Highlights of  Current Economic Scene

Growth Scenario

The Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation have estimated that the third quarter will show a growth rate of 5.3% over the corresponding quarter of the previous fiscal year. Quarterly GDP at factor cost for the current financial year 2008-09, is estimated to be at Rs 8,73,426 crore as against Rs 8,29,172 crore estimated for the last fiscal year 2007-08.   Mining and quarrying (5.3%), construction (6.7%), trade and hotels, transport, storage and communication (6.8%), financial insurance, real estate and business services (9.5%)and community, social and personal services (17.3%) has shown a significant growth in the third quarter of the current fiscal year. However ‘agriculture, forestry and fishing’, and manufacturing have registered a negative growth rate of  (-) 2.2% and (–) 0.2% respectively.

The principal economist of CRISIL Ltd, Dharmakirti Joshi, expects that growth will be 6.5% in 2008-09, which however can slide down to around 6% in 2009-10;mainly due to weak performance in the first half followed by a sluggish recovery in the second half of the current fiscal year. The growth rate in India is highly dependent on advanced economies, if they do not bottom out towards the end of 2009; growth further is bound to show a fall.

Chief Economist of JP Morgan Chase, Jahangir Aziz, is of the opinion that RBI should move forward into resuming the monetary easing which is on hold from January month of the current fiscal year. Monetary policy virtually is the only policy tool, which can help in securing balanced growth rate.

Rajeev Malik, head of India- And- Asean Economics, Macquarie Capital Securities, anticipated that GDP growth for 2008-09 is likely to be around 6.5% and 5.5% for 2009-10. India ’s growth will depend on highly on external demand and capital flows. Fiscal measures, which have caused the consolidated fiscal deficit to surge to 10-11% of GDP, will partially soften the downturn.  RBI should continue doing its job without taking into consideration the suggestion of local analyst, as their policy advice appears to change often.

Pankaj Vashisht, Research Associate in ICRIER, is of the observation that crisis reflected in the third quarter is expected to have a greater impact on growth in the fourth quarter of the current fiscal year. The fourth quarter will post a growth of less than 5% and may end up with an annual growth rate of less than 6.5%. According to him, the second round of reforms should urgently be brought under practice, and should focus mainly infrastructure, education and business environment. Reforms will restore investors and consumers confidence and along with it will improve the inbuilt hurdle to the potential rate of growth.

Abhijit Sen, Planning Commission member is of the opinion that growth in the next fiscal year (2009-10) may reach 7% because of stimulus packages, which is being introduced in the economy.

Broking house CLSA Asia-Pacific Markets has forecast GDP growth of 4.6% in 2009-10 and expects the domestic economy to stabilize only by early 2010.

International Monetary Fund (IMF) said that Indian growth is likely to see a downturn to 6.25% in 2008-09 due to falling corporate investment and deteriorating global outlook. It also projected that India ’s growth will moderate to 5.25% next fiscal year (2009-10).  

International Monetary Fund (IMF) has downgraded its global 2009 growth forecast further down towards negative area. In its latest estimates of January 2009, 0.5% of global growth was estimated. They commented that more funding is necessary to help countries to overcome global financial crisis.

Agriculture

The central government has extended the ban on exports of pulses, excluding kabuli chana, for one more year starting from 1April to 31, March 2010 and also extended a scheme to distribute imported pulses through PDS for another six months.

The Food Corporation of India (FCI) has decided to purchase more than 1 million tonnes of wheat from 295 different centres in Rajasthan. Procurement of wheat in the state, for the first phase would be starting from 18 March 2009 and from 1 April 2009 for the second phase. Wheat would be purchased directly from farmers paying the MSP (minimum support price) of Rs 1,080 per quintal.

The centre has stopped selling wheat through the Food Corporation of India in the wheat growing regions of Punjab , Haryana and few other states on fear of recycling, as procurement would be starting from 1 April 2009. While sale of wheat under the open market sale scheme (OMSS) has been extended till March-end only in the non-wheat growing states.

The central government has announced that it would be working towards scrapping of 20% import duty on crude soyaoil so that it would be bought at a par with palm oil and also it may help in further reducing local edible oil prices. The announcement seems to be political move as elections are heading from next month.

The Cotton Corporation of India (CCI) has so far purchased 15.5 million quintal of cotton from Andhra Pradesh. Of which, 6 million quintal was brought by the Guntur branch comprising Guntur , Prakasam, Krishna and Khammam districts. Farmers have been paid an average price of Rs 2,940 per quintal as against the minimum support price of Rs 3,050. The state is expected to produce 5.3 million bales (20% of the country’s crop) this season of which, 4.6 million bales have so far arrived in the market and about 3.5 million bales had already been ginned. Farmers who sold above 28 mm cotton received Rs 3,100 per quintal and for 28 mm and below, they got Rs 2,750 per quintal as against last year's payment of Rs 2,100 and Rs 1,500-1,800 per quintal, respectively.

As per the data by Cotton Corporation of India , cotton arrivals in the country for the current crop year that began on 1 October 2009 fell by 5.9% to 24.48 million bales as on 14 March 2009. Arrivals of cotton from Gujarat have declined by 25.7% to 6.50 million bales while arrivals in Maharashtra have risen by 1.21% to 6.20 million bales. Cotton arrivals from northern states have dropped by 11.5% to 3.63 million bales over the period of last year. Contrary to it, southern states have shown a rise of 14% to 5.36 million bales over the previous year.

Maharashtra State Cooperative Sugar Factories Federation Ltd, reiterated that sugar output in Maharashtra has declined by 34%, as acreage under sugarcane have fallen, as most of the farmers have opted for other crops and even dry weather led to lowered yield. Sugar production between 1 Oct and 18 March 2009 is reported to be around 4.52 million tonnes, down from 6.9 million tonnes a year earlier. It is expected that sugar output may rebound next season to 6 million tonnes from an estimated 4.8 million tonnes, as farmers would boost cane planting to get benefit from domestic prices as it is expected to be three-year high. Area under the tropical crop is projected to increase this year by 1 million hectares from 787,000 hectares a year ago.

As per the data complied by the Solvent Extractors' Association of India (SEAI) a decline in international and domestic prices of edible oils (including palm oil, soya oil and sunflower oil) has led to higher domestic consumption, owing to which total imports of edible oil has increased by 68% within four months (November 2008-February 2009) to 29.51 lakh tonnes as compared to 17.62 lakh tonnes a year ago. Import of refined edible oils during the review period was reported to be at 4.71 lakh tonnes compared to 71,315 tonnes and crude edible oils were at 23.53 lakh tonnes compared to 14.41 lakh tonnes for the same period a year ago.

Exports of Cashew kernel from the country have shown a robust growth of 40 % during the current financial year due to lower production in major producing countries such as Brazil , Vietnam and East African countries. In value terms, cashew exports have registered a growth of 33.7% to Rs 2,719.79 crore in the first 11 months ended February 2009 as compared to the corresponding period last year. While in volume terms, exports have been marginally lower by 3.6% to 99,348 tonnes, over the period of last financial year. India ’s cashew exporters recorded a huge jump of 39% in unit value realisation at Rs 274 per kg, compared to that in the same period last year.

Director of International Coffee Organisation (ICO) has stated that global coffee production for the crop year 2008-09 is expected to decline by 5.6 million bags to 127.8 million bags from 133.4 million bags during the same period a year earlier, as a consequence of reductions in the estimates of Colombia , Vietnam and India . Coffee Board's post monsoon forecast has pegged coffee output for the current coffee year at 276,000 tonnes, down by 5.6% from the earlier post blossom estimation of 293,000 tonnes.

Chairman of the Rubber Board stated that revised estimates of natural rubber production during the current fiscal year would be marginally down at 8,59,000 tonnes from the earlier estimate of 8,61,000 tonnes due to dry weather during December - February which is expected to result in lower yields. Consumption of natural rubber is expected to improve slightly to 8,65,000 tonnes in 2008-09 from the previous estimates of 8,62,000 tonnes.

Industry

The General Index (IIP) stands at 280.4, which is 0.5% lower as compared to the level in the month of January 2008. The cumulative growth for the period April-January 2008-09 stands at 3.0% over the corresponding period of the pervious year.

The annual growth of thee Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of January 2009 at (-) 0.4%, (-) 0.8% and 1.8% as compared to January 2008. The cumulative growth during April-January, 2008-09 over the corresponding period of 2007-08 in the three sectors have been 2.7%, 3.0% and 2.6% respectively, which moved the overall growth in the General Index to 3.0%.

In terms of industries, as many as five (5) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of January 2009 as compared to the corresponding month of the previous year. The industry group ‘Machinery and Equipment other than Transport Equipment’ have shown the highest growth of 17.5%, followed by 10.3% in ‘Other Manufacturing Industries’ and 5.3% in ‘Beverages, Tobacco and Related Products’.  On the other hand, the industry group ‘Food Products’ have shown a negative growth of 16.1% followed by 15.2% in ‘Wood and Wood Products; Furniture and Fixtures‘and 13.4% in ‘Transport Equipment and Parts’.

As per Use-based classification, the Sectoral growth rates in January 2009 over January 2008 are (-) 1.0% in Basic goods, 15.4% in Capital goods and (-) 9.2% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 2.5% and 0.7% respectively, with the overall growth in Consumer goods being 1.1%.

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 stood at 250.6 (provisional) in January 2009 and registered a growth of 1.4% (provisional) compared to a growth of 3.6% in January 2008.  During April-January 2008-09, six core-infrastructure industries registered a growth of 3.2% (provisional) as against 5.7% during the corresponding period of the previous year.

Crude Oil production (weight of 4.17% in the IIP) registered a growth of (–) 8.1% (provisional) in January 2009 compared to a growth rate of (-)0.2% in January 2008. The Crude Oil production registered a growth of (-) 1.3 (provisional) during April-January 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 (-) 2.6% (provisional) in January 2009 compared to growth of 5.4% in January 2008. The Petroleum refinery production registered a growth of 3.1% (provisional) during April-January 2008-09 compared to 7.3% during the same period of 2007-08.

Coal production (weight of 3.2% in the IIP) registered a growth of 6.3% (provisional) in January 2009 compared to growth rate of 7.9% in January 2008. Coal production grew by 8.8% (provisional) during April-January 2008-09 compared to an increase of 4.8% during the same period of 2007-08. 

Electricity generation (weight of 10.17% in the IIP) registered a growth of 1.4% (provisional) in January 2009 compared to a growth rate of 3.7% in January 2008. Electricity generation grew by 2.5% (provisional) during April-January 2008-09 compared to 6.3% during the same period of 2007-08.

Cement production (weight of 1.99% in the IIP) registered a growth of 8.3% (provisional) in January 2009 compared to 5.6% in January 2008. Cement Production grew by 7.1% (provisional) during April-January 2008-09 compared to an increase of 7.4% during the same period of 2007-08.

Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of 1.2%(provisional) in January 2009 compared to 2.0% (estimated) in January 2007. Finished (carbon) Steel production grew by 2.3% (provisional) during April-January 2008-09 compared to an increase of 5.9% during the same period of 2007-08.

Inflation

The official Wholesale Price Index for ‘All Commodities’ (Base: 1993-94 = 100) for the week ended 7 March 2009 declined by 0.4 percent to 226.7 (Provisional) from 227.7  (Provisional) for the previous week.  

The annual rate of inflation, calculated on point-to-point basis, stood at 0.44 percent (Provisional) for the week under reference as compared to 2.43 percent (Provisional) for the previous week and 7.78 percent during the corresponding week of the previous year.  

The index of major group primary articles dipped by 1.0 percent to 245.5 from 245.5 for previous week mainly due to lower price of gram, tea, fruits and vegetables, jowar, condiments and spices, masur raw cotton, linseed, rape and mustard seed,groundnut, copra, increase in prices of fruits & vegetables, bajra and masur.

The index for major group fuel, power, light and lubricants remained unchanged at its previous week's level of 323.5 (Provisional).

The index for major group manufactured products declined by 0.1 percent over the week due to lower prices of nylon filament yarn, hessian, steel ingots and batteries.

Wholesale price index for ‘All Commodities’ (Base: 1993-94=100) revised up to 229.2 from 229.0  for the week ended 3 January 2009 and annual rate of inflation based on final index, calculated on point to point basis, stood at 5.33 percent as compared to 5.24 percent (Provisional).

Financial Market Developments

Capital Markets

Primary Market

Edserv Softsystems has become the latest addition to the list of dismally-performing small-sized initial public offerings (IPOs) that hit the market over the past one year. Market watchers say in majority of these cases, price manipulation is the reason for the dramatic fall in share prices within a couple of weeks of listing. Most of the IPOs with an issue size of less than Rs 150 crore are down between 70% and 95% from their peak prices. In quite a few cases, the stocks are down 75-85% from their issue prices. Market watchers say small-sized issues are favoured by market operators as it does not take a huge sum to corner the shares.

Secondary Market

Broader indices delivered positive returns for the second consecutive week after the US Federal Reserve in an aggressive move announced a plan to buy $1.2 trillion of debt to revive the US economy that is in recession for more than a year. On 18 March 2009 the US Federal Reserve said it would buy $300 billion in longer-dated Treasury over the next six months, along with another $850 billion in mortgage-related debt, to pump liquidity into near-frozen credit markets. On the same day, the Fed kept the benchmark federal funds rate-the interest charged by banks for overnight loans to one another, unchanged in the range of 0 to 0.25%. Earlier, global stocks had risen after the US Federal Reserve chairman Ben Bernanke on 15 March 2009 said the US economy should start recovering from recession next year if there is the political will to complete the costly rescue of the shattered banking system. Battered US banks showed signs of life after chiefs of Citigroup, Bank of America and JPMorgan Chase made statements saying they have returned to black early this year and assured they should ride out the recession without more taxpayer help. BSE Sensex gained 210 points or 2.4% to 8,967 and NSE Nifty rose 88 points or 3.2% to 2,807 during the week. Investors went bargain hunting in small and mid caps pushing up the respective indices 6.2% and 4.6% respectively. Both the indices outperformed the Sensex. Inflation at 0.44% for the week ended 7 March 2009 was a positive for the markets.

Foreign institutional investors (FII) turned buyers to the tune of Rs 1132.80 crore in five trading sessions from 13 March 2009 to 19 March 2009. They still remain net sellers in this month and year as their outflow totalled Rs 1143.40 crore in March 2009 and Rs 8084.40 crore in calendar year 2009 (till 19 March 2009

The Securities and Exchange Board of India (SEBI) is examining the option of extending trading hours on the financial exchanges to align these with international markets — a move that drew mixed response from market participants. According to SEBI, an extension of trading hours could enable the domestic market to take advantage of movements in international markets, make markets more efficient and attract trading interest. The regulator, however, cautioned that an extension of trading hours raised risk management concerns and a potential need for higher margins. The move to extend trading hours in bourses has found some takers among market players, who expect trading beyond five-and-half hours will help revive the sagging trade volumes.

In order to stop squandering of client funds, the SEBI is planning to issue new norms for client-broker agreement in a month’s time. A client-broker agreement lists terms and conditions relating to order and trade confirmation, contract notes, brokerage, settlement schedules, margin payments and dispute resolution. It also makes it binding on both the client and the broker to follow regulations of the stock exchange (and its clearing corporation) where the broker is registered. According to sources, the market regulator is planning to introduce colour forms for client registration in a bid to stop brokers from making changes after a client has filled up the form. According to sources, the new norms will require brokers to make clients’ account “zero balance” every quarter. The broker will also need to have the signature of the client along with balance confirmation at the end of every financial year.

The forthcoming general elections have forced the pension regulator to defer the launch of a scheme for non-government employees by at least two months to June. The Pension Fund Regulatory and Development Authority (PFRDA) had finalised six fund managers and 23 points of presence to collect contributions from investors, so that the scheme could be launched on April 1.

Mutual fund houses were net sellers of Rs 1,495 crore worth of stocks during the month of February. However, they were bullish on some select stocks such as HDFC, Reliance Industries (RIL), Larsen and Toubro (L&T) and Infosys during the month. The mutual fund industry, which comprises 35 fund houses, were especially bullish on HDFC. A total of 11.43 lakh shares were bought of the housing finance company for Rs 160.35 crore. This was followed by RIL (Rs 124.05 crore), L&T (Rs 114.30 crore) and Infosys (Rs 64.83 crore). In purchases, maximum buying was seen in the construction sector (Rs 130.20 crore), followed by companies with diversified businesses (Rs 125.48 crore), technology (Rs 102.1 crore), healthcare (Rs 82.12 crore) and energy (Rs 56.09 crore).

The decline in the stock market has taken its toll on the dividend payout of equity schemes. Only 36 equity-oriented schemes have declared dividends in the January-March period, compared to 85 schemes in 2008. According to data from Mutual Funds India, a mutual fund research agency, only a few schemes of ICICI Prudential Mutual Fund, HDFC Mutual Fund and Franklin Templeton have been consistent in paying dividends between 2006 and 2009. The data reflected that dividends declared by these schemes rose consistently in the boom period of 2006 -2008. But these schemes have been hit in the current market crash and, as a result, their dividend-paying ability has eroded substantially.

The Association of Mutual Fund in India (Amfi) is making a proposal to SEBI over the expenses charged by a mutual fund to its investors during the fourth week of March. If the proposition of the Association goes through, India would then witness a mechanism where investors could chose between different classes of units and also the applicable expenses or load to be payable. For the past couple of months, a committee of Amfi has been working to replicate in the Indian context the ‘share classes’ structures used in US and Europe .

Derivatives

Nifty future managed to sustain its momentum of previuous week as it managed to close around the 2800-mark. The high carryover is being triggered by election considerations. It ended the week at 2798 points, registering a gain of 2.8% over its previous week’s close. But contrary to the premium (over the spot) at which it closed last week, it closed the week gone by at a slight discount to the Nifty spot. The Nifty spot closed at 2808 points. This relative poor show by Nifty future, particularly during the later part of week may be attributed to the lack of follow-up buying. Rollover of positions however has been quite healthy this time around. For that matter, the rollovers started earlier this time than what has been the case in the last three-four months. Nifty rollover was pegged at about 34% and was mostly on the long side. As for individual stocks, it was stocks in the metal pack such as Hindalco, Sesa Goa, SAIL and Tata Steel that saw a sharp accumulation in next month series. The Nifty put-call ratio (PCR) is bullish and high carryover is often associated with positive sentiments.

The cumulative FII positions as a%age of the total gross market position on the derivative segment as on March 19, declined to 35.68%. They were predominantly net buyers in the F&O segment last week. They now hold index futures worth about Rs 8,239 crore (about Rs 7,710 crore) and stock futures worth about Rs 14,108 crore (about Rs 12,701 crore). Their index options jumped to about Rs 25,066 crore (about Rs 21,033 crore).

India VIX or Volatility Index, which measures the immediate expected volatility, weakened further to 34.86 (35.57) - the second lowest level since 23 January 2009.

The BSE is taking steps to re-energise its almost-dormant derivatives segment by allowing trading of futures in Sensex and stocks on BSE Online Trading (BOLT) terminals. BOLT terminals are now used for trading in the cash segment of the exchange. The move is aimed at simplifying the process for doing derivative trades as cash and futures trades. The idea is to make futures trading easier and cheaper. The move by Asia 's oldest stock exchange was long overdue, as it has lost out to the NSE in the derivatives segment, with its market share at less than 1%.

The NSE has excluded Akruti City from its futures and options (F&O) segment. In a circular to its members, the exchange said that fresh monthly contracts will not be introduced in Akruti for the expiry month of June 2009 after expiration of March 2009 contracts. Accordingly, no F&O contract will be available for trading in Akruti from 27 March onwards. “However, the security will continue to be traded in the cash market,” NSE said in the circular.

Government Securities Market

Primary Market

The RBI purchased 8.24% 2018 paper maturing in 9-year for the notified amount of Rs 10,000 crore on 16 March 2009, through open market operation (OMO) with the cut-off yield of 6.34%.

Ten state governments auctioned 10-year paper maturing in 2019 for the notified amount of Rs 12,114.92 crore on 17 March 2009. The cut-off yield for these securities was set in the range of 8.40-8.59% being highest for Andhra Pradesh and Uttar Pradesh.

On 18 March 2009 the RBI auctioned 91-day treasury bills (TBs) and 182-day TBs for the notified amount of Rs 5,000 crore and Rs 3,000 crore, respectively. The cut off yield for the 91-day TBs was set at 4.87% and for 182-day TBs was set at 5.10%.

Through OMO the RBI purchased 7.37% 2014, 7.56% 2014 and 7.99% 2019 for the notified amount of Rs 3,000 crore each for 5-year paper and 4,000 crore for 8-year paper. The cut-off yield for 7.37% 2014 and 7.56% 2014 was set at 6.35% and 6.24%, respectively and 6.83% for the 8-year paper.

On 20 March 2009, the RBI re-issued 6.72% 2014 and 6.05% 2019 for the notified amount of Rs 4,000 crore and Rs 6,000 crore, respectively. The cut-off yield for the 5-year paper was set at 6.60% and for the 10-year paper at 6.59%.

Secondary Market

The overnight call money rate closed at 4.70-4.90% above its previous close of 4.25-4.40%. The central bank's main lending rate, or the rate at which it gives cash to banks, stands at 5%. The weighted average rate in the call money market was 4.83%, while collateralised borrowing and lending obligation (CBLO), a secured form of money market lending, was 4.16%, according to the Clearing Corp of India (CCIL). Volume in the call money market was 134.34 billion rupees and in CBLO it was 618.44 billion rupees.

Bond yields retreated as credit off-take contracted and inflation dropped below 1%. Traders said that yields retreated also on account of the conclusion of advance tax payments by major corporate houses. Trade volume remained muted. Average trade volume per day during the week remained stable at Rs 10,000 crore. Equity volumes in the NSE were only about Rs 200 crore lower than G-Secs. The outlook remained uncertain despite weak inflation numbers.

Amid tight liquidity, no bids for first reverse repo auction. For the first time in over three-and-a-half months, banks did not park any funds with the RBI during the first round of liquidity adjustment facility (LAF) operations in 17 March. Instead, many of them are said to have deployed funds in the call market and collateralised borrowing and lending operations segment, as the rates were higher this morning than the 3.50% reverse repo rate paid by RBI. However, nine of them participated in the second round of auction to put Rs 16,015 crore through the reverse repo route. But liquidity was comfortable, which was evident from the fact that none of the banks approached RBI to tap the repo window to access funds. This is the lowest since the special three-day auction on 21 February when banks used the reverse repo route to put Rs 6,855 crore with the central bank.

The cost of borrowing for states has gone up even as they plan to tap the market for more funds. The difference in yield between central and state government securities has more than tripled in as many months, with investors shying away from bonds issued by local governments. This swelling in the cost of borrowing for state governments comes even as they plan to spend more by tapping the market for funds. Based on the trading on state government securities last week, for which data are available from Clearing Corporation of India Ltd (CCIL), trades took place at a yield of 8.15%, as compared with 6.35% on the benchmark 10-year central government security. This is a yield difference of 180 basis points, compared with 42 basis points on December 1.

Bond Market

During the week under review, six banks, one state undertaking and one corporate tapped the bond market through issuance of bonds to mobilize Rs 2,177 crore.

The SEBI is planning to issue guidelines for electronic issuances in the corporate bond market, as the electronic route will shrink the timeline of the issue from application till allotment of securities. Besides, it would also do away with the paper work associated with physical applications. At present, it takes nearly 15 days for securities to be allotted to the investors, after the issue closes for subscription. This is because the registrars to the issue have to verify each physical form, which is time consuming. Introduction of electronic applications will bring this down to two to three days.

On 21 March 2009 Allahabad Bank closed the issue of tier II subordinated bonds amounting to Rs 400 crore to augment capital adequacy and enhancing long-term resources. A bank spokesman said that the bonds were unsecured, redeemable, non-convertible, subordinated and promisory notes in nature. The bonds bear a coupon rate of 9.23% payable annually and redeemable at the end of tenth year.

Foreign Exchange Market

The rupee slipped from a three-week high on the weekend by a fall in the stock market and hefty dollar demand from corporate, but still managed to post it biggest weekly rise in three months. The partially convertible rupee ended at 50.66/68 per dollar. The rupee rose 1.7%, over the week, its biggest gain since the week to 19 December. It ended 3% above a record low of 52.2 hit earlier this month, helped by a rising stock market.

One-month offshore non-deliverable forwards (NDF) were quoting at 51.09/51.19, weaker than onshore. One-month volatilities, a gauge for expectations of movements, were around 10%, down from 17% earlier this month. Forward premia across all tenors though widened, implying that rupee appreciation was unlikely to last long. Forward premia for one, three, six and 12 months widened to 6.19% (5.17%), 4.69% (4.26%), 3.91% (3.60%) and 2.90% (2.75%). The NDF market ended the week at Rs 51.26 leaving an arbitrage opportunity of Rs 0.86. Cash to spot forward premia widened to 4.76% (2.93%) as call rates firmed ahead of the year-end.

Forex reserves rose $1.4 billion during the week ended 13 March, reversing the trend of the past five weeks, which saw reserves dip by close to $4 billion. The latest rise was due to revaluation of non-dollar reserves in foreign currency assets and partly due to dollar purchases by the central bank.

Currency Derivatives

As per official sources, individual traders and brokers may now get much greater exposure to currency futures as the SEBI is set to double the daily position limit for small traders and larger brokers to $10 million and $50 million. The move will help in assuaging the concerns of entities with large foreign currency requirements such as corporations, exporters and importers. For long, they have been complaining that the existing limits come in the way of effectively reducing their foreign currency exposure risks. Since August, when the futures were first launched, daily volumes have gone up from a few million dollars to as much as a billion dollars in early March. But they are still a tiny fraction of the activity in the OTC market, where banks trade with each other through the telephone. Also, dealers say inadequate volumes on the three currency futures platforms make any meaningful arbitrage difficult, especially since the minimum ticket size on the currency futures bourses of $1,000 is far too small. By doubling daily limits, SEBI hopes to bring greater depth to the market. Greater volumes in the market will also help in bringing banks to the platforms — a move that will improve liquidity considerably.

Trader and retail investor interest in currency futures, of late, has significantly added to the revenue stream of broking houses. The interest in currency futures is against the backdrop of the equity markets remaining subdued for some time and the rupee witnessing a large degree of volatility during the past one month. Brokerage houses, in accordance with the interest in currency futures, have kept the commission for trading in it at a competitive rate, compared to other equity and commodity products.

Commodities Futures derivatives

The commodity market regulator Forward Market Commission (FMC) is taking steps to increase delivery volumes in the futures market where a bulk of the trade is settled in cash. It has decided to allow delivery of bulk commodities like sugar, which are traded on the commodity futures exchanges, from warehouses or factory premises of the mills. According to Rajeev Agarwal, member, FMC, these premises may be declared as accredited warehouses by the exchanges only after they follow certain checks and balances. All norms and supervisory controls should be strictly followed so that credibility of the warehouse is not compromised in the eyes of the market participants. Mr Agarwal said that the scheme has been approved and now the exchanges have to formalise the process of accreditation. He also added that commodities whose production is not less than one million tonne will be considered as bulk commodities. The National Commodity and Derivatives Exchange (NCDEX) has proposed this to the regulator for sugar, its widely traded commodity. Under the guidelines, exchange accredited warehouses need to be within 50 km from the municipal limits. The FMC has relaxed this provision: even factories or warehouses located beyond 50 km can be treated as satellite warehouses of the accredited warehouse.

Soya futures eroded 4% on the local commodity bourses following the government’s decision to withdraw the 20% import duty on crude soybean oil levied a few months ago. Refined soy oil for delivery in June declined on 19 March by 4% at Rs 441.30 per 10 kg on the Multi Commodity Exchange (MCX), while the contract slumped by 3% to Rs 438.20 per 10 kg on the NCDEX. Contract for delivery in April slumped by 3% each on MCX and NCDEX to Rs 442.50 per 10 kg and Rs 440.50 per 10 kg respectively.

All the major commodities, including crude oil, precious metals and base metals, gained some ground during the week due to weaker dollar, supported by a rally in global equity markets and latest measures announced by the Federal Reserve. Crude prices globally gained 15% during the current quarter (January-March) as record production cuts by Opec reduced supply since September 2008. MCX crude oil April 2009 contracts firmed up further and ended higher at Rs 2,602 per barrel up by 7.38% over the previous week's close of Rs 2,423 per barrel. WTI crude oil spot was quoted at $52.45. MCX copper April 2009 contracts traded firm at Rs 201.20 per kg on over the previous week's Rs 189.70. MCX gold April 2009 contracts traded higher at Rs 15,510 per 10 gram up by just 1% over the previous week's Rs 15,347 per 10 gram. MCX silver May 2009 contracts were traded higher at Rs 22,527 per kg from Rs 22,327 over the previous week, up by 1% following the firm trend in the yellow metal.

According to trade sources, mentha oil March futures prices on the MCX have jumped up by nearly 15% in just two weeks on reports of a likely drop in acreage for 2009 crop supported by stockists holding. Mentha oil March 2009 contracts gained by about Rs 80 to trade at Rs 597.40 per kg on 17 March over the past two weeks on improved demand from domestic markets. Spot prices in the producing centre also increased by nearly Rs 22-25 a kg as major stockists are holding in the exchange designated warehouses.

The Central Electricity Regulatory Commission (CERC) will hear petition filed by the promoters of National Power Exchange (NPE) on 26 March. The promoters of the proposed exchange, which will be third after the Indian Energy Exchange (IEX) and Power Exchange India (PXI), include NTPC, TCS, NHPC and PFC. As per the power regulators’ directive, a company has already been incorporated in December last year. Incidentally, CERC has so far not received any objections for the setting up of a proposed power exchange. The commissioning of NPE is expected in next six months. However, the proposed exchange will have to strive to get trading contracts as the two exchanges IEX and PXI are finding it quite difficult to trade large volumes mainly on account of rising mismatch between power demand supply. Also, a large number of utilities are favouring bilateral contracts. IEX is trading around 600 mw while PXI is managed to trade about 200 mw.

Insurance

Life Insurance Corporation (LIC) has entered into a strategic agreement with Punjab National Bank under referral arrangement. This tie up will enable the bank’s customers to have access to the wide range of products of LIC.

At present, most of the banking stocks are being traded at equal or below book value levels. Therefore, LIC India’s largest institutional investor, has increased its equity stake in most of the public sector banks as well as in ICICI Bank, India ’s largest private sector bank. On the contrary, FIIs and hedge funds have been selling bank stocks on speculation of rise in bad loans, drop in treasury income and narrowing margin.

In the last three months LIC has raised its stake in SBI to 9.16% from 4.74% by acquiring 1.34 crore shares, representing 2.11% equity of SBI, for Rs 1,484 crore. LIC has also been buying heavily into the ICICI Bank stock, by purchasing 2.27 crore shares LIC has increased its stake in ICICI Bank up to 9.38% from 0.93%. In recent times, LIC has increased its equity stake in public sector banks like Allahabad Bank (up 4.60%), Oriental Bank of Commerce (2.60%), Syndicate Bank (2.32%), Union Bank of India (2.18%), Bank of India (1.63%), Bank of Baroda (1.53%), Canara Bank (1.21%) and Punjab National Bank (0.38%).   as and the foreign institutional investors (FIIs) are still bullish on the banking stock.

Public Finance

According to the latest press note revenue receipts as on January 2009 works out to be 72 per cent of the actual to revised estimates at Rs. 404,815 crore with the receipts under net tax revenue reaching to Rs. 329,271 crore and non-tax revenue Rs.75,544 crore.

With total expenditure reaching 74.5 per cent of the revised estimates, fiscal deficit till date works out to be Rs.262815 crore. Market borrowings at Rs.256385 crores  financed about 98 per cent of the fiscal deficit.

Banking

Bank of India has cut its benchmark prime lending rate (B-PLR) by 0.5% from 12.5% to 12% effective from April 1, 2009. The reduction in B-PLR will be applicable to all portfolios related to B-PLR.

Two Indian public sector banks State Bank of India (SBI) and Punjab National Bank (PNB) are increasing their investments abroad.  PNB is planning to acquire banks in countries like Bangladesh , Ukraine and Sri Lanka . In the fiscal year 2009-10 PNB will be expanding its operations in Dubai , Qatar , Saudi Arabia , Shanghai , Birmingham , Norway and Sydney . Country’s largest lender, SBI is opening one branch in Washington , two more branches in central London and Singapore within few months. SBI currently has ten branches in US and six in UK .  SBI is expecting at least 30% rise in its net profit from overseas operations, which was $180 million in the fiscal year 2007-08.  Bank of Baroda and Bank of India are other two banks mulling on the expansion plans overseas.

External Sector

Exports during January 2009 were valued at US$ 12381 million which was 15.9% lower than that in January 208 as a result during the fiscal year so far the total exports at US$144,266 million registered a growth of 13.2% over that of US $ 127,454 million reported in the comparable period last year.

Imports during January were valued at US $ 18455 million, a decrease of 18.2 per cent over that of US$ 22566 million in January 2008 and the cumulative import at US$ 243358 million was 25.3% more than that of US $ 194285 during April-January 2007-08.

Trade balance during January thus worked out to be $ 6075 as compared to 7849 in January 2008. The cumulative trade balance for April-January 2008-09 estimated at US $ 99093 million was 1.5 times to that of US $ 66830 million during April-January 2007-08.

While oil imports during the current fiscal year so far gone up from US $ 62926 million in April-January 2007-08 to US $ 83290 million, that of non-oil imports accelerated by 21.9% to US $ 160068 million.

Information Technology

HCL Technologies has bagged a seven-year IT outsourcing services contract worth $350 million from the Reader’s Digest Association Inc (RDA), a global multi-brand media and marketing company.

The global economic crisis and the negative buying sentiment among consumers has had a huge impact on PC and notebook sales during the October–December quarter of the financial year 2008-09, with the total PC sales (including notebooks) declining by 19% over the same period last fiscal. According to figures released by the IT hardware industry body MAIT the desktop sales during the October–December quarter declined by 15% at 10 lakh units as compared to the corresponding period last year. However, the industry is hopeful of better sales in the January-March quarter since the government initiative to boost demand, which included measures like a 4% cut in Cenvat.

The US-based software products company, Cincom Systems is planning to increase its reach in India as a part of its focus on emerging economies. The $200 million privately held company currently derives around 10% of its global revenue from India and is planning to increase the share to 30% in a year or two. Recently, Cincom the world’s oldest software company launched its flagship document management software, ‘Eloquence’ in India .

Telecom

Reliance Communications has placed an Rs 300 crore order with two Chinese equipment vendors, Huawei Technologies and ZTE Corporation, for around one million plug-n-play USB modems. RCom will be receiving the first consignment of nearly 100,000 modems, nearly 10% of the total order, in the second week of March 2009.

Aircel-Maxis has become the seventh mobile service provider in the Delhi circle. Aircel-Maxis is fifth largest GSM mobile operator with 6.61% share in the market, providing cellular services to more than 17 million subscribers. With entry in the Delhi circle, the company will be operating in 14 circles out of 22 circles in the country. Airtel, Vodafone, Idea, MTNL, Tata Teleservices and Reliance Communications are other service providers in the Delhi circle. Aircel-Maxis has already invested US$ 5 billion in India , which is part of its planned $10 billion expenditure.

*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.