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Current Economic Statistics and Review For the
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Theme
of the week:
Issue and Management of Currency by Reserve Bank of India 1.
Introduction Currency
management is a central banking function, which has a high degree of public
credibility in The
object of clean note policy is to withdraw non-issuable notes well in time
and put fresh notes in to circulation in their place in a timely manner. The
magnitude of the effort required is better understood when we take note of
the volume of currency in
circulation in 2.
Legal Obligation RBI
is the sole authority for the issue of currency in Section
38 of the Act prevents central government from putting into circulation
rupees except through the Reserve Bank. Section
27 of the Act prevents the Reserve Bank from reissue of bank notes, which
are torn, defaced or excessively spoiled. Section
28 of the Act RBI prevents any person to recover from the central government
or the Bank, the value of any lost, stolen, torn, mutilated or imperfect
currency note of the Government of India or bank note as a matter of right. Section
58 of the Act gives the Bank’s central board the powers to make
regulations consistent with this Act to provide for all matters for which
provision is necessary or convenient for the
purpose of giving effect to the provisions of this Act. International
Organization for Standardization’s (ISO) certification ensures that
minimum international quality standards are adhered to in the systems and
procedures followed in an organization. Quality means doing the right
things, the right way, first time and every time. The Bank decided to opt
for ISO certification of currency management and banking services, as they
are highly service oriented in nature. A core group was set up to ensure
smooth implementation of the ISO standards. A quality manual and a
procedural manual were prepared towards implementation of ISO standards. The
quality policy for currency management formulated was as follows: “
That the Reserve Bank is committed to consistently provide adequate quantity
of clean banknotes and coins to the members of the public coupled with
timely withdrawal of soiled and mutilated notes from the currency chests as
also facilitating processes to check the circulation of counterfeit
banknotes and also to continuous improvements in the currency management
systems through upgradation of technology for maximization of the
satisfaction of the members of the public”. RBI
(Note Refund) Rules, 1975 were framed in terms of the proviso to Section 28
of the RBI Act 1934 read with Sub-section 1 and Sub-section 2q of Section 58
of the said Act by the Central Board with the previous sanction of the
central government. The rules give the circumstances under which the Reserve
Bank will refund the value of bank notes as a matter of grace to mitigate
the hardship to the public in genuine cases. 3.
RBI’s Efforts At a Clean Note Policy Thus,
the RBI’s responsibility is not only to put currency into or withdraw
from, circulation but also to exchange notes and coins against such
denomination of notes or coins as may be required by the public. The Act
also imposes an obligation on the Bank to maintain quality of notes and
exchange mutilated and soiled notes. In pursuant to the policy, public
sector banks also asked to exchange mutilated notes, and since 1997, the
scheme has been extended to currency chest-maintaining branches of private
sector banks. The
Reserve Bank ha followed a multi-pronged strategy for implementing this
policy. Efforts for improving the quality of notes in circulation were
directed towards replacing the soiled and torn notes by fresh or reasonably
good quality notes. Key measures in this regard have included mechanization
of note-processing cum verification and eco-friendly destruction of soiled
notes, widening of the currency chest networks, non-stapling of note
packets, speeding up of handing over and taking over of remittances by the
chests and continuation of anti-counterfeit steps. i)
Non-stapling of Notes The
Reserve Bank has issued instructions to all banks to stop stapling of fresh
note packets in 1996, and in 1998, these instructions were extended to
reissuable note packets also. These instructions were ignored by the banks
and hence in November 2001, The Reserve Bank issued a directive under
Section 35 of the Banking Regulation Act 1949, to all banks prohibiting
stapling of bank notes, tendering soiled notes to the Reserve Bank in
unstapled condition and issuing only clean notes to the public. Notes in
unstapled condition facilitate easy processing of soiled noted under the
mechanized environment of the Reserve Bank.
Stapling
is an age-old practice and a stitched note packet has been equated with an
accurate round number of 100 notes in a packet. Hence there have been some
misapprehensions on the part of cashiers of banks’ regarding the handling
of unstapled notes. General practice has been
that a packet, whether stitched or banded, must contain 100 note
pieces. The Reserve Bank has,
therefore, instructed banks that their chests should hold the balance only
in unstapled conditions and the amount of stapled note balances should be
treated as non-chest balance. The Reserve Bank also launched a publicity
campaign on the benefits of non-stapling through films and press
advertisements. The banks are advised to secure note packets with paper or polymer or twine instead of wire staples. Banks are asked to install dual display note counting machines for the satisfaction of their staff as well as customers. ii)
Augmenting Fresh Note Availability The
early 1990s were marked by supply constraint as the capacity of note
printing presses fell short of the demand for fresh notes. During that
period, the notes were mainly printed by 2 government presses at The
Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), incorporated
as a wholly-owned subsidiary of the Reserve Bank, is engaged in printing
notes in its twp presses in
The
intents for fresh notes have been met by the printing presses to the extent
of more than 99 per cent both in terms of pieces and value. RBI
has taken various measures to assess an optimal inventory of bank notes
requirement. In order to strengthen these efforts, a working group was
constituted to look into the issues relating to currency management. It has
been decided to design a model for forecasting the demand for bank notes. The
Reserve Bank has been sourcing banknotes from the two presses of the
Security Printing and Minting Corporation of India (SPMCIL) and from
Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL).The cost of printing
banknotes during the year ended March 2007 was Rs. 2020.20 crore. Out of
this, Rs. 1041.95 crore was paid to the SPMCIL presses in respect of 4,642
million banknotes supplied by them and Rs. 978.25 crore to BRBNMPL for 6,830
million notes procured from its presses.
It has been RBI endeavor to consistently bring down the cost of printing banknotes by encouraging the note presses to bring about greater efficiency in their operation while maintaining the quality of the printed notes It can be seen from Table 2 that the unit cost of printing note by SPMCIL has been more than that of BRBNMPL. iii)
Mechanization for Removal of Mutilated and Soiled Notes The
Reserve Bank has taken a number of steps to improve the quality of notes in
circulation; it is essential to pump fresh notes in circulation. As an
adjunct to this it is also imperative to withdraw soiled and torn notes from
circulation concurrently. To achieve these twin goals, the Reserve Bank has
introduced various changes in the systems and procedures related to currency
management. To
overcome the limitation of growing volumes of notes in circulation and
existing manual systems and also for speedier disposal of soiled notes, the
Reserve Bank embarked upon mechanization of currency operations in the issue
offices. The disposal capacity of soiled notes has been augmented by putting
in place Currency Verification and Processing Systems (CVPS) at its 19
offices. Presently, the Reserve Bank has a total of 54 CVPSs and 28
Shredding and Briquetting System (SBS) at its 19 offices. (a)
Currency Verification and Processing Systems (CVPS) Currency
Verification and Processing System (CVPS) is an electronic-mechanical device
designed for examination, authentication, counting, sorting and online
destruction of the notes which are unfit for further circulation. The system
is capable of sorting the notes on the basis of denomination, design and
level of soilage. Generally, the system sorts the notes into Fit, Unfit,
Reject and Suspect categories. The Unfit notes are shredded online. The Fit
notes are retrieved from the system in packets of 100 pieces. These packets
are banded by the system and information such as denomination, date of
processing, name of office, operator code is printed on the label to
facilitate easy identification. The currency
notes in the Reject and Suspect categories are received in different
stackers since these have to be inspected manually for the presence of
counterfeit or different denomination notes. The
CVPS ensures uniformity and consistency in the examination of notes on the
basis of soilage levels and other parameters and classification thereof into
re-issuable and non-issuable. The element of subjectivity, which
characterises manual examination of notes, is thus eliminated through CVPS. The
software of the system has the capability for gradation of access rights to
it. This provides an element of electronic security apart from the regular
security of the Issue Offices. The system has a computer attached to capture
and store the data as well as provide reports depending upon the requirement
of the users. b)
Shredding and Briquetting Systems Shredding
and Briquetting Systems (SBS) have been introduced in the Issue Offices to
replace the incineration of notes, which was not considered to be
environment friendly. The notes are put in the SBS system as such by way of
bundles. The system first cuts the notes into small pieces and then converts
them into fine shreds. These shreds are then automatically channelled into
the Briquetting System where they are compressed under high pressure
resulting into formation of briquettes. The
SBS are of two types, namely, on-line and off-line. The on-line systems
accept the shreds of notes for briquetting both from its shredder as also
from the CVPS. The off-line systems, however, accept shreds of notes for
briquetting only from the shredder. During 2006-07, 4.5 billion pieces of banknotes were processed on these machines. The remaining notes were disposed off under other modes including manual system. (c)
Magnitude of Disposal of Soiled Notes
The Reserve Bank has launched a special drive for faster disposal of soiled notes accumulated in the vaults of its offices as well currency chests. Total disposal of soiled notes during 2002-03 was to the tune of 15.6 billion pieces or about 42 per cent of total currency in circulation of 37.3 billion pieces. In view of the continuous and vigorous attempt of withdrawal of the soiled notes from circulation, the accumulation of soiled notes in the Issue offices and currency chests has been brought to manageable level. The timelag between receipt and disposal of soiled notes also narrowed considerably. Furthermore, to provide an incentive to the banks maintaining currency chests and to ensure better service to customers, chest maintaining branches have been allowed to levy a service charge of Re. 1 per packet irrespective of denomination on the cash deposited by the non-chest branches. The number of soiled notes and their percentage share in total notes in circulation has come down to 7,325 million and 18.4 per cent ( Table 3) which may be due to a successful achievement of clean note policy.
Table
4 gives the disposal of soiled notes denomination-wise. It can be seen from
these that though there is a lowering of the share of Rs. 10 and Rs. 100
notes in soiled disposal category from 2003-04 to 2006-07 , these two notes
still form the major share, which is indicative of the preference of the
public for these denomination notes and to an extend their easy
availability. Summing upThe
Reserve Bank of * This not has been prepared by R.Krishnaswamy
Highlights of Current Economic Scene AGRICULTURE As
per reports of Crop Weather Watch Group, released by Agricultural Ministry,
the sown acreages under all major kharif crops like rice, oilseeds, pulses
and coarse cereals have increased so far during the current kharif season
2008-09, except for cotton and sugarcane. In
case of cotton, sowings are completed in the northwest The
central government has increased minimum export price (MEP) of onion by US
$25 (about 15 per cent) to US $185 per tonne (Rs 8,000 approximately) with
effect from July 1, 2008. The decision to raise the MEP was taken in the
backdrop of rising retail prices from Rs 6 to Rs 10 per kg in June 2008. It
is expected that if retail prices continue to move up, MEP would be raised
further by mid-July. Wholesale prices recorded in the
As
per the notification issued by the Directorate-General of Foreign Trade (DGFT)
as on July 3, 2008, exports of maize have been banned till October 15, 2008,
providing some relief to poultry farmers and starch manufacturers. It has
been reported that India have exported about 2.5 million tonnes of maize so
far during the 2007-08 season (October-September), as against 0.5 million
tonnes in 2006-07. Exports have mainly been driven by soaring international
prices, recent flood witnessed in main corn-growing mid-west regions of the Export
ban on maize upto October 15 2008, would ensure availability of maize in the
domestic market. National Egg Co-ordination Committee (NECC) estimated that
by October price of one egg in the retail market would reach to Rs 3.50 as
against Rs 4 per piece. Poultry industries desire to extend the ban on
exports of maize till March 2009, as they do not want private players to
obtain the fresh crops arriving at the market during the month of October.
Industry sources stated that this move would help the prices of maize to
come down by Rs 30-70 per quintal from the current price, which is closer to
Rs 1,000 per quintal. The
central government has decided to implement decontrol of the sugar industry
before the starting of sugar season from October 1, 2008, by dismantling 10
per cent levy imposed on sugar mills along with the monthly release
mechanism governing the balance of 90 per cent. Under this system sugar
mills may not deliver 10 per cent of their production to the government as
levy sugar for the public distribution system. States are entitled to meet
PDS needs by procuring sugar from the open market and obtain reimbursement
from the centre for selling sugar at a subsidised rate. The centre has not
yet decided the quantity that each mill can sell every month in the open
market. Prices
of sugar are likely to rise by 20-25 per cent on the background of low
output estimates and demand for high exports. As per current estimates, the
area under sugarcane cultivation has declined to 40,74,000 hectares from
47,51,000 hectares during the same period last year. Most of the farmers
have shifted their coverage from sugarcane to other crops like castorseed,
soybean, maize and cotton in the ongoing kharif-sowing season due to
possibility of earning much higher realisation due to inter-cropping among
these crops. Sugar output in the country is expected to come down by 25 per
cent to 21-22 million tonnes in 2008-09 season (October-September) from 28
million tonnes last year. A huge surplus of the commodity in 2007-08 and
stagnant consumer demand have resulted in the prices of the M30 grade sugar
going down by 10 per cent in the last one-and-a-half-years even though
prices of other commodities has moved up sharply. Currently, prices of sugar
are holding low because of the release of 5 million tonnes from the buffer
stock. Experts opine that anticipating a jump in sugar prices is not
justifiable, as sowing is not yet over for the next crushing season
beginning from October. According
to Spices Board,
According
to the International Cotton Advisory Committee (ICAC), world cotton output
in the ensuing season 2008-09 would be 25.5 million tonnes as against 26.2
million tonnes in 2007-08, owing to slower global economic expansion and
higher prices of cotton relative to polyester. Production of cotton is
likely to trail consumption, by 1 million tonnes, while stocks are projected
to drop by the same margin. Decline in global cotton production and stocks,
prices of cotton are anticipated to rise higher in cotton season 2008-09.
Production of cotton is estimated to decline majorly in the regions of US
and smaller declines would be in According
to Karnataka Cashew Manufacturers' Association (KCMA), exports of cashew
kernel in value terms, are expected to go up from 30 per cent to Rs 425
crore in 2008-09, while in volume terms, it is likely to achieve a 60 per
cent growth of 18,000 tonnes. Karnataka is the third largest raw cashew nut
producer contributing about 12-14 per cent of the country's total exports.
The state grows around 45,000 tonnes; another 40,000 tonnes is sourced from
other states like Goa, The
Marine Products Export Development Authority (MPEDA) has stated that total
marine exports from the country, during 2007-08, have declined to 545,000
tonnes valued at Rs 7,600 crore from an all-time high of 612,641 tonnes
valued at Rs 8,363.53 crore in 2006-07. But in dollar terms, earnings have
shown a marginal increase at US $1.9 billion as against US $1.8 billion in
the previous year due to a weakening dollar. The decline in exports has been
mainly due to introduction of low-cost variety (Vannamei) for shrimp
aquaculture by rival exporting countries like
Around
10 lakh tonnes of food grains have been reported to be damaged in Food
Corporation of India (FCI) godowns since last one-decade. The damages were
suffered despite of FCI spending Rs 242 crore to prevent any loss of food
grains during storage. Another 2.59 crore was spent just to dispose off the
rotten foodgrains. The FCI has notified that the damages incurred during
1997 to 2007 are reported to include 1.83 lakh tonnes of wheat, 3.95 lakh
tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize. The
damage was found in the godowns located in the northern states such as UP,
Uttarakhand, 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 Poor
growth in electricity generation coupled with a stagnant petroleum refinery
products pushed down the the over all index for six infrastructure
industries to 3.5 per cent in May 2008 as against 7.8 per cent in May last
year. Electricity
generation with a weight of 10.17 per cent the largest among the 6 core
industries has registered a growth of 2 per cent in May this year as against
9.3 per cent in the same month last year. Crude
Oil production (weight of 4.17% in the IIP) witnessed an increased growth of
3.2 per cent as against a decline of 1.6 per cent in the same month last
year.remained almost stagnant during May 2008 as against a growth of 14.9
per cent last year. Petroleum
refinery production (weight
of 2.00% in the IIP) registered a marginal growth of 0.1 per cent (provisional)
in May 2008
compared to growth of 14.9% in Mayl 2007. A
strong jump in Coal production (weight of 3.2% in the IIP) from 0.5 per cent
in May 2007
to 8.3 per cent in May 2008 has been the only silver lining in an otherwise
dismall performance. Slow
down in the growth in Cement production (weight
of 1.99% in the IIP) also seen during May 2008. Cement production grew by
3.8 per cent as against 9.9 per cent in the review periods. Finished
(carbon) Steel production (weight
of 5.13% in the IIP) registered a growth of 5.2% (provisional)
in May 2008
compared to 8.4% (estimated) in May 2007.
Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by 11.63
per cent for the week ended June 21,2008 as compared 4.32 per cent as on
June 23,2007.Over the week the growth was 04 per cent . Rise
of 0.5 per cent in the index of Primary Articles group during the week can
be attributed to increase in prices of food and non-food articles. A
decline of 0.1 per cent were witnessed in the price index of
the major group Fuel, Power, Light and Lubricants mainly due to lower
prices of furnace oil. The
rise in the price index of manufactured products by 0.5 per cent was mainly
due to increase in the prices of edible oils, yarns, ayurvedic medicines,
and pig iron ,steel sheets,plates and pipes and ms bars and rounds. The
final WPI for all commodities had been revised upward from 227.7 to 229.1
for the week ended April 26,2008. As a result the rate of inflation
calculated on a point-to-point basis stood at 8.27 per cent as compared to
7.61 percent provisional. Banking ICICI
Bank and Housing Development and Finance Corporation (HDFC) have raised
interest rates on housing loans in response to the tightening of monetary
measures by the RBI last week. HDFC has revised its home loan rates by
increasing its retail prime lending rate by 0.50 per cent. ICICI Bank has
announced an increase of 0.75 per cent in its floating reference rate to
13.50 per cent for its consumer loans, with effect from June 30, 2008. Hit
by a huge liquidity shortfall owing to the non-recovery of agricultural
loans, co-operative banks find themselves in a bind on the government’s
debt waiver and debt relief scheme. Nabard has now come to rescue of these
banks, and promised liquidity support from its corpus of Rs 7,000 crore.
Co-operative banks have stated that the liquidity shortfall has led to a
decline in the issue of fresh advances. Nabard’s assistance will help the
cash-strapped co-operative banks to resolve the situation in the kharif
season that has begun. Nabard has taken this pro-active step to facilitate
co-operative banks to overcome the liquidity shortfall by providing
liquidity support to state co-operative banks (SCBs). The amount under
liquidity support will be restricted to the gap between realistic lending
programme (RLP) for kharif 2008, as accepted by Nabard and resources
available with them or a maximum up to 20 per cent of their RLP, whichever
is lower.
The
Nabard officials affirmed that the co-operative banks have to exclusively
use the liquidity support for giving fresh crop loans to borrowers within 30
days from the date of each withdrawal. Nabard has taken a policy decision to
provide liquidity support to 30 state co-operative banks at 9 per cent rate
of interest as an immediate step as per section 38 (vii) of Nabard Act,
1981. So far, of the 30 SCBs, around ten SCBs have sent in their proposal
for liquidity support. Nearly 360 district central co-operative banks (DCCBs)
get loans from these SCBs and they later provide assistance to the primary
agriculture co-operative societies (PACs), which subsequently on-lend to
farmers. Nabard announced that the liquidity support would be in the form of
a loan repayable on demand or on receipt of debt waiver/relief amount from
the centre. Financial
Sector Capital
Markets Primary
Market Initial
public offerings (IPO), those came to market in the first half of the year
2008, were at the slowest pace since 2003, and few investors expect a
rebound, as economic growth tapers off and loan losses mount. According to
data compiled by Bloomberg, through June, 333 companies went public
globally, down from 702 a year earlier. The $73.2 billion raised has been 41
per cent less than during the first half of last year and the least since
2005. At least 166 companies have withdrawn or postponed their IPO this
year, more than double the number in the first half of 2007. Similarly,
according to the Ernst & Young IPO report, global IPO markets
decelerated during the first quarter of 2008, triggered by the issues of
credit crunch and financial turmoil. The persistent volatility and stringent
valuations compelled 83 companies around the world to withdraw their IPOs in
the first quarter of 2008 and 24 companies postponed their listings.
However, companies from emerging economies have been at the forefront in
driving the growth of the IPO market with the BRIC ( Archidply
Industries, manufacturers of plywood, comprehensive engineered interior
products, debuted on the National Stock Exchange (NSE) at Rs 72.90 against
the issue price of Rs 74 on July 04. It closed at Rs 50.70, which is Rs
23.30 or 31.49 per cent below its listing price. A total of 91.68 lakh
shares were traded on the NSE. On the Bombay Stock Exchange (BSE), too, the
stock opened at a marginal premium at Rs 74.55 and closed at Rs 50.45. Avon
Weighing Systems, maker of platform scales and weighbridges, made its debut
on the BSE on July 03, at a premium of 39 per cent at Rs 13.90 against its
issue price of Rs 10. The share price closed at Rs 20.The total quantity
traded on the BSE was 3,59,06,256 shares. The company had entered the
capital market with its public issue of 98,36,400 equity shares, of Rs 10
each for cash at par. Secondary
Market The
BSE has revised circuit filter to 10 per cent for 372 stocks with effect
from July 06, 2008. A circuit-breaker is a device that halts trading in a
stock if the price changes by a pre-determined percentage on a given day.
The stock exchanges have 2, 5, 10 and 20 per cent circuit breakers on
certain stocks. Circuit filters are tightened to control the movement of
scrips in times of high volatile markets. During
the week under review, domestic equity markets slipped to a 15-month low on
account of surging crude oil prices, high inflation and sustained selling by
foreign institutional investors (FIIs). Key benchmark indices continued to
move in inverse proportion throughout the week extending the losses with key
share indices breached a psychological levels as investors started dumping
more stocks. The BSE Sensex lost 348 points or 2.5 per cent to end the week
at 13,454 points, and the Nifty has down by 121 points or 2.9 per cent at
4,016. Crude oil price continued to climb and touched an all time high of
$146 per barrel during the week. Among the sectoral indices of BSE, except
IT and Capital goods, remaining other indices underperformed during the
week. On
July 05, 2008, RBI Governor Y V Reddy said in the annual general meeting of
the Bank of International Settlements (BIS) that, a dynamic balance (between
the use of liquidity and interest rate instruments) is evident from the
spread between the repo and reverse repo rates, which is enlarged during
times of uncertainties. It has moved from 150 basis points to 100 basis
points when times were good and has now moved to 250 basis points,
reflecting greater uncertainties. The 250-basis point spread between the
repo and the reverse repo rates reflects a heightened level of uncertainty
in financial markets.
A sharp fall in the equity market and tight liquidity condition have
taken the toll on the the mutual fund industry's average assets under
management (AUMs), with the top-five funds losing about Rs 14,800 crore in
June. According to data from Association of Mutual Funds in India (Amfi),
the total AUMs of the mutual fund industry in June (excluding those of
Taurus Mutual Fund and ING Mutual Fund) were Rs 5,56,103.17 crore. Fund
house sources attributed the fall in AUMs to advance tax payment and
volatility in the equity market. On
July 01, 2008, the Securities Appellate Tribunal (SAT) remitted back the
case related to the Karvy Group in the IPO scam to the Securities and
Exchange Board of India (Sebi) and asked the regulator to pass three
separate orders with respect to three different entities involved in the
case. Government
Securities Market Primary
Market RBI
re-issued 8.24 per cent 2018 and 8.28 per cent 2032 for Rs.6,000 crore and
4,000 crore on July 04, 2008, at the cut-off yields of 9.13 per cent and
10.03 per cent, respectively. On
July 02, 2008, RBI auctioned 91-day and 364-day T-bills for the notified
amounts of Rs.500 crore and Rs.1,000 crore respectively. The cut-off yields
for 91-day and 364-day T-bills were 8.81 per cent and 9.17 per cent,
respectively. RBI
has been set the rate of interest for floating rate bonds (FRB) maturing in
2015 and 2017 at 8.01 per cent per annum each, on June 30, 2008. The rate of
interest applicable for 7-year paper is from July 02, 2008 to July 1, 2009
and for 9 year paper is from July 02, 2008 to January 01, 2009. Secondary
Market Inter-bank
call rates ended at 6.00-6.25 per cent after climbing as high as 9.00 per
cent during mid-week, indicating banks having covered their positions in
advance. At the LAF window, RBI sucked up an average of Rs 5,183 crore
through the reverse-repo window and in turn lent an average of Rs 6,195
crore through the repo window. Bond yields continued to soar on expectations
of a further rise in inflation and high global oil prices. The 10-year bonds
fell; pushing yields to the highest in seven years, on concern that oil
prices near a record high will accelerate inflation, ended at a 7-year high
of 9.15 per cent. The yield stayed at elevated levels through the week
amidst plenty of negative factors dampening sentiment. The benchmark notes
declined, adding to the biggest quarterly loss in at least seven years,
after crude oil reached an all-time high of $143.67 a barrel on July 01,2008
in Derivatives Political
instability, high inflation and rising crude prices all contributed to a
crash in the derivatives segment which were reflected in the Nifty futures
which are running at very substantial discounts to the spot index levels.
The July Nifty is at 3979 while August is at 3967 with the spot at 4016. A
calendar spread of short July and long August is possible but it's early in
a long settlement and hence, not worth taking. The BankNifty futures (4966),
the Junior (6095) and the CNXIT (3998) are all at discounts to spot levels
of 4991, 6219 and 4002 respectively. The BankNifty is liable to continue
underperforming the overall market in the medium-term. The Nifty put-call
ratio has been overall at 0.76 while it was 1.1 in terms of OI and around
0.96 (OI) for July PCR. All this is on the bearish side. Interestingly, put
OI increased substantially overall by about 20 lakhs but there has been
cashing out close to the money in Nifty puts. In Nifty calls, over 4 lakh
July contracts were extinguished, much of it in desperate circumstances. The
PCR levels are bearish but the ratio has improved considerably from earlier
in the week. Over 36 per cent of puts are outstanding in non-July contracts,
with a substantial proportion of these locked in December 2008 contracts.
About 73 per cent of call OI is in July and again, December 2008 holds
substantial call OI. These
numbers are too high to be a statistical anomaly. Such long-term positions
must be hedges held by long-term players who are hoping to protect either
substantial equity holdings (in the case of the puts) or primary long
positions in the commodity markets (in case of the calls).
There's over 12 lakh OI in the Dec-2008 5000c (80) and 11lakh OI in
the Dec-2008 4100p (435).
Bond
Market Corporate
bond yield curve has been much steadier compared with the risk-free curve.
However, trading activity in corporate bonds has been almost absent though
the primary market saw one issue. The AAA 5-year yield has up at 10.77 per
cent from 10.68 per cent, offering a spread of 131 bps from 152 bps. At the
shorter end of the non-SLR segment, rates ease due to the improvement in
liquidity and lower call rates. During
the week under review, Power finance corporation Ltd tapped the market by
issuance of bonds to mobilise Rs 250 crore by offering 10.75 per cent, 10.70
per cent and 10.55 per cent for 3 years, 5 years and 10 years, respectively.
The bond has been rated AAA, by Crisil and Icra. Foreign
Exchange Market The
rupee closed at 43.16 per dollar from 42.88 per dollar over the week, but
intra-week, traded as low as 43.47 per dollar. The rupee dropped to a
15-month low on Tuesday at 43.33 to a dollar, following a slump in the BSE
Sensex, which plunged to the lowest level since April 2007 and the record
rally in crude oil stoked demand from importers for more dollars, with
refiners compelled to cough up more to buy oil from overseas. Forward premia
softened slightly due to large inflows into non-resident Indian accounts.
Forward premia eased in the later part of the week as the pressure on the
spot rupee reduced. Six-month premium fell to 4.5 per cent from a high of
5.47 per cent. Commodities
Futures derivatives The
government is set to operationalise the commodities transaction tax (CTT)
‘sooner, rather than later’ as inflation showing no signs of cooling off
despite the array of fiscal and monetary measures employed by the Center.
The Prime Minister’s Economic Advisory Council, which had earlier
recommended a review of the tax and a reduction in its rate as it would hurt
commodities trading volumes and contribute to inflationary pressures, has
had a rethink on the matter and inclined to implement the tax, expecting it
to put a dampener on commodities trading, which it fears is fuelling
inflation. The tax, introduced in this year’s Budget, has not been
notified so far, since the finance ministry has been waiting for inflation
levels to come down. The ministry initially expected to implement the tax by
June. While commodity exchanges have been opposing the tax on the grounds
that it would increase the transaction costs at the exchanges. From
July 07, 2008, airlines can hedge against future price movements of their
most expensive input, by trading in ATF futures on the Multi Commodity
Exchange (MCX). ATF contracts for July, August, September, October, November
and December will begin trading on the exchange from the same day. Moreover,
they can settle contracts in rupees instead of dollars, thus limiting
currency risks. MCX is the second commodity exchange in the world, after the
Tokyo Commodity Exchange, to launch futures trading in ATF. According to
Sumesh Parasrampuria, chief business officer, MCX, this would help airlines
and oil refining companies in managing their risk and fix prices of tickets
before months. Commodities
have emerged as the top performing asset class in the first six months this
year, outpacing equities by about 40 per cent during the period. According
to London-based ETF Securities, a platform provider for exchange-traded
commodities, the slowdown in the Gold
futures on the MCX platform settled higher on the week ended on Friday
mainly on continued buying support on the back of firm global markets due to
weakness in the dollar. The precious metal has been supported by heightened
inflation fears stoked by record oil prices. The active August gold
contracts were 3% higher at Rs 12,985 per 10 gram, up by 384 per 10 gram
over previous week. Total volume was 8,649 kg. Open interest was 8,935 kg.
Crude oil futures prices touched a new high in the international markets
during the week on geo-political factors as Saudi oil minister Ali al-Naimi
reiterated his belief on Thursday, July 03, 2008 that the current rally in
oil prices was being propelled by speculators rather than any shortage of
crude oil. The July crude oil contracts were higher at Rs 6,213 per barrel,
up by 5.28 per cent over the previous week. Total volume was 10.86 lakh
barrels while open interest was 13.57 lakh barrels. The active Silver
September contracts were traded higher at Rs 25,440 per kg, up by Rs 1,153
or 4.7% over the previous week. The open interest was 175 tonne and volume
was 200 tonne. The active copper June contracts were higher at Rs 368.55 per
kg, up by 2.80% over previous week. The open interest was 11,746 tonne and
volume was 19,425 tonne. The
near month futures contract of maize on the National Commodities and
Derivatives Exchange (NCDEX) slipped over 4 per cent to Rs 931 a quintal
against the previous close of Rs 970 a quintal reacting to the government's
announcement on the ban of export on maize. The Centre had announced ban on
export of maize till October 15 to step up the domestic supply and in turn
contain inflation which has risen to a double-digit level. According to
commodity analysts, export was the only factor which brought the bull run in
the market and with the imposition of ban on exports, the prices are
expected to come down to Rs 850 a quintal level. While according to traders,
maize prices, which are sliding at both spot and futures markets due to the
ban on the commodity's exports, are likely to recover soon and may cross Rs
1,000 a quintal level within a month on supply concern. The impact on prices
due to ban is a temporary phase and prices would rise again due to the
supply crunch of the commodity till September. The
country's first power exchange, Indian Energy Exchange (IEX) has posed
serious business concerns for major power trading companies, as they fear
loss of businesses to the exchange, which offers a transparent pricing
mechanism. IEX is a spot exchange where actual demand and supply of power
takes place and price discovery is determined on the basis of bids and
offers during the transaction period. According
to a senior official from PTC India Ltd, a greater part of their businesses
will surely be taken up by the exchange, with a more transparent platform,
sooner or later. While industry experts agree that with the setting up of a
formal marketplace for power trading in the short term, huge amounts of
trading volumes will be pulled from the bigger players by the exchange. Of
the total volume of electricity traded in the country, a greater chunk of
about 90 per cent is carried out as short-term trade only. The
National Multi-Commodity Exchange (NMCE) launched a new series for futures
contract in non-ferrous metals, menthol crystal and raw jute on July 01,
2008. All the new contracts available for trading on NMCE e-platforms from
July 01, 2008. The new contracts in the six non-ferrous metals – aluminium
ingot, nickel prime, copper, zinc, lead and tin – will mature on September
30, menthol crystal on October 31 and raw jute on November 29, 2008. Besides
these commodities, NMCE provides electronic platform for futures trading
also in pepper, sacking, guar seed, castor seed, rape/mustard seed, copra,
coconut oil, isabgol seeds (psyllium), etc. They are backed by
delivery-based settlement system and finances from banks. Corporate
Sector Glenmark Pharmaceuticals
through its Czech subsidiary Medicamenta, has signed agreement with Actavis,
an international generic pharmaceutical company from Amidst rising inflation
and high real estate costs, the retail arm of the $9.7 billion Tata group,
Trent Ltd is setting aside a fresh investment budget to expand its retail
plans in External
Sector Exports
during May 2008 had been US $ 13782 million as against US $ 12210 million in
May 2007 registering a growth of 12.9 per cent. As against this Imports was
valued at US $ 24548 million as against US$ 19313 million recording a growth
of 27.1 per cent. In
rupee terms, while export increased by 16.6 per cent , import flared up by
31.3 per cent. As
a result trade deficit was estimated at US $ 10766 in May 2008 million
higher than the deficit at US $ 7103 million during May 2007 Oil
imports were estimated during May 2008 at US$ 8465 million
and non-oil imports at US $ 16083 million was 50.8 per cent and 17.4
per cent higher than that in last year Telecom The
country’s largest mobile operator, Bharti Airtel, is planning to acquire
the Kuwaiti-telecom major, Zain, a $5.91 billion company with operations in
7 In
a move that would influence government efforts to grant any more telecom
licence, TRAI is conducting an independent study to find out the long-term
availability of spectrum and whether any more players can be accommodated.
According to TRAI officials, though the government’s policy, endorsed by
it as well, favours unlimited players in the telecom services segment,
spectrum could be a constraint. Therefore, the regulator has thought it fit
to conduct a detailed study and forward the same to the government
highlighting spectrum availability and room for any new player.
*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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