Indian tax law set to come of age

The government has proposed a dramatic makeover of the country’s 48-year tax law, bringing it on a par with the new economy and also with what prevails in the rest of the world.

The draft of a new direct tax code introduced by the finance ministry on Wednesday has suggested significant cuts in tax rates for individuals and companies, pruned exemptions, choked loopholes for foreign companies and radically changed definitions, all of which are likely to have a mixed impact on companies and individuals. Together with greater surveillance, it would ensure greater compliance and thereby reduce the risk of any loss in tax revenues due to a cut in rates.

“The underlying philosophy of the code is the philosophy of the government. (It is) wedded to a well-regulated free market system,” P. Chidambaram, current home minister who was involved in preparing the draft code earlier, said at a press conference called by finance minister Pranab Mukherjee to release the draft code. Mukherjee said he would strive to introduce the draft legislation in the winter session of Parliament.



Source: Livemint

Indian Commodities Trading Market

Turmoil in financial markets, slower growth in high-income countries, and rising inflation have all adversely affected growth prospects for developing countries over the near term. Most countries have shown impressive resilience in this turbulent environment, and growth for developing countries as a group is expected to moderate from 7.8% in 2007 to a still strong 6.5% in 2008. However, vulnerable countries that depend on foreign capital flows are likely to experience a sharper slowdown. Moreover, despite strong production growth at the aggregate level, higher food and energy prices have caused real incomes to decline, significantly increasing the hardships faced by the very poor, particularly in urban centers.

A recent article in the Wall Street Journal noted that if one were to examine the historical performance of the S&P 500, one would find that the stock market is trading at the same level at which it was doing so nine years ago. Commodities markets, on the other hand, have been in a bull trend. Some of the major drivers that have contributed in this stupendous growth of commodity markets globally are
- Increasing influence of Asian demand, particularly from rapidly industrializing China and India
- Increase in commodities prices in international markets as a result of demand growth, reinforced by tight supply capacities, tense geopolitical conditions (especially with respect to the oil market) and intense speculative activity
- With the rise in prices of crude oil, metals and minerals, commodity prices reached record historical levels in nominal terms in 2006, which increased by more than 30% between 2005 and 2006 (and by 80% from 2000 to 2006).
- Numerous developing countries rely on commodities for export revenues, and commodity production and trade provide employment for more than 2.5 billion people worldwide.
- The considerable rise in prices has had an impact on incomes of developing countries. It is estimated that extra revenues resulting from commodity exports were around 6.7 percentage points of GDP for oil-exporting countries and about 3 percentage points for countries exporting mining products.
- Increases in demand from developing countries stimulated by a particularly vigorous commodity consumption per unit of GDP compared to that of developed countries, faster economic growth, and increasing population
- "Globalization" of securities and commodities markets
- Baby boomers are in the middle of their peak savings years and have been one of the major causes of huge inflows of money into the stock market and into mutual funds.
- The increased use of food crops for production of bio-fuels is an important factor that led to large increases in the prices of vegetable oils and grains in 2007, which in turn contributed to an overall 15 percent increase in the index of agricultural prices and a 20 percent rise in food prices.
- The prices of metals have increased more than other commodity prices over the last four years, largely because of an especially strong demand in China.
- Shortages of equipment and skilled workers have significantly increased development costs, and ore grades are deteriorating.

The report on “Indian Commodities Trading Market” offers an in-depth analysis of the Global Commodities Trading Market vis-à-vis the Indian Commodities Trading Market. It discusses the overall structure of the Global Commodities Market as well as Indian Commodities Market from an insider perspective and provides a comprehensive study on macro and micro factors driving the growth of this market.

The report furnishes up-to-date facts and figures following meticulous observation with an aim to provide you with real insights into the commodity trading market as it stands today; the knowledge one needs to stand out and make informed decisions. The expanse of such insights into the past and present scenario percolates down to every known commodity currently traded. A conscious effort has been made to provide an overview of all there is to know and know of in the volatile market whilst a detailed product-wise and segment-wise is used in conjunction to expand. Taking into account that Price and Risk being the key drivers of the market, the report presents an exclusive section which maps price growth trend behaviour, factors triggering such behaviour, tracking relative performance of commodities , effects on the market players directly or indirectly using composite indexes from leading sources, the use of various hedging tools such as forwards and options and the relative performance in comparison, the implication and significance of the various regulatory bodies, commissions and statutory acts to highlight a few.

Table of Contents

Section I: Commodities Trading – An Overview

1. How Commodities Market Evolved – Historical Perspective

2. How Commodities Trading Market Works
2.1 Involved Parties
2.2 Types of Contracts
2.3 Participants in derivative contracts
2.4 Trading Techniques in Commodities Market
2.4.1 Ready Delivery Market
2.4.2 Specific Delivery Market
2.4.3 Futures Market
2.4.4 Auction Market
2.5 Requirement & Benefits of Commodity Derivatives

Section II: Commodities Market – An Analysis

1. Global Commodities Market – An Overview
1.1 Commodities Trading vis-à-vis Role of Investment Banks
1.1.1 Barclays Capital Commodities - Profile
1.1.2 BNP Paribas Commodity Futures – Profile
1.1.3 Citi Global Commodities – Profile
1.1.4 DB Commodity Services LLC - Profile
1.1.5 Goldman Sachs Commodities – Profile
1.1.6 J.P. Morgan’s Global Commodities Group – Profile
1.1.7 Merrill Lynch Global Commodities (MLCI) - Profile
1.1.8 UBS's Commodities Group
1.2 Energy Trading vis-à-vis Energy Trading In-house Divisions
1.2.1 RBS Sempra Commodities
1.2.2 Chevron’s Supply & Trading
1.2.3 LITASCO (LUKOIL International Trading and Supply Company)
1.2.4 Koch Supply & Trading
1.2.5 AEP Energy Services (Subsidiary of American Electric Power Company, Inc.)
1.2.6 Duke Energy Trading and Marketing (DETM)
1.2.7 Shell Trading (US) Company
1.2.8 Reliant Energy Securities & Commodities Trading Center
1.3 Commodity ETFs and ETNs
1.4 Commodity Trading vis-à-vis Sovereign Wealth Funds (SWFs)
1.4.1 History of SWFs
1.4.2 Driving Factors, Issues, Trends & Opportunities
1.4.3 Sources of Capital
1.4.4 How & where the money is invested – Market Size & Projections
1.4.5 Fund Rankings: Largest Funds by Assets under Management

2. Global Commodities Market Analysis
2.1 Global Commodities Market Size & Forecast
2.2 Commodity Market Profiles – Quick Points (Profile, Producers, Consumers, Largest Markets, Price Performance & Top Companies)
2.2.1 Aluminium Market
2.2.2 Cocoa Market
2.2.3 Coffee Market
2.2.4 Copper Market
2.2.5 Cotton Market
2.2.6 Gold Market
2.2.7 Nickel Market
2.3 Global Commodities Indexes – Performance Analysis
2.3.1 Dow Jones - AIG Commodity Indices
2.3.2 Merrill Lynch Commodity index eXtra (MLCX)
2.3.3 S&P GSCI™ Composite Index
2.3.4 Reuters/Jefferies-CRB® Indices

3. Issues, Trends & Opportunities
3.1 Impact of higher commodity prices
3.2 Movement of oil prices
3.3 Performance of agriculture commodities
3.4 Companies turn to top derivatives dealers for help in hedging
3.5 Carbon to be the biggest global commodity market by 2012
3.6 Renewed interest from investors
3.7 More sophisticated tools & platforms
3.8 Investment banks are major players
3.9 ETFs, changing the equation of Commodities Investment
3.10 China – Major Demand Driver of Global Commodities
3.11 Macro-Economic Driving Factors
3.12 Factors affecting pricing of base metals
3.12.1 Lead (75% y-o-y growth)
3.12.2 Tin (66% y-o-y growth)
3.12.3 Zinc (40% y-o-y decline)
3.12.4 Nickel (4% y-o-y decline)

Section III: Indian Commodities Trading Market

1. Indian Commodities Market – An Overview

2. Indian Commodities Market Size – An Analysis
2.1 MCX vs. SENSEX – A Comparative Analysis

3. Indian Commodities Market – Performance Analysis
3.1 Aluminium Market – Future Contract Value (Jan 07 – Jul 08)
3.2 Coffee Market – Robusta Futures Contract Value (Jan 07 – Aug 08)
3.3 Copper Market – Copper Futures Contract Value (Jan 07 – Jul 08)
3.5 Crude Oil Market – Crude Oil Futures Contract Value (Jan 07 - Aug 08)
3.6 Gold Market – Futures Contract Value (Jan 07 – Aug 08)
3.7 Chana (Chickpea) Market – Futures Contract Value (Jan 07 – May 08)
3.8 Nickel Market – Futures Contract Value (Jan 07 – Jul 08)
3.9 Zinc Market – Futures Contract Value (Jan 07 – Jul 08)
3.10 Lead Market – Price Performance (Jan 07 – Aug 08)
3.11 Cardamom Market – Futures Contract Value (Jan 07 – Jul 08)
3.12 Jeera (Cumin Seed) Market – Futures Contract Value (Jan 07 – Jul 08)
3.13 Lead Market – Futures Contract Value (Jan 07 – Jul 08)
3.14 Mentha Oil Market – Futures Contract Value (Jan 07 – Jul 08)
3.15 Natural Gas Market – Futures Contract Value (Jan 07 – Jul 08)

4. Government Regulations, Initiatives and Reforms
4.1 Setting up a Committee on Role of Futures Trading in 1993
4.2 Setting up of Forward Market Commission in 1953
4.3 Forward Contracts (Regulation) Act, 1952
4.4 Forward Contracts (Regulation) Amendment Bill, 2006
4.5 Forward Contracts (Regulation) Amendment Ordinance, 2008
4.6 Commodities Trading Tax
4.7 Import duty cut & export duty hike in Metals industry

5. Issues, Trends & Opportunities
5.1 Commodity Trends: Hurt by economic slowdown
5.2 Multi Commodity Exchange (MCX) launched currency futures trading
5.2 Hedging ban a slow political process to kill futures market
5.3 Commodity investment goes retail
5.4 Unresolved Issues and Future Prospects
5.5 Scrap now being considered a waste commodity
5.6 Commodity and Equity Markets have been moving in tandem
5.7 Indian Bt Cotton to hit market soon
5.8 Warehousing to take giant leap in India

List of Charts

Chart 1: Mode of Financing in Commodities Trading
Chart 2: Business Operations Model of a Trading Process in a Commodity Exchange
Chart 3: SWFs Market Projections (2007-2012)
Chart 4: Comparison of AUM of SWFs and Asset Managers, Private Equity and Hedge Funds ($ billions)
Chart 5: Sovereign Wealth Fund Deal Volume (1997-2007)
Chart 6: Sector-wise growth: Exchange trade of commodity derivatives by volume (03-06)
Chart 7: World’s leading Commodity Exchanges in developing countries – 2006 Contracts ($millions)
Chart 8: Major base metal commodity exchanges & emerging markets
Chart 9: Base Metal Price Trend – 2006 vs. Present Price
Chart 10: Cocoa Monthly Averages of Daily Prices (Oct 07- Oct 08)
Chart 11: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Chart 12: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Chart 13: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Chart 14: MLCX Weights as of January 2008
Chart 15: MLCXTR outperformance vs. SPGCCITR & DJAIGTR
Chart 16: Reuters/Jefferies CRB® Total Return Index: Jan 82 – Sep 08 (monthly close)
Chart 17: Forecast of China's Share of the Growth in Demand for Global Commodities- 2009
Chart 18: Types of Commodities Traded in India
Chart 19: MCX vs. SENSEX – Comparative Analysis (Jan 06-Sep 08)
Chart 20: India's Aluminium Futures Contract in Value (Rs. Crore) (Jan 07 – Jul 08)
Chart 21: India's Coffee Robusta Futures Contract in Value (Rs. Lakhs) (Jan 07 – Aug 08)
Chart 22: India's Copper Futures Contract in Value (Rs. Crore)
Chart 23: India's Crude Oil Futures Contract in Value (Rs. Crore)
Chart 24: India's Gold (1Kg) Futures Contract in Value (Rs. Crore)
Chart 25: India's Gold (100g) Futures contract in Value (Rs. Crore)
Chart 26: India's Chana (Chickpea) Futures Contract in Value (Rs. Crore)
Chart 27: India's Nickel Futures Contract in Value (Rs. Crore)
Chart 28: India's Zinc Futures Contract in Value (Rs. Crore)
Chart 29: India's Lead Futures Contract in Value (Rs. Crore)
Chart 30: India's Cardamom Futures Contract in Value (Rs. Crore)
Chart 31: India's Jeera (Cumin Seed) Futures Contract in Value (Rs. Lakhs)
Chart 32: India's Lead Futures Contract in Value (Rs. Crore)
Chart 33: India's Mentha Oil Futures Contract in Value (Rs. Crore)
Chart 34: India's Natural Gas Futures Contract in Value (Rs. Crore)

List of Tables

Table 1: The Global Economic Outlook (2006-2010)
Table 2: Major Global Commodity Exchanges
Table 3: Major Asian Commodity Exchanges
Table 4: Major European Commodity Exchanges
Table 5: Commodity Traders – List of top banks, Financial Institutions & other top companies
Table 6: Fund Rankings: Largest Funds by Assets under Management
Table 7: Global Commodity Prices – Monthly & Yearly Averages (Jan 06 - Sep 08)
Table 8: Commodity Forecast Nominal Prices (2007-2020)
Table 9: World Cocoa Market Estimates (in million metric tons) – 2002-2008
Table 10: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Table 11: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Table 12: Comparison of Commodity Indexes
Table 13: Dow Jones AIG Total Return Performance %
Table 14: Dow Jones AIG Excess Return Performance %
Table 15: Dow Jones AIG Yearly Returns (1990-2008)
Table 16: DJGI AIG Commodity Index - Commodity Weightings
Table 17: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Table 18: S&P GSCI™ Components and Dollar Weights (%)
Table 19: S&P GSCI™ Index Values
Table 20: Commodity Exchanges in India
Table 21: Trend of Commodities in National Commodity & Derivatives Exchange (Oct 08)
Table 22: Trend of Commodities in Multi Commodity Exchange of India (Oct 08)
Table 23: Trend of Metals in Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) (Oct 08)
Table 24: Trend of Oil Commodities traded in NYMEX (Oct 08)
Table 25: Trend of Metal commodities traded in NYMEX (Oct 08)

Pages: 186

Strategic Initiatives of Credit Suisse in Eastern Europe

Traditionally Credit Suisse had seen the highest growth coming in the East, in countries like Russia and Kazakhstan and in some of the other Central Asian countries. Central Europe has grown a little bit more slowly and they are expecting that looking forward in 2007 and 2008 as well.

Area of focus for CSFB
The largest driver of growth within Central Europe is likely to be Poland where Credit Suisse is looking at a growth rate of up to 5.5 percent, or 6 percent. Poland is the area Credit Suisse is focused on in Central Europe. It’s a very deep and exciting equity market with a very diverse sector representation.

Which countries will underperform?
From a growth perspective, Credit Suisse is hoping Hungary will lag a bit behind this year on a growth perspective. That is mainly because CSFB sees the government making significant cuts in fiscal spending in order to achieve the Maastricht criteria target of less than 3 percent GDP budget deficit. It is likely that they will see less government spending in Hungary over the coming years. That is likely to have some impact on the growth rate in the country overall.

Difference in development between the two new EU members and the rest of the region
Rumania and Bulgaria are the newest EU members. They joined in January of 2007. They think these are very interesting countries for investment. Unfortunately, Credit Suisse had seen a pretty shallow equity market historically in these two countries. CSFB is anticipating some new IPOs over the coming year that will allow them to invest in both Rumania and Bulgaria in a more significant way going forward.

On Russia’s economic growth?
On the commodity side, Credit Suisse is quite bullish on commodity prices. They are expecting commodity prices to maintain the high levels that we’ve seen over the past few years. One of the most positive aspects of Russia is that Credit Suisse is really starting to see diversification in the economy. One of the biggest drivers across the region, and for Russia in particular, will be growth in consumption and growth in investment. The government is looking to spend a lot of money on infrastructure build over the coming years. Credit Suisse do see the growth of the Russian consumption being hugely important for the economy overall.

The oil, gas industry certainly is the major industrial sector within the Russian market. Credit Suisse is starting to see some new industries grow. They are hoping to see more IPOs in these areas, so they can participate in those growth areas of the market. An example would be the IT sector. Credit Suisse do see a fairly large IPO going on in the IT sector today. We could see some growth in that industry over time, so we are looking to tap into some of these opportunities.

Trends
The fragmentation of the $50 billion European fixed-income market illustrates the diversity of the competitive landscape. Today, 11 major global players have a share of just under 50% of the market, nine major regional players have 27 percent, and around 40 national players have just under a quarter. Each category includes highly profitable players. Profits come from the more value added products such as derivatives and hybrid securities and from regions such as Eastern Europe and the Middle East. As a result of intense competition, the core investment-grade bond business and other plain-vanilla product categories have wafer thin margins.

Another consequence of that competitive intensity has been the death of the sole adviser. Clients have many mouths to feed at payback time, after months or years of diligent coverage by the major firms. Consequently, big IPO and M&A deals typically involve a number of advisers. Inevitably, this arrangement puts even more pressure on the economics of banking.

The industry's radical transformation is likely to continue as major banks in Europe, as well as global banks that do business there, seek to build winning corporate- and investment- banking franchises. The bad news is that competition will intensify. The good news is that it will likely drive further innovation, spurring primary demand as more of Europe's financial-intermediation activity moves to the capital markets.

CSFB thinks most interesting sectors in the equity market today are the retail and consumption driven sectors. Retail stocks would be a place that is very interesting as well as infrastructure stocks. The main way Credit Suisse is looking at that theme is through the steel sector which is of course providing beams for some of the major road construction, some of the rail construction and a lot of the home buildings going on in the country.

According to CSFB, there are very few internal macroeconomic risks that could disrupt the long-term outlook for the markets. However, they do remain concerned about commodities. The equity markets are sensitive to commodities. So, any prolonged downside in the commodity prices certainly would be a negative for this region of the world. However, Credit Suisse expects that commodity prices will remain in relatively strong bands looking into the future.

Management reshuffle
Credit Suisse has reshuffled top-line management within parts of its European fixed-income capital markets business, following the decision of the bank's head of structuring to step down. The move announced in Jan 2007, spans three separate business areas and comes in direct response to Jeremy Bennett's decision to to take a sabbatical. As well as being the bank's head of structuring, Bennet is also co-head of European fixed-income capital markets and the emerging markets group.

As part of the reshuffle, Sudip Thakor takes over as head of the global structuring group in addition to his existing responsibilities as head of the fixed income derivatives product group in New York and co-head of the global credit trading business, which includes investment grade and emerging market credits.

Thakor is co-head of the global credit trading and sales business alongside Jonathan McHardy, who also runs the commodities business globally.
McHardy is now also solely responsible for managing the bank’s insurance and tax business, with Pedro Beroy and Larry Fletcher reporting to him directly. Credit Suisse’s European fixed income business was co-led by Bennett, but his departure now hands Gael de Boissard full control and responsibility for the London-based division.

Furthermore, the emerging markets group – one of the most lucrative revenue earning businesses within Credit Suisse’s fixed income division - is now being jointly run by Ram Nayak and Darren Walker. Nayak, who remains European head of commodities and co-head of fixed income for Eastern Europe , Middle East and Africa, reports directly to Thakor and McHardy.Nayak joins the bank’s fixed income operating committee with Walker, who holds on to his existing responsibilities for the EEMEA trading group that includes credit trading, credit derivatives and local currency trading.

Walker also reports directly to Thakor and McHardy. Bennett, who joined Credit Suisse First Boston as it was then known in 1997, has been one of the most important figureheads in carving out a new direction for Credit Suisse’s fixed income capital markets operations over the last three years.

Sources: Industry articles

US Institutional Fixed Income Asset Management Industry

Market Size

# The U.S. fixed income market is one of the largest securities markets in the world with more than $29.2 trillion in outstanding debt according to SIFMA as of September 31, 2007.
# The average daily dollar value traded rose from $274.0 billion in 1996 to $508.9 billion in 2001 and $889.8 billion in 2006.

Market Segmentation

# The retail fixed income market accounts for approximately 70 percent of the total fixed income transactions and is expected to expand as 75+ million baby boomers enter retirement and begin shifting investment assets from growth to preservation strategies. Institutional fixed income market accounts for the remaining 30% of the total market share. (Source: Knight Capital Group, Inc.)

Institutional asset management industry has become an important feature of modern financial markets, with the scale of this business’s importance readily apparent from the size of assets under management by different types of institutional asset managers. The growth of the professional asset management industry has been a key feature of the structural changes in the international financial system, a development with implications for many different aspects of the financial landscape - market turnover, securities issuance, international capital flows, market stability, industrial organization and corporate governance. A wide variety of institutional investors, with professional asset managers, has emerged - pension funds, insurance companies (life and non-life), and investment companies (of all kinds).

Market Trends

The sources of profitability & growth in the industry are shifting rapidly as evidenced by the following major trends:

=> With asset management involving a delegation process, shaping appropriate incentive structures is essential for aligning the incentives of owners of funds with those of the institutional managers of these funds.

=> As the industry is still regarded as an evolving business, its strong recent growth is expected to continue well into the foreseeable future. As a result, structural changes in the industry, to the extent that they affect asset managers’ incentives, are likely to have their effect on their decision-making and, possibly, market outcomes. Ongoing industry trends have therefore an obvious potential to change institutional investor behaviour in ways that can be important for global financial markets.

=> Traditional products are now trapped in a vise-like squeeze, with higher alpha and "cheap beta" products again capturing almost all asset growth;

=> The most successful traditional firms dramatically grew both their revenues and profits from alternatives, with these products now accounting for more than one-third of institutional revenues – up from almost nothing only five years ago;

=> As a result of both these trends, retail and institutional net prices have now almost fully converged, with major implications for client segment attractiveness;

=> The defined benefit market is far from dead, but flows are undergoing a radical shift, with higher-alpha, fixed income and cheap beta products the main sources of growth.

Consequences

While the industry overall remains highly profitable, firms that are unable to adapt to these changes will have a hard time maintaining future growth and profitability. Indeed, a direct consequence of the shifting sands of growth and profitability is that most firms continue to struggle to gain real operating leverage.

=> Even in this rapidly moving environment, the effective use of scale remains the dominant characteristic of the most successful asset management firms. Players pursuing any one of three "winning" business models – at-scale, multi boutique and focused-asset players – remain almost twice as profitable as those that do not. Moreover, firms following these models appear better positioned than their peers to adapt to the shifting sources of industry growth and profitability.

=> These rapid industry shifts pose a real challenge for firms' middle and back offices. Indeed, operations and technology have taken on a new strategic imperative, in particular around innovation, customer service, and efficiency; with leading asset managers already recognizing that the payoff for aggressively managing O&T has never been more compelling than it is today.

=> Broadening array of asset classes: The rise in professionally managed assets, both in absolute terms and as a share of overall financial wealth, was complemented by rising interest in non-core markets and, recently, some growth in funds placed with unregulated asset managers.

Sources: McKinsey and CGFS