Indian Economy seems to be on way to recovering from Demonetisation Disruptions, says IMF

India’s economy has expanded strongly in recent years, said Tao Zhang, Deputy Managing Director of IMF.

IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.


The Indian economy now seems to be on its way to recovering from disruptions caused by demonetisation and roll-out of goods and services tax, the IMF said today. At the same time, the IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.

India’s economy has expanded strongly in recent years, thanks to macroeconomic policies that emphasise stability and efforts to tackle supply-side bottlenecks and structural reforms. Disruptions from demonetisation and the rollout of the goods and services tax (GST) did slow growth,” Tao Zhang, Deputy Managing Director of IMF, told PTI in an interview.

“However, with the economy expanding by 7.2 per cent in the latest quarter, India has regained the title of the fastest-growing major economy, Zhang said.

Calling this development a “welcome change”, Zhang said the growth prospects remain positive.

“That said, the Indian economy would benefit from further reforms, such as enhancing health and education, encouraging private and public investment, and improving the efficiency of the banking and financial system. This would support durable and inclusive growth and enable India to move toward the income levels of wealthier countries, the top IMF official said ahead of his visit to India.

Given the dominance of cash in everyday transactions in the Indian economy it was inevitable that demonetization would temporarily affect economic activity, said Zhang who is travelling to India and Bhutan from March 12 until March 20.
The rollout of the GST last year was a landmark accomplishment that can be expected to enhance the efficiency of intra-Indian movement of goods and services, create a common national market, enhance tax buoyancy, and boost GDP growth and job creation, he said.


Yet the complexities and glitches in GST implementation also resulted in short-term disruptions. As I mentioned earlier, the economy now seems to be on its way to recovering from those disruptions, Zhang said in response to a question.

When asked about the latest Indian budget, which many critics say is protectionist in nature, Zhang said IMF research indicates that tariffs are broadly contractionary, reducing output, investment, and employment.

Trade tariffs may give limited relief to industries and workers that directly compete with affected imports. However, they can raise costs to consumers and other businesses that use the protected products. Tariffs also would reduce incentives for businesses to compete and improve efficiency, he cautioned.

Since the opening of the economy starting in the early-1990s, India has benefitted from trade liberalization, he observed.

Further supply-side reforms aimed at improving the business climate could enhance these benefits, the top IMF official asserted.

Noting that the IMF and India have close relations, and the two have always been good partners, Zhang said his visit is a reflection of this partnership, as is the newest regional capacity development center, SARTTAC, based in New Delhi.

The center partners with India and its South Asian neighbors to build strong institutions and implement policies that promote growth and poverty reduction in the region, he said.

My visit is an opportunity to exchange views with the Indian authorities, senior RBI officials, and representatives from the Indian business community, civil society, and others, he said.

Zhang will also have a presentation on financial technology that will take place on Monday at the National Stock Exchange of India.

We will go over the latest trends in financial technology and their effects on the global economy and India, said the top IMF official.

Source: NDTV


Market regulator Sebi is readying a framework for issuance of participatory notes (p-notes) from international financial services centres such as GIFT City. It is in talks with FPIs, which act as issuers of p-notes, sources said. The move comes at a time when Indian bourses have terminated licensing of indices and data-feed agreements with their foreign counterparts. This will force overseas investors to either invest directly or come through GIFT City to trade in Indian securities.

The Securities and Exchange Board of India (Sebi) is readying a framework for issuance of participatory notes (p-notes) from the international financial services centres (IFSCs) such as GIFT City. P-notes are derivative instruments that allow overseas investors to invest in a domestic security without having to directly register with Sebi. The market regulator is in talks with foreign portfolio investors (FPIs), which act as issuers of P-notes, according to sources.

The move comes at a time when Indian bourses, including the National Stock Exchange (NSE), have terminated licensing of indices and data-feed agreements with their foreign counterparts.

The snapping of ties will force overseas investors, which use platforms like the Singapore Exchange (SGX) to trade in Indian securities, to either invest directly or come through GIFT City.

GIFT City is designed like an offshore trading platform with low transaction cost. Know-your-customer (KYC) documentation for p-notes issued from the IFSC would have to adhere to anti-money laundering laws, sources privy to the development said. The regulator, however, is expected to do away with strict trading restrictions on these instruments.

At present, no p-note subscriber is allowed to take a derivatives position in

■ Sebi to soon come up with a framework for issuance of p-notes from IFSC, Gujarat

■ The KYC documentation for p-notes from IFSC is likely to be on parwith p-notes issued by on-shore FPIs

■ However, Sebi is expected to relax the trading restrictions on p-notes issued from IFSC

■ On-shore subscribers of pnotes are not allowed to take any position in the Indian derivatives market

■ Indian stock exchanges recently terminated

the market for any other purpose apart from hedging. Also, there are restrictions on transfer of p-notes from one investor to another. According to experts, since the IFSC is a typical offshore destination where only derivatives are traded, Sebi is open to a less-stringent licensing of indices and data-feed agreements with foreign bourses

■ FPIs looking to invest in India can either invest directly or through the IFSC GIFT City, which offers tax benefits and liabilities

“Sebi recently conducted a meeting with some of the big FPIs that had sought the regulator’s permission to issue p-notes from the IFSC. The idea was to provide an entry to those investors who had lost trading opportunity due to the closing of offshore derivatives trading platforms like the SGX,” said another source privy to the development.

There was still a huge appetite among global funds for instruments such as p-notes because these did not amount to direct exposure, experts said. Despite the high KYC requirement, pnotes are still handy for investors that do not want to have a direct exposure to the Indian market due to restrictive laws in their own countries. P-notes also offer a cost advantage for funds that invest a marginal amount of their portfolio in Indian securities.

“The initial rules for p-note issuance from the IFSC could be much simpler with fewer restrictions on issuers since the whole concept was at an evolutionary stage. Once the instruments gain traction, the regulators concerned could consider tightening rules further,” said Tejesh Chitlangi, partner, IC Legal Universal.

The share of p-notes in total FPI investment has gone down significantly in the last decade with Indian regulators cracking down on their misuse. A decade ago, p-notes accounted for half of total FPI inflows. Now they just account for just 3.7 per cent.

Sebi in 2016 tightened KYC norms for p-notes. P-note issuers were asked to follow Indian anti-money laundering rules. Sebi also made it mandatory for FPIs to disclose the end beneficiary of Pnote subscribers.

Source: Press Reader

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

Modi’s Win Sends Indian Stocks to Record, Rupee to 16-Month High

– Nifty surpasses March 2015 peak, Sensex gains as much as 2.1%.
– Bigger-than-expected victory seen as endorsement of reforms

Indian equities rallied to a record and the rupee climbed the most since 2013 after Prime Minister Narendra Modi’s resounding victory in state elections boosted expectations for a continuation of his reform agenda.

The NSE Nifty 50 Index climbed 1.7 percent to 9,087, crossing its March 2015 record close, as the market reopened after a holiday. The India VIX Index, a gauge of expected stock-price swings, touched an all-time low. The rupee surged 1.2 percent to 65.8175 per dollar, the strongest level since November 2015. The central bank was seen buying dollars in early trade to cap gains but moved away later, Mumbai-based traders said.

“This win will give Modi the confidence to push ahead with more reforms and not pursue populist policies,” Sampath Reddy, chief investment officer at Bajaj Allianz Life Insurance Co., said by phone. The insurer, which oversees 480 billion rupees ($7.3 billion) of assets, is bullish on financial-services companies and metal producers, he said.

Modi’s Bharatiya Janata Party won 312 seats in the 403-member assembly of Uttar Pradesh, according to the Election Commission of India, up from 47 in 2012. The results in India’s largest state were seen as a litmus test of Modi’s popularity and reforms, including opening up the country to more foreign investment and seeking to introduce a goods and services tax, ahead of general elections in 2019.

While exit polls released last week suggested a large BJP victory was possible in Uttar Pradesh, the scale of the win was stark in a state that has long been divided along religious and caste lines. It is also a repudiation of political foes who assumed that Modi’s disruptive Nov. 8 move to junk high-value currency notes would be politically unpopular.

“Uttar Pradesh is a state where mandates have tended to be mostly divisive, so the result is a mandate for development, which has been sorely missing in the state,” Gautam Sinha Roy, a fund manager at Mumbai-based Motilal Oswal Asset Management Co., said by phone. “Markets will now start assigning higher probability to a BJP victory in the 2019 polls.”

India’s economic growth has been 7 percent or more in each of the last four quarters, which has helped lure $3.4 billion of foreign funds into local stocks and bonds this year. Mutual funds bought shares for seven months through February, including a record $2.1 billion in November. The S&P BSE Sensex has risen 11 percent in 2017, and the rupee is up 3.2 percent against the dollar.

“We expect the Reserve Bank of India to more actively cap further rupee gains given the sharp swing higher in the real effective exchange rate in recent months,” Divya Devesh, an Asia FX strategist at Standard Chartered Bank in Singapore, said by e-mail. He forecasts the rupee at 69 rupees to the dollar by year-end.

Pricey Valuations

The Nifty came off an intraday high of 9,122.75 as investor focus turned to a near-certain interest rate hike from the Federal Reserve this week and expected revival in corporate profitability. The Nifty and the Sensex are valued at about 21 times forward earnings, the highest level since April 2010.

“Valuations look stretched and investors are cautious with the Fed meeting round the corner,” said Sushant Kumar, a fund manager at RAAY Global Investments Pvt. in Mumbai. “Stocks have priced in the expected increase in rates. The focus is on Fed’s outlook.” The Nifty may reach 10,000 by March 2018, accompanied by as much as 14 percent expansion in earnings of its 50 members, he said.

Still, the scale of the BJP’s victory paves the way for further reforms and should lead to more inflows, supporting asset prices, according to Vikas Gupta, chief investment strategist at OmniScience Capital Pvt. in Mumbai.

“For international investors, India is one of the few emerging markets that has everything going for it: demographics, economics and politics,” he said. “With elections settled, it is clear that the federal government is now going to be fully in charge of the parliament.”



India knocking at rare club of fast, steady growth economies says Edelweiss

There are only 28 episodes ever when countries grew at over 6 per cent for 8 years or longer, Edelweiss Securities said in a research note, adding India is entering this rare club.

Indian economy is becoming more efficient through five broad themes — fast and steady rate of growth, market reforms, expanding digital footprint, revival in rural growth and creation of modern infrastructure, says a report.


Indian economy is becoming more efficient through five broad themes — fast and steady rate of growth, market reforms, expanding digital footprint, revival in rural growth and creation of modern infrastructure, says a report. “India is growing at a fast pace, largely driven by efficiency gains in doing business, tax collections, infrastructure and rural economy,” it added. There are only 28 episodes ever when countries grew at over 6 per cent for 8 years or longer, Edelweiss Securities said in a research note, adding India is entering this rare club. On landmark reforms, the report said while GST can increase highly productive formal organised employment, bankruptcy code can enhance liquidation and better utilisation of assets. Moreover, there has been a marked improvement in global competitiveness among major emerging markets and 90 per cent of FDI is now coming through the automatic route, replacing hot money, it added.

Regarding digital India, it said that apart from gains from extinguished liability, the real effect of demonetisation has been a repair of banks’ balance sheets and an increase in digital transactions.

An efficient rural India means higher rural income, which in turn would lead to large increase in discretionary spend hence stronger growth in India.

Edelweiss Securities further noted that equities are cheap relative to bonds.

“A comparison of Nifty’s earning yield vs the 10-year government bond yield shows that equities are currently very cheaply priced as compared to debt instruments and we should expect a shift in the allocation of funds from debt to equity,” it said.

The broader market is also showing bullish prospects.

“The number of stocks hitting 52-week highs are rising steadily and the total market cap of all NSE listed stocks (above 200 cr MCAP) is also at a new all-time high; suggesting strong momentum in broader market,” it said.


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.


SEBI proposes changes in ITP norms to attract more firms

The Securities and Exchange Board of India (Sebi) on Friday proposed changes to the Institutional Trading Platform (ITP), to draw more companies to it. Comment on the discussion paper has been invited till August 14.

Introduced in 2013, the platform allows companies, particularly in information technology (IT), to list without necessarily doing an Initial Public Offer of equity. So far, only around 40 companies are listed on the ITP platforms of the BSE or the National Stock Exchange.

IT companies to qualify on this platform need Qualified Institutional Buyer (QIB) shareholding of at least 25 per cent; other companies need 50 per cent. Sebi has proposed to expanded the definition of QIBs to investors such as family trusts and individual foreign investors. Also, to do away with the 25 per cent cap on single investors listed on the platform.

Further, it proposes to reduce the minimum institutional investor participation, from 75 per cent to 50 per cent. Also, to increase the ceiling on allotment to individual institutional investors from 10 per cent to 25 per cent to a single entity. Sebi has also proposed to make market making compulsory for a minimum of three years for an issue size of less than Rs 100 crore.

More important, it has proposed to ease trading lots on the ITP platform from Rs 10 lakh to Rs 5 lakh. Interestingly, Sebi has also proposed to rename ITP as  ‘high-tech start-up & other new business platform’.