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Current Economic Statistics and Review For the
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Economic Census – 9Non-Agricultural Activities by Economic Activities - An Overview * 1. Introduction
As reported in earlier reviews, the Central Statistical Organisation (CSO) has been conducting Economic Censuses (EC) periodically since 1977; the latest, a fifth in this series, has been conducted in 2005. Normally, these censuses cover all states and UTs. The Economic Censuses also encompass all enterprises whether they are tiny, small, medium or big, irrespective of whether they are in the private sector or public sector or in the co-operative sector.
Our previous note entitled, ‘ Distribution of Enterprises by Economic Activities- Non-Agricultural Activities’ gave a brief account of different aspects of data collected through the past four Economic Censuses, mainly dealt with information grouped under non-agricultural activities.
The current note, the ninth in these series of notes, presents a brief account of the data estimated from different censuses and categorised into 12 different major economic activity groups; these activity groups relate to non-agricultural areas.
The enterprises engaged in different non-agricultural economic activities have been classified following different NICs prevalent at the time of the respective Economic Censuses. Appendix 1 gives the detailed distribution of the number of enterprises grouped into different economic activities separately for (i) own-account enterprises and (ii) establishments with hired workers for different Economic Censuses, along with distribution of such enterprises in rural and urban areas. While absolute numbers are presented in Appendix 1, the proportionate distributions in percentages are depicted in Appendix 2. Besides, compound annual growth rates of such enterprises between successive Economic Censuses have been shown in Appendix 3. Finally classification of non-agricultural enterprises into directory and non-directory enterprises has been given in Appendix 4, while their respective share have been displayed in Appendix 5.
2. Brief Limitations
a. Different EC has followed different NIC prevalent at the time of the Censuses for grouping different economic activities. Thus there can be some differences in the method used in grouping different economic activities of the enterprises. However, these differences do not make any major differences at the major group level. b. Economic Census has to be conducted in all states and UTs. But due to some unavoidable circumstances EC 1980 did not cover Assam, and since EC 1990 was synchronized with the house listing operation of decennial Population Census 1991, it was not done in Jammu and Kashmir as the Population Census did not cover that state.
3. Ranking of Economic Groups as per the Number of Enterprises
It can be seen from Table 1 that trade, manufacturing and community, social and personal services have been the three most important activity groups in terms of the number of enterprises engaged in non-agricultural activities. These three activity groups together have accounted for more than 80 per cent of all enterprises
4. A Brief Account of Different Economic Groups
1. Trade, which includes both wholesale and retail trade, is the most prominent economic activity group engaged by different enterprises. With 44.2 per cent of all non-agricultural activities and numbering around15.8 million enterprises in 2005, the trade group dominated all other groups. Between EC-1980 and EC-2005 there has been an addition of 9.8 million trading enterprises with an addition of 6.0 million (61.2 %) own-account trading enterprises and 3.8 million (38.8%) trading establishments with hired workers (Appendix 1). The annual growth rate (CAGR) between 1980 and 2005 has been 3.9 %, with trading establishment with hired workers registering a growth of 6.3 % per annum - almost double to that of own-account trading enterprises at 3.2 % (Appendix 3). In rural areas, there has been an addition of 5.1 million trading enterprises and that in urban areas 4.6 million trading enterprises. Out of the 4.8 million establishments with hired workers, 4.5 million (94%) were non-directory establishments with less than six hired workers; the number of directory trading establishments with six hired workers or more was only 0.3 million in 2005 (Table 2 and Appendix 4). It can also be seen from Appendix 2 that the proportionate share of trading enterprises in non-agricultural activities has risen from 35.8 % in 1980 to 44.2 % in 2005. Within the establishments also, the share of trading establishments has gone up from 30.6 % to 34.2 (Table 2 and Appendix 5). Within them again, the expansion in share of smaller non-directory establishments has been sharper. 2. Manufacturing is the second important economic activity. According to EC-2005, there were 8.3 million manufacturing enterprises as against 6.0 million in 1980. At this level, the annual growth rate (CAGR) works out to be only 1.3 %, - the lowest among all groups – between 1980 and 2005. However, the growth rate between 1998 and 2005 was 6.0 % per annum with own-account manufacturing enterprises growth at 4.2% and establishments with hired workers engaged in manufacturing activities growing at 9.5%. Among 3.2 million manufacturing establishments with hired workers in 2005, there were 2.7 million (84%) non-directory establishments and 0.6 million directory establishments. The share of manufacturing enterprises in non-agricultural activity though picked up between EC- 1998 and EC-2005, the long-term trend has been one of steep fall from 35.3% in 1980 to 23.2% in 2005; in fact, between 1980 and 1998, the fall was persistent and steeper still, from 35.2 % to 20.6% (Table 2) Within manufacturing establishments, both own-account enterprises and establishments with hired workers have observed the same long-term trend. But, between 1998 and 2005, a period in which the share of manufacturing establishments has improved, the improvement has only been under non-directory establishments with directory establishments loosing out in their share. These provide an incontrovertible evidence that in the recent period, it is the number of small manufacturing enterprises that have grown faster in number.. 3. Community, Social and Personal Services - as an economic activity among different activities, came third in terms of the number of enterprises. The enterprises engaged in these activities increased from 3.0 million in 1980 to 5.4 million in 2005 with an annual growth rate (CAGR) of 2.4 per cent (Appendix 3). This lower growth has been mainly due to a fall in own-account enterprises engaged in this activity from 3.5 million in 1998 to 2.1 million in 2005 (Appendix 1). Its share in all non-agricultural activities after witnessing a rise from 17.7% in 1980, to 25.5% in 1990, declined according to the next two Economic Censuses to reach 15.3% according to EC-2005 (Appendix 2).In 2005 there were 3.3 million establishment with hired workers engaged in this activity, of which 2.7 million were non-directory establishments and directory establishments were 0.6 million (Appendix 4). 4. Transport and storage activity ranked fourth among the 12 economic activities. More than 4% growth rate between any two censuses among enterprises engaged in transport and storage activities has been witnessed. Thus the number of enterprises engaged in these activities has increased from 0.5 million in 1980 to 1.5 million in 2005, a 3-fold rise, which pushed up their share in all non-agricultural activities from 2.7% in 1980 to 4.2 % in 2005. 5. Hotels and restaurants is the fifth sought after economic activities according to EC-2005, with 1.5 million enterprises engaged in these activities. Number of these enterprises increased from 0.8 million in 1980 to 1.5 million in 2005 with an annual growth rate (CAGR) of 2.5%. The share of enterprises pursuing activities related to hotels and restaurants in all non-agricultural activities has been more or less steady around 4.0 %. 6. Finance, Real Estate and Business Services is the sixth economic activity groups with 1.3 million enterprises engaged in such activity in 2005. Almost 5-fold increase i.e., from 0.3 million enterprise in 1980 to 1.3 million in 2005, has been registered among these enterprises. Their share in all non-agricultural activities has witnessed a steady increase from 1.6% in 1980 to 2.0% in 1990, to 2.6% in 1998 and then to 3.7% in 2005. 7. Sales, maintenance, and repair of vehicles is the new economic activity group for which data has been collected for the first tine during EC-2005. The number of enterprises engaged in such activities in 2005 was 0.7 million and their share in all non-agricultural activities is 2.0%. 8. Posts and telecommunication ranking eighth among all non-agricultural activities, registered more than 7-fold increase during the 25-year period with a CAGR of 8.1 per cent between EC-1980 and EC-2005. It registered the highest growth rate of 15.9 per cent per annum between EC-1998 and EC-2005 among all 12 groups. This growth rate pushed-up its share in all non-agricultural activities to 2.0 % in 2005 from a miniscule 0.6% in 1980. 9. Enterprises engaged in mining and quarrying (0.24%), electricity etc. (0.18 %), construction (0.90%) and unspecified activities (0.01%) together accounted for only 1.32% of total enterprises engaged in all non-agricultural activities. Thus out of the 12 economic activity groups, three groups viz., trade, manufacturing and community, social and personal services are the three most important economic activity groups accounting for about 80.0% of all non-agricultural activities. Hence our next three notes on Economic Census will have a detailed discussion on these three groups.
* This note has been prepared by R.Krishnaswamy
Highlights of Current Economic Scene
Agriculture Wheat output in India is likely to cross last year’s record of 78.4 million tonnes this year, owing to favourable climatic conditions leading to improved yield. Although the acreage under wheat may not increase to 29 million hectares as targeted by the government because farmers in most of the wheat growing regions of Madhya Pradesh and Rajasthan have diversified into other crops. As per the latest government data upto January 2, 2009, wheat sowing has been reported to be around 26.26 million hectares, marginally higher than that of 26.21 million hectares in the same period last year. It is predicted that higher wheat harvest this year would ease inflation in prices of foodgrain and also enable the government to relax some of the stringent export norms put in place to check price rise.
Private wheat buyers would go slow on wheat purchases when the new crop arrives in the grain mandis this April even though there are projections of a bumper wheat harvest. The government provides little incentive to the private traders to purchase wheat.
Flour millers have asked the government to scrap the tender system of wheat allotment under the open market sale scheme, through which Food Corporation of India supplies grain to keep prices stable. Under this move most of the states have shown less interest for lifting wheat, as this process is time-consuming.
Sugar output in Uttar Pradesh is likely to dip by 30% to 5.2 million tonnes during 2008-09 crushing season following low cane production and under-recovery of sugar. The sugar recovery is reported to be down to 8.75% from 9.39% last year due to the damage caused by floods, heavy rainfall last year and even winters have arrived late this year. Cane production is down by about 30% this year against 110 million tonnes due to fall in acreage at 2.1 million hectares. Most of the sugarcane farmers have turned to other crops as they are able to rotate more crops and there is a certainty in payments. For 2008-09 crushing season, state government has announced a State Advised Price (SAP) of Rs 137.50 per quintal of cane for the rejected variety, Rs 140 for general variety (up from Rs 125 of last year) and Rs 145 for early variety.
Sugar mills in Maharashtra may import not more than 5 lakh tonnes of raw sugar in the year to September 30, less than 1 million tonnes estimated in December, as the government is yet to take a decision on allowing them to buy the commodity duty free to sell domestically.
Soyabean Processors Association (SOPA) reiterated that India’s soymeal exports rose sharply by more than 53% during the first three quarters of 2008-09. Exports of soyameal during April-December were 30,85,559 tonnes as compared to 20,16,450 tonnes achieved in 2007-08. Soymeal exports during December 2008 have gone up to 6.65 lakh tonnes in comparison to 5.51 lakh tonnes a year ago. The exports during the first quarter of the oil year 2008-09 (October-September) too, witnessed soyameal shipments rising to 1.4 million tonnes as against 1.25 million tonnes a year-ago. Countries like Thailand, Singapore, Vietnam, Japan and Korea were the major export-destinations for Indian soyameal. India’s soymeal exports to Thailand increased by 261%, while export to Singapore increased by 116%, to Vietnam 102%, to Japan 99%, to Korea 92%, to Indonesia 86% and to China 63% as compared with export during the same period last year. Soymeal exports during the current fiscal are expected to be in the range of 5-5.5 million tonnes.
Oil meal exports rose marginally by 4% in December 2008 to 7.03 lakh tonnes as against 6.77 lakh tonnes exported in November 2008. Exports were almost stagnant at 15.33 lakh tonnes in third quarter of the financial year 2009 due to global meltdown. Overall export of oilmeals between April-December 2008 was at 40.47 lakh tonnes, displaying a rise of 35 per cent as against 29.86 lakh tonnes during the same period last year. Soyabean meal exports during nine months were at 30.56 lakh tonnes as compared to 19.81 lakh tonnes last year, while rapeseed meals were at 7.02 lakh tonnes as compared to 5.97 lakh tonnes a year ago. Exports of other oilmeals such as rice bran extraction, castor seed extraction and groundnut extractions have decreased during the first nine months of 2008-09 fiscal year. Vietnam has shown a rise in import of oilmeals from India during April-December 2008-09 to 10.87 lakh tonnes as against 9.13 lakh tonnes last year, which consists of 9.43-lakh tonnes of soyabean meal, 44,340 tonnes of rapeseed meal and 99,149 tonnes of rice bran extraction. South Korea reported import of 6.15 lakh tonnes as compared to 5.35 lakh tonnes. Imports consist of 3.25 lakh tonnes of rapeseed meal, 1.41-lakh tonnes soyabean meal and 1.49 lakh tonnes of castor seed meal. Japan bought a total of 5.96 lakh tonnes of oilmeal as against 4.29 lakh tonnes last year.
National Agricultural Cooperative Marketing Federation of India (Nafed) would be starting procurement of cotton from Gujarat and Andhra Pradesh from the first week of January, to bolster the center’s effort to provide remunerative prices to farmers after spinning mills cut down their purchases. So far, Nafed has procured about 12 lakh bales of cotton (one bale is equal to 170 kg) worth Rs 1,700 crore. Nafed, which does not have any facility in Gujarat to start purchases, invited proposals from the state-run Gujarat State Cooperative Marketing Federation and the Gujarat State Cooperative Cotton Federation to procure cotton on its behalf.
According to Cotton Outlook, global offtake of raw cotton would drop by 11% to 23.02 million tonnes during the current cotton season ending July, as against 25.65 million tonnes last season. This decline is attribute to deterioration in the yarn market. It is projected that cotton production would be around 24 million tonnes, similar to that of last season. It is expected that in Asian countries such as India and Pakistan, cotton output would witness a fall. ICAC has also projected that there would be fall in the area under cotton during this season to 31.15 million hectares from 33.35 million hectares, while production is estimated to drop by 6% to 24.14 million tonnes. Even average yield is likely to decline to 775 kg per hectare.
Cotton Association of India (CAI) reiterated that cotton production is expected to dip to 28.5-29.5 million bales in 2008-09 as against the target of 32.3 million bales due to pest attacks and unfavourable weather conditions in some parts of Maharashtra and Gujarat. Although the area planted under cotton in 2008-09 was estimated to be lower by 5% to about 9.2 million hectares. The advent of BT cotton in the country has been up as increasing number of farmers turn to it for better returns. This has led to a drop in the production of short and long staple cotton. This has fuelled the prices of short staple cotton by 20%.
Industry
The General Index of IIP stands at 267.2, which is 2.4% higher as compared to the level in the month of November 2007. The cumulative growth for the period April-November 2008-09 stands at 3.9% over the corresponding period of the pervious year.
The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of November 2008 stand at 175.0, 285.7, and 217.5 respectively, with the corresponding growth rates of 0.5%, 2.4% and 3.1% as compared to November 2007. The cumulative growth during April-November, 2008-09 over the corresponding period of 2007-08 in the three sectors have been 3.4%, 4.0% and 2.9% respectively, which moved the overall growth in the General Index to 3.9%.
In terms of industries, as many as ten (10) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of November 2008 as compared to the corresponding month of the previous year. The industry group ‘Rubber, Plastic, Petroleum and Coal Products’ have shown the highest growth of 30.7%, followed by 14.5% in ‘Beverages, Tobacco and Related Products’ and 8.7% in ‘Wood and Wood Products; Furniture and Fixtures’. On the other hand, the industry group ‘Other Manufacturing Industries’ have shown a negative growth of 16.9% followed by 13.1% in ‘Leather and Leather & Fur Products’ and 11.4% in ‘Wool, Silk and Man-made Fibre Textiles ’.
As per Use-based classification, the Sect oral growth rates in November 2008 over November 2007 are 2.3% in Basic goods, (-) 2.3% in Capital goods and 2.6% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of (-) 4.2% and 7.3% respectively, with the overall growth in Consumer goods being 4.4%.
Infrastructure
The Index of Six core industries having a combined weight of 26.7 per cent in the Index of Industrial Production (IIP) with base 1993-94 registered a growth of 2.2% in November 2008 as against a growth of 5.1% in November 2007. During April-November 2008-09, six core-infrastructure industries registered a growth of 3.6% as against 6.4% during the corresponding period of the previous year.
Crude Oil production (weight of 4.17% in the IIP) registered a growth of 0.5% in November 2008 compared to a growth rate of 0.3% in November 2007 and that during April-November 2008 has been negative (-) 0.6% compared to 0.6% during the same period of 2007-08.
Petroleum refinery production (weight of 2.00% in the IIP) registered a growth of (-) 1.1% in November 2008 compared to growth of 5.2% in November 2007. The Petroleum refinery production registered a growth of 3.8% during April-November 2008-09 compared to 8.3% during the same period of 2007-08.
Coal production (weight of 3.2% in the IIP) registered a growth of 9.6% in November 2008 compared to growth rate of 7.7% in November 2007. Coal production grew by 8.6% during April-November 2008-09 compared to an increase of 4.3% during the same period of 2007-08.
Electricity generation (weight of 10.17% in the IIP) registered a growth of 2.6% in November 2008 compared to a growth rate of 5.8% in November 2007. Electricity generation grew by 2.8% during April-November 2008-09 compared to 7.0% during the same period of 2007-08.
Cement production (weight of 1.99% in the IIP) registered a growth of 8.7% in November 2008 compared to 5.2% in November 2007. Cement Production grew by 6.4% during April-November 2008-09 compared to an increase of 8.1% during the same period of 2007-08.
Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of (-) 1.4% in November 2008 compared to 4.8% (estimated) in November 2007. Finished (carbon) Steel production grew by 3.3% during April-November 2008-09 compared to an increase of 7.0% during the same period of 2007-08.
Inflation
The annual rate of inflation, calculated on point-to-point basis, stood at 5.91 percent (Provisional) for the week ended 27/12/2008 (over 29/12/2007) as compared to 6.38 percent (Provisional) for the previous week (ended 20/12/2008) and 3.83 percent during the corresponding week (ended 29/12/2007) of the previous year.
The index for primary articles major group declined by 0.5 percent to 247.5 (Provisional) from 248.8 (Provisional) for the previous week mainly due to decline in the price index of jowar, fruits & vegetables, eggs, bajra and sunflower seed
The price index for fuel, power, light and lubricants major group remained unchanged at its previous week's level of 330.5 (Provisional)
The index for manufactured product major group declined by 0.3 percent rice bran oil, imported edible oil, polyester staple fibre, newsprint, acid (all kinds), acetylene, oxygen enameled copper wires.
For the week ended 01/11/2008, the final wholesale price index for ‘All Commodities’ (Base: 1993-94=100) stood at 234.9 as compared to 235.5 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 8.70 percent as compared to 8.98 percent.
Financial Market Developments
Capital Markets
Primary Market
Investors’ options to apply for the initial public offers (IPO) and rights issues under Application Supported by Blocked Amount (ASBA), with banks blocking the application money in personal accounts of investors, have become much broader. As per the Securities and Exchange Board of India (SEBI) 16 of the 57 banks registered as bankers to an issue are now eligible for offering investors the alternative payment facility. Within 15 days of submitting a self-certification to SEBI, the banks have to undertake trial runs with the stock exchanges and registrars and have to ensure that adequate systems and infrastructure are in place at their designated branches.
On 9 January 2009, Chettinad Cement Corporation Ltd has called off the issue of rights equity for a second time. According to media information, the decision has taken because of the unfavourable market conditions that would not have helped the rights issue.
Secondary Market
Key benchmark indices edged lower in a truncated week as investors confidence has been shaken by IT major Satyam Computer's mega accounting scandal which came to light on Wednesday, 7 January 2009. The positive vibes of the coordinated fiscal and monetary measures announced earlier rubbed off on the markets initially, but they entered negative territory after Satyam Computer’s accounting scam. Even the positive inflation numbers, which touched the 10-month low of 5.91%, were not able to cheer the markets. BSE Sensex closed lower by 552 points or 5.5% to 9,406 during the week whereas Nifty lost 174 points or 5.7% to 2,873. Apart from key indices, BSE Mid cap index lost 270 points or 8%. FIIs were net sellers in equities to the tune of Rs 298 crore in a curtailed week. In a major development, Sun Pharma will replace Satyam on BSE 30 stocks. The stock closed with a weekly gain of 5%.
Among the sectoral Indices of BSE, all the stocks tumbled over the week. Reality stocks shed 25% due to corporate governance issues. Capital goods index fell 8% due to L&T’s exposure in Satyam as well as concerns over IIP numbers. Other major losers during the week were Consumer Durables and TECk with 9% each.
As per the official sources, SEBI will soon appoint an independent auditor to review the accounts prepared by the Satyam's statutory auditor - Price Waterhouse. In addition, the government proposes to use powers vested with it under section 233 of the Companies Act to appoint an independent auditor once the new board, comprising its nominees, is in place. According to the action plan drawn up, this move will follow the findings of the SEBI report. The sources also said that Price Waterhouse is barred from acting as one of the auditors for the peer review of the accounts of the BSE Sensex and Nifty companies till the time the investigation report comes. For the peer review, SEBI, in consultation with the corporate affairs ministry, may appoint new auditors. The markets regulator proposes to rotate the audit of such companies among the existing auditors of the Nifty and Sensex companies. In addition, the SEBI has decided to set up a panel to review all records maintained by auditors on the quarterly results of companies listed on the BSE Sensex and the NSE Nifty. The review will be taken up after the third quarter results (to be announced shortly) and the audited results of the second quarter. The review will also cover some other companies outside the BSE Sensex and NSE Nifty list.
According to PE research firm Venture Intelligence, the third quarter of 2008-09 logged a mere 60 PE deals worth $1.1 billion (about Rs 4,840 crore). PE investors now prefer to sit on cash, as their existing investments may require additional funds. This trend has resulted in a 76% fall in net PE investments in the October-December quarter, which is usually considered as the prime time for PE investments. PE investors had closed 139 deals aggregating $4.6 billion (about Rs 20,240 crore) in 2007 and 75 deals adding up to $2.2 billion (about Rs 9,040 crore) in 2006. They had invested $703 million (around Rs 2,813 crore) through 57 deals in 2005.
Derivatives
Despite a promising start in the New Year, the stock markets have plunged back, wiping away the entire gains of 2009, following the ‘Satyam scandal’. The Satyam shockwave overwhelmed normal market trends and led to a sequence of panic selling across the board. There were some signs of recovery on Friday but the sentiment remains pessimistic. The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on January 7 stood at 31.94%. Foreign institutional investors were predominantly net sellers during most part of the week. They now hold index futures worth Rs 7,276.4 crore (Rs 6,532 crore) and stock future worth Rs 10,384.61 crore (Rs 10,705 crore). Their index options holding improved to Rs 9,96.74 crore (Rs 8,307 crore).
The Nifty future fell by over 6.25% to end the week at 2863. Moreover, in the process, it turned into discount with respect to the spot Nifty, which ended at 2783. The sharp fall has been on the back of high volumes. Though on a weekly basis, open interest (OI) positions have shown a marginal improvement for Nifty future, there was a heavy unwinding on Wednesday when market fell sharply. That the unwinding was restricted to index futures alone, but also across several stock futures suggest that there could be an overall lack of confidence in the trading community. The Nifty put-call ratio (PCR) in terms of OI is at around 1.1 and the overall PCR is also around 0.96. The volumes are heavily concentrated in the top 20 counters though overall volume has also increased. Short-covering is unlikely to play much of a role until the weekend at least. Volumes and OI expanded on both sides of the option market. About 34% of option, volume is in February and beyond, which is lower than normal. Less than 2% of Nifty futures volume is in February, which is again, very low. The Nifty PCR in terms of OI is around 1.1, which is virtually unchanged from previous week and neutral in directional impact. The overall PCR has been around 0.96. The January PCRs in terms of OI are bullish at around 1.25 while February and beyond is somewhat bearish at 0.87. The option trader is also constrained by the lack of liquidity in the Jan call chain beyond 3,350c.
Volatility has been high throughout the week. India VIX or Volatility Index, which had earlier dipped below the 40-point mark, has bounced back sharply. The index, which measures the expected volatility of Nifty in the near-term, closed at 47.82. Last week’s Satyam fiasco and the fact that there has been an overall shakeout in investor confidence may explain the high readings on the VIX.
Government Securities Market
Primary Market
Maharashtra Government has come out with Rs 3,294 crore bonds of 10-year duration, to finance its development projects. The bonds would be auctioned on January 13 at the Reserve Bank of India (RBI). The redemption date of the bonds is 14 January 2019.
Seven state governments auctioned 10-year paper maturing in 2019, for the notified amounts of Rs 5,177.17 crore on 6 January 2009. The cut-off yield has been set for these securities ranging from 5.80-6.10%.
On 7 January 2009, RBI auctioned 91-day Treasury Bills (T-Bills) and 182-day T-Bills for the notified amounts of Rs 8,000 crore and 1,500 crore, respectively. The cut off yield for both the T-Bills has been set at 4.71% and 4.64%, respectively.
RBI re-issued 7.59%2016, 6.30%2023 and 7.50%2034 on 9 January 2009 for the notified amounts of Rs 7,000 crore, 4,000 crore and 4,000 crore, respectively. The cut- off yield for these securities has been set at 6.7%, 7.35% and 7.6%, respectively.
Secondary Market
Call rates realigned with the lower LAF reverse repo rate, settling in the range of 4.10-4.50% over the week indicating ample liquidity. Lower demand for funds due to adequate cash and inflows through the T-Bill redemption, coupled with interest payments on state loans, also helped. Banks parked an average of Rs 46,905 crore at LAF reverse repo auctions. The amount also rose to a high of Rs 59,360 crore during the week. Bonds recorded their worst weekly drop in decades despite lower-than-expected inflation numbers, with the benchmark 10-year bond yield closing the Friday session at 6.19%. Bonds halted their rally as traders booked profits amid hardening global oil prices. Traders also said that banks were preparing for a big credit push, as part of the monetary stimulus. Dealers said the panic that first hit the market on Wednesday after bond yields first rose sharply worsened after Friday auctions took place at higher yields. The benchmark 10-year bond yield shot up to as high as 6.27% from below 5% considering intra-day levels. The bond lost an unprecedented nearly Rs 10 in price within a few days — registering one of the worst weeks on record after one of the best years on record. In 2008, the yield fell by over 250 bps. While the new plan superseded the earlier plan (December 5), in effect, the plan was set to borrow Rs 25,000 crore over the December 5 programme. Adding further pressure on the market late in the week were the poor participation and high yield cut-offs set on the illiquid papers that the government up for auctions.
Liquidity has been comfortable with banks parking more than Rs 27,000 crore with RBI. Average daily trade volume has been about Rs 17,000 crore or slightly above the NSE trade volume of Rs 13,000 crore. The current hardening of the bond yields has been likely to impact the state government loan auctions in the third week as the T-bill auction amount has been fixed at Rs 8,000 crore.
Bond Market
During the week under review, three FIs/Banks tapped the bond market to mobilise an amounts of Rs 950 crore.
Public sector banks will be watching with keen interest State Bank of India’s move to raise long-term resources from retail investors by issuing upper Tier-II bonds of 15 years maturity. India’s biggest bank is planning to link the coupon rate on the bonds to the highest deposit rate offered on its fixed deposits. Depending on SBI’s experience i.e. success, other public sector banks may well follow suit.
Foreign Exchange Market
Volatile trading in the forex market ended with the rupee at Rs 48.28 per dollar from Rs 48.59 per dollar. The currency fell to a low of Rs 49.25per dollar, as the direct after effect of the Satyam fiasco, which raised fears over foreign fund flows. Enthusiasm from additional policy measures announced by both the Centre and RBI on January 2 faded quickly amid large importer demand and some dollar strength overseas. Traders cited a lack of interest at current levels and thin trading volumes in the forwards market kept trading in a range except for the period, following the Satyam announcement. Six-month premium ended higher at 2.42% from 2.04%. Exporters took forward cover, anticipating large External Commercial Borrowings (ECB) to resume over the next few weeks, since the RBI interest rate ceilings have been waived temporarily. The trend has been evident from the movement of the Non-Deliverable forward, where the rupee-dollar exchange rate has been lower than the domestic market rates, by at least 30 paise for one month, for the first time this financial year. As a result, forward premia shrank. One, three, six and 12-month premia ended the week at 3.65% (4.51% in the previous week), 2.90% (3.29%), 2.22% (2.41%) and 1.73% (1.83%) respectively. Three-day forward premium also softened to 4.15% (5.08%), in line with the drop in the repo rates with arbitrage opportunities shrinking.
Commodities Futures derivatives
Commodity futures business has witnessed a turnover of over Rs 50,00,000 crore ($1.02 trillion) in 2008 within a span of six years after futures trading has been allowed by the government. According to Forward Markets Commission (FMC), the total turnover of three national and 19 regional exchanges rose by 28% at Rs 50,33,857 crore in 2008, as against Rs 39,32,403 crore in 2007. The Multi-Commodity Exchange (MCX) continued to retain its market leadership contributing by over 84% to the total turnover of the comexes. It showed an impressive growth of over 56% in its turnover at Rs 42,56,601 crore in 2008 with much contribution being scored in precious and base metals trading. A similar growth has been witnessed by National Multi Commodity Exchange (NMCE), whose business rose by 51.3% to Rs 69,767 crore over the previous year notwithstanding the ban on rubber, a largely traded commodity on its platform. Surprisingly, the business on National Commodity and Derivatives Exchange (NCDEX), the leader in the agri-commodity trading, crippled due to the ban on a few commodities imposed by the government in 2008. The turnover of NCDEX slipped by 28.2% to Rs 29,779 crore as compared to Rs 41,485 crore during the same period.
On 9 January 2009, India joined the global league offering a platform for futures trading in electricity with leading commodity exchange MCX launching power contracts for months of March and April. This is the first time in India when electricity will be available for futures trading. MCX received the approval from the regulator – FMC and launched the weekly and monthly electricity contracts as its subsidiary India Energy Exchange (IEX), which deals in spot trading of electricity, got delayed in getting permission for futures trade from the power regulator Central Electricity Regulatory Commission (CERC). While the NCDEX has questioned the FMC 's decision to approve futures trading in electricity futures. While in a petition with CERC, an NCDEX subsidiary Power Exchange India (PXI) has said electricity is not a commodity and therefore FMC could not have any jurisdiction over its futures trading. However, FMC has sought dismissal of the “misconceived” petition, with its Chairman B C Khatua saying it is the only authority with jurisdiction over the issue.
Year 2009 has started on a positive note for the commodity markets with most commodities rallying. In the non-agri space, crude oil has shown substantial gains, followed by base metals. Even the agri counter, driven by sugar, soyabean, guar seed and spices is witnessing better interest amongst investors.
Banking
The RBI has released a draft proposing to review the definition of commercial real estate (CRE) exposure to be followed by banks to closely align it to Basel II definition. Any loans extended to builders towards construction of housing buildings, hospital, hotels, condominiums, shopping malls, office blocks etc will be classified as CRE exposures.
HDFC Bank is likely to expand its offer of comprehensive mobile banking services to its customers. Currently, mobile banking solution of the bank offers the usage through short messaging service that does not facilitate its users to buy goods or services, or make utility bill payments.
Corporate
With the information and broadcasting ministry (I&B) deciding to hike the foreign direct investment (FDI) limit in the DTH sector to 74% from the existing 49%, the multi system operators (MSOs) have also sought a similar hike.
Nirmal Kotecha, one of the founder-promoters of Chennai-based entertainment chain Pyramid Saimira Theatre Ltd, has sold close to 10% stake in the company. After the disinvestment, which took place in several tranches in the open market, Kotecha’s holding came down to 15.48% as of January 5, 2009 from 24.89% as on September 30, 2008. The Chennai-based entertainment chain had hit the headlines recently when its promoters sought a CBI probe into the alleged manipulation of its stock by business rivals.
The country’s second largest real estate firm, Unitech, which is facing a severe cash crunch, is close to offloading 26-40% stake to raise around Rs 4,000 crore.
Information Technology
The Satyam Computer Services saga of inflated profits and cash balances, as revealed by its outgoing Chairman B Ramalinga Raju, represents the first major case of an accounting fraud in India, something that was so far seen mainly in the developed markets. India has experienced a number of scams related to the securities market, such as the Harshad Mehta scam, the Ketan Parekh fraud and various IPO scams, but this sort of continuous window dressing of the balance sheet over a number of years is something Indic Inc would take time to come to terms with. Business analysts acknowledge the entire episode, which went unchecked for at least seven years, reveals the gaping holes in the accounting and auditing regulations prevalent in India. Concerns are also emerging that the current norms do not lay much emphasis on the audit quality, which to an extent is buttressed by the absence of an independent auditor review of companies.
The government on January 9, 2009 dissolved the depleted Satyam board of directors and said it would reconstitute the board afresh. The government is considering appointment of suitable persons as directors of Satyam following interim permission by the Company Law Board.
Telecom
Tata group’s Tata Teleservices has announced the sale of 49% of tower arm Wireless-TT Info-Services Ltd (WTTIL) to Quippo Telecom Infrastructure Ltd for Rs 2,400 crore in cash. In addition, Quippo Telecom which belongs to SREI group – will be transferring 5,000 of its own towers to WWTIL and take management control of the company, even though TTSL still holds 51% stake. Subject to regulatory approval, Quippo Telecom will then be merged with WWTIL. The merged entity will have 18,000 towers, thereby becoming the largest independently managed tower firm in Indian with a valuation of $2.6 billion (Rs 13,000 crore). Telecom towers have been shared among operators since 2006, opening up a whole new revenue stream for mobile operators.
*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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