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

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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

Government sends tax notices to cryptocurrency investors as trading hits $3.5 billion

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– The government has issued repeated warnings against digital currency investments
– Tech-savvy young investors, real estate players and jewellers are among those invested in bitcoin and other virtual currencies

The government has sent tax notices to tens of thousands of people dealing in cryptocurrency after a nationwide survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period, the income tax department said.

Tech-savvy young investors, real estate players and jewellers are among those invested in bitcoin and other virtual currencies, tax officials told Reuters after gathering data from nine exchanges in Mumbai, Delhi, Bengaluru and Pune.

Governments around the world are grappling with how to regulate cryptocurrency trading, and policymakers are expected to discuss the matter at a G20 summit in Argentina in March.

The government has issued repeated warnings against digital currency investments, saying these were like “Ponzi schemes” that offer unusually high returns to early investors.

But it has not so far imposed curbs on an industry estimated to be adding 200,000 users in India every month.

B.R. Balakrishnan, a director general of investigations at the income tax department in the southern state of Karnataka, said notices were sent following the survey to assess the penetration and patterns of virtual currency trade.

“We cannot turn a blind eye. It would have been disastrous to wait until the final verdict was out on its legality,” he told Reuters.

The tax department has asked people dealing in bitcoin and other virtual currencies such as ethereum and ripple to pay tax on capital gains. They have also asked for details about their total holdings and the source of funds in the tax notice seen by Reuters.

“We found that investors were not reflecting it on their tax returns and in many cases, the investment was not accounted for,” Balakrishnan said.

Bitcoin, the world’s biggest cryptocurrency, soared more than 1,700 percent last year, hitting a record high just shy of $20,000 as institutional and retail investors around the world snapped up the virtual currency.

Its huge gains have attracted the attention of global regulators tasked with protecting investors from fraud.

In recent weeks, Japan and China have made noises about a regulatory crackdown, while South Korean policymakers said they were considering shutting down domestic virtual currency exchanges.

REGULATION

An Indian finance ministry official said a federal committee was looking into the possibility of imposing restrictions on virtual currencies and that eventually parliament would have to legislate a regulatory regime.

Officials at Zebpay, India’s leading bitcoin exchange, said the industry was adding near 200,000 users every month with an estimated trade volume of about 20 billion Indian rupees ($315 million).

“Many of our customers are treating digital currency like gold,” said Zebpay co-founder Saurabh Agarwal.

Aman Kalra, marketing head of Coinsecure, a bitcoin exchange in New Delhi, said more than 150 bitcoins were changing hands every week through its platform. The company has 100,000 registered users and is now launching a platform to sell ethereum and other digital currencies.

“I don’t think anyone in the government should label our business as a ‘Ponzi scheme’, we are not doing anything illegal,” said Kalra.

Tax inspectors said they sought help from experts in blockchain, the technology that underpins bitcoin, to conduct the survey.

In some cases, tax officials themselves participated in the trade to identify loopholes after they found investors had poured in billions of dollars through unregulated exchanges.

Source: Times of India

PE investments jump 55% to all-time high of $24 bn across 591 deals in 2017

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Flipkart received India’s largest ever PE investment of $2.5 billion in a single round from Softbank

Private equity firms invested $23.8 billion across 591 deals in 2017, making it the biggest year for PE investments in India, says a report.

According to deal tracker Venture Intelligence, the investment value is 39 per cent higher than the previous high of $17.1 billion (recorded in 2015) and 55 per cent higher than $15.4 billion invested during 2016. In terms of number of deals the year 2017 saw 21 per cent less activity as compared to 2016 (731 deals), indicating large number of big-ticket transactions.

“The year witnessed 31 investment deals with size greater than USD 200 million, aggregating to $15.4 billion or 65 per cent of the total investments,” the report said. These figures include venture capital investments, but exclude PE investments in real estate.

In terms of industries, IT/ ITeS companies accounted for 45 per cent of the value pie attracting $10.7 billion worth investments across 325 transactions.

Flipkart received India’s largest ever PE investment of $2.5 billion in a single round from Softbank and another $1.4 billion from strategic investors Tencent, eBay and Microsoft. Softbank also invested $1.4 billion in mobile wallet and payments firm One97 Communications, which owns the Paytm brand. BFSI (Banking, Financial Services and Insurance) companies continued to enjoy the second spot attracting $4.40 billion across 61 transactions.

The sector was led by Bain Capital’s $1.04 billion investment in Axis Bank — the largest ever single investment in the sector — and Warburg Pincus’ $384 million pre-IPO investment in ICICI Lombard General Insurance.

On the back of its two mega bets (Flipkart and Paytm), Softbank emerged as the largest investor during the year with investments totaling over $4 billion (including a $250 million investment in Oyo Rooms).

Other top investors include Canadian pension fund CPPIB with $2 billion investments across five companies; while Warburg Pincus invested $1.6 billion across nine companies, and KKR invested about $680 million.

China’s Tencent emerged as a significant strategic investor in the Indian Internet and mobile sector with investment of $1.1 billion across home grown leaders like Flipkart, Ola, Byjus Classes and Practo.

 

Source: Business Standard

Direct tax mop-up jumps 19% in FY18

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Direct tax collections during the first nine-and-a-half months of the current fiscal have risen by 18.7% to Rs 6.89 lakh crore, the tax department said on Wednesday.

The collections till January 15, 2018 represent over 70% of the Rs 9.8-lakh-crore revenue target from direct taxes, the Central Board of Direct Taxes (CBDT) said in a statement.

 

Gross collections (before adjusting for refunds) have increased by 13.5% to Rs 8.11 lakh crore during April, 2017 to January 15, 2018. Refunds amounting to Rs 1.22 lakh crore have been issued during this period.

Stating that there has been “consistent and significant” improvement in the position of direct tax collections during the current fiscal, the CBDT said the growth rate of total gross collections has improved from 10% in Q1, to 10.3% in Q2, to 12.6% in Q3 and to 13.5% as on January 15, 2018.

Similarly, the growth rate of total net direct tax collections has climbed up from 14.8% in Q1, to 15.8% in Q2, to 18.2% in Q3 and to 18.7% as on January 15, 2018.

The growth in corporate tax collections has risen from 4.8% in the first quarter of current fiscal to 10.1% in Q3 and 11.4% as on January 15, 2018.

Similarly, the growth rate of net corporate tax collections increased from 10.8% in Q2 to 17.4% in Q3 and to 18.2% as on January 15, 2018.

 

Source: Times of India

Unexplained deposits in focus, taxmen ordered to go all out in the next three months

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About two months ago, tax offices were directed to accept only those revised tax returns where there is a “bonafide inadvertent error” or “a mistake” on the part of the assessee.

The income-tax department will in all likelihood go into overdrive in the next three months with the Central Board of Direct Taxes — the apex body — alerting all senior tax officials that their performance is being “monitored at the highest level.” It will also give a renewed push towards imposing and recovering tax on Rs 3 lakh crore deposit, which is suspected to be the quantum of unexplained cash parked with banks post demonetisation.

“There will be searches, surveys, information verification, and follow-ups. Explanations on ‘cash in hand’ amounts are being sought from different kinds of assessees, and not just from large establishments and jewellers… We will be knocking on many doors even if our respective targets are met,” a senior tax officer told ET.

This was broadly the message conveyed by the CBDT chief during a recent video-conference with tax officials.According to another person in the department, direct tax offices in various circles may be required to go full steam due to a drop in GST collection following cut in tax rates and refunds.

‘Dispose of Appeals Before March 31’
Till now many in the department were caught up with assessments pertaining to notices which were sent in September 2015 (for the financial year 2014-15) as these matters were getting time-barred in December 2017. Now, tax officers have the time to focus on recovery till March 31. “A possible slowdown in income tax refund, directing the CIT Appeal to dispose of appeals confirming the additions, investigating cases where assesses have deposited more than Rs 10 lakh in demonetised notes may push up gross collection. But does this really reflect the true state of tax collection in a slowing economy where the GDP growth rate is admitted to have come down,” said senior chartered accountant Dilip Lakhani.
In some of the large tax collection zones like Mumbai, the chief commissioner has written to several offices of the commissioner of income tax (Appeals), which is the first appellate authority, to dispose of many appeals before the close of the financial year.

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Tax authorities technically have the power to come down heavily on those who are unable to explain their cash deposit by slapping 60% tax and penalty – even though the process could take some time.

About two months ago, tax offices were directed to accept only those revised tax returns where there is a “bonafide inadvertent error” or “a mistake” on the part of the assessee. This was to tax the unaccounted cash that was deposited after demonetisation (of high denomination currency bills in November 2016) and subsequently regularised through a revised return and payment of tax on it at the normal rate of 30%.

However, the communique to tax officers guidelines were only suggestive in nature as the law allows filing of revised return due to various reasons including an intention to conceal income.

World Bank says India has huge potential, projects 7.3% growth in 2018

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World Bank says India has huge potential, projects 7.3% growth

India’s growth rate in 2018 is projected to hit 7.3 per cent and 7.5 per cent in the next two years, according to the World Bank, which said the country has “enormous growth potential” compared to other emerging economies with the implementation of comprehensive reforms.

India is estimated to have grown at 6.7 per cent in 2017 despite initial setbacks from demonetisation and the Goods and Services Tax (GST), according to the 2018 Global Economics Prospect released by the World Bank here yesterday.

“In all likelihood India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the short-term numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential,” Ayhan Kose, Director, Development Prospects Group at the World Bank, told PTI in an interview.

He said in comparison with China, which is slowing, the World Bank is expecting India to gradually accelerate.

“The growth numbers of the past three years were very healthy,” Kose, author of the report, said.

India’s economy is likely to grow 7.3 per cent in 2018 and then accelerate to 7.5 per cent in the next two years, the bank said.

China grew at 6.8 per cent in 2017, 0.1 per cent more than that of India, while in 2018, its growth rate is projected at 6.4 per cent. And in the next two years, the country’s growth rate will drop marginally to 6.3 and 6.2 per cent, respectively.

To materialise its potential, India, Kose said, needs to take steps to boost investment prospects.

There are measures underway to do in terms of non- performing loans and productivity, he said.

“On the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labour market reforms, education and health reforms as well as relaxing investment bottleneck will help improve India’s prospects,” Kose said.

India has a favourable demographic profile which is rarely seen in other economies, he said.

“In that context, improving female labour force participation rate is going to be important. Female labour force participation still remains low relative to other emerging market economies,” he said.

Reducing youth unemployment is critical, and pushing for private investment, where problems are already well-known like bank assets quality issues…If these are done, India can reach its potential easily and exceed, Kose asserted.

“In fact, we expect India to do better than its potential in 2018 and move forward,” he said.

India’s growth potential, he said would be around 7 per cent for the next 10 years.

The Indian government is “very serious” with the GST being a major turning point and banking recapitalisation programme is really important, Kose said.

“The Indian government has already recognised some of these problems and undertaking measures and willing to see the outcomes of these measures,” he said.

“India is a very large economy. It has a huge potential. At the same time, it has its own challenges. This government is very much aware of these challenges and is showing just doing its best in terms of dealing with them,” the World Bank official said.

The latest World Bank growth estimate for 2017 is 0.5 per cent, less than the previous projection, and 0.2 per cent less in the next two years.

“It is slightly lower than its previous forecast, primarily because India is undertaking major reforms,” Kose said.

These reforms, of course, will bring certain policy uncertainty, he said, “but the big issue about India, when you look at India’s growth potential and our numbers down the road 2019 and 2020, is that it is going to be the fastest growing large emerging market.”

“India has an ambitious government undertaking comprehensive reforms. The GST is a major reform to have harmonised taxes, is one nation one market one tax concept. Then, of course, the late 2016 demonetisation reform was there. The government is well aware of these short-term implications,” Kose said.

He said there might have been some temporary disruptions but “all in all” the Indian economy has done well.

“The potential growth rate of the Indian economy is very healthy to 7 per cent. I think the growth is going to be at a high rate going forward,” the World Bank official said.

In a South Asia regional press release, the World Bank said India is estimated to grow 6.7 percent in fiscal year 2017-18, slightly down from the 7.1 percent of the previous fiscal year.

This is due in part to the effects of the introduction of the Goods and Services Tax, but also to protracted balance sheet weaknesses, including corporate debt burdens and non- performing loans in the banking sector, weighing down private investment, it said.

Read more at: Economic Times

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

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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