FDI to India _ is it increasing ??

FDI  is one of the  the much talked about word by the Economist & Financial expert to take India to new heights

Much has been talked about this by the politician to build new India .

There is no doubt India need huge amount of FDI to Build Indian dream . Each successive government has encouraged it since 1991 , when the liberlisation process started


Even after so mch noise FDI has not increased dramatcally in the current year .

If you say calender year  wise cumulative FDI till sept is USD22 Billion as against USD18 Billion last year YTD sept  ( 23% growth )

If  we consider status since April the growth is only 15%

In the last few Months Government of India has taken many steps to attract FDI but ground reality is dismal .

1, FDI in Railways has been allowed upto 100% in many areas

2. FDI in defence sector allowed

3. FDI in consruction sector facilitaed and eased just few days back

4, FDI hike in Insurance sector to 49% from present 26%  is almost through as opposition parties are supporting this

Is it enough just to liberlase the FDI rule . I think NO

Government has to look into many more points to facilitate smooth business environment in India . Our ranking is not so good when we compare with other Countries .

But if we will see how many Countries are putting FDI in India , situation is not so encouraging . As high as  65% FDI to India is coming from only four countries ( Mauritius, singapore, UK and Japan ) . 36% is originating from Mauritius only . To boost FDI to India many more Countries must join the race of investment  

 

Low Interest rate_ RBI way only

RBI decison to keep the interest rate ( Repo rate ) unchanged at 8% was not a surprising news for Bankers , as most of them had projected in the same line

RBI has been keeping the interest rate on hold as against the Inductry expectation of lowering it , who has been citing that decreasing inflation rate justify a rate cut

RBI thinks otherwise . As per RBI it is too early to conclude that Inflation has come under control

But the god news is that RBI has indicated for a rate cut in early 2015

Inerest rate cut is very critical for Industry growth and profitability .

So till no news comes it is the RBI way interest rate will go and not what Government thinks .

Removal of Gold import restriction ( 80:20 ) by RBI

After almost more than one year RBI removed the restriction it had imposed on Gold Import .

RBI had put restriction on Import of Gold in August 2013 to cool down the current account deficit and keep the exchange rate under control

Under the restriction imposed , Imorter had to Export back  atleast 20% of he Imported Gold after value adition

Subsequently , The UPA Goernment had gien exemption to few selected Importer from this requirment

Now all restriction has been removed by RBI and there will be no requirment of exporting back 20%

It is really surprising that RBI has removed this restriction at a time when Gold Import has again started going up .  

Proposed Change to Companies Act 2013

The BJP led NDA Government has initiated to change the Companies Act 2013 , which came into force from 1^st April 2013 but came  under  criticism due to not being pro corporate & Business as claimed by few

After having several round of meetings with stake holders Government has approved the proposed changes in its Cabinet meeting on              2^nd December 2014

The changes proposed are being termed as Pro Business and to promote ease of doing Business in India . To improve India Global ranking from present 146^th to below 50 in next few years.

The changes will be placed in parliament as Companies Amendment Act 2014   

1.   No minimum paid up share capital for Companies  

2.    Making common seal optional for authorization for execution of documents.  

3.   Prescribing specific punishment for deposits accepted under the new Act 2013 . This was left out in the Act inadvertently.  

4.    Prohibiting public inspection of Board resolutions filed in the Registry.  

5.   Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules.  

6.   Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed

 

7.   Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board's Report.

8.   Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution).  

9.    Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. 

10.       Replacing 'special resolution' with 'ordinary resolution' for approval  of related party transactions by non-related shareholders.

11. Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders.

12. Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry & ED)

13. Winding Up cases to be heard by 2-member Bench instead of a 3-member Bench.

14. Special Courts to try only offences carrying imprisonment of two years or more.

For the god health of NBFC sector

As NBFC plays an important role in Indian financial sector RBI as taken right step in tightening the provisioning and capital adequacy guidelines of players in this sector. The new regulation may be little uncomfortable for the players in the short run but will help in strengthening the sector in long run

 The NPA provisioning norms is being changed from earlier 180+ days to 90+ Days which will lead to more provisioning in the next few year ( Till 31^st March 2018 by which this will be fully operational )

The Tier I capital adequacy norm has also been stipulated at 10% for larger NBFC ( By 31^st March 2018 )  as against the present 7.5% .     

Oil Price fall _ Good for India Macro

Crude oil price has been decreasing but the prices of Diesel and petrol has not decreased in India in the same proportion. Government has rather taken this opportunity to increase its own kitty to reduce fiscal deficit by increasing taxes on petroleum products. This is definitely not good for consumer in the short term but good for the Country in the long run to maintain fiscal discipline in the Country. Government can also think about creating a contingency Fund to support oil price in future. Crude oil has decreased from USD115 to USD 65 per barrel in the last 7 Months benefiting India. Such a free fall in Oil price has also created lot of problem for Oil Economy.  Fall beyond USD60 is definitely concerning for Global Economy as per experts as it would indicate less fuel consumption and low economic activity. Importance of Crude oil has been decreasing since last 10 years due to the emergence of alternate energy sources. The success of shale Gas in USA has changed he situation and importance of OPEC has been decreasing gradually. Reducing Oil prices has helped India to keep its CAD low which in turn will help to  face any volatility in capital inflow . Reducing crude price will help government to achieve its fiscal deficit target of 4.1% for FY15 as oil subsidy to OMC is decreasing. On the inflation front also India is getting big advantage due to falling crude price. Corporate profitability will also increase due to lower cost of production in many sector          

CSR Rule _ new areas included in Schedule VII

Ministry of Corporate Affairs has done a minor modification in the  CSR Rules of  the Companies Act 2013  on 24^th October  2014  so as to include the following two items also  in the schedule VII of the Act which covers the areas in which CSR spending can be done   

1.        Ccontribution to the Swatch Bharat Kosh set-up by the Central Government for the

        promotion of sanitation

2.        Contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of

        river Ganga;

companies Act _ Auditor rules Modified

Summary

·         Section 143 ( 3 ) ( h ) ( i ) of the new Companies Act 2013  require the auditor to report in its report “whether the company has adequate internal financial control system in place and the operating effectiveness of such control”

·         As per the new rule modified on 14th october 2014  the reporting will now  be mandatory  from the  financial year starting from 1. 4 . 15 and optional for the Financial year starting after 1.4 . 14 and before 31^st March 2015

INR Vs USD trend & factors

·        During last Summer 2013 Rupee had seen its worst time in History touching 68 against Dollar

·        Due to Gold Import restriction & other steps taken by RBI it came down to 62 level by October 13

·        Rupee also got lot of strength from the hope of a strong Government in centre with lot of reform hope. Due to this Rupee has been the best performing currency among all Emerging countries

·        The recent Oil price fall has also been helping Rupee a lot as India Import Crude oil heavily

·        Due to improved Trade Deficit linked to Gold restriction and low Crude price India will be able to close its CAD this year at 1.5% of GDP

·        But the risk is that India is also heavily dependent of Capital Inflow to upset its CAD

·        Capital Inflow trend may change once Federal Reserve tinker its policy as USA economy has started showing better results. This risk will always be there for India  

·        Further the improvement seen last year and this year in CAD is purely artificial( policy measures) and due to external factor( Crude oil price fall) and may change any time once India remove Gold import restriction or Crude price started going up  

·        If Investment activity increase in India due to Government drive on “Make in India” Capital Gods import is likely to increase which may impact Trade deficit consequential impact to INR  

REIT _ New Concept & strict guidelines

·        It has open up new investment avenues for developers & way to improve their liquidity. It also give one new investment option to Investors ·        Draft guidelines was released in 2013 ,final guidelines released by SEBI on 26th September 2014 ·        REIT can issue units to both Residents & Non residents ·        Minimum investment by investor will be INR 2 Lakhs ( lots of          1 lakhs each ) ·        REIT will always operate as a Trust ·        Every REIT need to be registered with SEBI before starting operation ·        Multiple classes of units is not allowed & no preferential voting rights to any unit holders ·        REIT would raise funds from Investors which in turn will invest the Money in “Real Estate” only on  completed projects / rent generating properties directly or through SPV ·        Real estate meaning does not include Mortgage & Infrastructure ·        Promoters of REIT will be known as sponsor and ·        Maximum 3 sponsor allowed for each REIT ·        Each sponsor must hold 5% of the units of REIT ( post IPO) ·        Net worth of each sponsor must be INR 20 Cr and collectively INR 100 Cr at all times ·        Sponsor must have 5 years experience as developers / Real estate fund Manager ·        Sponsor will appoint Trustee ·        Trustee will own the REIT Assets / get itself registered under SEBI ·        Manager will manage the day to day affairs of the REIT having experience in Fund Management ·        Valuer must not be associates of sponsors / trustee/ manager & must have minimum five years experience in valuing properties and qualified as valuer under Companies Act 2013 ·        Mandatory initial public offer within 3 years of registration of REIT ·        Borrowing by the REIT must not exceed 49% of its Assets at any time

RBI Update

·       In order to ease conditions for hedging FX risk, RBI increases the eligible limit for importers under Past Performance rule to 100% from existing limit of 50%.   ( 30th September )

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR34NT092014.pdf

·        Reserve Bank of India Governor Raghuram Rajan left  Repo  interest rates unchanged at 8% , reverse repo at 7% , MSF at 9% , CRR at 4% and SLR at 22%  as widely anticipated, as he expect Inflation pressure will continue in the coming Months  30th September )

http://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/EPR701991EE18102F.pdf

Macro Economy data update

·        India fiscal deficit for the first 5 months of FY 15 reaches 74.9% of the budget estimate compared to 74.6% in FY 14. Government has set target of 4.1% for FY15

·       As per RBI GDP growth will improve to 6.3% in FY16 as economy witnesses a turnaround on the back of policy reforms. However, it keeps its GDP growth estimate for current FY 15 unchanged at 5.5%. Recovery has been “uneven”, noting a slack in growth during Q2 after a positive growth of 5.7% in Q1 (June 14 );

·        India’s Infrastructure output grows by 5.8% in Aug against a 3-month low print of 2.7% in Jul and a growth of 4.7% in Aug 2013. The jump comes largely as electricity output expands by 12.6% against last year’s 7.1%, coal by 13.4% against 6.1% and cement by 10.3% against 5.2%. Infrastructure sector overall accounts for 37.9% of India’s Industrial Output.

Interest rate policy of federal reserve

After five years of steady policy rates in the US, discussion & expectation has started on the timing and pace of the rate hikes going forward. After the September policy meeting, it is expected that first hike of 25bp hike in June 2015. Slow pace rate hike is expected and the target range for the federal funds rate at 50-75bp by end-2015 and at 150-175bp by end-2016. QE 3 tapering has been done gradually and it will be over by December 2014. The Economy growth is also showing some positive signal in the last few quarters. USD continues to surge into little-charted territory, marking an 11th consecutive week of gains (the first such instance in 4 decades). USD index touched a 4-year high of 85.49 this week. The revival of US Economy will definitely impact Fund flow to all emerging countries. Let us wait and watch how the things are unfolding.  

S&P upgrade India Rating Outlook to "stable"

Rating agency Standard & Poors has reversed its opinion about the Indian economy and upgraded the rating outlook to stable from negative while maintaining the credit rating at BBB- ( just above Junk Category). This is a major change from its position last year when it said India faces one in three chances of a downgrade.

It will be a huge sentiment boost for India.  The revision in outlook is good news for the Indian economy as raising debt will become cheaper for Indian companies and it will also encourage foreign institutional investors to Invest in Indian Market . The move has boosted bank shares as it now makes it easier for lenders to raise debt from international market. I has been possible due to  improved political setting  and  a conducive environment for reforms, which could boost growth prospects improve fiscal management. The ratings on India reflect the country's strong external profile, combined with its democratic institutions and free press, both of which underpin policy stability and predictability. These strengths are balanced against the vulnerabilities stemming from the country's low per capita income and weak public finances

INR under pressure against USD

Rupee has remained above 60 levels for some time now and recently crossed 61 levels.If we recall rupee had touched all time high of 68 in May 2013 and after that it appreciated back to 61 levels and for some time it touched 58 levels also. The journey from 58 to 68 was very quick and back journey from 68 to 61 was possible due to many steps taken by both Government and RBI

Since October 2013 RBI has been intervening in the dollar market and have accumulated around 20 Billion dollar to give comfort to the India forex reserve position. This along with RBI invention in both spot and forward market has kept the rupee moved around 59~61 for long time.

But this time INR is depreciating due to overall dollar strength in international market, as the dollar index (Dollar Vs major currency) has gone up from 80 levels to 85. Although Federal Reserve has given some relief to all EM currency in its recently concluded meeting, it will not be very far when USA will start increasing interest rate. It is expected that by mid 2015 interest rate will be increased gradually. Back home all Macroeconomic indicators are within comfortable level which should help INR appreciation in the remaining Months of FY15. As the economy activities start increasing backed by government support under “make in India” campaign India may have to increase its import which will put pressure on INR partially.