New Challenges for IT and ITeS Companies

Highlights of  Current Economic Scene

AGRICULTURE  

The central government as on June 12, 2008 has raised the minimum support price of paddy as an ‘ad hoc measure’ by Rs 105 per quintal for the marketing period 2008-09 (October-September), higher than the corresponding procurement price for the previous year’s crop, but lower than Rs 1,000-1,050 per quintal range recommended by the Commission for Agricultural Costs & Prices (CACP). Thus, MSP for the common variety of paddy and Grade A has been fixed at Rs. 850 per quintal and Rs. 880 per quintal, respectively, as against corresponding MSP’s of Rs. 745 per quintal and Rs. 775 per quintal of last year. No decision has been taken on the MSP’s of the other kharif crops.

The Food Corporation of India (FCI) and state agencies, as on June 13 2008, has bought 220.23 lakh tonnes of wheat for the central pool in 2008-09 rabi marketing season (April-March), as against 111.28 lakh tonnes for the entire marketing year 2007-08. Addition of 108.96 lakh tonnes purchased in the current season was due to higher procurement from other states accounting for 58.62 lakh tonnes i.e. (53.80 per cent). While Punjab and Haryana have accounted 68.85 per cent of cumulative procurement this year displaying a downfall from 91.04 per cent in 2007-08 season and 99.44 per cent in the preceding season. Not only states like Uttar Pradesh, Madhya Pradesh and Rajasthan have delivered their record quantities, even Gujarat and Bihar , have contributed 4.03 lakh tonnes and 3.55 lakh tonnes, respectively. This improvement has been on account of paying highest ever-minimum support price (MSP) of Rs 1,000 per quintal to the farmers (as against Rs 850 per quintal for 2007-08), apart form various restrictions placed on private buyers (including imposition of stringent stock-and-purchase declaration norms). This has led government purchases exceeding its target of 150 lakh tonnes. However, on the rice front, progressive procurement during the ongoing 2007-08 marketing season (October-September) has touched 256.01 lakh tonnes as on June 12^, 2008 against 232.01 lakh tonnes purchased in the same period of the 2006-07 season, which saw total procurement touching 251.07 lakh tonnes.

The central government has permitted exports of non-basmati rice in specific cases, where the consignments were handed over to customs authorities before the ban on its exports came into force, that is, March 31, 2008. This has been allowed as per the existing Exim (export-import) procedures laid down under the Foreign Trade Policy (FTP), which provides policies modified to the disadvantage of exporters would not be applicable to consignments already handed over to Customs authorities by exporters for examination and subsequent exports upto the public notice/notification date. However, the Directorate General of Foreign Trade (DGFT) continues to stick to its earlier stance that exports of non-basmati rice would not be allowed under ‘transitional arrangements’.

The central government has asked state governments to impose stock limit and release additional stocks of rice so that rising prices would be curbed. Owing to which Maharashtra government has imposed stock limit on rice of 5,000 quintals and 3,000 quintals for wholesalers operating in corporation (municipal limits) and non-corporation areas, respectively. While for retailers the limit has been fixed at 200 and 100 quintals in both the areas and for millers, the cap has been set at an equivalent of their 60-days milling capacity. In the retail market, price of rice has surged around 50 per cent in the last one year due to global shortage and growing consumption. Currently, good quality Kolam rice is quoted at Rs 2,400 per quintal in the local market.

 Kerala Government has drawn up a comprehensive package aiming to double the production of paddy in the state. The package features free crop insurance, interest-free loans, production incentives, free power and group farming. This programme would be implemented at an outlay of Rs 100 crore and coordinated by Paddy Board. As part of the programme, soil tests would be undertaken in 1,000 villages and ‘soil health cards’ made available to farmers.

Spiraling prices of international fertilisers coupled with stagnant domestic production and remunerative rates for most of the crops has led to a perceptible increase in nutrient demand from farmers. Tight supply of fertilisers has incurred riots among farmers in some states. It is projected that DAP requirement for current sowings and transplantation operations of kharif season is between 40-48 lakh tonnes, with domestic production is estimated to be nearby 19-20 lakh tonnes. To meet the balance, central government has contracted imports of about 29 lakh tonnes of DAP, but it is expected that it would arrive after kharif plantings gets over.

According to data compiled by Solvent Extractors' Association (SEA), oilmeal exports in the May 2008 have jumped by 101 per cent at 473,375 tonnes as compared with 235,113 tonnes in the previous year. This move has been supported by a bumper crop and good overseas demand. Overall exports in the first two months of the current financial year was reported to be 1,110,875 tonnes, displaying an upsurge of 66 per cent from 671,084 tonnes in the same period of the previous financial year. As on June 9 2008, soybean meal price jumped to US $ 432 per tonne from US $ 272 in May 2007. While rapeseed meal spurted to US $ 235 per tonne ($139), groundnut meal to US $ 335 per tonne ($220) and rice bran to US $140 per tonne ($80) against the comparative month last year. Vietnam imported 309,850 tonnes of oilmeal from India during April-May 2008 against 271,484 tonnes last year, which included 255,375 tonnes of soybean meal, 11,750 tonnes of rapeseed meal and 42,725 tonnes of rice bran extraction. South Korea imported 192,225 tonnes of oil meals during the same period as compared with 154,475 tonnes previous year. Of this, while 107,300 tonnes were rapeseed meal, 21,925 tonnes were castor seed meal, soybean meal comprised of 63,000 tonnes

According to Soybean Processors Association of India, the coverage under soyabean cultivation in Madhya Pradesh is likely to rise by 5-6 per cent during this kharif season (June-September) 2008-09, as farmers had received higher returns for their produce last year. The acreage under soybean plantation was 4.7 million hectares last year. It is estimated that with the rise in acreage and favourable monsoon following its timely onset and good progress, soybean output in the state is expected to rise by 15 per cent from over 5 million tonnes last year. Madhya Pradesh is the largest soybean producing state accounting for 70 per cent of the country's total soyabean output.

Sugar mills from Uttar Pradesh once again pursued extension from Supreme Court of eight weeks for clearing the dues for the entire season of 2007-08 (October-September). Private sugar mills from the state have bought sugarcane worth of Rs 6,993 crore in 2007-08 season. Of this payment of Rs 6,150 crore has been made and Rs 843 crore remains as dues. Sugar prices have crashed from Rs 1,525 to Rs 1,450 per quintal since May 2008 as the government has dismantled the 2 million buffer stocks created last year thereby increasing supply in the domestic market. This has affected the sugar prices despite an anticipation of a drop in sugar output to about 26 million tonnes this year from 28.4 million tonnes in 2006-07.

The state of Maharashtra has ended sugarcane crushing for the current sugar year ending September 2008 and has produced about 9.05 million tonnes of sugar as against 9.1 million tonnes produced last year. The sugar output was expected to go up to 9.4 million tonnes on the back of higher recovery, but that remain unattained due to onset of southwest monsoon in the state. The state has crushed 76.3 million tonnes of sugarcane at an average recovery of 11.89 per cent. It is expected that the this year sowings of sugarcane would reduce, as most of the farmers would shift to other crops like cotton and soyabean due to better returns. 

As per the Tobacco Board, India exported 2,03,399 tonnes of tobacco (worth Rs 2,020.93 crore) in financial year 2007-08 as against 1,80,988 tonnes (valued at Rs 1,723.42 crore) a year ago. Exports were up by 12 per cent in terms of quantity and 17 per cent in terms of value. Out of total exports, unmanufactured (leaf) tobacco export was at 1,74,261 tonnes (Rs 1,475.40 crore) and export of its products was at 29,138 tonnes (Rs 545.53 crore). Exports of flue-cured virginia (FCV) tobacco jumped by 14 per cent at 1,37,539 tonnes (Rs 1,240.20 crore). Among tobacco products, chewing tobacco occupied the top position with an export of 8,383 tonnes (Rs 252.05 crore) followed by export of cigarettes with 5,726 tonnes at Rs 143.16 crore.

The government of Andhra Pradesh has prepared an integrated agricultural action plan with a cumulative investment of Rs 32,074 crore for the year 2008-09 across 21 different departments of agriculture. The government has set a target of 200 lakh tonnes of foodgrain production this year as against 190 lakh tonnes last year. The state had attained a growth rate of 12 per cent in agriculture and allied sectors as against a national average of 4.5 per cent in 2007-08.

Industry

The General Index stands at 268.3, which is 7.0% higher as compared to the level in the month of April 2007. The revised annual growth for the period April-March 2007-08 stands at 8.3% over the corresponding period of the previous year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of April 2008 stand at 175.0, 287.0, and 218.2 respectively, with the corresponding growth rates of 8.6%, 7.5% and 1.4% as compared to April 2007. The revised annual growth in the three sectors during April-March, 2007-08 over the corresponding period of 2006-07 has been 5.1%, 8.7% and 6.4% respectively, which moved the overall growth in the General Index to 8.3%.

As per 2-digit classification, as many as fourteen (14) out of the seventeen (17) industry groups have shown positive growth during the month of April 2008 as compared to the corresponding month of the previous year. The industry group ‘Beverages, Tobacco and Related Products’ have shown the highest growth of 30.7%, followed by 15.4% in ‘Basic Chemicals & Chemical Products (except products of Petroleum & Coal)’ and 11.4% in ‘Transport Equipment and Parts’. On the other hand, the industry group ‘Jute and Other Vegetables Fibre Textile (except Cotton)’ have shown a negative growth of 9.9% followed by 6.3% in ‘Food Products’ and 2.0% in ‘Textile Products (including Wearing Apparel)’.

As per Use-based classification, the Sectoral growth rates in April 2008 over April 2007 are 4.6% in Basic goods, 14.2% in Capital goods and 4.2% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 5.5% and 9.8% respectively, with the overall growth in Consumer goods being 8.9%.

Infrastructure

Riding on the back of good performance of coal, steel 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 a growth of 9.6 per cent during March 2008 as compared to 10.5 per cent in March 2007. This impressive performance exhibited by the core industries in March 2008 resulting the core index registering a growth of 5.6 per cent during the fiscal so far as against 9.2 last year. Steel and cement witnessed better performance during March 2008 compared to January 2008 and also March 2007.

Inflation

The annual rate of inflation calculated on a point-to-point basis, rose by 8.75 per cent for the week ended May 31,2008 as compared 5.09 per cent as on June 2,2007.

Rise of 0.9 per cent in the index of Primary Articles group during the week can be attributed to increase in prices of food articles, and non-food articles.

The index for the major group Fuel, Power, Light and Lubricants remained at previous weeks level.

The rise in the price index of manufactured products by 0.7 per cent was mainly due to increase in the prices of edible oils.

The final WPI for all commodities had been revised upward from 227.8 to 226.6 for the week ended April 5,2008. As a result the rate of inflation calculated on a point-to-point basis stood at 7.71 per cent as compared to 7.14 percent provisional.

Linked CPI (UNME)

The Consumer Price Index for Urban Non-Manual Employees [CPI (UNME)] numbers on base 1984-85=100 in respect of 59 urban centres and all -India up to March, 2008 were compiled and released by the Central Statistical Organisation, Ministry of Statistics and Programme Implementation.  Because of outdated base year and also deployment of field investigators for collection of price data for a broad based CPI (Urban) number, the National Statistical Commission in its meeting held on 15.2.2008 decided to:

(i) discontinue the CPI (UNME) and

(ii) adopt link index, based on ratio method after aggregating the sub group level indices of Labour Bureau’s CPI (Industrial Workers) using CPI (UNME) weights at group/sub-group level for all India .

Compile linked CPI(UNME) numbers till new series of CPI(Urban) is brought out

In pursuance of the National Statistical Commission’s recommendation, price collection for CPI (UNME) was discontinued with effect from April 2008. The linked all- India CPI (UNME) numbers based on sub-group level indices of CPI (Industrial Workers) using CPI (UNME) weights at group/sub-group level for all India for the month of April 2008 will be available in the Ministry’s website on 20th June, 2008.

Banking

State Bank of India (SBI) is planning to set up Rs 500 crore private equity funds to cater to the small and medium enterprises (SME) sector. SBI will have 20 per cent equity in the fund, with a domestic investor holding the remaining equity.

The RBI has increased the repo rate by 25 basis points to 8 per cent. However, the reverse repo rate has been left unchanged in order to check rising inflation.

The RBI has said that credit insurance claims settled by private insurers would also qualify for compliance with foreign exchange obligations. So far, only claims settled by the Export Credit Guarantee Corporation (ECGC) were considered for discharging forex obligations in case the exporter did not receive a payment from the overseas buyer.

According to credit rating agency Moody’s banking system outlook, the public sector banks in the country are losing a market share of around one per cent per annum to the private sector for over 15 years. The market share of PSBs in terms of total assets was 75.6 per cent in 2003 but reduced to 70.5 per cent in 2007. The share of private banks went up from 17.5 per cent to 21.5 per cent in the same period. ICICI, HDFC and Axis Bank are leading the competition from private sector banks. However, foreign banks are not deemed to be a threat to PSBs because of their small size. 

Financial Sector

Capital Markets

Primary Market

Archidply Industries Ltd, manufacturers of plywood, comprehensive engineered interior products, entered the capital market with an initial public offering (IPO) of 66 lakh equity shares of Rs 10 each. The price band has been fixed between Rs 70 and Rs 80. The issue opened for subscription from June 11, 2008 to June 17, 2008. The company intends to raise Rs 52.9 crore at the upper end of the price band.

The IPO of Sejal Architectural Glass has been subscribed 9.9 times on the last day of the issue on June 12, 2008. The issue received bids for 9.1-crore shares as against 91.9-lakh shares on offer, according to NSE. The portion reserved for the qualified institutional buyers (QIB) has been subscribed by 4.26 times, the non institutional investors submitted bids for 33.1 times and the portion reserved for the retail investors has been subscribed 7.9 times. The price band has been fixed between Rs 105-115.

Secondary Market

The stock market hit the lowest level in calendar year 2008 during the week as soaring crude oil prices, high inflation and weak global cues dampened the sentiment. The fall has also been attributed partly to a 25 basis point hike in repo rate by the RBI, and concerns over the slowdown in earnings growth. The BSE Sensex declined 382.56 points or by 2.45 per cent to close at 15,189.62 for the week ended June 13, 2008. The BSE Mid-Cap index fell by 121.98 points or 1.92 per cent to 6,228.17 and the BSE Small-Cap index declined by 114.33 points or by 1.48 per cent to 7,581.72. The NSE Nifty ended up at 4,517 down by 2.39 per cent during the week. The Defty lost 2.77 per cent and Nifty Junior down by 3.18 per cent and the Midcaps-50 lost 1.57 per cent.

Among the sectoral indices of BSE, all the indices under performed during the week. Among the losers, Reality index suffered a huge loss of 8.74 per cent followed by IT with 5.71 per cent. BSE Bankex also lost 210 points or 2.89 per cent. Banking stocks fell due to repo rate hike, which increased, to 25 basis points to 8 per cent. Fears of an interest rate hike by the RBI to tame the ever-looming inflation which jumped to a seven-year high of 8.75 per cent for the week ended May 31 from 8.24 per cent a week earlier, took a toll on all the interest rate-sensitive stocks for the entire week, stoking the already-prevailing negative sentiments in the Markets.

Due to the current market meltdown and the lack of buying support, nearly 80 per cent of the new issues listed in the last six months are currently discounted to their issue prices. Investors have lost more than Rs 8,000 crore in IPO listed between December 2007 and May 2008. Out of the 35 stocks listed in the current year, as many as 28 are trading below their issue prices and currently discounted up to a maximum of 72 per cent. These stocks have collectively raised Rs 19,406 crore, eroded Rs 8,887 crore of public wealth, and are currently valued at Rs 10,519 crore.

The Securities and Exchange Board of India (SEBI) has proposed to tighten the norms of disclosure of acquisition and selling of shares by directors and employees under its Insider Trading Regulations. SEBI wants to bring the provisions of disclosures under its Insider Trading Regulations in line with SEBI (SAST) Regulations, 1997. SEBI has also proposed to expedite the process of disclosures made by listed companies. In a consultative paper issued on June 9, 2008, the capital markets regulator has proposed amendments to the SEBI (Prohibition of Insider trading) Regulations, 1992, under which the time gap between the date of transaction and the date of dissemination of the information by the stock exchange may be reduced from nine days to two working days. This would make it mandatory for a person to report the transactions within one working day of trading to the company and the company, in turn, should inform the exchanges within one day. The proposals are open for public comments till June 30, 2008.

On June 13,2008, SEBI chairman CB Bhave has suggested that the government could follow the SEBI model while framing new laws. Speaking at Shankarrao Chavan Memorial Lecture co-organised by the Indian Institute of Public Administration, Bhave said the government could consider to come up with a consultative paper before finalising any law. He also called for improvement in the government procurement process.

Foreign institutional investors (FIIs) are shying away from Indian equities due to global liquidity crunch, in the aftermath of the sub-prime crisis. Even weak corporate earnings due to higher input cost and interest rates, and political uncertainties also have kept the FIIs at the fringes. According to dealers, market regulator SEBI’s move to partly restrict FIIs last year may also be a reason. Year 2007 saw a net inflow from the FIIs to the tune of $4.45 billion from January to June. The figures for 2008 (till June 6), in contrast, stood at a negative $4.6 billion.

The US Securities and Exchange Commission may recommend that, Moody’s Investors Service, Standard & Poor’s and Fitch Ratings be prohibited from advising investment banks on how to earn top rankings for asset- backed securities, according to people familiar with the matter.

Derivatives Market

During the week the derivatives market volumes were at average. Anticipating a downward slide, investors have started to build huge short position in interest rate-sensitive sectors like realty, auto and banking., but saw one massive swing session on Thursday when the market turned around from support at 4,370. Future and Options (F&O) turnover spiked above Rs 50,000 crore on Thursday as there was massive profit-booking by short traders around the Nifty 4,400-mark and below. On Friday however, volumes were back to a more normal Rs 40,000-odd crore. However, open interest (OI) continued to expand. The FIIs continue to combine massive sales in the cash markets to a substantial presence in F&O. They hold about 39 per cent of derivative outstandings, which is a little lower than their market-share in the previous several months. During periods when they have been heavy sellers, FIIs derivative positions have often been pyramids with sales in cash backed by short futures positions. The carryover into July at this stage is reasonable at around 26 per cent of Nifty options positions. The VIX has risen to above 30, which seems to be danger-levels. Most index futures are trading at substantial discounts to the spot values. The Nifty held at 4,484 and 4,475 in the June and July series, respectively, while it closed at 4,517 in spot.  The CNX IT, which lost over 5 per cent during the week, held at 4,323 in spot and at 4,271 in June. The Junior has been marginally lower than the spot value, while the Midcaps 50 had negligible liquidity and settled marginally above spot. On Friday, the spot index closed at 5,993, while the June futures settled at 5,953. The consistent and large discounts to spot suggest that the downside expectation is substantial. In the Bank Nifty, the expected rate hikes by various majors in early July have not factored in. However, there are also signs that the market is oversold when one looks at the options put-call ratio (PCR). The overall PCR for all options is at 1, while the Nifty PCR in terms of OI is in the range 1.7 for June options. These are at the higher end of the normal range. On the downside, put OI has a massive bulge at 4,200 where around 18 per cent of all outstanding put-strikes are located. The call chain has about 14 per cent of OI at 4,800 and another 18 per cent at 5,000. The points 4,200-5,000 would be the outside limit of expectations. Chart analysis suggests 4,400-4,800 is expected.

In the Nifty options market, the situation favours strikes slightly away from spot. A long 4,600c costs 59.85, while 4,700c costs 30.8. The net cost on a bullspread would be 29 and the maximum potential payoff is 71. That is a great risk-reward ratio. In puts, the 4,500p (118.65), 4,400p (82.1) and 4,300p (58.35) are the key instruments. A long 4,500p, short 4,400p combination costs a maximum of 37 and offers a return of 63, while the long 4,400p and short 4,300p bearspread costs 24 and pays a maximum of 76.

Association of Mutual Funds in India (Amfi) has strongly taken up the issue with SEBI regarding the fund houses offering the same commission to the distributors in line with the insurance companies providing higher commission on the uniform products like Unit Linked Insurance Product (ULIP). The Mutual Fund industry on an average provides a commission of 4 per cent on any scheme including unit link kind of products. SEBI allows the funds houses to charge a load of 2.25 per cent from all types of schemes. Moreover, the fund houses like to give commission to the distributors beyond this set limit than they have it from the profits of the Asset Management Company (AMC). The insurance companies offer 30 per cent to 40 per cent commission to the agents on the first year and around 10 per cent in the subsequent years on the ULIP. The mutual fund industry is of the view that mutual fund industry getting a level playing field with the insurance sector can enhance the asset under management (AUM) of mutual fund industry, which crossed Rs 6 lakh crore in May.

Government Securities Market

Primary Market

The Reserve Bank of India (RBI) has been increased the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 8.00 per cent from 7.75 per cent with effect from June 12, 2008. There is no change in the reverse repo rate.

On June 11, 2008, RBI auctioned 91-day and 182-day T-bills for the notified amounts of Rs.3,000 crore and Rs.500 crore respectively. The cut-off yields for 91-day and 364-day T-bills were 7.69 per cent and 7.68 per cent, respectively. 

Secondary Market

Inter bank call rates ruled in a range of 6.58-8.07 per cent, during the week.Call rates topped 8 per cent in the second half of the week, as the money market faced a deep crunch, hit by advance tax outflows and absence of fresh inflows. Bond yields continued their northward momentum as inflation (8.75 per cent) and global oil prices ($131.26 a barrel) soared to a record. During the week, the RBI raised the repo rate by 25 basis points. The hikes in the rates came even as liquidity tightened due to oil-driven demand and continuing exit by FIIs. RBI stepped in to support the refineries through special market operations that began about two weeks ago. With increased fund requirement, the RBI stepped up the support limit to Rs 1,500 crore, up from the originally fixed level of Rs 1,000 crore. RBI purchased about Rs 955 crore worth of oil bonds from oil companies. Despite the special market operations, liquidity remained tight during the week. The tightening situation has been evident from the weekend liquidity adjustment facility (LAF) auction, where recourse has been to the repo window. At the LAF, RBI lent an average of Rs 12,069 crore through the repo window while no bids were received at the reverse repo window. The 10-year benchmark yield ended at 8.39 per cent, 16 basis points above its close in the previous week.

The repo rate hike led to aggressive selling of government securities (G-sec) by banks and mutual funds on June 12, 2008 to rebalance the portfolio and purchase the paper at lower prices. Prices across maturities fell by 30-50 paise, resulting in yields going up by 5-10 basis points. The yield on the ten-year benchmark 8.24 per cent 2018 closed at 8.32 per cent after reaching an intraday high of 8.36 per cent, which had closed on Wednesday at 8.26 per cent. There was not much trading in short-term instruments.

Bond Market

During the week under review, NABARD has been tapped the market by issuance of bonds to mobilise Rs 200 crore by offering 9.60 per cent for 3 years, with put and call at the end of 1 year. The bond has been rated AAA by Crisil and Care.

Trading in corporate bonds remained thin and yields edged up less than the risk-free counterparts, resulting in narrower spreads. In the absence of surplus cash, there has been no room for corporate bonds to find trading interest.

RBI purchased 8.40 per cent, 2025 oil bonds worth Rs 955 crore at a yield of 8.75 per cent from Indian Oil Corporation through special open market operations, on June 11,2008. The central bank had bought Rs 945 crore of the 2025 oil bonds at 8.61 per cent on June 06,2008, compared with 8.75-8.76 per cent this week. Through special open marketing operations, RBI makes outright purchases or repurchases of oil bonds from state-run oil marketing companies and provides dollars through a designated bank. State-run oil refiners will get dollars at the central bank's reference exchange rate.

Foreign Exchange Market

The rupee closed at Rs.42.87 per dollar on June 13, 2008 as compared with Rs.42.79 per dollar as on June 06, 2008. The Rupee moved between Rs.42.81 and Rs.42.89.The rupee ended close to 43 per dollar from 42.67 per dollar at the start of the week. The rupee has been kept on the back foot by net investment outflows, weak stocks and higher oil prices. Rising forward premia shot up in reaction to the repo rate hike. Six-month premium ended at 3.26 per cent from 2.26 per cent.

Commodities Futures derivatives

Financial Technologies-promoted National Spot Exchange Limited (NSEL), which plans to roll out electronic trading exchange for agricultural commodities in August, announced a tie-up with infrastructure major Infrastructure Development and Finance Services (IL&FS) for using the latter's village level IT kiosks on June 11, 2008. NSEL and IL&FS have signed a MoU under which the IT-enabled Common Service Centres (CSCs) will provide information to farmers on real time prices of agri commodities.

According to Abhijit Sen panel report on futures trade, cartels in farm commodities were the greatest critics of futures trading in these commodities, as they feared losing pricing power. The panel had submitted its detailed report on April 29, 2008 and the centre suspended futures trading in chana, soyoil, rubber and potato in a week after submission of this report. Although the committee has not able to firmly establish that futures trade caused spike in prices of farm commodities, but it said that cartels in all farm commodities have been moving prices to their advantage.

Forward Markets Commissions (FMC) US counterpart Commodity Futures Trading Commission (CFTC) is probing speculative activity in oil and cotton futures. While FMC has been suspended the futures trade in eight commodities over the last two years. Therefore, India is not the only country forced to clamp a ban on futures trade in certain farm commodities caught in a price spiral, even the US has resorted to regulatory scrutiny of its commodity market.

The Multi Commodity Exchange (MCX) and Financial Technologies-promoted power exchange titled Indian Energy Exchange is expected to launch its trading operations within a fortnight following the approval of its rules and bye-laws by the CERC. Indian Energy Exchange hopes to trade nearly 500-mw power on a day ahead basis and achieve a turn over of Rs 2,100 crore in the first year of its operation.

According to MCX circular, sesame seed August 2008, arecanut September, cashew kernel August, Rice Bran DOC September 2008 and maize August 2008 contract will be available for futures trading with effect from June 16, 2008. Auction process on defaulting buyers and related penal provisions has been introduced.

Corporate Sector

In one of the largest deals of the Indian Pharmaceutical sector, the Indian promoters of Ranbaxy have agreed to sell their stake to Daiichi Sankyo Company Ltd. of Japan in an all-cash deal of $4.6 billion (Rs 19,780 crore). The deal may possibly see Daiichi acquiring a 51 per cent controlling stake in India ’s largest domestic drug company, Ranbaxy. The promoter family of Ranbaxy will divest its 34.8 per cent stake and the rest will come through a combination of preferential equity allotment plus the mandatory open offer of up to 20 per cent of Ranbaxy’s shares.

Amid stiff competition from Chinese shoemakers, Bata India is exploring a brand new franchisee model to launch its upcoming retail stores.

Arcelor Mittal has been allowed to mine 500 acres at Karampada in Jharkhand by the Union Ministry of Steel.

India ’s largest private sector bank, ICICI Bank is cutting around 1,000 jobs at different levels. While the bank insists that only the poor performers have been asked to leave, the job cut is part of company’s attempt at cutting cost, mainly in segments such as retail and rural and agri-credit.

External Sector

Exports during April 2008 were US $ 14400 million as against US $ 10953 million registering a growth of 31.5 per cent. As against this Imports was valued at US $ 24274 million as against US$ 17769 million recording a growth of 36.6 per cent.

In rupee terms, while export increased by 24.8 per cent , import flared up by 29.7 per cent.

As a result trade deficit was estimated at US $ 9874 in April 2008 million higher than the deficit at US $ 6817 million during April 2007

Oil imports were estimated during April 2008 at US$ 8029 million  and non-oil imports at US $ 16245 million was 46.2 per cent and 32.3 per cent higher than that in last year

Telcom

The Aditya Birla Group’s Idea Cellular has agreed to buy Spice Communications in a three-stage deal in which the minority shareholders of Spice would be given an option either to swap their shares for Idea or sell them in an open offer which would be in line with the SEBI guidelines.

Information Technology

According to a latest report by the technology market research firm Forrester, the Indian IT market is expected to grow by 18 per cent in the year 2008 to reach $38 billion, registering second highest growth after the Chinese market. The report titled “The State of A-PAC Enterprise Technology Adoption: 2008” also advises the technology vendors to now recognise India not only as a supplier of IT but also a consumer. Since both the US and the European markets are experiencing slowdown in the IT market, the high growth in the Indian IT market is supposed to be good news for the technology vendors.

TCS have hedged for about $1.5 billion. In the wake of the slowdown in IT spending due to subprime crises in the US , the software firm was also focusing on projects involving consolidation of existing systems.  

*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.