At first sight, the rate of growth of non-food credit seems to be picking up. As the table shows, year-on-year growth in non-food credit, which had declined to a low of 8.86 per cent in February 1997, and had remained at around 11 per cent for most of last year, has steadily inched up to 15.2 per cent.

The growth in non-food credit may at first seem puzzling, given the continuing slump in industrial production. But the apparent anomaly can be explained by a number of factors. First, the real growth rate should be taken instead of the nominal rate. Taking inflation at 8 per cent, the real rate of growth works out to 2.78 per cent. In contrast, taking inflation last year at 4 per cent, the year-on-year rate of growth of non-food credit on a real basis was 6.3 per cent.

Credit offtake this year on a real basis has been more sluggish than last year, which fits in with the lower rate of growth in industrial production this year.

The picture is unaltered if bank investments incommercial paper are included. The total of credit plus investments in bonds/CPs, etc, amounted to Rs 7,703 crore in the period April-September 1998, compared with Rs 6,100 crore in the corresponding period of the last year. The variation in food credit alone over the six-month period amounted to Rs 3,594 crore, compared with Rs 1,307 crore in the same period in 1997.

Accordingly, offtake in credit plus investment in corporates so far by banks is lower than in 1997. However, allowances must be made for short-term financing of banks by the financial institutions, which has increased substantially. That would be more than offset by the fact that ECBs by corporates this year have been absent, and the pressure on local banks for funding should have been correspondingly higher. Add to that the demise of a large part of the NBFC sector, and the pressure on bank funding should have been much more.

Allowance should also be made for the fact that the rate had increased beyond 15 per cent year-on-year in Februaryand March this year before slipping again. The rise in non-food credit was over 25 per cent in 1995. The data on provision of funding to corporates by the financial intermediaries, therefore, indicates on balance that growth in such funding has been much lower this year. In any case, data on credit offtake is a lagging rather than a lead indicator of the economy, because companies typically use accummulated inventory to cater to the initial rise in demand.

BSE Sensex

The Bombay Stock Exchange's (BSE's) decision to change the composition of the Sensex with effect from November 16 is welcome. Any market barometer must reflect the changing market realities and the Sensex has been failing to do so. While the market has been turning to IT stocks, which have been touching new highs, not a single IT company found a place in the Sensex. This is being set right.

The two other scrips, Castrol and Novartis, that are being added to the Sensex are also immensely popular. The average daily volumes attracted byArvind Mills, IPCL, GE Shipping and SAIL in the first trading week of the month were 1,17,064 shares, 2,29,830 shares, 5,39,107 shares and 15,43,600 shares respectively. Against this, NIIT, Infosys Technologies, Castrol and Novartis attracted volumes of 1,29,240 shares, 1,10,020 shares, 4,92,244 shares and 97,352 shares respectively on the BSE.

While the number of shares traded may not seem to justify the change in the composition of the Sensex, the turnovers do. The average daily turnover for NIIT, Infosys, Castrol and Novartis was Rs 16.88 crore, Rs 25.58 crore, Rs 28.90 crore and Rs 6.40 crore respectively. Against this, SAIL, GE Shipping, IPCL and Arvind Mills accounted for an average daily turnover of Rs 92.62 lakh, Rs 1.07 crore, Rs 1.22 crore and Rs 38.98 lakh respectively. Besides, as far as the representation of the steel industry and the petrochemical industry is concerned, Tisco and Reliance will continue to be a part of Sensex scrips.

The new Sensex will achieve two important goals. One, theweightage of heavyweights like Hindustan Lever will reduce, thereby making the index less vulnerable to the movement in these heavyweights alone. Two, it will not send as bearish a signal as the current Sensex is. This is because, while the scrips that will leave the Sensex have been moving southwards, their replacements are steadily gaining on the bourses.

Market pessimism

The pessimism that has prevailed in the stock market for most of the first half of the month has generally been attributed to the UTI scare. The portfolio of US-64 consists mainly of the Sensex stocks and other large-cap scrips. The fall of the market indices on October 5 reflects this, as while the Sensex fell by 7.23 per cent on that day, the S&P CNX 500 fell by 6.55 per cent and the CNX Midcap 200 fell by 6.28 per cent. However, if one considers the period September 30 to October 13, while the Sensex has fallen by 8.71 per cent, the fall in the S&P CNX 500 and CNX Midcap 200 has been steeper at 8.92 per cent and 9.25 per centrespectively, indicating wider forces at work.

Emcee (With contributions from Sarad Saraf)