30-year forward trading ban lifted
Market volatile, sensex slips 114
Double tax on ESOP to continue
Cover for GIC reinsurance turf
Prices of select HLL items to go up marginally
Maruti raises prices of Omni, Gypsy models
Credit bureau set to take off
Foreign Exchange, Bullion, Stock Indices

Mumbai, March 2 
The government has repealed a three-decade-old legislation that prohibited forward trading in securities, thereby removing the last hurdle to the introduction of derivatives trading on the bourses.

In a notification issued today, the government said the relevance of this prohibition had been greatly reduced “in the changed financial environment ’’.

The prohibition had been imposed by the government under section 16 of Securities Contracts (Regulation) Act 1969 by a notification issued on June 27, 1969 in order to curb certain trends that had developed in the securities markets at that time and to prevent undesirable violations.

With this, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) hope to flag off derivatives trading on their exchanges by mid-April.

The notification said there had been substantial improvements in the functioning of the securities market. The requirements of adequate capitalisation, margins and establishment of clearing corporations has reduced the market and credit risks, the notification said.

The Securities Laws (Amendment) Act 1999 and the repeal of 1969 notification would permit development of the derivatives market , the notification said.

Says Dharmista Raval, executive director-legal affairs at Sebi, the apex market regulator for the capital markets, “The 1969 law was considered a legal obstacle for trading in derivatives”.

With its repeal today, the market regulator will shortly give its final nod to the bye-laws of the two exchanges. According to Ms Raval, the in-principle approval was already given to the two exchanges.

The NSE has already received over 400 applications from prospective brokers who are interested in derivatives trading. The BSE, the oldest stock exchange in the country, has received 160 applications from brokers eager to trade in derivatives on Dalal Street.

“We are also in the process of amending the Sebi stockbrokers regulations as it will enable them to trade in derivatives.” Both the exchanges are in the process of forwarding over 550 applications from brokers keen on trading in futures.

According to A N Joshi, executive director at BSE, the governing board has already approved 100 applications from brokers. There are more in the pipeline, he revealed.

“This is an era of parallel processing”, Joshi said and explained that the exchange has already put in place the software and the systems and procedures in the hope that approvals will come.

“We expect to start derivatives trading by mid-April,” says R H Patil, managing director of NSE, the largest bourse in the country. Index futures for tenures ranging from one, two and three months will initially be traded on the exchange, he added.

Meanwhile, the BSE will approach the RBI to allow it to trade in government securities. “We are preparing the framework and necessary infrastructure to facilitate gilts trading”. We will shortly make a formal approach to the apex bank”, said a senior official at BSE. Incidentally, the NSE is at present the only bourse in the country allowed to trade in gilts.

It was not yet clear tonight whether the move will also lift all restrictions on repo trading in government securities, which was at the heart of the securities scam that blew up in the capital market in 1992. Earlier, a high-level committee on capital markets had cleared the decks for the reintroduction of full-scale repo trading. Repo transactions should be permitted in all debt instruments and among all market participants, the committee had said as part of its package of measures to create a deeper debt market.

After the securities scam broke in April 1992, the central bank had taken recourse to the 1969 notification to ban forward trades. However, about two years ago, the government permitted repurchase of securities — a facet of forward trading — only by a certain class of investors on a case-by-case basis. This class included institutions like the Discount and Finance House of India and primary dealers dealing in the government securities on the Securities General Ledger (SGL) account in Mumbai.

Meanwhile, the government issued another notification today delineating the areas of responsibility between the RBI and Sebi to promote an orderly development of the market. In terms of this notification, the contracts for sale and purchase of government securities, gold-related securities, money market securities and securities derived from these securities and ready forward contracts in debt securities will be regulated by RBI. Such contracts if executed on stock exchanges will be regulated by Sebi in a manner that is consistent with the guidelines issued by the central bank. The RBI and Sebi have also issued notifications specifying the regulatory framework in their respective areas.    

Mumbai, March 2 
The Bombay Stock Exchange (BSE) sensitive index (sensex) slumped 113.81 points on a day of high volatility triggered by heavy sales in pharmaceutical and FMCG shares on the one hand, and frantic purchases in the scrips of infotech and media companies on the other.

Initially, the 30-scrip index soared to the day’s high of 5828.79, but later nose-dived to close at its intra-day low of 5528.31 compared with Wednesday’s finish of 5642.12 in a loss of 2.02 per cent. However, the broad-based BSE-100 index was steady at 3450.22 as against its previous close of 3459.90.

Just when the sensex the peaked for the day, hordes of operators emerged to sell the shares of FMCG major and index heavyweight Hindustan Lever Limited (HLL), sending share values falling across the board. Few in the trading ring had imagined that a day which started on a strong note would lead to a 300-point fluctuation in the course of trading.

Lever lost a whopping Rs 239.95 when it closed at Rs 2760.05, pounded largely by fears that the company may not hand out the kind of fat dividends it had been doling out so far. More important, these dividends will be taxed at a higher rate now.

Ranbaxy and Novartis were among the other prominent losers during the day, the former taking a tumble because of reports that a key operator was offloading his holdings in the company. While the pharmaceutical major declined by Rs 65.40 to Rs 752.60, the life sciences giant Novartis saw its value eroded by Rs 67.90 to Rs 781.

Operators focused on infotech and media stocks like entertainment major Zee Telefilms, which was also the most traded scrip clocking a turnover of Rs 490.72 crore on a total volume of Rs 3534.41 crore. It surged by Rs 112.90 to Rs 1524.70.

In the specified group, there were 103 losers. In all, 41 counters, including ten index heavyweights, were locked in their lower lower-end circuit filters. However, twenty scrips of the 35 gainers hit their upper-end price bands at the close.Infosys, NIIT, Satyam and Penta Media registered impressive gains.    

New Delhi, March 2 
The government has decided to continue with the double taxation of the Employees Stock Option Scheme (ESOP), taking it to be a perk given to the employees. G.C Srivastava, joint secretary, CBDT said, “The government studied ESOPs in great detail and came to the conclusion that it is a perk.”

There is no taxation till the exercise of the option, i.e., when the shares are actually issued. A 30 per cent tax is levied when the option is exercised and a capital gains tax of 10 per cent is collected at the time of sale. “This is also in accordance with international practices,” he said. However, he added that the government is open to changes and does not wish to put an extra burden on the employees, he added.

Speaking at a KPMG Conference on Budget 2000, Srivastava said the idea of the budget was to create a roadmap for future tax proposals. In order to widen the tax base, the government has decided to extend the one-by-six scheme from the existing 54 cities to an additional 79 cities.    

New Delhi, March 2 
In a bid to placate BJP hard-liners who have reservations over the opening up of the re-insurance business to multinationals, the government will soon bring out a notification reserving 20 per cent of all re-insurance business in India for General Insurance Corporation (GIC) — even after private players are allowed into the sector.

GIC is also negotiating with Swiss Re and Munich Re to set up a separate re-insurance company in which either of these two giants could pick up 26 per cent. This is also being done to allay fears that foreign insurers will invest these funds abroad once the sector is opened up.

Currently, the entire re-insurance business is the sole monopoly of GIC. But, the Insurance Regulation and Development Authority Bill (IRDA) passed by Parliament last year has paved the way for the entry of private players. These companies will start functioning once the IRDA draws up the guidelines.

Insurance Secretary B. K. Chaturvedi told The Telegraph the notification will ensure GIC still controlled a chunk of the key re-insurance business. However, sources say the move is actually meant to appease hawkish Swadeshi baiters like BJP MPs Kirit Somayya and K. R. Malkani.

BJP hard-liners say the IRDA Bill has provisions that allow private insurance companies to siphon away funds abroad under the garb of re-insurance with their foreign principals. Malkani had even sought a cap on the percentage of money companies can re-insure abroad while speaking on the issue in Parliament some time back.

Hard-liners also have another argument: Since Indian companies are allowed to invest in insurance companies could have up to 26 per cent foreign equity and as foreign companies too could buy up to 26 per cent directly in the insurance company, the total direct and indirect foreign stake in a given insurance or re-insurance company could be over 50 per cent.

They have also asked for another amendment which limits direct and indirect foreign equity in an insurance or re-insurance firm to 26 per cent — instead of capping only the FDI. However, finance ministry officials made it clear they were not considering any such proposal.

Therefore, in an attempt to silence critics, GIC is negotiating with the world’s top two insurers — Swiss Re and Munich Re — for forming a possible joint venture. However, the partner, eventually chosen, will have to sign an undertaking that it will not set up a rival firm in the country.

This means such a venture will corner the bulk of the re-insurance business in the country, given the inherent strengths of the partners. Also, it will allay fears that the two giants will set up independent shops and siphon out funds. The government is going ahead with plans to restructure GIC to give more autonomy to its four subsidiaries to help them face foreign competition.

United India, National, New India and Oriental Insurance are being given greater freedom in administrative functioning, investment of funds, devising premia structures and starting new ventures.

Chaturvedi, however, made it clear that restructuring plans being drawn up for the insurance sector do not envisage offloading the government’s equity in insurance companies, or any kind of equity swap deals between them. “Restructuring exercises will be designed to improve efficiency, not to dilute the government’s stake,” Chaturvedi said.    

Mumbai, March 2 
Hindustan Lever, the Rs 11,000-crore FMCG major, is contemplating a hike in the prices of culinary items, toothpastes, creams and shampoo products, following an increase in excise duty on these segments in the budget.

“We are in the process of working out the net impact of the excise duty hike on the products. However, it will only be marginal increase from its existing price,” an HLL spokesperson said.

The reason for the hike is on account of the new excise duty slabs announced in the budget which has resulted in products moving to the 16 per cent slab from the earlier eight per cent.

Other companies are likely to follow the industry leader in revising prices, an analyst tracking the FMCG sector said. The HLL spokesperson however remarked that the excise duty hike will only have a marginal impact on product prices. For instance, 70 per cent of the shampoo sales are in the sachet segment. Therefore the unit cost of a sachet may go up by a few paise.

However, in the case of culinary products, like squashes and ketchups, and personal products, like toothpastes and creams, the hike would be more significant.

The last few years have seen an impressive expansion in segments like personal products and culinary products.

However, analysts are not sure whether the growth could be sustained at the same level.

In the personal products business, for instance, the market leader consolidated its number one position in the personal care business. In the culinary segment, its business grew by 3.4 per cent in terms of turnover.    

New Delhi, March 2 
Maruti Udyog Limited (MUL) has increased the price of its multi- utility vehicles (MUV) Omni, by Rs 3,000, and Gypsy by Rs 6000, a consequence of the hike in excise duty announced in the budget.

Maruti has increased the price of its eight seater Omni van XL by Rs 2,953 (ex factory) and the Omni by Rs 2,853 (ex-factory).

The price of Gypsy King (hard top) has been raised by Rs 5,573 (ex-factory) and the Gypsy King (soft top) by Rs 5,722 (ex-factory).

The excise duty on eight seater vehicles has been raised in the budget from 30 per ecnt to 32 per cent.

“The (price) increase is unavoidable. The impact of budget on other vehicles is being assessed and is likely to be passed on to customers,” Maruti sources said.

A major part of MUVs sold in India fall in the 8 to 12 seater category.

Other MUV manufacturers like Mahindra and Mahindra, Telco, Bajaj Tempo Limited are also likely to announce an increase in price of their vehicles.

Abhay Firodia, chairman of Bajaj Tempo Limited, has already echoed the industry’s displeasure over the hike in excise duty. “The increase could have been avoided,” he had said immediately after announcement of the budget.

Telco sources said they are “still assessing the impact. There is no doubt, that there would be an impact of excise duty. We will soon announce, if we decide to pass on the impact to the customers.”    

Mumbai, March 2 
The State Bank of India (SBI) and Housing Development Finance Corporation (HDFC) are setting up a credit information bureau (CIB) which was announced by finance minister Yashwant Sinha in his budget proposals.

The bureau, set up in technical and financial collaboration with Dun & Bradstreet Information Services India and Trans Union International Inc, will build up data on borrowers and potential borrowers that will help banks and financial institutions to keep their non-performing assets (NPAs) in check.

SBI chairman G.G. Vaidya and HDFC chairman Deepak Parekh today signed a memorandum of understanding to set up the bureau.

A SBI release said a RBI panel had recommended the creation of a credit information bureau which would be integral to the expansion of the retail financial market.

SBI is now working on the organisational structure of the bureau, in particular those relating to equity participation and management structure.

The bureau will collect consumer and commercial credit related data and use such data to create, package, market, sell and distribute credit reports to banks, financial institutions and businesses which will agree to contribute the relevant data on a regular and continuous basis to it.

Presenting the Union Budget on Tuesday, the finance minister while announcing the formation of such a bureau, had also said that four more debt recovery tribunals at Mumbai, Calcutta, Delhi and Chennai would be set up.

This has been done to facilitate expeditious adjudication and recovery of dues of banks and financial institutions.

Senior bankers, who spoke to The Telegraph, welcomed the initiative of Sinha to set up the bureau, and they pointed out that one of the major factors which has resulted in NPAs of banks and financial institutions shooting up, is the non-availability of ready data on defaulters.

“It has been observed that one defaulter, after being turned down by a bank, often approaches another bank to meet his fund requirments. Here, a situation may arise that since the other bank is not aware that he is a defaulter, his loan is granted,” a senior banking official said.

He added that if banks and financial institutions share credit related information of borrowers, the problem of rising NPAs can be easily tackled.

Presently, most of the credit card majors are following a similar system where information relating to defaulters are shared among them.    

Foreign Exchange
US $1	Rs 43.57	HK $1	Rs. 5.55*
UK £1	Rs 69.10	SW Fr 1	Rs. 26.05
Euro	Rs 42.35	Sing $1	Rs. 25.05
Yen 100	Rs 40.75	Aus $1	Rs. 26.05*
*SBI TC buying rates; others are forex market closing rates


Calcutta		Bombay
Gold Std (10gm)	Rs 4660	Gold Std (10 gm)	Rs 4590
Gold 22 carat	Rs 4415	Gold 22 carat	Rs 4280
Silver bar (Kg)	Rs 7950	Silver (Kg)	Rs 8040
Silver portion	Rs 8050	Silver portion	Rs 8045

Stock Indices

Sensex	5528.31	-113.81
BSE-100	3450.22	-0.68
S&P CNX Nifty	1696.55	-16.15
Calcutta	134.42	-7.33
Skindia GDR	1562.84	+20.11

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