|
Current Economic Statistics and Review For the
Week | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Theme
of the week:
Invisibles in India’s Balance of Payments* 1.
Introduction External
sector has witnessed a dramatic transformation over the past 17 years. There
is a growing integration of the Indian economy with the rest of the world.
BOP position since the nineties has acquired a great degree of comfort. This
significant improvement has been achieved by ushering in an array of
structural transformation in the external sector following similar changes
in the domestic economy. Reductions in tariffs and easing of non-tariff
restrictions, current account convertibility and a market determined
exchange system, are worth mentioning s measures supportive of change. These
liberalisation policies resulted in strong growth in merchandise exports and
more striking growth in exports of services and inward remittances. The
growth in services exports has been led by the significant expansion in
software exports and professional and business services. Thus, the buoyant
growth in international trade in services witnessed since the 1990s, has
been the result of not only trade liberalisation and multilateral trade
negations in both services and goods, but also due to technological
innovation in transportation and communication. 2.
Concepts Data
on ‘Invisibles’ form a part of BOP statistics and data on international
trade in services form a part of ‘invisibles’. Invisible
have three major heads: services, transfers, and income. These three major
heads are then disaggregated into minor heads. IMF manual have given 13
minor heads under invisibles. In 3.
Definitional Aspect of Components of Invisibles Services
encompasses travel, transportation, insurance, government not included
elsewhere, and miscellaneous services.
‘Travel’
represents all expenditure by foreign tourists in ‘Transportation’
records receipts and payments on account of the carriage of goods and
natural persons as well as other distributive services (such as port
charges, bunker fuel, stevedoring, cabotage, warehousing) performed on the
merchandise trade. ‘Insurance’
consists of insurance on exports/imports, premium on life and non-life
policies and reinsurance premium from foreign insurance companies. 'Government
not included elsewhere (GNIE)' represents remittances towards maintenance of
foreign embassies, diplomatic missions and international/regional
institutions, while payments record the remittances on account of
maintenance of embassies and diplomatic missions abroad. 'Miscellaneous
services' encompass communication services, construction services, financial
services, software services, news agency services, royalties, copyright and
license fees, management services and business services. Business services
comprise of merchanting services, trade related services, operational
leasing services, legal services, accounting services, business and
management services, advertising services, research and development
services, architectural and engineering services, agricultural services,
office maintenance services, environmental services and personal and
cultural services.
'Investment
income' represents the servicing of capital transactions
(both debt and non-debt). These transactions are in the form of
interest, dividend, profit and others for servicing of capital transactions.
Interest payments represent servicing of debt liabilities, while the
dividend and profit payments reflect the servicing of non- debt (foreign
direct investment and portfolio investment) liabilities Investment income
payments move in tandem with 'Transfers'
represent one-sided transactions, i.e., transactions that do not have any
quid pro quo, such as grants, gifts, and migrants' transfers by way of
remittances for family maintenance, repatriation of savings and transfer of
financial and real resources linked to change in resident status of
migrants. Official transfer receipts record grants, donations and other
assistance received by the Government from bilateral and multilateral
institutions. Similar transfers by Indian Government to other countries are
recorded under official transfer payments. 4.
New Initiatives for Monitoring Trade in Services Recent
development in negotiations under the General Agreement on Trade in Services
(GATS), the ongoing negotiations of current and capital account transactions
and rationalization of the reporting requirements have placed an increasing
demand on comprehensive, timely and more disaggregated information in
international transactions in services and this assumes vital importance for
effective monitoring especially because the cross boarder transactions in
services are both onsite and offsite. United
Nations designed a comprehensive Manual on Statistics of International Trade
in Services. This manual provides a coherent conceptual framework within
which countries can structure their statistics on the services transactions.
In India, Reserve Bank of 5.
New Reporting Arrangements
Recognising
the rising importance of services exports, the RBI took the lead in putting
in place an arrangement to collect comprehensive information on A
new reporting arrangement was put in place in 2004-05 wherein a number of
new purpose codes were introduced with a view to collecting data separately
for a number of emerging business services which are associated with ongoing
technological transformation of the economy. These new categories of
services comprise merchanting services, trade related services, operational
leasing services, legal services, accounting services, business services,
management services, advertising services, research and development
services, architectural and engineering services, agricultural services,
office maintenance services, environmental services, personal and cultural
services. In
a liberalized environment with greater freedom and authority given to
authorized dealers (ADs), this initiative was in recognition of the
compelling need to provide for timely and disaggregated information flow
from ADs to the RBI. The detailed explanation of these categories of
business services is presented in Annex 1. 6.
Invisibles – An overview Thus, gross invisible receipts have expanded sharply from 2.6 per cent of GDP in 1989-90 to 12.5 per cent of GDP in 2006-07. On the other hand the invisible payments have risen from 2.0 per cent of GDP in 1989-90 to 6.7 per cent of GDP in 2006-07. As a result, net invisibles have made a small expansion to 5.8 per cent of GDP in 2006-07 from a fraction of 0.5 per cent in 1989-90 ( Table 2). This escalation in invisible surpluses in recent years as already mentioned above was mainly due to expansion in the services exports. 7.
Magnitude of Services Exports An important feature of service exports has been a structural shift driven by the emergence of new avenues of service exports. Services receipts multiplied about 18 times from a low of US $ 4.2 billion to US $ 76.2 billion in 2006-07. At this level, its share in the invisible receipts was 66.2 per cent and it formed about 8.3 per cent of GDP. Services payments rose only by 13 times to US $ 44.4 billion in 2006-07 from US $ 3.5 billion in 1989-90. Its share rose from 51.2 per cent in 1989-90 to 72.0 per cent in 2006-07. Services Payments as per cent of GDP rose from 1.2 per cent in 1989-90 to 4.8 per cent of GDP in 2006-07. The ratio of net services exports to GDP in 2006-07 has worked out to 3.5 per cent as against a fraction of 0.2 per cent in 1989-90.
Traditional services have displayed weariness in the recent period while the new services-predominantly high skill and technology- intensive services- are rising in importance in the last decade (see accompanying Table) 7.1
Travel
Travel receipts constitute an important component of service
receipts. Receipts under travel consist of expenditure by foreign tourists
towards hotel accommodation, food and beverage services and goods and
services purchased including domestic travel. Arrival of foreign tourists
follows a seasonal pattern with October-December as the peak season
extending up to March. Travel receipts continued to benefit from the robust
growth in tourist arrivals.
Tourism
earnings continued with their buoyancy witnessed since 2003-04, reflecting
both business and leisure travel. Liberalisation of payment system, growing
globalisation, rising services exports and associated business travel, have
led to a sustained growth in outbound tourism from 7.2
Transportation With the rising merchandise trade over the years, the receipts and payments towards transportation which mainly represent carriage of goods and natural persons as well as other distributive services (such as port charges, bunker, fuel, stevedoring, cabotage, warehousing) have also shown increases over the years. Both, the receipts and payments towards transportation are increasing, but the net amount remained miniscule. During the period 1989-90 to 2006-07, while transportation receipts in US dollar terms increased from 0.9 billion to 8.1 billion, that of payment rose from 1.1 billion to 8.1 billion. Transportation receipts share in total services declined from 21.4 per cent to 10.6 per cent and the numbers for payments fell from 31.6 per cent to 18.2 per cent during the 17-year period ending 2006-07 (Table 3). However transportation receipts as per cent of GDP rose from 0.33 per cent in 1989-90 to 0.88 percent in 2006-07. Similar increase in the numbers for transportation payments also witnessed (Table 4). 7.3
Insurance ‘Insurance’
consists of insurance on exports/imports, premium on life and non-life
policies and reinsurance premium from foreign insurance companies. Insurance
receipts and payments are generally associated with movements in 7.4
Government not included elsewhere (GNIE) 'Government
not included elsewhere (GNIE)' represents remittances towards maintenance of
foreign embassies, diplomatic missions and international/regional
institutions, while payments record the remittances on account of
maintenance of embassies and diplomatic missions abroad. GNIE receipts
increased from US $ 31 billion in 1989-90 to US $ 250 billion in 2006-07 and
GNIE payments rose from US $ 127 billion to US $ 403 billion during the same
period. 7.5
Miscellaneous services 'Miscellaneous services' encompass communication services, construction services, financial services, software services, news agency services, royalties, copyright and license fees, management services and business services. Business services comprise of merchanting services, trade related services, operational leasing services, legal services, accounting services, business and management services, advertising services, research and development services, architectural and engineering services, agricultural services, office maintenance services, environmental services and personal and cultural services. A huge 33 times increase has been witnessed in receipts from the export of miscellaneous services. It picks up the pace especially during the current decade. From a low of US $ 1.8 billion in 1989-90 it rose to US $ 7.4 billion in 1998-99 a mere four time increase but from 1998-99 the accretion has been accelerated by 2006-07 the receipt has been US $ 57.6 billion – an eight time rise. Though a similar trend also witnessed in the payment side during 1988-89 to 1998-99, but it has moderated thereafter from US $ 6.2 billion it rose to US $ 28.6 billion in 2006-07. Recognizing the importance of the items included in this category, it is intended to give a detailed analysis of different categories in our next theme note on the subject. A detailed statistics on various aspects of travel (Table 5), transportation (Table 6r and Table 6p), insurance (Table 7) and GNIE ( Table 8) are given in the respective Tables 8.
Policy Initiatives
In the
1990s, a liberalized trade regime was put in place, which marked a
significant turnaround in To facilitate services exports, the Services Export Promotion Council was set up by the Government of India to: (i) map opportunities for key services in key markets and develop strategic market access programmes for each component of the matrix; (ii) co-ordinate with sectoral players in undertaking intensive brand building and marketing programmes in target market; and (iii) make necessary interventions with regard to policies, procedures and bilateral/multilateral issues, in co-ordination with recognised nodal bodies of the service industry. Foreign Trade Policy (2004-2009) announced that Government shall promote the establishment of Common Facility Centres for use by home-based service providers, particularly in areas like engineering and architectural design, multimedia operations, software developers, etc., in state and district-level towns, to draw in a vast multitude of home-based professional into the services export arena. The objective is to accelerate the growth in exports of services so as to create a powerful and unique ‘Served From India’ brand. Moreover, all service providers, whose services are listed in the Handbook of Procedures, shall be entitled to duty credit scrip equivalent to ten per cent of the foreign exchange earned by them in the preceding financial year. Duty credit scrip can be used for import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables. The imports shall relate to any service sector business of the applicant. Utilisation of duty free credit scrip earned under the scheme financing shall also be permitted for payment of duty in case of import of capital goods under lease financing. *
This note has been prepared by R.Krishnaswamy References: RBI
(2002), Statistics of International Trade in Services, Report of Technical
Group, March. RBI
(1999), Invisibles in India’s Balance of Payments, RBI Bulletin,
April RBI
(2001), Invisibles in India’s Balance of Payments, RBI Bulletin,
February RBI
(2007), Invisibles in India’s Balance of Payments, RBI Bulletin,
February RBI
(2008), Invisibles in India’s Balance of Payments, RBI Bulletin,
February United
Nations (2004), Manual on Statistics of International Trade in Services
Annexure
– New Reporting System For Services
Highlights of Current Economic Scene AGRICULTURE As
per Food and Agriculture Organisation (FAO) of the
The
central government has lifted the ban on castor oil, coconut oil and oils
from minor forest produce following pressure from the industry and state
governments. While ban would be continued on groundnut and sesame oil as
they are widely consumed across the country. The solvent extraction
association has urged the central government to lift the ban on exports of
edible oil since their exports are negligible. The
Indian olive oil Association has reduced the customs duty rates on all
grades of olive oil imported in the country to
7.5 per cent from the previous rate of 45 per cent on virgin olive oil and
40 per cent on refined olive oil and pomace oil. It is expected that with
this move the prices of olive oil would get reduced by 15 per cent in the
domestic market. According
to National Horticultural Research and Development Foundation (NHRDF),
onion exports from As
per the data by Marine Products Export Development Authority (MPEDA),
export of seafood from The
central government has brought the shrimp production under Vishesh Krishi
Upaj Yojana (VKGUY) scheme, where the production activity would receive an
additional benefit of 3.5 per cent of the fob value of the exports under
Duty Entitlement Pass Book (DEPB) plan.
Exports of shrimp have been reeling under pressure, due to rupee
appreciation. According
to Jute Advisory Board, the size of the jute crops in 2007-08 has been
pegged at 97 lakh bales (of 180 kg each) against 100 lakh bales in
2006-07. The stock carried forward to current jute year 2007-08 has been
23 lakh bales and imports of jute from The
Cabinet Committee on Economic Affairs (CCEA) has announced a uniform
all-India minimum retail price (MRP) of Rs 3,400 per tonne for powdered
single super phosphate (SSP) with effect from May 1, 2008. The MRP of
granulated SSP would be Rs 400 per tonne higher than that of powdered SSP
and MRP of boronated SSP, which can be either in powered or granulated
form, would be 10 per cent higher than that applicable to powdered and
granulated SSP respectively. Simultaneously, the subsidy has also been
raised from the existing ad-hoc amount of Rs 1,125 per tonne. The basic
subsidy amount for SSP manufactured with imported or indigenous rock
phosphate has been fixed at Rs 5,630 and Rs 3,658, respectively. According
to a Cashew Export Promotion Council of India (CEPCI), export earnings
from cashew nut has slipped by 6.8 per cent to Rs 2,288 crore during
financial year 2007-08 as compared with Rs 2,455 crore in 2006-07 and the
volume of exports has come down to 114,340 tonnes from 118,540 tonnes
during the same period. The main reasons for the fall in value and
quantity of exports have been appreciation of rupee against US dollar and
stiff competition from The
Kerala State Cashew Development Corporation Ltd (KCDC) would be launching
four cashew-based products, as there is a strong demand for such products
in both domestic and in international markets. The four new products are a
‘cashew soup’, ‘cashew vita’, a health drink; ‘cashew powder’
for culinary use and a masala cashew snack called ‘cashew bits’. The
company has planned to distribute these new products across The
central government plans to grant a package of Rs 25,000 crore as agri
fund to the states, so that it would provide a fillip to the growth of the
agriculture sector. This fund would be allocated through the Rashtriya
Krishi Vikas Yojna. The states would get these funds in proportion to the
outlay for agriculture in the state budget. The percentage of unirrigated
area in a state would also determine the allocation of the money and so
the contribution of agriculture to the GDP by the state would determine
its eligibility for drawing funds. It is expected that this would be an
impetus for the sector, particularly in the regions of Punjab and Haryana
where the cost of cultivation has increased manifold in the last five
years, due to increase in the cost of inputs and dwindling natural
resources. Unseasonal
rains have lashed many parts of north Gujarat leading to heavy damages to
the harvested crop kept in the open farms and standing crops like wheat,
jeera (cumin seed), isubgul (psyllium husk), potato, fennel seed and
mustard crops. As a result, prices of foodgrains, pulses and seasonal
fruits are likely to go up in the short run. Around 25,000 bags of jeera,
15,000 bags of fennel seed, 5,000 bags of mustard and 5,000 bags isubgul
have got damaged at the Unja market yard, one of the largest market yard
of According
to mandi parishad estimates, prices of potato in Uttar Pradesh have
dropped by more than 50 per cent over a week on the back of bumper crop
and insufficient storage capacity of the available cold storages in the
state. The total production of potatoes in the state, this year, is around
12.5 million tonnes, 1.5 million tonnes more than the previous year ,
given that the cold storages available in the state have capacity of 9
million tonnes. It is expected that nearly around 2-2.5 million tonnes of
potatoes would get damaged this year. The cold store- Industry A
pick up in the index of industrial production has been seen during
February 2008 as compared to February 2007. The growth in the index of
industrial production during February 2008 at 8.6 is less than half that
recorded in February 2007 (11.0 per cent). All the three major groups
contributed for this pick up. 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 7.5 per cent and
9.8 per cent during the month. The growth of manufacturing sector is at
8.6 per cent during February has been much below to that of 12.0 per cent
recorded last February. Out of the 17 industries, two industries declined
and eight industries registered double digit growth.. As per use-based
classification, the sectoral growth rates in February 2008 over February
2007 are 7.3 per cent in basic goods industries, 10.4 per cent in capital
goods and 8.2 per cent in intermediate goods. Consumer goods recorded an
increase of 9.2 per cent. Infrastructure Riding
on the back of good performance of coal, electricity and cement 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 an
impressive growth of 8.7 per cent during February 2008 as compared to 7.6
per cent in February 2007. This impressive performance exhibited by
the core industries in
February 2008 resulting the core index registering a growth of 5.6 per
cent during the fiscal so far as against 8.7 last year. All the six-core
industries witnessed better performance during February 2008 compared to
January 2008.. Thus refinery products, electricity, cement, steel and coal
all contributed for the higher rate of growth. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
7.41 per cent for the week ended March 29,2008 as compared 5.94 per cent
as on March 31,2007. Index
of Primary Articles group rose by 0.2 per cent to 235.1 from 234.6 for the
previous week. Food articles group rose by 0.4 per cent. Index of non-food
articles declined by 0.3 per cent due to fall in prices of sunflower, raw
rubber and castor seed. The
index for the major group Fuel, Power, Light and Lubricants remained at
its previous weeks level of 341.4. Increase
in the prices of many iron and steel items and food products pushed up the
the index of manufactured products which registered an increase of 0.9 per
cent The final WPI for all commodities had been revised upward from 218.8 to 217.4 for the week ended January 29,2008. As a result the rate of inflation calculated on a point-to-point basis stood at 4.74 per cent as compared to 4.07 per cent provisional. Banking Consolidation
is gaining momentum in the banking sector. After Centurion Bank of The
RBI has increased the borrower’s eligibility for availing loan under the
differential rate of interest (DRI) scheme. Accordingly, borrowers with
annual family income of Rs 18,000 in rural areas and Rs 24,000 in urban
areas will now be eligible to avail the facility as against the earlier
annual income criteria of Rs 6,400 in rural areas and Rs 7,200 in urban
areas, fixed by the government of Financial
Sector Capital
Markets Primary
Market Securities
and Exchange Board of India (SEBI) has decided to set up a working group
of banks for a pilot project aimed at implementing its biggest move yet on
the primary market, that of making the new issue application process
simple so that funds would remain in investors’ accounts. This move,
loosely seen as an electronic form of the earlier Stockinvest scheme, will
ensure that applicants do not have their funds locked into the new offers
without any certainty over how much allotment they will get. The pilot
project would begin in three months in cities where these banks had the
required infrastructure in place. Once e-applications are made possible,
institutions too do not have to worry about their funds being locked into
offers without allotment being certain. The
amounts mobilised from primary equity markets in the recently ended
financial year 2007-08 has posted a rise of 109 per cent, as compared to
funds raised in the previous financial year. According to Prime database,
Rs 52,253 crore was mobilised as compared to Rs 24,994 crore, which was
raised in the preceding year, while Rs 23,676 crore was raised in the year
2005-06. According to PRIME, the mobilisation was dominated by 85 initial
public offers (IPOs), which collectively raised Rs 41,358 crore or 79 per
cent of the total amount, compared to 76 IPOs in the preceding year, which
mobilised Rs 23,706 crore. Follow-on public offerings (FPOs) by listed
companies too witnessed an increase. Compared to 9 such companies with a
total offer of Rs 1,287 crore in the preceding year, the year 2007-08
witnessed 6 listed companies raising Rs 10,895 crore. The largest FPO
during the year was from ICICI Bank (Rs 10,044 crore). Indian
Railway Finance Corporation (IRFC) would tap the IPO market this financial
year or early next fiscal to raise funds. This is because the company,
which mobilises finance for railways, has to maintain a debt-equity ratio
of 10:1 under the stipulated RBI norms. Given the target to raise Rs 7,200
crore this fiscal, IRFC would be approaching a debt-equity ratio of 9.99:1
by March 2009. On
April 07, 2008, Sita Shree Food Products Ltd debut on the exchanges closed
with a gain of 45.66 per cent against the issue price of Rs 30. It opened
at Rs 35 and touched an intra-day high of Rs 46.70 and a low of Rs 33.95.
On BSE, it opened at Rs 30, which is also the day’s low; it hit an
intra-day high of Rs 46.65 and closed at Rs 43.90. The company had come
out with its IPO aggregating to Rs 31.50 crore, priced between Rs 27 and
Rs 30 a share. Aishwarya
Telecom Ltd is gearing up to tap the capital markets through an IPO. At
the upper end of the price band of Rs 32-35, the company will raise about
Rs 14 crore. The company will use these proceeds to increase its
manufacturing capabilities and infrastructure, fund research projects and
for general corporate purposes. The issue will open for subscription from
April 15 to April 17. Secondary
Market The
markets ended higher for the week in spite of record inflation numbers and
the potential impact on corporate profits due to mark-to-market losses on
the forex derivatives front as per the ICAI guidelines. Powered by a rally
in the Reliance Industries scrip and firm Asian and European indices
towards the end of the week helped most of the major indices post smart
gains for the week ended April 11, 2008. The Sensex rose 464.5 points or
3.0 per cent to 15,807.6 while the Nifty gained 130.8 points or 2.8 per
cent to 4777.8. The Defty was up 2.9 per cent. The Junior was up 4.2 per
cent while the Midcaps rose 4.1 per cent and the BSE 500 rose 3.8 per
cent. In
the week under review, the indices of Oil and Gas, Capital goods and
Consumer durables are the major gainers among the BSE sectoral indices by
7.26 per cent, 5.13 per cent and 4.86 per cent respectively. RIL’s entry
to petrocoke gassification segment influenced oil and Gas to become the
top gainer while higher IIP number led the power and capital goods to
record positve growth. Select
counters in capital goods, banking and finance, information technology,
oil and gas, telecom and textiles witnessed a build-up of long positions,
while cement, construction and steel counters witnessed an accumulation of
short positions during the week ended April 11.
The
National Stock Exchange (NSE) has launched the country’s first
Volatility Index (VIX) on April 8, 2008. The VIX is a measure of the
market’s expectation of volatility over the near term (next 30-day
period) calculated as annualised volatility denoted in percentage terms
and based on the Nifty 50 index option prices.
After launching the new index, Ravi Narain, MD and CEO, NSE, said,
“The Volatility Index is a good indicator of the investors’ perception
on how volatile markets are expected to be in the near term. We have done
our homework before launching this product and it will help determine the
overall volatility in the market.” The India VIX is calculated using the
methodology adopted by the Chicago Board of Options Exchange (CBOE), which
was the first to introduce volatility index in the According
to Ravi Narain, managing director and chief executive officer, NSE is
considering listing of Nifty futures or Nifty exchange traded funds in the
NSE
has granted licences to three European funds to launch Exchange Traded
Funds (ETFs) and was looking to enhance foreign participation through
Indian Depository Receipts (IDRs). The
cumulative assets under management of the three funds would be about $400
million. At present, the NSE has no proposal to launch futures on its main
index in other markets. SEBI
has suggested a series of measures for brokers (trading members of the
exchange), in a discussion paper on the issue of sales practices to be
followed by them in a kind of do’s and don’ts format, in an attempt to
fulfill its twin objective of investor protection and the interests of the
capital market. The discussion paper wants the main broker to be
responsible for the wrong deeds of one of his constituents –the sub
broker, or the franchisee. SEBI wants brokers to give their clients an
exposure limit that is commensurate with the financial details that the
clients report in the KYC document. SEBI has also introduced the concept
of ‘introducer’ prevailing in the banking sector. SEBI
has made the provisions of Clause 49 of the listing agreement more
stringent. The regulator has said that for listed companies, if the
non-executive chairman is a promoter or is related to promoters or persons
occupying management positions at the board level or at one level below
the board, at least half of the board should comprise independent
directors. Earlier, SEBI had mandated that a third of the board should be
independent directors if the chairman was a non-executive one. SEBI has
also specified the minimum age of an independent director, at 21. SEBI
amended certain provisions in the master circular and made it clear that
disclosures of relationships between directors
inter-se both of executive and independent directors will have to
be made in specified documents/filings. The stock exchanges have been
asked to get details from listed companies based on the revised circular
from next month onwards. SEBI also said that the gap between
resignation/removal of an independent director and appointment of another
independent director in his place should not exceed 180 days. SEBI
would soon have a meeting with foreign institutional investors (FIIs) and
custodians to discuss the issue of imposing margins on trades undertaken
by the institutional investors effective from April 21. The regulator
would try to resolve the concerns of the institutional participants on the
issue in the said meeting. The institutional investors have sought the
extension of the deadline and asked the regulator to introduce the new
norms in a phased manner. SEBI
is likely to shortlist top 20-50 companies from the South Asian region to
see if the current rules make them eligible for IDRs. The
move follows the market regulator’s efforts to understand why overseas
companies are not tapping the Indian Depository Receipts (IDRs) route even
after relaxing many rules. Derivatives The
announcement on accounting for derivatives issued by ICAI on March 29,
2008, clarifies the best practice treatment to be followed for all
derivatives is as follows:
(i) All derivatives except forward contracts covered by AS 11, can
be accounted for on the basis of the requirements prescribed in AS 30,
Financial Instruments: Recognition and Measurement.
(ii)
In case an entity does not follow AS 30, keeping in view the principle of
prudence as enunciated in AS 1, ‘Disclosure of Accounting Policies’,
the entity is required to provide for losses in respect of all outstanding
derivative contracts at the balance sheet date by marking them to market. The
effect of the above announcement is as follows:
(i) In case an entity does not follow AS 30, the losses in
respective of derivative contracts at the balance sheet date have to be
provided for and disclosed.
(ii)
In case an entity follows AS 30, then the effect will be broadly as
follows: In
case the derivatives do not meet the hedge accounting criteria as laid
down in AS 30, the gains or losses in respect thereof will have to be
recognised in the statement of profit and loss. The derivatives will have
to be shown as financial assets or financial liabilities on the balance
sheet, as the case may be, as per the requirements of the accounting
standard. The
Nifty May futures contracts have open interest of 50 lakh shares, up from
20 lakh last week, indicating heavy purchase in the May series, which is
trading at a discount of 2 points over the Nifty April futures. There
appears to be a gradual resurgence in Indian operator interest in F&O.
Overall, volumes on F&O stayed above the Rs 40,000 crore levels. The
rise in the market share of domestic operators and retail interest in
F&O has coincided with lower cash-market volumes and lower commodity
exchange volumes. It was a quieter week with no major swing sessions.
While seeing a net rise, the indices remained stuck inside a range. The
newly launched India VIX index of expected volatility showed that
volatility expectations have dropped in the past 10 sessions.
The VIX gives sophisticated traders a tool to measure market
dynamics. In the MiniNifty and Nifty combined, April OI dropped by around
22 lakhs while May OI rose by 16 lakhs. The cash Nifty closed at 4777.8
while the April Nifty futures contract was settled at 4772, May at 4769
and June at 4756. In the BankNifty, the cash index closed at 6,838 while
the April futures contract was settled at 6,837. In the CNXIT, the cash
index closed at 3,825, while the April futures was settled at 3,839 albeit
with very low OI. The Junior closed at 8,100 in cash while the futures was
settled at 8,125 with very low OI. The Midcaps closed at 2,435 while the
April futures was settled at 2,442. Outside of the Nifty, there was no
liquidity in any mid or far term contracts. In
the Nifty options market as well, the signals are well inside the normal
range and hence, neutral. Overall, the put-call-ratio is at 1.25, which is
normal. The April PCR is at 1.17 while May-June is around 1.8 and the mid
and far month positions account for around 16 per cent of all outstanding Mini-Nifty
is gaining popularity even as the Nifty futures are witnessing low
activity following the lull in the markets, due to low margin requirements
and hedging opportunities. The number of traded contracts on the Mini
Nifty stood at 1,06,800 on January 1 and has risen nearly 10 times till
April 11,2008. The trading volumes in the mini Nifty contracts introduced
by the (NSE in January 2008 have shown a steady rise, while the volumes in
Nifty futures continue to be lacklustre.
The turnover on the Mini Nifty has been Rs 363.83 crore, while that
on Nifty futures is Rs 17,823.94 crore. The number of traded contracts on
the Mini Nifty stood at 1,06,800 on January 1 and has risen nearly 10
times. The value of a Nifty contract, with a lot size of 50, is around Rs
2.5 lakh. The margin involved is also high at about 12 per cent. However,
the mini-Nifty contract has a lot size of 20 and is valued around Rs 1.2
lakh. The
Chhota Sensex, the smaller contract introduced by the BSE at the same time
as the Mini Nifty registered an average traded turnover of a mere Rs 58.49
crore. The Chhota Sensex has not really taken off as its low liquidity
deters investors from using it for hedging purposes.
Foreign
institutional investors (FIIs) are slowly shifting futures trading in the
popular Nifty index to the Singapore Exchange (SGX). According to experts,
the shift in the trading turnover on Nifty futures from the NSE to the
Singapore Exchange (SGX) is driven by a rise in the cost of trading in Most
of the times, the contracts are rolled over to the next settlement. The
traded volume of SGX Nifty hit a peak of 62,892 contracts on March 26.
Significantly, Nifty worth Rs 50,000 crore got expired on March 27 as
against a rise of Open Interest worth Rs 4700 crore on SGX Nifty on March
28. The Nifty OI, which was nearly 4 percent of the total OI on Nifty
futures before the start of this calendar year, now commands over 30 per
cent share of the total open interest position.
Government
Securities Market Primary
Market Under
the Market Stabilisation Scheme (MSS), 6.57 per cent 2011 for Rs.3,000
crore (nominal) will be sold (re-issued) through a price based auction
using multiple price method. The auction will be conducted by the Reserve
Bankof India (RBI) on April 16, 2008. RBI
re-issued 7.38 per cent 2015 and 7.95 per cent 2032 for Rs.6,000 crore and
4,000 crore on April 11, 2008 at the cut-off yields of 8.14 per cent and
8.67 per cent, respectively. On
April 9,2008, RBI auctioned 91-day and 364-day T-bills for the notified
amounts of Rs.6,000 crore (out of which 3,000 crore under MSS) and
Rs.2,000 crore (out of which 1,000 crore under MSS) respectively. The
cut-off yields for 91-day and 364-day T-bills were 7.23 per cent and 7.37
per cent respectively. RBI
auctioned 6.57 per cent 2011 for Rs.5,000 crore
out of which 5,000 crore under MSS at the cut-off yields of 7.95
per cent and 8.67 per cent on April 10, 2008.
Secondary
Market Inter bank call rates ended at 4.53 – 5.54 per cent, significantly below the previous close of 8.75 per cent-8.50 per cent Bond yields remained north bound during last week as inflation concerns dominated market sentiments. With inflation at a three-year high of 7.41 per cent, traders expect some policy intervention from the Reserve Bank of India (RBI). Policy interventions though are constrained by fears of a slowdown. With credit off-take already low, there are fears that the flexibility for monetary policy interventions, through hikes in repo rates or through hikes in the CRR, is very limited. The
weighted ten-year yield to maturity moved up to 8.02 per cent last week,
up from the previous week’s 7.92 per cent. Yet, trade volumes remained
high during the week and the undertone was positive. This was on account
of large purchases by mutual funds. Bond yields have begun correcting
themselves to the headline inflation rates. Ten-year benchmark paper has
gained seven basis points over the last three days to a nine-month high of
8.05 per cent on Friday. The
paper finally closed at 8.03 per cent but the pressure on yields is
upward. Analysts believe that with persistent inflationary pressures, the
bond market has turned bearish. A few are also expecting an increase in
the ceiling on the market stabilisation scheme (MSS) auctions to mop up
excess liquidity from the system. According to Clearing Corporation of
India (CCIL), average daily volumes in March have slipped to Rs 5,400
crore against Rs 13,000 crore in January and Rs 9,150 crore in February.
In fact, in January 2008, there were expectations of a softening trend in
interest rates. The
Reserve Bank of India (RBI) may avoid moral suasion to deter bids at its
daily reverse repo tenders and instead reject bids if the cash parked by
banks with the central bank rises above its holding of government
securities. On April 09 2008, the central bank received and accepted Rs
79,005 crore bids at its reverse repo tender, registering a 22-month high.
On June 6, 2006, banks parked Rs 72,300 crore at RBI’s reverse repo
tender. Market speculation was that the central bank might not have enough
stock of government securities if bids at the reverse repo increased
sharply further. Bond
Market ICICI
Home Finance Ltd tapped the market by issuing bonds to mobilise Rs 100
crore by offering 9.50 per cent for 18 months. The bond has been rated AAA
by Icra & Care. IDFC
Ltd tapped the market by issuing bonds to mobilise Rs 185 crore by
offering 9.30 per cent & 202 bps over MIOR for 2 years. The bond has
been rated AAA by Icra & Care. Foreign
Exchange Market The
rupee remained at the sub-Rs 40 level due to net inflows which stood at
$284 million during the week. Net inflows appear to have bolstered by
foreign institutional investors (FII), due to the Fed’s liquidity
injection programme. The rupee likely to remain stable was evident from
the shrinking forward premia. One-month forward premia was 1.58 per cent
(1.73 per cent), three months 2 per cent (2.60 per cent), six months 2.10
per cent (2.45 per cent) and the 12 months at 1.58 per cent (1.73 per
cent) respectively. However, it was the short forward premium, cash to
spot, that was wide at 3 per cent. This was largely on account of foreign
banks arbitrage operations. Rupee
traded near the highest this month on speculation the central bank will
allow gains in the currency to keep inflation from accelerating. As the
annual inflation rate rose to the highest since November 2004, adding to
speculation the South Asian nation's policy makers will prefer a stronger
local currency. Rupee gains may reduce the cost of imports, including
crude oil that climbed to a record this week. The RBI said on Friday it
cut its foreign-currency purchases in February by 72 per cent to $3.88
billion. Commodities
Futures derivatives Forward
Markets Commission (FMC) is in the process to formulate guidelines for
demutualisation of existing commodity exchanges and setting up of new
commodity exchanges. The ordinance lapsed on April 6 as it was not
approved by Parliament within the stipulated six weeks. BC Khatua,
chairman FMC said, "The Parliament is likely to discuss the FCRA
Amendment Bill in due course and some minor changes are likely to be made
before the Bill becomes an Act". The Centre had notified an ordinance
in February amending FCRA that conferred functional and financial autonomy
to FMC. Futures
trading in wheat, rice and pulses like tur and urad has been suspended by
FMC, as it caused market manipulation, leading to a rise in prices. But,
still, futures trading is being carried out in a number of agricultural
commodities. The government knows for certain that futures trading in farm
commodities is the cause for market manipulation. According
to a recent report of the International Grain Council (IGC), the world
wheat production would be at 646 million tonne (mt), an increase of 42 mt
over the previous year, due to a 2.5 per cent increase in the area under
cultivation. The global prices of maize were around $240 a tonne by March
27. The IGC forecasts global maize output to decline by 20 mt to 748 According
to FMC Chairman B C Khatua, the commodities transaction tax (CTT) which
has been proposed by finance minister P Chidambaram, in his budget speech,
could divert volumes from domestic commodity exchanges to foreign
platforms and may lead to a flourish in dabba trading. As per his views,
domestic traders have now moved to foreign platforms. Wheat turnover has
not switched to other commodities but has migrated overseas, especially to
the Chicago Board of Trade (CBOT). Commodity
futures trade in The
National Commodity & Derivatives Exchange (NCDEX), According
to the final estimates of the Rubber Board, which announced on April 07,
2008, natural rubber [NR] production fell 3.3 per cent in financial year
2008 (FY08) to 8,25,000 tonnes as against 853,000 tonnes in FY07. Total
consumption, on the other hand, increased to 8,60,000 tonnes, up 4.8 per
cent, during the year. The Rubber Board had initially projected a total
output of 8,74,000 tonnes in FY08. By October, however, the scenario
changed and, during winter, production picked up sharply. By December, the
shortfall was contained to 6.4 per cent.
Negating the speculation over the stock position, the board has
estimated a stock of 1,74,000 tonnes as on March 31, as against 1,65,190
tonnes on the corresponding day last year. The board also projected
180,000 tonnes stock as on 31st March of 2009, indicating a regular supply
of NR during the whole of current financial year.
Insurance Reliance
Life Insurance has registered 233 per cent growth in 2007-08, with a total
new premium of Rs 2,754 crore. Corporate
Sector In
yet another major public-private partnership, Tata Steel will float a
joint venture (JV) company with state-owned MMTC to acquire mining
projects in Reliance
Big Entertainment, the flagship entertainment company of the Reliance Anil
Dhirubhai Ambani group, has acquired a 100 per cent stake in the Digital
Images Business of US-based DTS Inc. In
an effort to expand operations overseas, JK Tyre and Industries Ltd has
acquired a Mexico-based tyre company, Tornel for Rs 270 crore. The
acquisition, which would be for 100 per cent shareholding in the company,
is being done through special purpose vehicle route. Multiplex
chain Satyam Cineplexes is planning to open 104 screens across the country
in the next two years entailing an investment of Rs 200 – 250 crore. Cummins
External
Sector Provisional
trade data released by the Directorate General of Commercial Intelligence
& Statistics (DGCI&S) estimated that the country’s export during
February 2008 at $ 14.2 billion against S 10.5 billion in the
corresponding month of 2007, a stupendous growth of 35.2 per cent.
Cumulative value of exports during April-February 2007-08 amounted to
138.4 billion against $112.6 billion , an increase of about 22.9 per cent.
Interestingly in rupee terms the growth was in single digit (9 per cent).
This can be more due to the persistent rise in the rupee value vis-à-vis
US dollars, against which most of the country’s export receipts are
denominated. Another view was the uninterrupted up trend to commodity
price in international market boosted the country’s export price of
petroleum products, gem and jewellery and engineering products. Imports
during February 2008 at $ 18.4 billion were 30.53 per cent higher than the
level of imports valued at $14.1 billion in February 2007. Cumulative
import during the current fiscal so far at $ 210.9 billion was 30.2 per
cent higher than $ 161.9 billion last year. Oil imports in February 2008
at $ 6.2 billion forming about 33.7 per cent of the import bill was 39.5
per cent higher than that of $ 4.5 billion in February 2007. Cumulative
oil imports at $66 billion during the period was 26.8 per cent higher that
of $52 billion in last fiscal. Non-oil
imports at $ 12.1 billion as against $9.6 billion pushed up the first
11-month non-oil import to $ 144.8 billion an increase of 31.8 per cent
higher than the level of such imports at $109.9 billion Such
high level of import and exports resulted in a trade deficit of $ 72.5
billion against 49.3 billion during the first 11 months of the fiscal
years.
Telecom Reliance
Communications is learnt to have formed a joint venture with a local firm
which will launch GSM mobile 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
We will be grateful if you could kindly send us your feed back at epwrf@vsnl.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
