Capital Market Yearbook2011 www.finalaya.com This document captures major events that impacted the Indian Capital Markets during calendar year 2011.
Indian Capital Market 2011Indian shares ended 2011 with one of their worst performances during the millennium. After two years ofhandsome gains, major indices went down by approximately 25%. Average retail investor stayed away fromcapital markets amidst wealth erosion. The dismal performance can be attributed to the following factors: Recessionary concerns on U.S and Eurozone economies were looming Inflation monster continued its rampant growth. Higher Interest rates that allured investors to park their money in safe investment vehicles. Indian Rupee continued its southbound journey and created at an all-time low. Political standoff on key economic reforms. Primary Market remained in doldrums. Emergence of various gargantuan scams. Poor performance by India Inc.Bullions as an asset class outperformed equities. Silver hit an all-time high, crossing Rs. 75,000 a kg in Apriland the yellow metal hit an all-time high in December, when it almost touched Rs. 30,000 per 10 grams.On the expected lines, things have not been so rosy in the Mutual Fund Industry. Although overall the Avg.AUM has increased from 6,75,376.97 Cr. in “Oct-Dec 10” to 6,87,63,911 Cr. to “Oct-Dec 11”. HDFC MFdislodged Reliance MF from numero uno position in AUM race.All in all, the investor carried a somber mood in 2011 with positive hopes from 2012.The following pages will highlight the major events for each month and its impact on the capital markets.
January 2011 RBI tightened provisioning norms for non-banking financial companies (Jan 18) As a protection measure from possible economic downturn, RBI asked NBFC’s to set 0.25% of performing loans to meet financial emergencies. Following this, in order to minimize the impact of situations of arising out of defaults of doubtful and bad loans, NBFC’s are required to make the aforementioned provision. The notification states“should make a general provision at 0.25 per cent of the outstanding standard assets”.Standard assets include loans which are good, paying interest on regular basis and chancesof default are minimal. The above step is likely to raise interest rates offered by the NBFC’s. Estonia officially adopts the ADAG firm bought 26% stake Euro currency (Jan 1) in ICEX (Jan 4) With the advent of year 2011, the Euro zone added Estonia as the 17th member. Euro will Following the approval from commodities replace the local currency Kroon. The move market regulator in September, 2010, comes during the times when some of the Forward Markets Commission (FMC), ADAG existing members are facing high level group company Reliance Capital, has bought sovereign debt crises. Lithuania and Latvia, the 26% stake in Indian Commodity which submitted their euro zone applications Exchange (ICEX). The move brings down the after Estonia and both countries, have decided share of Indiabulls Financial Services from to adopt it in 2014. 40% to 14%.
z February 2011 India budget 2011-2012 presented (Feb 28) The Budget, was presented for year 2012-2013 was presented by Finance minister Pranab Mukherjee. The budget speech included figures for India’s GDP growth at 8.60% during year 2010-2011. As a measure of tax reform, Direct Tax Code (DTC) is announced to come in force from Apr’ 2012. The divestment target has been set at Rs.40,000 crores and policies on FDI are underway. The fiscal deficit for year has been kept at 4.60%. As a measure of curbing black money, a five-fold strategyhas been put in place. And group of ministers constituted for suggesting measures fortackling corruption.SBI’s associate banks to merge China overtakes Japan asin SBI in 18 months (Feb 23) worlds second-biggestState Bank of India will continue to merge its economy (Feb 28)associate banks itself. The information was China took over the title from Japan, of beingpassed on in response to the query by the second largest economy of the world. Withparliamentary panel headed by former Finance continued bandwagon in manufacturing sectorMinister Yeshwant Sinha, on government’s of China and drop in exports sector of Japan,stance on merging subsidiaries with SBI. Not long China’s economy recorded its worth $5.8ago, SBI merged State Bank of Saurashtra and trillion against $5.4 trillion of Japan. Experts,State Bank of Indore. The 5 banks remaining are project that China may take over US in aState Bank of Bikaner and Jaipur, State Bank of decade, an economy which 3 times the currentTravancore, State Bank of Patiala, State Bank of size of Chinese economy.Mysore and State Bank of Hyderabad, whichsupposedly will be consolidated over next 18months.
z March 2011 Indian Ltd going India Inc. (Mar 15) Indian companies are seen on a ride on overseas acquisitions. Lanco has finalized the acquisition of Aussie coal mines, Griffin, for $760 million. The coal secured from Griffin would be used as fuel to raise Lanco’s power generation capacity by over seven- fold to 15,000 MW by 2015. In another global thrust, India conglomerate Essar, entered into $750m agreement to revive Zimbabwe Iran & Steel C0.Continuing the spree, Export-Import Bank of India extended line of credit (LOC) of $91 millionto the Ethiopian government, out of the $640 MN commitment by India for rehabilitation ofsugar industry in EthiopiaTsunami in Japan (Mar 11) FII moves from Indian shores during Jan-March (Mar 31)On March 11, 2011, the earthquake of 8.9magnitude tremor hit the Pacific Rim and north-east coasts of Japan. It is marked as most According to report by Morningstar, India-powerful known earthquake ever to have hit focused offshore equity funds in EuropeJapan, and one of the five most powerful registered a net outflow of €418 million (Rsearthquakes in the world since modern record- 2,683 crore) during the January-March 2011keeping began in 1900. The estimated losses quarter. Morningstar is an international ratingfrom the earthquake stand at US$14.5 to $34.6 agency for mutual funds. During the samebillion. The Bank of Japan has pumped in 15 period, January-March period gave negativetrillion Yen (US$183 billion) to the banking returns of 5.43 per cent. FII statistics for thesystem in an effort to normalize market same period show a net outflow of Rsconditions. The World Bank estimated the 4,451.1 crore.economic cost equal to $235bn tagging the eventas most expensive natural disaster till date.
z April 2011 RBI grants relief on NPAs (Apr 23) Releasing pressure on the banks, the RBI has said the guideline to set aside additional funds for bad loans will not apply on loans that turned bas after September 2010. Earlier, in October 2009 RBI following the global banking crises RBI instructed banks to create special buffers and set the Provisioning Coverage Ratio (PCR) to 70%. Direct beneficiary of the move is SBI, as it has beenstruggling to maintain the ratio. The private banks already exceeded the ratio to 74% asagainst the public sector banks lagging at 54%.Rabobank got RBI nod for $22 Billion pumped into ETFsIndia operations (Apr 2) in April (Apr 30)Netherland based Rabobank gets the RBI nod April saw buying interest getting doubled into start full-fledged banking operation in India. ETFs and ETNs. According to data releasedThe license allows Rabobank to accept deposits by NSE, extra $22.4 billion were added toand provide working capital loans to companies, the investments in the aforementionedbesides dealing in foreign exchange, domestic instruments.51% of the net inflows has gonefixed-income products and trade finance. The into long US equity funds and notes, 31%approval comes following the part stake sale of into long international equities and 10% into11% holding in Yes Bank by Rabobank. The long fixed income. ETFs and ETNs nowcurrent norms don’t allow a foreign bank with have a total of $1.1 trillion, up 34% over lastmore than 5% equity in another Indian lender to year.open branches in India.
z May 2011 Bullion melts down (May 5) A 5 per cent decline in silver marked its biggest three- day loss in five years. Gold also experienced its biggest three day loss since January despite dollar decline and ramping up of gold reserves by Mexico. Platinum declined 1.8 per cent to $US1819.74 an ounce, while palladium lost more than 5 per cent to $US742.05.India Inc raised Rs 4,781.1 cr U.S. finally Killed Osama (May 2)in May via various means(May 30) In a covert operation carried out by U.S. Navy SEALs the dreaded terrorist and the primeIndia Inc. raised Rs. 4781.1 cr. in May, 2011 accused of Sept 2001 attack on WTC twinthrough IPOs and rights issues. The quantum is towers, Osama Bin Laden was killed inup by over 136 per cent as compared to the Abbotabad, Pakistan on May 2, 2011. Theamount raised in April this year. "During May, operation was carried out without taking the2011, Rs 4,781.1 crore was mobilized in the long term ally Pakistan in confidence andprimary market through five issues, as hence caused the U.S. – Pakistan relationshipcompared to Rs 2,025.7 crore mobilized through irreparably to go off the track. The news hadsix issues in April, 2011, an increase of 136 per an impact on Oil price and commodity pricecent over the previous month," said a Capital slips.Market Review by SEBI. Of the five issues inMay, four were initial public offers (IPOs), whileone was a follow-up public offer (FPO).
z June 2011 Government cleared 16 FDI proposals (Jun 7) The Central Government on June 7, 2011 approved 16 Foreign Direct Investment (FDI) proposals worth Rs. 923’55 crore including those of L&T Finance Holdings and Star News Broadcasting Ltd. The other major approved proposals were those of Global Gourmet (Gujarat), Park Controls & Communications Ltd (Bangalore) and Centum Electronics Ltd (Bangalore). FDI into Indian economy had decreased by 25 percent to $19.43 billion in 2010-11 from $25.83 in 2009-10.European Union Summit (Jun 23) SEBI permits BSE to list SMEs (Jun 4)Major decisions on economic policy,immigration, relations with North African On 4th June, SEBI has permitted the Bombaycountries and Croatian membership were taken Stock Exchange (BSE) to list small and mediumduring the EU Summit, held June23-24, 2011 in enterprises (SMEs) on the BSE platform.Brussels. EU leaders agreed to major changes Companies with a paid-up capital of betweenfor increasing the effectiveness of a temporary Rs. 50 Lacs to Rs. 10 Crores will be categorizedfund providing financial help to euro zone as SMEs. However, they will trade on a differentcountries in difficulty. It will be replaced by a platform under the BSE terminal and there willpermanent €500bn fund in 2013. They also be market-makers for SMEs to ensure theirencouraged Greece’s Parliament to pass laws liquidity. SEBI will permit trading of an SME onon a fiscal strategy and privatization. EU leaders the main BSE bourse once its capital increasesalso hoped to sign a treaty with the country, to INR250 million.allowing Croatia to join the EU on July 1, 2013.
July 2011Cabinet Committee on Economic Affairs clears RIL-BP deal (Jul 22) The Cabinet Committee on Economic Affairs (CCEA) on July 22 cleared one of India’s biggest FDI deal (amounting USD 7.2 billion) between Reliance Industries and British Petroleum. The original deal between the two companies was for BP to buy 30% stake in 23 RIL’s oil and gas blocks including KG-D6 out of which CCEA approved the sale of 21 blocks. While the deal will help BP to expand its globaloperations, it will give RIL a desired access to better technology and opportunity to realizebetter value from its hydrocarbon assets.Global earnings fall below RBI hikes REPO rate byexpectations on the back of cost 50bps (Jul 26)pressures in Europe (Jul 29) In a move to check inflation, the Reserve Bank of India, on July 26, hiked repo ratesThe US saw earnings growth of 8.2% - margins by 50 basis points to 8 percent. This waswere steady at 8%. Japanese earnings rebounded, 11th hike since March 2010 and causedbeating expectations by 20%. With just 35% of US bond yields to raise sharply higher andfirms to report, the expected margin squeeze has stock prices to go sharply lower. Thenot hit overall profits but is visible in financial analysts felt that the move will cause Indianservices, construction, food, telcos and autos. The economy to slow down further.Overall earnings growth (q/q) remained animpressive 13%, and a 7% fall in Europeanearnings (which missed estimates by 8%) explainsthe disappointing overall performance.
z August 2011 S&P downgraded US credit rating (Aug 5) On August 5, for the first time in history of ratings, Standard & Poor’s (S&P) downgraded the credit rating of long term US treasury debt from AAA to AA+, that too with a negative outlook. The rating agency believed that the debt restructuring plan proposed by U.S. Congress earlier that week did not go far enough to improve the country’s debt situation and to meet the economic challenges then. The move caused shock waves acrossinternational markets and stock markets world over tumbled following the news.Coal India Ltd. Dethroned Parliament passed SBIReliance Industries Ltd. as most Subsidiary Banks Bill (Aug 30)valued firm (Aug 17) The parliament approved the State Bank ofCoal India Ltd replaced the Reliance Industries India (Subsidiary Banks Laws) AmendmentLimited as the most valued Indian Listed bill, which will enable the central governmentcompany. At close, the CIL came home with a to effectively manage the affairs of the SBImarket cap of Rs 2, 51,296 crore on the BSE, subsidiaries banks.Rs 4,167 crore higher than the RIL.
z September 2011 Sensex suffers biggest one day fall in 26 months (Sep 22) Sensex suffered its biggest single session loss of 704 points in over 2 years. A global markets meltdown triggered by the US Federal Reserves gloomy outlook on the worlds largest economy, caused the Sensex to crash 704 points to 16,361. The Feds cautious message, fresh signs of slowdown in manufacturing activities in China and Germany and selling by foreign funds in the domestic market left investors poorer byRs 2.25 lakh crore with BSEs market capitalization now at Rs 60.2 lakh crore. Rupee sees biggest weekly fall President Obama announces in more than 15 years (Sep 23) $447 bn jobs package plan (Sep 9) INR rupee posted its biggest weekly fall in more than 15 years on Friday on heightened US President Obama announced a bigger than risk aversion amid the possibility of a expected $447bn jobs stimulus plan aimed at recession in the developed world. Traders bringing down the countrys high jobless total. fear that impact of a possible Greek default The largest chunk of his plans is an extension on the banking sector will negate any move of the payroll tax holiday, with the size of the by Indias central bank to support the unit. tax cut increasing to 3.1% from the current 2%.
z October 2011 Global stocks fell to a 15-month low over fears of Greek default (Oct 4) Greeces ability to avoid default, fuelling fears of global financial turmoil and recession led global stocks to slip to a 15 month low and pinning Asian stocks near a 16 month low. Weakening outlook for industrial demand weighed on copper and oil and on the contrary strengthened safe heavens such as gold, yen and the dollar. Fears over the banking sectors exposure to euro zone sovereign debt and plummeting value of assets across the board further led to a sharp widening ofcredit default swaps. Health Insurance portability RBI hiked key lending rate by came into force (Oct 1) 25 bps to 8.5% and deregulates savings deposit interest rate (Oct 25) Insurance regulator (IRDA) has announced the portability of health insurance feature to be applicable for all general insurance Reserve Bank of India has hiked the repo rate, companies offering health insurance. This its key policy lending rate, by 25 basis points to move facilitates the user to try another 8.5%. RBI also deregulated the savings bank insurance company without breaking on deposit rate which took the markets by current policy conditions. surprise. The bank rate and the cash reserve ratio have been maintained as it is at 6 percent.
z November 2011 Indian Govt. proposed 51% FDI in multi-brand retail (Nov 14) Indian government has opened the gates of country’s retail industry to foreign supermarkets by allowing 51% foreign direct investment in multi brand retail. A much awaited reform will allow the Wal-Mart and TESCOs of the world to enter Indian market. The government also decided to raise the cap on foreign investment in single-brand retailing to 100% from 51%. This reform is also expected to help unclog supplybottlenecks and ease inflation over time.PPF, MIS, and other Post office Gold zooms to all time highDeposit Scheme to earn higher (Nov 14)interest, PPF limit raised to Gold touched a new all-time high level by rising100000 (Nov 27) by Rs 30 to Rs 29,295 per 10 grams. The upsurge is mainly attributed to sustained buyingThe finance ministry has notified rules which will spree by stockists and jewelers to meet thepave the way for small savings account holders demand for the ongoing marriage season,to earn higher returns from December 1. The amidst a firming global trend.annual ceiling on PPF accounts will now go upto Rs 100,000 from the current Rs 70,000. PPFwill earn returns of 8.6% vis-à-vis existing 8%,while the NSC will fetch 8.4% returns, up fromexisting 8%.
z December 2011 India moves out of trillion-dollar stock market club (Dec 20) December 20. Indian stock markets lost its coveted trillion dollar status. The decline in the rupee and share valuations led to its size slipping below this mark to $994.97 billion. This feat has been achieved by 13 other nations till date, apart from India. The Indian market re-entered the coveted league on June 3, 2009 after it faced an ouster on July 1, 2008. The downtrend trend on the bourses continues and Indian marketsreached to their 27 months low, aided by the dismal IIP numbers and stagnant advance taxnumbers.Rupee touched all time low Euro drops below key $ 1.30against dollar (Dec 15) mark (Dec 14)INR touched a life time low of 54.30 to dollar. The euro fell below its key levels of $1.30 asThe INR continued its weakness, creating new concerns over Europes sovereign-debt crisisrecord lows every now and then, and hurt swirled. This euro fall is its 11 month lowestcorporate profits, margins and impacted market level since mid- January, early this year.sentiment in Dalal Street. The rupee startedtumbling after the downgrading of U.S. creditranking and Eurozone crisis. It slid against thedollar from 44.40 in July to 45.50 in August,47.60 in September, 49.30 in October and 52.70in November.