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This document captures major events that impacted the Indian
Capital Markets during calendar year 2011.
Capital Market Yearbook 2011
Indian Capital Market 2011
Indian shares ended 2011 with one of their worst performances during the millennium. After two years of
handsome gains, major indices went down by approximately 25%. Average retail investor stayed away from
capital 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 April
and 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 MF
dislodged 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.
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 chances of default are minimal. The above step is likely to raise interest rates offered by the NBFC’s.
Estonia officially adopts the
Euro currency (Jan 1)
With the advent of year 2011, the Euro zone
added Estonia as the 17th member. Euro will
replace the local currency Kroon. The move
comes during the times when some of the
existing members are facing high level
sovereign debt crises. Lithuania and Latvia,
which submitted their euro zone applications
after Estonia and both countries, have decided
to adopt it in 2014.
ADAG firm bought 26% stake
in ICEX (Jan 4)
Following the approval from commodities
market regulator in September, 2010,
Forward Markets Commission (FMC), ADAG
group company Reliance Capital, has bought
the 26% stake in Indian Commodity
Exchange (ICEX). The move brings down the
share of Indiabulls Financial Services from
40% to 14%.
January 2011
z
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 strategy has been put in place. And group of ministers constituted for suggesting measures for tackling corruption.
China overtakes Japan as
world's second-biggest
economy (Feb 28)
China took over the title from Japan, of being
the second largest economy of the world. With
continued bandwagon in manufacturing sector
of China and drop in exports sector of Japan,
China’s economy recorded its worth $5.8
trillion against $5.4 trillion of Japan. Experts,
project that China may take over US in a
decade, an economy which 3 times the current
size of Chinese economy.
SBI’s associate banks to merge
in SBI in 18 months (Feb 23)
State Bank of India will continue to merge its
associate banks itself. The information was
passed on in response to the query by
parliamentary panel headed by former Finance
Minister Yeshwant Sinha, on government’s
stance on merging subsidiaries with SBI. Not long
ago, SBI merged State Bank of Saurashtra and
State Bank of Indore. The 5 banks remaining are
State Bank of Bikaner and Jaipur, State Bank of
Travancore, State Bank of Patiala, State Bank of
Mysore and State Bank of Hyderabad, which
supposedly will be consolidated over next 18
months.
February 2011
z
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 million to the Ethiopian government, out of the $640 MN commitment by India for rehabilitation of sugar industry in Ethiopia
Tsunami in Japan (Mar 11)
On March 11, 2011, the earthquake of 8.9
magnitude tremor hit the Pacific Rim and north-
east coasts of Japan. It is marked as most
powerful known earthquake ever to have hit
Japan, and one of the five most powerful
earthquakes in the world since modern record-
keeping began in 1900. The estimated losses
from the earthquake stand at US$14.5 to $34.6
billion. The Bank of Japan has pumped in 15
trillion Yen (US$183 billion) to the banking
system in an effort to normalize market
conditions. The World Bank estimated the
economic cost equal to $235bn tagging the event
as most expensive natural disaster till date.
FII moves from Indian shores
during Jan-March (Mar 31)
According to report by Morningstar, India-
focused offshore equity funds in Europe
registered a net outflow of €418 million (Rs
2,683 crore) during the January-March 2011
quarter. Morningstar is an international rating
agency for mutual funds. During the same
period, January-March period gave negative
returns of 5.43 per cent. FII statistics for the
same period show a net outflow of Rs
4,451.1 crore.
March 2011
z
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 been struggling to maintain the ratio. The private banks already exceeded the ratio to 74% as against the public sector banks lagging at 54%.
Rabobank got RBI nod for
India operations (Apr 2)
Netherland based Rabobank gets the RBI nod
to start full-fledged banking operation in India.
The license allows Rabobank to accept deposits
and provide working capital loans to companies,
besides dealing in foreign exchange, domestic
fixed-income products and trade finance. The
approval comes following the part stake sale of
11% holding in Yes Bank by Rabobank. The
current norms don’t allow a foreign bank with
more than 5% equity in another Indian lender to
open branches in India.
$22 Billion pumped into ETFs
in April (Apr 30)
April saw buying interest getting doubled in
ETFs and ETNs. According to data released
by NSE, extra $22.4 billion were added to
the investments in the aforementioned
instruments.51% of the net inflows has gone
into long US equity funds and notes, 31%
into long international equities and 10% into
long fixed income. ETFs and ETNs now
have a total of $1.1 trillion, up 34% over last
year.
April 2011
z
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.
U.S. finally Killed Osama (May 2)
In a covert operation carried out by U.S. Navy
SEALs the dreaded terrorist and the prime
accused of Sept 2001 attack on WTC twin
towers, Osama Bin Laden was killed in
Abbotabad, Pakistan on May 2, 2011. The
operation was carried out without taking the
long term ally Pakistan in confidence and
hence caused the U.S. – Pakistan relationship
irreparably to go off the track. The news had
an impact on Oil price and commodity price
slips.
India Inc raised Rs 4,781.1 cr
in May via various means (May 30)
India Inc. raised Rs. 4781.1 cr. in May, 2011
through IPOs and rights issues. The quantum is
up by over 136 per cent as compared to the
amount raised in April this year. "During May,
2011, Rs 4,781.1 crore was mobilized in the
primary market through five issues, as
compared to Rs 2,025.7 crore mobilized through
six issues in April, 2011, an increase of 136 per
cent over the previous month," said a 'Capital
Market Review' by SEBI. Of the five issues in
May, four were initial public offers (IPOs), while
one was a follow-up public offer (FPO).
May 2011
z
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)
Major decisions on economic policy,
immigration, relations with North African
countries and Croatian membership were taken
during the EU Summit, held June23-24, 2011 in
Brussels. EU leaders agreed to major changes
for increasing the effectiveness of a temporary
fund providing financial help to euro zone
countries in difficulty. It will be replaced by a
permanent €500bn fund in 2013. They also
encouraged Greece’s Parliament to pass laws
on a fiscal strategy and privatization. EU leaders
also hoped to sign a treaty with the country,
allowing Croatia to join the EU on July 1, 2013.
SEBI permits BSE to list SMEs (Jun 4)
On 4th June, SEBI has permitted the Bombay
Stock Exchange (BSE) to list small and medium
enterprises (SMEs) on the BSE platform.
Companies with a paid-up capital of between
Rs. 50 Lacs to Rs. 10 Crores will be categorized
as SMEs. However, they will trade on a different
platform under the BSE terminal and there will
be market-makers for SMEs to ensure their
liquidity. SEBI will permit trading of an SME on
the main BSE bourse once its capital increases
to INR250 million.
June 2011
Cabinet 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 global
operations, it will give RIL a desired access to better technology and opportunity to realize better value from its hydrocarbon assets.
Global earnings fall below
expectations on the back of cost
pressures in Europe (Jul 29)
The US saw earnings growth of 8.2% - margins
were steady at 8%. Japanese earnings rebounded,
beating expectations by 20%. With just 35% of US
firms to report, the expected margin squeeze has
not hit overall profits but is visible in financial
services, construction, food, telcos and autos. The
Overall earnings growth (q/q) remained an
impressive 13%, and a 7% fall in European
earnings (which missed estimates by 8%) explains
the disappointing overall performance.
RBI hikes REPO rate by
50bps (Jul 26)
In a move to check inflation, the Reserve
Bank of India, on July 26, hiked repo rates
by 50 basis points to 8 percent. This was
11th hike since March 2010 and caused
bond yields to raise sharply higher and
stock prices to go sharply lower. The
analysts felt that the move will cause Indian
economy to slow down further.
July 2011
z
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 across
international markets and stock markets world over tumbled following the news.
Coal India Ltd. Dethroned
Reliance Industries Ltd. as most
valued firm (Aug 17)
Coal India Ltd replaced the Reliance Industries
Limited as the most valued Indian Listed
company. At close, the CIL came home with a
market cap of Rs 2, 51,296 crore on the BSE,
Rs 4,167 crore higher than the RIL.
Parliament passed SBI
Subsidiary Banks Bill (Aug 30)
The parliament approved the State Bank of
India (Subsidiary Banks Laws) Amendment
bill, which will enable the central government
to effectively manage the affairs of the SBI
subsidiaries banks.
August 2011
z
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 Reserve's gloomy outlook on the world's largest economy, caused the Sensex to crash 704 points to 16,361. The Fed's 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 by
Rs 2.25 lakh crore with BSE's market capitalization now at Rs 60.2 lakh crore.
President Obama announces
$447 bn jobs package plan (Sep 9)
US President Obama announced a bigger than
expected $447bn jobs stimulus plan aimed at
bringing down the country's high jobless total.
The largest chunk of his plans is an extension
of the payroll tax holiday, with the size of the
tax cut increasing to 3.1% from the current 2%.
Rupee sees biggest weekly fall
in more than 15 years (Sep 23)
INR rupee posted its biggest weekly fall in
more than 15 years on Friday on heightened
risk aversion amid the possibility of a
recession in the developed world. Traders
fear that impact of a possible Greek default
on the banking sector will negate any move
by India's central bank to support the unit.
September 2011
z
Global stocks fell to a 15-month low over fears of Greek default (Oct 4)
Greece's 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 sector's exposure to euro zone sovereign debt and plummeting value of assets across the board further led to a sharp widening of
credit default swaps.
RBI hiked key lending rate by
25 bps to 8.5% and deregulates
savings deposit interest rate (Oct 25)
Reserve Bank of India has hiked the repo rate,
its key policy lending rate, by 25 basis points to
8.5%. RBI also deregulated the savings bank
deposit rate which took the markets by
surprise. The bank rate and the cash reserve
ratio have been maintained as it is at 6
percent.
Health Insurance portability
came into force (Oct 1)
Insurance regulator (IRDA) has announced
the portability of health insurance feature to
be applicable for all general insurance
companies offering health insurance. This
move facilitates the user to try another
insurance company without breaking on
current policy conditions.
October 2011
z
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 supply bottlenecks and ease inflation over time.
Gold zooms to all time high (Nov 14)
Gold touched a new all-time high level by rising
by Rs 30 to Rs 29,295 per 10 grams. The
upsurge is mainly attributed to sustained buying
spree by stockists and jewelers to meet the
demand for the ongoing marriage season,
amidst a firming global trend.
PPF, MIS, and other Post office
Deposit Scheme to earn higher
interest, PPF limit raised to
100000 (Nov 27)
The finance ministry has notified rules which will
pave the way for small savings account holders
to earn higher returns from December 1. The
annual ceiling on PPF accounts will now go up
to Rs 100,000 from the current Rs 70,000. PPF
will earn returns of 8.6% vis-à-vis existing 8%,
while the NSC will fetch 8.4% returns, up from
existing 8%.
November 2011
z
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 markets
reached to their 27 months low, aided by the dismal IIP numbers and stagnant advance tax numbers.
Euro drops below key $ 1.30
mark (Dec 14)
The euro fell below its key levels of $1.30 as
concerns over Europe's sovereign-debt crisis
swirled. This euro fall is its 11 month lowest
level since mid- January, early this year.
Rupee touched all time low
against dollar (Dec 15)
INR touched a life time low of 54.30 to dollar.
The INR continued its weakness, creating new
record lows every now and then, and hurt
corporate profits, margins and impacted market
sentiment in Dalal Street. The rupee started
tumbling after the downgrading of U.S. credit
ranking and Eurozone crisis. It slid against the
dollar from 44.40 in July to 45.50 in August,
47.60 in September, 49.30 in October and 52.70
in November.
December 2011