, as for cosmetics, presence of international brands
Burberry, Calvin Klein, Cartier, Christian Dior, Estee Lauder, L'Oreal,
Oriflame, and Wella have remained restricted to the higher income group, as
they have been offering products with relatively high prices. Recently,
the retail sector has also witnessed an entry of world’s largest retailer
Wal-Mart, which has signed a joint venture with Bharti Enterprises, whereby
Wal-Mart would manage procurement, inventories and logistics and Bharti
Enterprises would set up stores under a franchise arrangement. Thus,
the organised retail segment in the country has been experiencing a
revolutionary phase with changing socioeconomic structure, introduction of
new formats, new technologies, entry of new players and rising growth plans
of the existing players. As
a consequence of the retail players stepping up their expansionary drive in
the country, the retail market has started witnessing a lot of problems,
namely, scarcity of quality retail space, rising mall rentals, unanticipated
cost pressures such as service tax on rentals and high power costs,
increased labour cost due to high attrition rate and rising realty prices
especially in urban areas. In addition to this, acute competition
among various brands has blown up advertising and promotions outlays of
retail firms.
These factors have restrained product prices to increase beyond a particular
level, in turn moderating revenue earned by these retailers. The
problem of availability of quality retail space has become a glaring one
with most of the Indian cities undergoing rapid urbanisation. Though many
retailers have preferred to go in for long-term leases, real estate prices
in most of the top tier cities have been escalating sharply in the past two
years, making business unviable for organised retailers. As a result, the
retailers have started moving to smaller cities, where investment
expenditure incurred on land and structure is much lower than metros, giving
them an extra 3-4 per cent margin. Other way-outs adopted by the retailers
include advance real estate booking at lower prices; strategy of revenue
sharing pricing with fixed and variable components; and negotiating
advantageous rates from real estate providers using their ‘anchor
tenant’ status. For instance, many retailers have been roping in DLF,
Emaar, MGF and Ansals, to act as partners and developers. Such an
arrangement has been proving to be a win-win solution to both retailers in
terms of assurance of quick rollouts and lower capex besides enabling them
to have leverage as the first-mover advantage on a pan-India basis; and to
builders in terms of improved asset utilisation. Retail biggies like
Pantaloon Retail, Shopper's Stop and McDonald's have been quick to endorse
this strategy. For instance, Pantaloon has signed up with 100 of the 300-odd
malls that would be developed by 2010. Another
solution the retailers have found has been selling of space within their
shops to other brands. It is believed that these shops-in-shop and food
stations would guarantee a revenue to the large retailer by providing better
cushion to cut prices. Big retailers like the RPG Group’s Spencer’s
Retail, Pantaloon Retail and the Rahejas’ Shopper’s Stop have adopted
this emerging business model. The rent charged is normally based on the
higher of the two options, that is, a fixed percentage of monthly sales or
on a per square foot basis. Prominence of the brand, its positioning and
location within the shop are some of the important determinants of rent. The externality that has cropped up as a result of increasing real estate prices is that the real estate firms seem to be equally bullish on warehouses as that of retailers. The real estate firms are expecting immense business potential arising from the facts that having one’s own warehousing facility would become mandatory as the organised retail trade grows over a period of time and also taking into account that many international retail chains planning to enter Indian retail, including Wal-Mart, Carrefour and Tesco, have simultaneous plans of doing business in cash and carry format as well. Various companies operating in the commercial real estate sector, such as DLF, Unitech, Ansal API, Omaxe and TDI, have started talking to retail chains. The
extension of this externality can be observed in terms of logistic players
in the country indulging in huge investments and expanding their service
portfolios to include new value-added services, such as packaging, labelling
and reverse logistics from the present form of transportation to warehousing
to inventory management. Apart from this, retail majors like Reliance
Retail, Bharti-Wal-Mart and AV Birla Retail have plans to develop their own
logistics to cut their expenses on supply chain management, which account
for 7-10 per cent of the total retail price in Apart
from higher real estate prices, increasing labour costs are also eroding the
profit margins of retail players, especially in urban areas. To meet the gap
between demand and supply of trained, skilled labour, organised retailers
are setting up training facilities in smaller cities. Bharti Enterprises
has, for instance, set up the The
expansionary plans of organised retailers lead to a unique development where
modern trade formats such as Spinach, Reliance, Spencers and Food Bazaar
asking traditional grocers (kiranas) to stock and distribute their private
labels (in-store brands) in categories like food, home and personal care
across the country. This would enable modern formats to push volumes of
their in-store brands; kirana owners would get higher margins vis-à-vis the
established brands in the market. Urban consumers want clean-packed
commodities and credible brands, which the kiranas want to source from
organised retailers and also get higher profit margins on the same. The
margins on these brands are nearly two-and-a-half times higher than on
regular FMCG brands. Thus, this arrangement provides for additional business
for the kirana stores and an impetus to retail bands as well. Modern
retailers are planning to import or source locally manufactured products
under their brand names. On
the parallel lines, the ongoing transformation in organised retail have
brought about ‘farm to fork’ revolution in some parts of the country,
whereby retailers have started procuring fresh produce for their outlets
directly from farmers, bypassing established chain of intermediaries.
Dealing with farmers and paying much higher prices for their produce within
a few hours of plucking from the field enhances purchasing power at the
bottom of the pyramid. the agribusiness giant ITC have managed to implement
it successfully as they have purchased agri-produce from farmers at e-choupals
and has started selling fruits and vegetables at Choupal Fresh grocery
stores set up in Hyderabad, Pune and Chandigarh. This arrangement seems to
boost for marketing these products over a period of time, provided it does
not turn into corporatisation of agriculture. However, there is a lot of
opposition from vested interests like wholesale traders to this farm to fork
revolution. Companies like Reliance has faced a tremendous amount of
opposition in states like Uttar Pradesh, Tamil Naduand even Apart
from this, the organised retail formats have been facing a lot of protest
from traditional retail formats like kirana stores. The owners of these
mom-and –pop shops are apprehensive of loosing their business to domestic
corporate majors as well as foreign players due to their inability to
compete with them on account of scarcity of funds to expand their business
on larger scale and indulge in huge capital expenses. Future prospectsWith
the domestic retail players stepping up their expansionary drive besides the
global retail giants foraying into the country, the growth momentum of the
Indian retail market is set to move on to a higher growth trajectory. Characterised
by rising purchasing power, changing consumption patterns, increased access
to information and communication technology, improving infrastructure and
increased government initiatives to boost the rural economy and 87 per cent
of the rural markets not having access to any sort of organised marketing
and distribution, rural market provides huge scope for retailers to expand
their business activities in rural areas. Hence, the domestic corporate
players are firming up innovative schemes to tap this rural retail market.
Bharti-Wal-Mart joint venture, for example, has planned to invest
substantially in the next 3-4 years for establishing supply-chain network in
rural Though the organised retail has been growing at a rapid pace, it still has not reached a stage of maturity and their trade volume has been miniscule compared to global standards – with only Pantalloon approaching $ 1 billion in annual sales (Table 2).
The domestic players have to gear up themselves accelerating their growth plans to putforth a formidable competition for foreign retailer like single-brand retailers and global mass merchants entering the sector through the back door as wholesalers following the central government allowing foreign direct investment (FDI) of up to 51 per cent in single brand product retailing. (The approval is subject to the conditions that include the products sold should be of a ‘single brand only’; it should be sold under the same brand internationally means that products should be sold under the same brand in one or more countries other than India, and, it would cover only products that are branded during manufacturing.) To survive in the stiff competition phase, the retailers have to develop their own model for retailing that will have blending of best of modern retailing technology and supply chain processes with traditional merchandising. Achieving higher degree of penetration into the lower income strata to tap the possible customers in the lowest levels of society and adapting strategies to differentiate from the competitors in terms of locational convenience, provision of value-added services, distinctive private labels and undertaking customer loyalty programmes, other than price can also help retailers sustaining their positions in the market. Improving efficiency of their operations and rapid adaptation to new technology would help them strengthening their presence in the retailing business, which by its vary nature is a low-margin, high-volume, commodity business where profitability gets strained as competition intensifies. Finally, a result of retailer-manufacturer tie-ups, state-of-the-art supply chain infrastructure, global sourcing and scale would be key factor. (*This
note has been prepared by Pallavi Oak) Reference
Highlights of Current Economic Scene AGRICULTURE According
to Food and Agriculture Organisation (FAO), The
Directorate General of Foreign Trade (DGFT) has hiked the minimum f.o.b
export price of non-basmati rice from US $ 500 to US $ 650 per tonne and
for basmati rice it would be US $ 900 per tonne. Exports of non-basmati
rice would be permitted from the ports like Kandla, Kakinada, JNPT in
Mumbai and Kolkata, depriving exporters access through other major ports
such as Kochi, Vizag, Chennai, Mangalore and Tuticorin, so that exports of
rice can be curbed and domestic supplies would be ensured.
According
to Central Organisation for Oil Industry and Trade (COOIT) coverage under
rabi oilseed has declined by 7.61 per cent to 8.96 million hectares as on
February 22, 2008 However, this would be due to higher prices of
foodgrains luring farmers away from oilseeds in most of the oil -producing
states. Therefore, industry is considering using genetically modified
seeds to maximize output without increasing area under cultivation; this
would reduce dependence on imports. The total area under mustard and
rapeseed, sunflower and safflower has slumped down drastically, while
coverage under groundnut and sesamum have risen significantly from last
year. The demand for edible oil in The
Solvent Extractors Association of India (SEAI) has urged the central
government to establish ‘Oilseeds Development Fund’ to raise
production and productivity; to launch weighted income tax deduction for
Oilseed Extension Programme; to declare palm oil as plantation crop like
tea, coffee which would help industrial players to invest on agricultural
land for growing oilseed crop and to amend the Agricultural Produce
Marketing Committee (APMC) Act for the free movement of agricultural
produce. This would help to meet the growing demand for cooking oils and
reduce dependence on imports. According
to Solvent Extractors Association of India (SEAI), According
to International Coffee Organisation (ICO), global coffee consumption for
calendar year 2007 is estimated to increase by 2.5 per cent to 123 million
bags over the previous year’s consumption of 120 million bags, which
comprised of 31.3 million bags for domestic consumption in exporting
countries and 88.6 million bags in importing countries. Imports
of apparel grade wool, which were used in warm clothes manufacturing, are
estimated to decline by 4 per cent, due to increased usage of domestically
made coarse grade wool that was utilized earlier mainly for carpet weaving
in the country. Total imports
of apparel grade wool are estimated to be at 95.70 million kg this year
against 99.62 million kg over last year. According to data compiled by the
commissioner of textiles, 80 per cent of the country’s raw wool
production goes into manufacturing of carpets. Of the remaining wool
production, 15 per cent is coarse grade wool and 5 per cent is apparel
grade wool. The
jute industry has urged the ministry of textile to impose ban on the
imports of A. Twill and B.Twill jute bags from The
central government is set to cover the area of tobacco crop under
subsidised insurance scheme, beneath which it would cover replanting cost
and loss of income. It has
also been active in curtailing the promotion and consumption of tobacco
products within the country for bringing awareness among people regarding
its side effects on their health. The demand for tobacco is rising
worldwide due to reduction in cultivation. During the first week of March
2008, price of FCV tobacco (used in cigarettes) has risen to Rs 95.40 per
kg as compared to the normal price of Rs 50 per kg, as propelled by
demand. According
to Seafood Exporters Association of India (SEAI), US Department of
Commerce has proclaimed anti-dumping duty review against certain frozen
freshwater shrimp from The
National Egg Co-ordination Committee (NECC) has urged the central
government to provide benefits of loan waiver upto Rs 38,000 crore to the
poultry farmers, as this sector is facing crisis from last 30 years. Since
2006, poultry industry has suffered a loss of Rs 11,000 crore, because of
occurrence of bird flu; fall in farm gate prices and suspension of
exports. (During the recent bird flu outbreak in The
Tamil Nadu Agricultural University (TNAU) has joined with the Norwegian
Institute for Agricultural and Environmental Research (Bioforsk) and the
International Pacific Research Centre (IPRC), University of Hawaii (US) to
initiate a collaborative research on mitigating the negative impacts of
global warming on Indian agriculture, especially on rice productivity.
This project would be financially supported by the Ministry of Foreign
Affairs, Industry A substantial fall was registered in the growth rate of index of industrial production during January 2008 as compared to January 2007. The growth in the index of industrial production during January 2008 at 5.3 is less than half that recorded in January 2007 (11.6 per cent). All the three major groups contributed for this slow down. As a result during the fiscal so far registered IIP index rose by 8.7 per cent as compared to 11.2 per cent last year. Mining sector and electricity sector grew by 1.8 per cent and 3.3 per cent during the month. The growth of manufacturing sector is at 5.9 per cent during January is much below to that of 12.3 per cent recorded last January. Out of the 17 industries, two industries declined and five industries registered double digit growth.. As per use-based classification, the sectoral growth rates in January 2008 over January 2007 are 3.5 per cent in basic goods industries, 2.1 per cent in capital goods and 7.0 per cent in intermediate goods. Consumer goods recorded an increase of 7.0 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
5.02 per cent for the week ended February 23,2008 as compared 6.20 per
cent as on February 24,2007. Index
of Primary Articles group rose by 1.4 per cent to 228.4 from 225.3 for the
previous week. Food articles group rose by 1.7 per cent. Index of non-food
articles rose by 0.8 per cent mainly due to higher prices sunflower,
castor seed, raw rubber, and copra. The
index for the major group Fuel, Power, Light and Lubricants remained
stationary at 336.9. The
index of manufactured products went up by 0.1 per cent due to higher
prices of sunflower oil, imported edible oil, vanaspati, gingelly oil,
rice bran oil and cotton seed oil. The
final WPI for all commodities had been revised upward from 216.7 to 216.0
for the week ended December 29,2007. As a result the rate of inflation
calculated on a point-to-point basis stood at 3.83 per cent as compared to
3.50 per cent provisional. Banking The
RBI has revised the time limit for lodging complaints with banking
ombudsman to ensure the speedy redressal of grievances for customers. The
apex bank said in a statement that if the complaints of customers are not
addressed satisfactorily within 30 days of lodging a complaint, then he
would now be able to approach the office of the concerned banking
ombudsman for redressal of his complaints and grievances. Earlier, the
customers had to wait for 60 days before going to the concerned banking
ombudsman for getting their grievance heard. According to the guidelines,
on managing risks and code of conduct in outsourcing of financial services
by banks, the banks have to constitute grievance redressal machinery
within the bank and widely publicise it. Minister
for state for finance told the Rajya Sabha that following the subprime
crisis, ICICI Bank has reported, as on January 31, 2008 a mark-to-market
loss of $264.34 million in its overseas operations from exposure to credit
derivatives and investments. However, ICICI Bank, in a communication to
stock exchanges, said it has no material direct or indirect exposure to Financial
Market Capital MarketsPrimary
Market Gammon
Infrastructure Projects Ltd (GIPL), a company promoted by the Gammon
Group, is entering the capital market with an initial public offering of
1,65,50,000 equity shares of Rs 10 each. The issue which is being made
through a 100 per cent book-building process, opens on March 10 and closes
on March 13. The price band has been fixed between Rs 167-200. Sita
Shree Food Products Ltd, a wheat and pulses processor and supplier of
products to retail industries, on Monday announced that it would be
entering the capital markets with an IPO aggregating Rs 31.50 crore. The
issue will open on March 11, and will close on March 14. The price band of
the issue is fixed between Rs 27 and Rs 30. The equity shares of the
company are proposed to be listed on both BSE and NSE. Secondary
Market Stock
prices were battered in the last week tracking weak global markets, which
in turn were hit by US recession worries. The sentiment was also affected
by a hike in short term capital gains tax and alternation of tax treatment
of securities transaction in Union Budget 2008-09 announced on Friday, 29
February 2008. Sensex fell in 3 out of 4 trading sessions of the week. The
market remained closed on Thursday, 6 March 2008, on account of
Mahashivratri. The BSE Sensex slumped 1,603.20 points or 9.12% to
15,975.52 in the week ended Friday, 7 March 2008. S&P CNX Nifty
declined 451.9 points or 8.65% to 4,771.60 in the week. The
key benchmark indices witnessed an unabated selling pressure across
sectors, mirroring weakness in the global stock markets as BSE Sensex
tumbled 900.84 points or 5.12% to 16,677.88 on Monday, 3 January 2008,
registering its second biggest single day point loss on a closing basis.
It was also Sensex’s second biggest single day fall in percentage terms.
26 out of 30 stocks from the Sensex securities were in the red. Even the
mid-and small-cap stocks tumbled, as reflected in the poor market breadth.
Banking, power and realty stocks plummeted. A global sell-off was
triggered after weak During
the week under review, FIIs were net sellers of equities to the extent of
Rs 1,530 crore with sales of Rs 15,155 crore and purchases of Rs 13,625
crore. In case of debt securities, they sold securities worth Rs 414 crore
with no purchases. The
Finance Minister, Mr P. Chidambaram, on Monday said that the Indian
economy was “not as decoupled as we think we are”, hinting that the
decline in local share market indices could have come on the back of
slippage in Asian markets today on fears on US recession. He was
responding to industrialist Mr Rahul Bajaj’s observation that Sensex had
lost nearly 500 points in the early trading hours on March 3. The
Department of Public Enterprises in a release has said that it had
received a number of references from different Ministries, public sector
enterprises and other agencies seeking clarification in regard to the
definition of a public sector mutual fund. The Government has clarified
that a mutual fund should have more than 50 per cent holding by
State-owned financial institutions or banks (individually or collectively)
and also has to be regulated by the Securities and Exchange Board of India
to be classified as a public sector mutual fund. Derivatives National
Stock Exchange has introduced trading in long-term options on S&P CNX
Nifty Index on Monday. The S&P CNX Nifty Index has an Rs 15,000 crore
daily average turnover. Until now only three months contract were
available for trading in the options segment. With the introduction of
longer term options trading in options investors will not only be able to
invest for a longer period of time, but also hedge themselves for a longer
period of time. Government Securities Market Primary
Market Secondary
Market Bond
yields headed northward on inflation concerns and escalating global oil
prices. Traders said that with inflation breaching the 5-per cent mark,
hopes of a reduction in policy rates or reserve ratios had completely
evaporated. In fact, the major concern now was liquidity, with foreign
institutional investors, who hit their stop-loss triggers. FIIs pulled out
about $481 million during the week or about $120 million per day during
the week. In addition, some private equity funds were also exiting from
the markets, triggered by worsening credit worries back home. Traders
expect the bonds to be eligible for SLR, to make them liquid, unlike the
oil bonds. Average outright settlement volumes increased by 2 per cent as
compared to the previous week. Average repo volumes decreased by 3 per
cent compared to the previous week. The highest daily settlement volumes
for outright trades were Rs.99 billion on March 03, 2008 and Rs.220
billion for repo trades on March 04, 2008. But the low trade volume was
also largely on account of anticipation of more bonds coming into the
markets at high coupons after the conversion of the Rs 60,000-crore farm
loan write-off. Besides, traders said that this month many were faced with
advance tax outflows. Moreover, with inflation at 5.02 per cent, the real
yield is down to 2.7 per cent. The 1-10 year YTM spreads increased by 3
bps to 10 bps. The yield of the benchmark 10 year security - 7.99% G.S.
2017 was at 7.5880% as against 7.5795% during the previous week. The
bleak outlook is also reflected in a flat yield curve, apparent from the
difference between 91-day and 10-year YTM. The spread is 19 basis points.
The spread between one year and 28 years is 43 basis points. Clearly, this
is a pointer to a slowdown. These concerns were also evident from the
Finance Minister, Mr P. Chidambaram’s calls for a further reduction in
lending rates to the home loan sector. In
the customary post-Budget meeting of the Central Board of the Reserve Bank
of India with the Finance Minister, the Governor has extended RBI's
support and help to the Government in implementing the loan waiver scheme
in a manner that would strengthen the banking system rather than weakening
it. Inflation
continued its surging trend, breaching the RBI’s “self-imposed
tolerance limit” to close the week ended February 23 at 5.02 per cent.
Analysts said the mounting inflationary pressure could tie down the RBI
from loosening monetary policy, even though the economy is showing signs
of a slowdown. The central bank has set an upper limit of 5 per cent till
March-end and 4.5 per cent by January 2009. Bond
Market Vijaya
Bank tapped the market to mobilise Rs 300 crore through issue of upper
tier-II capital by offering a coupon of 9.45 per cent with a step up of 50
basis points if call is not exercised at the end of 10 years.
Foreign
Exchange Market The
rupee-dollar exchange rate depreciated over the week from Rs 39.92 on
February 29 to Rs 40.53 on March 7 due to strong demand for dollars and
outflows from weak domestic stock markets. Further, the sentiment in the
equity market which was affected by a hike in the short-term capital gains
tax on equity market investments and the restructured securities
transaction tax (STT) also impinged on the rupee movements.
To
top it, oil refiners drew on their credit lines for making their import
payments. Refiners’ large requirements pulled down the rupee to Rs 40.53
per dollar, about the same level as in July last year. But what also
worsened the pounding on the rupee, were cancellations and re-bookings of
forward covers by exporters. In fact, with the exchange rate in their
favour, bankers said that exporters were taking forward cover beyond six
months as well. In addition, banks, faced with a shortage of cash/spot
dollars, swapped their forwards for cash/spot. This entailed selling their
forward receipts in exchange for cash/ spot for meeting oil and FII
requirements. The result — rupee-dollar forward moved into discount for
up to six months. A discount happens when forward dollars are cheaper than
spot. But such a situation also reflected that exchange rates are likely
to reverse their trend at a future point of time, when swap settlements
have to be made. The
total foreign exchange reserves crossed the $300 billion mark for the
first time, with an accretion for the third week in a row. For the week
ended February 29, the reserves increased by $6.625 billion to touch
$301.235 billion, according to the Reserve Bank of Commodities
Futures derivatives The
commodity exchanges protested against the commodity transaction tax (CTT)
saying that it would make them inefficient in price discovery./ their
argument is that the commodity derivatives transaction cost would gallop
from Rs 3 to Rs 21 and they fear that the traders would then shift to
dabba trading rather than the exchanges. For
instance, earlier if one lot (1 kg) of gold cost Rs 12 lakh, expenses
incurred for selling on the exchange were brokerage (0.03 per cent) of Rs
360, service tax on brokerage Rs 43.20, 3 per cent education cess of at Rs
1.296, stamp duty (Rs 1 per lakh) at Rs 12, exchange levy of 0.004 per
cent (based on turnover, more the turnover lesser the levy) at Rs 48,
totalling Rs 465. From
April, an additional cost include service tax on exchange levy at Rs 5.76,
education cess of 3 per cent on service tax at Rs 0.1728, commodity
transaction tax (CTT) of 0.017 per cent on turnover at Rs 204, adding up
to Rs 674.43 or Rs 210 more. Similarly, the buyer has to pay a CTT of
0.125 per cent. thus, the investors contend that the increase in
incidental cost will wipe out whatever they can save by hedging on the
commodity futures exchanges. Trading in agriculture commodity sector to be
hit more as the sentiments are already weak due to the ban on a few
commodities Mr
B.C. Khatua, Chairman, Forward Markets Commission, said the introduction
of CTT will adversely affect the commodity futures market. Commodity
markets are just four years old, the Government should have given us some
more time before introducing this tax, he said With
the weakness in the stock markets, it appears that the investors are
shifting to commodities markets according to some market experts and they
feel that their interest in commodities would continue until equities
markets remain weak. Further, the investors interest in futures of
precious metals and oils have also contributed to a rise in volumes in the
futures market Insurance Insurance
major ICICI Lombard has won the bid to insure the National Aviation
Company of Corporate
Sector The
Nano fear seems to have begun to creep into the minds of two-wheelers
manufacturers. In a post-budget meeting with the finance minister the
biggies of two-wheelers industry, Hero Honda and Bajaj Auto, requested for
a further reduction in excise duty on two-wheelers from 12 per cent as
announced in the budget to 8 per cent for a level-playing filed with
small-car manufacturers. Infrastructure
Development Finance Company (IDFC) will buy Standard Chartered Asset
Management Company for $205 million (approximately Rs 820 crore). This is
before deduction for local taxes and deal expenses. The acquisition will
facilitate IDFC’s entry into retail mutual fund (MF) business. Telecom Richard
Branson has announced the launch of his Virgin Mobile’s (VM) services in
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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