Investor sentiment improving, catalysts needed for fresh flows

Expectations on structural reforms however remain low and “could be a positive catalyst if GST gets passed”, it said.

Investor sentiment towards the Indian economy is improving but markets are now looking at the passage of key reform bills like the Goods and Services Tax ( GST ) to act as “new catalysts”, says a Citigroup report.

Expectations on structural reforms however remain low and “could be a positive catalyst if GST gets passed”, it said.

According to the global financial services major, both equity and fixed income (FI) investors are portraying a constructive outlook for India, but are waiting for the next ‘catalyst’ for fresh inflows.

“Positioning on India still remains heavy and relative valuations do not appear to be cheap. This is possibly leading to a lack of substantial fresh inflows as the markets await new catalysts,” Citigroup said in a research note.

The BJP-led NDA government assumed office on May 26, 2014 with a thumping majority in Lok Sabha , but some key bills, including the one on GST, have been stuck in Rajya Sabha due to opposition from some other parties, mainly Congress.

As per the report, foreign equity as well as fixed income investors believe that the Indian economy is relatively attractive than other emerging market economies as it provides better macro stability. Some investors were also enthusiastic about the prospects of a cyclical recovery.

Though investors are on a cautious mode but with better monsoon forecasts, rural consumption is likely to revive. Moreover, urban consumption is expected to get a boost post the 7th Pay Commission implementation.

Source: http://economictimes.indiatimes.com/articleshow/52398282.cms

ClearTax raises $2 million from FF Angel and Sequoia Capital

Financial technology startup Defmacro Software , which owns and operates online tax returns filing platform ClearTax , has raised $2 million (Rs 13.3 crore) from FF Angel , the angel investing arm of Peter Thiel-led Founders Fund , and Sequoia Capital .

The five year-old company will use the proceeds from the round to launch a slew of consumer-focused tax-saving products, including mutual funds and other equity-linked saving schemes. It will also be adding to its leadership team, said Archit Gupta , chief executive of ClearTax.

“We have taken the long route, and now we are extremely excited to have some of the biggest thought leaders and investors on board as our partners,” Gupta said. “We are an instrument-agnostic platform that will allow consumers to choose their rate of return and select what to have in their tax savings basket.”

The transaction, which closed last week, marks FF Angel’s first investment in India, and comes a month after Bengaluru-based ClearTax secured $1.3 million in a seed funding round from a group of Silicon Valley investors including PayPal cofounder Max Levchin and Scott Banister, an early investor in Facebook and Uber.

Make in India: India woos Chinese investors, promises conducive environment

“We will facilitate your efforts to make your investments in India profitable. We must take advantage of the opportunities that abound in the growth of both our economies,” said President Pranab Mukherjee.

India today promised a conducive environment for Chinese investors and urged them to participate in ‘Make in India’ and other flagship programmes of the government to boost bilateral trade.

“We will facilitate your efforts to make your investments in India profitable. We must take advantage of the opportunities that abound in the growth of both our economies,” said President Pranab Mukherjee addressing a meeting of the India-China Business Forum here on the second day of his four-day visit to China.

The forum, attended by industrialists and businessmen of both sides, was told by the President that India would like to see greater market for Indian products in China in a bid to balance bilateral trade which is now in China’s favour.

This, he said, would particularly be needed in sectors where the two countries have natural complementarities as in drugs and pharmaceuticals and IT and IT-related services and agro products.

“It is a matter of satisfaction that there is emerging focus on two-way investment flows,” he said.

The President noted that the bilateral trade between India and China has grown steadily since the turn of this century from USD 2.91 billion in 2000 to USD 71 billion last year.

Guangdon province boasts of a USD one trillion economy with high manufacturing and other industries along with being a powerful export house of China. It has sister province relationship with Gujarat and Maharashtra.

A pilot smart city cooperation project has been announced between Shenzhen and the Gujarat last year.

Referring to the links of 2nd century before the Christian era between Guangdong and Kanchipuram through a direct sea route, Mukherjee said this is an exciting time for India and China to reinforce the old linkages and join hands for new.

Noting that India has recorded a growth rate of 7.6 per cent each year for over a decade now, he said India believes that it cannot grow in isolation.

“In an increasingly interconnected world, India would like to benefit from technology advances and best practices of different countries.

“The comprehensive reforms introduced in key areas of our economy have enhanced the ease of doing business in India. Our foreign investment regime has been liberalised through simplified procedures. And removal of restrictions on foreign investments,” he said.

The President said these reforms have renewed the interest of global investors in India. In 2014, there was a 32 per cent growth in investments and in 2015, India emerged as one of the biggest global investment destinations, he said.

Mukherjee said India would like more of China’s overseas direct investment which has now crossed USD 100 billion mark.

He said the Indian government was setting up industrial corridors, national investment and manufacturing zones and dedicated freight corridors to stimulate investment in this sector.

Its ‘100 Smart Cities” initiative will transform India into a digitally empowered society and knowledge economy, he said.

“India welcomes your participation in these programmes. Chinese companies with inherent strengths in infrastructure and manufacturing can look towards India as an important destination in their ‘Going Global’ strategy.

“On their part, Indian companies can partner with Chinese enterprises in the new domain of ‘Internet of Things’ which underlines the ‘Made in China 2025’ strategy,” he said.

The President said he was happy to note that a good start has been made by Chinese businesses who are investing in infrastructure projects and industrial parks in India.

Bilateral cooperation in India’s railway sector is also progressing well, he said.

A good number of premier Indian IT firms and other manufacturers are present in China, he said and noted that Indian entrepreneurs were also considering the prospects of jointly exploring opportunities in third countries.
Summing up, the President said India believed there was great potential for economic and commercial cooperation among the two countries, which faced similar opportunities on coming together.

“To realise the full potential of our economic partnership, it is important to bridge the information gap between our business communities.

“We are committed to providing a conducive environment for more investments from China. We stand ready to facilitate many more collaborations between the industry and businesses of our two countries across different sectors. India invites investors from China to be partners in India’s growth story,” he said.

Source:
http://economictimes.indiatimes.com/articleshow/52428771.cms

India, Mauritius to amend tax treaty

India will levy capital gains tax on investments routed through Mauritius from April 1 next year, bringing down the curtains on a contentious three decade-old rule that allowed companies to bring in billions of dollars by paying negligible taxes.

The taxes on capital gains will apply to investments made from April 1, 2017 and will be imposed at 50% or half of the domestic rate until March 31, 2019, and at the full rate thereafter.

How do people use tax havens to avoid paying taxes?

Through “round tripping” or “treaty shopping”.

How does round tripping work?

Round tripping refers to routing of investments by a resident of one country through another country back to his own country.

You get money out of India and transmit it to a tax haven with whom India has a bilateral tax avoidance treaty such as the double-taxation avoidance agreement (DTAA). In the tax haven, this money is treated as capital of a registered corporate entity. You now invest this money back in an Indian company as foreign direct investment (FDI) by buying stakes or invest it in Indian equity markets.

How does this help in avoiding taxes?

The entire purpose of this exercise is to window-dress as foreign capital your original money that you had taken out from India.

In the entire process, you end up paying zero or negligible taxes. In India, you can claim tax exemption citing the DTAA arguing that you have paid taxes in the source country. In the source country, taxes are negligible since it is a tax haven.

What is DTAA?

These are bilateral treaties signed between governments to prevent companies from being taxed twice over.

So, what was the problem with Mauritius?

Mauritius, and other tax havens, has almost negligible taxes. This was encouraging companies to route their investments in India through “shell” companies (those that exist only on paper) in Mauritius and avoid paying taxes.

How big was the problem?

At $94 billion, Mauritius has been the largest FDI source for India, accounting for 34% of total FDI in India between 2000 and 2015.

What are the changes that will plug this gap?

The changed DTAA will make it mandatory to pay capital gains tax on sale of shares in India by companies registered in Mauritius

When will the new rules kick-in?

Share sales in Indian companies by Mauritius-registered firms will be taxed at half of the applicable rate between April 1, 2017 and March 31, 2019.

If the capital gains tax in India is 10% currently, Mauritius-registered companies will be taxed at 5% during the first two years beginning April 2017. Full capital gains tax will apply from April 1, 2019.

What about previous investments?

The new rules will not apply only to investments made before April 1, 2017, meaning share sale of investments made before this date will be exempt from capital gains tax.

Which companies will benefit from the reduced tax rates during the first two years?

The benefit of 50% reduction in tax rate during the transition period from April 1, 2017 to March 31, 2019 shall be subject to a limitation of benefit (LOB) Article.

A Mauritius-registered company (including a shell or conduit company) will not be entitled to lower tax rate, if it doesn’t spend at least Rs 27 lakh in Mauritius in the previous 12 months. This is called ‘purpose and bonafide business test’.

How will impact investors?

Many foreign investors will have to redraw their strategies. The incentive to route investments through Mauritius will cease to exist once the new rule kicks-in. This could raise their tax outgo.

What about markets?

It could hurt short-term foreign investor inflows into India, particularly from companies whose investment strategies are guided by minimising taxes. This could pull down markets initially.

Are these rules related to the general anti-avoidance rules (GAAR)?

GAAR are aimed at curbing tax avoidance and aim to give tax authorities the right to scrutinise transactions that they feel have been done to avoid taxes.

Under GAAR corporations may be forced to restructure salaries of employees if taxmen conclude that these were structured only to avoid taxes. Similarly, if a foreign investment transaction from Mauritius has taken place with an intent to exploit DTAA, it will come under GAAR.

Implementation of GAAR will take place from April, 2017.

Source: http://www.hindustantimes.com/business/india-mauritius-tax-treaty-all-you-need-to-know/story-QSOlvKyt6rrN7E00S7wp9K.html

Projects worth Rs. 80,000 cr coming Tamil Nadu’s way

Tamil Nadu State’s ports will also benefit hugely fromRs. 4-lakh-cr Sagarmala programme: Gadkari

“We need cooperation from State governments for infrastructure development. In Tamil Nadu, unfortunately, we had to terminate two projects,” said Nitin Gadkari, Road Transport, Shipping & Highways Minister. “We never mix politics with development and development with politics,” claimed Gadkari, speaking at ‘Breakfast with BusinessLine ’, an interactive session with senior executives from the corporate sector. But in Tamil Nadu, he said, his Ministry had to give up on the Maduravoyal-Chennai Port elevated road project as there was no progress. Gadkari said he had “written many letters to the State government” to no avail.

Another road project, by L&T, also had to be shelved, said Gadkari, who is touring the State to campaign for the BJP in the Assembly elections, which will be held on May 16.

“We need an atmosphere in the country for development of infrastructure. Our government and my ministry look for ways to help develop infrastructure in different States with different political parties but sometimes we are helpless,” he shrugged.

“I am not speaking politically, but I am talking of practical issues such as forest and environment clearances,” claimed Gadkari.

There is strong political will at the Centre and speedy decision making. Positive cooperation from stake holders will help achieve goals, he said.

Sagarmala programme

Tamil Nadu will be a huge beneficiary under Sagarmala, a Rs. 4-lakh-crore flagship programme of the Centre envisaging port-led development. Conceived as a 10-year project, he hopes to complete it in five years.

Gadkari listed out projects totalling more than Rs. 80,000 crore relating to port and industrial investments in Tamil Nadu. Under Sagarmala, the State will get an LNG terminal at Ennore at a cost of about Rs. 3,000 crore; at Tuticorin Port, a North Cargo Berth, a foodgrain berth, an additional container berth and a coal jetty are planned.

Also in the pipeline is the development of ports at Sirkali and Colachel. Work on all of these will start within two years, he said.

Huge investments are also planned in developing inland waterways using the major rivers in the State, including the Tamiraparani, Manimuttar, Cauvery, Palar, Vaigai and the Bhavani. These present a huge opportunity for private sector investments, he said.

 

Source: http://www.thehindubusinessline.com/todays-paper/projects-worth-rs-80000-cr-coming-tns-way/article8597545.ece

Silicon Valley venture capitalists raise more money, give less away

Venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016.

But much of that cash won’t flow into new startups anytime soon. Rather, venture firms are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust, said venture capitalists and limited partners.

“They are squirrels trying to pack their cheeks full of nuts,” said Ben Narasin, a partner at Canvas Ventures. “Everyone has been waiting for winter to start for a long time.”

The paradox of rising venture fundraising and falling venture investing is the latest sign of a tectonic shift in the tech startup realm. The extraordinary growth of so-called “unicorn” companies such as Uber and Airbnb – now valued at tens of billions of dollars, based on venture investments – has left many high-value startups with no “exit strategy,” in Silicon Valley parlance.

Burned by previous busts, Wall Street has lost its appetite for initial public offerings from money-losing companies. No venture-backed tech startup has gone public this year, and the few that did last year – including enterprise storage company Pure Storage, and cloud storage and file-sharing firm Box – have seen their share prices steadily sink. High valuations have also scared off potential acquirers.

Scale Venture Partners exemplifies the cautious approach taking hold in the VC industry. It chose to do one fewer investment from its last fundraising round and to increase its reserves by more than 10 percent.

“We will have to support our companies longer,” said Rory O’Driscoll, a partner at the firm, which raised a $335 million fund in January.

Accel Partners has reduced its pace of new investments since the middle of last year, while increasing its follow-on funding for portfolio companies, according to an analysis by venture capital database CB Insights.

The venture firm raised $2 billion in March, but it won’t tap into the new fund until late fall, said managing director Richard Wong.

Total U.S. venture investment fell to $12.1 billion in the first quarter – down 30 percent from the most recent peak of $17.3 billion in the second quarter of last year.

Chris Douvos, managing director of Venture Investment Associates, an investor in early-stage venture funds, says the funds he backs are increasing their reserves by 10 percent to 25 percent over what they had in previous funds.

The $13 billion raised by VCs is the third-largest quarter for fundraising since the dot-com peak in 2000, according to Thomson Reuters data. There is now $382 billion of dry powder – cash available to spend – held by both venture capital and private equity firms that invest in technology companies, according to investment banking and consulting firm Bulger Partners.

“It’s fast, and it’s a lot of dollars this year,” said Beezer Clarkson, managing director at Sapphire Ventures, which invests in early-stage venture funds.

Many VCs believe that more reserves will be needed for the big cash infusions that startups often need after establishing themselves but before turning a profit.

VCs are also seeing mutual funds retreat from late-stage startup financing deals. Mutual funds led just eight deals in the fourth quarter of last year, down from 26 in the second quarter, according to the research firm CB Insights.

The confluence of trends means that money-losing startups likely will struggle more for venture capital. That, in turn, could lead to more companies failing or cutting staff, cooling the red-hot market for tech talent. It could also strengthen the hand of dominant tech companies, who may face fewer disruptive rivals and attract employees tired of volatile startup life, according to tech recruiters.

CASH BURN

Until recently, many venture capitalists have had a land-grab mentality, even with more obscure startups such as Magic Leap – an augmented reality company that raised about $800 million in February – or Social Finance, a startup in the highly scrutinized fintech sector that raised $1 billion in September.

Investors competed fiercely to finance hot companies they believed could be the next Google or Facebook. Higher prices for smaller stakes drove up valuations in companies, including many who burned cash quickly in a quest for growth. Many venture capitalists say they overpaid by 20 to 30 percent, and now have to keep those companies afloat.

Over the past six months, however, nervous whispers about a tech bubble have sparked rising skepticism of venture-dependent startups with stratospheric price tags.

The same venture capitalists who jousted in bidding wars for the next great deal just six months ago are now fending off appeals.

Canvas Ventures, Norwest Venture Partners and Accel Partners – among Silicon Valley’s more prominent firms – say they are getting more calls from peers asking them to join a late-stage round for companies running out of cash.

“We get a lot more ‘special opportunities, just for you,'” said Wong, of Accel Partners. “We get the phone calls, along with everyone else.”

PAPER GAINS

For now, venture capitalists have little problem raising money, despite their new hesitance to spend it and the inability of many startups to turn profits or go public.

That’s in part because many VC firms are currently showing huge paper gains in the value of their portfolios. Many firms are raising as much as possible now, in case valuations drop in so-called “down rounds,” when later stage investors pay less for company stakes than earlier ones, and the returns on their investments plummet, according to limited partners.

Signs of falling returns are already emerging. Cambridge Associates, an investment advisor, measured a -0.4 percent return on the U.S. Venture Capital Index for the third quarter of last year, the first down quarter since 2011.

First Round Capital, an early-stage venture firm, warned its limited partners in a letter a year ago that the seed-stage venture capital deals will see much lower returns in the next several years.

But that warning didn’t scare Douvos, an investor in First Round, which was an early backer of Uber and made a bundle on the IPOs of Square and OnDeck Capital.

“Fund performance will soften,” Douvos said. But, he said, “The returns from First Round are so good that nothing else really matters.”

Read Source: http://www.reuters.com/article/us-venture-fundraising-idUSKCN0Y41DQ

 

Clean energy projects get Rs 86,000 crore investment

Renewable energy projects have received Rs 86,000 crore investment, most of it from private sector, in the last three years with Madhya Pradesh at top garnering Rs 14,313.80 crore.

“Most of the investment in renewable energy came from private sector. Total estimated investment in renewable energy power projects during the last three years is around Rs 86,000 crore,” New and Renewable Energy Minister Piyush Goyal said in a written reply to Lok Sabha today.

According to the statement, around 15,400 million units has been generated through solar power projects during the last three years.

Madhya Pradesh remained at the top, recording maximum investment in clean energy projects at Rs 14,313.80. It was followed by Maharashtra at Rs 13,743.01 crore, Rajasthan at Rs 11,632.96 crore, Karnataka at Rs 9,586.31 crore, Andhra Pradesh at Rs 9,539.12 crore, Tamil Nadu at Rs 8,961.28 crore and Gujarat at Rs 6,646.35 crore.

The minister also stated that Pondicherry, Laskhwadeep, Dadar & Nagar Haveli, Sikkim, Manipur, Meghalaya and Goa received no investment at all for renewable energy projects in last three years.

According to a separate reply to the House, as on March 31, 2016, a cumulative capacity of 42.76 GW has been installed from various renewable energy sources, which include 26.78 GW from Wind, 6.76 GW from solar, 4.27 from small hydro power and 4.95 GW from bio power.

In another reply to the House, the Maharashtra will require the maximum solar power generation capacity of 13,270 MW by 2021-22 as per tentative renewable purchase obligation (RPO) requirement estimated by the ministry.

The ministry has estimated 1,02,021 MW solar power generation capacity to be installed in the entire country by 2021-22.

After Maharashtra, Uttar Pradesh’s solar power generation capacity by 2021-22 as per RPO requirement would be the second highest at 12,124 MW followed by Gujarat at 9,796 MW, Tamil Nadu at 9,398 MW and Rajasthan 6,953 MW.

Under RPO, states are mandated by power regulators to have certain proportion of renewable energy capacity in their total power mix to promote clean and green sources like solar and wind.

The minister in another reply to the House stated that the new pithead thermal power plants have the lowest tariff of Rs 3.75 per unit in the first year of operation compared Rs 4.5 per unit for solar, Rs 4.6 for hydro, Rs 4.94 for atomic power and Rs 5.49 for non-pithed thermal plants.

However, the levellised tariff for hydro power plants is the lowest at Rs 4 per units compared Rs 4.5 for solar, Rs 5 for atomic power, Rs 4.57 for pithead based thermal power and Rs 7.57 per unit for non-pithead based thermal power plant.

Source:http://economictimes.indiatimes.com/articleshow/52125394.cms