ECOSCAN - April 2011

This issue
1. Executive Summary 2. Business Outlook 3. Global Economic Scenario Real GDP growth rate YoY % CPI Inflation Industrial Production Growth rates 4. India Economy Performance Indicators GDP Growth rate Inflation WPI YoY % IIP growth rate RBI Key Ratios 5. External Sector Foreign trade Exports Imports FDI INR exchange Rate 6. Infrastructure 7. Commodities Crude Oil, Natural Gas Sugar Steel 8. Sector Update Automobiles & Insurance Fertilizers & Tea

ECOSCAN April 2011

Monthly Report on Indian and Global Economic Scenario

1. Executive Summary
A slowdown in growth in 2011-12 is expected with World real GDP growth is forecast to be about 4 percent in 2011 and 2012, down modestly from 5 percent in 2010. Global commodity and fuel prices are rising; putting pressure on growth worldwide and with several economies pegging their growth for the current year at lower levels, India will be following this trend prevalent all over the world. The Indian economy is estimated to grow by nearly 8 per cent during 2011-12. The auto sector appears for moderation after growing at a scorching pace of 26 percent (inclusive of cars, bikes and commercial vehicles) in the last two years. The society of Indian Automobile manufacturers (SIAM) too expects industry growth to settle around a much lower 12-15 percent in 2011-12. With average crude prices in the range of $118 a barrel, a heavily oil importdependent country like India has little option other than seeing inflation and current account deficit as the major issues this financial year. RBI had raised key rates eight times since March 2010 to tame inflation. Last month, RBI had raised the repo rate to 7.25% and reverse repo rate to 6.25%. Higher interest rates may affect the pace of economic activity. The impact of rising interest rates is felt first by the commercial vehicles sector. However the strong growth in the services sector, robust hiring outlook and rising incomes may continue to support consumer demand. With overall inflation hovering above 8% since January 2010, the monetary tightening is a right measure but is definitely going to impact the industrial production of country. The country's six key infrastructure industries grew 7.4% in March, rising from 6.8% in the previous month. The six core sector industries grew 5.9 per cent in financial year 2010-11 as against 5.5 per cent in financial year 2009-10. Exports in the current 2011-12 fiscal year are expected to cross $300 billion and could touch $500 billion by 2014-15. However, FDI in India declined for the third consecutive month in March, dipping by 11% yoy to $1.07 billion in the backdrop of financial turmoil in Europe. Falling FDI trends in FDI inflows makes it imperative for the country to fine-tune its policies to attract overseas investment. Rupee remained weaker this month, pressured by choppy shares and rising import payments. Agricultural growth was above trend last year, following a good monsoon. The sugar production of India is estimated to rise to 24.5 million tonnes in the 2010-11 sugar year. Tea production in March saw an upswing of around 16 per cent to 56.73 million kg compared with 49 million kg produced during the same period last year. IFFCO has increased the DAP and Urea prices and other companies are also expected to increase the prices soon. Looking macro economically, in many emerging and developing economies, output is already above pre-crisis trends, which is clearly reflected in their stock market indices. It suggests that recovery is complete and expansion is under way. However in order to look for sustainable growth inflationary pressures need to be tackled effectively.

World Economy Highlights

Galloping crude oil prices The Brent crude price surged from an average of US$ 75 a barrel during May-September 2010 to US$ 123 a barrel by April 2011. Since February 2011, oil prices have come under further pressure on account of apprehensions about supply disruptions due to political developments in the Middle East and North African (MENA) region. Euro edging over dollar The euro held near a 17-month high against the dollar as markets waited for the European Central Bank to reinforce higher rate expectations, with a hint of a June hike needed to boost the currency further. U.S. showing signs of weakness in economic recovery The U.S. dollar hit a three-year low against major currencies and Wall Street stocks fell as much as 1.0 percent after a batch of disappointing U.S. economic data for April -- including a surprise slowdown in the services sector and less hiring by the private sector. U.S. services sector, which grew at its slowest pace since August 2010, according to the Institute for Supply Management Pesticide Endosulfan to Be Banned Worldwide Representatives from 127 governments have agreed to add Endosulfan to the United Nations' list of persistent organic pollutants to be eliminated worldwide.

3. Global Economic Scenario

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Brazils CNI industry group has reduced 2011-12 GDP growth projections from 4.5% to 3.5% Q1 2011 Russia GDP growth rate has slowed down to 1.3% against 2.8% in Q4 2010. Q1 GDP results for EU stood at 2.2 percent yoy with germany at 4.5% yoy Q1 GDP growth rate. IMF has pegged down the growth rate of India for 201112 to 8% while chinas growth rate is expected to be at 9.5% for 2010-11.

Consumer price inflation in China reached an all time of 5.4% in the month of March, highest level since 2008. Inflation in Brazil could top 6.3% by year end which is well over central banks target of 4.5% according to economists. Developed economies have also shown inflationary pressures in March 2011. Prices levels in Russia rose 0.2 percent in the seven days through May 3, the fastest pace since the week ended March 14.

China's industrial production grew steadily at 14.4 percent year on year in the first quarter of FY 2011-12. While the expansion of Chinas manufacturing activities moderated in April under the influence of tightening policies. German industrial production rose for a third time in March as construction surged. Industrial Output in March increased 0.7% from February while economists had a forecast of 0.5%. In Brazil March was the third consecutive month of rising industrial output to 0.3%, after January's increase of 0.3%, and February's 2%. Russian industrial production rose an annual 5.3 percent compared to 8.2% in 2010

4. India Economy Performance Indicators

GDP Growth Finance Minister Pranab Mukherjee projected Indias economic growth at 8 per cent for the current fiscal, lower than the budgetary estimate of 9 per cent, due to measures taken to rein in high inflation.

8% growth forecast is based on the assumptions that there would be a normal monsoon and oil prices would remain around $110 per barrel during the year

Industrial Production
Manufacturing output advanced 0.7 percent in March, its fourth consecutive month of strong expansion; The rate of capacity utilization for total industry rose 0.5 percentage point to 77.4 percent, which is 3.0 percentage points below its average from 1972 to 2010. With increased RBI rates, declining growth rates in industrial production is predicted

Inflation
WPI increased sharply by 3.4 per cent in the month of March to 8.98%. 80 per cent of the increase in WPI was due to fuel, power group and non-food manufactured products. Overall inflation has been above the 8 per cent mark since January, 2010.

Key Interest Rates & Credit Growth

Cash Reserve Ratio Repo Rate Reverse Repo Rate PLR SLR US Federal Fund Rate 1 Month LIBOR 3 months LIBOR 6.0 % 7.25% 6.25% 12.25 % 24 % 0.1 % 0.21 % 0.27 %

Containing inflation would take precedence over growth is the foremost criteria of the RBI Governor D.Subbarao. Home, auto and other loans are set to become costlier with the Reserve Bank of India hiking key short-term rates to contain inflation, The increase in the savings bank rate to 4 per cent from 3.5 per cent now has become a relief for small savers

Credit extended by banks to various sector.

Credit growth to agriculture decelerated to 10.6 per cent during 2010-11 from 22.9 per cent in the previous year. Credit to industry, led by infrastructure, metals, food processing, rubber, plastic and their products and engineering grew by 23.6 per cent in 2010-11 as compared with 24.4 per cent in the previous year. Credit to the services sector, led by NBFCs, professional services, transport operators and tourism, hotels and restaurants, grew by 23.9 per cent during 2010-11 as compared with 12.5 per cent in the previous year. Personal loans grew significantly by 17.0 per cent during 2010-11 as compared with 4.1 per cent during the previous year, with all its components barring credit card outstanding exhibiting high growth.

5. External Sector
Exports during March, 2011 were valued at US $ 29.13 Billion which was 43.8 per cent higher in Dollar terms than March, 2010.. Exports in the current 2011-12 fiscal year are expected to cross $300 billion and could touch $500 billion by 2014-15. Imports during March, 2011 were valued at US $ 34.74 Billion representing a growth of 17.2 per cent in Dollar terms than March, 2010

FDI in India declined for the third consecutive month in March, dipping by 11% yoy to $1.07 billion in the backdrop of financial turmoil in Europe. During the fiscal 2010-11, the inflows declined by 25 per cent to $19.43 billion. The FDI during the fiscal 2009-10 was $25.83 billion and $27.83 Billion in 2008-09. Falling FDI trends in FDI inflows makes it imperative for the country to fine-tune its policies to attract overseas investment.

 India's foreign direct investment (FDI) has recorded a sharp decline in FY-11. Rupee Reference Rates India is the lone South East Asian country to witness a decline in FDI flows. Inflows into the metals, petroleum and natural gas and chemicals sectors increased in FY-11

Rupee Reference Rates Inflows into the housing and real estate as well as construction activities that include road and highways have halved, while that received by the telecom sector has fallen by 45 per cent. Significantly The Indian Rupee exchange rate for April, 2011 averaged 44.30 INR to USD. That's 61.3 basis points lower than the March, 2011 rate of 44.91, and 14 basis points lower than the April, 2010 rate of 44.44.

Experts feel in the near term rupee is expected

to remain stronger although fundamentals are weak on higher crude oil trade gap.

Broad weakness in the US dollar is supporting

rupee appreciation. Also hike of 50 basis points in key rates by the central bank will help the rupee to appreciate.
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6. Infrastructure
India: Infrastructure Growth
The country's six key infrastructure industries grew 7.4% in March, rising from 6.8% in the previous month. The six infrastructure industries account for 26.7% of overall industrial growth. The six core sector industries grew 5.9 per cent in financial year 2010-11 as against 5.5 per cent in financial year 2009-10. Numbers will help the IIP stabilize but not make it grow.

7. Commodities
Henry Hub Natural Gas Index
Ukraine has opened up talks with 3 Western energy Giants; Exxon Mobile, Chevron and Shell to prospect for shale-Gas. Henry hub price rose a token 2 cents per million Btu (MMBtu) (0.5 percent) to $4.35 per MMBtu on April 27

Crude Oil Index

Oil imports during March, 2011 were valued at US $ 9438.6 million which was 8.2 per cent higher than oil imports corresponding period last year

ONGC is in discussions to buy oil sands reserves in Canada and it may also increase its investments in Kazakhstan to help offset declining production.

Baltic Dry Index

Baltic Dry Index, has plummeted close to fifty percent in the last six months The demand for dry-bulk shipping has fallen. Oversupply of ships has continued to damage a fragile recovery.

Commodities : SUGAR

The sugar production of India -- the world's second largest producer after Brazil -- is estimated to rise to 24.5 million tonne in the 2010-11 sugar year. Sugar prices may trade higher for short term on account of improved buying at lower levels. China is expected to increase its sugar imports in the second half of the year. This is likely to provide support to the prices. Increase in stock limits and reintroduction of 60% import duty on Sugar may favour the prices. Prices may gain by Rs. 100-150 per qtl in the coming weeks. The medium term prices would depend on the permissible Sugar exports by India and the final estimates of Sugar output. Prices are expected to trade in the range of Rs. 2600 Rs. 2900 per qtl levels. (Courtesy: Angel Commodities). The Food Ministry has issued export orders for nearly 92,000 tonne of sugar to mills of the total quantity of five lakh tonne that the government has allowed for outbound shipment.

Commodities : Steel

Brussels World crude steel production for the 64 countries reporting to World steel association (worldsteel) was 129 million metric tons (mmt) in March 2011.This is 7% higher than March 2010. Chinas crude steel production for March 2011 was 59.4 mmt, up 9.0% compared to March 2010. Japans crude steel production figure of 27.7 mmt was 4.4% higher than the same period in 2010. South Korea produced 5.8 mmt of crude steel in March 2011, 14.4% more than March 2010. India produced 6.35 MT tonnes of steel in March 2011 as against 5.845 MT in the same month last year

An additional 30 million tonnes of steel-making capacity is expected to be commissioned in the next two years in the country, even as the steel ministry is working on a new National Steel Policy that seeks to factor in a higher-thanexpected growth in steel demand and consumption in five years

8. Sector Update : Automobile & Insurance

Automobile
The BSE Auto Index is trading in the red with the index down over 2% on the back of recently announced RBI Monetary Policy.

Steel Authority of (SAIL) has decided to expand its crude steel output capacity from the existing 12.84 million mt to 21.4 million mt per annum by the year 2012-2013. Governor D. Subbarao has announced a steep 50 basis points of 2.9 key short of crude steel production Rashtriya Ispat Nigam (RINL) will be expanding its existing capacity hike in million mt term rates. to 6.3 million mt per annum by December 2011. National Minerals Development Corporation (NMDC) is The up a 3 million mt per annum impact the steel and make setting increased interest rates will integrated sales the auto loans dearer. plant at Nagarnar, Chhattisgarh Year-on-year volumes of commercial vehicles grew by 30 per cent in 2010-11 respectively.

Insurance
Insurance GWP - Rs Crore
APRIL-MARCH 2010-11 17566.92 25001.60 2009-10 14341.39 20642.69

% Change Y-O-Y
22.49% 21.12%

Private Public

HDFC Life is looking to break-even by the end of the current financial year. HDFC Life said the embedded value of its business stood at Rs 4,120 crore as of March 31. United India Insurance Company is targeting a business of Rs 8,000 crore in the fiscal year 2011-12 focusing on micro, small and medium enterprises (MSME) segment and rural market. Religare Enterprises is in talks with two foreign insurers for a joint venture to offer general insurance services in India, and plans to more than quadruple its asset management business in two years.

Sector Update : Fertiliser & Tea

Fertilisers
Fertilizer Production
(000 tons)

Mar 2011
1823.2 220.3 74.9 79.5 69.2 168.1 33.7 1.7 2470.6

Mar 2010
1628.27 273.0 113.3 60.7 0.4 227.5 41.7 44.0 2388.87

% Change Y-O-Y
11.94% -19.30% -33.89% 30.97% -26.11% -19.8% -96.14 3.42%

Urea DAP 10-26-26 12-32-16 14-35-14 20-20-0 15-15-15 28-28-0 Total Complexes (excluding DAP)

The benchmark price has been increased to $612 per tonne for DAP and $420 per tonne for MOP to ensure uninterrupted availability of potash and diammonium phosphate. CCEA has given freedom to fertiliser companies to raise retail prices of DAP by up to Rs. 600 per tonne from the existing rate of Rs. 10 750 per tonne. The government reimburses subsidy on these DAP to fertiliser companies based on the benchmark price .

Tea
The Union finance ministry has cleared two foreign direct investment proposals from the Darjeeling tea industry, The first FDI approval since 1974 for the branded brew sector in the hills Tea production in March saw an upswing of around 16 per cent to 56.73 million kg compared with 49 million kg produced during the same period last year. Exports, however, fell to 11.9 million kg from 23.49 million kg last year.

other than DAP

ECOSCAN April11

Disclaimer: The information contained herein is obtained from Bloomberg, News articles and various research reports.