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Current Economic Statistics and Review For the Week
Ended August 22, 2009 (34^th Weekly Report of 2009)

Indicators of Investment Trends – What Do They Tell?*

Introduction

The official data on investment in the economy are dated as the Central Statistical Organisation’s quick estimates of National Accounts Statistics (NAS) are available for the year 2007-08. No doubt, recently the CSO has started publishing estimates of expenditure composition of GDP even while producing quarterly as well as annual advance estimates of GDP. Such advance estimates are available for the year 2008-09 (Table 1), which interestingly show the continuation of the rising investment trend that began in 2003-04. Such advance estimates carry a caveat in that they do not account for ‘errors and omissions’ – an adjustment made in NAS for the difference between saving and unadjusted investment estimates.

Table 1: GDP Growth and Investment Trends
Year	Real GDP Growth (%)	% of GDP at Current Market Prices
Year	Real GDP Growth (%)	Saving	Gross Capital Formation	Gross Fixed Capital Formation
1999-00	6.4	24.8	26.1	23.4
2000-01	4.4	23.7	24.2	22.7
2001-02	5.8	23.5	24.2	23.6
2002-03	3.8	26.3	25.2	23.8
2003-04	8.5	29.8	26.8	25.0
2004-05	7.5	31.7	31.6	28.4
2005-06	9.5	34.2	34.8	31.0
2006-07	9.7	35.7	36.4	32.5
2007-08	9.0	37.7	38.7	34.0
2008-09*	6.7	-	39.7	34.8
* Based on advance estimates
Source : CSO's National Accounts Statistics

Be that as it may, the estimates do show an increase in the rate of gross fixed capital formation in 2008-09 – a year that shows some slippage in GDP growth. The high economic growth phase of five years of 2003-04 to 2007-08 was accompanied by high and growing capital formation ratio; the high growth was halted in 2008-09, but interestingly the CSO’s unadjusted estimates of investment rate and fixed investment rate have continued to rise. It may be that when the final figures come, these GCF estimates may be revised downwards; also, the adjusted estimates may turn out to be lower. But, a more plausible interpretation is that higher level of investment did take place but the growth outcome was not commensurate.

Increases in Inventories

Such contrary indicators of investment-output relationship have been found not only for 2008-09 but also for the current year 2009-10. For instance, while the various estimates of GDP for the year are revealing considerably lower growth of around 6.5%, but the output and import figures of capital goods show continuous increases. This is possible because investment projects cannot be stopped half-way and therefore investors continue to carry on with their investment activities even though the sales of finished products and even physical output get affected. In such situations, increases in output get translated into higher inventories and also higher capital-output ratios. A distinct aspect of the five-year high-growth phase of 2003-04 to 2007-08, and even in 2008-09, has been the persistent increase in ‘change in stocks’ (Table 2), only partly because of higher foodgrains stocks. In the capital formation estimation, ‘change in stocks’ as percentage of GDP had remained below1% until 2003-04 but thereafter it has risen from 1.9% in 2004-05 to a peak of 3.6% in 2007-08 and 3.5% in 2008-09. As the tempo of output growth slackens, the ratio of inventories may also recede.

CMIE’s CAPEX Data

Are there other indicators which portray the emerging investment scenario? One such widely cited data set is the CMIE’s quarterly capital expenditure (CAPEX) data which provides cumulative picture of investment proposals and investment under implementation, both in terms of amount and number – all in terms of outstanding quarter-end figures. The latest data available is for June 2009.

As shown in Table 3, the number of projects which have been proposed for implementation has increased during the year ending June 2009 but the pace of increase has slowed down. Between June 2008 and June 2009, there was an increase of 515 projects in number as against an increase of 1,228 projects in the preceding year June 2007 to June 2008 and 1,636 a year prior to that period. In terms of amount also, the project proposals have slowed down, the rate of increase being 30% during the June 2008 - June 2009 period as against 42% in the preceding year and 52% a year before that. Interestingly, the pace of increases in the number and amounts of projects under implementation has not slowed down; it has in fact increased from 246 to 512 in terms of number and from 28% to 38% in terms of the expansion in project amounts during the periods mentioned above. However, there is some worrying factor in these data, in that the number of projects getting stalled from implementation has been increasing in recent quarters; the amount involved in these projects had increased by 21% between June 2007 and June 2008 but this rate of increase has shot up to 56% in the period June 2008 to June 2009.

Overall, there are thus signs of some slowdown in project implementation, though the loss of momentum has not been too drastic, which is the reason why the CSO’s macro data is probably not showing any reduction in the rate of gross capital formation during 2008-09.

The above mixed picture is also reflected in the industry-wise data under implementation derived from the same CMIE’s CAPEX data [Tables 4(A), 4(B) and 4(C)]. It is found that investments under implementation in the manufacturing sector have slowed down in recent quarters, those in the services (non-financial) and construction have experienced accelerated growth. In the manufacturing segment, the steep adverse impact of current slowdown is seen in the textiles industry which has experienced persistent absolute reductions year-on-year in investment proposals during the past five quarters. A more discouraging feature is to be found in a relatively sharp deceleration in the growth of investment under implementation in the power sector. Significantly, cement and metal industries have also faced such deceleration [Table 4(B)].

The relatively improved performance of services sector and construction industry is probably the reason why the share of Maharashtra in investment amounts under implementation has attained the top most position (10.1%) dislodging Orissa, Andhra Pradesh and Gujarat which held such positions in the previous quarters. Reductions in investment in textiles and the slowdown in that of the power sector may have adversely affected the Gujarat position.

Table 5: Under Implementation Project Investments by States (Rs. Crore)
	Mar-08	Jun-08	Sep-08	Dec-08	Mar-09	Jun-09
India	26,13,688.13	28,73,456.73	32,01,555.74	33,33,263.85	35,31,371.80	38,61,388.13
Multi States	1,88,150.82	2,28,263.82	2,49,262.19	2,81,228.93	3,10,773.90	4,29,142.50
Maharashtra	2,52,916.15	2,82,681.63	3,00,590.43	3,04,577.04	3,15,200.97	3,91,204.13
Gujarat	2,38,506.84	2,65,602.34	3,17,559.80	3,05,279.38	3,21,229.07	3,59,038.34
Andhra Pradesh	2,01,048.74	2,41,048.36	2,92,574.60	3,30,058.78	3,45,331.29	3,48,072.28
Orissa	2,66,966.99	3,00,578.09	3,04,910.46	3,26,358.65	3,34,725.96	3,43,709.21
Tamil Nadu	1,44,632.98	1,68,851.93	1,98,426.05	2,12,520.38	2,39,629.89	2,55,192.67
West Bengal	1,76,591.35	1,83,588.78	2,01,613.07	2,03,223.66	2,20,014.66	2,18,452.70
Haryana	1,82,555.22	1,89,930.16	1,97,100.97	1,98,601.69	2,03,296.42	2,11,639.29
Karnataka	1,84,983.94	1,89,357.09	1,94,545.34	1,96,938.07	1,95,779.91	2,07,674.02
Uttar Pradesh	90773.73	1,13,870.50	1,29,140.57	1,28,755.88	1,48,435.60	1,48,764.77
% Share in Total
India	100.0	100.0	100.0	100.0	100.0	100.0
Multi States	7.2	7.9	7.8	8.4	8.8	11.1
Maharashtra	9.7	9.8	9.4	9.1	8.9	10.1
Gujarat	9.1	9.2	9.9	9.2	9.1	9.3
Andhra Pradesh	7.7	8.4	9.1	9.9	9.8	9.0
Orissa	10.2	10.5	9.5	9.8	9.5	8.9
Tamil Nadu	5.5	5.9	6.2	6.4	6.8	6.6
West Bengal	6.8	6.4	6.3	6.1	6.2	5.7
Haryana	7.0	6.6	6.2	6.0	5.8	5.5
Karnataka	7.1	6.6	6.1	5.9	5.5	5.4
Uttar Pradesh	3.5	4.0	4.0	3.9	4.2	3.9
Source: CMIE, CAPEX

Industrial Entrepreneur’s Memoranda (IEMs)

The Government of India’s Secretariat of Industrial Approvals (SIA) had devised a system, after the introduction of industrial decontrols in 1991, of entrepreneurs submitting details of their investment proposals to the Secretariat. This arrangement was in lieu of the earlier statutory approvals for investments obtained under the Industrial Development and Regulation Act 1956 (IRDA). Hence, the coverage given under the decontrolled regime for these purposes remain only for medium and large enterprises, which were also reporting large-size investment programmes of Rs 100 crore of above. Investments made by the small scale industries (SSI) sector are not covered in these reportings. More importantly, unlike the CMIE’s CAPEX, SIA statistics do not cover investment projects of the power sector, of a large number of service industries and the construction sectors; nor does it cover irrigation projects. Hence, its coverage essentially embraces the manufacturing sector. Also, as there has not been any systematic reporting by the government as to the quality of these data set, it is not known as to how much credence one may place on the reliability of these data even for the manufacturing sector as it is known how the reporting is voluntary and non-response is known to be very large.

Assuming that there is some merit in these data, an attempt is made to discern some results of the time trend in project proposals (Table 6) and their implementation (Table 7). The data on proposals suggest in terms of the number of projects, after showing significant increases between 2004 to 2006, that there has occurred a sudden distinct fall in 2007 and 2008. But, in terms of amount, the investment size has galloped by 157% (in nominal terms) from Rs 5,93,380 crore in 2006 to Rs 15,23,852 crore in 2008, which is contrary to all indications of other macro-economic data. Likewise, it is found that the data on actual implementation show steady increases, both in terms of the number of projects and the amount involved (Table 7).

Table 6: Industrial Investment Proposals: Year-Wise and for August 1991 to May 2009
	1991-2002	2003	2004	2005	2006	2007	2008	2009 (up to May)		Total
Number of Proposals
IEMs	47312	3875	5118	6203	6261	3725	3979	1342	77815
LOIs	3773	102	39	24	20	8	4	0	3970
DILs		14	61	111	90	85	102	1	464
TOTAL	51085	3991	5218	6338	6371	3818	4085	1343	82249
Proposed Investment ( Rs. Crore)
IEMs	1037233	118612	267069	353956	588550	827500	1522566	404380	5119866
LOIs	107682	1057	381	333	137	74	38	0	109702
DILs		338	4884	2657	4693	6675	1248	4	20499
TOTAL	1144915	120007	272334	356946	593380	834249	1523852	404384	5250067
Proposed Employment (Numbers)
IEMs	8154767	833282	855914	1270524	2100450	1342153	1793741	343909	16694740
LOIs	826973	12916	5058	3955	2177	579	251	0	851909
DILs		996	16332	18555	19754	18255	24095	49	98036
TOTAL	8981740	847194	877304	1293034	2122381	1360987	1818087	343958	17644685
DILs: Direct Industrial Licences are being issued since November 2003
Source: Secretariat of Industrial Approvals (SIA) Statistics, Govt. of India, Ministry of Industry

Theme IEM data also contain industry-wise and state-wise details but because of the limitations of these data, no further review is attempted here.

Table 7: IEMs Implemented: 2003, 2004, 2006 and May 2009
	No. of Cases	Investment (Rs Cr)	Employment (Nos)
2003	5437	187482	911131
2004	5734	190994	944283
2006	6397	241756	1031246
May-09	8021	278062	1358813
Source: Secretariat of Industrial Approvals (SIA) Statistics, Govt. of India, Ministry of Industry

RBI Estimates of Corporate Investment

Yet another source of data on investment projections is found in the RBI’s regular study on the estimation of corporate investment largely based on projects in the private corporate sector that have been assisted by banks and financial institutions. The project reports available with banks and financial institutions contain information on proposed investment and the details of its time-phasing as well as their distribution by industry, purpose and projects location. These investment plans based on domestic loans have also been supplemented with data on large capital outlays of the companies which have raised equity capital or contracted external commercial borrowings (ECBs) to finance those outlays.

Briefly, the amount of proposed investment in the year 2007-08 at Rs.1,99,262 crore was higher than the envisaged investment of Rs.1,68,010 crore a year ago. As a result, the capital expenditure planned by the private corporate sector in 2007-08 is likely to have risen by 18.6 per cent on top of a rise of 72.7 per cent in 2006-07 and 23.7 per cent in 2005-06 (Table 8).Summing the capital expenditure intentions of companies from all the sources considered in the study, investment in 2007-08 thus works out to be substantial at Rs.2, 45,107 crore. The capital investment intention for 2008-09 based on companies having institutional assistance up to 2007-08 aggregated to Rs 1,48,350 crore.

To work out the aggregate capital expenditure in 2008-09, capital expenditure to be incurred in 2008-09 has to be added to it. Therefore, if the aggregate capital expenditure in 2008-09 were to surpass the level intended for the year 2007-08 (i.e. Rs.2, 45,107 crore envisaged collectively by companies approaching banks/FIs or issuing domestic equity capital or contracting ECBs), the fresh envisaged capital expenditure in 2008-09 must be above Rs.71,934 crore (RBI 2009).

The study concludes, thus, the private corporate investment in 2008-09 is likely to increase, although it may grow at a slower pace.

To sum up:

The corroborative data on investment trends present a hazy picture. In the first place, the projections are only up to the year 2008-09 and the first quarter of 2009-10. Second, there are divergent trends in their results.

Nevertheless, an issue that stands out is that the high tempo of investment observed up to 2007-08 and parts of 2008-09 has certainly lost momentum. Fortunately, it may not have any serious impact on output growth as the reduced tempo of investment is unlikely to be of a prolonged nature, considering the enormous amount of stimulus packages in operation.

Reference

RBI (2008): ‘Corporate Investment Growth in 2007-08 and Prospects for 2008-09’, Monthly Bulletin, August

Highlights of Current Economic Scene

Growth

Global Economy

Britain’s recession may be ending; the country’s accounting fraternity after a key index tracking business confidence among its members staged a steep jump. The Institute of Chartered Accountants in England and Wales (ICAEW) reported that the business confidence measure jumped to 4.8 at the end of June from -28.2 in March - the biggest improvement since the survey began in 2003. The institute predicted that the economy would grow by 0.5% in the second quarter, breaking five quarters of declining output.

This is the first such highly optimistic report in the UK, which has lagged behind France and Germany, both of which officially are out of recession. For the present quarter’s Business Confidence Measure suggests that the UK recession is at an end. However, the recovery is very fragile and policy makers should not take any actions that could derail it.

The Confederation of British Industry (CBI) has said that while the services sector continued to be below normal, the fall has been stabilised. In business and professional services, the value and volume of business has risen slightly, while for consumer services, the decline has slowed.

Nouriel Roubini, the New York University Professor said that the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus. The global economy will bottom out in the second half of 2009. The recession in the US, the UK, and some European countries will not be “formally over” before the end of the year, while the recovery has started in nations such as China, France, Germany, Australia and Japan.

Domestic Economy

Amid threats of a widening drought, global credit rating agency Moody’s projected India’s economic growth to slip to 6.2% current fiscal from 6.7% in the last fiscal year. The agency said the drought was taking steam out of India’s growth momentum. Moody’s forecast is in agreement with the Reserve Bank of India’s prediction of 6.0% growth with an upward bias.

Agriculture

The central government has increased the minimum support price (MSP) of paddy for 2009-10 season by Rs 100 per quintal to Rs 950 from Rs 850 per quintal and for the A-grade to Rs 980 from Rs 880 per quintal. The MSP for tur has been increased to Rs 2,300 from Rs 2,000 per quintal, moong to Rs 2,760 from Rs 2,520 per quintal and sesame to Rs 2,850 from Rs 2,750 per quintal. MSP of pulses have been increased to encourage most of the farmers to plant pulses to recoup some of the losses incurred due to unfavourable weather conditions.

The government has decided to cut the minimum export price (MEP) for basmati to US $800 a tonnes from US $1,100 tonnes, despite lower estimation of rice during current year. It is expected that this reduction in MEP of basmati would enable exports of only premium rice varieties and will not impact prices or availability of common and more widely consumed varieties of rice.

Millet Network of India (MINI) has urged the central government to include millets into the National Food Security Act in the backdrop of the unprecedented drought and looming climate change crisis. Millet-based biodiverse cropping systems can come as a solution to this agrarian crisis as it liberates farming from water intensive cropping such as rich or wheat to a nature commodity controlled farming system.

Gujarat government has imposed stock limit on pulses on the back of rising prices in the domestic market. The stock limit for whole-sellers is 100 tonnes and for retailer it is 50 tonnes, this decision is taken after imposition of stock limits on sugar for wholesellers at 200 tonnes and 20 tonnes for retailers.

The Maharashtra government has proposed to freeze the prices of five essential commodities (rice, wheat, sugar, tur dal and palm oil) distributed under public distribution scheme (PDS) to bear a subsidy burden of Rs 500 crore for at least next three months till October. It is expected that this proposal would benefit nearly 1.46 crore above poverty line (ABL) ration card holders and around 60 lakh below poverty line (BPL) ration card holders in the state.

Kerala government is all set to buy raw cotton in bulk for its 11 government-run spinning mills from Andhra Pradesh or Maharashtra during the coming harvesting season as state is facing acute cotton scarcity. It has also earmarked Rs 25-crore corpus fund to assist the mills in their cotton buying estimated to cost around Rs 50 crore.

Agriculture minister reiterated that rice production during the current kharif season would decline by 10 million metric tonnes (MT) on account of the disappointing southwest monsoon. It is expected that it would increase levy quota for producers to increase domestic supplies ahead of the festival season. Sugar output prospects for next season (October-September 2009-10) is estimated to fall due to drought in the biggest sugarcane growing areas. The levy obligation requires sugar mills to sell 10% of their production to the government at below-market prices for resale to the poor through the PDS. While sugar mills can sell 90% of their production at market rates.

As per the report prepared by the Nasik-based National Horticulture Research and Development Foundation (NHRDF), kharif potato production in Uttarakhand, Himachal Pradesh, Jammu & Kashmir, Karnataka, and Maharashtra has been affected adversely because of delayed or deficient monsoon. These have resulted into low supplies and are pulling prices up. In Uttar Pradesh this year, the estimated stock in the cold storage is in the range of 7-7.2 million tonnes. While in Punjab, from the total production of 1.4 million tonnes, nearly about 40% is stored for seed production and 25% for the table purpose.

Exports of mint products have come down in the first quarter due to weak demand from US and Europe. It is estimated that the production of mint for the 2009 season would be around 22,000 tonnes and that the carry-over stock from the previous season would exceed 5,000 tonnes. Exports during the first quarter have come down by 28% in volume and 16% in value as compared to the corresponding quarter last year. The bulk of the export is in the form of crystallized menthol. China is a major importer of the crystallised form and re-exports it after value-addition.

A study undertaken by the National Fisheries Development Board (NFDB) fisheries sector in the country would be brought under the ambit of the Agricultural Produce Marketing Committee (APMC) Act in order to expand its market domestically and internationally and to ensure an efficient system of trade.

According to figure released by Agricultural and Processed Food Products Export Development Authority (Apeda) exports of agriculture grew by 24% to Rs 39,461 crore during 2008-9 from Rs 31,712 crore a year earlier. This improvement has been recorded largely because of huge demand for fruits, vegetables and basmati rice (aromatic rice) especially the Gulf countries, which are the key rising market for these. Even though exports of non-basmati rice were banned last year, exports of rice from the country in 2008-09 was at Rs 11,162 crore during last fiscal from Rs 11755 crore achieved during the year before. Fruits and vegetables exports during last fiscal grew by huge 128% to Rs 3,552 crore from only Rs 1,525 crore during the same period previous year. The deficient monsoon recorded this year is expected to not affect exports of agriculture as most of areas for agricultural exports have irrigation facilities.

Industry

The Index of Industrial Production (IIP) stands at 281.9, which is 7.8% higher as compared to the level in the month of June 2008.

The annual growth in the Indices of Mining, Manufacturing and Electricity sectors for the month of June 2009 has been 15.4%,7.3% and 8.0% as compared to 7.3%,3.2%, and 6.0% in June2008.

In terms of industries, as many as 12 out of the 17 industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of June 2009 as compared to the corresponding month of the previous year. The industry group ‘Other manufacturing industries’ (32.4%), ‘ wood and wood products (26.3%)and 13.2% in ‘paper and paper products’ have registered double digit growth during June 2009. On the other hand, the industry group ‘Jute textiles’ (-31.1%), m’metal products and parts(8.5%) and Beverages and tobacco products (4.1%)have shown negative growth.

As per Use-based classification, the Sect oral growth rates in June 2009 over 2008 are 10.1% in Basic goods, 11.8% in Capital goods and 7.9% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 15.5% and 0..3% respectively, with the overall growth in Consumer goods being 4.0%.

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 251.6 in June 2009 and registered a growth of 6.5% compared to a growth of 5.1% in June 2008. During April-June 2009-10, six core industries registered a growth of 4.8%as against 3.5% during the corresponding period of the previous year.

Crude Oil (weight of 4.17%) registered a growth of 4.0% in June 2009 contrast a dip of 4.7% in June 2008. The Crude Oil production registered a growth of (-) 1.3during April-June 2009-10 compared to (-) 0.1% during the same period of 2008-09.

Petroleum refinery production (weight of 2.00%) registered a fall of 3.7% in June 2009 compared to growth of 5.6% in June 2008. The Petroleum refinery production registered a decline 4.1% during April-June 2009-10 compared to 3.3% during the same period of 2008-09.

Coal production (weight of 3.2% in the IIP) decrease by 14.7% in June 2009 compared to growth rate of 6.1% in June 2008. Coal production grew by 12.7% during April-June 2009-10 compared to an increase of 8.4% during the same period of 2008-09.

Electricity generation (weight of 10.17% in the IIP) registered a growth of 7.0% in June 2009 compared to a growth rate of 2.6% in June 2008. Electricity generation grew by 5.8% during April-June 2009-10 compared to 2.0% during the same period of 2008-09

Cement production (weight of 1.99% in the IIP) escalated to a growth of 12.8% in June 2009 compared to 6.6% in June 2008. Cement Production grew by 12.1% during April-June 2009-10 compared to an increase of 5.8% during the same period of 2008-09.

Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of 5.3% in June 2009 compared to 10.4% in June 2008. Finished (carbon) Steel production grew by 3.2% during April-June 2009-10 compared to an increase of 4.3% during the same period of 2008-09.

Inflation

Price rose by 0.1% for the week ended 8 August 2009 over the week. As a result annual inflation rate stood at (-) 1.5% as compared to 12.8% last year.

Over the week price rise of 0.2% in primary articles is the result of the increase in the price indices of bajra,urad,condiments & spices, arhar ,fruits & vegetables,and rubber

The price index of major groups fuel, power, light and lubricants rose was miniscule.

Price index of manufactured products increased by 0.1% due to rise in prices of rice bran oil, khandasari imported edible oils,, cotton seed oil, maida, ghee, oilcakes and acid of all kinds. In this group prices of steel ingots, zinc ingots and lead ingot also increased.

Financial Market Developments

Capital Markets

Primary Market

In order to encourage listed companies to look at rights issues as a viable form of raising capital by reducing the overall cost of such issuances and to make the process faster, the Securities and Exchange Board of India (SEBI) rationalised the disclosure requirements for rights issues on 20August. SEBI has reduced the time period for finalisation of the basis of allotments in rights issues to 15 days from 42 days.

Textile Company Jindal Cotex, which is scheduled to come out with its initial public offer (IPO) on 27 August, has fixed the price band for the issue at Rs 70-75 per share to raise about Rs 94 crore. The Ludhiana-based company would issue 1.24 crore shares for public subscription.

The shares in Adani Power, which raised $630 million in the IPO, were down 0.8% at 99.20 rupees on the BSE after debuting 5.15% higher on the first day. But the shares bounced around the issue price of 100 rupees after a shaky opening for India's first large IPO in 18 months.

According to Prithvi Haldea, chairman and managing director of Prime Database around 700 companies, are planning to raise around Rs 3,00,000 crore are waiting to tap the primary market.

Secondary Market

The key benchmark indices edged lower in the week Friday 21 August 2009 on concerns that the drought-like situation in India could hurt economic growth although towards the end of the week the signs of marginal revival in monsoon pulled back the otherwise tanking index. Even the market mostly tracked global markets with Chinese market in focus. The BSE Sensex gained in 3 out of 5 trading sessions during the week. A late recovery was witnessed after Monday's sharp losses triggered by global sell off. The BSE Sensex managed to close above the psychological 15,000 mark after behaving irresistibly around this mark throughout the week. The BSE 30-share Sensex fell 171 points or 1.11% to 15,241 in 19 August 2009. The BSE Mid-Cap index fell 44.49 points or 0.79% to 5,559. The BSE Small-Cap index rose 50.42 points or 0.79% to 6,463. Both the indices outperformed the Sensex.

Amid excessive volatility the benchmark NSE Nifty closed 73.45 points lower at 4527 points during the week as compare to the previous week.

On 18 August, the SEBI Chairman CB Bhave met chief executive officers of all fund houses to take stock of the ground realities after the new guidelines and has ruled out rolling back its order of banning entry load and parity in exit loads for all classes of investors. The fund houses explained to the chairman about the industry that it was still in a nascent stage and imposition of stringent guidelines would stifle its growth. But the market regulator told them to adjust within the new guidelines.

Derivatives

The domestic futures & options (F&O) market witnessed significant improvement in volumes, as there was significant increase in trading activity in many of the future counters throughout the week. As evident from the trading details on the last day of the underlying week the overall F&O market added 2.29 crore shares in open interest (OI). Rather almost all of the additions were contributed by the stock futures segment. There was aggressive short covering in the Nifty near month, which shed 21.43 lakh shares in OI on this day. The total OI of Nifty August stood at 1.94 crore shares. Thus for the full week the Nifty shed 25.08 lakh shares in OI.

In the Nifty near month options the 4400 to 4700 strikes remained the most active. The 4500 strike call shed a significant 18.41 lakh shares in OI. The 4700 and 4800 strike calls also shed 3.91 lakh shares and 1.86 lakh shares respectively in OI.

On the put front there was significant winding-up of OI in 4300 strike, however 4400, 4500 and 4600 strikes witnessed aggressive addition of OI. The index put call ratio (PCR) fell to 0.96 on 21st August 2009 as compared to 0.97 during the previous day, whereas the stock PCR increased to 0.40 as compared to 0.31 during the previous day. Thus the market wide PCR was 0.94 on 21 August 2009.

Government Securities Market

Primary Market

91-day and 182-day treasury-bills (TBs) were auctioned on 18 August 2009, with the notified amount of Rs 5,000 crore and Rs 1,500 crore, respectively. The yield to maturity (YTM) was set at 3.36% and 3.93%, for 91-day and 182-day TBs, respectively. Bid to cover ratio for the 91-day TBs was at 2.14 against 1.47 of the previous bid. YTM and price of the 91-day TBs has remained unchanged from the previous week. For 182-day TBs bid to cover ratio was at 4.19 (1.45 in the previous auction), price was at Rs 98.08 (Rs 98.16) and YTM was at 3.93% (3.76%). Price and YTM of the 182-day TBs were set at Rs 98.08 (Rs 98.16) and 3.93% (3.76%), respectively.

RBI has re-issued 6.49% 2015, 6.90% 2019 and 8.24% 2027 securities on 21 August 2009 with the notified amount of Rs 5,000 crore, Rs 5,000 crore and Rs 2,000 crore, respectively. YTM of the securities with maturity of 6 years, 10 years, and 18-years was set up at 7.10%, 7.30% and 8.10%, respectively.

Government has purchased dated securities 7.37% 2014, 8.24% 2018, 6.05% 2019 and 7.50% 2034 under open market operations (OMO) on 20 August 2009 with the aggregate notified amount of Rs 6,000 crore. Cut-off yield on 5-year maturity, 9-year maturity and 25-year maturity was at 6.90%, 7.29% and 8.00% and price was Rs 101.83, Rs 106.03 and Rs 94.62, respectively. Price and cut of yield were not available for the 6.05% 2019 security.

Secondary Market

The inter-bank call rate remained constant at 3.25-3.30% on first, second, and fourth day of the week. On the last day of the week call rate has came down slightly to 3.20-3.30% from previous close of 3.25-3.30%. Overall, the call rates throughout the week were ranged between 3.20%3.30%.

The first day of the week has seen reduction in bond yields in initial part but, announcement by a finance ministry official about the plans of government to go slow on its first half-year government borrowing has improved the yields a bit as 6.90% 2019 bond’s yield ended at 7.08% above day’s low of 7.04%. Volumes were heavy at Rs 7,495 crore on the central bank’s trading platform. On second day yields have eased as finance secretary said there was no need to borrow more than the budget target of Rs 451 crore in 2009-10, even after meeting expenses for drought relief. But yields ended little higher because of the government’s auction of $25 billion bond on Friday. The benchmark 10-year bond, 6.90% 2019 ended at 7.11% after rising to 7.16% in intra-day trade. On fourth day yield on the most traded 7.02% 2016 bond ended at 7.11%, one basis point above Tuesday’s close of 7.10%. Total volumes were low at Rs 4,135 crore on the central bank’s trading platform on fourth day. Yield has soared to a nine-month high of 7.31% on the last day of the week. The ten-year benchmark closed the day at 7.31%, after touching an intra-day high of 7.34%-the highest since November 20. The yield on 6.90% 2019 was sold at 7.30% at the auction. Top-traded securities on the last day were the 6.35% bond maturing 2020 and 6.90% bond maturing 2019.

Under LAF auctions, banks have parked Rs 4,81,120 crore at reverse repo window, through 192 bids received and accepted during the week.

Bond Market

During the week under review, 2 banks, 1 NBFC’s, 1 central undertaking and 2 corporate have tapped the bond market to mobilize Rs 3,600 crore with the greenshoe option of Rs 600 crore.

Table 2: Profile of Major Commercial Bond Issues for the Week Ending 21August 2009
Sr No.	Issuing Company / Rating	Nature of Instrument	Coupon in% per annum and tenor	Amount in Rs crore
	FIs / Banks
1	State Bank of Hyderabad AAA by Crisil, Care	Upper Tier II Bonds	8.50% with a step up of 50 bps if call is not exercised at the end of 15 year.	450
2	Canara Bank AAA by Crisil	Perpetual Bond	9.10% with a step up of 50 bps if call is not exercised, with perpetual tenor.	600
	NBFCs
1	Housing Development Finance Corp Ltd AAA by Crisil, Icra	NCD	7.15% & 7.85% for 2 years & 3 years, respectively.	400
	Central Undertakings
1	Rural Electrification Corp Ltd AAA by Crisil, Icra	Bonds	8.35% & 8.72% for 5 years &10 years, respectively.	1500 (500)
	Corporates
1	HCL Technologies Ltd AA+ by Crisil	NCD	7.55% & 8.20% for 2 years & 3 years, respectively.	500
2	Great Eastern Shipping Co Ltd AAA by Care	NCD	9.75% for 10 years	150 (100)
	Total The amount shown in brackets above denotes the greenshoe option of the issue			3600 (600)

Foreign Exchange Market

The rupee closed at Rs 48.74 per dollar on 21 August 2009 as compared with Rs 48.27 per dollar previous week. Rupee moved between Rs 48.68 and Rs 48.74, with a standard deviation of 3 paise during the week.

The 6-month annualized forward premia closed at 2.56% against 2.81% during the same period.

According to media sources, the government is planning to bring in more transparency and stability to the foreign exchange derivatives market. In the light of banks being sued by various companies to recover their losses, citing mis-selling, the government proposes to strengthen the information sharing system for banks on forex derivative contracts. The rules being drafted by the finance ministry and the Reserve Bank of India would require banks to share their derivate exposure to customers, just like they do now on loans through Credit Information Bureau (of India) Ltd or Cibil.

Commodities Futures derivatives

National Collateral Management Services Ltd (NCMSL) is looking to expand its warehousing capacity in the agri-commodities space to one million tonnes by October-end from the current six lakh tonnes.

Investors had a difficult week as commodity markets failed to show a unified approach leaving most markets range bound. During the week commodities have had volatile sessions on back of rising risk appetite of traders. Crude oil prices have rallied to their yearly highs mainly due to an unexpected build in US crude oil inventories. The prices were also supported by slightly better monthly outlook given by major oil forecasters like Opec, IEA and EIA. The forecasters are expecting that demand for crude oil will rise in year 2010 on back of hopes of economic recovery which will boost demand in major consuming countries. The members of Opec are going to meet in the month of September, where after reviewing the demand and supply scenario, they will take a decision on whether to go for a further cut in the output.

Insurance

Private sector insurer Aviva Life Insurance has planned to recruit about 1,500 sales managers and 13,000 agents by the end of current fiscal year 2009-10.

Life Insurance Corporation of India (LIC) has hiked its stake in Reliance Communications to 7.02% after buying 2.01% stake at Rs 1,274.4 crore through open market transactions.

Banking

Since April 1, 2009 the RBI has allowed the customers free use of ATM of other banks, including cash withdrawal. This has led to increase in the number of transactions taking place at third-party ATMs. After witnessing a surge in number of transactions but a fall in the ticket value of each transaction, banks have sought modifications in the free ATM rule. For instance, a number of customers are withdrawing small amounts, frequently, in some cases Rs 100. In fact, the banks pay interchange fee of Rs 18 to Rs 20 per transaction to the other bank when a customer uses third-party ATM to withdraw money. For instance, if a customer withdraws Rs 100 from any other ATM, the customer’s bank has to pay an interchange fee of Rs 20 to the other bank. This increases the cost of operation for banks substantially. So, banks were petitioning the RBI to put a cap on the number of third-party withdrawals and had also asked for a minimum withdrawal amount of Rs 1,000 for third-party transaction. In this regard, the RBI has sent a communication to Indian Bank’s Association (IBA). RBI has agreed to put a cap on third-party ATM withdrawal at Rs 10,000 per transaction and also limited the number of such transactions to five a month. For more than five third-party transactions in a month, one has to pay Rs 20 per transaction. However, there will be no such limit when a cardholder is using his/her own ATMs. The new norms will be implemented from October 1, 2009.

Oriental Bank of Commerce has launched one time settlement scheme for micro & small enterprises (MSEs); those have defaulted in payment of loan as on March 31, 2008. The scheme can be availed up to October 31, 2009.

In the current fiscal year Bank of Baroda is planning to recruit 3,500 people including clerks and officers.

Allahabad Bank has reduced interest rates on retail loans by 100 basis points, effective from August 22, 2009. Under the festive Bonanza Scheme, the bank will offer revised interest rates on different types of loan.

The RBI has inaugurated a Financial Literacy Cell (FLC) on its premises in Jaipur. The cell is aimed at promoting financial literacy among citizen including promoting knowledge about day-to-day banking transactions, financial proceedings, functioning of RBI and identification of fake currency as well as it will provide brochure and written material.

Canara Bank will be raising Rs 600 crore by issuing bonds to strengthen capital adequacy and enhance its long-term resources. The bank would raise Rs 400 crore by issuing non-convertible subordinate perpetual Tier-I bonds with an additional option to raise another Rs 200 crore, if the issue is fully subscribed.

The RBI has started Financial Literacy Cell (FLC) in Jaipur. The cell is aimed at promoting financial literacy among citizens. The cell would help in promoting knowledge about day-to-day banking transactions, financial proceedings, functioning of RBI and identification of fake currency. As well the new cell will also provide brochure and written material on the topic.

Punjab National Bank (PNB) has declared a dividend of 200% in 2008-09. PNB has paid divided of Rs 364 crore to the government for its 57.8% stake in the bank.

Dhanalakshmi Bank has slashed down interest rate on deposits with tenure of 1 year and above but less than 5 years to 7.50% as against the 8% earlier.

Corporate

Apollo Tyres, India’s second largest tyre manufacturer is investing Rs 900 crore as capital expenditure in the current fiscal year.

Aurobindo Pharma Ltd (APL) has announced that its board of directors has approved a proposal to acquire 100% stake in Trident Life Sciences Ltd (TLSL), a Hyderabad-based clinical research organisation. The total cash outflow for the proposed buyout would be Rs 38.84 crore and the acquisition would provide APL an opportunity to enter the high-growth injectables space.

MIC Electronics is raising an amount of Rs 219 crore by issuing warrants to various promoters, non-promoters and from international markets.

To meet the country’s increasing electricity demands and to fulfill the Centre’ ambitious capacity expansion plans in the power sector, public sector BHEL has inaugurated its new Rs 367 crore centralized stamping unit (CSU) at Jagdishpur, in Uttar Pradesh. This new unit is a milestone for meeting the challenges of the power sector.

In an effort to meet its long-term financing requirement, Bharat Force has decided to raise up to $150 million by issue of securities. The company will be using the funds to expand manufacturing capabilities in the non-automotive sector in India.

Direct-to-home (DTH) is raising up to $ 200 million (about Rs 1,000 crore) through issue of securities in the domestic and international markets.

Realty major DLF has emerged to be the successful bidder of the proposed 350 acre recreation and leisure project to come up in Gurgaon.

The government has approved a revival package worth Rs 128 crore for Hindustan Prefab Ltd (HPL) which has incurred losses in the last five years. The package will be implemented by converting government loan of Rs 128 crore up to March 31, 2008 into equity.

External Sector

Exports in June 2009 at US $ 12815 million was 27.7% lower than that in June 2008 valued at US $ 17732 million . During the first quarter of current fiscal ecport dropped from US $ 51545 to US $ 35432 million and the negative growth works out to be 31.3%.

Imports during May, 2009 were valued at US $ 18977 million (Rs.90657 crore) representing a decrease of 29.3 % in dollar terms (21.2 % in Rupee terms) over the level of imports valued at US $ 26855 million ( Rs. 114995 crore) inJune,2008. Cumulative value of imports for the period April- May 2009 was US$ 50936 million (Rs. 248171 crore) as against US$ 80187 million (Rs.334191 crore) registering a negative growth of 36.5 per cent in Dollar terms and 25.7 per cent in Rupee terms over the same period last year.

Oil imports during June, 2009 at US$ 4999 million were 50.6% lower than that of US$ 10119 million in June 2008. Cumulative oil imports during the current fiscal valued at US $ 12767 million was lower than that of US $ 29542 million oil imports in the previous year.

Non-oil imports during June, 2009 were estimated at US $ 13978 million lower by 16.5% to that in June 2008 and the imports during the current fiscal was also lower by 24.6%

The trade deficit for April- June, 2009 was estimated at US $ 15504 million which was lower than the deficit of US $ 28642 million in the comparable period of 2008.

Information Technology

3i Pvt Ltd, the Indian arm of global private equity major 31 Group Plc, has become the front-runner to acquire about 20-25% stake in Hyderabad-based Ind-Barath Power Infra for about $100 million.

Infosys Technologies, is making significant investments in building software platforms in the area of emerging digital ecosystem.

Tech Mahindra’ plan to raise up to Rs 1,000 crore via a qualified institutional placement (QIP) has met with a cold response from potential investors.

Telecom

Mobile Number Portability (MNP) is expected to bring a major shift in the postpaid subscriber base as MNP will lead to another tariff war in the telecom space owing to operators focusing on attracting postpaid subscribers.

LIST OF WEEKLY THEMES

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