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Theme
of the week:
Explosive Growth in Remuneration of Executives: A Brief Note* The
high level of remunerations earned by Chief Executive Officers (CEOs) of companies
has attracted much attention and debate. The corporate sector justifies the
increase in compensation packages by saying that the companies are doing
well because of them, while others worry that executives are not paid enough
to attract the fine talents to corporations in a situation of global
competition. According to business analysts, these high pay packages are due
to the fierce competition for skilled executives from the new emerging
sectors like information technology (IT), business process outsourcing (BPO),
telecom, biotechnology and pharmaceuticals. Traditionally, of course,
technology and telecom services companies were known to offer high
remuneration, but now retail, pharmaceuticals and engineering sectors are
fast catching up. This issue again came to limelight last year, when the Prime Minister (PM) at the annual general meeting of Confederation of Indian Industry (CII) suggested that the top corporate CEOs should consider a cap on their remuneration. PMs
Commandants at the CII National Conference In
his 10 commandments issued at the CII National Conference, the PM advice to
“resist paying excessive remuneration to promoters and senior
executives and discourage conspicuous consumption” became a major
issue of debate. The PM said that
profit maximisation by companies should be within bounds of decency.
Companies must resist excessive remuneration to promoters. The PM felt that
the industry should be proactive in so far as
matters of affirmative action were concerned. He
further said that “there is a limit
to corporate greed” and also said that “in a country with extreme poverty, industry needs to be moderate in the
emolument levels adopted.” Salaries
of CEOs Complex Salaries of executives are suddenly in the spotlight after the PM’s comment on rising CEO’s salaries. Recently, there have been heated debates over how much Indian CEOs earn and whether their exorbitant salaries are justified, which requires a value judgment. It is beyond the scope of this note which has a more modest objective of studying the extent of increases that have occurred in executive remunerations during the past few years. Complex
Issues faced in Studying Executive Remunerations Fortunately,
the Companies Act 1956 and the Companies (Particulars of Employees) Rules,
1975 insist on details being published on the remunerations of directors as
well as highly paid executives in the company annual reports with details of
remuneration received, designation, etc. As per the extant regulations, as
from the year 2002-03, the companies were expected to provide the list of
directors and executives/employees drawing an annual remuneration of Rs 2
lakh and above. Broadly, while remunerations of executives/employees
includes salaries and perks, those of CEOs and directors of company boards
includes, in addition to salaries and perks, commissions.
A
glance at the annual reports of top companies suggests that the number of
directors and executives/employees has shot up rather dramatically in recent
years. The study would involve an arduous task if some meaningful results
have to be discussed from it. We have taken this as a major long-term goal.
For the present, we have narrowed
the objective to a manageable level. Accordingly,
we have chosen about 217 directors/executives from about 67 company annual
reports and tried to examine the trends in their remunerations. Even in
undertaking this study, we have faced a number of problems. The foremost of
them has been the frequent changes in jobs and shifts from companies by the
executive class and therefore,
it has been extremely difficult to locate individuals serving in different
companies during the last few years. The
second problem has been that some executives have served some companies for
part of a year and hence their full annual remuneration is not found. Third,
there are a number of family concerns in which top executives constitute a
part of the family-owning categories, in whose case it has been difficult to
make a distinction between pure remuneration and board determined
commissions. In
the present study, we have made a more modest attempt to identify the number
of directors and executives for obviating this problem, we have concentrated
on directors and executives amongst the 217 who were drawing more than Rs 2
crore of remuneration per annum in 2006-07, employed in 67 companies for
which comparable data is also available for the period 2002-03. The
number of executives working in these companies in the latest year 2006-07
is 224. When we screened these executives for and tried to trace their
presence in the initial years 2002-03 as well as in the terminal year
2006-07, the task has turned out to be very arduous. Nevertheless, we could get the names of 107 executives found to be common in both the years 2002-03 and 2006-07. Taking this group of 107 executives as the benchmark, we have listed them in the descending order of their remuneration as per the year 2006-07. This study, therefore, consists the remuneration packages of these 107 executives in the two different points namely, 2002-03 and 2006-07 based on concrete data published in the annual reports of their respective companies. For an optical view of the names of the executives, companies for which they were working in 2006-07, their designation and remuneration in two years have been displayed in Appendix A accompanying this note. Explosive
Growth in Remunerations In
the year 2002-03, the aggregate annual remuneration paid to the foresaid
top 107 executives of 67 major companies was around Rs 147 crore
which rose to Rs 467 crore in 2006-07, registering a sharp growth of 218 per
cent in five years (Annexure
A). Table
1 indicates distribution of executives by range of increases in
remuneration. It shows that over 60 per cent have received remuneration
increases beyond 200 per cent. Around
21 executives have received hefty pay packages in 2006-07 on account of
explosive growth of more than 1000 per cent in their annual remuneration
compared to their earnings in 2002-03. Annual remuneration of 16 executives
has been augmented by 400 per cent and pay packages of 43 executives have
increased by around 200 per cent in 2006-07 as against their annual salaries
in 2002-03.
The
explosive nature of the increases in remunerations in recent years is
brought out by the fact that as against 107 executives drawing more than Rs
2 crore per annum in 2006-07, there were only 17 executives similarly
earning more than Rs 2 crore per annum in 2002-03 (Table 2).
As per the present study, in 2002-03 there was not a single executive being paid more than Rs 10 crore, whereas owing to dramatic increases in CEOs salaries in recent years, there are 7 executives earning above Rs 10 crore per annum in 2006-07. Sectoral
Growth in Remuneration The
sectoral analysis of 107 executives in the present study reveals that there
are around 87 executives in the manufacturing sector, seven in services
sector and thirteen in IT-related activities who are drawing more than Rs 2
crore per annum.
Not only IT and services sector has registered robust growth in pay packages but the manufacturing sector executives have also witnessed a rise of 215 per cent in their annual remuneration (Table 3). Indian
Directors’ Pay Hikes Outpace Profits However,
as the analysis shows, the increase in remunerations has definitely not led
to a corresponding increase in corporate performance. Currently,
a director’s total remuneration cannot exceed 11 per cent of a company’s
profits and for anything beyond this amount, a company has to seek approval
from the government. For loss making companies, different ceilings are
prescribed. However, agreeing with the recommendations of the J J Irani
Committee that helped draft the new Companies Bill, the Ministry of
Corporate Affairs is all set to give companies, full freedom to decide the
remuneration of their directors by doing away with the current ceiling of 11
per cent of profits. A
few tentative Issues The
CEOs of most Indian companies are family members who have not been competing
with others for the top job. Often, the very high salaries paid to top
executives, particularly in family-owned enterprises, lead to a direct
conversion of corporate wealth into private wealth and not for the general
health of the company. Aside from
gross inequality that this phenomenon spawns, a more pertinent question
relates to how company boards justify such high remunerations. With
promoters exercising complete control over boards, the decision making
process is hardly democratic and they lack credibility. As
per the explosive increases in remunerations in recent years, we do not wish
to pass any value judgment at this stage when our study is as yet at a
preliminary stage. Nevertheless,
we wish to quote a few learned observations on the phenomenon: i)
Many HR consultants say that the rise in top management salaries is
the result of market forces. Dutta of price Waterhouse says the increase
“has nothing to do with profits of a company, it is a demand supply
situation.” ii)
Rajiv Kumar, director and chief executive of Indian Council for
Research on International Economic Relations (ICRIER), says that rising
director compensation is the result of increasing convergence between Indian
and global remunerations. iii)
Share holders, Government and all other stakeholders need to look
into the matter and take necessary steps, such as linking the managerial
remuneration with the long term performance of the company and not just
linking it to the firms net profits (media suggestion). iv)
Suitable provisions have to be incorporated in the Indian Companies
Act so that managerial personnel would become more accountable to their
acts of commissions and omissions (media suggestion). References: Business
Various
Company Annual Reports. *
- This note is prepared by Bipin K Deokar
with help from Anita Prabhu for
tables.
Highlights of Current Economic Scene AGRICULTURE As
per the data published by the central government, procurement of rice as
on March 12, 2008, has improved by 5.14 per cent to 208 lakh tonnes,
around 10 lakh tonnes higher than the previous year. Procurement agencies
have collected 76.9 lakh tonnes of rice from The
coverage under wheat has gone up in the states like To
encourage wheat procurement in the states like Uttar Pradesh, Madhya
Pradesh and Bihar, the central government has hiked the commission for
societies and sub-agents to 2.5 per cent on the lines of the Arthiya
Commission in To
ensure higher wheat procurement in the rabi marketing season 2008-09, the
central government has bought 8,904 tonnes of wheat from farmers in Madhya
Pradesh and The
Kerala Government has sought an urgent financial assistance from the
central government to meet the heavy losses caused by northeast monsoon
since March 12, 2008. According to preliminary estimates, the losses are
amounted to Rs 50 crore till date. It is reported that nearly 20,000 acres
of land is severely damage and standing paddy crop is affected badly and
the loss is likely to go up further. The state government has sanctioned
Rs 12 crore as an initial measure to tide over the serious situation.
To
curb inflation, the central government has reduced import duties on
several varieties of edible oil as well as milled and non-milled rice. The
duty on milled and semi-milled rice has been reduced from 70 per cent to
zero, which would be valid upto March 31, 2009. In order to cater the
increasing demand of edible oil in the domestic market and given rising
prices of edible oils in the international market, duty on imports of
these oils has been slashed drastically as shown in the accompanied table.
As per industrial estimates, domestic consumption of edible oil in
According
to statistics available from Solvent Extractor Association of India (SEAI)
the import of edible oil during February 2008 has stood at 430,992 tonnes
as compared with 150,927 tonnes during the corresponding period last year.
Similarly, imports of non-edible oil have also shot up by 342 per cent at
84,237 tonnes as against last year’s 19,056 tonnes. Despite of reduction
in duties and freeze in tariffs, the prices of oil have shot up sharply.
It is expected that in the near future, the share of imports could reach
45 to 50 per cent, as domestic production is not increasing rapidly as per
the demand. Domestic prices of edible oil have increased by 10-28 per cent
since January 2008. Similarly prices of refined soyabean oil have jumped
by 27.78 per cent, groundnut oil by 13.08 per cent, rapeseed oil by 10.34
per cent, RBD palmolein oil by 25.10-per cent and sunflower oil by 19.69
per cent. Since November 2007 the imports of vegetable oil (edible oil and
non edible oil) have soared by 40 per cent, even due to the peak domestic
crushing season is in progress. The
Cabinet Committee on Economic Affairs (CCEA) has increased statutory
minimum price (SMP) for sugarcane at Rs 81.18 per quintal, as on March 21,
2008, for a basic recovery
of 9 per cent subject to a premium of Rs 0.90 for every 0.1 percentage
point increase in the recovery above that level for
the 2008-09 sugar season from Rs 80.25 per quintal of last year. . This
would be paid to the sugarcane growers during the season starting from
October 2008. Prices
of molasses have risen rapidly since November 2007 in the sugarcane
growing states like Uttar Pradesh and The
Tobacco Board has fixed Karnataka’s tobacco crop flue cured virigina (FCV)
output at 100 million kg for 2008-09, showing an increase of 5.26 per cent
over previous year crop size of 95 million kg. The key reasons for hiking
the states crop size are strong global demand for FCV tobacco varieties
and sharp fall in cultivation in traditional areas of The
Cabinet Committee on Economic Affairs (CCEA) has approved schemes worth Rs
732 crore to improve the quality and output of the crops like tea, coffee
and spices. Of which, Rs 230 crore are allocated for tea, Rs 310 crore for
coffee and Rs 192 crore for spices, as these funds would improve the farm
productivity and build up greater capacity for producers. As in case of
tea, exports have been sluggish for the last one-year due to stiff
competition from countries like Srilanka and The
Commerce Ministry has announced the price spectrum band for 2007 for
rubber, coffee and tea to give financial relief to the growers as prices
of these commodities fall below a specified level under the Price
Stabilisation Fund Scheme (PSFS). It is expected that tea growers would
get more benefits as both coffee and rubber growers had a boom period in
2007. The Price Spectrum Band, calculated for tea has revealed that the
annual average domestic price for tea was Rs 64.66 per kg during 2007 and
it has been categorised as ‘normal year’. On the other hand, for
coffee Arabica, the annual average domestic price during 2007 was Rs
112.70 per kg and it has been categorised as ‘boom year’. Similarly,
for Robusta, it was Rs 75.76 per kg during 2007, which was categorised as
‘boom year’. In case of rubber, the annual average domestic price was
Rs 90.06 a kg during 2007, because of which the year has been categorised
as ‘boom year’. Thus, on the basis of price spectrum band in 2007,
15,289 tea growers, who witnessed a ‘normal year’, would receive
financial assistance of Rs 0.76 crore from the PSF Trust Fund during
2008-09. On the contrary, the other two commercial crops, viz., coffee and
rubber growers would not get any relief as they come under ‘boom year’
categorisation. The
study undertaken by planning commission has revealed that nearly about 42
per cent of subsidised foodgrains have been distributed under Target
Public Distribution System (TPDS), covering 18 states. The offtake per
household has shown improvement of about 75 per cent covering categories
like below poverty line (BPL) and Antyodaya Ann Yojana (AAY). Based on
evaluation studies and feedback received from states, a nine-point action
plan has been jointly formulated by the central and the state governments
to strengthen the TPDS. It is estimated that during 2007-08, the amount of
subsidy for food, fertiliser and petroleum particularly LPG would be at Rs
64,929 crore.
According
to Greg Wagner (director of grain trade consultancy, Chicago), with global
economies continuing to expand, the demand for foodgrains are increasing
at a faster rate while the supply has been decreasing, as a result prices
for foodgrains are rising world wide. In 2007, the world supply of wheat
was affected, due to drought in
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 with base 1993-94 registered a slower growth of 4.2 per cent as compared to 8.3 per cent in January 2008. The dismal performance of exhibited by all the six core industries in January 2008 resulting the core index registering a growth of 5.5 per cent during the fiscal so far as against 8.9 last year. crude petroleum production declined by 0.2 per cent during January 2008 against a growth rate of 4.7 per cent last year. All the other five core industries witnessed lower growth performance. Thus refinery products, electricity, cement, steel and coal all contributed for the lower rate of growth. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
5.92 per cent for the week ended March 08,2008 as compared 6.51 per cent
as on March 10,2007. Index
of Primary Articles group rose by 0.3 per cent to 229.8 from 229.0 for the
previous week. Food articles group rose by 0.3 per cent. Index of non-food
articles rose by 0.5 per cent mainly due to higher prices many oil seeds.
raw cotton, raw jute. The
index for the major group Fuel, Power, Light and Lubricants gone up by 0.1
per cent due to higher prices of furnace oil. Increase
in the prices of iron and steel and food products like edible oils pushed
up the the index of manufactured products which registered an increase of
1.3 per cent The
final WPI for all commodities had been revised upward from 216.7 to 217.8
for the week ended January 8,2008. As a result the rate of inflation
calculated on a point-to-point basis stood at 4.36 per cent as compared to
3.83 per cent provisional. Banking Bank
of America Corp, the second biggest Financial
Market Capital MarketsPrimary
Market Cochin
International Airport Limited (CIAL), the consortium that runs the Secondary
Market Weak
global markets and heavy selling by foreign institutional investors led
the markets suffer losses for third straight week. Lack of buying at lower
levels accentuated the fall. Volatility was high in the truncated week
with only three trading sessions. The market remained closed on Thursday
(20 March 2008) on account of Id-E-Milad and on Friday (21 March 2008) on
account of Good Friday. The
BSE Sensex lost 765.69 points or 4.85 per cent to 14,994.83 in the week
ended Wednesday, 19 March 2008. The S&P CNX Nifty slipped 171.85
points or 3.62 per cent to 4573.95 in the week. The BSE Mid-Cap index lost
619.35 points or 9.40 per cent to 5,964.10 for the week ended Wednesday,
19 March 2008. The BSE Small-Cap index slumped 857.30 points or 10.61 per
cent to 7,222.20 in the week. The BSE Sensex is down 6,211.94 points or
29.29 per cent from its all time high of 21,206.77 hit on 10 January 2008.
On
the global front, the fifth-largest The
market-wide weighted price to earnings (P/E) multiple, which soared to an
unsustainable level of over 28.1 when the Sensex hit its all-time high of
21,282 on January 8, has come down to 19.19, with the benchmark index
hovering around 15k levels. The
weighted P/E of the BSE stocks has also declined from 27.4 to 17.24. This
is largely on account of the 30 per cent plus correction in the market
prices between January 8 and on March 17. The
Securities and Exchange Board of India (SEBI) said broking houses will
have to provide for margining for all institutional trades in the cash
markets with effect from April 21. The move brings institutional business
on par with the retail segment. At present, there is no margin system for
institutional trades while brokers charge margins from retail customers
for their trades. “In order to provide level playing field to all the
investors in the cash market as in the case of derivatives market, all
institutional trades in the cash market would be subject to payment of
margins as applicable to transactions of other investors,” said a SEBI
circular. In the futures & options segment, there is margining system
for both retail and institutional trades. The margining decision coincides
with SEBI’s decision to allow short selling, and securities lending and
borrowing with effect from April 21. Brokers said the move was necessary
as at present all the trades in the cash market by the institutional
investors are delivery-based trades. Following the implementation of short
selling from April 21, brokers, as part of their risk mitigation exercise,
need to provide for margins as the institutional trades may also be short
selling in nature; hence, the extra precaution.
The decision to impose margins for institutional trades will have a
major impact on the trading volumes of small and mid-rung broking houses.
“We will have to provide for the margins ourselves to attract
institutional trades,” said a head of a brokerage house. “Only big
brokerage houses, which have big money, will survive in the new
environment,” he said. Real
estate stocks have been hit the hardest on the bourses with many of them,
including Sobha Developers, Purvankara Projects and Ansal Housing, hitting
one-year lows after investors fled sensing a slowdown in property rates.
With Wednesday’s fall, the BSE Realty Index fell 48 per cent from
its all-time high of 13,647.15 on January 14, 2008, as compared to 28 per
cent decline in the benchmark BSE’s Sensex from its peak of 20,873.33 on
January 8. The sector, which
is top five in terms of market capitalisation rankings two months ago,
slipped to number eight positions on Wednesday.
Market
regulator SEBI is investigating the alleged insider trading activities in
the shares of Mukesh Ambani-run Reliance Petroleum, Rajya Sabha. "SEBI
has informed that it has initiated an examination in the matter,"
Minister of state for Finance P K Bansal said in a written reply. Bansal
was replying to a query by Amar Singh (SP) on whether the government had
taken any action against the promoters/affiliates of Reliance Industries
Ltd regarding the recent mammoth insider trading activities in the shares
of Reliance Petroleum Ltd. Reliance Industries Ltd had raised Rs 4,023
crore by divesting 4.01 per cent of its stake in Reliance Petroleum Ltd,
the company said on November 24. While actual date for the stake sale is
not known, the shares of Reliance Petroleum had moved by a wide margin
between late October and early November. Derivatives Given
expectations of high volatility and falling prices, the derivatives market
usually sees action and trading volumes have improved in the past
fortnight, though cash trading volumes have fallen. FIIs continue to be
the market-makers since they hold around 44 per cent of open positions.
The cash Nifty closed at 4,573.95, while the March, April and May
contracts were held at 4,572.70, 4,552.90 and 4,534.45, respectively.
Among other indices, the best liquidity is in the Bank Nifty, where the
cash index closed at 6,456, while the March future was settled at 6,439.
The Nifty Junior closed at 7,431, while the future settled at 7,418.
The
Nifty Midcaps 50 closed at 2,241, while the futures closed at 2,170. The
CNX IT closed at 3,501, while the future was held at 3,511. The lack of
liquidity in April futures is crippling. Government
Securities Market Primary
Market Nine
State Governments and the Union Territory of Puducherry have announced the
sale of 10-year SDLs for an aggregate amount of Rs.3,247 crores on March
26, 2008. Secondary
Market Finance
Minister P Chidambaram said on Monday, 17 March 2008, there is tremendous
pressure on the government to fight inflation. The government's intention
is to ensure and make all efforts to sustain growth of more than 8 per
cent and close to 9 per cent in 2007/08, Chidambaram added. The annual
inflation rate jumped to an 11-month high of 5.92 per cent for the
week-ended March 8, setting off alarm bells and prompting expectations of
swift fiscal policy measures to contain the price rise. In a move aimed at
containing inflation, the government today slashed import duties on
several varieties of edible oil as well as milled and non-milled rice. The
duty cuts will be effective from midnight of March 20-21, 2008, a finance
ministry release said. The cut in imports of milled and semi-milled rice
will be valid till March 31, 2009. Owing
to surging demand, international prices of edible oil have exhibited a
sharp and steady upward trend in recent months.
Inflation
is ruling higher and this has become a concern for the market. “Higher
inflation has ruled out any hopes of the interest rate cut by the Reserve
bank of RBI
conducted an Additional Liquidity Adjustment Facility (LAF) auction on
March 17, 2008. RBI injected Rs.4,200 crores into the system through the
special 7-day Repo auction. Bond
Market State
Bank of Hyderabad (SBH) will raise Rs 900 crore to meet Basel-II
compliance requirements for Accounting Standards 15 (AS15) as well as for
the next year’s expansion plans. Rs 500 crore had been mobilised so far
via the upper tier-II mode since March 18 this year, while the remainder
would be sourced through perpetual bonds. The fund-raising has become
necessary due to a one-time provisioning of around Rs 450 crore by the
bank to meet AS15 requirements The
Reserve Bank of Foreign
Exchange Market After
the Reserve Bank of
While
the effect on tax collections might be negligible this year, the
possibility of a bigger impact in 2008-09 was not being ruled out. Foreign
exchange derivatives are used by banks and companies to hedge their
foreign exchange risks arising from overseas operations. These operations
include foreign currency loans and bonds to raise funds and export
receivables denominated in dollars. Besides forex derivatives, banks and
companies are also exposed to credit derivatives including credit-linked
notes based on loans and bonds raised in the overseas market.
The RBI has discovered that most banks have entered into
derivatives transactions as purely speculative instruments and not for
hedging their existing credit and investment portfolios. Speculative
transactions are merely aimed at gaining from unwanted movements in
currencies and interest rates without the benefit of underlying positions.
The
portfolio of foreign exchange derivatives has turned red following
turbulence in the global equity market and the adverse movement of stable
currencies such as Swiss franc. The tax department will try to ascertain
whether banks and companies entered into transactions to hedge their
portfolio or for purely speculative purposes. Speculative gains or losses
might not be allowed to be set off against business income for taxation
purposes. Most Indian banks and companies have suffered severe losses in
their exposure to foreign currency derivatives. The
dollar fell below 96 yen for the first time in 12 years earlier today
after the Federal Reserve’s emergency weekend cut in its discount
interest rate and the sale of Bear Stearns Cos. to JPMorgan Chase &
Co. The dollar dropped to a
record low against the euro and the Swiss franc as the Fed made its first
weekend change in borrowing costs since 1979 and Bear Stearns was acquired
for less than a 10th of its March 14 value. The
rupee fell to a six-month low of 40.72 against the dollar as losses in
stocks raised speculation that global funds will reduce their local share
holdings. While the news of
Bear Stearns sale and US Fed’s emergency rate cut saw the rupee fall to
40.84, the weakest since September 2007, it appreciated later.
With Monday’s movement, the rupee has depreciated 3.76 per cent
since a high of 39.29 on January 10. This comes against an appreciation of
nearly 9 per cent seen during 2007. The
fall has been steepest against the yen with the rupee-yen value
depreciating almost 19 per cent from 35.29 in the beginning of the 2008 to
41.90 now. Similarly, it has slipped 12 per cent against the euro.
The depreciation against other major currencies was more acute than
the dollar since all other currencies have appreciated against the
greenback. Yen is at a 12-year
high against the dollar at 96 and the euro too is at a record high against
dollar at 1.5758.
In
the domestic market, the rupee is depreciating against the Commodities
Futures derivatives Global
commodity and financial markets continue to remain shaky despite the March
18 decision of the US Federal Reserve to slash lending rates by 75 basis
points, bringing the Fed funds rate to 2.25 per cent. This was the lowest
level since February 2005 and is 300 basis points lower from the 5.25 per
cent level seen in September. The rate cut followed an emergency reduction
of 0.25 per cent on the Fed discount rate, announced on March 16. The US
Fed expects the move to inject liquidity into the markets and shore up the
weakening The
market is also confused due to the sudden shift in Fed's focus from
economic growth to inflation control, which could further push the
world’s largest economy towards recession. Thus, while the March 16 rate
cut was announced with the aim of supporting the financial markets, the
March 18 cuts were announced with the aim of controlling inflation. The
dynamics of the commodity markets in general have also changed, as prices
are now being driven by investment demand besides fundamentals. For
example, crude oil prices surged to astronomical highs on increasing
investment demand as US stocks performed poorly on signs of a recession.
Weakening dollar also supported the price rise of ‘dollar denominated
crude’. This was even as the market ignored the fact that the Similarly,
in the soy complex and wheat, the prices surged sky high, with the gains
again linked to the investment demand on weakening dollar and plunging
stocks. Though the strong fundamentals–due to lower production–justify
higher prices, the fundamentals were largely ignored despite a good
soybean crop in The
United States Agriculture Department (USDA) monthly report for March
reveals stocks in most grains and oilseeds have reached historically low
levels. In the case of rice, where the stocks are slightly better, it is a
reflection of producing countries trying to curb exports to meet domestic
needs and partly due to declining per capita consumption. Rice prices have
unusually gone up in the recent past and it is now feared that any
significant drop in prices will be triggered only after mid-2008 when the
new crop sowing prospects are known. World
wheat production during 2006 dropped significantly to 593.2 million tonnes
compared to the previous two years. Sharply lower Australian crop and
sizeable imports by countries facing deficit, led to steady drawdown in
stocks. The year 2007 continued to feature mounting shortages with
increasing usage, although production slightly improved to 603.6 million
tonnes. In order to rebuild stocks, world wheat production during 2008-09
should at least be in the region of 650 million tonnes or close to 8 per
cent above previous year. This would mean significant increases in the EU,
North America and Both
corn and soybean prices will be influenced by acreage and production
prospects in the Insurance ICICI
Bank and its insurance arm, ICICI Lombard, has come under the scanner of
fair trade practices body MRTPC for imposing “unfair and unjust”
conditions on insurance cover for its credit card customers. The
Insurance Regulatory & Development Authority (IRDA) has cleared four
more insurance joint ventures (JVs) at one go, namely, Aegon Religare Life
Insurance, Bharti Axa General Insurance, Canara HSBC OBC Life Insurance
and DLP Pramerica Life Insurance. In each of the three new life insurers
and one general insurer, the foreign partners hold the maximum permissible
stake of 26 per cent. There
are now 15 life insurers and 13 general insurers in the country, including
the state-owned companies. Going by the trend, while banks are rushing to
get into the life insurance sector, not many are entering the general
insurance sector. Analysts believe that the general insurance business may
be a complex one for the banks while life insurance products have direct
synergies with the banks’ savings and investment products. Corporate
Sector An
inter-ministerial group (IMG) has cleared the $8 billion (Rs 32,000 crore)
CTL project of the Tata group and its partner Sasol of South Africa, the
world’s largest producer of oil from coal. For the CTL plant in The
$11 billion diversified Russian conglomerate, Sistema, has drawn up mega
plans for Tata-Motors
have signed a deal to receive a $3 billion, one-year bridge loan from
Citigroup and JP Morgan to help finance a potential purchase of luxury
brands of Jaguar and Land Rover. Telecom Tech
Mahindra (TM), the Rs 2,929 crore Indian IT company, has signed a
five-year deal valued in excess of $350 million with British Telecom. As
per the deal, TM will provide application maintenance and support services
for BT’s business critical BSS and The
Department of Telecommunications (DoT) has permitted BSNL and MTNL to
provide full mobility services on the CDMA platform. This provides the
two-state owned telecom companies a level playing field vis-à-vis their
private sector counterparts. Presently, BSNL and MTNL are providing full
mobility services using GSM technology, while CDMA based WLL services are
for limited mobility purposes. Last year, they have sought the
government’s permission to upgrade their CDMA platforms.
*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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