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Theme
of the week:
New Challenges for IT Companies and A
major development with far-reaching implications on international scenario
has been that From
2001 onwards, Indian info-tech companies, apart from consolidating their
presence in traditional verticals such as BFSI (banking, financial services
and insurance), diversified into new verticals such as telecom, retail,
utilities and health care and initiated offering new services like
enterprise application integration (EAI), package implementation,
engineering services, software testing and service oriented architecture and
web services. Consequently, during the period 2003-07 the impressive growth
rate of software and services exports of Employment in Indian IT IndustryOver
the last decade, millions of people have benefited directly or indirectly
due to the spectacular and sustainable growth achieved by the IT industry. A
major impact of this growth has been on employment creation, which has been
almost employing 1-1.5 lakh employees every year. As per the findings of Suma Athreye and Ashish Arora (2000), “India’s specialisation in software has been driven by two sorts of wage advantages that have reinforced each other: the lower wages for Indian software developers relative to that of their US and European counterparts make Indian software cheaper in global markets, while the higher wages earned by software professionals in India relative to that in other industrial sectors has ensured a steady stream of supply of software professionals.” Profitability
and Recruitment of IT companies
From
2004 onwards, Indian info-tech companies have been growing at a faster pace
in terms of revenues and profits. As a result, the IT companies began
recruiting staff on a larger scale. The
present note attempts to review the number of employees recruited by the top
four IT companies, namely, Tata Consultancy Services (TCS), Infosys
Technologies, Wipro and Satyam Computer Services
during the last four financial years. For
instance, the aggregate net addition of employees of these four companies
was less in 2007-08 as compared to the previous financial year. During
the financial year 2005-06, the
IT companies has ramped up revenues by greater client mining, increased
focus on higher value added services such as systems integration and
consulting. As a result, the aggregate employee strength of the four companies stood
at 1,99,448 with a net addition of 55,962 during the year, registering the highest
year-on-year (y-o-y) growth of 39 per cent. Among the four companies, TCS has registered the highest growth in terms
of net employees followed by Infosys. At the end
of 2005-06, the total employee headcount of TCS stood at 66,480 with a net
addition of 20,765 during the year.
In
the financial year ending March 2007, the total employee strength of the top
four IT service providers crossed the 2.5 lakh mark, brushing aside fears
that wage inflation, rupee appreciation and a perceived The
four companies together have added around 65,700 employees during 2006-07 to
take the total figure to 2,65,148 – a 33 per cent increase. Among
the four companies, TCS has witnessed the highest growth in terms of net
employees followed by Infosys. At
the end of 2006-07, the total employee strength of TCS stood at 89,419 with
a net addition of 22,939 during the year. IT
and ITeS Companies Face New Challenges in 2007-08 During
the calendar year 2007, the performance of IT and ITeS companies has been
adversely affected by the sharp appreciation of the rupee vis-à-vis leading
currencies. The rupee has appreciated by over 12 per cent against the
dollar, 6 – 7 per cent against the pound sterling and nearly 3 per cent
against the euro since the beginning of the calendar year. The appreciation
of the rupee has been the highest among the other emerging countries such as
Presently,
the Indian IT and ITeS sector is facing multiple headwinds. In fact, rupee
appreciation is not the only factor that is proving to be a nemesis. The
sector is pressurised by factors like concern of slowdown in the A
study of the top four IT companies, which have declared their yearly
results, indicates that their aggregate net profit has increased marginally
by 18.2 per cent to Rs 14,684 crore during 2007-08 compared to Rs 12,428
crore in 2006-07. The increases in net profits of these companies have
ranged from 12 per cent to 21 per cent
(Table 2).
Consequently,
during the financial year 2007-08 the hiring pace of these four companies
has moderated. From 2001 onwards, the net addition of employees in these
four companies has been rising persistently. However, for the first time the
top four companies – TCS, Infosys, Wipro and Satyam – together, hired
163 employees less in 2007-08 compared to last financial year. The key
reason for the continued tepid hiring would be slowdown in the Interestingly,
in 2006-07 India’s largest software companies, TCS and Infosys together
hired 42,465 people, around 5,735 more than 36,730 employees they hired
during 2005-06 (Table 3A).
However, TCS and Infosys together hired 40,934 people in 2007-08, about 1,531 less than 42,465 employees they hired during 2006-07 (Table 3B).
Challenges
Ahead During
the financial year 2008-09 the revenue and profit growth of IT companies are
likely to be volatile depending on the rupee dollar exchange rates. As
per Dun and Bradstreet’s recent study on ‘India’s Top IT Companies
2008’, rupee appreciation, high attrition rate and competition from
countries like China and Malaysia that have low cost and better
infrastructure are being seen as a major challenge for Indian IT companies. As
a result, Even
as the Indian IT industry is poised for growth, a major inhibiting factor is
the high attrition rate in the software companies and particularly in the
BPO companies. In recent years the top 3 IT companies of India are also
facing the problem higher attrition rate as the top global IT companies are
setting up their offices in India, like Microsoft, Google, IBM, Oracle and
Cisco etc. Presently,
the major IT companies instead of increasing fresh hires are stepping up
measures to leverage the existing one. *
This note has been prepared by Bipin K. Deokar References
Arora,
A and Athreye S (2002): “The software industry and NASSCOM,
‘Extending NASSCOM,
‘Knowledge Professionals in Various
Company Annual Reports and media sources.
Highlights of Current Economic Scene AGRICULTURE According
to Agriculture Ministry, the sown acreages under all major kharif crops
like rice, oilseeds and coarse cereals have increased except sugarcane.
Rice planting has just started picking up, with 9.69 lakh hectares being
covered so far, against last year’s coverage of 10.37 lakh hectares. The
sown acreage under kharif oilseeds, so far, have been 4.67 lakh hectares
as compared to 3.88 lakh hectares covered during the same period of 2007.
As for non-food crops, cotton sowings are progressing well in the country
covering the area of around 14.51 lakh hectares, marginally lower than
last year’s coverage of 15.32 lakh hectares. The only crop which has
marked decline in planting is sugarcane, with only 40.74 lakh hectares
being covered so far, against 47.51 lakh hectares covered last year, on
account of mills saddled with huge arrears. Wheat
procurement in Uttar Pradesh, during the current marketing period has
crossed 2.8 million tonnes, for which commission agents have so far earned
over Rs 5.6 crore. This year, the state had announced commissions for
societies and sub-agents of 2.5 per cent over MSP of Rs 1000 pre quintal.
These commission agents have effected almost 80 per cent of the
procurement in the state. Agricultural
Minister has stated that The
central government has introduced a scheme for distribution of 10 lakh
tonnes of imported edible oils in 2008-09 at a subsidy rate of Rs. 15- per
kg, through 15 state governments at the rate of 1 kg per ration card per
month, which would be introduced since July 2008. Public Sector
Undertakings such as PEC, MMTC, STC and NAFED have been entrusted the job
of import, refining, packing and distribution of subsidized edible oils to
the states. The states that are covered under the scheme are Andhra
Pradesh, Chhattisgarh, Gujarat, Himachal Pradesh, Jammu & Kashmir,
Madhya Pradesh, Maharashtra, Meghalaya, Nagaland, Orissa,
According
to Solvent Extractors Association (SEA), huge price escalation in the
global market has failed to dampen India’s vegetable oil imports with
arrivals continuing to rise substantially in the first five months of the
oil year (November - October) 2007-08. Imports of edible oil in the month
of May 2008, has slumped by 39 per cent, to 3,02,345 tonnes from 4.94 lakh
tonnes during the same period last year. Even non-edible oil reported a
decline of 49 per cent to 59,219 tonnes over the previous year. This can
be attributed to stock limit imposed on traders and refiners to reduce
inventory by the various state governments. With this move it is expected
that prices of edible oil could tend to increase further in next couple of
months.
The
Department of Fertilisers as on June 19, 2008 has stated that there is no
problem in availability of fertilisers specially urea in the six states
that have complained about shortages witnessed in their states since few
weeks. The alleged supply shortage problem for di-ammonium phosphate and
complex fertilisers is expected to be managed by this month end, as
government would be importing fertilisers. It is observed that this
problem is localised and is rising out due to inability of the state
government’s to monitor intra-state movements and prevent hoarding. In
order to ensure the availability of fertilisers, central government has
asked the companies to supply the fertiliser to the blocks from this year
and actual transport cost would be reimbursed instead of the earlier fixed
cost.
The
coverage under cotton during the current kharif season (June-September)
2008-09 is likely to increase to 9.6 – 9.7 million hectares against 9.43
million hectares cultivated in the previous season (2007-08). Cotton
farmers in southern
According
to official estimates, total sugar output in the season as on May 31, 2008
accounted to 254.02-lakh tonnes as against 271.09 lakh tonnes for the
corresponding period of 2006-07. Mills have closed down there crushing for
this season in almost all states, barring Tamil Nadu (TN),
Spice
Board has estimated that exports of spices are likely to increase by 18
per cent to US $ 1.3 billion in 2008-09, due to good demand for chilli,
pepper and cumin seeds. It has also planned to invest Rs 60 crore in six
spice parks that would have an integrated operation. Turmeric
output in India is expected to be higher in 2008-09 (July – June) due to
rise in acreage in the states of Tamilnadu and Andhra Pradesh by over 45
per cent and 15-20 per cent, respectively, on account of favourable
weather conditions and higher spot prices.
According
to Coffee Board's post-blossom estimates, coffee production next season is
expected to be 2.93 lakh tonnes in 2008-09 against 2.62 lakh tonnes in
this season. Of the 2.93-lakh tonnes, arabica is estimated to be 1-lakh
tonnes and rest would be robusta. Good and well-distributed rainfall
during October -March 2007-08 is one of the primary reason for rebound of
coffee production in the country during 2008-09 (October-September)
season, displaying a rise of nearly 12 per cent. Further, the blossom and
backing showers were reported to be good and adequate in almost all states
especially in coffee-growing zones of Karnataka. It is estimated that for
the oncoming season, Karnataka would record 73 per cent of the total crop,
followed by Kerala. Production in Kerala is also expected to rise at
57,200 tonnes. On the other hand, production in Tamil Nadu is predicted to
decline as continuous rains slashed blossoming of the crop during
December-March 2007-08, apart from low temperatures affecting the crop
adversely. 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 The
Index of Six core-infrastructure industries having a combined weight of
26.7 per cent in the Index of Industrial Production (IIP) with base
1993-94 stood at 232.3 (provisional) in April 2008 and registered a growth
of 3.6% (provisional) compared to a growth of 5.9 % in April 2007.
During April-March 2007-08, six core-infrastructure industries
registered a growth of 5.6% (provisional) as against 9.2% during the
corresponding period of the previous year. Crude
Oil production (weight of 4.17% in the IIP) registered a growth of 0.9% (provisional)
in April 2008 compared to a growth rate of 1.4%
in April 2007. The Crude Oil production registered a growth of 0.4%
(provisional) during April-March 2007-08 compared to 5.6% during the same
period of 2006-07. Petroleum
refinery production (weight
of 2.00% in the IIP) registered a growth of 4.3% (provisional) in
April 2008 compared to growth of 15.1% in
April 2007. The Petroleum refinery production registered
a growth of 6.5% (provisional) during April-March 2007-08 compared to
12.9% during the same period of 2006-07. Coal
production (weight of 3.2% in the IIP) registered a growth of 10.3% (provisional)
in April 2008 compared to growth rate 0.6% in April 2007. Coal production
grew by 6.0% (provisional) during
April-March 2007-08 compared to an increase of 5.9% during the same period
of 2006-07. Electricity
generation (weight of
10.17% in the IIP) registered a growth of 1.4% (provisional)
in April 2008 compared to a growth rate 8.7% in April 2007. Electricity generation
grew by 6.3% (provisional) during April-March
2007-08 compared to 7.3% during the same period of 2006-07. Cement
production (weight of
1.99% in the IIP) registered a growth of 6.9% (provisional)
in April 2008
compared to 5.8% in April 2007. Cement Production grew by 8.1% (provisional) during April-March 2007-08 compared to an increase of
9.1% during the same period of 2006-07. Finished
(carbon) Steel production (weight
of 5.13% in the IIP) registered a growth of 4.0%
(provisional) in April 2008 compared to
2.7% (estimated) in April 2007. Finished (carbon) Steel production grew
by 5.1% (provisional) during April-March 2007-08
compared to an increase of 13.1% during the same period of 2006-07. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
11.05 per cent for the week ended June 7,2008 as compared .28 per cent as
on June 2,2007.Over the week the growth was 1.8 per cent . Rise
of 0.4 per cent in the index of Primary Articles group during the week can
be attributed to increase in prices of non-food articles. However, prices
of many food items recorded decline in their prices. Substantial
increase of 7.8 per cent were witnessed in the price index of
the major group Fuel, Power, Light and Lubricants mainly due to
mark up in the prices of petrol (Rs 5), diesel (Rs.3) and LPG (Rs. 45) as
well as increase in the prices of naphtha, aviation turbine fuel and
bitumen. The
rise in the price index of manufactured products by 0.3 per cent was
mainly due to increase in the prices of edible oils. The
rise in textile group, chemical group , iron and steel , ceiling fans also
added fuel to the fire. The
final WPI for all commodities had been revised upward from 226.9 to 228.2
for the week ended April 12,2008. As a result the rate of inflation
calculated on a point-to-point basis stood at 7.95 per cent as compared to
7.33 percent provisional. Banking Deutsche
Bank’s India operations, has posted a 77 per cent rise in its net profit
after tax to Rs 386 crore as against Rs 218 crore in 2007. Total income
has increased by 51 per cent to Rs 2,462 crore for the year ended March
2007 while total assets for the bank has increased by 40 per cent to Rs
24,713 crore from Rs 17,715 crore, in the previous year. Deutsche Bank
group gained significant market share in on-shore investment banking,
institutional equities broking, asset and private wealth management. Punjab
National Bank has posted consolidated net profit of Rs 2,203 crore for the
year ended March 31, 2008, a 35.2 per cent increase over the last year.
The bank had reported a net profit of Rs 1,630 crore for the year ended
March 31, 2007. The
tussle between the RBI and R-NBFC Sahara India Financial Corporation (SIFCL)
took a new turn. The central bank issued a fresh order giving the company
some breathing space to wind down operations, but with tough conditions.
RBI’s new order directs SIFCL not to accept any new deposit that matures
beyond June 30, 2011 and to stop accepting installments of existing
deposit accounts also with effect from that date. RBI also ordered that
the aggregate liability to depositors (ALD) will not exceed Rs 15,000
crore as of June 30, 2009, Rs 12,600 crore as of June 30, 2010 and Rs
9,000 crore as of June 30, 2011. SIFCL will also have to repay deposits on
maturity and bring the ALD to zero on or before June 30, 2015. SIFCL will
submit a comprehensive business plan before the close of business on
August 16, 2008. Keeping in view quality corporate governance, they
offered to reconstitute the SIFCL board of directors within 30 days from
June 16, 2008 and induct 50 per cent of independent directors acceptable
to RBI; get the appointment of these independent directors ratified at the
ensuing annual general meeting of the company and to continue the
arrangement until all depositors are repaid in full. This apart, it will
also appoint statutory auditors from a panel suggested by RBI at the
ensuing AGM of the company envisaged by August 31, 2008 and to continue to
appoint statutory auditors each year from the panel until all deposits are
repaid in full. Financial
Sector Capital
Markets Primary
Market KSK
Energy Ventures Ltd, a company involved in developing and operating power
plants, is entering the capital market with an initial public offering
(IPO) of 3.46 crore equity shares of Rs 10 each. The price band has been
fixed between Rs 240 and Rs 255 a share. The company plans to raise
between Rs 830 crore and Rs 882 crore. The issue will open on June 23, and
will close on June 25, 2008. The issue will constitute 10 per cent of the
post issue equity capital of the company. The qualified institutional
buyers (QIB) will be allotted 60 per cent of the issue, 10 per cent to
non-institutional investors and 30 per cent to the retail investors. Somi
Conveyor Beltings Ltd, a manufacturer of rubber conveyor belts of various
sizes used for industrial applications of material handling in various
industries, proposes to enter the capital markets on June 24 with an issue
of 62.27 lakh equity shares of Rs 10 each at a fixed price of Rs 35
aggregating to Rs 21.79 crore. The issue will close on June 27, 2008. The
IPO of Archidply Industries subscribed 1.52 times on the last day of its
issue on June 17, 2008. The issue received bids for one-crore shares
compared with 66.15-lakh shares on offer, according to NSE. The portion
reserved for the QIB has been subscribed 0.2 times, the non-institutional
investors submitted bids for 2.35 times and the portion reserved for the
retail investors has been subscribed 3.03 times. Secondary
Market
The
stock markets fell sharply during the week after inflation soared to 11.05
per cent for the week ended June 7 from 8.75 per cent in the preceding
week. This along with weakness in the global markets and worries on
domestic interest rates compelled the Indian bourses to post negative
growth. In addition, political concerns over the nuclear deal have been
viewed negatively by the markets. BSE Sensex declined in 3 out of 5
trading sessions during the week. The selling has been witnessed across
the sectors and indices. BSE
Sensex down by 4.1 per cent to 14,570 points. The BSE Mid-Cap index
declined 196 points or 3.14 per cent to 6,032. The BSE Small-Cap index
slumped 184 points or 2.43 per cent to 7,398 points. The Nifty ended down
3.75 per cent, closing at 4347.5 points, which is a 10-month low. The
Defty down by 3.83 per cent. Among
the sectoral indices of BSE, all the indices fell during the week. The
most badly hit sectors are real estate, housing finance stocks,
construction companies and automobiles. These all stocks are interest
rate-sensitive and driven by consumer sentiment. Metals also performed
poorly and telecom service providers saw massive sell offs. Capital goods,
reality and oil and gas shed more than 5 per cent. Securities
and Exchange Board of India (SEBI) has notified SEBI (Intermediaries)
Regulations, 2008 with an aim to consolidate the common requirements,
which apply to all the intermediaries wherever such requirements are
applicable. The regulator has also notified regulations with respect to
public offer and listing of securitised debt. This will be called SEBI
(public offer and listing of securitised debt instruments) regulations,
2008. SEBI said in a statement that, the regulations put in place a
comprehensive regulation, which will apply to all intermediaries. The
common requirements like the grant of registration, general obligations,
common code of conduct, common procedure for action in case of default and
miscellaneous provisions have been provided in the approved intermediaries
regulations. The regulator has made the registration process simple. An
applicant may file application in the prescribed format, along with
additional information as required under the relevant regulations along
with the requisite fees. The existing intermediaries may file the
disclosure in the specified form within the prescribed time. The
disclosures shall be made public by uploading the information on the
website specified by SEBI. The information of commercial confidence and
private information furnished to SEBI shall be treated confidential. In
the event intermediary wishes to operate in a capacity as an intermediary
in a new category, they may only file the additional shortened forms
disclosing the specific requirements of the new category as per the
relevant regulations. SEBI said that the registration granted to the
intermediaries has been made permanent if the compliance of the SEBI Act,
regulations, updation of relevant disclosures and payment of fees is
followed. SEBI said that the procedure for action in case of default and
manner of suspension or cancellation of certificate has been simplified to
shorten the time usually faced by the parties without compromising with
the right of reasonable opportunity to be heard. Surrender of certificate
has been enabled without going through lengthy procedures. In another
development, SEBI has notified SEBI (public offer and listing of
securitised debt instruments) regulations, 2008. The amendment to
Securities Contracts (Regulation) Act, 1956 (SCRA) enabled SEBI to provide
for disclosure based regulation for public issue of or listing of
securitised debt instruments on the recognised stock exchanges with a view
to develop market for securitised debt instruments. Capital
market regulator, SEBI is concerned about the kind of service providing by
mutual funds to their investors and wants the industry to focus on the
hassle-free redemptions and also conduct an investor survey, in their own
interest. The regulator has decided to set up a mutual fund advisory
committee to address the issues faced by the industry. This committee
would be on the same lines as those already existing for primary and
secondary Markets. According to SEBI Chairman, Mr C.B. Bhave, mutual funds
focus has been more when people invested in their funds and not so much
when they made an exit. There should be flexibility and exits should be as
per investors wish. He also suggested that, “Focus on what the client
wants, as this will be in your interest”. A
committee under the Association of Mutual Funds in SEBI
has asked some of the foreign institutional investors (FIIs), who have not
utilised their allocated investment limits in debt instruments (Government
securities and corporate debts), to use it within 15 days. The regulator
said that if the respective investment limit is not utilised within the
given timeframe, the allocation of such investment opportunities would be
withdrawn and allocated to the other registered overseas institutional
investors, who are on the waitlist. There are 10 FIIs on the wait list
seeking to invest in the G-Sec and two in the corporate debt instruments. Government
Securities Market Primary
Market On
June 18, 2008, Reserve Bank of India (RBI) auctioned 91-day and 364-day
T-bills for the notified amounts of Rs.2,000 crore and Rs.1,000 crore,
respectively. The cut-off yields for 91-day and 364-day T-bills were 8.06
per cent and 8.25 per cent, respectively. RBI
re-issued 8.24 per cent 2027 for Rs.6,000 crore on June 20, 2008 at the
cut-off yields of 9.25 per
cent. On june 19, 2008, RBI has set the cut-off rate at 16 paise per
Rs.100 for underwriting commission payable to primary dealers in respect
of the auction of 8.24 per cent 2027. Secondary
Market Call
rates remained above 8 per cent during the week, barring a brief dip to
4-4.25 per cent as demand waned sharply on reserves on reporting Friday.
At the LAF, RBI pumped in an average of Rs 6,696 crore, through the repo
window, reflecting tight cash in the system. Bond yields spiraled
northwards as inflation soared and traders braced for policy interventions
from RBI. The 10-year yield soared to its highest in nearly seven years
after inflation touched its 13-year high of 11.05 per cent to June 7, its
highest since May 1995 and far outstripping forecasts for 9.82 per cent,
on Friday, aggravating concerns over policy-tightening measures by the
central bank in an attempt to contain inflation. As a result, tight
liquidity conditions pushed the ten-year YTM on a weighted average basis
to 8.53 per cent during the weekend, up 18 basis points over the previous
week. Trade volumes remained steady at low levels. Average trade volume
during the week about Rs 5,500 crore per day. The low interest has been
evident from the flat yield curve with an yield spread of just 40 basis
points between 1 and 29 years. Indian 10-year bond yields soared to their
highest in nearly seven years as data showed inflation had jumped to a
13-year high, raising expectations that the central bank may tighten
policy. The 10-year benchmark bond yield ended at 8.63 per cent, 16 basis
points above Thursday’s close of 8.47 per cent, after hitting a high of
8.68 per cent, its highest since November 2001. Adverse
conditions in international financial markets has been compelled RBI to
keep the final guidelines on credit derivatives in abeyance, as it does
not consider the present time opportune to introduce these instruments in
India. The central bank took this step keeping in view developments in
various international financial markets, particularly credit markets,
which have resulted in considerable volatility in the recent past. Also,
taking into account the status of the risk management practices prevailing
in the banking system, the issue of final guidelines has been deferred.
During the Annual Policy Statement for 2007-08, RBI said it was
appropriate to introduce credit derivatives in RBI
has made it mandatory for all payments of Rs.10 lakhs and above, between
RBI regulated entities and in RBI regulated markets to be routed through
electronic payment systems by August 1, 2008. Derivatives Nifty
future succumbed under pressure from the bears and closed a good 3.3 per
cent lower at 4335.3 points than 4484.3 points, after beginning on a
promising note from its previous week’s close. While the Nifty June
future discount to the spot stood at about 20 points, the July series saw
a wider discount of over 37 points. Nifty future recovered mildly on short
covering and went on to touch an intra-week high of 4658 before falling
prey to profit booking by traders. Implied volatilities (IV) for puts
increased to 33 per cent against previous week’s level of 29 per cent,
while calls IV decreased to 29 per cent (33 per cent). The relative
firmness in puts IV is negative for the market, as traders are actively
trading in puts. Volume wide put/call ratio (PCR) increased to 1.38 (1.14)
but open interest PCR declined to 1.37 (1.6). This indicates puts were
squared-off on reporting Friday, when the market slipped sharply. In
Nifty futures, the total OI is about 4.5 crore with about 20 per cent
placed in mid+far contracts. In Nifty options, the far+mid OI is around 31
per cent. The mid and far PCR (in terms of OI) is incidentally around
1.32, which seems rather low for this stage of settlement where 1.8 or
higher is often registered. Overall,
index PCR (OI) is around 1.37, which is in the normal range. The stock
option PCR has been abnormally high at 0.4 given that it's rarely above
0.2. Stock option volumes were also high. The VIX hit an amazing intra-day
high of 57 before settling back to 29. In the liquid Nifty futures and in
the BankNifty, which is also liquid, there are visible discounts. The June
Nifty settled at 4335 – about 12 points below the spot closing and the
July Nifty has been at 4318. The BankNifty closed at 5758 while the June
contract has been settled at 5717 and July at 5700. Bond
Market During
the week under review, one non-banking financial institution (NFC) tapped
the market with issuance of bonds. Tata power tapped the market on June
16, 2008 and closed on June 17, 2008, to mobilise Rs 500 crore by offering
10.40 per cent for 10 years. The bond has been rated AA by crisil and icra. In
order to facilitate the development of a vibrant primary market for
corporate bonds in In
a bid to strengthen the financial sector, the RBI has set a deadline of
March 2009 for all deposit taking non banking financial institutions (NBFCs)
to increase their net worth to at least Rs.200 lakh and frozen fresh
deposit mobilization till the net-worth target is achieved. Separate
instructions have been issued for Asset Finance Companies. French
major Societe Generale (SG) aims to undertake its private banking
operations by opening a non-banking financial company (NBFC) in Foreign
Exchange Market The rupee traded in a very narrow range, and closed at Rs.42.97 per dollar on June 20, 2008 from Rs.42.87 per dollar as on June 13, 2008. The Rupee moved between Rs.42.90 and Rs.42.97, with a standard deviation of 3 paise during the week. Negative inflows and weak financial market sentiment kept up the pressure on the rupee. Non-deliverable forward quotes rose, offering scope for arbitrage. While according to traders, it has been the dollar supply from state-owned banks that offered supported the rupee. Despite the oil price spikes, the impact on foreign exchange markets has been limited. The restricted exchange rate volatility has been largely because of RBI interventions through the special market operations (SMO). Premia for 1, 3, 6 and 12 months were 5.58 per cent (6.16 per cent), 3.91 per cent (3.92 per cent), 3.40 per cent (2.75 per cent) and 2.79 per cent (2.73 per cent) respectively. Short forward cash to spot also remained steady at 7.26 per cent (7.28 per cent) as foreign banks swapped dollar for rupees for taking advantage of the tight conditions in call money markets. The annualized six-month forward premia closed at 3.95 per cent on June 20, 2008, from 3.26 per cent on June 13, 2008. Commodities
Futures derivatives Multi-Commodity
Exchange of India (MCX) has signed memorandum of understanding (MoU) with
Singapore-based IDEA carbon, an independent rating agency for carbon
market participation and global advisory on carbon finance. Under the MoU,
IDEA carbon would advise MCX on the propensity to launch carbon relate
contracts. With the assistance of MCX, IDEA carbon will create instruments
that MCX will make available for trading on the MCX platforms. On
June 16, 2008, National Multi-Commodity Exchange (NMCE) settled the
June-2008 contracts in various commodities. Pepper settled at Rs 14,464 (a
quintal), which has been marginally higher than Rs 14,134 of May and Rs
14,375 of April contract. The June-2008 contract in cumin seed settled at
Rs 10,758, up from Rs 10,433, and castor seed settled at Rs 2,680.
However, June-2008 contract in isabgol seed (psyillium) settled at Rs
4,577, down from the previous month’s Rs 4,609, and guar gum at Rs 4,451
down from Rs 4,596. Similarly, the June-2008 contracts in sacking settled
at Rs 1,829 (100 bags), down from the previous month’s Rs 2,013. Among
other commodities that matured at NMCE, coconut oil settled at Rs 6,194, a
little higher level than Rs 6,092 from May but lower than Rs 6,250 of
April contract. Copra settled at Rs 4,089 at slightly higher than Rs 4,056
of May, but lower than Rs 4,186 of April contract. The June-2008 contract
in rape/mustard seed closed at Rs 589 (20-kg) and cardamom at Rs 628 (per
kg). The settlement prices were arrived at, by averaging out the spot
prices of the particular commodity on three days preceding the expiry
date. Different series are launched on different specified dates of the
month and run for different periods. Some are traded in five series,
others in less. The new series for futures contract launched included the
same commodities, which expired last weekend. On
June 16, 2008, NCDEX maize futures (August 2008 contracts) crossed
the Rs 1,000-mark and moved up to an all time high of Rs 1,011 a quintal
on local buying support. According tro market sources, Maize active July
2008 contract prices have jumped up by 18 per cent to trade around Rs 971
per quintal in the last one month on strong domestic demand. Maize futures
and spot prices are expected to remain firm on good export demand as well
as good sustained buying from poultry and starch sector supported by lower
inflows in The
record rise in the international crude oil price has generated increased
interest in futures contracts being traded on MCX and National Commodity
and Derivatives Exchange (NCDEX). Open interest in crude oil rose from
about 1.2 million barrels on April 1 to over 3 million barrels on May 12
on MCX. On NCDEX, the volume jumped was nearly 260 per cent to 19.95 lakh
barrels in May. According to Ms Kavita Chacko, economist, NCDEX, the
increased fund flow in the international market into commodities as an
alternative investment given the crisis in the financial markets has
fuelled the oil price rally. Zinc
futures price on MCX platform have fallen by nearly 16 per cent in last
one month as global supply widens. MCX July 2008 contracts were down from
Rs 100.20 to Rs 84.70 per kg on June 20, 2008, while expiring June futures
were also weakened to Rs 84.70, down by Rs 16.35 a kg over previous month
on continued selling pressure. In London Metal Exchange (LME), special
high grade zinc spot has been down 17 per cent to trade at $1,885 a tonne
on June 19, 2008, over previous month while 3 month contracts also fell 17
per cent to trade at $1,916 a tonne over previous month on reduced buying
from China and European buyers. Total stocks at LME increased to 1,52,175
tonne up 23,600 tonne from 1, 28,675 tonne as on May 19, 2008. According
to recent estimates from the International Lead and Zinc Study Group (ILZSG),
the global zinc market will be in excess of 2.10 lakh tonne in 2008 and it
has been in surplus by 78,000 tonne during the first four months of this
year, compared with an oversupply of 43,000 tonne during the same period
of 2007. Corporate
Sector The
Tamil Nadu government in March 2008 has reduced the CST rate on passenger
cars and components manufactured by BMW India Ltd by 1 per cent, citing
“public interest”. The auto company now has to pay only 1 per cent
CST. While CST is essentially a state subject under the Constitution,
which allows state governments to take individual decisions, the Centre is
not too happy with states providing such tax benefits. In
the largest-ever buyout of a listed Indian entity, Japan’s second
largest pharmaceutical company, Daiichi Sankyo, has announced that it
would acquire over 51 per cent stake in Ranbaxy Laboratories Ltd.,
India’s largest pharma firm, at Rs 737 a share. The transaction is
valued in the range of $3.4–4.6 billion. The Ranbaxy founders will off
load their entire 34.8 per cent controlling stake to Daiichi Sankyo at 31
per cent over the stock’s closing price of June 10, 2008. This marks the
end of the Singh’s family ownership of the company, although Malvinder
Singh will continue as CEO and MD, while additionally assuming the
position of Chairman of the board. On post-closing basis, the transaction
would value Ranbaxy at $8.5 billion. The buyout will also include the
mandatory open offer to public shareholders for 20 per cent of Ranbaxy
shares at the same acquisition price of Rs 737 a share. The acquisition
will be completed by the end of March 2009. Ranbaxy is expected to become
a subsidiary of Daiichi Sankyo. Hinduja
Group flagship company, Ashok Leyland had made a strategic investment in
Germany-based group firm Albonair GmbH for developing vehicle emission
treatment systems and products. The company will be investing Rs 600 crore
in the recently formed joint venture with Nissan Motor Company for light
commercial vehicle business in 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 Telecom The
Department of Telecommunications (DoT) has allowed mobile operators to
enter into intra-circle roaming pacts. The move will benefit subscribers
of regional players who are now expanding on a pan-India basis, but are
unable to roll out new networks covering the entire circle fast enough.
For existing operators, it would open up a new revenue channel. Mobile
phone giant Nokia’s market share in Tata
Communications International, a wholly owned subsidiary of Tata
Communications Ltd., has signed an equity joint venture agreement with the
shareholders of China Enterprise Communications (CEC) for the acquisition
of 50 per cent equity. CEC has a nationwide IP-VPN service license. The
telecom department’s technical arm, Telecom Engineering Centre (TEC) has
recommended 11 digit mobile phone numbers to be issued by 2010. With about
8 million subscribers being added very month,
*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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