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Current Economic Statistics and Review For the
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The Satyam
Scam: A Snapshot*
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Year |
Awards Conferred |
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2000 |
SCS receives the National HRD award from Indian Government. Dataquest honored Ramlinga Raju as “IT Man of the Year”. |
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2003 |
Gartner confers the Best Risk Management and Solution Discovery award Ranked among Top 10 Best Employers (CNBC-Hewitt Best Employee Survey) Ranked among Top 10 Best Companies to work for in India (Business Today and A T Kearney). |
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2004 |
Ranked among India’s Top 10 Best Employers (CNBC- Hewitt Best Employee Survey) |
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2005 |
Corporate Citizen-I award for Corporate Social Responsibility (Business World, FICCI and SEDF) |
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2006 |
TDWD Best Practices Award |
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2007 |
Shri Ramalinga Raju wins the Ernst & Young Entrepreneur of the Year Award |
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2008 |
World Council for Corporate Governance (WCFCG) awards Satyam the Golden Peacock Global Award for Excellence in Corporate Governance. |
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Source: The Indian Express, January 8, 2009 |
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Backdrop of the Satyam Saga
Initially the Chairman of SCS, Shri Ramalinga Raju in the context of huge cash reserves of the company proposed three options:-
(a) distribute the available cash (around Rs 5,300 crore in hand) to shareholders,
(b) buy back of shares, or
(c) acquisition of new companies
SCS Decision of Acquiring Two Companies
On December 16, 2008, SCS came under fire from institutional investors after the company proposed to acquire two companies — Maytas Infra and Maytas Properties — for $1.6 billion (around Rs 7,680 crore). The company’s board approved buying of 51% in Maytas Infra for $1.3 billion (around Rs 6,240 crore) and 100% of Maytas Properties for $300 million (Rs 1,440 crore). SCS has proposed to acquire around 31% equity in Maytas Infra from the promoters (at Rs 475 a share) and 20% from the public at Rs 525 a share.
SCS’s diversification plan has taken the market by surprise as the IT company preferred to acquire infrastructure company instead of an IT or ITeS company. The shareholders and analysts were astounded as both the companies were led by the sons of Ramalinga Raju. Maytas Infra was headed by his elder son, Shri Teja Raju, while the younger son, headed Maytas Properties. While answering queries on the family relationship issue, Mr Ramalinga Raju pointed out that the companies in question had always maintained an arm’s length since their inception. He further said that it is part of its plan to de-risk the core IT business in times of recession and justified that the combined entity would help face the challenging environment and uncertainty in the market.
The institutional investors and the minority shareholders were not at all impressed with the proposal presented by the management of SCS. SBI Mutual Fund analyst opposed the company’s move and said, “No foreign investor will trust any Indian company after this move. If there was no point pursuing growth in IT, you should have simply returned the money to shareholders.” One of the stakeholders questioned the board that despite having a strong balance sheet why SCS is acquiring non-core businesses? Replying to the query SCS Chief Financial Officer (CFO) Shri Srinivas Vadlamani said, “On the IT side, the business model is becoming riskier. Satyam is expecting a flat growth rate for 2009-10. Post-acquisition, it expects 20% revenues to flow in from both the acquired companies in 2009-10 and 50% by 2011-12.” Justifying the valuation of two firms the CFO said that Maytas Properties currently has 6,800 acres of land bank, which has the potential to create 245 million square feet of built-up space, comparing it with DLF’s 10,000 acres. Further, he justified by citing the valuation of DLF at Rs 16,000 crore, the current valuation of Maytas Properties at Rs 6,500 crore is absolutely perfect. The board opined that there exits synergy between SCS and the target companies and claimed that by using Satyam’s global brand, the infrastructure business could tap opportunities abroad in the long run.
Templeton, a major investor, was also against the deal. In fact, even the SCS board had admitted it as an “unconventional deal”, however, the chairman insisted that the move to de-risk the company’s business was well thought and said that “we believe we can leverage the Satyam brand in our real estate move too”.
In reaction to the proposed deal, on the same day at 8.45 p.m. IST, the ADR of SCS in the New York Stock Exchange tumbled by over 54% to trade around $ 6.15 against the previous day’s close of $ 12.05 and the traded volumes also augmented almost ten times.
On December 17, 2008 following a negative reaction from the investors, SCS called off the $1.6 billion twin deals which it had announced on the previous day and also decided to put off all plans for further acquisitions or diversification for now. The President of SCS, Mr Ram Mynampati, said, that “we have misread the impact and maybe our judgment call was wrong.” The company announced that its first priority is to rebuild the investor confidence.
Despite of the SCS decision to drop its acquisition plan, in the domestic stock market the company’s stock slumped by 30.2% to Rs 158 against the previous day’s close to Rs 226 as the investors judged SCS move as a total disregard for corporate governance.
Institutional Investors
According to business analysts the SCS’s move in acquiring the twin companies was well within the law and nor it required a special resolution by shareholders. However, on account of large institutional holding and smaller promoter’s holding SCS was forced to reverse its decision of acquiring two companies linked to its promoters.
As per the latest filings, the promoters holding in SCS was around 8.6% while domestic mutual funds and insurers holding stood at 15.6% and FIIs, a whopping 44.8%. Actually, SCS retracted its decision quickly owing to strong dissent from FIIs and mutual funds as their total holding together was more than 60% as compared to the promoters holding of less than 10%. In fact, the board would have proceeded with its decision had there not been such a large institutional holding in the company.
Market Reactions
Despite SCS’s reversal of its decision to buy-out, a number of brokers advised its clients to avoid exposure as the investors’ confidence has been dented due to the issues of corporate governance and credibility which would reflect in a de-rating of the stock. The Edelweiss investment report said: “If indeed Satyam and its board felt enthusiastic about entering the infrastructure and real estate space in India, then why did the company not prefer a three-way stock-based merger of the entities without taking cash out of the system? Head of the Research team of Sharekhan said the move has revealed the intention of the management to ‘misuse’ the free cash on its books to acquire associate group companies.
Simultaneously, the Ministry of Corporate Affairs initiated an inquiry against the method adopted by SCS to acquire Maytas Infra and Maytas Properties. Meantime, the Ministry also received a complaint from the Investors’ Grievances’ Forum raising concerns regarding the failure on the part of the management and independent directors which led to heavy losses to small investors. The Corporate Affairs Minister assured that the report on the alleged corporate governance failure by the promoters and management of SCS would be ready within three weeks. The Minister said that his ministry had already asked the Registrar of Companies (RoC) concerned to get the “factual story” on what happened at the Board meeting and the issues related to the SCS announcement.
SCSs New Announcements
In an attempt to restore the confidence of the investors on December 18, SCS announced that its board will be meeting on December 29, to consider buyback of shares. The market responded positively to the company’s plan of buyback of shares and the SCS’s scrip closed at Rs 169 on BSE registering a rise of 7.5%. In the same week, surprisingly, SCS compensation committee allotted 16,348 shares to its employees under the stock option plan.
On the same day, in order to win the confidence of its employees, the Chairman Ramalinga Raju in an e-mail communication to its 50,000 employees across the globe, assured them that the Board and the leadership teams are doing everything that’s possible to get SCS back on track. While assuring that SCS would remain fully committed to the IT business, he asserted that the company wanted to tap the huge opportunities in the infrastructure sector. He further added, "We have also been in contact with many of our investors, and we have taken key steps to regain their confidence.
Unexpectedly, on December 19, the stock of Maytas Infra plunged by 20% to Rs 311. Within one week the stock had fallen more than 37% on the BSE.
World Bank’s Announcement
On December 23, the World Bank confirmed that it has barred SCS from doing business with it for 8 years, starting September 2008 following allegations of data theft in a project. This was a big blow for the company as since 2003 SCS has been maintaining and serving software applications for the World Bank across all locations. This also included maintenance of software at the back-end offices. The World Bank had been an important client for SCS as it has signed a $100-million billing per annum contract. Triggered by the World Bank’s debarment news coupled with rumours of Ramlinga Raju, putting his papers, the company’s stock fell by 13.6% to close at Rs 140 at BSE. Immediately, SCS denying the rumours declared that, “there is no truth (in the rumors)”.
Resignations of the Non-executive Directors
During the last week of December 2008, the beleaguered SCS suffered another major blow with four top independent directors quitting the company’s board. On 26th December the company’s longest-serving independent director Dr Shri Mangalam Srinivasan resigned from the company effective from December 25. After three days (i.e. 29th December) three non-executive and independent directors, Professor Krishna G Palepu (Harvard Business strategy Professor), Vinod K Dham (Father of the Pentium and founder-Executive Managing Partner of NEA-Indo US Ventures) and Dr Rammohan Rao (Dean of Indian School of Business) resigned from the company effective from December 28. Most importantly the two eminent directors did not give any reason for the resignations. Mr Vinod Dham, who worked as Vice-President of Intel’s Microprocessor Products group, has been on Satyam’s board from January 2003. Effectively, the nine-member Board now reduced to five members.
Board Meeting Postponed
The investor community was anxiously waiting for the board meeting scheduled on December 29, for the consideration of buying back of shares. Surprisingly, SCS decided to postpone the crucial board meeting. The investors were shocked as the company did not even indicate a fresh date for the meeting.
SCS Promoters Stake
The shares of SCS promoters through their holding company SRSR Holding Pvt Ltd. were pledged to IL&FS. On January 2, 2009, SCS has announced that the promoters’ stake in the company has now reduced to 5.13% (3.46 crore shares) from 8.65% at the end of September 2008. SCS informed NSE that the stake of SRSR Holdings was now down by 3.14% (from 8.27% prior to the sale), following the sale of 2.11 crore shares by the lenders (with whom the SRSR Holdings shares were pledged with) in the open market. Further the company announced that the Board meeting, scheduled to meet on January 10, would also discuss the issues “arising out of the dilution of promoters’ stake”.
On January 5, IL&FS Trust Company sold 44.27 lakh shares of the company at an average price of Rs 176 a share. On the same day, owing to negative sentiments the shares of SCS fell by 6% to Rs 167 as compared with the previous close of Rs 177 on the BSE.
Confession of the Chairman
On January 7, the Chairman of SCS, Mr B. Ramalinga Raju, wrote a letter to the company’s board. The copies of the letter were also sent to the stock exchanges and market regulator SEBI. The Chairman clarified in the letter that the balance sheet carries as of September 30, 2008:
a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books);
b) An accrued interest of Rs 376 crore, which is non-existent;
c) An understated liability of Rs 1,230 crore on account of funds arranged by me;
d) An overstated debtors’ position of Rs 490 crore (as against Rs 2,651 reflected in the books)
The Chairman admitted that the gap in the balance sheet has arisen purely on account of inflated profits over several years. Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed. But that was not to be.
Chairman’s Arrest
Two days after on January 9, the Government disbanded the board of the beleaguered IT giant and decided to nominate 10 new directors. On the same day the Andhra Pradesh police arrested Satyam’s disgraced chairman and founder Shri Ramalinga Raju and his brother Rama Raju on charges of criminal conspiracy, cheating, forgery, misappropriation of funds and criminal breach of trust.
Issues
The Rs 7,800 crore accounting fraud at SCS, has been the largest ever such case in India’s corporate history. The reveleations by Ramalinga Raju of the fraud sent the stock markets crashing, raised questions on the Indian IT success story and forced the government to intervene to set up a nominated board chaired by Nasscom president Kiran Karnik.
The issue of corporate governance has again taken centre-stage in deliberations on India’s corporate performance since the SCS debacle; the concept is now gaining importance across all business models. The Satyam scam has sparked a heated debate on whether India’s corporate sector lacks the legal framework and guidelines for corporate governance. Alongside, the Satyam episode has raised a question on the role performed by independent directors and whether they need to be regulated. Why did the board not oppose the move? Who voted for and against the resolution? Was the board truly independent?
* This note has been prepared by Bipin K Dekar.
References:
Business Line (2008): ‘Brokerage houses give thumbs down to Satyam’, December 18.
Business Line (2008): ‘Satyam to buy Maytas Infra, Maytas Properties for $1.6b’, December 17.
Business Line (2008): ‘Maytas deal raises more questions: Ministry’, December 18.
Business Line (2008): ‘Satyam plans buyback; board meet on Dec 29’, December 19.
Business Line (2008): ‘Our priority is to win back trust: Satyam founder’, December 20.
Business Line (2008): ‘RoC report on Satyam Computers to be ready in 3 weeks: Gupta’,
December 21.
Business Line (2008): ‘World Bank to keep out Satyam for 8 years’, December 24.
Business Line (2008): ‘All eyes on Satyam board meet on Dec 29’, December 27.
Business Line (2008): ‘3 more Satyam directors quit’, December 30.
Business Line (2009): ‘Satyam promoter’s stake down by 5.13%’, January 03.
Business Line (2009): ‘Satyam shares fall 6%’, January 06.
Business Line (2009): ‘It was like riding a tiger’, January 08.
expressbuz.com (2008): ‘Trust Satyam: Raju Tells Employees’, December 31.
expressbuz.com (2009): ‘Ramalinga Raju arrested, sent to CID custody’, January 10.
Highlights of Current Economic Scene
Agriculture
As per the Indian Metrological Department (IMD) forecast southwest monsoon for the country is likely to be near normal this year. One of the official of IMD has informed that rains would arrive a week earlier than the normal schedule of June 1. This is expected to increase prospects of growth, as farmers would be opting for early planting for crops like rice, oilseeds and cotton. It is projected that central region may receive more showers than last year, while rainfall in the south would remain similar to that of last year. Areas in the northeast and northwest would get less rain than last year. It is predicted that adequate rainfall would help agricultural sector to sustain the record of 4.3% average growth in farm output.
Prices of domestic pulses may shoot up during this year if the country does not relax pest control guidelines for import of pulses from the US and Canada. Unless the fumigation requirement is modified, pulses exports from North America to India would be in jeopardy, which could further exacerbate the pulses-supply situation in the domestic market leading to further significant rise in domestic pulse prices.
President of Solvent Extractors Association of India stated that imports of vegetable oil would remain high at about 7 lakh tonnes each in the months of April and May, which are likely to push the overall shipments to record high of 75 lakh tonnes in 2008-09 season ending October. The earlier highest import quantity was 63-lakh tonnes that took place in 2007-08 (November to October) season. Edible oil import rose by over 77% to 34.34 lakh tonnes during November -March period, as against 19.34 lakh tonnes last year.
The central government has planned to import 3 million tonnes of raw sugar this year, as domestic output is expected to decline for a second consecutive year since 2007-08. Sugar Mills Association reiterated that sugar output by the year ending 30 September 2009 would fall to 14.8 million tonnes as against 20 million tonnes produced last season. Sugar mills so far have contracted 1.5-2 million tonnes of raw sugar, of which nearly one million tonne has already landed at the Indian ports. In order to increase the domestic availability of sugar, the center had allowed sugar mills to import duty-free raw sugar in February, with export obligation, till September this year. But in April it allowed mills to import duty-free raw sugar without export obligation till 01 August 2009.
The Indian Sugar Mills Association (ISMA) has projected that the country’s sugar output for the current 2008-09 season to September would exceed to 147 lakh tonnes, displaying a marginal improvement over its earlier estimate of 145 lakh tonnes. Total sugar production for the season is expected to exceed 147 lakh tonnes, along with the opening stocks of 80 lakh tonnes, which would result in total availability of 227 lakh tonnes for the season. Further, sugar mills have contracted about 13 lakh tonnes of raw sugar imports, of which 9 lakh tonnes have already arrived. Further, contracts for purchase of raw sugar are in the offing, which can be processed in the ensuing 2009-10 season.
Exports of cashew from the country have registered an increase in realisation despite a fall in volumes of the product. According to export figures provided by the Cashew Export Promotion Council, exports of cashew kernels from India during the year 2008-09 (April 08 – March 09), totaled to 1, 08,131 tonnes valued at Rs. 2950 crore (US $ 641.50 million) as against 1143 40 tonnes valued at Rs 2288.90 crore (US $ 568.53 million) in the fiscal year 2007-08. Volumes of cashew exports fell by 5.4%, while value increased by 28.9% as compared to the previous fiscal.
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Production of Coffee (in lakh tonnes) |
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Year |
Arabica |
Robusta |
Total |
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2004-05 |
1.03 |
1.72 |
2.75 |
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2005-06 |
0.94 |
1.8 |
2.74 |
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2006-07 |
0.99 |
1.88 |
2.88 |
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2007-08 |
0.92 |
1.69 |
2.62 |
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2008-09 |
0.79 |
1.82 |
2.62 |
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Source: Coffee Board |
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As per the estimates of the Coffee Board, arabica coffee production during this season to October would be lowest in 14 years, but output of robusta is expected to be high since eight-year. Arabica production is reported to be around 79,500 tonnes, the lowest since 1994-95 when it had peaked to 79,000 tonnes, while output of robusta’s would be at 1,82,300 tonnes, the highest since 1,96,800 tonnes produced in 2000-01. Major factors that affected this year’s production of arabica were rain on the blossom day followed by heavy monsoon and off-season rains in October and November leading to tumbling of arabica berries. The major drop was reported in Karnataka.
The National Egg Coordination Committee (NECC) has appealed the Center to immediately ban forward trading in maize and soyameal, and to channelise the export of these commodities through a designated government agency and also to put a ceiling on the volume of exports. These measures seem to be necessary to ensure availability of essential ingredients of poultry feed at an affordable price and also to ensure that eggs and chicken are made available at a reasonable price.
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 previous 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%.
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 270.3(provisional) in March 2009 and registered a growth of 2.9% (provisional) compared to a growth of 2.9% in March 2008. During April-March 2008-09, six core industries registered a growth of 2.7% (provisional) as against 5.9% during the corresponding period of the previous year.
Crude Oil production registered a decline of (–)2.3% in March 2009 compared to a lower fall of (-)0.3% in March 2008. The Crude Oil production registered a growth of (-) 1.8 during April-March 2008-09 compared to 0.4% during the same period of 2007-08.
Petroleum refinery production registered a growth of 3.3% (provisional) in March 2009 compared to growth of 0.1% in March 2008. The Petroleum refinery production registered a growth of 3.0%during April-March 2008-09 compared to 6.5% during the same period of 2007-08.
Coal production registered a growth of 5.2% in March 2009 compared to growth rate of 9.3% in March 2008. Coal production grew by 8.1% during April-March 2008-09 compared to an increase of 6.0% during the same period of 2007-08.
Electricity generation registered a growth of 5.9% (provisional) in March 2009 compared to a growth rate of 3.6% in March 2008. Electricity generation grew by 2.7% during April-March 2008-09 compared to 6.3% during the same period of 2007-08.
Cement production registered a growth of 10.1% in March 2009 compared to 9.3% in March 2008. Cement Production grew by 7.5% during April-March 2008-09 compared to an increase of 8.1% during the same period of 2007-08.
Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of (-)2.6%in March 2009 compared to (-)0.9% in March 2008. Finished (carbon) Steel production grew by 0.4% during April-March 2008-09 compared to an increase of 6.2% during the same period of 2007-08.
The official Wholesale Price Index for 'All Commodities' (Base: 1993-94 = 100) for the week ended 18th April, 2009 rose by 0.6 percent. The annual rate of inflation, calculated on point to point basis, stood at 0.57 percent for the week ended 18/04/2009 as compared to 0.26 percent for the previous week and 8.23 percent during the corresponding week of the previous year.
The index for major group Primary articles rose by 1.7 percent due to higher prices of tea (7%), urad (5%), condiments & spices (4%), gram and moong (2% each) and fruits & vegetables, bajra, maize, arhar and jowar (1% each), mesta (11%), raw rubber (5%), gingelly seed, rape & mustard seed and groundnut seed (3% each), linseed (2%) and castor seed (1%). steatite (35 %) and iron ore (27%).
The index for fuel, power ,light and lubricants rose by 0.1 percent due to higher prices of aviation turbine fuel (8%) and furnace oil (2%).
The index for manufactured products gone-up by 0.3 percent to 201.6 from 200.9 (Provisional) for the previous week. The index for 'Food Products' group rose by 1.9 percent to 226.0 (Provisional) from 221.8 (Provisional) for the previous week due to higher prices of rice bran oil (11%), khandsari and cotton seed oil (8% each), imported edible oil (6%), gur (5%), sugar and oil cakes (3% each), groundnut oil (2%) and rape & mustard oil (1%). However, the prices of unrefined oil (15%) and gingelly oil (1%) declined.
The index for 'Textiles' group declined by 0.4 percent to 140.4 (Provisional) from 141.0 (Provisional) for the previous week due to lower prices of synthetic yarn (2%) and cotton yarn-hanks and cotton yarn-cones (1% each). However, the prices of hessian & sacking bags (1%) moved up.
The index for 'Chemicals & Chemical Products' group declined by 0.1 percent to 214.2 (Provisional) from 214.4 (Provisional) for the previous week due to lower prices of calcium ammonium nitrate n-content (5%).
The index for 'Non-Metallic Mineral Products' group rose by 0.05 percent to 219.1 (Provisional) from 219.0 (Provisional) for the previous week due to higher prices of building bricks (1%).
The index for 'Basic Metals Alloys & Metal Products' group rose by 0.1 percent to 255.4 (Provisional) from 255.2 (Provisional) for the previous week due to higher prices of zinc and lead ingots (7% each), zinc ingots (4%) and pipes & tubes (2%). However, the prices of foundry pig iron, basic pig iron and steel ingots (1% each) declined.
For the week ended 21/02/2009, the final wholesale price index for ‘All Commodities’ (Base:1993-94=100) stood at 227.5 as compared to 227.6 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 2.99 percent as compared to 3.03 percent.
Financial Market Developments
Primary Market
Primary market remained dull during the week as there was no new issues entering the Capital market to mobilize funds.
Secondary Market
Momentum buying lifted the market for the eighth consecutive week on expectations of a recovery in the Indian and global economy. A recent reduction in interest rates also powered the market higher. A forecast by the Meteorological Department of a near normal monsoon as well as better-than-expected fourth quarter earnings announced by some key corporates also provided fillip to the market sentiment. The BSE Sensex registered a weekly gain of 74.2 points or 0.7% to 11,403. As against the gains seen in large caps, the BSE mid and small cap indices fell by 2.14% and 3.1% respectively last week. But the NSE Nifty fell 6.8 points or 0.2% to 3474 during the week. The BSE Mid-Cap index fell 2.4% to 3,5134 and the BSE Small-Cap index fell 3.1% to 3941 during the week. The Defty was down 0.74% as the rupee lost ground and dipped below the $50 mark.
Most of the sectoral indices of BSE recorded positive returns over the week except Consumer Durable, Realty and FMCG index. Among the gainers IT recorded 9.9% growth followed by Bankex, TECk and Auto with 7.8%, 6.4% and 6.3%, respectively. Better than expected numbers from Teck firms and a weak rupee pushed up the IT indices. TECk index rose due to good results from Bharti. The Bankex rose on hopes that lower rates would boost asset growth.
Foreign institutional investors (FIIs) made heavy purchases. FII inflow in April 2009 totaled Rs 7,039.90 crore, and the inflow in calendar year 2009 totaled Rs 368.10 crore (till 28 April 2009). Mutual funds sold stocks worth Rs 396 crore during the week.
The Securities and Exchange Board of India (SEBI) is in talks with the Reserve Bank of India (RBI) to introduce foreign currency options on the exchanges. As per media sources a seven-member standing committee, with representatives from both SEBI and RBI, is working on the modalities to bring in foreign currency options by October 2009. The move assumes a huge significance in view of the heavy losses that companies had incurred in overseas cross-currency options deals last year.
The SEBI is in talks with the RBI to consider a proposal to permit dollar settlements for FIIs in India. The move would mean a tectonic shift in the way FIIs invest in Indian markets. Dollar settlements would not only mitigate risks of currency fluctuations for FIIs, but also help in improving the volume and liquidity of the derivatives market. At present, settlements in India are done in rupee denominations. As a result, a number of FIIs, who intend to trade in Nifty futures, take the Singapore route where CNX Nifty index futures are traded on SGX. If dollar settlement is allowed in India, many participants, who want to take exposure to Indian markets through index buying, will be able to participate freely. This, in turn, will give stability to Indian markets as there will be buying of underlying stocks by the sellers of these contracts to FIIs. Sources close to the development said that it was a consultative process between RBI and SEBI and that it was difficult to fix a time frame as to when guidelines on this would be issued. RBI has formed a committee to discuss the issue.
Derivatives
The three-day trading week saw Nifty future end on a flat note as Wednesday’s smart recovery ensured that previous two sessions losses were recouped. The Nifty closed out a truncated week at 3,473.95 points for a small nominal loss. Despite truncation due to voting in Mumbai, the April settlement saw a very high carryover into May. The Nifty April future closed about 3,474 points against its previous week’s closing of 3,482. April saw massive increases in trading volumes along with continuous price rise. Nifty May future closed a tad higher at about 3,483 points. The series also saw a slightly higher rollover of 74%. The market-wide rollover, however, was about 70%, way below its performance in the earlier expiry. Quite a few stock futures did not active rollover like last month. Expulsion of 50 stocks from the F&O list and the uncertainty related to election outcomes could be attributed to the poor show. Stock futures in telecom, auto and IT sectors however reported strong rollovers.
FIIs have remained net buyers who poured over Rs 7,000 crore into equities in April, domestic institutions have been heavy net sellers in the past fortnight. The FIIs continue to hold around 37% of all open interest. The CNXIT sustained the market last week when it produced strong positive returns on the back of a rupee that dropped below 50. The May Nifty put-call ratio (PCR) in terms of open interest ratio is down to around 1.1
Volatility index, which measures the immediate expected volatility, weakened slightly during the week. It ended at 46.63 as compared with its previous week’s close of 47.78. The fall however was mainly due to the expiry of April contracts, as some traders did not roll over their put positions. The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on 29 April jumped to 43.29%. They resorted to heavy selling, particularly in index futures. They now hold index futures worth Rs 11,597.73 crore (Rs 13,286.71 crore) and stock futures Rs 14,534.88 crore (Rs 18,447.89 crore). They reduced index options holding significantly to Rs 22,771.88 crore (Rs 34,658.94 crore).
Government Securities Market
Primary Market
RBI auctioned 91-day TBs and 182-day TBs on 28 April 2009 for the notified amount of Rs 8,000 crore and Rs 2,000 crore, respectively. The cut-off yield for the 91-day TBs and 182-day TBs were set at 3.32% and 3.55%, respectively.
Three state governments auctioned 10-year paper maturing in 2019 for the notified amounts of Rs 2,638.85 crore on 28 April 2009. The cut-off yield range from 7.04-7.30% being highest for Jammu & Kashmir and lowest for Punjab.
Secondary Market
Inter-bank call rates moved in the range of 3.23-3.27% during the week. Bonds remained steady as traders booked profits though financial markets continued to be dogged by the liquidity overhang. At the weekend liquidity adjustment facility auctions the recourse to the reverse repo window amounted to Rs 89,350 crore.
Bond Market
During the week under review, 1 FIs/banks, 1 NBFC, 1 corporate and 1 central undertaking tapped the bond market to mobilize an amount of Rs 1,275 crore, respectively.
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Profile of Major Commercial Bond Issues for the Week Ending 01 May 2009 |
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Sr |
Issuing Company / Rating |
Nature of Instrument |
Coupon in % per annum and tenor |
Amount in Rs. crore |
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No |
||||
|
|
FIs / Banks |
|
|
|
|
1 |
ICICI Home
Finance Ltd |
NCD |
8.25% for 5 years. |
75 |
|
|
NBFCs |
|
|
|
|
1 |
Power
Finance Corp Ltd |
Bonds |
6.90% and 7.50% for 3 years and 5 years, respectively. |
300 |
|
|
Corporates |
|
|
|
|
1 |
Edelweiss
Capital Ltd |
NCD |
9.25% for 2 years. |
200 |
|
|
Central Undertakings |
|
|
|
|
1 |
NTPC Ltd |
Bonds |
7.89% for 10 years. |
700 |
|
|
Total |
1275 |
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|
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Source: Various Media Sources |
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On 28 April, Anil Ambani group firm Reliance Communications said that it has bought back 247 zero coupon foreign currency convertible bonds (FCCBs) worth Rs 125 crore (USD 24.7 million) from the international markets. In a filing to the BSE, the company declared that the repurchased FCCB's are expected to be extinguished shortly. Last year, the RBI had allowed the corporate houses to buy back FCCBs from the foreign markets if they are trading at a discount of 25% from their book value.
Indian companies are borrowing money overseas to buy back the FCCBs that were issued by them and are now selling at a steep discount. Details on foreign loans, termed external commercial borrowings (ECBs) by the regulator, reveal that the major borrowers in March 2009 were telecom company Aircel, which received permission to raise half a billion dollars, and flag carrier National Aviation Company, which got a clearance for $136 million to fund their expansion plans. The data also shows that six corporates were given the nod to raise funds abroad to repurchase FCCBs. Following buybacks, the prices of Indian FCCBs have improved in the secondary market. Last week, the RBI further liberalised the norms for repurchase of FCCBs by allowing corporates to buy back FCCBs worth $100 million. The central bank has also extended the relaxed guidelines for international borrowing up to December 2009. The numbers show that despite a relaxation in overseas borrowing norms, the trend of lower borrowing continued till the end of the fiscal. In March, the central bank had approved borrowings worth only $1.1 billion; this is around a fourth of the $4.4 billion raised in March 2008. In FY08, the funds raised through ECBs amounted to 20.5 billion. The total ECB sanctioned for the year, including FCCB, was $19 billion, compared to $22.6 billion sanctioned for the previous year. In the second half of FY09, the RBI had substantially liberalised the overseas borrowing norms.
Foreign Exchange Market
The rupee closed at Rs.50.22 per dollar on 29 April 2009 as compared with Rs.49.94 per dollar as on 24 April 2009. The rupee moved between Rs.49.98 and Rs.50.44, with a standard deviation of 23 paise during the week. The sell-out of securities and consequent large purchases of dollars, both spot and forward by American banks, pushed down the exchange rate to Rs 50.22 per dollar during the week from the previous week’s Rs 49.94. As a result the forward premia firmed slightly. Forward premia for one, three, six and 12 months firmed to 3.76% (3.63%), 3.45% (3.27%), 2.89% (2.77%) and 2.29% (2.17%). Short forwards, especially cash to spot premium, hardened as foreign banks sold cash dollars for spot ahead of a long weekend.
India’s foreign exchange reserves rose by $631 million to $253.091 billion for the week ended April 24.The reserves have risen after falling for two consecutive weeks.
Commodities Futures derivatives
Commodity market regulator Forward Markets Commission (FMC) has directed exchanges to relook at the spot-futures disconnect in potato as the data supplied by Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) on the commodity’s high futures prices have failed to satisfy the regulator on the market dichotomy. The exchanges are likely to revert to FMC by the weekend. A few weeks ago, the regulator asked multi commodity exchanges - NCDEX, MCX and Ahmadabad-based NMCE - to justify runaway prices in sugar, rubber, turmeric and potato futures.
The country’s top two commodity exchanges, MCX and NCDEX, have imposed special margin on sugar futures in an attempt to curb volatility in prices of the sweetener at the futures market. The measure has been taken on the direction of the commodity market regulator FMC. The FMC was recently asked by the committee of secretaries (COS) to watch the movement in sugar prices in the futures market and take necessary steps to curb excessive speculation. According to an NCDEX circular, the exchange has imposed 5% special margin on long positions of all running contracts of sugar except for contract expiring in August 2009. After the imposition the total special margin levied on sugar will be 10% on the long side on all contracts except for August, which will remain at 15%. Similarly the MCX has fixed 10% special margin on both M and S grade of sugar traded on the exchange, the MCX circular said. Special margin is effective on both the exchanges from 4 May 2009.
Ahmadabad-based agri commodity bourse National Multi Commodity Exchange (NMCE) has seen a sudden spurt in average daily turnover (ADT) over the past two months. From Rs 220 crore in January, ADT shot up to Rs 839 crore in March’09 before moderating to Rs 542 crore in April. For an exchange that has seen ADT range between Rs 275 crore and Rs 400 crore in previous fiscals, this rise is stupendous. ADT for rival bourse NCDEX stood at around Rs 1,500 crore in March, according to an exchange official. While the rise may be attributed in part to reactivation of contracts such as sacking bags, coffee and kapas by NMCE in FY09 and to the launch of the evening session since September 2008, which resulted in increased participation in bullion and metals, traders relate it mainly to increased speculative activity in the final months of the fiscal. . The rise in speculative activity on NMCE can be determined by the high volume to open interest (OI) ratio. OI indicates rising market participation. A very high multiple (volume/OI) indicates a high level of speculative activity, or day trades.
After lying dormant for quite some time, futures trading in agri commodities at 22 commodity exchanges showed a sign of pick-up and the turnover of farm items shot up by 18.40% to Rs 36,400 crore in the first fortnight of the current fiscal, FMC has said. The exchanges had generated a business of Rs 30,744 crore in agricultural futures in the corresponding period last year, the commodity market regulator Forward Markets Commission (FMC) said in a release. Trade volume and investors' participation in the futures trading in farm commodities had witnessed a setback due to a ban on potato, chana, rubber and soya oil in 2008, which was lifted after six months. Agri futures, however, has shown improvement in the first fortnight of 2009-10 fiscal.
On 29 April Jeera futures on the NCDEX hit 2% upper circuit mainly on reports of lower supplies, uncertainty over crops in Syria and Turkey supported by reduced inflows in Unjha centre. NCDEX jeera May contracts were traded higher at Rs 12,165 on Wednesday over the previous day’s close of Rs 11,914 per quintal, up by 2.10% on reports of bad weather in the major producing regions. Report on the production front from Turkey, Syria and Iran is likely to have a short term impact on the prices.
Notwithstanding slowdown in gold sales even during the auspicious occasion of Akshaya Tritiya, small investors have been increasingly shifting their focus towards gold as an investment option during the last one year. The MCX which launched its first ever gold guinea futures contract a year back has already sold 44,125 guineas (8 gram each). More than 352 kg of gold has been purchase by small investors through buying of these guineas. Small retail investors have been specially showing interest in the product because of 'physical delivery' and quality certification from London Bullion Market," Ashok Mittal, vice-president, Karvy Comtrade, told FE. Investors have taken delivery of 715 gold guineas from Karvy during the April 2009. Another factors going in favour of gold guinea is that eight gram gold guinea are not only being physically delivered at home but also sold at around 15% less than the market price of gold coin sold by financial institutions and banks. The guinea prices have moved from Rs 9,661 per 8 gram on 8 May 2008 to Rs 11,370 for the April 2009 contract, a rise of more than 15%.
MCX received a major blow after the Central Electricity Regulatory Commission (CERC) ruled that it has jurisdiction to regulate the forward contracts in electricity. However, till its regulations and guidelines for electricity forward contracts come into effect MCX transactions in forward contracts in electricity will be governed by CERC’s existing orders. CERC issued order on a petition filed by NSE promoted Power Exchange India (PXI) with an appeal to restrain MCS and Indian Energy Exchange (IEX) from introducing, selling, marketing or otherwise dealing in any manner with electricity forward contracts. MCX had submitted that by virtue of the notification issued by the Centre only FMC had the jurisdiction to regulate the forward contracts in electricity through an association recognised under section 6 of the 1952 Act.
Insurance
The union government has launched health insurance scheme for women involved in the sericulture activity. The Central Silk Board (CSB) and state sericulture departments are offering the health insurance progarmme for women not only to address the health problems associated with sericulture industry but also for the other health related issues. The premium of the policy will be borne by the beneficiary, CSB and the state agriculture departments. This scheme has already been launched in Karnataka, Tamil Nadu, West Bengal, Assam, Jharkhand and Jammu and Kashmir.
A large number of employment opportunities have emerged in the banking sector owing to branch expansion by banks, business growth and aggressive marketing. As per the preliminary estimates by the Institute of Banking Personnel Selection (IBPS), the public sector banks are expected to hire over 30,000 people during 2009-10. In a bid to increase the fee-based income banks have started activities like distribution of insurance policies, mutual fund schemes and other financial products. This has created need to recruit some specialised manpower. Recently Kolkata-based United Bank of India had issued AN advertisement for recruiting 900 probationary officers and 500 clerks. In addition, the bank will be hiring 100 specialised officers across various departments. Indian Bank has invited applications for the post of 700 clerks to be recruited during the course of year while Hyderabad-based Andhra Bank is planning to recruit 550 clerks. Andhra Bank will also be hiring 295 probationary officers and 150 officers in other categories.
Citibank has reduced its prime lending rate (PLR) by 0.25% to 14.75%. The new PLR rate will be effective from May 1, 2009. Punjab National bank and ICICI bank have also reduced their PLR by 50 basis points each. PNB’s new PLR will be now 11% while ICICI bank’s PLR will be 16.25%.
RBI has decided to come out with guidelines allowing commercial banks and qualified non-banking entities to issue prepaid instruments those can be used to purchase goods and withdraw cash form ATMs. These vouchers will be up to Rs 50,000. Such prepaid instruments are smart cards, Internet accounts, Magnetic strip cards, Internet wallets, mobile account, mobile wallets and prepaid vouchers. To issue these instruments banks have to satisfy eligibility criteria. Eligible non-banking institutions will be permitted to issue semi-closed instruments that can be used to purchase all types of goods and services at an identified network of establishments.
Providing relief to exporters hit by shrinking global demand, the RBI has extended the concessional interest rate scheme by six months till 31st October 2009. The ceiling of interest rate on pre-shipment rupee export credit up to 270 days and post-shipment credit up to 180 days at B-PLR minus 2.5 per cent was to expire on April 30, 2009.
Corporate
The public sector undertaking BEML Ltd has established assembly unit at Rio de Janeiro in Brazil. The company will assemble its products relating to mining and construction, rail and metro and defense segments at this unit and supply it to its prospective customers in and around Brazil.
Britannia Industries has entered into an agreement with Fonterra Brands (Mauritius Holding) Ltd, for acquiring the 49% equity and preference shareholding in Britannia New Zealand Foods subject to RBI’s approval.
Dabur India is planning to set up new manufacturing units at Himachal Pradesh and Egypt, while Godrej Consumers has planned to increase its advertising budget.
MIRC Electronics, manufacturers of the Onida brand of consumer durables is expanding its operations with new products and is planning to widen its manufacturing base. The company will be investing Rs 100-120 crore on a new umbrella campaign for all its portfolio products.
Diversified business house Jaypee Group is planning to invest Rs 10,000 crore in the current financial year to ramp up its power, infrastructure and cement verticals.
SKF India is setting up a new manufacturing plant at Haridwar, Uttarakhand which is expected to be completed in the next 8-9 months. The company is investing Rs 150 crore in the plant and will be employing 200 people.
Exports during March 2009 at US$ 11516 million which was one-third lower than that in March 208, as a result during the fiscal year 2008-09 total exports at US$ 168704 million registered a growth of 3.4% over that of US $ 163132 million reported in the comparable period last year.
Imports during March were valued at US $ 15561 million, a decrease of 34.0 per cent over that of US$ 23574 million in March 2008 and the cumulative import at US$ 287759 million was 14.3% more than that of US $ 251654 during 2007-08.
Trade balance during March worked out to be $ 4045 as compared to $6320 in 2007-8. The cumulative trade balance for 2008-09 estimated at US $ 119055 million was 1.3 times to that of US $ 88522 million during 2007-08.
While oil imports during the current fiscal year gone up from US $ 93176 million to US $ 79715 million, that of non-oil imports accelerated by 13.2% to US $ 171940 million.
The world’s number two software company, Oracle Corporation is acquiring Sun Microsystems Inc for about $7.4 billion in cash, at a price of $9.50 a share. The deal comes a month after IBM abandoned its bid to buy Sun Microsystems. The acquisition will give Oracle Sun’s Java technology and the Solaris operating system software. Oracle is the world’s second-biggest software maker.
The impact of this acquisition in India, where both the companies are present for a long time, is not clear at the moment. Oracle’s acquisition of Sun Microsystems will create a $1.5 billion (Rs 7,474 crore) entity in India, and help Oracle compete more effectively with arch rival IBM by bundling its business software with Sun’s computer servers, and offering them at competitive rates to customers in the country. This transaction will help Oracle address newer segments of India’s $34 billion market (Forrester estimate) for IT products and services, and increase its share of the overall enterprise software services market. This transaction will surely add value to some of the customers in India, such as Punjab National Bank, which is using hundreds of computer servers from Sun Microsystems and is running several applications through Oracle’s database software. According to Dataquest, Sun Microsystems India had revenues of Rs 1,674 crore, while Oracle India’s revenues were estimated to be around Rs 5,800 crore last year.
3i Infotech has posted robust profit growth of 84.4% at Rs 93 crore in the fourth quarter ending March 31, 2009 as against Rs Rs 50 crore in the corresponding quarter in the previous year.
As part of cost-cutting measures, TCS will be relocating its on-site staff into India. During the fourth quarter the company brought back its US staff to India resulting in a cost saving of Rs 121 crore.
HCL BPO, a division of HCL Technologies, has signed a five-year deal with a Britain-based water utilities client that has around 5,000 employees. As of now, the company has less than 100 people working for the client, but it expects to add more by June-end. The company is also in talks with four other potential water utilities in the UK and Europe.
Reliance Communications (Rcomm) profit has declined by 3.3% to Rs 1,454 crore in the fourth quarter of the financial year 2008-09 as against Rs 1,503 crore in the corresponding quarter in the previous fiscal year.
Net profit of Bharti Airtel has increased by 21% to Rs 2,239 crore in the fourth quarter of 2008-09 as against Rs 1,853 crore in the same period last financial year 2007-08. The company has awarded $500 million contract to Alcatel-Lucent for management of its fixed line and broad band operations for five years.
BSNL is planning to launch prepaid broadband services so that users can buy a recharge coupon for using internet facility.
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Macroeconomic Indicators |
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Table
1 : Index Numbers of Industrial Production (1993-94 =100) |
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Table
2 : Production in Infrastructure Industries (Physical Output Series) |
| Table 3: Procurment, Offtake and Stock of foodgrains |
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Table
4: Index Numbers of Wholesale Prices (1993-94 = 100) |
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Table
5 : Cost of Living Indices |
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Table
6 : Budgetary Position of Government of India |
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Table
7 : Government Borrowing Programmes and Performance |
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Table
8 : Scheduled Commercial Banks -
Business |
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Table
9 : Money Stock : components and Sources |
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Table 10 : Reserve Money : Components and Sources |
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Table
11 : Average Daily Turnover in Call Money Market |
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Table
12 : Assistance Sanctioned and Disbursed by All-India Financial
Institutions |
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Table
13 : Capital Market |
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Table
14 : Foreign Trade |
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Table 15 : India's Overall Balance of Payments |
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Table
16 : Foreign Investment Inflows |
| Table 17 : Foreign Collaboration Approvals (Route-Wise) |
| Table 18 : Year-Wise (Route-Wise) Actual Inflows of Foreign Direct Investment (FDI/NRI) |
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Table
19 : NRI Deposits - Outstandings |
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Table
20 : Foreign Exchange Reserves |
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Table 21 : Indices REER and NEER of the Indian Rupee |
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Table
22 : Turnover in Foreign Exchange Market |
| Table 23 : India's Template on International Reserves and Foreign Currency Liquidity [As reported under the IMFs special data dissemination standards (SDDS) |
| Table 24 : Settlement Volume and Netting Factor for Government Securities Transactions Settled at CCIL - Monthly, Quarterly and Annual Basis. |
| Table 25 : Inter-Catasegory Distribution of All Types of Trade in Government Securities Settled at CCIL (With Market Share in Respective Trade Types) |
| Table 26 : Settlement Volume and Netting Factor for Total Forex Transactions Settled at CCIL - Monthly, Quarterly and Annual Basis. |
| Table 27 : Inter-Category Distribution of Total Foreign Exchange Transactions Settled at CCIL (With Market Share in Respective Trade Types) |
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Memorandum Items |
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project.
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