X
Financial Markets
An Overview
In December, the market sentiments have been buoyant as the BSE sensex and NSE
nifty continued to scale new records driven by expectations of a larger cut in US fed rate,
which would result in higher inflows into the domestic market. But, with US fed effecting,
only 25 basis points cut, the sentiments have been affected adversely which were further
worsened by the rising inflation rate in US dampening expectations of further cut in the
benchmark rate. However, as the domestic industrial production remained good, the market
sentiments have turned positive. Further, as the indications of a slow down in US were
subdued, the markets have been buoyant again. The robust rollover activity in derivatives
market has also supported the bullishness in spot market. The price to earnings (PE) ratios
have begun to rule close to 25 and many observers feel that some correction is inevitable
since excess liquidity in the market has driven share prices to levels that are not sustainable.
However, the indicators emerging from the derivatives market too have been directing
towards the market, which is being in overbought positions. Significantly, the Securities and
Exchange Board of India (Sebi) has been introducing various measures to improve the
operations in the securities market such as permitting short-selling, introducing securities
lending and borrowing mechanism and removing entry load in case of mutual funds wherein
the investors directly transact with the concerned mutual fund. In the case of permitting short
selling, it is being argued that it increases liquidity and correct stock price overvaluation.
However, some of the market experts have opined that the role of short-selling is to generate
liquidity and allowing such instruments when the markets are already grappling with excess
of it, is likely to complicate the situation further. In the gilt-edged market, though the market
has remained concerned about the advance tax payment and dated securities auction
outflows, the call rates have ruled within the informal corridor set by repo and reverse repo
rates except for a few days and secondary market turnover for gilt-edged securities has been
buoyant. But, as these outflows combined with a holiday shortened fortnight, there has been
pressure on liquidity and the Reserve Bank of India (RBI) has supported the market by
injecting huge of liquidity. The commodities market has witnessed a decline in the turnover
and the cumulative turnover for the current fiscal year until end-December 2007 has been just
marginally lower than that in the corresponding period in the previous year.
74
Trends in the Equity Market
i) Primary Issues
The primary market has
continued to remain buoyant
with the mobilisation of Rs
1,746 crore in December lower
than that raised in November at
Rs 3,393 crore. The highest
amount in December has been
mobilised
by
Brigade
Enterprise Ltd followed by
BGR
Energy
(Table 10.1).
Systems
Ltd
Table 10.1: Primary Issues in the Month of December 2007
Date of
Offer
Issue
Issuance
Price
Size
Name
Opening
Closing
(Rs) (Rs cr)
Porwal Auto
17-Dec-07 20-Dec-07 68-75
37.5
Components Ltd
Manaksia Ltd
17-Dec-07 19-Dec-07 140-160 248.0
Precision Pipes &
17-Dec-07 20-Dec-07 140-150 75.0
Profiles Company Ltd
Aries Agro Ltd
14-Dec-07 19-Dec-07 120-130 58.5
Brigade Enterprises Ltd
10-Dec-07 13-Dec-07 351-390 648.4
Transformers &
7-Dec-07 12-Dec-07 425-465 139
Rectifiers India Ltd
BGR Energy
5-Dec-07 12-Dec-07 425-480 439
Systems Limited
eClerx Services Ltd
4-Dec-07 7-Dec-07 270-315 101.0
Total
1746
Source: Various media sources
Table 10.2: Resources Raised through
Public and Rights Issues
April-Nov 2007 April-Nov 2006
Amount
Amount
No
No
(Rs crore)
(Rs crore)
Public Isues
65
35,732
42
15,900
IPOs
61
24,625
36
15,121
FPOs
4
11,107
5
983
Rights Issues
15
10,378
25
1,521
QIP
19
12,690
10
2,006
Preferential Allotment*
231
33,914
257
14,497
Total
330
92,714
334
33,924
Preferential issues pertains to the month in which
approval of the issues were given in the AGM.
Issue size of these issues is inclusive of the premium.
Source: Sebi Bulletin, November 2007
During April-November 2007, the
companies
market
accessed
through
mobilising
the
primary
330
issues,
Rs.92,
714
crore
compared to 334 issues with Rs.33,
924
crore
mobilised
in
April-
November 2006 (Table 10.2). These
funds are inclusive of resources
mobilised through public, rights, QIP
and preferential allotment.
The capital raised through public and rights issues has been the highest so far Rs
46,120 crore until November 2007 which exceeds the amount mobilised during the full
financial year of 2006-07 (Table 10.3). Further, with some large sized issues waiting to tap
the market in January, it is being expected that the amounts raised would be quiet substantial,
particularly, since Sebi has disposed of a complaint against the initial public offer (IPO) by
Anil Ambani-promoted Reliance Power Ltd (RPL) by asking the promoters to lock-in the
entire 20 per cent of their contribution to the share offer for five years.
75
The regulator said the complainants’ alleged Table10.3: Capital Raised from the Primary
breach of corporate governance in the case of REL for
the transfer of high-value projects like Rosa Power,
Sasan Power, Butibori, Shahpur Coal, Dadri etc to
RPL, owned by REL and Anil Ambani through
different companies. The complaint by Rajkot
Saher/Jilla Grahak Surakha Mandal, had alleged that
the proposed IPO was being used by the promoters to
‘subvert the spirit’ of the rules to gain huge benefits
Market through Public and Rights Issues
Number of Amounts
Year
Issues
(Rs in Cr)
1999-00
93
7817
2000-01
151
6108
2001-02
35
7543
2002-03
26
4070
2003-04
57
23272
2004-05
60
28256
2005-06
139
27382
2006-07
124
33508
2007-08 until
80
46120
Nov- 2007
Source: Sebi Bulletin
using several front companies and by means of merger and amalgamation.
Qualified Institutions’ Placement (QIP)
Table 10.4: Resources Mobilisation through QIP
2005-06
2006-07
Particulars
No
Amount
No Amount
QIP at BSE
25
4,963
QIP at NSE
21
4,530
Source: SEBI Annual Report 2006-07
Sebi, in May 2006, has introduced a
new method of raising funds from market by
companies in the form of ‘Qualified Institutions
Placement’ with a purpose to encourage Indian
companies to raise funds in domestic markets rather that through foreign markets. It is a form
of private placement. However, only those companies, which are listed on national stock
exchanges, are allowed to raise funds by selling their securities directly to Qualified
Institutional Buyers (QIBs) (Table 10.4). Due to introduction of QIP in 2006-07, the
resources raised through FPO route declined significantly.
Investment Rules to be relaxed for Insurance Companies
The Insurance Regulatory Development Authority may soon allow insurers more
flexibility in investing in highly rated initial public offer (IPO). Currently, IPO fall within the
‘other than approved’ category and the insurance regulator could now look at making it easier
for insurance companies by putting highly rated IPOs within the ‘approved’ category of
investments.
ii) Secondary Market
The market sentiment in December has been bullish, as the participants have been
anticipating continued inflow of foreign funds in view of the US fed rate cut, which would
result increased exposure towards emerging markets. As a result, both the BSE sensex and
76
NSE nifty have scaled new record highs. However, as the US fed effected only 25 basis
points cut in its benchmark rate which was already factored in, the market sentiments have
turned bearish wherein FIIs turned net sellers and mutual funds, however, continued to
remain net buyers. But with unexpectedly higher inflation in US thwarting expectations of a
further rate cut, the markets have declined sharply. With the release of buoyant consumer
spending data in US, the expectations of slow down have been arrested and the market
sentiments have turned buoyant. This aspect has been further supported by robust rollover
activity in derivatives segment.
Though the total turnover on
average turnover has increased to Rs
8,605 crore from Rs 7,755 crore over
the same period. Given the surge in
equities’ prices and primary market
issuances, the market capitalisation has
2000
20500
20000
1000
19500
0
19000
-1000
BSE sensex
170,623 crore in November, the daily
Net FII investment
Net Mutual Funds Investment
BSE close
18500
-2000
18000
-3000
3-Dec
4-Dec
5-Dec
6-Dec
7-Dec
10-Dec
11-Dec
12-Dec
13-Dec
14-Dec
17-Dec
18-Dec
19-Dec
20-Dec
24-Dec
26-Dec
27-Dec
28-Dec
31-Dec
in December as compared with Rs
Chart 10.A:Movement of
BSE sensex and net FII
and mutual Fund Investments
3000
Net FII and Mutual Fund Investment
(Rs crore)
BSE has declined to Rs 163,516 crore
increased to Rs 71,69,985 crore as of
end-December from Rs 63,85,475 crore
as of end-November. This is for the first time that the market capitalisation has crossed the Rs
71 lakh crore mark on BSE; it has risen 10 times from Rs 7,00,000 crore as of end-May 2003.
The PE ratio for the BSE 30 scrips has risen from 25.4 in November to 26.9 in December and
that for BSE 100 scrips has increased from 26.4 to 27.9 during the same period.
Similarly, despite the decline in total turnover on NSE, the daily average turnover has
increased. The total turnover has declined to Rs 366,385 crore in December from Rs 414,420
crore in November while the daily average turnover has increased to Rs 19,283 crore from Rs
18,837 crore. The market capitalisation has increased to Rs 65,43,272 crore in December
from Rs 58,76,742 crore in November.
The daily average volatility was high for most of the broad-based and sectoral indices
in November but lower than that in October. The highest volatility for the month was
recorded in the case of BSE metal index (2.78 per cent), followed by the BSE Bankex (2.63
per cent) and Bank Nifty index (2.74 per cent). Internationally, during November 2007,
volatility was the high for Indian indices, viz., S&P CNX Nifty (1.72 per cent) and BSE
77
Sensex (1.73 per cent), but it was lower than that for Nasdaq, Hongkong (HSI) and South
Korean (KOSPI). The annualised volatility was the highest for Hongkong (HSI) (22.6 per
cent), followed by S&P CNX Nifty (20.75 per cent) and KOSPI of South Korea (20.73 per
cent).
Sectoral Indices
In December, all the indices of BSE have registered positive growth with BSE sensex
rising by 4.8 per cent as against a decline of 2.4 per cent in November. However, the small
and mid-cap stocks have displayed impressive surge wherein BSE small-cap and mid-cap
indices have increased by 26.8 per cent and 14.5 per cent, respectively.
Among the sectoral indices of BSE, the consumer durables index has recorded the highest
gain of 30 per cent over the previous months close followed by realty index with 20 per cent
and health care by 16 per cent gain (Table 10.5).
Table 10.5: Monthly Percentage Change in the Stock Indices of BSE
November December
Percentage Change
Index
Base Year
December
2007
2007
for the Month
Closing Closing
High
Low
SENSEX
1978-79
19363.2 20287.0 20498.1 18886.4
4.77
BSE Mid-Cap
2002-03
8553.6
9789.5 9817.3 8641.6
14.45
BSE Small-Cap
2002-03
10526.0 13348.4 13376.8 10612.1
26.81
BSE 100
1983-84
10384.4 11154.3 11209.2 10298.3
7.41
BSE 200
1989-90
2454.2
2656.5 2666.6 2450.2
8.24
BSE 500
1998-99
7866.0
8592.4 8616.7 7907.3
9.24
BSE TECk
Apr 02,2001 3668.3
4015.0 4029.5 3669.2
9.45
BSE PSU
1998-99
9613.3 10468.1 10484.4 9359.7
8.89
BSE AUTO
Feb 01,1999 5469.5
5667.5 5865.4 5495.0
3.62
BANKEX
Jan 01,2003 10870.9 11418.0 11826.5 10664.7
5.03
BSE CG
Feb 01,1999 19637.4 19755.4 20715.6 18689.1
0.60
BSE CD
Feb 01,1999 5365.8
6956.8 6998.8 5471.7
29.65
BSE FMC
Feb 01,1999 2154.8
2319.9 2327.4 2144.6
7.66
BSE HC
Feb 01,1999 3822.9
4418.7 4440.1 3828.9
15.58
BSE IT
Feb 01,1999 4197.6
4529.6 4636.8 4126.7
7.91
BSE METAL
Feb 01,1999 17730.5 20020.2 20228.9 17804.7
12.91
BSE REALTY
10626.3 12727.4 12867.6 10693.8
19.77
BSE OIL&GAS Feb 01,1999 12359.7 13301.6 13400.2 12053.6
7.62
BSE -POWER
4344.2
4548.9 4632.9 4141.9
4.71
Dollex 30
4171.9
4226.8 4275.6 3915.9
1.32
Dollex 100
2771.1
2928.3 2942.4 2690.5
5.68
Dollar 200
1055.4
1122.4 1126.5 1030.2
6.35
Source: BSE ( www.bseindia.com)
Similarly, the CNX midcap and CNX Nifty junior have registered gains of 15 per cent
and 9.2 per cent, respectively, while S&P CNX Nifty has increased by 6.5 per cent. The IT
index and Bank nifty have continued to surge ahead (Table 10.6).
78
Index
S&P CNX Nifty
CNX Midcap
CNX Nifty Junior
Nifty Midcap 50
Table 10.6: Monthly Percentage Change in the Stock Indices of NSE
November 2007 December 2007
Percentage change
December
Base Year
Closing
Closing
for the month
High
Low
1995
5762.8
6138.6
6185.4 5676.7
6.52
2003
7993.7
9199.9
9232.8 8043.1
15.09
1996
11431.7
12488.3
12534.0 11455.1
9.24
2004
3360.9
3812.0
3830.1 3375.1
13.42
S&P CNX Defty
1995
5032.0
5399.9
5475.9 5000.0
7.31
S&P CNX 500
CNX 100
1994
4869.6
5656.0
5354.7
6048.2
5364.0 4895.9
6069.0 5592.2
9.96
6.94
CNX IT
1996*
4431.2
4812.6
4919.9 4402.5
BANK Nifty
2000
9375.8
9863.5
10124.8 9125.5
Note:*the base value has been changed from 1000 to 100 with effect from May 24, 2004
Source:NSE ( www.nseindia.com)
8.61
5.20
Amendment to Listing Agreement
The Sebi has amended the equity listing agreement, asking companies to set up an
agency to monitor the utilisation of issue proceeds and requiring the issuer company to place
the monitoring report before its audit committee. The audit committee will review the reports
and the statements indicating material deviations in the utilisation of issue proceeds and
makes appropriate recommendations to the board of the company.
Central Registry of Market Participants
The Sebi-promoted National Institute of Securities Market (NISM) is all set to
become a central registry of all intermediaries in Indian capital markets. In the long term,
NISM will be the central registry of every person working in the financial markets and it will
serve as a pool of information to know the advisor’s history for employers and investors
alike. The NISM has been made responsible to co-ordinate the task of certification in Indian
securities markets that would also include maintenance of a complete database of all market
participants who have been certified by it.
Private Equity Regulations
Sebi has suggested that the RBI will be the right authority to regulate private equity
investments in the country. In a letter to the government, Sebi has stated that as those
investments are mostly made in unlisted companies, it has to depend on RBI for the
information. RBI maintains the data on such investment for monitoring the inflow and
outflow of funds, while the stock market regulator has the authority to collect data for listed
entities or companies either operating in primary or secondary capital markets.
79
Short-selling
On December 20,2007, Sebi allowed short selling of shares by all classes of investors,
both institutional and retail. Short selling had been banned by the regulator in the wake of the
Ketan Parekh scam in 2001. Short selling refers to the sale of stocks, which the seller does
not own at the time of selling. To provide for settlement of shares sold short, Sebi was also
providing a mechanism of securities lending and borrowing (SLB) for all market participants.
Query about Market Movements
According to Sebi, the stock Markets’ steep rise and fall in October and November
were not triggered by any cartel. The market regulator has informed the finance ministry that
it has not detected any “untoward patterns” behind the recent stock market ‘boom’. Sebi’s
clean chit would assure retail investors to invest in Markets.
Measures to Widen the Market
The government may give its nod for non-government provident funds and gratuity
funds to invest up to 10 per cent of their investible funds in the stock markets in near future,
which give a further boost to the benchmark stock indices such as BSE sensex and NSE nifty.
Besides enhancing the investment limits, the government also propose to make eligible new
instruments where these funds could be invested. Till now, these funds were allowed to invest
up to 5 per cent of their investible funds in shares of companies that had an investment grade
debt rating from at least two credit rating agencies.
The government has allowed all trusts such as schools, temples and private hospitals
to invest in securities, including shares and bonds of listed companies. The Cabinet has
agreed to move an amendment in certain provisions of the Indian Trusts Act, 1882 in the next
Parliament session.
Foreign Institutional Investors (FIIs) and Mutual Funds
Given the buoyancy in domestic markets, FIIs have been net buyers of equities
despite calendar-year end repatriation of profits to the extent of Rs 5,579 crore, with purchase
of Rs 85,586 crore and sale of Rs 80,007 crore, while in November they were net sellers of
equities to the extent of Rs 5,850 crore. However, following the expected US Fed rate hike of
25 basis points, they turned risk averse and were net sellers for few days during the middle of
the month. Even so, the net FII inflows in the calendar year 2007 till December has touched
80
US $ 17,235 million or Rs 71,487 crore, the highest so far inflows into domestic equity
markets (Chart 10.B).
1000
600
800
400
600
200
400
0
200
-200
-400
31-Dec
-800
24-Dec
-600
-200
17-Dec
0
10-Dec
-400
Net Mutual Funds Investment
(Rs crore)
800
3-Dec
Net FII Investment (Rs crore)
Chart 10.B : Daily Investment of FIIs
and Mutual Funds (December 2007)
Net FII investment
Net Mutual Funds Investment
Even the mutual funds have
been net buyers of equities to the extent
of Rs 3,203 crore with purchases of Rs
19,723 crore and sales of Rs 16,521
crore. It is noteworthy that the mutual
funds have been net buyers when the
FIIs had been net sellers of equities
during the mid-month (Chart 10 B).
The buoyancy in the stock
indices has helped mutual funds to
mobilise huge amounts through new fund offerings as well as through existing schemes. The
asset under management (AUM) has increased to Rs 5,48,240 crore as on December 31 as
against Rs 5,37,943 crore as on November 30, 2007, which is much higher than that in
December 2006 at Rs 3,37,310 crore.
In December, the bulk of inflows through new offerings have been in income and
growth schemes while in the case of existing schemes, the liquid and money market schemes
have been more popular among the investors. Of the total AUM, the income schemes account
for 36 per cent of the total followed by growth schemes with 35 per cent and liquid and
money market schemes accounting for 20 per cent share.
Unit Holding Pattern of Mutual Fund Units
As per the data put out by the Sebi on its website, individuals account for about 42 per
cent of the total net assets while corporates and institutions account for 50 per cent. However,
in the case of individuals, it needs to be acknowledged that a single individual could be
holder of multiple schemes (Table 10.7).
Table 10.7: Unit Holding Pattern of Mutual Funds Industry as on March 2007
Number of
Per cent to total
Net Assets
Per cent to
Category
Investors
Investors accounts
(Rs.crore)
total net assets
Accounts
Individuals
28869740
96.45
139210.91
42.35
NRIs/OCBs
560316
1.87
17556.65
5.34
FIIs
669
0.00
7802.50
2.37
Corporates/
500639
1.67
164175.43
49.94
Institutions/ Others
TOTAL
29931364
100.00
328745.49
100.00
81
REITS
The much-awaited real estate investment trusts (REITs), which invest directly in real
estate projects after collecting funds from investors through stock exchanges, are set to see
their entry in Indian markets after Sebi has put out draft rules for such trusts, on December
28, 2007. According to Sebi, Banks, public financial institutions, insurance companies and
corporate houses can be trustees of REITs, which should be created under the Indian Trusts
Act. REITs will be close-ended and the schemes will be compulsorily listed on stock
exchanges. Before launching, the schemes should also be valued by a principal valuer
empanelled with Sebi. REITs, which will be regulated by Sebi, are barred from making
investments in vacant land and none of their schemes should have exposure to more than 15
per cent of their funds in a single property project, according to the draft rules, which will be
finalised after getting feedback from the public and experts. They should also not have
exposure to more than 25 per cent of all the real estate projects developed, marketed, owned
or financed by a group of companies.
Stringent KYC Norms
Markets regulator Sebi on December 05, 2007, informed market intermediaries,
including mutual fund houses, and registrar and transfer agents (R&TAs), that they cannot
escape the blame for wrong or improper Know Your Clients (KYC) compliance and put the
blame on third-party companies (outsourcing agents) for wrong or improper data on clients.
According to Sebi, if any lack of diligence and care in the maintenance of records is proved,
the AMC (asset management company) and the intermediary will be held liable for violation
of the Prevention of Money Laundering Act Rules.
iii) Derivatives
Chart 10.C: Productwise Contribution to
Total Derivatives Turnover
11000
November-07
turnover in equity derivatives has declined to Rs
12,74,230 crore in December from Rs 15,17,305
crore in November and daily average turnover has
declined to Rs 67,065 crore from Rs 68,968 crore.
Among the different instruments, stock futures
have continued to dominate the market with 67
Turnover (Rs billion)
Given the buoyancy in spot market, the
December-07
9200
7400
5600
3800
2000
200
Index
Futures
Stock
Futures
Index
Options
per cent share followed by index futures for 23 per cent (Table 10.8) (Chart 10.C).
82
Stock
Options
Table 10.8: Business Growth of F & O Segment of NSE.
Stock Futures
Index Options
Stock Options
Grand Total
Average
Total
Total
Month/
Daily
No. of Turnover No. of Turnover Futures No. of Turnover No. of Turnover Options No.of Turnover
Year
Turnover
contracts (Rs. cr.) contracts (Rs. cr.) Trading contracts (Rs. cr.) contracts (Rs. cr.) Trading contracts (Rs. cr.)
(Rs. cr.)
Index Futures
20022126763
03
43951
(10.0)
200317191668 554462
04
(26.0)
200421635449 772174
05
(30.3)
200558537886 1513791
06
(31.4)
200681487424 2539574
07
(34.5)
10676843 286532 330483 442241
(65.1)
(75.1)
3523062 100134 109381 16768909 439864
(2.1)
32368842 1305949 1860411 1732414
(61.3)
9247
(87.3)
(22.8)
(24.9)
52823 5583071 217212 270035 56886776 2130446
(2.5)
(10.2)
1752
8388
(12.7)
47043066 1484067 2256241 3293558 121954 5045112 168858 290812 77016465 2547053 10107
(58.3)
(88.6)
(4.8)
(6.6)
(11.4)
80905493 2791721 4305512 12935117 338469 5240776 180270 518739 157619271 4824251 19220
(57.9)
(89.2)
(7.0)
(3.7)
(10.8)
104955401 3830967 6370541 25157438 791906 5283310 193795 985701 216883573 7356242 29543
(52.1)
(86.6)
April
10,383282 205,458 10647866 296,629 502087
07
(33.3)
(48.1) (81.5)
May
10383282 214,523 13350667 400,096 614,619
07
(29.7)
(55.3) (85.0)
Jun 07 11407865 240797 14287983 451314.3 692,111
(29.9)
(56.0) (85.8)
Jul 07 10605483 238577 18888008 647356 885933
(24)
(64)
(88)
Aug17052495 363988 15798351 519385 883373
07
(34)
(49)
(84)
Sep-07 10904564 256470 17653654 670969 927439
(24)
(63)
(86)
Oct-07 17842671 485079 24008470 1120263 1605342
(26)
(61)
(88)
Nov12668280 365564 18033294 989113 1354676
07
(24)
(65)
(89)
Dec-07 9609209 287357 16565236 849997 1137354
(23)
(67)
(90)
Note: Figures in bracket are per cent to total.
Source: www.nseindia.com
(10.8)
2007-08
(2.6)
(13.4)
4874462 97,150 635357 17,050 114200 26540967 616287
30814
(18.5)
4055682 85,465 758306 23,358 108,823 28383804 723443
4340991
4221585
34450
(15.0)
21928 114,431 30731428 806542 38407
(14.2)
94561 1022158 34582 129143 34737234 1015077 46140
(12)
92503
694589
6439679 140961 945400
32398 173359 40235925 1056731 48033
(16)
37485 145450 34119312 1072889 53644
(14)
6407789 173992 1126544 54328 228320 49385474 1833663 83348
(12)
4620426 107965 940668
4008708 116952 811631
45676
45676 35521913 1517305 68968
3429425 103165 649434
(11)
33711 136876 30253304 1274230 67065
(10)
According to Economic Times, nearly 79 per cent of nifty December futures were
rolled over to the January series; this is one of the highest rollover of the nifty futures in
recent period. In addition to positions carried forward from the December series, lot of fresh
long positions have been created over the last few sessions of the month. This is evident from
Nifty January futures losing at a 40-point premium to spot. The cost of carry works out to
6.65 per cent, which means that bulls are willing to pay a premium to carry forward their
positions. The current trend in the options market for January series indicates a bullish picture
as well. The nifty put-call ratio (PCR) for the January series works out to 1.27. A PCR of
83
more than 1.5 indicates that the market is probably in an over bought zone, while a figure
nearer to 1 indicates that the market could be oversold. Over the last few months, current
month Nifty futures have consistently traded at a premium to spot and the implied volatility –
volatility as indicated by the price of an option- for put options has been lower than those for
the corresponding call options. This means that option writers are willing to write puts at a
lower price because they do not expect the market to fall sharply in the near term. At the
same time, traders with long positions are in no hurry to buy put options to hedge their
positions, as they too do not expect a steep fall. This suggests complacency, which usually
has been a precursor to a sudden correction (Table 10.9).
Particulars
Total
Daily Averages
Total
Daily Averages
End of day averages
Per cent of open interest to
daily average traded value
Source:NSE website
Table 10.9: Details of Futures and Options Trading
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Traded Value (Rs in crore)
10,15,077 10,56,731 10,72,889 18,33,663 15,17,304 12,74,230
46,140
48,033
53,644
83,348
68,968
67,065
Number of Contracts
34,737,234 40,235,925 34,119,312 49,385,474 35,521,913 30,253,304
1,578,965 1,828,906 1,705,966 2,244,794 1,614,632 1,592,279
Open Interest (Rs in Crore)
81,095
82,726
86,082
92,538
100,067
108,858
176
172
160
111
145
162
On December 17, 2007, Sebi invited comments from market signalling the regulator’s
intention to move fast on the proposed products before December 21, 2007. The Sebi board,
at its meeting on November 14, 2007, cleared the introduction of seven new products,
namely, mini-contracts in equity indices, options contracts with longer life/tenure, futures and
options (F&O) contracts on volatility index, options on futures, F&O contracts on bond
index, exchange-traded currency (foreign exchange) F&O contracts and exchange-traded
products involving different strategies. In a note, put on its website, Sebi explained details on
each of the products, which formed the crux of the Sebi’s Derivatives Market Review
Committee headed by Rammohan Rao.
Corporate Debt Market
Despite the pressure on liquidity, the mobilisations in the corporate bond market have
increased to Rs 4,091 crore as against Rs 1,215 crore in November and it has been more than
that raised in December 2006 at Rs 3,565 crore. In view of the approaching Basel-II deadline,
banks and financial institutions have raised the bulk of their funds (Table 10.10).
84
Sr
No
Table 10 .10: Profile of Major Commercial Bond Issues During December 2007
Issuing
Nature of
Coupon in percent
Company / Rating
instrument
per annum and tenor.
Amount in
Rs. Crore.
Banks/FIs
Bank of Baroda
1
AAA by Crisil
Export Import Bank of India
2
AAA by Crisil
3
4
5
6
7
8
9
10
11
Upper Tier II
Bonds
Bonds
State Bank of Patiala
AAA by Crisil, Care
Upper Tier II
Bonds
UCO Bank
AA- by Crisil, Fitch, Care
Union Bank of India
AA+ by Crisil, Fitch
Union Bank of India
AA+ & AA by Crisil & Fitch
Vijaya Bank
AA+ by Fitch, Care
TamilNadu Electricity Board
A(SO)
& A+(SO) by Crisil & Icra
Punjab National Bank
AAA by Crisil, Care
Punjab National Bank
AAA by Crisil, Care
NABARD
AAA by Crisil, Care
Upper Tier II
Bonds
Lower Tier II
Bonds
Perpetual
Bond
Lower Tier II
Bonds
9.30 per cent with a step-up of 50 bps if
Call is not exercised at the end of 10 years.
500
9.25 per cent for 5 years
200
9.30 per cent for 15 years with a step-up of
50 bps if Call is not exercised at the end of
10 years.
9.35 per cent with a step-up of 50 bps if
Call is not exercised at the end of 10 years.
400
320
9.35 per cent for 124 months
400
9.90 per cent with a step-up of 50 bps if
Call is not exercised at the end of 10 years.
200
9.35 per cent for 10 years
200
Bonds
8.45 per cent with a step up of 50 bps for 7
years with call at the end of 5th year
200
Perpetual
Bond
Upper Tier II
Bonds
9.75 per cent with a step up of 50 bps for 7
years with call at the end of 5th year
9.35 per cent with a step up of 50 bps for 7
years with call at the end of 5th year
Bonds
9.15 per cent for 3 years
300
500
336
Central PSU
Power Finance Corporation
Coupon linked to 1 yr Gsec, 5 & 10 yrs for
1
Bonds
200
AAA by Crisil, Icra
3yrs, 5yrs & 10 yrs
Total
4091
Total for December-06 (a year ago): Rs 3565 crore. Total for Nov-07 (a month ago): Rs 1215 crore.
The amount shown in brackets above denotes the greenshoe option of the issue.
*Total includes 10 more issues for less than Rs 200 crore (4 bank's issues, 5 NBFC and 1 state undertaking)
Total includes 4 more issues for less than Rs 200 crore (2 NBFCs, one Bank and a corporate)
Source: Various Media Sources
As per the Sebi data, during the fiscal year from April to December, 2007, secondary
market trades (both OTC and exchanges) stood at Rs.69, 018 crore whereas primary
issuances by corporate in the form of private placement during the same period stood at
Rs.93, 989 crore as per information collected from BSE and NSE.
In order to encourage the banks to increase the flow of credit to infrastructure sector,
RBI has decided to allow banks to invest in unrated bonds of companies engaged in
infrastructure activities within the ceiling of 10 per cent for unlisted non-SLR securities.
The Sebi has assured full co-operation to the financial market participants in
developing India’s municipal bond market for financing the projects of the local bodies.
According to Sebi chairman M Damodaran, there needs to be a flexibility in developing
85
municipal bonds and the local bodies must have a team of experts who can issue and manage
these bonds for an effective resource utilisation.
The Sebi has relaxed rules for corporate bond issuances by allowing debt instruments
below the investment grade to collect funds through public and rights issuances on December
03, 2007. The market regulator has also given debt issuers the freedom to tap the market with
one credit rating, instead of the existing requirement of mandatory rating by two different
credit rating agencies, to reduce costs. According to Sebi, the liberalised rules, which have
come into place with immediate effect, have been aimed at facilitating the development of a
vibrant primary market for corporate bonds in India. The capital markets regulator has also
removed the structural restrictions currently placed on debt instruments such as those on
maturity and put-call option on conversion to afford issuers with the desired flexibility in
structuring of instruments to suit their requirements.
Government Securities Market
i) Primary Market
Central Dated Securities
As per the scheduled calendar of issuances, the government has raised Rs 7,000 crore
through the issuance of 7.99 per cent 2017 and 8.33 per cent 2036 papers for notified
amounts of Rs 5,000 crore and Rs 2,000 crore, respectively, through price based auctions
using multiple price auction method (Table 5). The cut-off yield for the 10-year paper has
been set higher at 7.92 per cent as against 7.90 per cent in the previous month. However, the
yield on 29-year paper has been offered at 8.26 per cent as against 8.39 per cent set in
November 2007 (Table 10.11).
Table 10.11: Details of Central Government Market Borrowing
(Amount in Rs Crore)
Indicative
Devolvement on
Date of Nomenclature Type of Notified Competitive
Competitive
YTM at
Primary Dealers
Auction
of Loan
Auction Amount Bids Received Bids Accepted cut-off price
(Rs crore)
(in per cent)
NumberAmountNumberAmount
7.99 per cent
7.92 per cent
14-Dec-07
Normal 5000
218 10587 134
4988
2017
(Rs. 100.47)
8.26 per cent
8.33 per cent
Normal 2000
216
7384
15
1990
14-Dec-07
(Rs.100.76)
2036
Source: RBI Press Releases
86
The Clearing Corporation of India (CCIL) has been entrusted the task of developing a
platform for e-auctions of government bonds, where they would be auctioned. The move is
expected to reduce the burden of tedious paper work for the RBI.
State Government Loans
Eleven state governments have tapped the market on December 18 by auctioning 10-year
state development loan for an aggregate amount of Rs 2,963 crore through a yield-based
auction using multiple price auction method. The cut-off yields have been offered in the
range of 8.39 per cent –8.58 per cent as against a range of 8.45 per cent -8.50 per cent set in
the previous month for the six state loans.
Treasury Bills
In December, the absorptions under MSS through treasury bills have been reduced
rather sharply; the total amount mobilised through all the T-bills was Rs 7,500 crore as
against Rs 20,000 crore in November. The primary yields have displayed a mixed trend with
those on 91-day and 364-day TBs declining while that on 182-day ruling steady during the
month (Table 10.12).
Table 10.12: Auctions of Treasury Bills
(Rs crore)
Bids Received
Bids Accepted
Weighted Implicit
Date of Date of Notified
Total Face Value
Total Face Value
No.
avg. price Yield
NonNonAuction Issue
Amt No. Competitive
Competitive
Competitive
Competitive
91-Day Treasury Bills
5-Dec 7-Dec 2000 63
2609
2400
33
1500
2400
98.17
7.52
12-Dec 14-Dec 500 52
2482
1800
10
500
1800
98.18
7.44
19-Dec 21-Dec 500 54
3180
7300
9
500
7300
98.20
7.35
26-Dec 28-Dec 500 55
2510
950
16
500
950
98.21
7.35
182-Day Treasury Bills
12-Dec 14-Dec 500 53
2535
125
5
500
125
96.35
7.6
26-Dec 28-Dec 500 57
2136
22
500
96.36
7.6
364-Day Treasury Bills
5-Dec 7-Dec 2000 97
5712
50
2000
92.88
7.71
19-Dec 21-Dec 1000 79
4485
250
18
1000
250
92.91
7.66
Source: Weekly Statistical Supplement, RBI
ii) Secondary Market
Despite the pressure on liquidity, the secondary market turnover for gilt-edged
securities has increased as the banks increased their exposure to securities in the wake of
declining credit off-take. The weekly average turnover has increased from Rs 19,191 crore in
week ending November 30 to Rs 34,224 crore in week ending December 7, as the finance
87
minister said that the GDP growth had moderated there by evoking expectations of a stable
interest rate outlook and also due to improved liquidity situation on account of increased
government expenditure. However, the turnover has declined to Rs 32,013 crore in week
ending December 14 and further to Rs 21,582 crore in week ending December 21 due to
advance tax payments and dated securities auction outflows. The last holiday-shortened
week, the turnover has dipped to Rs 18,416 crore. However, it was expected that in the new
calendar year the liquidity situation would improve due to interest inflow on special deposit
schemes and increased government expenditure
Table 10.13: Inter-Category Wise NDS Reported Outright Trade of Central Govt
(Buy side) December 2007
Sellers
Public Private
Total
Buyer Category
Mutual Coop
Foreign Primary
FIs Others Ins.Cos
Sector Sector
Funds Banks
Banks Dealers
Banks Banks
100
Foreign Banks
42.17 24.45 17.65 9.4
1.15 3.41 0.00 0.08
1.69
100
Primary Dealers
38.8
11.16 18.46 12.51 5.63 7.37 0.00 2.25
3.81
100
Public Sector Banks
31.92
28
13.3 14.4
7.14 2.42 0.00 1.05
1.77
100
Private Sector Banks 37.06 20.45 15.98 17.09 2.34 0.92 0.00 5.04
1.12
100
Mutual Funds
21.19
27.2 22.82 17.39 1.63 3.26 0.00 0.00
6.52
100
Coop Banks
61.87
19.2
4.63 8.29
2.89 3.12 0.00 0.00
0.00
100
FIs
0.00
100
0.00 0.00
0.00 0.00 0.00 0.00
0.00
100
Others
5.02
43.95 0.00 51.03 0.00 0.00 0.00 0.00
0.00
100
Ins.Cos
17.62
1.25 12.48 3.74
3.74 1.25 0.00 59.91 0.00
Source: CCIL Rakshitra – January 2008
Table 10.14: Category-Wise Market Share
for the Month of December 2007
Reverse
Repo
Category
Outright
Repo
Buy Sell
Primary Dealers
17.22 22.09 1.94 26.74
Public Sector Banks
22.77 16.28 0.02
0.43
Private Sector Banks
14.49 12.34 4.90 37.89
Foreign Banks
38.90 38.11 19.64 34.93
Mutual Funds
2.75 3.55 71.68 0.00
Cooperative Banks
2.58 3.47
0.03
0.01
FIs
0.03 0.00
0.43
0.00
Ins. Cos
1.20 2.06
1.31
0.00
Others
0.06 2.10
0.05
0.00
Source: CCIL Rakshitra- January 2008
As
per
the
inter-category
Per cent
of total
market
share
38.9
17.22
22.77
14.49
2.75
2.58
0.03
0.06
1.2
data
published by CCIL for NDS reported trades,
foreign banks have been the dominant
players in dated securities reported on the
NDS platform of the RBI, followed by public
sector banks (Table 10.13).
Mutual funds have been the major
lenders while foreign banks have been the
major borrowers of funds. In the outright
market, foreign banks have been dominating, buy as well as sell side of trades by accounting
for over 38 per cent of the total trades (Table 10.14).
88
Money Market
Though there has been pressure on
liquidity, the weighted averages of call rates
have ruled around the repo rate of 7.75 per
cent except for a few days in the last week
of the month when the rate overshot the
said benchmark rate. Also, the simple
average of call rates has been higher at 7.11
Table 10.15: Comparison of Call,
Overnight CBLO and Repo rates
Weighted
Daily Average
Average Rates
Volumes
Week
(in per cent)
(Rs. crore)
Ending
Overnight
Overnight
Call
Repo Call
Repo
CBLO
CBLO
7-Dec-07 6.86 6.62 6.64 8430 33505 16294
14-Dec-07 7.77 7.47 7.49 10027 33218 15136
20-Dec-07 6.54 5.70 6.49 9777 29041 12135
28-Dec-07 7.77 7.73 7.62 10341 26765 11183
Source: CCIL Weekly Updates, Various Issues
per cent in December as against 6.91 per cent in November. The standard deviation, a
measure of volatility, for call rates was higher in December than that in the previous month
(Table 10.15).
Among the three short-term money market segments, the volume in call and CBLO
market has increased while that in repo declined, as market participants preferred the earlier
two segments.
Reverse Repo and Repo under RBI’s LAF
The RBI has maintained liquidity by injecting funds through the repo window; so
much so, that amounts injected exceeded much more than those absorbed during the month.
The liquidity support of the RBI through repo window has stood at Rs 198,210 crore while
absorptions were just Rs 12,050 crore. The repo bids tendered and accepted have increased
from Rs 330 crore in the week ending December 7 to Rs 26, 410 crore in week ending
December 14 due to outflows toward advance tax payments and dated securities and then
jumped to Rs 143,615 crore in week ending December 28 in the holiday shortened week,
wherein the bulk of bids were accepted between December 26-28 (Table 10.16).
Table10.16: Repo/Reverse Repo Amount Tendered under RBI's LAF
(Amount in Rs Crore)
Repo
Reverse Repo
Week
Tendered
Accepted
Tendered
Accepted
Apr-07
166175
166175
174000
22919
May-07
151005
151005
305420
28983
Jun-07
19370
19370
1432535
54979
Jul-07
0
0
1954710
56941
Aug-07
0
0
1121405
488317
Sep-07
0
0
386890
386890
Oct-07
0
0
824210
824210
Nov-07
152480
152480
108520
108520
Dec-07
200160
200160
15755
15755
Source: RBI Weekly Statistical Supplement (WSS)
89
Outstanding
Amount
-17245
26798
-8895
2992
16855
-6070
5015
43960
184405
Foreign Exchange Market
The rupee has appreciated against
-200
39.35
-400
39.30
-600
39.25
-800
39.20
Net FII investment
Rupee-dollar Exchange Rate
39.40
the dollar by 15 paise in December despite
increased demand for dollars due to record
surge in international crude oil prices
amidst lower foreign currency inflows.
Though, there were expectations that the
RBI would not allow the rupee to
appreciate in view of the widening current
31-Dec
0
27-Dec
39.45
24-Dec
200
19-Dec
39.50
17-Dec
400
13-Dec
39.55
11-Dec
600
7-Dec
39.60
5-Dec
800
3-Dec
Net FII Inflows (Rs crore)
Chart 10.D:Daily Net FII Inflows and
Rupee-Dollar Exchange Rate (Dec 2007)
account deficit and continued to intervene
Rupee-Dollar Exchange Rate
in the market, the buoyancy in the stock
markets has supported the appreciating trend. The foreign currency inflows have stood at US
$ 2,042 million as against US $ 10,096 million in November due to curbs on participatory
notes and year-end repatriation of profits by FIIs. The US fed rate cut announced on
December 11, which was as per market expectations, thereby the market remained
impervious of the hike despite increased interest rate differential. Also, the joint action by the
US fed and other central banks to boost global liquidity has had limited impact on the rupee.
The RBI governor has said that the interest rate cuts in US was a relevant development, but
With the widening interest rate
Chart10.E: Rupee-Dollar Exchange Rate
and Forward Premia Movement (Dec 2007)
1-month forward premia
6-month Forward Dollar
3.50
Rupee-Dollar Exchange Rate
differential between the domestic and US
in
on-shore and off-shore arbitrage also
supported firmness in the premia. The
2.00
1.50
1.00
one-month forward premia rose from 1.67
40.00
39.90
39.80
39.70
39.60
39.50
39.40
39.30
39.20
39.10
39.00
31-Dec
with the other two tenures. Further, the
2.50
26-Dec
has firmed at the short-end as compared
3.00
19-Dec
hedging by exporters, the forward premia
14-Dec
forward markets, import covering and
11-Dec
interventions
6-Dec
RBI
3-Dec
rates,
Forward Premia (per cent)
interest
Rupee-Dollar Exchange Rate (Rs)
not a determining factor for India’s monetary policy. (Chart 10.D).
per cent on December 3 to 2.74 per cent
on December 11 but sliped to 2.59 per cent on December 12 and then rose to 3.20 per cent on
December 17. As the RBI refrained from intervening in the market, the premia has fallen to
90
1.97 per cent on December 19. Due to month-end demand for dollars, the premia has risen to
2.89 per cent on December 27 and then dipped to 2.28 per cent on December 31 (Chart 10.E).
The total forex settlement volume on CCIL has increased both in rupee as well as dollar
terms; it has risen to Rs 91,62,697 crore in December from Rs 9,00,169 crore in November
and in dollar terms, it has increased to US $ 228,725 million from US $ 225,881 million
(Table 10.17). Though the volume in spot market has declined as compared with the volume
in November, all the other segments have displayed increases in their respective volumes.
Table 10.17: Category-Wise Settlement Volume in Forex Market for the Month of August 2007
Settlemen
t
period (N)
2002-03
-
Cash
(A)
-
2003-04 1036 5951
(B)
-
(N)
-
Tom
(A)
-
26861 1555 9150
(B)
-
Spot
Forward
Total
Average
(N)
(A)
(B)
(N) (A)
(B)
(N)
(A)
(B) (N) (A) (B)
74423 96483 462370 25809 39619 195665 100232 136102 658035 1101 1496 7231
41335 251258354541 1627644 76668131700 622691 330517 501342 23185311425 2161 9994
2004-05 8747 69882 312311 16178 112750 504325 356382533015 2389936 85020184133 835863 466327 899782 40424351976 3813 17129
2005-06 12946 154626686160421307 1996218855851371059585089259423958433724035210736886489649 117968852396742084 5020 22297
2006-07 14292 233010105041325708 3165851427018481702884740 3993765 85106342646 762957 606808 177698180230782550 7466 33710
2007-08
Apr-07 1503 25993 109763 2596 37177 157760 55509 131841 557876 8065 46902 208121 67673 241913 103351935621273254396
May-07 1213 21579 88118 1997 27416 112115 52868 123237 503448 7163 37633 163896 63241 209865 867578 31621049343379
Jun-07
1244 23761 96909 2078 32973 134494 50598 116061 473537 7872 45915 198193 61792 21871 903131 29421041543006
Jul-07
1222 24387 98578 1952 27648 111750 50105 133051 538466 7743 54519 229497 61201 239604 978291 30511198048915
Aug-07 1119 23805 97105 2367 37802 154054 55995 132831 542257 7994 55897 235261 67475 250335 102867732131192148985
Sep-07
1099 28361 114231 1902 35579 143570 45842 127371 514807 9291 68355 286079 58134 259666 105868730601366755720
Oct-07
1239 30723 121483 1990 34058 134831 59482 157010 621257 8868 78706 324522 71579 300496 120209234091430957243
Nov-07 1079 25542 100842 1896 31880 125794 45721 116053 457536 8359 52405 215997 57055 225881 900169 30031188847377
Dec-07 1190 27318 107758 2001 35115 138599 37473 94722 374173 10748 71571 295739 51412 228725 916270 27061203848225
Note: N-No of Trades; A-Volume in USD Million; B-Volume in Rs Crore
Source: CCIL Rakshitra, CCIL Market Update, various issues
Commodities Futures Market
The turnover in commodity futures market has declined to Rs 2,78,512 crore in
December from Rs 3,51,100 crore in November. However, the turnover during April91
December 2007 has been slightly lower at Rs 27,16,901 crore as against Rs 27,39,340 crore
in the corresponding period previous year. As usual MCX has dominated the market with 80
per cent share, while the share of NCDEX has improved from 13 per cent in total turnover in
November to 15 per cent in December (Table 10.18). The year 2007 was disappointing for
commodity futures as the year was demarcated by falling volumes, absence of any initiatives
to develop the market and a lack of clarity on many policy related issues, which have
dampened the enthusiasm of players, intermediaries and exchanges. One of the important
decisions being awaited includes giving more powers to the market regulator. The
parliamentary committee has recommended more powers to FMC, over those originally
suggested by the government. The bill to amend the Forward Contract Regulation Act is
pending and needs to be reintroduced in the parliament with changes incorporating the
parliamentary committee’s recommendations. According to FMC Chairman B C Khatu, since
the market has already grown, giving more powers to the regulator would not hurt anyone’s
interest.
Table 10.18: Monthly Turnover Of Commodity Exchanges
(Amount in Rs. crore)
April-Dec 07
Oct-07
Nov-07
Commodity Exchange
Turnover
Turnover
Turnover
Multi Commodity Exchange
1
2058494
269001
292075
of India Limited, Mumbai
(75.8)
(81.0)
(83.2)
National Multi-Commodity
2
13989
1557
1111
Exchange of India Limited, Ahmedabad
(0.5)
(0.5)
(0.3)
National Commodity &
3
388084
51067
46055
Derivatives Exchange Ltd. Mumbai
(14.3)
(15.4)
(13.1)
4 Chamber of Commerce, Hapur
12610
1006
1655
(0.5)
(0.4)
(0.5)
5 National Board of Trade, Indore
60977
3886
8649
(2.2)
(2.2)
(2.5)
Total *
2716901
332123
351100
Note: * Total includes the monthly turnover of the remaining 18 commodity exchanges.
Figures in brackets denotes percentage share in the total turnover.
Source: FMC (www.fmc.gov.in)
Dec-07
Turnover
224617
(80.6)
984
(0.4)
41486
(14.9)
1645
(0.6)
7690
(2.8)
278512
Ahmedabad-based National Multi Commodity Exchange (NMCE), the online multicommodity exchange, is set to receive Rs 100 crore of fresh capital infusion. In the process,
promoters stake would come down to 18 per cent, while that of individual investors would
decline around to 17 per cent. This equity dilution is taking place to accommodate BSE,
which has been allotted new shares amounting to 26 per cent stake in the exchange.
92
Commodity-wise Turnover
The trading in commodity futures market has been concentrated in few metals which
together account for 60 per cent of the total trading. Of them, precious metals such as gold
and silver contribute 45 per cent of the total turnover; though the share of gold has increased
in December while that of silver has declined (Table 10.19). Commodity markets have
remained relatively strong in the current year with price performance of select commodities
setting new record or reaching multi-year highs. While tightening demand-supply
fundamentals influenced the crude market, gold attracted considerable investor interest for a
host of reasons. Agricultural commodities too displayed unprecedented price action,
supported by burgeoning demand from the bio fuels sector and lower production following
competition for acreage and weather aberrations. Among the agricultural commodities, soy
oil has accounted for 6 per cent of the total turnover.
Table10.19: Commodity-wise turnover
Sep-07
Oct-07
Nov-07
Dec-07
Trading on
Trading on
Trading
Trading
Commodit
Percentage
Percentage
Percentage
Percentage
all
all
on all
on all
y
to total
to total
to total
to total
exchanges
exchanges
exchanges
exchanges
turnover
turnover
turnover
turnover
(Rs. Cr)
(Rs. Cr)
(Rs. Cr)
(Rs. Cr)
Metal
Gold
63465
23.3
86701
26.1
107006
30.5
86734
31.1
Silver
44479
16.4
54520
16.4
68586
19.5
41198
14.8
Copper
30750
11.3
32076
9.7
31753
9.0
24332
8.7
Zinc
20599
7.6
18491
5.6
15335
4.4
11605
4.2
Nickel
7724
2.8
7645
2.3
3548
1.0
3165
1.1
Lead
11624
4.3
18848
5.7
11723
3.3
8679
3.1
Agricultural Product
Pepper
5656
2.1
8596
2.6
6821
1.9
4073
1.5
Jeera
3480
1.3
4694
1.4
2672
0.8
2102
0.8
Soy oil
12625
4.6
17146
5.2
21204
6.0
17920
6.4
Gaur seed
9616
3.5
6379
1.9
5836
1.7
4725
1.7
Chana
5087
1.9
4936
1.5
3160
0.9
3745
1.3
Mentha oil
309
0.1
Source: FMC (www.fmc.gov.in)
World Prices
According to NCDEX report quoting World Bank data, agriculture commodity prices
globally have risen more steeply than metals in 2007. Wheat topped the list with an average
gain of 44 per cent to US $229 per tonne between January - November 2007 as against that of
the average price of US $159 per tonne last year. Even Soyabean oil has risen to 43 per cent
to US $856 per tonne in first 11 months of 2007 as against that of US $598 per tonne in 2006.
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Soybean meal rose by 41 per cent to US $296 per tonne during January –November 2007 as
against that of US $209 a year ago.
An International View
According to Jim Rogers, founder of Rogers International Commodities Index (RICI),
the Indian government needs to be taught the meaning of the commodity market to become a
top investment destination though it may have a bigger size than the stock market in India. In
the present circumstances, India does not stand a chance to match China, not even for the
next five years, in terms of investment opportunities in commodity markets, and one must be
very careful because the India government very often interferes and causes problems.
System of Aggregation
According to B C Khatua, chairman, Forward Markets Commission (FMC), an
alternative market to sell agricultural commodities, which could scale up the income of
farmers, was only possible through their direct participation in futures trading with the help
of representative institutions. Khatua said that commodity exchanges and FMC were working
on various models of aggregation that would institutionalise the direct involvement of
farmers in commodity futures. This could enable better price discovery and efficient risk
management. The regulator in the past had hinted that it was in the process of identifying
aggregators who could participate in comexes on the behalf of farmers.
FMC Meeting
A meeting of the Commission and the National Exchanges with farmer organizations
and prominent farmer representatives was organized at Mumbai on 18th December 2007, to
apprise them of the latest developments in the Commodity Futures Market and to have their
views on farmer’s participation in the Commodity Futures Market. The representatives of
various farmers’ organizations such as Shetkari Sangathan (Shri Sharad Joshi), Kisan
Coordination Committee (Shri Bhupinder Singh Mann), Bhatiya Kisan Union (Shri Ratan
Singh Mann), Federation of Farmers Association, Kisan Jagriti Mandal (Shri Sudhir Panwar),
Karnataka Pradesh Red Gram Growers Association, etc., participated in the discussion. The
participants were of the view that there was need for an alternate, efficient marketing
platform that would mitigate the effect of the poor marketing infrastructure available in the
physical market and result in better price realization for the farmers. They lend their support
to futures trading in agricultural commodities. They also expressed the view for consistency
in government policy and that the ban on wheat and pulses should be lifted immediately. The
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participants requested FMC and the Exchanges to scale up the awareness programmes for
farmers in the area of futures trading.
Second Power Exchange
NTPC, the country’s top power generating firm, expects to float a joint venture firm
with NCDEX, PFC and others by month-end for the purpose of setting up India’s second
power exchange. According to NTPC Chairman and Managing Director T Sankaralingam,
efforts were on to sign an agreement for the joint venture in the near future. As they have
already talked to all the promoters. Power sector regulator Central Electricity Regulatory
Commission (CERC) had directed NTPC and NCDEX to form a separate company for the
proposed power exchange.
Withdrawal of Margins
NCDEX has withdrawn the additional margins imposed on pepper, jeera, chana, guar
gum, guar seed, red chilli, mentha oil and maize with effect from December 24,2007 as per
the directives received from the Forward Markets Commission and in terms of the Bye-laws,
Rules and Regulations of the Exchange.
Commodity Parks
According to Spices Board chairman VJ Kurian, the board will empower farmers to
play a part in the futures market through active participation in the spices park, to provide
common facilities and give an encouragement to value addition. The proposed spices parks in
various parts of the nation will have warehousing facilities and could inculcate the habit of
warehousing receipts and trade. The board is also thinking of asking the commodity
exchanges to invest and be part of the various parks. Farmers will have the option of storing
their commodities in the warehouses and the receipts can be used to get credit until he
manages to sell at the desired price
Development of Warehouses
According to Prabhakar Patil director of Forward Markets Commission, commodity
exchanges and the Forward Markets Commission (FMC) are waiting for the implementation
of ‘Warehouse Development and Regulatory Authority’ under Warehousing (Development
and Regulation) Act, for orderly development of commodity exchanges. The authority
notified that they would make warehouses accountable for the commodities stored in them,
and make warehouse receipts negotiable instruments, enabling the farmers to get bank loans
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easily. Even warehouses would be asked to produce electronically generated data on goods
stored. Thus, the warehouses can be networked to find out the total stock of goods, decide on
prices and potential availability.
Rubber Volatility
The Rubber Board, a trade promotion body under the federal trade ministry, had
written petition to the regulator of Forward Markets Commission (FMC), seeking checks to
curb volatility in the rubber futures. According to chairman of the FMC, BC Khatua told
Reuters that the Rubber Board had a problem with the circuit, which was providing- plus or
minus 4 per cent. As per the board official rubber, board wanted to sought the daily upper and
lower price fluctuation limits halved to be at 2 per cent from 4 per cent on the National MultiCommodity Exchange.
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