Highlights of  Current Economic Scene

According to second advance estimates of Ministry of Agriculture, the production of foodgrains is estimated to be lower by 3 million tonnes than that of 231 million production estimated for 2007-08. Except rice production of all other cereals are estimated to register declines. Decline in the production of pulses is estimated to be of the order of 0.5 million tonnes. Production of oilseeds is expected to decline by 3.7 million tonnes. While the production of rape and mustard seed is estimated to increase from 5.8 million tonnes to 7.0 million tonnes that of ground nut is estimated to fall sharpely from 9.2 million tonnes to 6.8 lakh tonnes. Cash crops like cotton, jute and sugar cane are also expected to register some decline in their production.

The central government has announced 5% duty incentive on exports of raw cotton and has even included commodities of fiber in the Vishesh Krishi and Gram Udyog Yojana. Products of raw cotton would be entitled for duty credit scrip on exports; this would come into effect from April 1, 2009.

The Food Corporation of India (FCI) and state governments are trying to create CAP (covered & plinth) storage facilities in the states of Punjab and Haryana and are even hiring capacities from the Central Warehousing Corporations (CWC) and State Warehousing Corporations (SWC), as wheat stocks in these states are expected to rise further, especially once procurement operations start from April onwards.

Directorate General of Foreign Trade (DGFT) in its notification has stated that India would be partly relaxing its 16-month-old ban on the export of wheat flour with its decision to ship 29,177 tonnes of the commodity to the Maldives due to piling up of huge reserves in the second-highest wheat-producing nation in the world.

According to latest survey conducted by the Solvent Extractors’ Association of India (SEAI), the country would produce the highest castorseed crop at 11 lakh tonnes during the 2008-09 season, 21% higher compared to the previous year. The total area under castor crop is expected to be at 8.26 lakh hectares showing an increase of 10% as compared to that of previous year. Average yield for the year 2008-09 is projected to be around 1,331 kg per hectare as against 1,216 kg per hectare during 2007-08; an increase of 9% over the previous year.

Sugar production in Uttar Pradesh has fallen by 50% due to sharp reduction in the sugarcane area and diversion of the crop to Gur (jaggery) and khandsari units. For the first time in the last seven years, the crushing season in the state has not lasted till 90 days. Of the 132 sugar mills owned together by Sugar Corporation, co-operative federation and private players, 45 have closed for the crushing season 2008-09. The state government has already revised the sugar production target for the 2008-09 crushing season to 6.2 million tonnes this year as against 7.3 million tonnes last year. Sugar Federation has reiterated that acreage under cane has been reduced by 710,000 hectares to 2.14 million hectares this year as compared to 2.85 million hectares last year. Coverage under cane this year has been lowest in the last five years.

The Agriculture Ministry would be favouring a hike in the statutory minimum price (SMP) for sugarcane to Rs 107.76 per quintal for the 2009-10 season. However, it has also proposed to raise the recovery rate (production of sugar from a certain quantity of sugarcane) linked to SMP by 0.25% to 9.25%.

Cotton Advisory Board (CAB) has revised its estimate for 2008-09 (October-September) crop by lowering the output by 8.62% to 29 million bales from its earlier estimate of 32.2 million bales. Output is expected to fall because of lower acreage, delayed, inadequate rains and crop disease.

Cotton Corporation of India (CCI) offer price, which has enabled it to dispose off 75 lakh bales procured by it in 2008-09 crop year, has prompted the Centre to offer discounts on bulk purchase of cotton. This discount is expected to be in the range of Rs 500 and Rs 1,000 per candy for minimum purchase of 50,000 bales. Minimum lot-size for the bulk purchase would be 10,000 bales and the nature of discount may vary accordingly.

As per the report of Cotlook Inc, global cotton supply would exceed its demand next year for the first time since 2004, as most of the farmers would switch to more profitable crops and likely revival in textile demand. Consumption of the fiber would exceed its output by 23,000 tonnes in the year ending on 31July 2010. Production of cotton this year would exceed its demand by 742,000 tonnes.

As per recent estimates by Rubber Board, domestic consumption of natural rubber has slipped by 8% on an average during December-January 2009. Total consumption has dropped to 66,000 tonnes in December as against 73,110 tonnes in the same month of 2007, registering a drop of 10%. Likewise, the consumption in January has plummeted by 5.7% to 67,000 tonnes as against 71,010 tonnes in January 2007. This has resulted into piling up of stock to 241,000 tonnes as on 31 January 2009 as against 225,000 tonnes a year ago.

Exports of tea from India are expected to increase to 203 million kilograms so far during the financial year 2009 as compared to 200 million kilograms during the same period a year ago. This is mainly due to shortfall in tea production in major tea exporting country Kenya on account of drought and political unrest witnessed by the country.

India ’s egg exports have dropped by 70% y-on-y to 6 billion eggs in 2008, as demand for the poultry products fell sharply due to successive bird flu outbreaks in eastern and northeastern parts of the country.

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 7 February 2009 fell by 0.2 percent over the week.

The annual rate of inflation, calculated on point-to-point basis, stood at 3.9 percent for  as compared to 4.4 percent during the corresponding week of the previous year.  

The decline of 0.2 per cent in the index for major group primary articles was due to decline in prices of many oilseeds.

 A rise of 0.5 per cent in the  price index of fuel, power, light and lubricants suring the week was thye result of increase in the prices of naphtha and furnace oil.

The index for major group manufactured products declined by 0.4 percent . In this major group prices of textiles, leather products, and many steel items registered declines.

The final wholesale price index for ‘All Commodities’ for the week ended 13 December 2008 stood at 229 as compared to 230.7 and annual rate of inflation based on final index, calculated on point to point basis, stood at 6.2 percent as compared to 6.6 percent.

Financial Market Developments

Capital Markets

Primary Market

A Crisil report reveal that, corporate governance standards were ‘weak’ in almost 50% of the 29 initial public offerings (IPOs) graded by them since May 2007. Crisil said only 10% of the companies graded after the period had robust corporate governance structures, while 25% of them were average and 15% were above-average. This exposure has come at a time when corporate governance has grabbed a centerstage in India , following the accounting fraud in Satyam Computer Services. Ratings agencies are likely to increasingly look at corporate governance as a key aspect of gradings in IPO in the future. Officials at ratings agencies said there is increased emphasis for assigning a higher weightage to corporate governance as a parameter in IPO gradings. This is because prospective investors, especially retail, in an IPO have very little information about the company's or its promoter’s background and track-record.

Government is planning to list at least five public sector undertakings (PSUs) in the stock markets after a similar effort last year had to be shelved at the last moment when the stock markets tanked following the global financial meltdown. Disinvestment secretary Rahul Khullar opines that a decision to launch the IPOs will be taken by the new government in May-June, while all preparations have been made. Last year the government had given a go ahead to a dozen-odd PSUs to go public and all of them had initiated steps to disinvest.

India Inc preferred the debt route in the first three quarters of the financial year 2008-09. According to figures from Prime Database, debt private placements rose 46%, as compared with the corresponding period in FY08. A total of 126 companies raised funds via this route. In the first nine months of the current financial year, companies and financial institutions mopped up Rs 1.18 lakh crore, as against Rs 80,900 crore in FY08. Debt private placement is the sale of securities directly to an institutional investor such as bank, mutual fund, insurance company and pension funds. This was primarily due to the sluggish equity markets.

Secondary Market

A disappointing interim budget and weak global cues sent the markets crashing. BSE Sensex fell 792 points or 8.2% to 8,843 whereas NSE Nifty fell 212 points or 7.2% at 2,736 in the week. BSE Sensex fell in 4 out of 5 trading sessions during the week. Markets were expecting tax sops and sector-specific measures from the government but were disappointed as the interim budget turned out to be a performance report of the government. The market sentiment was nervous due to selling pressure from the foreign institutional investors (FIIs). Meanwhile, inflation eased to 3.92%, lower than previous week's annual rise of 4.39%.

Capital market investors will heave a sigh of relief if the Securities and Exchange Board of India’s (SEBI) move to appoint ombudsmen for addressing their grievances comes through. Despite there being several forums to address their complaints, investors are an unsatisfied lot either due to their lack of knowledge about those platforms or improper services provided by the intermediaries. In this case, the ombudsman will be like a one-man court that will investigate and settle investor complaints. The Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority (Irda) have appointed ombudsmen, who are doing well. Appointing ombudsmen would be a significant move towards protecting investors’ interest as the proposed authority will have powers to deal with complaints against all kinds of intermediaries and even listed companies.

Mutual fund houses will soon have a second valuation against which they can set the net asset values (NAV) for their debt funds. Mr A.P. Kurian, Chairman of Association of Mutual Funds in India (AMFI) said that, currently rating agency Crisil is the only valuer for debt funds; but it has been decided to consider ICRA for a second valuer.

According to a study of the price action in the BSE 500 companies shows that tocks in which FIIs reduced their holdings in the December quarter have fallen sharply in 2009, lagging the markets. In the December quarter of 2008, FIIs pared their holdings in nearly 315 of the BSE 500 stocks. They reduced their holdings by a significant 5 percentage points or more in 26 of those stocks. These 26 scrips saw their prices crash by over 20%, compared to the 10-per cent fall in the BSE 500 index between December 31, 2008 and February 20, 2009.

Equity and hybrid funds’ cash holdings hit Rs 9,729 crore, or 11.46% of their average assets under management (AAUM) of Rs 84,908 crore, at the end of January. This is the highest in the last one-year. As per data compiled by Mumbai-based Networth Capital, the total cash level of mutual funds (debt and equity) rose by 110% to Rs 42, 930 crore in January 2009 from Rs 20,415 crore in December 2008.

In the last two months, at least 14 mutual fund schemes have closed down, according to announcements made by fund houses. The reason: they had less than 20 investors in the scheme or a single investor was accounting for more than 25% of the corpus. For instance, Canara Robeco Monthly Interval Plan, HSBC Interval plan 1, Fortis Quarterly Interval Plan L and ING Quarterly Interval Plan A have all closed down recently. According to the SEBI guidelines, any scheme should have at least 20 investors.

In a bid to improve the transparency in the Indian securitisation market, rating agency Crisil has enhanced disclosure standards on securitisation transactions’ ratings. Accordingly, the new standards would incorporate a detailed scenario analysis impact on credit protection measure under different assumptions. Similarly, performance details and track record of various counterparties involved in the transactions and similar asset pools would be analysed to facilitate comparisons. As a proactive step Crisil is implementing these measures in the domestic market, where the performance of securitisation transactions has been far better and more stable than in global markets.

The SEBI has restricted Vinit Kumar, chairman of Temptation Foods, from publishing or circulating in any manner any false or mis-leading information regarding the company's holding in rival Kohinoor Foods. Temptation Foods has been claiming that it holds 13.69% stake in Kohinoor Foods, while the latter has compliance to SEBI that Temptation holds less than 3% in the company. Kohinoor Foods has been trying to stall a takeover of its company by Temptation. SEBI's finding has revealed certain mismatch in the shareholding pattern of Temptation Foods in Kohinoor.

Derivatives                                  

There was a considerable rise in derivatives volumes and a strong trend of carryover as the cash market slid, heading into the settlement week. The Nifty futures are at significant discount to spot and the Bank Nifty and the CNXIT are also at mild discounts to their respective underlyings. The NSE Nifty February future crashed by 8% to end at 2,722 against the previous week close of 2,942. The NSE March future closed even lower at 2709.10. Both these Nifty futures ended in discount with respect to the Nifty spot, which closed at 2736.45. Nifty witnessed higher rollover of about 40%, most of which were on the short side, the market-wide rollover stood weak at 31%. This is mainly because from next month, several individual stocks’ lot size has been raised by 2 to 14 times. Among the sectors, auto, power and capital goods witnessed strong rollover.

The cumulative FII positions as percentage of the total gross market position on the derivative segment as on February19 is 34.67%. They were predominantly sellers in the F&O segment during the week. They now hold index futures worth Rs 8,670 crore (Rs 7,363 crore) and stock future worth Rs 12,788 crore (Rs 12,233 crore). Their index options position jumped to Rs 17,360.37 crore (Rs 15,489.48 crore).

The Nifty put-call ratios (PCR) don’t show similar bearishness. The February PCR in terms of open interest (OI) is at 0.9. The overall PCR in terms of OI is 1.1, which is on the low side of normal, rather than really bearish.

India VIX or Volatility Index, which measures the immediate expected volatility remained steady around 45. It ended the week at 45.21 against the previous week close of 43.31.           

Government Securities Market

Primary Market

Nine state governments auctioned 10-year paper maturing in 2019 for the notified amounts of Rs 8,362.24 crore on 17 February 2009. The cut off yield for the securities range from 7.40-7.50% being highest for Maharashtra .

On 18 February 2009, the RBI auctioned 91-day T-Bills and 182 day T-Bills for the notified amounts of Rs 5,000 crore and Rs 1,500 crore, respectively. The cut off yield was set at 4.75% for 91 day and 4.72% for 182 T-Bills.

The RBI auctioned 7.94% 2021, 8.24% 2018 and 7.40% 2035 government securities for the notified amount of Rs 2,000 crore, 3,000 crore and 1,000 crore, respectively under open market operations (OMO). The cut off yield for these securities was set at 6.73% for 12-year paper and 6.26% for 9-year paper.

Secondary Market

Call rates remained flat for most part of the week, as ample liquidity easily offset the regular demand for funds by banks in the first half of the bi-weekly reporting cycle. Rates edged up on 19 February to 4.40%, as banks stayed cautious and shored up funds ahead of the RBI employees strike and the upcoming religious holiday. Bond yields extended surge amidst concerns over the massive government borrowing plan and trading positions of dealers ahead of OMO purchases. Bond yields hardened slightly on the back of increased government borrowing operations and resumption of sell-offs by FIIs. Traders said that government borrowing operations led to some tightness, despite the comfortable liquidity. FII sell-off of both debt and equity amounted to $443.3 million during the weekend. In addition, some corporate debt service repayments were also due. This led to some temporary liquidity blips. During the week the RBI intervened for correcting the situation through open market operations. At the five-day LAF auction, bids at the reverse repo window were Rs 37,945 crore. At Saturday’s additional LAF auction, the reverse repo bids amounted to Rs 6,855 crore.

Trade volumes were sharply down during the week. Average trade volume last was Rs 6,700 crore per day or down 50% from the previous week and virtually on par with equity trade volumes of the NSE.

Bond Market

Corporate bond yields ended the week lower, but that was owing to the anomaly caused by the end of trading hours before OMO results on 19 February.

The National Highways Authority of India (NHAI) will issue capital gains bonds worth Rs 3,700 crore in the current financial year, minister of state for shipping, road transport and highways KH Muniyappa said in Parliament on 18 February. Tax-saving bonds worth Rs 1,330 crore had already been issued in this fiscal, he said in a written reply to a question raised in the house. Section 54EC of the Income-Tax Act provides tax exemption to capital gains arising from the transfer of a long-term capital asset, if such gains are invested in notified bonds such as those of NHAI and Rural Electrification Coporation Ltd.

During the week under review, 5 FIs/banks, one state undertaking and one central undertaking tapped the market to mobiliise an amount of Rs 5,265 crore.

Foreign Exchange Market

Volatile trading in the forex market ended with the rupee closing at Rs 49.73 per dollar, falling 2.18% from its previous week’s closing level of Rs 48.67 per dollar. The bearish trend in the domestic stock market and the arbitrage opportunity between the domestic and the overseas markets resulted the rupee breaching the 50-mark against the US dollar for the first time in over two months. While the rupee opened marginally weaker at Rs 49.70 against previous day’s close it fell to a low of Rs 50.07 in the afternoon. According to Bloomberg data, this was the lowest level since 12 December 2008. Later in the day, the rupee recovered a little due to the RBI’s intervention and the sale of dollars by some corporate houses to close at the lowest closing level in 2009.

The forward premia for one, three, six and 12 months were down to 2.53% (2.89%), 2.16% (2.48%), 1.75% (2.03%) and 1.57% (1.77%). Cash to spot forward premia, though, remained stable as some US banks took arbitrage between support received from the Federal Reserve Board’s Treasury Security Lending Facility on 19 February and the repo window. However, the non-deliverable forward market for dollar firmed to Rs 50.13, indicating that there could be more outflows in the coming weeks from FIIs.

India ’s foreign exchange reserve dipped by $1.84 billion to $249.70 billion in the week ended February 13 mainly on account of the revaluation in the foreign currency assets.

Currency Derivatives

In the currency futures market, the one-month rupee-dollar contracts rose on the NSE and MCX as traders bought the greenback noting its rise against most global units. On NSE, one-month contract ended at Rs 50.01 against the dollar, as against the previous close of Rs 49.68. On MCX, one-month contract closed at Rs 50.01, compared with Rs 49.69.

Commodities Futures derivatives

After successfully implementing the uniform penalty of 3% for delivery defaults in agri-commodities on the National Commodities and Derivatives Exchange (NCDEX) platform for six months, the Forward Market Commission (FMC) has directed the Multi-Commodity Exchange (MCX) to follow the same punitive method. The penalty revision will apply mostly on the compulsory delivery contracts of farm commodities. The regulator, said the revised penalty system is not required for the Ahmedabad-based National Multi-Commodities Exchange.

Base metals futures prices fell marginally on the weekend on rising inventories amid slow demand. Gold futures continued to climb during the week mainly on buying support from retail investors as the global economic scenario continues to remain grim. Silver prices also surged in line with gold. Silver March on Friday crossed the Rs 23,000 per kg mark mainly on strong buying support. On the other hand, crude oil prices continued to remain lower on lack of renewed buying interest. MCX copper February 2009 contracts continued to rule weak and settled at 5.24% lower at Rs 157.35 per kg on Friday from Rs 166.05 over the previous week. MCX crude oil March 2009 contracts once again slipped below the Rs 2,000-level and ended lower at Rs 1,957 per barrel on Friday over the previous week's close of Rs 2,080 per barrel, down by 5.91%. Crude oil prices may trade sideways as demand is unlikely to increase in the medium term, a trader said. MCX gold April 2009 contracts finished higher at Rs 15,661 per 10 gram on Friday over the previous week's Rs 14,638 per 10 gram, up by 7% as investors have flocked to gold, the safe haven asset. In the London market, spot prices touched $998.57 an ounce. MCX silver March 2009 contracts were traded higher at Rs 22,970 per kg on Friday from Rs 21,818 over the previous week, up by 5.28%. The white metals crossed the Rs 23,000 per kg level on Friday mainly on sustained buying support.

Gold prices have gone up by 20% in less than a month and the yellow metal is now trading over Rs 15,000 per 10 gram in the local market. With the steep surge in gold prices, the OI in gold futures on domestic comexes has also surged to a record high. The OI in gold futures on MCX has been just under 22,000 contracts in the current month compared to an OI of 15,000-20,000 in January and 8,000-10,000 in 2008. On some days in February, the OI had even crossed 24,000. Higher OI with rising prices indicates that the market is bullish on gold and that speculative activity is on the rise. With the western world and Japan falling into recession and all other asset classes not doing well, investors and hedge funds have found a safe haven in gold. The fall in the value of rupee has also contributed to the rise in gold prices in India .

Gold ETFs hit a new high on Indian bourses on Tuesday even as the equity markets slid further, on lingering disappointment over the Interim Budget. Even as stocks were deluged with sell orders, the one class of securities that saw buying was the listed gold exchange traded funds (ETFs). While Sensex and Nifty lost 3%, gold ETFs gained over 3.5% in value. GoldBEES, Benchmark Mutual Fund’s gold ETF touched its life time high of Rs 1,504 on the National Stock Exchange and closed at Rs 1,503 per unit. Relgold (Reliance’s Gold ETF) and Goldshare (UTI MF) too touched new highs at Rs 1,466 and Rs 1,498.50 respectively. Volumes too were higher on all gold ETF counters.

Silver prices shot up by 2.45% in futures trading on 17 February on increased buying by traders in line with a firming trend in overseas bullion markets. Silver for the March-month contract spurted 2.45% to Rs 21,954 per kg on the Multi Commodity Exchange in a trading volume of 5,195 lots. The metal for May contract jumped 2.24% to Rs 22,188 per kg in a trading of 359 lots and July contract by 2.22% to Rs 22,402 per kg in trading of seven lots. Buying activity picked up as the precious metals, gold and silver, rallied in overseas markets. Silver gained 0.21 cent to 13.94 dollar an ounce abroad.

Chana futures in NCDEX and MCX may remain under pressure during the arrivals season between March and April. However, prices may start appreciating from May as trade estimates rabi production at 57-58 lakh tonnes against 57.5 lakh tonnes produced last year. Earlier, the Agriculture Department has estimated rabi chana production at 65.4 lakh tonnes. The Government estimates were based on the fact that the area under chana cultivation has gone up substantially to 85.58 lakh hectares till January-end against 78.29 lakh hectares in the same period last year. Currently NCDEX and MCX April futures are trading at about Rs 2,300 levels.

Rajkot Commodity Exchange will again apply to the FMC to launch soyabean and palmolein contracts. The exchange had earlier applied in October to launch the contracts, but the FMC had asked for some clarifications. “FMC has asked us to resubmit the application for the contracts as it had some doubts about delivery. We are in the process of reapplying now.

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

Shree Suvarna Sahakari Bank (SSSB) has signed a memorandum of understanding (MoU) with the Chennai-based public sector bank Indian Overseas Bank (IOB) for the transfer of assets and liabilities of the bank.  IOB has received an approval from RBI to acquire SSSB in December 2008. The RBI, in the wake of financial irregularities that led to losses to over Rs 350 crore, placed SSSB under moratorium in September 2006. After formation of scheme with the administrations the acquisition process will be completed and SSSB will come under the banner of IOB from April 6, 2009.

India Infoline, one of the leading players in the finance and financial services space, has received registration for its housing finance subsidiary India Infoline Housing Finance from National Housing Bank (NHB).

Banks across the country have lost Rs 6.57 crore to internet frauds in 233 incidents of cyber crime with Tamil Nadu (TN) topping the list in 2007-08. In Tamil Nadu seven cases of internet frauds were reported between April and December 2008 incurring total losses of Rs 2.09 crore to various banks.

Standard Chartered Bank has joined the National Financial Switch (NFS) shared ATM network, the first international bank to do so. This will allow the banks’ customers to access funds from virtually any city or town in the country.

India ’s largest bank, State Bank of India (SBI), has capped the interest rate on car loans at 10% for the first year. This is expected to give car sales a major fillip, especially among government employees, a majority of who hold deposits with the bank.

The country’s second largest lender ICICI Bank has closed down 10-12 branches and 15-20 ATM locations in the current fiscal year. Recently, the bank has closed down its Chowpatty branch in South Mumbai .

Insurance

Insurance regulator IRDA may soon sort out with LIC the investment ceiling issue, arising from the over 10% equity or debt the country’s largest life insurer has in companies contrary to the latest norms. While the regulator has almost resolved the issue of equity ceiling with LIC, some points still remain to be sorted out between them on the matter of debt exposure. So far as equity exposure of over 10% of LIC in companies are concerned, it is in small numbers of firms, while debt exposure of the insurer is in many firms. Thus, there is a problem in addressing the debt exposure rather then equity.

LIC has hiked its stake to 9.38% in the country's largest private sector lender, ICICI Bank, after purchasing shares worth Rs 145.62 crore through open market transaction. Before the purchase, LIC held 7.34% stake in ICICI Bank.

Corporate

Uttar Pradesh got its first public sector steel-processing unit (SPU) in the remote Bhejam village in Lakhimpur Kheri district on the Indo-Nepal border, earlier famous for sugarcane plantations. The plant, to be set up by SAIL, would entail an estimated cost of Rs 100 crore and would be ready in 18 months.

After getting orders from Honduras (Central America) and from Delhi Transport Corporation recently, Ashok Leyland Ltd (ALL) has now bagged a major order from Angola . The Hinduja group flagship has announced bagging orders for 1,000 buses from the ministry of transport, Angola , worth $43.5 million.

Tata Power has raised its stake in Tata Communication, a group company, to 2.48%. Earlier Tata Power had 0.9% stake in the Tata communication. To increase the stake Tata Power has bought shares worth Rs 195.30 crore through open-market-transaction. 

State-run Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) have shelved its plans to invest in sugarcane farms in Brazil for producing ethanol due to the economic slowdown and resource crunch. The three firms had planned to jointly buy or lease plantations and related units for producing ethanol, a by-product of sugarcane that is doped in petrol to reduce dependence on imported oil. IOC, BPCL and HPCL were working on deals to acquire 15-35% stake in two of the largest Brazilian integrated ethanol players – Louis Dreyfus Commodities Bioenergia and Infinity.

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.

Telecom

China Mobile, the world’s largest mobile telephony operator with 457 million subscribers, is now turning its attention to the world’s fastest growing telecom market: India .

Tata Communications (TC), a provider of managed solutions, is planning to foray into emerging markets like South East Asia and Africa by acquisitions or joint ventures. Recently, TC along with Tata Africa Holdings has increased its stake in African telecom giant, Neotel to 56% by acquiring another 30%. In addition, TC will be completing its $250 million TGN Eurasia cable system by the end of the calendar year 2009 in partnership with Seacom and Telecom Egypt .

Leading private sector telecom service provider Bharati Airtel has increased its stake in Bharati Hexacom, a Kuwait based firm, to 70%. By acquiring 1.11% stake which comprises 2,780,306 equity shares from Kuwait based firm Mobile Telecommunications Corporation, KSC, Kuwait .

*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.