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ANNUAL REPORT 2007-08

foreign currency assets, gold, SDRs and the reserves tranche with IMF, increased to US Dollar 309.7 billion at end March 2008 as compared with US Dollar 199.2 billion at end March 2007.

Government Securities Market

Yields in the government securities market hardened somewhat during the first quarter of 2007-08, partially reflecting global trends and also due to certain policy actions of RBI. Yields on 10 year security reached an intra-year peak of 8.32 per cent on June 11, 2007. With easy liquidity conditions thereafter the yields softened. Yields were largely range bound during August-December 2007 and thereafter. The 10-year yield, moved in a range of 7.42-8.32 per cent during 2007-08. As on March 31, 2008, the yield was 7.93 per cent, 4 basis points lower than that of end-March 2007. The spread between 1-year and 10-year yields was 45 basis points at end-March 2008 as compared with 42 basis points at end-March 2007. At the longer end, the spread between 10 year and 30 year increased to 47 basis points at end-March 2008 from 37 basis points at end March 2007. The yield spread of 5-year AAA- rated corporate bonds over 5 year government securities increased to 161 basis points at end-March 2008 from 142 basis points of end March 2007.

Primary Market

Resources raised from primary market through public issues increased to Rs 83707 crore during 2007-08 from Rs. 32382 crore during 2006-07 recording a high growth of 158.5 per cent over the previous year. As the number of issues remained unchanged at 119, the average size of public issue increased from Rs 272 crore in 2006-07 to Rs 703 crore in 2007-08. Barring three debt issues, all public issues during 2007-08 were in the form of equity. Out of 119 issues, 82 issues were initial public offerings (IPOs), accounting for 47.7 per cent of total resources mobilisation. Mobilisation of resources through private placement increased by 45.7 per cent to Rs.212568 crore during 2007-08 over Rs. 145894 crore in 2006-07. Indian corporates also raised resources from American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) to the extent of Rs. 26,556 crore during 2007-08. During 2006- 07 such resource mobilization was Rs 17005 crore.

The net resources mobilized by Mutual Funds increased by 63.6 per cent to Rs 1, 53,802 crore in 2007-08 from Rs.93985 crore in the previous year. Net assets managed by Mutual Funds also increased significantly by 54.82 per cent to Rs. 505152 crore by March 2008 over Rs. 326292 crore by March 2007. About 67.5 per cent of net mobilisation of funds by Mutual Funds during 2007-08 was under income/debt market-oriented schemes. Growth-oriented schemes accounted for only 30.5 per cent of net resource mobilisation during 2007-08.

Secondary Market

The gains in domestic stock market during 2007-08 were spread across various sectors. Most of the sectoral indices recorded higher gains between end-March 2007 and January 8, 2008 but incurred higher losses thereafter. BSE sensex reached all-time high of 20873 on January 8, 2008. Subsequently the domestic stock markets witnessed higher volatility due to increased concerns over the severe impact of sub-prime lending crises in the US and its spillover to other market segments and in other countries. The market sentiment was affected to liquidity squeeze in the secondary market in the wake of initial public offerings (IPOs), heavy sales by FIIs in short-term capital gains tax hike from 10 per cent to 15 per cent, increase in domestic inflation rate, rise in crude oil prices, and decline in ADR prices in the US market. BSE sensex closed at 15644 on March 31st 2008 registering a gain of 19 per cent over March end 2007. The market capitalization of BSE increased sharply by 44.9 per cent to Rs. 5138015 crore by end-March 2008. Market capitalization to GDP ratio improved from 85.5 per cent at end-March 2007 to 156.7 per cent on January 8, 2008 before declining to 109.5 per cent by end-March 2008. The combined turnover of BSE and NSE in the cash segment during 2007-08 was higher by 76.8 per cent than that during 2006-07.

EXTERNAL SECTOR

The merchandise trade deficit, after fluctuating around 3-4 per cent of GDP between the mid-1990s and 2003-04, widened sharply to 6.9 per cent of GDP in 2006-07 and 7.7 per cent of GDP in 2007-08 on account of higher non-oil imports, particularly, import of capital goods and higher crude oil prices. However the sustained increase in invisible surplus during 2007-

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