The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top SEBI official said.
The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top Sebi official said on Wednesday.
“When money flows into the country from foreign investments, we are attracting some risks and it is not currency risk alone. Masala bonds don’t hold any currency risks but at the same time, the external liability of the country goes up. This needs to be kept in mind,” Sebi whole- time member G Mahalingam said here.
“And a huge amount of foreign inflows at a time when the currency has been substantially appreciating is something the regulators must be concerned about,” he said, addressing a capital markets summit organised by industry lobby Ficci.
The masala bonds are debt instruments through which designated domestic entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk. In fact, the World Bank arm IFC thus far has raised the largest amount through this instrument.
According to some estimates, the masala bonds accounted for 39 per cent of the total ECBs of USD 7.39 billion reported by the Reserve Bank in the fourth quarter of FY17, while the approvals for the same rose to USD 2.9 billion over USD 0.8 billion in the third quarter.
For the full fiscal of 2017, the aggregate stood at USD 4.6 billion, according to a recent Icra data.
Of the total masala bonds of USD 4.59 billion approved during FY17, 55 per cent were for onward lending in domestic markets, 24 per cent for refinancing of the rupee loans and 14 per cent were for general corporate purposes.
Mahalingam said the Sebi is in advanced stage of talks with other regulators on allowing participation of FPIs in commodity derivatives market.
On the mutual fund industry, he said the sector should try to bring down its total expense ratio which is far higher than the comfort level. “It is time for mutual funds to shrink its margins attract more retail investors.”
He said benchmarking of returns will be healthy step for the overall industry.
To support financing for start-ups, the Reserve Bank of India (RBI) on Thursday issued rules permitting these to raise external commercial borrowings (ECBs).
In a statement, RBI said the borrowing per start-up was capped at $3 million per financial year. It could be either in rupees or a convertible foreign currency or a combination of both.
The money could be used for any expenditure of the borrower’s business.
The statement also said the funds so raised would have a three-year maturity and could be raised through loans as well as convertible and non-convertible debentures.
RBI said, “Startups can tap lenders and investors only from countries that are members of the Financial Action Task Force.”
If the funds were in rupees, the non-resident lender would provide it through swaps or outright sale through domestic banks.
RBI also advised start-ups raising money through ECB to have a risk-management policy as these would be exposed to currency risks because of exchange-rate movements.
The Reserve Bank of India (RBI), in its sixth bi-monthly monetary policy statement, has proposed steps to improve ease of doing business for start-ups through easier access to foreign capital and by enabling smoother transfer of ownership. RBI Governor Raghuram Rajan said the central bank wants to simplify the process and will create an enabling framework for attracting foreign venture capital (VC).
“We are supporting the start-up process by making it easier to raise (capital), often from abroad, but also simplify the compliance with regulations, including putting forms online,” Rajan said during the post-policy press conference on Tuesday.
For easing cross-border transactions, RBI has proposed (in consultation with the government of India) that in case of transfer of ownership of a start-up, permitting receipt of the consideration amount on a deferred basis could be done. It has also proposed to enable escrow arrangement or indemnity arrangement up to a period of 18 months.
In addition, RBI has also proposed (in consultation with the government) to permit start-ups access to rupee loans under the external commercial borrowings framework with relaxations of eligible lenders. It is also looking at issuing innovative foreign direct investment (FDI) instruments like convertible notes by start-ups. Further, RBI is looking into the proposal of issuing shares without cash payment through sweat equity or against any legitimate payment owed by the company, the remittance of which does not require any permission under the Foreign Exchange Management Act (Fema).
Harish H V, partner, Grant Thornton India LLP, said these measures are for helping start-ups in their operations and fundraising. “We look forward to further relaxations around convertible notes as promised. These steps, together with the start-up action plan and more initiatives expected from the ministry of corporate affairs and the Budget, should help the cause of the Stay In India and creating value in India… Every step counts,” he said.
RBI said the aim was to enable start-ups, irrespective of the sector, to receive foreign VC investment and also enable transfer of shares from foreign VC investors to other residents or non-residents.
The central bank has also proposed simplifying the process for dealing with delayed reporting of FDI-related transactions by building a penalty structure into the regulations. The notifications/circulars under Fema, wherever necessary, will be issued shortly.
The regulator said electronic reporting of investment and subsequent transactions will be made on the e-Biz platform only. Here, submission of physical forms will be discontinued with effect from February 8.
India’s booming online marketplace business has attracted a new wave of merchants and sellers from countries such as China, South Korea, Japan, Singapore and the US. In fact, thousands of sellers are getting into tie-ups with Indian e-commerce players to kick-start operations in the country.
According to industry insiders, around 50,000 sellers from China, South Korea and Singapore are planning to enter India through online marketplace players.
“In business-to-business (B2B) segment, there is no online organised player in the country right now. The market is being created for the online businesses,” said Sanjay Sethi, co-founder and CEO of Shopclues. The company has brought in DHgate, the second largest player in China after Alibaba, on to its platform. It’s also getting 25,000 South Korean merchants on board. Tie-ups are also in process with Singapore Traders Association to enable them to sell on Shopclues.
American retail major Walmart is also exploring ways to tie up with leading e-commerce companies in India, including Flipkart, Snapdeal, ShopClues, Grofers and Bigbasket. It is learnt that German wholesale giant Metro Cash and Carry is also in talks with e-commerce marketplace players to sell its products online.
Meanwhile, e-commerce giant Alibaba is looking to make a big bang entry into India’s marketplace via One97 Communications-owned Paytm.
Alibaba is expected to be the support behind Paytm’s China product portfolio. With that in place, Paytm will aim to become the biggest Indian player insofar as the number of sellers on the platform is concerned. With eight million sellers, Alibaba has the widest seller range as well as product portfolio.
This is not for the first time that Paytm is planning to sell Alibaba’s product range. During Diwali last year, Paytm had the whole product catalogue sourced from Alibaba and merchants from China were directly shipping products to customers in India, saving Paytm the hassle of finding warehouses.
As for the second top player in China, DHgate, online B2B would be a gateway into India and an opportunity to get connected to 350,000 sellers through the Shopclues portal.
DHgate plans to list its products across categories, including electronics, accessories, beauty products and sports. “From China we are getting around 10,000 SKUs (stock keeping units) listed. It is not a retail business and the target audience for this business are other businesses in India,” said Sethi.
The foreign investment rules vary across retail platforms and companies often resort to complex structuring to bypass policy. While foreign direct investment (FDI) is capped at 51 per cent in multi-brand retail with states having the last say on whether international players would be permitted to operate or not, there’s no limit of foreign investment in single-brand and business-to-business or cash and carry.
In e-commerce, however, FDI is not permitted. But, e-commerce players are mostly run with foreign money by operating marketplace platforms, where rules have not been framed yet.
* Dollar at highest since March vs currency basket, euro down
* China’s yuan strengthened after IMF decision
* U.S. stocks down ahead of data; Asia dips, Europe up
* ECB stimulus expectations lift European stocks
* Oil rises ahead of ECB meeting, OPEC on Friday (Updates to afternoon, adds commentary)
* * * * * * * * * *
The dollar hit an eight-and-a-half-month high against major currencies Monday as the prospect of further European Central Bank stimulus dragged the euro down to its weakest since mid-April, while oil prices retreated.
Global stock markets were mixed, with Wall Street falling ahead of a crucial payroll report Friday, while European shares rose. Still, the three major U.S. indexes were set to end the month higher for a second straight month.
The jobs report is arguably the most important U.S. economic indicator due out before the Federal Reserve decides on Dec. 16 whether or not to raise interest rates for the first time in nearly a decade.
“The market has largely priced in a December hike and it would have to take a pretty significant miss with the jobs report to give the Fed some pause before its next meeting,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
The Dow Jones industrial average fell 49.9 points, or 0.28 percent, to 17,748.59, the S&P 500 lost 6.37 points, or 0.3 percent, to 2,083.74 and the Nasdaq Composite dropped 16.24 points, or 0.32 percent, to 5,111.28.
The week is expected to highlight the divergent economic policies in the United States and the euro zone, which may set the tone for markets early next year.
European shares were lifted by the prospect of the ECB unveiling an extension of its bond-buying program at a Thursday meeting. The pan-European FTSEurofirst 300 index rose 0.4 percent for a 2.3-percent monthly gain.
The dollar index, which measures the greenback against a basket of major currencies, was up 0.16 percent despite disappointing data on U.S. business sentiment and pending home sales. It hit its highest point since mid-March and was set for its biggest monthly rise since January.
“The market’s really kind of looking through the numbers that are coming out right now and more looking towards the end of the week and central bank discussions,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
The euro fell 0.2 percent against the dollar to its lowest point since April.
The MSCI index of world stocks was off 0.4 percent and on track for a 0.9 percent decline for November.
Brent futures were lower and U.S. crude gave back earlier gains on Monday as a pre-OPEC-meeting rally and run-up in U.S. refined oil products faltered.
U.S. crude futures settled down 6 cents, at $41.65. Brent crude, the global benchmark ended down 25 cents, at $44.61 per barrel.
Gold, on track for its worst month since June 2013, traded up 0.7 percent at $1,065.86 an ounce.
U.S. Treasuries prices rose modestly Monday on hesitation ahead of speeches from top Federal Reserve speakers throughout the week. Benchmark 10-year Treasuries rose 2/32 in price to yield 2.221 percent, down from 2.222 on late Friday. The 30-year bond was up 6/32 in price to yield 2.99 percent.
European Central Bank (ECB) President Mario Draghi adddresses the European Banking Congress at the Old Opera house in Frankfurt, Germany November 20, 2015.
The world’s two biggest central banks will move decisively in opposing directions next week, with the European Central Bank (ECB) almost certain to ease policy on Thursday and a US jobs report likely to seal the case for a Fed rate hike in December.
Building a solid case for more easing on fears of anemic inflation, the ECB has all but committed itself to action, with the markets now guessing only about what exact steps it will take to kick-start price growth.
Still, there is plenty of room for surprises. The ECB will contemplate a wide range of measures, from a fairly uncontroversial deposit rate cut to more extreme – but highly unlikely – moves such as buying rebundled non-performing loans to resurrect bank lending.
“With expectations high, the risk of disappointment is also high but as concerns are correctly focused on the structural headwinds to the inflation outlook, there is really no point in holding back or saving ammunition at this stage,” Societe Generale said in a note to clients.
ECB President Mario Draghi has done his share to raise expectations. He has warned about increased risks to growth and inflation, and said “we will do what we must” to raise inflation as quickly as possible.
A Reuters poll of more than 50 economists predicted that the ECB would opt for a deposit rate cut to -0.3 per cent from -0.2 per cent, an expansion of its asset buying program to euro 75 billion per month from euro 60 billion, and an extension of that buying beyond September 2016.
There are a range of variations on this pattern, though. The ECB could opt for a deeper deposit rate cut, or it could add assets like corporate or municipal debt to those that it buys. It could even set a staggered deposit rate, punishing those who park large amounts of cash in its vaults.
The biggest complication to all this is the small but significant group of opponents to such action, led by Bundesbank chief Jens Weidmann and board member Sabine Lautenschlaeger, who broke ranks with their Governing Board peers recently to openly oppose further easing.
Overwhelm
Arguing that loose monetary policy poses risks and merely buys time to fix structural problems, Lautenschlaeger has taken a stance against any more steps, especially an expansion of the asset-buying program.
Draghi may have his work cut out bridging the gap between their views, as the ECB rarely votes at meetings and instead decides on policy with the broadest possible consensus.
His opponents could also make it tough for Draghi to continue his practice of promising big things, then exceeding the already heightened expectations.
“Expectations have increased further ahead of next week’s ECB meeting and ECB speakers have not done much to rein in expectations.
Draghi has overdelivered in the recent past but it could be harder this time given how much has been promised,” Deutsche Bank analysts wrote in a note to investors.
Citigroup said that to surprise the markets, the ECB would need to cut the deposit rate, increase its monthly bond-buying and adjust its forward guidance by extending the program or removing its reference to ending it next September.
While the euro area struggles with weak growth and high unemployment, the US is continuing to create jobs quickly. Data on Friday is expected to show that US non-farm payrolls increased by 200,000 in November, keeping the jobless rate at a 7-1/2 year low of 5.0 per cent.
But even if the figures disappointed somewhat, the Fed is still expected to hike at its meeting on December 15-16 given near full employment, with the debate likely shifting to future rate hikes rather than near term moves.
The biggest headwind for the Fed could be the dollar’s rapid firming against major currencies in recent months, which has already effectively tightened monetary conditions. But U.S. trade is less exposed to currency moves than elsewhere, such as in Europe, so the impact on policy is smaller.
Fed Chair Janet Yellen’s testimony to the Joint Economic Committee of the Senate on the economic outlook, due at the same time as Draghi’s press conference, will likely give more clues about the Fed’s next moves.
Among other top central banks, the Reserve Bank of Australia and the Bank of Canada are both expected to keep rates on hold with their respective economic outlooks in line or slightly better than their previous forecasts.
Giving the much needed reforms impetus to the economy, Prime Minister Narendra Modi-led NDA government on Tuesday announced Foreign Direct Investment (FDI) reforms in as many as 15 sectors.
According to the government’s release, “The crux of these reforms is to further ease, rationalise and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of government route where time and energy of the investors is wasted.”
These FDI reforms are set to benefit sectors such as agriculture and animal husbandry, plantation, defence, broadcasting, civil aviation and manufacturing. “Further refining of foreign investments in key sectors like construction where 50 million houses for poor are to be built. Opening up the manufacturing Sector for wholesale, retail and e-Commerce so that the industries are motivated to Make In India and sell it to the customers here instead of importing from other countries,” the release added..
The proposed reforms also enhance the limit of Foreign Investment Promotion Board (FIPB) from current Rs 3,000 crore to Rs 5,000 crore. The proposal also contains many other long pending corrections including those being felt by the limited liability partnerships as well as NRI owned companies who seem motivated to invest in India. Few other proposals seek to enhance the sectoral caps so that foreign investors don’t have to face fragmented ownership issues and get motivated to deploy resources and technology with full force.
India got FDI of $19.39 billion in the April-June period, according to government data, up 29.5% over the year earlier. The Modi government has been pushing hard to drum up overseas investment, easing FDI regulations in various sectors including the railways, medical devices, insurance, pension, construction and defence.
Last week, ET had reported that the government plans to launch a series of policy reforms, signalling its intent to get moving again on economic changes and putting the Opposition on notice before Parliament convenes for the winter session.
Key to the Narendra Modi government’s renewed development push will be power, labour and infrastructure, three senior government officials had told ET. Among the highlights are a revival package for power distribution companies, freeing up labour rules and a possible push for the railways, ET had said in its report.
The road map for the phasing out of corporate tax exemptions and reduction in the tax rate to 25% is being drawn up. Besides this, the Startup India, Standup India plan and the rollout of the National Investment and Infrastructure Fund (NIIF) are also being worked on.
A simpler foreign direct investment (FDI) policy, further easing of the external commercial borrowing (ECB) regime and changes in the public-private partnership (PPP) framework to attract more private investment could also announced.
