Highlights of  Current Economic Scene

Growth Scenario

The Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation has released the advance estimates of national income at constant (1999-2000) and current prices, for the financial year 2008-09. The growth rate of 7.1% in GDP is been estimated for the financial year 2008-09 as compared to the growth rate of 9.0% registered last financial year.  Gross capital formation is estimated to show a growth rate of 41.1% or Rs 21,78,031 crore for the year 2008-09 as against a growth of Rs 18,29,346 crore or by 38.7% posted for the financial year 2007-08 at current prices. Within it gross fixed capital formation is projected to show a rise of Rs 18,75,953 crore as against a rise of Rs 16,05,440 crore placed last fiscal year 2007-08. Valuables and changes in stock will show a growth rate of 0.9% and 4.6% respectively as compared to a growth of 1.1% and 3.6% registered last financial year. Whereas at constant prices gross capital formation is estimated to show a rise by Rs 13,50,671 crore as compared to rise of Rs 12,20,412 crore posted for the year 2007-08.

After China ’s 8% growth rate, Indian economy will be the second fastest growth rate in the world for the year 2008-09, as per to the advance estimates of national income released by the Central Statistical Organisation (CSO). According to their estimates India ’s GDP will be 7.1 % for the current fiscal year, which is lowest when compared with the past 6 years.

Prime Minister’s Economic Advisory Council commented that, India ’s GDP is expected to sustain or improve on this growth rate next financial year. As per their estimates with a growth rate of 7.1% for this financial year, the economy would have turned in a impressive 8.5% compound growth rate over the period 2004/05-2008/09, corresponding with the term of the present government.

Statistical agency, estimated growth rate of 7.8 % in the first half of the current fiscal year, signifying a sharp fall of in the second half of the prevailing fiscal year. Sustaining the investment and still optimistic services has stimulated growth. Manufacturing growth rate halved from 8.2% in 2007-08 to 4.1% in the current fiscal year. All sectors growth rate are expected to decline except for two sectors mining and quarrying and community, social and personal services. The latter sectors are expected to benefit from the highest government expenditure on social schemes, as well as the Sixth Pay Commission award.

Non- government analysts are sceptical about the 7.1% growth, however government is positive that growth rate will grow more than whatever is estimated by the agencies.

Saumitra Choudhuri, expects economic momentum to pick up in the coming months and the growth rate to improve in 2009-10.

Citi, still uphold that growth in 2009-10 will be just 5.5%.

Pronab Sen, chief statistician of the country, put in the picture that growth rate in the last quarter will decide the growth rate for the current financial year, as it has a weight of more than 35% in the total GDP.

DK.Joshi, principal economist at CRISIL, commented that the 7.1% growth means that the economy is expected to grow at 6.3% in the second-half of the fiscal. Increase in the government expenditure in consumption is expected to partly make up for the decline in the rate of growth in private consumption which at present is projected to fall to 6.7% in the current fiscal year as against a rise of 8.5% registered last fiscal year. With the increase in expenditure by government, the growth rate in government consumption is expected to increase by 16.7% against 7.4%.

Agriculture

According to a recent survey conducted by the Solvent Extractors’ Association (SEA), the output of the largest rabi oilseed crop, rapeseed / mustard seed, is likely to rise by 39.43% to 64 lakh tonnes in the current rabi season (November -February) 2008-09 as compared to 45.9 lakh tonnes in the same season last year on account of favourable climatic condition and record high sowings, which has been pegged at around 65.88 lakh hectare 10% higher compared to 59.82 lakh hectares registered a year ago. The increase in the output assumes significance, as the country is facing huge supply deficit of edible oils.  The survey has revealed that Rajasthan has continued to be the top-producer of mustardseed with an estimated output of 29 lakh tonnes this season (19.5 lakh tonnes during the last season) in a projected sowing area of 28.03 lakh hectares (24.78 lakh hectare), followed by Uttar Pradesh with an output of 11 lakh tonnes (6.5 lakh tonnes) in a covered area of 8.77 lakh hectare (7.90 lakh hectare).

According to data published by Cashew Export Promotion Council (CEPC), cashew kernel exports from the country have recorded a 25 % growth in terms of value during January to over Rs 223 crore due to increase in value realisation amid global economic slowdown. The unit value realisation saw an increase of Rs 53 at Rs 263.64 a kg as compared to Rs 210.73 a kg during the review period. In terms of volume, however, the exports have declined marginally to 8,460 tonnes as compared to 8,483 tonnes. Exports have moved upwards during April - January 2008 -09, reporting over 35 % increase in at Rs 2,507.02 crore as against Rs 1,850.71 crore during the same period last year. In terms of quantity, the exports have stood at 91,381 tonnes during the same period as against 94,794 tonnes in the corresponding period in the previous year.

As per the new fertiliser policy, approved by the Cabinet Committee on Economic Affairs (CCEA), National Fertilizers Ltd (NFL) and Gujarat Narmada Valley Fertilizers Company (GNFC) are stand to benefit hugely on account of provision made for a ‘special fixed cost’ reimbursement to enable conversion of their existing urea plants running on furnace oil into gas-based units. The two listed state-owned companies plan to invest around Rs 4,800 crore over the next three years to change the feedstock of their four plants – NFL’s Bhatinda, Nangal and Panipat and GNFC’s Bharuch – from furnace oil to natural gas. Under the new fertiliser policy, fertiliser units would be granted an additional ‘special fixed cost’ working out to about Rs 3,500 per tonne of urea. Thus, apart from the energy efficiency savings mop-up, plants will also be entitled to a portion of the feedstock cost savings that was supposed to accrue solely to the Centre. As per the experts, inn the original policy, NFL’s concession rate on conversion from furnace oil to gas feedstock would have fallen from around Rs 22,750 to Rs 14,500 per tonne of urea. In the new policy, the rate will drop to only Rs 18,000 per tonne.

According to data collated by Indian Sugar Mills Association (ISMA), sugar output in 2008-09 is estimated to fall to approximately 17 million tonnes as against the ISMA’s previous forecast of 18 million tonnes and last year’s output of 26.3 million tonnes. Sugarcane output is also projected to decline by 14.71% to 290 million tonnes this year from the record 340 million tonnes last year. Area under sugarcane is estimated to have fallen by 12 % to 4.4 million acres from 5 million acres last year due to farmers shifting to more remunerative crops especially to cotton, pulses and edible oils. Meanwhile, most of the sugar mills in Maharashtra and Uttar Pradesh, the two major sugar producing states, have started winding up crushing for the current year and almost all crushing mills are likely be closed down latest by March 15. Farmers are realising better returns on their cane from jaggery units than sugar mills. Therefore, they are diverting the remaining sugarcane for this season to jaggery units resulting in huge shortage of cane for sugar mills.

With dwindling cane supplies leading to low capacity utilisation and premature shutdown of plants, sugar mills in Uttar Pradesh (UP) are now offering farmers an extra Rs 15 per quintal, known as ‘cane development subsidy’, to induce them to plant more area under sugarcane. This cane development subsidy has been offered over and above the Rs 145 State Advised Price (SAP) that mills in UP are paying to growers in the current 2008-09 crushing season (October-September). Major sugar mills that have decided to pay this subsidy include Simbhaoli Sugars Ltd, Bajaj Hindusthan, Balrampur Chini and Triveni Engineering among others. Sugarcane growers have preferred to sell their produce to the manufacturers of gur and khandsari (alternate sweeteners), as they have been offering Rs 160-165 to them. Mills in Tamil Nadu, too, have been offering similar kind of sops to cane growers at the rate of Rs 5,000 per acre (for early October-December planting) and Rs 3,000-4,000 per acre for the main planting season (January-April).

The Cotton Advisory Board (CAB) has lowered both the production and demand estimate for the crop season 2008-09. The production estimate for 2008-09 has been lowered by 9 % to 340 lakh bales against 369 lakh bales recorded last year. Demand is expected to fall sharply by 16 % to 280 lakh bales in the year under review against 326 lakh bales registered last year. Reeling under the economic slowdown, mill consumption is likely to fall 4 % to 195 lakh bales (from 203 lakh bales of last year), while that of small-scale units is expected to drop by 15 % to 20 lakh bales (against 23 lakh bales of last year). As per Mr A.B. Joshi, Textile Commissioner, Maharashtra , apart from unfavourable climatic condition and marginal fall in acreage, the production was affected by red leaf syndrome in some of the state. Area under Bt cotton has increased substantially in all the nine States and occupies 69 lakh hectares, which has accounted for 73 % of total area covered. Production in all cotton producing states has fallen sharply except for the southern zone.  CAB has lowered the exports estimate by 70 % to 50 lakh bales against 85 lakh bales recorded last year. The textile commissioner office has registered request for export of 11 lakh bales while only 7 lakh bales has been shipped. However, Mr Joshi is of the view that the export target of 50 lakh bales will be achieved, as the country is getting good orders from China , Bangladesh and Pakistan . Meanwhile, cotton Corporation of India has procured about 71 lakh bales as on January-end, while it has sold 12 lakh bales.

National Bank for Agriculture and Rural Development (Nabard) has plans to set up farmer self-help groups (SHGs) with about four farmer groups in each state and the pilot project would be initiated from the next fiscal year (2009-10). The group would consist of small and marginal farmers who would be nurtured like the SHG members and would be handheld to open accounts in the banks. These farmer groups would form a sort of consortium, which would help in getting better returns in cases such as marketing, storage, material input when they approach the market as a group rather than as individuals. It is likely to lower the cost of production for the farmers while bringing in confidence to the banking industry. Formation of SHGs method is being applied, as about 82 % of the landholdings are small or marginal and in many cases even less than two acres.

According to statistics by Coffee Board , India ’s arabica coffee production [post-monsoon (October-September) estimate] has been pegged at around 90,050 tonnes in the 2008-09, against an output of 92,500 tonnes in 2007-08. Robusta coffee production is also seen down nearly by 10-15 % from previous estimate of 186,550 tonnes. Last year, the country’s robusta coffee output stood at 169,500 tonnes. Sharp fall in arabica coffee output is likely to pull down India ’s overall coffee production by 15-20 % from prior estimates. India ’s coffee output in the current crop year is expected to be around 230,000-240,000 tonnes. Output in the 2008-09 post-monsoon estimate was pegged at 276,600 tonnes. As per the trade and market experts, India ’s arabica coffee production in 2008-09 (October-September) is expected to be lower than previous estimates owing to irregular blossom showers. The president, Indian Coffee Exporters Association is of the view that Arabica coffee output is likely to be 55,000-60,000 tonnes this year, down 35-40 % from post-monsoon estimates.

In the backdrop of increased minimum support price of wheat to Rs 1,080 a quintal from Rs 1,000 last year and expected increase in procurement by government agencies, Food Corporation of India (FCI) is pose to face a problem of holding this mounting stocks of wheat in the coming months. A senior government official has stated that the central and state agencies are likely to procure at least 20 million tonnes wheat from farmers in marketing year (March-April) 2009, marginally lower than the record buys of 22.4 million tonnes of last year, on a smaller than anticipated crop. India produced 78.4 million tonnes wheat last year. Output this year is expected to fall marginally to about 78 million tonnes as a warmer winter could trim the yield. The FCI is likely to face a storage crunch of around 10 million tonnes this year, as it already has large quantities of unsold food grain in the major wheat growing states. In Punjab alone, FCI is likely to face a space crunch of at least 5 million tonnes for storing wheat, while in Haryana it could find it difficult to store up to 3 million tonnes of wheat. The government has not been able to liquidate a large part of wheat procured last year. It has about 16.8 million tonnes of wheat stocks on 01 February 2009, most of it in Punjab , Haryana and Uttar Pradesh, and is likely to have a carryover of over 13 million tonnes on 01 April 2009 after accounting for requirements under state-run welfare schemes and open market sale scheme.

As per the latest report by the United Nation’s Food and Agricultural Organisation (FAO), India ’s cereal output is likely to increase marginally by less than 0.8% 263.1 million tonnes in 2008, a rise of 0.8 % from 261 million tonnes in the previous year. FAO estimates wheat output to record a rise of 3.43 % at 78.4 million tonnes during 2008 crop year as against 75.8 million tonnes in the previous year. Meanwhile, the government plans to review its ban on wheat exports in March after assessing the stock situation. India had banned exports of wheat in 2007 to increase local supplies and prevent domestic prices from skyrocketing. However, in November 2008, as domestic prices eased, the government earmarked two million tonnes of wheat for exports to selected countries. The report has pegged production to be 1.66 % higher during 2008 at 147 million tonnes from 144.6 million tonnes in the previous year. Total output of coarse grains, in contrast, is forecast to decline 7 % to 37.7 million tonnes as against 40.5 million tonnes.

Industry

Index of Industrial Production registered a decline of 2.0% over the month resulting in the cumulative growth for the period April-December 2008-09 to reach 3.2% much below to that registered during the corresponding period of last year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of December 2008 stand at 186.0, 298.6, and 223.1 respectively, with the corresponding growth rates of 1.0%, (-) 2.5% and 1.6% as compared to December 2007. The cumulative growth during April-December, 2008-09 over the corresponding period of 2007-08 in the three sectors have been 3.0%, 3.3% and 2.7% respectively, which moved the overall growth in the General Index to 3.2%.

In terms of industries, as many as seven (7) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of December 2008 as compared to the corresponding month of the previous year. The industry group ‘Other Manufacturing Industries’ have shown the highest growth of 21.7%, followed by 9.0% in ‘Beverages, Tobacco and Related Products’ and 7.6% in ‘Metal Products and Parts, except Machinery and Equipment’.  On the other hand, the industry group ‘Jute and Other Vegetable Fibre Textiles (except cotton)’ have shown a negative growth of 66.4% followed by 20.0% in ‘Wood and Wood Products; Furniture and Fixtures’ and 17.9% in ‘Transport Equipment and Parts’.

The Sectoral growth rates in December 2008 over December 2007 are 1.7% in Basic goods, 4.2% in Capital goods and (-) 8.5% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of (-) 12.8% and (-) 0.1% respectively, with the overall growth in Consumer goods being (-) 2.7%.

Infrastructure

The Index of Six core industries having a combined weight of 26.7% in the Index of Industrial Production (IIP) with base 1993-94 stood at 247.4 in December 2008 and registered a growth of 2.3% compared to a growth of 3.2% in December 2007.  During April-December 2008-09, six core-infrastructure industries registered a growth of 3.5% as against 5.9% during the corresponding period of the previous year.

Crude Oil production (weight of 4.17% in the IIP) registered a growth of (–) 0.3% in December 2008 compared to a growth rate of (-) 1.4% in December 2007. The Crude Oil production registered a growth of (-) 0.5% during April-December 2008-09 compared to 0.3% during the same period of 2007-08.

Petroleum refinery production  (weight of 2.00% in the IIP) registered a growth of 3.0% in December 2008 compared to growth of 1.9% in December 2007. The Petroleum refinery production registered a growth of 3.7% during April-December 2008-09 compared to 7.5% during the same period of 2007-08.

Coal production (weight of 3.2% in the IIP) registered a growth of 9.4% in December 2008 compared to growth rate of 8.4% in December 2007. Coal production grew by 10.1% during April-December 2008-09 compared to an increase of 3.5% during the same period of 2007-08. 

Electricity generation (weight of 10.17% in the IIP) registered a growth of 0.7% in December 2008 compared to a growth rate of 3.9% in December 2007. Electricity generation grew by 2.6% during April-December 2008-09 compared to 6.6% during the same period of 2007-08.

Cement production (weight of 1.99% in the IIP) registered a growth of 11.6% in December 2008 compared to 4.4% in December 2007. Cement Production grew by 7.0% during April-December 2008-09 compared to an increase of 7.7% during the same period of 2007-08.

Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of (-) 0.8% in December 2008 compared to 1.8% in December 2007. Finished (carbon) Steel production grew by 2.7% during April-December 2008-09 compared to an increase of 6.4% during the same period of 2007-08.

Inflation

Wholesale Price Index for ‘All Commodities’ (Base: 1993-94 = 100) for the week ended 31st January 2009 fell by 0.7 percent over the week.

The annual rate of inflation, calculated on point-to-point basis, stood at 4.4 percent for the week ended January 31, 2009 as compared to 4.7 percent during the corresponding week of the previous year.  

The index for major group primary articles declined by 0.2 due to decline in prices of condiments and spices, fruits and vegetables, tea and barley

The price index of fuel, power, light and lubricants declined by 3.1 per cent was mainly due to substantial reduction in the administered prices of petrol, diesel and LPG.

The index for major group manufactured products declined by 0.1.

The final wholesale price index for ‘All Commodities’ for the week ended December 6, 2008 stood at 230.5 as compared to 231.1 and annual rate of inflation based on final index, calculated on point to point basis, stood at 6.6 percent as compared to 6.8 percent.

Financial Market Developments

Capital Markets

Primary Market

The uncertainty in the equity markets has taken a toll on the funds raised from public issues, with the mobilisation amount declining by 95% in the first nine months of the current fiscal over the year-ago period. According to Securities and Exchange Board of India (SEBI), during April-December 2008, there were 20 public issues, which mobilised Rs 2,058 crore as compared to Rs 38,153 crore during the same period in the previous year. During 2007, 74 public issues were floated.

The initial public offering (IPO) of Edserv, which closed on 09 February 2009, was subscribed by 1.30 times. Though a small ticket issue (Rs 24 crore), it is the first IPO to go ahead with its IPO in the last four months. The Chennai-based e-learning company has issued 39.7 lakh equity shares at the price band of Rs 55-60.

The prevailing global economic downturn and new guidelines issued by the central bank have forced venture capital funds to rework their India strategy. Over ten India-focused venture capital (VC) funds withdrew their registration applications with the SEBI during 2008. The total investment proposed by these funds is estimated at Rs 1,000-1,200 crore. Among the funds that withdrew applications, five are foreign venture capital investors, while seven are domestic venture capital funds.

Secondary Market

Stock markets rose on expectations of further stimulus measures during the week before vote-on-account. The BSE Sensex increased 333 points or 3.6% to 9,635, while NSE Nifty rose 105 points or 3.7% to 2,948. The CSO pegged GDP growth for FY09 at 7.1%, which would be the slowest in the last six years. The index of industrial production (IIP) too, slipped to a negative 0.2%. All these along with subdued global markets however, were not able to stop the domestic indices from inching up. The sentiment was helped by foreign institutional investors (FIIs) who were net buyers to the tune of Rs 425 crore. Inflation numbers also slipped from 5.07% to 4.39%. The Defty gained 3.8% in a week when the rupee saw very little movement.

Among the sectoral indices of BSE, all the indices recorded positive gains over the week except IT and FMCG. Among the gainers, Reality posted double-digit growth of 12.6% during the week. Stocks of capital goods and power sector biggies, such as Larsen & Toubro (L&T) and Bharat Heavy Electricals (Bhel), outperformed the BSE Sensex in the last five trading sessions on the news that the government was all set to clear a mega power generation equipment manufacturing project worth over Rs 40,000 crore. While share prices of Bhel and L&T rose between 8.63% and 10% respectively compared to Sensex’s rise of 5.78% in the last five trading sessions, stocks of some other companies, such as Alstom Projects India, PowerGrid Corporation of India, Siemens and ABB, that have acquired the manufacturing technology and execution skills using supercritical components gained between 5% and 23%.

The BSE has widened its lead over the NSE in the block deal segment. In 2008, the volume of block deals on BSE was Rs 16,377 crore, compared with NSE’s Rs 4,754 crore. The corresponding numbers for the previous year were Rs 15,180 crore and Rs 8,509 crore, respectively.

According to a SEBI circular, allocation of $8 billion of debt to FIIs will be done by open bidding and not on a first-come first-served basis as it is currently. The Government had recently eased conditions for FII investments in debt, raising the cumulative debt investment limit for them to $15 billion, from $6 billion. The bidding platform shall be provided by the stock exchanges. The first round of bidding shall be conducted on NSE and the next on BSE, and thereon by the two exchanges in turns. The bidding session shall last two hours and existing trading members shall have access to the bidding platform; FIIs and sub-accounts can mandate these trading members to bid. The minimum amount which can be bid for is Rs 250 crore, and the minimum tick size Rs 100 crore. A minimum flat fee of Rs 1,000 per successful bid shall be levied for the allocated amount. No single entity shall be allocated more than Rs 10,000 crore. The time period for utilisation of the limits allocated in this manner shall be 45 days. Allocation of limits up to Rs 249 crore shall take place on a first come first served basis.

Companies delaying or not filing full disclosures with stock exchanges and with the SEBI, as mandated will face a penalty of up to Rs 1 crore. As per a SEBI representative, “Under certain categories, companies which acquire shares beyond a certain percentage stipulated under the regulations are required to make disclosures. Under the SEBI Act, offenders are liable to a maximum penalty of up to Rs 1 crore for not filing disclosures,”

SEBI relaxed the takeover norms for distressed companies whose board has been superseded by the government on 13 February. Although the regulator did not name a company, market players said the relaxation would help Satyam Computer Services find a buyer.

On 13 February, the SEBI barred First Global Director and Chief Global Strategist Shankar Sharma from buying, selling or dealing in securities and from associating in the securities market for one year for fictitious trades during early 2001. The order comes into effect “immediately after four weeks” from the date of communication of the order. SEBI has, however, disposed the showcause notice against Sharma’s wife Devina Mehra, who is also a director of First Global

The SEBI is considering its Primary Market Advisory Committee’s recommendation to introduce a uniform face value system for all listed companies. At present, companies decide their individual face value between Rs 1 and Rs 100. According to the recommendations, the multiple face value system creates confusion among investors. It has been noticed that investors tend to look at the market price of a particular stock without knowing its face value, and the confusion is compounded when companies declare dividend as a percentage of the face value. It was argued that the practice of declaring a percentage dividend based on a low face value was misleading, especially when the company has raised money at a hefty premium or when its stock was trading at a high price in the secondary market.

Despite equities markets falling, more FIIs are coming to India as the number of FIIs registered with SEBI has increased 25% in the last one year. Since 31 January 2008 as many as 330 FIIs have registered with SEBI, taking the total number of FIIs in India to 1,609 as on 31 January 2009. Even the FII sub-accounts have gone up over 30% to 4,938 compared with 3,795 in January 2008. In fact, this year, 45 new FIIs have registered with SEBI, majority of these FIIs are from the US and Europe .

Banks are once again turning to mutual funds for better returns in the face of plunging call money rates. The development also signifies a nascent confidence of the banking sector to invest in the non-government sector. Renewed bank investments had pushed up assets under mutual funds’ management by nearly 10% in January 2009. Of the Rs 27,903 crore rise in assets under management (AUM) of mutual funds last month, almost 70% came from the banking sector. The flow had been into the liquid and money markets funds. AUM of the mutual fund industry in January 2009 increased by Rs 460,949 crore compared to Rs 421,117 crore in December 2008.

Derivatives

After weeks of being in the losing streak, the Nifty future managed an impressive turnaround, putting in a neat 3.75 gains on the table. While a bulk of the upsurge may have been helped by the squaring-off of short positions that the week also saw fresh accumulation of Nifty futures suggests a turnaround in market sentiments too. The Nifty future now trails Nifty, which ended at 2,948 points, by about six points only. Trading volumes continued to remain moderate at about Rs 31,000 crore. Another week of narrow range-bound trading saw the market register some gains. Volumes remained low and advances and declines were almost balanced. It was another muted week in the derivatives market as spot prices inched up on light trading volumes.

FIIs eased down on their derivatives exposures but local traders increased their commitments. The cumulative FII positions as percentage of the total gross market position on the derivative segment, as on 12 February was 33.43%. The FIIs indulged in alternate bouts of buying and selling in the future and options (F&O) segment. They now hold index futures worth about Rs 7,363 crore (about Rs 6,815 crore) and stock future worth about Rs 12,232 crore (about Rs 11,157 crore). Their index options jumped to about Rs 15,489 crore (about Rs 12,152 crore).

The spot and futures prices are at marginal variance with each other so there’s nothing there for a trading view. The Bank Nifty has generated unusually high open interest (OI) in the March series so there is indication the sector will remain in play through the carryover period. The trend appears positive as rate cuts are expected. In the options market, the put-call ratios (PCR) continue to look somewhere between neutral and bullish. The Nifty PCR in terms of OI is about 1.3.

India VIX or Volatility Index, which measures the immediate expected volatility, has weakened to 43.31 from the previous week’s close of 50.65. However despite the fall, the volatility index managed to touch the 50-point mark many times over during intra-day trades.

Government Securities Market

Primary Market

The Reserve bank of India (RBI) auctioned 91 day T-Bills and 364 day T-Bills for the notified amounts of Rs 5,000 crore and Rs 3,000 crore, respectively on 11 February 2009. The cut-off yield for 91 day and 364 day T- Bills has been set at 4.79% and 4.58%, respectively.

On 13 February 2009, RBI auctioned 6.05% 2019 and 6.83% 2039 for the notified amounts of    Rs 6,000 crore and Rs 2,000 crore, respectively. The cut-off yield for both the securities has been set at 5.94% and 7.37%, respectively.

Secondary Market

Inter bank call money rates ruled in a narrow range of 3.85-4% during the week. Bonds yields softened slightly even as Government borrowings intensified ahead of the financial year-end, and banks held back on credit expansion. Liquidity though was not a problem. This was evident from the high response to the weekend liquidity adjustment facility auctions. Almost all the banks, including the foreign banks, took recourse to the reverse repurchase window. As a result, Rs 51,580 crore of liquidity was parked in the reverse repo window.

Average trade volumes per day remained high during the week at about Rs 12,000 crore or about Rs 4,500 crore more than equity trade volumes. This trend was also evident from the high bid-to-cover ratios at the Government securities (G-sec) auctions. The G-sec auctions saw the bid-to-cover ratios of 3.5 and 4.28 times. At the T-bill auctions also, the bid-to-cover ratios were 3.2 times.

Bond Market

During the week under review, one bank, one NBFC and one central undertaking tapped the market by issuance of bonds to mobilise an amounts of Rs 495 crore.

Foreign Exchange Market

The rupee closed at Rs.48.72 per US dollar on February 13 2009 as compared with Rs.48.73 per US dollar as on 06 February 2009. The rupee moved between Rs.48.6 and Rs.48.82, with a standard deviation of 8 paise during the week. The rupee registered its best performance in weeks on Friday, as it rose 16 paisa on back of a weak dollar overseas and gains in Asian stocks renewing hopes of capital inflows in the coming days. The inflows pulled down the forward premia across all tenors, barring the overnight, where the dynamics were more driven by interest differentials. Forward premia for 1 month, 3 months, 6 months and 12 months dipped to 2.89% (3.28% previous week), 2.48% (2.72%), 2.03% (2.18%) and 1.77% (1.85%) respectively. Cash to spot forward premium, however, widened to 3.50%, up from the previous week’s 1.77%. The non-deliverable forward (NDF), which is a one-month forward rate, was Rs 48.80 during the weekend as against Rs 48.74.

Forex reserves increased by $2.921 billion for the week ended 6 February to $251.532 billion, according to RBI. This is the second week in a row that the forex reserves have seen an accretion. In the earlier week, the reserves had increased by $990 million to touch $248.611 billion.

Currency Derivatives

According to MCX-SX’s Chief Executive Officer (CEO) U Venkataraman, India’s trading volume in currency futures per day is expected to cross the $1-billion (Rs 4,800 crore) mark in the current year.  The average combined daily trading volume in currency futures on NSE, MCX-SX and BSE is estimated at around Rs 2,000 crore.

Commodities Futures derivatives

The turnover of commodity exchanges in the country has surged by almost 34% to Rs 39,19,844 crore till 15 January in the current financial year against Rs 29,27,177 crore a year ago. During the period, the total turnover of three national level commodity exchanges and 19 regional bourses stood at Rs 2,35,048 crore, up by 11.78% over the year-ago period. According to the commodity market regulator Forward Markets Commission (FMC), the turnover in Multi Commodity Exchange (MCX) stood at Rs 2,07,272 crore during the first fortnight of January, while the National Commodity Derivatives Exchange Limited (NCDEX) recorded a business of Rs 21,484 crore. Other national level exchange Ahmedabad-based NMCE registered a turnover of Rs 2,375 crore.

Pepper futures market turned hot with prices increasing to Rs 118.19 per kg on 9 February for the February contract from the previous closing level of Rs 116.24 per kg. Weak demand and profit taking had led to a fall in prices during the week in the futures market. However, for the March contract, the prices moved up to Rs 116.71 per kg from Rs 114.61 per kg. In the spot market, the market closed at Rs 119 per kg for garbled pepper. It stood at Rs 118 per kg. With fresh supplies from major markets like Vietnam ready to hit the market, Indian pepper prices have eased in the international market. Prices, which stood at US $ 2700 per tonne in the previous week, have come down to $ 2575 per tonne.

On 12 February gold hit an all-time high of Rs 14,550 on the MCX due to OI and pending contracts ready for execution. Traders’ shifting from physical holding of the yellow metal to profit-making also led to a rise in the gold prices. Due to the absence of retail traders in the market, jewellery makers and long traders are selling their holdings on the futures platform at the current price. As the delivery date is two months away, goods will be delivered if the prices decline or if the positions are squared off in case prices rise.

The MCX has announced a revision in its penalty structure in case of delivery defaults by sellers in most farm commodities in its press release. In case of delivery default from the seller’s side, the exchange will impose a penalty of 3% in addition to the difference between the final settlement price and the average of last three highest spot prices in the five previous days after the expiry of the contract.

The NCDEX is planning to implement a new model, which will enable small and marginal farmers to pool their products and sell on the exchange platform. The exchange has sought inputs from corporates engaged in commodities' trade in rural areas for implementing the scheme. NCDEX informed that the exchange would come up with a final blueprint of the scheme in the next two to three months, as certain regulatory approvals were needed before implementing the project.

The NCDEX has decided to move the Supreme Court against the Bombay High Court order on the FMC’s jurisdiction over the exchange’s transaction charges. The decision was taken at its board meeting on 10 February. As per sources, the exchange would challenge the Bombay High Court’s order shortly in the Supreme Court, but the ground on which it is planning to move the apex court was not ascertained. The FMC had not approved the exchange’s decision to drastically cut charges for trading in the evening session. NCDEX challenged the powers of the regulator saying that transaction charges fell in the jurisdiction of the exchange.

The NCDEX has restored the transaction charges it had reduced over a week ago, following the Bombay High Court’s refusal to admit the exchange’s plea against the commodity market regulator. The country’s second largest commodity derivatives exchange in its circular dated 7 February informed its trading and clearing members that the implementation of reduction in transaction charges has been kept in abeyance with immediate effect without prejudice to any right of the exchange to seek any further judicial or non-judicial remedy as advised by its legal advisors. Immediately after the exchange’s circular, informing about the change in transaction charges, was hosted on the website on 28 January the FMC had advised it to keep its implementation in abeyance. The exchange had thereafter sought a stay of the FMC directive from the High Court, which was declined for the reasons that the reduction in transaction charges would create unfair competition among participants. The NCDEX’s withdrawal was anticipated since the Bombay HC pronounced its decision rejecting to admit the exchange’s appeal on February 5 and the decision was closely linked to the recognition of the exchange.

Faced with a decline in the turnover and thereby, lower valuation of the NCDEX Intercontinental Exchange (ICE) is planning to sell a part of its holding in India’s second largest commodity derivatives platform. According to analysts, one of the largest energy trading platforms may reduce its holding to the regulatory level of 5%. ICE entered into the Indian commodity market in 2007 with 8% equity buying on the NCDEX at an undisclosed sum.

The NCDEX has revised the position limits in eight agricultural commodities, i.e., crude palm oil (CPO), kapas, shankar kapas, expeller mustard oil, yellow soyabean domestic, yellow soyabean meal export, Indian 31 mm cotton and cashew. The limits would be effective from March 1. The move was taken to prevent speculative trading as except for CPO and shankar kapas, the rest six commodities suffered poor liquidity.

The Dalian Commodity Exchange (DCE) is expecting a prominent prospect of launching of live pigs futures soon. The exchange had worked out a standardised contract for pig futures that awaited the green light from Chinese regulators. The exchange was mulling to launch the futures since 2006. However, it is difficult to establish standards for breeding, delivery and quarantine of pigs. The regulators are cautious about the matter and thus the futures have not debuted by far. The Chinese futures industry has noticed that it was for the first time that a document of the CPC Central Committee and State Council of China referred to the expression of stabilising the development of the pig industry through futures transactions.

Public Finance

According to the interim budget presented on 16^th February the defence budget has been hiked to Rs. 1.42 lakh crore and social sector expenditures like rural employment guarantee scheme, national rural health mission and sarva shiksha abhiyan and bharat nirman were allocated more funds. All this extra expenditure raised the fical deficit GDP ratio to 6 per cent and revenue deficit GDP ratio to 4.4 % as against the 1% BE.

Banking

At present accessing the capital market being not a viable option, the cabinet has approved capital infusion of Rs 3,800 crore into Central Bank of India, UCO Bank and Vijaya Bank by March-end 2010. The infusion of fresh capital would raise the capital adequacy ratio of these banks to at least 12%. It would help banks improve lending and support loans to the tune of 80 times of the extra capital. Central Bank of India will receive Rs 1,400 crore while UCO Bank and Vijaya Bank will be receiving Rs 1,200 crore each. The government last year has decided to recapitalise 7 public sector banks after a series of bank failures in the US beginning with the collapse of Lehman Brothers in mid-September 2008. For this, the Centre expects to receive $3 billion loan from the World Bank by March 31, 2010. The other four banks being re-capitalised include Punjab & Sind Bank, Dena Bank, United Bank of India and Bank of Maharashtra. The capital restructuring of Punjab & Sind Bank has been completed.

The prevailing global economic downturn and new guidelines issued by the central bank have forced venture capital (VC) funds to rework their India strategy. Over ten India focused VC funds withdrew their registration applications with the market regulator, SEBI, during 2008. The total investment proposed by these funds is estimated at Rs 1,000-1,200 crore. Among the funds that withdrew applications, five are foreign venture capital investors, while seven are domestic venture capital funds.

CitiFinancial, one of the major player in financing four-wheelers in the country, has discontinued its auto loan financing activity. Citigroup has initiated the restructuring of its retail operations and has decided to close down around 280 branches of CitiFinancial in India . The closure of branches resulted into downsizing of CitiFinancial’s workforce from 3,000 employees to around 2,000 in the current fiscal.

Corporate

Kingfisher Airlines net loss soared by 48% to Rs 626 crore for the quarter ended December 31, 2008 from Rs 423 crore in the same quarter the previous year. High fuel and other operating costs coupled with lower load factors contributed to the losses of Kingfisher.

As part of its effort to rejuvenate moribund capital inflows, the government has rationalised the indirect FDI norms for sectors that have caps. The move enable foreign entities to hold higher stakes in joint ventures (JVs) with firms owned and controlled by Indians that may also have an FDI component. Under the new norms approved by the Cabinet committee on economic affairs, direct investments by NRIs would now be considered FDI, while funds routed through an entity owned or controlled by a resident India or an Indian company would be considered domestic investment. Basically, what this means is that any FDI in the equity structure of an Indian partner would no longer be considered indirectly in a JV, thereby giving the foreign partner scope to raise its stake up to the sectoral FDI cap. Previously, FDI in all Indian partner would have been indirectly included when calculating the overall FDI component of a JV. 

All the five promoters of the Zandu Pharmaceutical Works had pledged a total 4.09 lakh shares which comprises 50.76% stake in the company.  In a disclosure to BSE, Emami, one of the promoter, has pledged 46.86% stake in the company and reaming four promoters had pledged their entire holdings in the company.  This pledging of shares had made available Rs 200 crore to the promoters.

The founders of Tata Teleservices Maharashtra had pledged 49.7% or 94.28 crore shares of the total equity capital of the company.  The pledged shares of the company will be used as security against its borrowings.  In addition, Tata Power has pledged 4.59% of the company’s equity, that is, around 3.23 crore shares were. 

External Sector

Exports during December 2008 registered an annual increase of 1.1% to reach US $ 12690 million; as a result during the fiscal year so far the total exports at US$131990 million registered a growth of 17.1% over that of US $ 112737 million reported in the comparable period last year.

Imports during December were valued at US $ 20256 million, an increase of 8.8 per cent over that of US$ 18610 million in December 2007 and the cumulative import at US$ 225809 million was 31.5% more than that of US $ 171718 during April-December 2007-08.

Trade balance during December thus worked out to be $ 7567 as compared to 5785 in December 2007. The cumulative trade balance for April-December 2008 estimated at US $ 93819 million was 1.6 times to that of US $ 58981 million during April-December 2007.

While oil imports during the current fiscal year so far gone up from US $ 54421 million in April-December 2007 to US $ 78827 million, that of non-oil imports accelerated by 25.3% to US $ 146982 million.

Information Technology

Cisco Systems and TCS has formed a strategic alliance to develop and deliver information technology service solutions to help customers build next-generation data centers by taking advantage of the network as a platform. Soon, Cisco Technology Lab to be formed at TCS campus in Chennai.

A number of IT companies are foraying in the Egypt market to set up their outsourcing centers as it will be easier to tap the Middle East and the African market as well as the French speaking Europe . According to a KPMG report, Egypt is one of the new locations which will attract companies to set up centres there. Companies like Wipro, Satyam, 3i Infotech, Mphasis and others have their operations in Egypt and some of them are planning to expand, focusing on manufacturing, government, banking and telecom services.

On the back of a slowing global economy and pain in the banking, financial services and insurance (BFSI) sector, according to Nasscom the IT-BPO exports are expected to grow at only around 16-17% in the current financial year as against the earlier estimate of 25-30%. The exports are likely to clock $47 billion in 2008-09. IT-BPO exports comprise over 90% of the total Indian IT revenue. The US and the UK account for over 80% of the revenues of most Indian IT services firms. Moreover, the BFSI sector accounts for almost 40% of the revenues of this sector. Since the US and the UK are among the most-affected regions due to the global slowdown, and the BFSI sector is yet to gain composure following the collapse of major banks, it was widely expected that Nasscom would revise its targets downwards from the earlier $50 billion software exports estimate for 2008-09.

Faced with budget constraints and margin pressures, Indian IT services providers such as Tata Consultancy Services (TCS), Infosys, Wipro and HCL are moving more work offshore (to India) rather than onsite (at the client’s site) in a bid to contain costs. The offshore-onsite mix has changed from 70:30 ratios to 85:15. The top three IT firms, have increased their offshore revenue component by 80-150 basis points (bps) to optimise costs. For instance, TCS, India ’s largest IT software and services exporter, saw an improvement in operating margins by 53 bps through moving more work offshore. India ’s second-largest IT services player Infosys’ offshore volumes sequentially grew 3.3%. The company is also seeing its offshore revenues going up as most of enterprise resource planning (ERP) work is done from offshore now. Moreover, the IT heavyweight feels that telecom majors in France and Germany have announced budget cuts and hence need to engage with offshore players.

Telecom

Internet and telecom major Tata Communications (formerly VSNL) will be investing $430 million to set up a new Internet data centre in Singapore and extend its intra-Asia submarine cable system to the Philippines and Vietnam . The investment, which will be raised through internal accruals and various funding modes, is part of the company’s $2 billion capex plans announced in 2008.

There was uproar over the manner in which the government allocated spectrum to some non-telecom companies recently, on a first-come-first served basis. Many of these companies allocated spectrum recently were sold at a higher prices. Later on, the government has mooted a lock-in-period of 3-5 years in the case of dilution of the promoters’ stake in the telecom company-receiving spectrum to check misuse of the national property. However, TRAI still advocates auction for spectrum allocation.

Unitech Wireless, the telecom arm of realty major Unitech has announced that it will be leasing towers from Wireless-TT Info-services (WTTIL), the tower arm of Tata Teleservices Ltd and Quippo Telecom Infrastructure Ltd (QTIL), across India. As a result, the company will be able to roll out services across 22 circles by the second half of 2009. The deal gives Unitech Wireless access to 40,000 towers, which makes it the biggest ever infrastructure sharing deal in telecom in the world.

*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.