As SEBI reforms startup listing, SMEs must ensure funds are not misused

SME ExchangeAmid SEBI banning as many as 239 entities for alleged money laundering, taxation consultancy PwC has called for a three-year locking-in for the entire pre-listing capital held by promoters to curb tax evasion and other illegal activities through market platforms.

The agency has called for imposing a similar lock-in even for preferential allotments, as prescribed under the capital and disclosure requirement (ICDR) norms so that only serious investors access the market. The PwC report is part of a BSE-mandated review of SME listing process.

The premier bourse last week said that 100 entities were trading on its SME platform. The regulator Securities and Exchange Board (SEBI) on June 29 banned four publicly traded SMEs and 235 other related entities for alledgely misusing the exchange’s platform for money laundering and tax evasion.

The SEBI, in an interim order alleged that these entities made Rs 614 crore in illegal gains through suspected money laundering and tax evasion activities. The four companies banned are EcoFriendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment and HPC Biosciences. These are traded on the BSE SME Platform.

“The institutional trading platform (ITP) could be utilised as a tool for tax planning by staying invested in an SME for a period more than 12 months and exiting at a very high stock price thereby making huge gains with no tax liability,” PwC said in the report.

Accordingly, the report has suggested that the entire pre-listing capital held by promoters should be locked in for three years as “such restrictive conditions would discourage people from accessing the platform only for tax planning”. The BSE had launched ITP for its SME platform to facilitate start-ups and other SMEs to list without the mandatory IPO process which is time-consuming and capital intensive that small companies can hardly afford.

According to PTI, in addition to allowing SMEs and start-up companies to raise capital, the BSE SME platrfom also provides easier entry and exit options for informed investors like angel investors, venture capitalists and private equity players, apart from offering better visibility and wider investor base and tax benefits to long-term investors.

Meanwhile, the report also called for a reduction in trading lot size and shorter interval for review of lot size after many SMEs, merchant bankers and market-makers cited this as a disincentive for entering the market. The report said market participants want the timeframe to review the lot size to be reduced from the current six months and lower the trading lot requirement of Rs 1 lakh to attract retail investors to the segment.

As SEBI continues to make business easier, it is important SMEs do not eye illegal gains through suspected money laundering and tax evasion activities.


Foreign investors pump $3 billion into capital markets, forex at record high in January

Foreign portfolio investors (FPIs) have invested a phenomenal $3 billion (close to Rs 18,000 crore) in India’s capital markets this month on expectations of high yields as corporate earnings are expected to pick up with the economy gathering momentum after the slowdown due to the chaotic implementation of GST.


The sharp increase in inflows comes after an outflow of over Rs 3,500 crore by foreign portfolio investors (FPIs) from the capital markets in December, data compiled by depositories shows. According to market analysts money pumped in by FPIs has played a key role in fuelling the bull run in the stock markets that saw both the Sensex and Nifty on a record breaking spree in recent weeks.


FPIs infused a net amount to the tune of Rs 11,759 crore in stocks and Rs 6,127 crore in debt during January 1-25 — translating into net inflows of Rs 17,866 crore. For the entire 2017, FPIs invested a collective amount of Rs 2 lakh crore in the country’s equity and debt markets.


The inflow in the current month can be attributed to anticipation of earnings recovery and attractive yields which is expected to further strengthen inflow from foreign investors in the current financial year, said Dinesh Rohira, CEO of 5nance, an online platform providing financial planning services.


However, Quantum MF Fund Manager-Fixed Income Pankaj Pathak believes that FPIs may not be able to repeat this showing in 2018 as withdrawal of liquidity and rate hikes in developed economies pick up. This would provide them with alternative avenues of investment.


The FPI investments have also helped to bolster the country’s foreign exchange reserves which touched an all-time high of USD 414.784 billion in the week to January 19, Reserve Bank data showed. The RBI data showed that the forex reserves rose by USD 959.1 million to touch a record high during the reporting week. In the previous week, the reserves had touched USD 413.825 billion after it rose by USD 2.7 billion.


The reserves had crossed the USD 400-billion mark for the first time in the week to September 8, 2017 but have since been fluctuating. But for the past four weeks the figure has shown a continuous rise. Higher foreign exchange reserves lead to a stronger rupee which in turn reduces the cost of imports as fewer rupees have to be paid to buy the same amount of dollars to pay for items such as crude oil.


A higher foreign exchange kitty also provides a comfortable cushion to finance imports especially at a time when crude prices are shooting up in the international market and the country’s trade deficit has been growing. However, while FPI inflows add to the forex reserves they are considered “hot money” as they can leave Indian shores at short notice and this could send the rupee into a tailspin.


A senior finance ministry official said that foreign direct investment (FDI) is a more stable source of funding for the economy and since it also creates jobs and incomes the government is keen to see an increase in such investments. The Prime Minister’s trip to Davos was aimed at achieving this goal, he pointed out. He said that the government has been working on the ease of doing business which has seen a sharp increase in FDI inflows and this policy will continue in the forthcoming budget. At the same time the government is keen FPI inflows are not disrupted due to tax levies on stocks that create uncertainties, he added.


Source: Business Today

Listed SMEs to touch 1,000 in next 2 yrs: Merchant banker

SME ExchangeThe number of small and medium enterprises listed on BSE and NSE platforms is expected to reach 1,000 in the next two years from nearly 350 at present, leading merchant banker Guiness Corporate Advisory Services said today.

More companies will tap the initial public offer (IPO) route for business expansion plans, to support working capital requirements and other general corporate purposes.

In the entire 2017, 132 SMEs raised a record Rs 1,785 crore through IPOs, much higher than 66 firms that garnered Rs 540 crore in 2016.

Besides, 2017 witnessed more fund-raising than aggregate capital garnered in past five years cumulatively. Overall, the firms mopped up Rs 1,315 crore in the last five years.

“Both the exchanges (BSE and NSE) have already listed nearly 350 SMEs in the last couple of years and this number will definitely reach to 1,000 during the next two years,” Guiness said in a statement.

The firms will be from various sectors such as media and entertainment, manufacturing, textiles, engineering, finance, chemicals, agriculture, food processing and construction.

“SMEs have very well embraced the idea of raising equity through IPO route in the last couple of years. There has been a phenomenal change, as they were perennially dependent on debt for their working capital and expansion plans in the past. This change will be a game changer for the growth of the SMEs in the country,” the merchant banker said.

BSE and NSE launched SME platforms in March 2012, becoming the only two bourses to offer such a segment in the country. Since then, more than 300 companies have got listed on these platforms.

“SMEs have really got benefited from this platform, we are encouraging more SMEs to come out with IPO. This would remain a great source of funds. Many listed SMEs have also moved to main board exchanges because of their growth in the last couple of years. This is also a good gateway for eventually get listed on the main platform of the exchanges,” BSE SME Head Ajay Thakur said.


Source: Times of India

Companies and financial institutions mop up close to Rs 56,000 crore by way of fund raising through equities

Companies and financial institutions have mopped up close to Rs 56,000 crore by way of fund-raising through equities so far in 2017. This is about 20% higher than the amount of Rs 46,733 crore raised in 2016.

Companies and financial institutions have mopped up close to Rs 56,000 crore by way of fund-raising through equities so far in 2017. This is about 20% higher than the amount of Rs 46,733 crore raised in 2016. The fund-raising has been helped by a booming stock market; the Sensex has gained by 22% in the year so far.

On Monday, the benchmark gauge closed at 32,514.94.The Nifty has put on 23.10% in 2017 closing Monday’s session at 10,077.10.Since the beginning of the year, firms have mopped up Rs 55,905 crore through initial public offerings (IPO), offers for sale (OFS), Qualified Institutional Placements (QIP), and rights issues among others, data from Prime Database showed.

A significant portion — close to 61% — of the total equity raised this year has been by way of QIPs at Rs 34,182 crore. State Bank of India (SBI)’s Rs 15,000 crore offer has been the biggest in 2017 so far — the lender had issued around 52.21 crore new shares at a price of Rs 287.25.

The issue was aimed at augmenting the bank’s capital adequacy ratio and for general corporate purposes.This is the highest in the past eleven years. Banks constituted 84% of the amount raised through QIPs.

Market participants said the need for Tier 1 capital and the necessity to meet Basel III requirements as the reasons for banks opting for QIPs.

After QIPs, the maximum amount of money was raised through IPOs in 2017.

In 2017, companies raised Rs 14,026 crore through IPOs. Listing gains and returns by newly listed companies as also the positive sentiment in the broader market are among the reasons attributed to the trend.

BSE, HUDCO, CDSL, Avenue Supermarts, Shankara Building Products and S Chand and Company are some of the companies who completed their IPOs in the last seven months.

The newly listed companies have given good returns to investors, the BSE IPO index a gauge of newly listed companies rose by 40% year to date.

Small enterprises raised Rs 716 crore through SME IPOs, this is the highest since 2012.

Market participants said the buoyancy in the primary market is set to continue with more than a dozen companies gearing up to hit the market with their offerings.



SEBI plans stricter norms for Independent Directors

Markets watchdog Securities and Exchange Board of India (SEBI) plans to overhaul the regulatory framework for corporate governance, including appointment and removal of independent directors, people familiar with the matter said.

Besides, a high level panel is looking at corporate governance issues such as those pertaining to related party transactions, auditing and effectiveness of board evaluation practices, the people added.

Against the backdrop of recent instances of boardroom battles involving large corporates, the SEBI is looking to revamp the norms and the matter is expected to be discussed at its board meeting later this month.

Strengthening corporate governance practice is a focus area for the regulator, with SEBI chairman Ajay Tyagi recently saying, “independent directors are not independent”.

The regulator is keen on stricter norms for independent directors, including with respect to their appointment, removal and larger responsibility as part of a company’s board, the people said.

Currently, an independent director can be removed by way of an ordinary resolution — which requires the approval of at least 50 percent shareholders of a particular company.

However, when it comes to re-appointment of independent directors, the firm concerned has to move a special resolution under which nod from 75 percent or more shareholders is required.

According to sources, SEBI wants to make it special resolution mandatory for removal of an independent director as such a provision will reduce the arbitrariness of promoters in deciding upon the ouster of such directors.

Besides, stringent disclosure requirements for independent directors, including at the time of their appointments, are being looked at, sources said.

Corporate governance issues will be among the slew of developments that are to be discussed during the SEBI board meeting scheduled for June 21.





Earlier this month, the watchdog set up a 21-member committee under the chairmanship of veteran banker Uday Kotak to suggest ways to further improve corporate governance standards of listed companies.

The panel will make recommendations on ensuring independence in spirit of independent directors and their active participation in functioning of the company.

Besides, measures to address issues faced by investors on participation in general meetings and ways for improving effectiveness of board evaluation practices will be suggested by the committee.

Apart from Kotak, who is the chairman of Kotak Mahindra Bank, other members include HDFC CEO Keki Mistry, Wipro chief strategic officer Rishad Premji, L&T Whole Time Director R Shankar Raman and BSE CEO Ashishkumar Chauhan.

In April, Tyagi had said there were too many lacunae with respect to the concept of independent directors with many having “no commitment to any cause”.

“I must admit I have no solutions on what should be done but it will be anyone’s case that existing system has lot of lacunae,” he had said.

Some independent directors are appointed at the mercy of promoters “(with) no prescribed qualifications or procedures, favouritism, (many are from) closed clubs (such as) only those people being in all boards, no commitment to any cause – Ajay Tyagi, Chairman, SEBI





Earlier this year, the regulator came out with detailed corporate governance norms for listed companies that provide for stricter disclosures and protection of investor rights, including equitable treatment for minority and foreign shareholders.

The new rules, which would be effective from October 1, require companies to get shareholders’ approval for related party transactions, establish whistle blower mechanism, elaborate disclosures on pay packages and have at least one woman director on their boards.


Sensex crosses 30,000 mark, Nifty ends at record 9,351.85

The bull run was driven by hopes of earnings growth and continued buying by domestic investors. Rising global optimism on French elections results and likely announcement of tax reforms by Donald Trump in the US also pushed the markets higher.

With mixed positive sentiments among investors and unabated funds inflows in both global and domestic rallies, markets created yet another milestone in the stock trading history on Wednesday. The benchmark Sensex ended with new and all-time high of 30,133.35 for the first time, while the broader Nifty scaled a new peak at 9,351.85 points.

Similarly, energised by positive global cues in line with a spectacular rally in equities, the rupee also surged by another 15 paise to close near a fresh 21-month high of 64.11, the third straight session of gains. This is the highest closing for the rupee since August 10, 2015, when it had ended at 63.87.

The market momentum also got an additional push on growing expectations for robust foreign inflows to India sparked by a renewed optimism about the US economy and waning anxiety over the European political landscape. Besides, stocks also saw frenzied buying, in line with global shares, which have been on a high after the first round victory of centrist Emmanuel Macron in French presidential elections. Investors are also keeping an eye on US President Donald Trump’s much-awaited tax reforms.

However, traders and market insiders have a different view on this unusual rally, saying that the impressive show by the ruling BJP in Delhi civic polls added to the positivity in the share market.

Keeping the upward trend of the markets, the BSE, however, cautioned the investors not to be carried away by the ‘euphoria’ and refrain from investing in penny stocks. BSE Chief Executive Ashish Chauhan appealed to investors to invest only in good companies or opt for the mutual funds’ route to invest in the markets. “As an exchange, we advice investors not to be carried by the 30,000 mark euphoria and they should not invest in penny stocks nor do they fall prey to fly-by- night operators,” Chauhan said after celebrating the milestone at the Dalal Street towards the end of the trading hours in Mumbai.

As far as Sensex is concerned, the BSE 30-share index opened on a strong footing and surged to a lifetime high of 30,167.09 points in intra-day trade, before settling at 30,133.35, up 190.11 points, or 0.63 per cent. This surpassed its previous record close of 29,974.24, reached on April 5. The gauge had hit its previous intra-day high of 30,024.74 on March 4, 2015. The Sensex has gained 768.05 points or 2.62 per cent in three days.

Similarly, the broader 50-issue NSE Nifty scaled a new high of 9,367 before finally settling 45.25 points, or 0.49 per cent higher at 9,351.85, a new record closing.

Its previous closing high of 9,306.60 was hit in Tuesday’s trade. It also broke the previous intra-day record of 9,309.20. “Market has made a higher high on account of rising global optimism due to ease in political risk in Eurozone and expectation of tax reform in the US. “Volatility emerged during the late hours due to profit booking but short covering ahead the expiry navigated the direction back to north. Optimism on earnings and continued buying by local investors is directing the recent rally in the market,” said Vinod Nair, Head of Research, Geojit Financial Services.

Overseas, Asian indices also ended higher following overnight rally in US stocks on strong earnings announcements and expectations surrounding US President Donald Trump’s impending tax reforms. Tokyo’s Nikkei ended up 1.1 per cent, while Hong Kong’s Hang Seng rose 0.5 per cent, its fifth straight day of gains. Shanghai Composite Index edged up 0.2 per cent.

Key indices in Europe, however, were mixed in their morning deals, with Paris CAC 40 rising 0.1 per cent, London’s FTSE slipping 0.06 per cent and Frankfurt’s DAX 30 declining 0.03 per cent. Back home, of the 30-share Sensex pack, 18 scrips ended higher while 12 closed lower.

Major gainers were ITC 3.36 per cent, M&M 3.29 per cent, HDFC 2.36 per cent, HUL 1.78 per cent, ICICI Bank 1.61 per cent, Tata Motors 1.17 per cent, Bharti Airtel 1.14 per cent, Maruti 0.88 per cent, HDFC Bank 0.73 per cent and Asian Paints 0.73 per cent.

The total turnover on BSE amounted to Rs 5,021.73 crore, higher than Rs 4,006.89 crore registered during the previous trading session.


IPO fund-raising in India highest since 2011

Fund raising through initial public offerings (IPOs) has crossed $2.9 billion in 2016 and another $2.9 billion is to be raised through these offerings this year, according to a research report by Baker & McKenzie.

Around 22 companies are waiting to tap the markets bringing the year-end estimated total deal value to $ 5.8 billion, more than double last year’s $2.18 billion from 71 listings, and also the highest since 2011, the report said.

The report further said that 16 companies are in the pipeline to be listed domestically in 2017, raising as much as $5.86 billion, including Vodafone’s highly anticipated $3 billion IPO, which could potentially surpass the state-run Coal India’s IPO in 2010 to become India’s biggest IPO.

The report said the momentum in India’s IPO market continues to build, boosted by the central government’s push to ease of doing business in India.

The report added that Goods & Services Tax (GST) Bill which will take effect on 1 April 2017 will have a positive effect on the market.

“The GST Bill will not only bring about the immediate benefit of widening the country’s tax base and improving the revenue productivity of domestic indirect taxes, but more importantly, it sends the message to the people of India and the rest of the world that the Indian government is committed to the country’s economic reform, further bolstering India’s attractiveness as an investment destination,” said Ashok Lalwani, head of Baker & McKenzie’s India Practice.

The report said dual listing on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India accounted for 98.8% of Indian companies’ listings by value in 2016 year to date, raising a total of $ 2.9 billion from 19 IPOs, including ICICI Prudential Life Insurance’s $909 million IPO, which is the country’s biggest IPO this year.

A total of 33 companies are expected to dual list on both the BSE and the NSE by the end of 2016, raising a total of $4.62 billion. Improved business confidence is also driving Indian companies to look at growth and market expansion opportunities overseas by way of cross-border IPOs, the report said.

Among the 22 IPOs in the 2016 pipeline is Strand Life Sciences’ listing on NASDAQ, which if it goes ahead, will be India’s first cross-border IPO since early 2015 when Videocon d2h got listed, the report added.