Finance & Investing

Cash-rich PSEs contend that the annual loss to them on account of not being allowed to invite bids for depositing their surplus cash is an estimated Rs 5,000 crore. The government, in February last year, had directed CPSEs not to invite bids for depositing their surplus.

Instead, they have to go in for bulk deposits with banks at card rates (special interest rates for such deposits), which is currently around 7%-10% for most banks.

PSEs argue that if bids are allowed, the interest rates offered would be much higher as it would lead to competition amongst banks.

“We’ve received requests from companies such as ONGC, NTPC and SAIL (for being allowed to invite bids). A review is now necessary considering the loss that state-run firms are currently bearing,” said a government official who did not wish to be named.

Source: Economic Times By Dheeraj Tiwari & Subhash Narayan Public sector cos may get to park more with pvt banks

The recent correction in the markets has brought retail investors back into play, and now fund houses will have to be proactive in attracting investors. They will have to reinvent their business models so that the huge redemptions in ELSS seen in the past do not take place again. Sebi data shows only 4% investments in mutual funds are through the direct route and the rest still rely on distributors. The onus now falls on mutual fund companies to educate investors on various schemes and build a direct sales force. A recent KPMG report estimates that asset under management of mutual funds will grow in the range of 15-25% by 2015 and they will have to focus on low-margin products to attract risk-averse investors. So, it is in the interest of fund houses to attract retail investors for long-term funds flow instead of just focusing on companies and high net worth individuals where fund movements are mostly for the short term.

Background for Section 80C of the Income Tax Act (India) / What are eligible investments for Section 80C:

Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

1. Short title and commencement:- This scheme may be called the Public Provident Fund Scheme, 1968.  It shall come into force on Ist July, 1968.

2. Definitions:- In this scheme, unless the context otherwise requires:-

(b) `Accounts Office' means an office or branch of the State Bank of India, may subsidiary bank of the State Bank of India (excluding a pay office, a sub pay office or any other office managed by single officer or clerk) and any other office authorized by the Central Government to receive subscriptions under the scheme;

In a landmark judgment last week, the tribunal has shot down the stand of markets regulator Securities and Exchange Board of India (Sebi) that said veto rights constituted "control" of the company under Regulation 12 of the Takeover Regulations.

 Legal experts said this order has come as a major relief to investors who were wary of seeking such rights for fear of triggering the open offer regulations. The order has put to rest a lot of related ambiguities too, they added.

The case goes back to 2007 when private equity firm Subhkam Ventures, through a preferential allotment, acquired more than 15 per cent in MSK Projects thereby triggering an open offer. It filed an open offer draft document with Sebi under Regulation 10 of the Takeover Regulations, mentioning that it was only a financial investor and the acquisition would not lead to any change in the control of the company. Sebi, however, wanted the open offer to be made under Regulation 12 (change in control) along with Regulation 10. This was challenged by Subhkam Ventures at SAT, which based on the facts of the matter, ruled that "Regulation 12 does not get triggered and Sebi was not justified in making the appellant (Subhkam Ventures) incorporate this regulation in the letter of offer".

Source: Business-standard By Ashish Rukhaiyar Securities tribunal gives boost to private equity investors

Four-fifths of VCCircle's Deal Outlook survey participants say, they will do more deals in 2010. Contrast this with 2009 when many PE funds were not able to close even a single transaction.

While infrastructure and consumption-focused plays -- same as last year -- continue to remain major attractions, number of players looking to invest in these sectors has significantly increased. Around 92 per cent PE funds have voted for infrastructure compared to 47 per cent last year.

Domestic consumption story has an overwhelming support from 72 per cent respondents while only 20 per cent of poll-takers voted for this segment last year. In 2010, more than half of the respondents (57 per cent) say, they are interested in other investment themes such as financial services and manufacturing. Emerging sectors on the PE radar are education, healthcare and clean technology-renewable energy.

With India emerging as one of the fastest growing economies in the world, more private money will find its way into the country. Nearly 64 per cent of the survey respondents feel that there will be an increase in allocation from global private equity funds to India. Only 21 per cent think otherwise.

Source: Realty Plus 92% PE Investors Will Bat For Infrastructure In 2010

Private equity fund managers, or PE fund managers as they are popularly known, and investment bankers say this year could see increased activity at various levels as several Indian companies have reported robust results despite a testing economic environment. Besides fresh investments and divestment in existing companies, PE funds could also partner Indian companies for global acquisitions and also local buyouts.

According to Venture Intelligence, a research service focused on Private Equity and M&A, deal flows plunged to $3.82 billion in 2009 from $10.2 billion in 2008 and $13.6 billion in 2007. Private equity investment tapered off in 2009 as fund managers turned cautious.

Of the two sectors that had chased private equity capital -- real estate and power, there were policy issues related to FDI in realty while in the power sector, valuations were too high, says Rajeev Gupta, MD and head of the India buyout team of Carlyle, one of the global biggies in the business.

PE fund managers also chose to wait on the sidelines as equity valuations recovered too fast in the second half of 2009. According to Anil Ahuja, head of Asia-growth capital, 3i, from the second half of 2008, till around April-May 2009, money was not being deployed as everyone sought to conserve capital.

Source: Economic Times PE investments could bounce back in 2010

As per the Securities and Exchange Board of India (Sebi), asset management companies (AMCs) would now have to ensure they get all the required investor documents from the distributors. Further, Sebi has also asked the AMCs not to demand a no-objection certificate for investors wanting to change their mutual fund (MF) distributors. Sebi mentioned this as an inconsistent practice causing hardships to investors.

Buying and selling MF units on the recently opened trading facility on stock exchanges will not be tax-free. Capital gains in respect of transfer of units of "equity-oriented mutual fund" held for a period of more than 12 months (long term) would not be liable to income-tax, provided the transfer of units is subject to the securities transaction tax. If the units are held for 12 months or less (short term), the same would be liable to tax at the rate of 15% plus cess.

The Bombay Stock Exchange recorded 251 orders worth Rs8.4 crore on the first day of commencement of its online MF platform. The exchange has tied up with seven fund houses for this MF platform.

Source: Live Mint Negative Growth: MF Investments Decline, Equity Outflows Continue

The year 2010 could bring some good news for retail depositors. Deposits rates, which have hit record lows, may move up from next month as banks try to narrow the gap between assets and liabilities.

After banks started reducing deposit rates in January, most new retail deposits have been of one-year maturity. Last year, the peak rate was for deposits with a maturity of two-three years.

On the other hand, bankers said that over the last 12 months, a large chunk of loans that were disbursed were for homes and long-gestation infrastructure projects such as power plants. These loans have a tenure of 15-20 years.

"About 70 per cent of new term deposits have a maturity of around 12 months. With most lending happening in housing and infrastructure, banks will be more focused on getting long-term resources, and this can well happen from January itself," said an executive of a large public sector bank.

"The present asset-liability structure, which is short on liability and long on loans, is a source of worry," said another banker.

Source: Business-standard Deposit rates may rise from Jan

Capital market regulator Securities and Exchange Board of India, or Sebi, allowed, starting July 2008, retail investors to subscribe to initial public offers, or IPOs, through bank branches. In the second phase of this plan, slated to go live in January, the channel will be thrown open to a wider group of investors who will be able to make multiple applications at different price points within the price band of an IPO. Sebi has asked bankers to get their systems ready for this by 31 December.

Most IPOs are made through the book-building route where the company selling shares prescribes a band and investors bid for shares at a certain price, helping arrive at the final issue price.

Till now, only retail investors were allowed to bid through the banking channel at the cut-off price for IPOs, which is usually the upper end of the price band. The maximum amount for such bids was capped at Rs1 lakh.

Source: Live Mint Primary Market : HNIs, Firms Can Use Banking Channel For IPOs From January

“The issue is under examination. A downward revision could be on the cards,” a government official said.

 NRI deposits have more than doubled to $2.7 billion in April-September, 2009 from $ 1 billion in the same period a year earlier as investors faced with low interest across the globe due to near-zero policy rates of many central banks invested in India. The flow is compounding the problem faced by the government as it appreciates the currency against the dollar and reduces the profitability of local companies.

“Capital inflows are a concern. We have some effective capital control mechanism in our hands that could be deployed instead of going in for across the board drastic steps such as the one taken by Brazil,” said Abheek Barua, chief economist, HDFC Bank.

 Brazil and Taiwan have already imposed some curbs on inflows, including a tax on inflows to prevent another asset bubble and rising inflation. It is quite likely that the central bank will use measures such as tweaking rates on these deposits or restricting foreign currency borrowings, said Mr Barua.

Source: Economic Times By Deepshikha Sikarwar Check Against Inflows:  NRI Deposits Likely To See Waning Interest

The services sector — including financial and non- financial segments — attracted 22 per cent of the total FDI inflows in the April- August period, official data show.

Services was followed by housing and real estate and telecommunications, attracting $1.79 billion and $1.73 billion, respectively.

Construction activities attracted investments worth $899 million.

The highest FDI of $6.27 billion came from Mauritius followed by the US and Singapore.

However, overall FDI during the period declined to $13.8 billion from $14.64 in April- August 2008-09.

The government has finalised sweeping changes to the country’s foreign direct investment (FDI) policy to account for increasing concerns voiced by security agencies.

A 21-member committee of secretaries (CoS) chaired by Cabinet Secretary K M Chandrasekhar is meeting on 17 November to discuss key changes, some of which were incorporated in guidelines at the end of 2007 that were subsequently discussed by inter-ministry groups.

These new guidelines include amending the automatic approval list by significantly expanding the role of the Foreign Investment Promotion Board (FIPB), the nodal agency for clearing FDI proposals. FIPB will now scrutinise proposals in which funds are routed through tax havens (like Mauritius) and those that fall under a proposed “sensitive list” even if they are under the current automatic approval route.

FIPB, which comprises members from most key ministries, will also consider foreign personnel and the requirement for imported labour in FDI applications before giving approval. The issue of foreign workers has recently been a source of controversy, with the government objecting to Chinese blue-collar workers coming into India on tourist visas instead of business visas to work on high-tech construction projects.

The CoS, comprising home, foreign, defence, finance, various administrative ministries and the PMO among others, will also review and expand locational restrictions on foreign companies. Currently, foreign companies working on hydro-electric projects are not permitted within a 50 km belt in border states. Now, each state will have a clearly demarcated area within which FDI projects will not be allowed. These restrictions will include sensitive coastal areas.

Source: Business-standard Govt to tighten rules for FDI approvals

A flurry of successful qualified institutional placements (QIPs), rights issues and exercise of stock option plans this year has diluted foreign promoters holding in Indian companies. A SundayET study of BSE500 companies reveals that foreign promoter’s holdings in these listed entities has come down by more than 17% on an average during the period between September 30, 2008 and September 30, 2009. The analysis is based on 278 companies whose data is available with CMIE.

Foreign promoters include non-resident and foreign individuals, institutional foreign promoters and foreign corporate bodies. About 20 companies including Sobha Developers, Punj Lloyd, Lanco Infratech, Dish TV, Mahindra & Mahindra, Cairn India and Hindustan Unilever witnessed foreign promoter stake coming down during the period. Interestingly, 23 companies saw foreign promoters’ stake going up during the said period. But decline on an average was much more steeper than the hike. In 235 companies, foreign promoter holding remained the same.

Sobha Developers, Punj Lloyd and Lanco Infratech had all successfully raised funds via QIPs earlier this year which resulted in their equity base expanding and foreign promoter stake diluting. Similarly, Dish TV came out with a rights issue during the last year resulting in foreign promoters stake diluting.

 “Last year was an exceptional one where companies in need of funds came out with QIPs to replace high cost debts with equity in their balance sheets. This meant foreign promoters stake in Indian companies diluted to a certain extent,” according to Sanjeev Krishan, executive director at PricewaterhouseCoopers.

Source: Economic Times Foreign promoters’ stake in Indian companies down

Current income
Bank deposits are most sought after for this purpose. They give a stable and fixed return on the invested money. Traditionally, the interest rate is fixed during the tenure of the fixed deposit. Some banks now-a-days have gone for the reduction in existing bank deposits too, when the market interest rates come down.

The income comes to us in the form of "interest" for the deposit amount. The principal (initial amount invested) is returned back to us at the time of maturity. There are options to receive the interest on a monthly/ quarterly / half-yearly or yearly basis. In case we do not need the interest to come to us during the term of the deposit, we can opt for the cumulative deposit option, where it is credited to the deposit and earns additional interest. Interest is generally compounded on a quarterly basis.

The historical average return from fixed deposits in India is approximately 8 per cent for long term deposits (5 years). The highs and lows have been in the range of 13 per cent to 4 per cent.

Capital appreciation
Capital appreciation does not apply to bank fixed deposits. Only the principal invested is returned back at the time of maturity.

Source: Rediff.com The pros and cons of investing in fixed deposits

• Risk

• Liquidity

• Tax treatment

• Convenience

• In conclusion