Forex kitty swells by $3.57 billion, closes in on $400 bn-mark

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Economy, Business Updates, Corporate Affairs | 0
In the previous week, the reserves had increased by USD 1.148 billion to USD 394.55 billion.

The forex reserves surged by a massive USD 3.572 billion to touch a record high of USD 398.122 billion for the week ended September 1, on account of rise in foreign currency assets, RBI data showed on Friday.

In the previous week, the reserves had increased by USD 1.148 billion to USD 394.55 billion.

Last month, American brokerage Morgan Stanley had forecast that the reserves might touch the USD 400 billion mark in the week to September 8. And if the rise in the kitty continues with the same speed, it may cross that magic numbers next week.

The foreign currency assets (FCAs), a major component of the overall reserves, increased by USD 2.808 billion to USD 373.641 billion for the reporting week, according to the data.

Expressed in US dollar terms, FCAs include the effect of appreciation or depreciation of non-US dollar currencies, such as the euro, the pound and the yen held in the reserves.

After remaining unchanged for many weeks, gold reserves also rose by USD 748.3 million to USD 20.691 billion.

The special drawing rights with the International Monetary Fund (IMF) increased by USD 6.5 million to USD 1.506 billion, the apex bank said.

The country’s reserve position with the IMF also increased by USD 9.8 million to USD 2.283 billion, it said.

Source: Zee News

Record reserves turn costly cash pile for RBI

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0
As India’s foreign-exchange reserves march toward the unprecedented $400 billion mark, its central bank faces a costly conundrum.

As India’s foreign-exchange reserves march toward the unprecedented $400 billion mark, its central bank faces a costly conundrum. To keep the rupee stable and exports competitive, it is having to mop up inflows that’s adding cash to the local banking system. Problem is, banks are flush with money following Prime Minister Narendra Modi’s demonetization program last year, leaving them already struggling to pay interest on the deposits in an environment where loans aren’t picking up. The resulting need to absorb both dollar- and rupee-liquidity is stretching the Reserve Bank of India’s range of tools and complicating policy. Costs to mop up these inflows have eroded the RBI’s earnings, halving its annual dividend to the government. “The RBI would be paying more on its sterilization bills than it gets on its reserve assets, so it would cut into its profits,” said Brad W. Setser, senior fellow at New York-based thinktank Council on Foreign Relations. “Selling sterilization paper in a country with a relatively high nominal interest rate like India is costly.”

Governor Urjit Patel aims to revert to neutral liquidity in the coming months from the current surplus. Lenders parked an average 2.9 trillion rupees ($45 billion) of excess cash with the central bank each day this month compared with 259 billion rupees the same time last year. This peaked at 5.5 trillion in March. The surge in liquidity has pushed the RBI to resume open-market bond sales as well as auctions of longer duration repos besides imposing costs on the government for special instruments such as cash management bills and market stabilization scheme bonds. Meanwhile foreign investors have poured $18.5 billion into Indian equities and bonds in the year through June, during which period the RBI has added $23.4 billion to its reserves. Its forward dollar book has also increased to a net long position of $17.1 billion end-June from a net short $7.4 billion a year ago. “My guess is reserves over 20 percent of GDP would start to raise questions about cost – but that is just a guess,” said Setser. India’s reserves have ranged between 15 and 20 percent of GDP since 2008 global crisis — a level that’s neither too low to create vulnerability or too high indicating excess intervention, he said.

Consistent buildup in the forward book may have cost the RBI some 70 billion rupees, while total liquidity-absorption costs due to the demonetization deluge from November to June were 100 billion rupees, according to calculations by Kotak Mahindra Bank Ltd. The RBI paid another 50 billion rupees to 70 billion rupees to print banknotes, the bank estimates. A weakening dollar would also have led to losses due to the foreign-currency cash pile, which has traditionally been dominated by the greenback. The Bloomberg Dollar Index has fallen 8.5 percent this year. After all these expenses, the RBI transferred 306.6 billion rupees as annual dividend to the government, compared with 749 billion rupees budgeted to come from the RBI and financial institutions. More clarity will emerge with the RBI’s annual report typically published in the final week of August. “This disturbs the fiscal math for the year through March 2018,” said Madhavi Arora, an economist at Kotak Mahindra Bank. Assuming everything else stays constant, she estimates the budget deficit may come in at 3.4 percent of gross domestic product rather than the government’s goal of 3.2 percent.

Apart from the high costs, there’s another dimension to the surge in liquidity. The RBI could face a shortage of bonds it places as collateral with its creditors. It is said to be preparing a fresh proposal to the government for creation of a window — the so-called standing deposit facility — which doesn’t require any collateral. “As the excess liquidity challenge looks set to persist, the RBI will need more tools to manage this, such as the standing deposit facility,” economists at Morgan Stanley, including Derrick Kam, wrote in an Aug. 16 note. He predicts that at the current rate of accretion, foreign-exchange reserves will hit $400 billion by Sept. 8 from $393 billion this month.

Source: Financial Express

Union Budget 2017: Economic Survey says reforms to power India potential growth

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

India’s economy could grow at 6.5-6.75% in the current financial year and might not gather significant momentum next year but that doesn’t warrant a fiscal/monetary easing, according to Economic Survey 2016-17 tabled in Parliament on Monday. Projecting a 0.25-0.5% demonetisation-induced reduction in the FY17 gross domestic product (GDP) growth relative to the 7% annual expansion the country would have otherwise reported, the survey cautiously estimated FY18 growth within a broad low-equilibrium range of 6.75-7.5%.

A clutch of states in India have suffered from an “aid curse” — that is, a negative effect on redistributive resource transfers on fiscal effort and governance quality — the survey noted and invited a debate on universal basic income (UBI) for households in these states.

Direct UBI transfers to the households could be a more efficient way to reduce poverty, cementing the recent gains in redistributive efficiency through the JAM (Jan Dhan, Aadhaar and mobile) platform, the authors of the survey felt, but they cautioned against UBI implementation until the tax-GDP ratio showed tangible rise.

“There is a big potential to improve the weak targeting of current (anti-poverty) schemes,” chief economic adviser Arvind Subramanian said, amid rumours that Wednesday’s Union Budget might launch a pilot UBI.

According to the survey, the short-term effect of the note ban on the economy will be less adverse than many others predicted: The International Monetary Fund (IMF), for instance, saw a 1 percentage point growth reduction in FY17; the Reserve Bank of India had pegged a 0.5% loss in growth. The IMF, Subramanian said, relied on an “over-optimistic baseline”.

Given that growth was 7.2% in the first half of this fiscal and the survey assumption is against the baseline scenario of around 7% FY17 growth, the forecast is that second-half growth, at worst, could be around 6%.

This is still a bit more optimistic than what many independent analysts prognosticated — Morgan Stanley Research, for instance, put H2 FY17 growth at 5.5%.

However, the survey appreciated the limitation of capturing informal activity in the national income data, suggesting the pain of note recall might have been more severe. A set of structural reforms could take the economy towards the potential real GDP growth of 8-10%.

As for FY18, exports, which are “recovering”, based on an uptick in the global economy — the IMF has projected global growth to rise to 3.4% in 2017 from 3.1% in 2016 — would be a significant growth driver, the survey said, but admitted that the outlook for private consumption was less clear (oil prices are a potential drag while low interest rates might help a smart recovery in spending on housing and consumer durables). It also said candidly that given the sticky TBS or twin balance sheet problem, private investment was unlikely to recover from the FY17 level (fixed investment, according to the central statistics office, declined 0.2% this fiscal and investment as a share of GDP is now seen at 29%, down 5 percentage points from FY12). Demand-driven remonetisation, a push to digital payments using incentives, bringing land and real estate into the goods and services tax (GST) net, lowering tax rates and stamp duties and improving the tax system would help take growth back to trend in FY18, it said. However, the threat of trade tensions among major countries prevailed, especially given the Trump administration’s proclivity to step into a protectionist groove.

Giving the fiscal outlook for the Centre, the survey warned that the increase in tax-GDP ratio of about 0.5 percentage point each in the last two years owing to the oil windfall would disappear in FY18: “Excise-related taxes will decline by about 0.1 percentage point of GDP, a swing of about 0.6 percentage points relative to FY17,” it said. According to Crisil Research, about a third of the likely excise revenue of Rs 2.3 lakh crore in FY17 could be ascribed to excise duty increases on petroleum products. There would be windfalls from cessation of the RBI’s liability with respect to demonetised banknotes not returned to banks and the new income disclosure scheme PMGKY. Revenue potential from GST could, however, take some some time to be fully exploited.

While a committee on fiscal consolidation is believed to have recommended some well-defined escape clauses to provide the fiscal support to consumption and investment in the near term, the survey noted that primary balance (obtained after netting interest payments from the fiscal deficit) needed more attention. “The vulnerability is the country’s primary deficit… Put simply, India’s government is not collecting enough revenue to cover its running costs, let alone the interest on its debt obligations.” Although the survey noted that there was nothing extraordinary about this (other emerging market economies too run primary deficits), given India’s rapid rates of growth, its primary deficit should have been much lower than others.

This is still a bit more optimistic than what many independent analysts prognosticated — Morgan Stanley Research, for instance, put H2 FY17 growth at 5.5%.

However, the survey appreciated the limitation of capturing informal activity in the national income data, suggesting the pain of note recall might have been more severe. A set of structural reforms could take the economy towards the potential real GDP growth of 8-10%.

As for FY18, exports, which are “recovering”, based on an uptick in the global economy — the IMF has projected global growth to rise to 3.4% in 2017 from 3.1% in 2016 — would be a significant growth driver, the survey said, but admitted that the outlook for private consumption was less clear (oil prices are a potential drag while low interest rates might help a smart recovery in spending on housing and consumer durables). It also said candidly that given the sticky TBS or twin balance sheet problem, private investment was unlikely to recover from the FY17 level (fixed investment, according to the central statistics office, declined 0.2% this fiscal and investment as a share of GDP is now seen at 29%, down 5 percentage points from FY12). Demand-driven remonetisation, a push to digital payments using incentives, bringing land and real estate into the goods and services tax (GST) net, lowering tax rates and stamp duties and improving the tax system would help take growth back to trend in FY18, it said. However, the threat of trade tensions among major countries prevailed, especially given the Trump administration’s proclivity to step into a protectionist groove.

Giving the fiscal outlook for the Centre, the survey warned that the increase in tax-GDP ratio of about 0.5 percentage point each in the last two years owing to the oil windfall would disappear in FY18: “Excise-related taxes will decline by about 0.1 percentage point of GDP, a swing of about 0.6 percentage points relative to FY17,” it said. According to Crisil Research, about a third of the likely excise revenue of Rs 2.3 lakh crore in FY17 could be ascribed to excise duty increases on petroleum products. There would be windfalls from cessation of the RBI’s liability with respect to demonetised banknotes not returned to banks and the new income disclosure scheme PMGKY. Revenue potential from GST could, however, take some some time to be fully exploited.

While a committee on fiscal consolidation is believed to have recommended some well-defined escape clauses to provide the fiscal support to consumption and investment in the near term, the survey noted that primary balance (obtained after netting interest payments from the fiscal deficit) needed more attention. “The vulnerability is the country’s primary deficit… Put simply, India’s government is not collecting enough revenue to cover its running costs, let alone the interest on its debt obligations.” Although the survey noted that there was nothing extraordinary about this (other emerging market economies too run primary deficits), given India’s rapid rates of growth, its primary deficit should have been much lower than others.

Source: http://www.financialexpress.com/budget/economic-survey-2017/union-budget-2017-economic-survey-says-reforms-to-power-india-potential-growth/531664/

Global mergers and acquisitions hit all-time high in 2015 at $4.86 trillion: Dealogic report

by | posted in: Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0
Global M&A volume at USD 4.86 trillion in 2015 was the highest on record for any year, surpassing the previous record of USD 4.61 trillion in 2007.

The 2015 was a record year for global merger and acquisitions (M&A) as corporates announced deals worth USD 4.86 trillion and a significant portion of this came from Asia Pacific targeted deals, says a report.
According to global deal tracking firm Dealogic, global M&A volume at USD 4.86 trillion in 2015 was the highest on record for any year, surpassing the previous record of USD 4.61 trillion in 2007.

Moreover, this year’s total is a good 33 per cent higher than the last year.

In another first, the Asia Pacific targeted M&A broke the USD 1 trillion mark, reaching USD 1.16 trillion in 2015, and accounted for a record 24 per cent share of global M&A.

Sectorwise, healthcare was the top ranked sector in 2015 with USD 708.7 billion, up 62 per cent from 2014 when deals worth USD 436.3 billion were announced.

Technology was a close second with record high volume and activity (USD 697.4 billion by way of 9,038 deals), almost double 2014 volume (USD 326.1 billion).
The four largest technology deals on record were all announced in 2015, led by Dell’s USD 66 billion bid for EMC, announced on October 1.
Meanwhile, Goldman Sachs (USD 1.76 trillion), Morgan Stanley (USD 1.49 trillion), JPMorgan (USD 1.48 trillion) and Bank of America Merrill Lynch (USD 1.12 trillion) all recorded their highest annual advisory volumes on record.

All these firms surpassed their previous M&A records set in 2007, the report added.

 

Source: http://economictimes.indiatimes.com/articleshow/50354461.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst