FII Rule for Ever Ensured with Decoding the new takeover code!THE high economic growth in India, unlike in the case of China, has not translated into a rapid reduction of hunger in India, a US-based policy think-tank has said.

Troubled Galaxy Destroyed Dreams, chapter 564

Palash Biswas

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FII Rule for Ever Ensured with Decoding the new takeover code!

Expressing concern over rising prices, Finance Minister Pranab Mukherjee has said managing inflation has been his biggest challenge as increasing cost of essential goods hit poor the most.

Sensex soars as FIIs pour in Rs 1 lakh cr

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Hindu Business Line - 23 hours ago

Wednesday also marked the day that net FII investments in India crossed the Rs 1 lakh crore-mark for the first time. From the time they entered the Indian ...

FII inflows cross Rs 1 tn‎ - Chandigarh Tribune

FII inflows help Sensex close 89 points higher (Roundup)‎ - Sify

A level of 21000 looks sustainable on Sensex: Atul Kumar‎ - Daily News & Analysis

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"One of my biggest challenges is to control inflation but at the same time, I should not stand in the way of higher growth trajectory. It is a difficult challenge for any finance minister", he said in an interview to "India Today" magazine.

The inflation for the month ended August was 8.5 per cent, while the food inflation was 16.24 per cent for week ended September 25.

The Minister further said the government has been able to bring down the food inflation from 20 per cent to 16 per cent.

"I would not say I have failed. I have been able to reduce it from the peak it reached in December 2009 which it was as high as 20 per cent. Now it has been brought down to 16 per cent", he added.

However, Mukherjee said, "it is a matter of concern since inflation hits the poorer sections the most."

Answering questions on focus of economic policies of Congress, he said, "Aam aadmi (common man) has always been in focus but in different forms."

"When we talk inclusive growth, we talk of him when we talk of growth with equity or garibi hatao, the aam aadmi has always been at the centre but with different definitions and requirements," he added.

Referring to Goods and Services Tax (GST), Mukherjee said, "there is a broad political consensus on about the necessity of GST, about the need to remove multiple points of taxation...it may take some time but it will be possible."

Mukherjee admitted that there were reservations from some states who think that GST would deny them the autonomy of imposing tax "which they believe is their sovereign right...I don't think politics should be mixed with major economic decisions."

The centre is trying to evolve a consensus on constitutional amendments to implement GST, which will eventually subsume several indirect taxes like excise, service tax, sales tax etc.

India's economic growth is on track to accelerate in 2010/11 on the back of monsoon rains but expectations for growth in the following year have moderated slightly, a quarterly Reuters poll shows.

Analysts raised their expectations for how far the central bank will lift rates in the fiscal year to the end of March 2011, reflecting signs that demand pressures, especially for consumer durables, are building in Asia's third-biggest economy.

A survey of 21 economists produced a median forecast that the economy would grow 8.4 percent in the year ending March 2011, unchanged from a similar poll conducted in July and up from growth in 2009/10 of 7.4 percent. They projected growth of 8.3 percent in 2011/12, slightly below 8.5 percent forecast in July.

"Rising cost pressures and global uncertainties are likely to have a sobering impact on India's growth momentum," said Rupa Rege Nitsure, chief economist at Bank of Baroda . Wholesale price inflation is forecast at 8.3 percent at the end of 2010/11, similar to current levels, before moderating to 5.7 percent the following year. This compares with 8.6 percent and 5.5 percent, respectively, in the previous poll.

The RBI expects WPI inflation to ease to 6 percent in March 2011. The cut in forecasts for inflation at the end of the fiscal year reflect the view that a healthy monsoon will bring down food prices, which have a big influence on the headline index.

However, rising demand for consumer durables, such as cars, will need sterner action from the central bank than previously forecast because of the risk that these price pressures can filter more broadly through the economy.

The Reserve Bank of India (RBI) has raised its short-term lending rate by a total of 125 basis points in five moves in 2010 to 6 percent, but is seen to be nearing the end of its current tightening cycle. The poll forecast that the RBI would raise the repo rate, at which it lends to banks, by another 50 basis points to 6.50 percent by the end of March 2011. Just one more 25 basis point hike is expected in the following fiscal year.

The rupee is forecast to be around current levels at the end of December, but is seen appreciating by about 1.2 percent between now and the end of March. It is up 4.3 percent so far in 2010 after having climbed 4.7 percent in 2009.

Just read this ET article!

THE proposed takeover code represents a landmark step with all the ingredients in place to completely change the Indian M&A landscape. The expert panel has clearly been inspired by international best practices. However, one should evaluate the implications of these recommendations in the context of readiness of Indian capital markets and financial system to facilitate a smooth transition and implementation.

That a 100% offer size is more equitable to minority shareholders, giving them an opportunity to fully tender their shareholding, is self-evident. However, one has to evaluate the ability of Indian acquirers to raise the resources necessary for a 100% buyout in the context of prohibitions on Indian banks to fund share purchases. This may hamper the inorganic growth ambitions of Indian companies.

To put it in perspective, the average size of offers made by Indian acquirers in the last four years has been a meagre .`40 crore, compared with the average offer size of .`487 crore made by foreign acquirers.

The new recommendation can potentially further widen this bias in favour of foreign acquirers with access to acquisition financing. The accompanying table summarises the tremendous fund-raising challenge that the new regulations pose. The outlay increases by a staggering .`1,33,350 crore had the rule of a 100% offer size been implemented four years back.

On the flip side, minority protection measures have come a long distance since clause 40A of the Listing Agreement ruled the roost. When the 20% rule came in, when the 2%, 5%, 15% disclosures and trigger limits came in, there were similar reservations.

Indian economy has shown alot of dynamism, though halting or nonholistic at times. Our uptake is that, unlikely as it may appear today, funding sources will open up — MFs, insurance companies, NBFCs, investment banks, etc, will provide the funding. However, until these alternative sources open up, the average Indian company will feel daunted by the higher requirements.

Another important development is in raising the initial trigger to 25% instead of 15%. The change will bring us closer to the 30-35% trigger in developed countries like the UK, Singapore , EU, etc. This move primarily takes into account the ability of shareholders with 25%+ voting rights to block special resolutions on key corporate matters as enshrined in the Companies Act.

However, strictly speaking, special resolutions require an affirmative vote from 75% of the shareholders present and voting in the meeting. Taking into account absentee shareholders, shareholders with less than 25% shares do possess higher voting rights and indirectly gain the ability to block special resolutions.

For instance, ashareholder with a 21% stake in a company has the ability to exercise 26.25% votes if 80% of shareholders are voting in the meeting, thus enabling him to exercise de facto control on key corporate matters. He does so without making an offer to minority shareholders.

Another welcome step is widening the definition of control to include not only the right but also the ability to control the management or policy decisions of a company by virtue of entering into private shareholder agreements.

Though a step in the right direction, it still retains a high level of subjectivity, with Sebi retaining a right to evaluate control triggers on a case-to-case basis.
http://economictimes.indiatimes.com/opinion/editorial/Decoding-the-new-takeover-code/articleshow/6744631.cms

THE high economic growth in India, unlike in the case of China, has not translated into a rapid reduction of hunger in India, a US-based policy think-tank has said. Economic Times reports:
THE high economic growth in India, unlike in the case of China, has not translated into a rapid reduction of hunger in India, a US-based policy think-tank has said.

India ranks 67th in an 84-country ranking and has more hungry people than its neighbouring countries.

"Higher growth rates in India has not been translated into hunger reduction," Ashok Gulati , Director Asia, International Food Policy Research Institute (IFPRI) said after the release of the 2010 Global Hunger Index (GHI) on Monday.

The high incidence of hunger is despite the country having enough food grain, indicating a failure in ability to reach the deprived or abject low levels of incomes for a vast segment of population . China's economy, which is four times bigger than India, has made remarkable progress in reducing hunger. As a result, the country has been ranked ninth in the index, the report said.

India's economy expanded at 7.4% in 2009-10 and is expected to grow by 8.5% the current financial year. Mr Gulati says the difference in the extent of hunger reduction between India and China was largely because of contributors to the growth. India's growth story is more focused on services sector, especially IT and telecom. "Agriculture sector is still waiting for reforms ," he said. China, on the other hand, Gulati pointed out, has been successful in expanding its economy fast, with reforms in agriculture followed by manufacturing and services sectors.

Incidentally, despite lower economic growth, neighbouring countries such as Pakistan, Bangladesh and Sri Lanka have been relatively more successful in reducing hunger.

Mr Gulati further explained that a percentage point increase in farm growth is 2-3 times more effective in tackling hunger, indicating that a focused thrust on agriculture is the best way to reduce incidence of hunger. "Agriculture in India is most controlled sector," he said adding that there are not enough reform packages to boost farm growth.

India's agricultural growth in 2009-10 fiscal fell to 0.2 because of a severe drought, but is expected to rebound to 4-5 % in the current fiscal.
http://economictimes.indiatimes.com/news/economy/indicators/Hunger-remains-despite-high-growth-US-study/articleshow/6733238.cms

Thursday October 14, 02:35 AM

Source: Indian Express Finance

Need to shift focus on Asian peers to counter trade imbalance, says FM

By fe Bureau
While the country is not yet 'out of the woods,' India needs to shift its focus to the Asian nations from traditional markets like Europe and North America in order to counter trade imbalance, said Union finance minister Pranab Mukherjee.
"I have little apprehension...current account deficit has increased. Trade imbalance has also increased because of shortage of exports, not in absolute terms but in comparison to imports " Mukherjee said.
According to commerce ministry estimates, India's trade deficit has widened to $13.03 billion in August. Oil imports have increased by 12.4% in August to $7.79 billion against $6.94 billion in August last year while non-oil imports went up by 41.1% to $21.88 billion against $15.51 billion during the corresponding month last year.
Meanwhile, India's export has grown by 22.5% in August to $16.64 billion against $13.58 billion during the same month last year. "We have to diversify our exports. Up till now most of our exports were headed towards Europe, North America and Japan. Now we have to look more towards our eastern neighbours," he said.
Present at the foundation stone laying ceremony of the financial hub at Jyoti Basu Nagar (formerly known as Newtown Rajarhat), Mukherjee stressed on building infrastructure facilities to foster double digit growth of the economy . "Double digit growth is not a fancy statistical figure but it is part of our effort towards national rebuilding and reconstruction. To me double digit growth means creation of more jobs, income and wealth," Mukherjee said.
14 Oct, 2010, 05.08AM IST, RAJIV JAYARAM,

US military campaign: Losing it in Afghanistan

During the Vietnam war, US secretary of defence Robert McNamara was so cocksure of an American victory that he propagated a 'strategic' bottom line: "Two plus two is four, and we will win the war" . The trouble with this line was that, as one CIA official once put it, McNamara could never define what 'two' represented.

Parallels are increasingly being drawn between the current US military campaign in Afghanistan and the one in Vietnam, but this time, the Americans could be said to have had a handle on the objectives.

For a brief period, from the 2001 invasion of Afghanistan, 'nation building' was an oftheard refrain. It no longer is. "I'm not doing long-term nation-building . I am not spending a trillion dollars," US President Barack Obama is quoted as saying in Bob Woodward's recent book Obama's Wars that details the continuing strain in his administration over the exit plan out of Afghanistan. The frustration in the President's tone is barely disguised.

Now, 'exit strategy' is the phrase on which the discourse turns in Washington . In his speech outlining the Af-Pak strategy March last year, Obama had delivered a curt message — the clear and focused goal of the US is "to disrupt, dismantle and defeat Al-Qaida in Afghanistan and Pakistan, and to prevent its return to either country in the future . That is the goal that must be achieved."

In Woodward's book, Obama sounds like he has grappled with the other objective, too. "We need to make clear to people that the cancer is in Pakistan," the president said. Creating a secure Afghanistan is imperative, he said, "so the cancer doesn't spread" there.

How these objectives can be achieved when Nato forces under American command in Afghanistan are hamstrung by a resilient Taliban insurgency, a corrupt government in Kabul and venal warlords presiding over much of the nation, is the question that haunted the administration ever since. But the whole narrative shifted since Obama set a deadline to start withdrawing troops from Afghanistan — from July 2011 — in the very address in December last as he announced the sending of extra troops. It's no surprise that as the exit strategy became ever more pressing, the need for a political settlement has assumed utmost urgency.

Unfortunately for the president, the Plan A of military strategy has not been a roaring success so far, the surge in troops notwithstanding . The coalition's touted Helmand, Marja and Kandahar operations have achieved less-than-desired successes. Though the US insists that the Taliban's battlefield victories are small-bore , the latter can count on something else — a powerful sense of momentum and time — while the US campaign is limping.

So, the shift to Plan B: talks with the Taliban . It seems now that the old distinctions between 'good' and 'bad' Taliban have worn thin. Afghan President Hamid Karzai has confirmed that his government has been holding unofficial talks with the Taliban 'for quite some time' . The talks come amid a change of heart by the Obama administration towards the full backing of talks with the Quetta Shura headed by Mullah Omar.

Here, the problem is that Plan B too cannot succeed without Pakistan's sanction, as Prime Minister Yousuf Raza Gilani has made it clear the other day. So far, the Haqqani group, the Taliban faction that has been the target of escalated US drone strikes in Fata, has been excluded from the negotiations.

But the Haqqani faction is being promoted by Pakistan as its hedge against 'arch-enemy' India's influence in Afghanistan. Pakistan has been making persistent efforts to ensure that the Haqqani network is included in the negotiation process without getting a bloody nose militarily from the Americans.

If that happens, the July 2011 timeline set by President Obama to start the withdrawal of troops would look like a cut and run, a complete negation of the plan to "disrupt, dismantle and defeat Al-Qaida in Afghanistan and Pakistan" .

Obama is right when he says nationbuilding is boggier terrain, but merely walking away is not an option. Like it or not, Afghanistan's fate is entwined with that of Obama's administration, and McNamara's 'wisdom' might again not make the cut.

12 Oct, 2010, 05.19AM IST,ET Bureau

All is not well on the global food front

Reports of a possible global food crisis could not have come at a worse time for India. Food inflation is still over 16% and though plentiful rains this year hold out the promise of one of our best agricultural years ever , last week's warning by the US administration of 'dramatically' lower supplies of corn, rice and wheat could force the RBI to tighten more than otherwise warranted in order to rein in prices.

The Food Security Bill, which has already run into rough weather for want of a viable and efficient delivery mechanism, could face a fresh threat on account of the additional financial commitment it will entail in a scenario of rising food prices.

The US department of agriculture's prediction that the country's stocks of corn will fall to their lowest level in 14 years saw prices of agriculture commodities hit their upper limit for the day at the Chicago Board of Trade, the world's big (gest futures exchange. The Reuters-Jefferies CRB commodities index has risen to a two-year high as wheat, soyabean, sugar, cotton and barley prices rose in tandem in Europe. If prices continue to rise, global slowdown woes could be compounded by food inflation

The global food situation is worrisome as the combination of an unusually hot summer in the US, drought in some large exporting countries including Russia and Brazil and heavy rain in Canada and Europe have hit grain and oilseed crops hard. The fall in supplies has prompted countries like Russia and Ukraine to impose export restrictions on grains.

Meanwhile, big importers in West Asia and North Africa have reportedly started to hoard supplies. For now, fears of a repeat of the 2007-08 food crises seem misplaced. But with speculative forces entering the fray, worries about the role of speculation in pushing up prices will resurface.

To the extent that we are not net importers of foodgrains, we may not be affected much by the looming crisis. But we will not be immune from it either. The last time global food prices rose in 2007-08 , prices rose in India too, though by less than the international price. And that is bad news for all of us, especially for the 370 million below the poverty line.

Thursday October 14, 09:30 PM

RBI: managing inflows a balancing act

Click to enlarge photo

By Rajesh Kumar Singh
CHANDIGARH, India (Reuters) - India must manage capital inflows so that it can fund its current account deficit while at the same time not harming exports, a deputy governor of the Reserve Bank of India (RBI) said on Thursday.
India has attracted a record $22.5 billion in inflows into stocks this year, putting upward pressure on the rupee. Traders said the central bank bought dollars on Thursday in what is believed by market players to be its first intervention this year.
"The fact that we have capital inflows that at some point are substantially larger than our current account deficit means there is a pressure on the rupee to appreciate," RBI Deputy Governor Subir Gokarn said at a Bloomberg-UTV event.
"When that happens there are obviously some consequences, some stakeholders in the economy who are threatened, who feel the impact, particularly exporters," said Gokarn.
He also noted that while inflation remains above comfort levels, monetary policy measures are having an impact.
The Prime Minister's Economic Advisory Panel expects total capital inflows, including foreign direct investment, of $73 billion in 2010/11, which would more than cover the expected current account shortfall of $41.8 billion.
Since the start of September, the rupee has appreciated 6.7 percent on foreign equity inflows of more than $9.5 billion, pushing the currency to a 25-month high.
India's current account deficit widened sharply to $13.7 billion in the April-June quarter from $4.5 billion in the year-ago quarter.
While that adds to India's ability to absorb inflows, exporters complain that a rising rupee hurts competitiveness.
"So it comes down to balancing act, between making sure that you have enough money, enough inflows to finance your current account deficit but at the same time try not to do any serious damage to people whose competitiveness is undermined for no fault of their own," Gokarn said.
INFLATION BATTLE
Inflation in India has been waning after five straight months in double-digits through June, but is still well above the central bank's perceived comfort level of 5 or 6 percent.
India's central bank has raised its main lending rate five times since March by a total of 125 basis points to 6 percent, and is seen to be near the end of its current tightening cycle.
"We are certainly seeing the inflation numbers start to come down and different components of the index give us some indications that our actions are contributing to it," Gokarn said.
The central bank's next policy review is on Nov. 2, and investors are looking to Friday's wholesale price index release for clues on its next policy move. A Reuters poll found September's WPI index will probably rise by 8.5 percent, unchanged from its August level.
(Reporting by Rajesh Kumar Singh; writing by Swati Bhat; editing by Tony Munroe)

India, China may face economic downturn in coming months: OECD

LONDON: India and China, besides some developed countries, may face economic downturn in the coming months, according to an analysis by OECD -- a grouping of mostly advanced nations.

It also said the global economic growth is slowing down. The latest reading is in contrast to the bullish outlook for fast-growing economies such as India, which tackled the global financial meltdown better than many other countries.

The Organisation for Economic Cooperation and Development (OECD)'s latest Composite Leading Indicators (CLIs) released today show that global economic expansion is slowing down.

CLI provide early signals of turning points in business cycles - fluctuations of economic activity around its long term potential level.

"The outlook given by the CLIs for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn," OECD said in a statement.

CLI for India stood at 100.4 in August, a tad lower than 100.6 recorded in July. In the case of China, the August indicators slipped to 101.3 from 101.7 in the previous month.

Interestingly, a few days ago, Finance Minister Pranab Mukherjee had said that in the short term it is reasonable to expect the national economy to go back to the "robust growth path of around 9 per cent average".

India's economic growth rate was 7.4 per cent in 2009-10 and is projected to be over 8.5 per cent for the year ending March 31, 2011.

From over 9 per cent average for three years till 2007-08, the growth slipped to 6.7 per cent in 2008-09 because of the global economic crisis that began in 2008.

India is not part of the Paris-based grouping. Apart from India and China, OECD also provides CLIs for three other major Asian economies -- Indonesia, Japan and South Korea.

Meanwhile, the indicators for the OECD region, comprising 33 economies including the US and Germany, marginally fell to 102.9 in August. In the previous month, the same was at 103.

OECD, which accounts for over 60 per cent of the global economic output, said that August indicators "reinforce signals of slowing economic expansion already seen last month".

The CLI for the OECD area decreased by 0.1 point in August, making it the fourth straight month that the index has shown negligible or negative growth.

However, the grouping pointed out that there are stronger signals of a peak emerging in the world's largest economy US.

"For Germany, Japan and Russia the CLI points to a continuation of the expansion phase," it added.
14 Oct, 2010, 12.07AM IST, Souvik Sanyal,ET Bureau

Govt to allow realtors to book revenues at different work stages

NEW DELHI: The government will drop a key rule from the new international accounting norms Indian companies have to follow from next year to permit real estate companies to book revenues as they build a property, allowing them to maintain a healthy profit and loss account.

A recent meeting of the expert group of the ministry of corporate affairs favoured the existing 'percentage completion method', even as the country prepares to align its accounting practices with the globally recognised International Financial Reporting Standards (IFRS), which allows developers to book sales only when the project is complete.

The current move, which was cleared by the National Advisory Committee on Accounting Standards (NACAS), is expected to bring some relief to the country's real estate sector, which is yet to recover fully from the impact of the economic downturn.

A change in accounting practices would have weakened the position of real estate firms while dealing with investors and lenders. Real estate firms welcomed the move, calling it a step in the right direction.

"It will reflect the real picture as regards the execution and marketing capabilities of a real estate company as well as its cash flow," said Manoj Goel, vice-president of Raheja Developers .

Real estate projects take several years to complete, therefore they are allowed to follow what is known as the percentage method wherein they proportionately show revenues in their books of account as projects are executed.

"Any lack of visibility on performance and reported earnings, lenders and banks could be more stringent in lending to this sector," industry body National Real Estate Development Council (NAREDCO) had said in a representation to the ministry of corporate affairs.

"This can also adversely impact investments by mutual funds with focus towards regular return to unit holders," it said.

Under IFRS, real estate accounting is based on 'completed contract method', wherein revenue is recognised only when the project is completed and the ownership is transferred.

The reworked move expected to shield the sector from the adverse impact of sudden slumps in demand.

"With the NACAS clearing the proposal, it is just a matter of time before the government issues a notification to clarify this aspect," said an official with the ministry of corporate affairs who asked not to be named.

"While the move will not see any change in the annual margin of corporates, revenues will be recognised on a quarterly basis," said Suneel Sehgal, deputy director general of NAREDCO. Accounting experts also welcomed the move, saying it suits the way the real estate business works.

"Given the nature of realty business which follows an extended approach (for completion of projects), the move is appropriate," said Jamil Khatri, head of accounting advisory services at consulting firm KPMG .

Varun Gupta, director finance in Ashiana Housing Ltd , welcomed the moved but cautioned that the change could make comparison between firms difficult if they are provided with an option to follow either of the two accounting formats.

13 Oct, 2010, 02.56AM IST,ET Bureau

Foreign inflows: Subbarao, Pranab not on same page

MUMBAI: RBI governor Subbarao and finance minister Pranab Mukherjee are beginning to sing from different song sheets on policy for the first time since the collapse of Lehman Brothers in September 2008.

Mr Subbarao is showing signs of joining the global chorus of policy makers about excessive inflows potentially causing short-term instability in the financial markets while Mr Mukherjee is stubborn in building the economic growth momentum, even if it means hitting a few bumps along the way.

The prospective cracks in policy issues surfaced during the public meetings in the US last week where both addressed investors, policy makers and economists. Neither of them committed to an explicit stand on capital flows as they hid behind 'ifs' and 'buts'.

But the market has begun reading between the lines.
"It is possible to construe there are differences between the central bank and the finance ministry after the governor's speech in Washington," said Abheek Barua, chief economist at HDFC Bank . "However, their respective stands are at two different levels and hence cannot be compared."

The Indian rupee ended 25 paise higher to `44.67, the benchmark Sensex fell 0.67% to 20203.34.

"Economies that have current account surpluses or only small deficits have intervened," Subbarao said at the weekend in Washington. "That does not mean we won't intervene. If inflows are lumpy and volatile, or if they disrupt the macro-economic situation, we will do so," he had said.

This is probably the most unambiguous statement that can come from a central banker. But what does an investor do when the boss, the minister, says something that could be read differently.

"I do not think that the situation has arisen in the Indian economy today," Mr Mukherjee told an audience in Washington regarding inflows impacting the currency market. "I don't think it is going to be too volatile. It "has not distorted market sentiment and, therefore, there is no question of putting any curbs."

Subbarao is not alone in the club of the worried. Many countries such as South Korea and Mexico have taken measures such as taxing inflows to stem the tide, which some believe is hot money. Bank of Japan intervened to depreciate the yen against the US dollar after it touched a 13-year high, threatening its fragile recovery.

The Institute of International Finance has forecast a 30% increase in inflows into emerging markets this year at $825 billion.

Overseas investors have poured in a record $22 billion this year into Indian equities and $10 billion into debt as they chase higher yields, making Indian stocks and the currency best performers in Asia this month. However, the strengthening rupee is hurting exports, but making imports profitable. Also, the risk to financial markets, in case of a reversal, is growing.

"The interest rate differential between advanced economies and EMEs (emerging market economies) have naturally triggered capital flows into EMEs, putting upward pressure on their currencies and complicating their macro-economic management," said Subbarao. "We are back to facing the usual dilemma of managing the impossible trinity," he said, referring to managing currency, inflation and growth.

This flow of foreign funds into emerging markets is unlikely to stop in the near future as central banks in the US, Japan and Europe print more notes to revive their moribund economies.

Mr Mukherjee is probably the lone man standing in welcoming overseas flows. He doubled the limit on foreign holding of Indian government bonds recently. He also raised the limit on corporate bond holdings to $10 billion.

"If inflows are more than the absorptive capacity of the economy, then controls are needed," says Crisil chief economist Dharamkirti Joshi. "Some Asian central banks are already doing it in mild form."

It may be a testing time for Subbarao who rarely differed with the government headed by a former central bank governor, Manmohan Singh , on stimulus measures after Lehman Brothers blew up. This despite a minority saying India never experienced such a crunch to ease rates so much.

'DTC Bill a dampener, but SEZs will retain sheen'

MUMNDRA: Special economic zones may have lost some of their sheen on account of the proposed withdrawal of income tax sops in the Direct Taxes Code Bill, but developer Adani Group feels the zones are still lucrative enough to attract investment.

"Growth will definitely be there, you will see units coming in," said Unmesh Abhyankar , the Chief Operating Officer of Mundra Port & SEZ Ltd (MPSEZL), the Adani Group firm overseeing the company's private port and SEZ at Mundra, in Gujarat.

However, he acknowledged that the company has not seen companies line up as fast as it expected to establish new units within the multi-product SEZ. "Companies did not come as fast as we expected," he said, adding that the global economic turbulence was the main reason for many companies putting their SEZ projects on the backburner.

As per the SEZ Act, 2005, and SEZ Rules, 2006, SEZ units are entitled to exemption from duty of customs and excise, exemption from service tax and VAT, exemption from stamp duty and registration fees and exemption from electricity duty, besides income tax exemption on export profits.

However, in the latest draft of the proposed Direct Taxes Code Bill, the government has introduced a sunset clause for withdrawal of the income tax exemptions in March, 2014.

The proposed deadline for restricting income tax exemptions to SEZs and units has already motivated several developers that had secured approvals for implementing multi- crore projects to abandon their plans and surrender their projects to the government.

In this regard, Abhyankar indicated that the Direct Taxes Code Bill has certainly reduced the attractiveness of SEZs on account of the removal of income tax incentives.

"If we add any cost element in the form of the DTC, or any other way, it becomes difficult to do business," he said.

Nevertheless, Abhyankar remained upbeat about the prospects for SEZs attracting big ticket investments in future, given that the sops were not limited to income tax. He pointed out that one of the major benefits of setting up shop in a SEZ was the ready availability of infrastructure and land.

"Once the initial infrastructure is in place, the rest will automatically become easier," the MPSEZL COO said.

Mundra SEZ Joint Development Commissioner B Pattanaik also scoffed at the assumption that SEZ units would not continue to enjoy an advantage over units in Direct Tariff Areas. "The DTC Bill is a dampener, but SEZs retain their benefits... It is a bouquet of benefits not limited to income tax," he said.

14 Oct, 2010, 10.52AM IST,AGENCIES

Foreign investors eyeing India to avoid West's economic doldrums

MUMBAI: Economists and policy makers reckon that the economic doldrums in the United States , along with much of Europe and Japan , could benefit emerging nations like India.

According to the New York Times, with an economic growth rate of nearly nine percent and a stock market that is more open to foreign investors than China's, India has become a destination of choice for foreign financial investors.

In the first nine months of the year, foreigners invested 28.5 billion dollars in Indian stocks and bonds - more than twice what they invested in the comparable period of 2009, the Times said.

The Sensex index is up about 22 percent in the last 12 months, and 114 percent since the end of 2008, it added.

"The rest of the world is starved for growth and India is still producing relatively high real rates of G.D.P. growth," the newspaper quoted Manish Saini, an analyst and trader at New York-based Eastern Advisors, as saying.

The experts said that the foreign investors are moving money to emerging markets in part to take advantage of the interest rates, it said.

The interest rate set by the Reserve Bank of India stands at six percent, compared to near-zero rates in the US and Japan, it added.

They explained that as the difference between rates grow, traders can make more money by borrowing cheaply in dollars and yen and investing that money in higher yielding stocks and bonds in developing economies.

"If you look at the Indian opportunity, most things are going in its favour. And there aren't too many real risks that we see around the corner," said Neeraj Swaroop, who heads Standard Chartered's operations in India and South Asia.
12 Oct, 2010, 09.43PM IST,REUTERS

Investors say stock picking works in India, Europe

NEW YORK: Betting on a recovery in Europe or on continued strength in emerging markets could yield lucrative bargains and be safer than standing pat in the United States and risking a double dip, hedge fund managers said on Tuesday.

While US markets are perceived as more efficient, investors willing to look overseas for "undiscovered" companies -- while also steering clear of currency fluctuations, corruption and political risks -- could make some money, investors said at the Value Investing Congress in New York.

Amitabh Singhi, managing director at India-based Surefin Investments, which oversees $15 million, said he is betting on transportation, housing and infrastructure growth in the country.

" India is a very resilient country, you have 20 years of no electricity, no laws, crazy tax laws ... and we survived," said Singhi, who was born in India but earned his undergraduate degree at the University of Pennsylvania's Wharton School. As a play on that expected growth, he said he likes Indian engineering conglomerate Larsen & Toubro , and agriculture-focused tire maker Balkrishna Industries Ltd.

He also fancies financial lenders such as Shriram Transport Finance Co Ltd, which helps Indians finance second-hand trucks for their businesses, and HDFC Bank Limited, India's largest mortgage lender.

Francisco Garcia Parames, who oversees about $6 billion at Spanish money manager Bestinver Asset Management, said Europe can provide some good opportunities because of the family-owned companies and the lower tax environment investors access by investing there.

"You have to be patient," Parames said about Europe, adding it was not about investing in the value of the shares, but rather the value of the company. Parames said he likes preferred shares of automaker BMW , industrial machinery maker Circor International Inc and Spanish infrastructure giant Ferrovial .

Parames said he stays away from cash and fixed income securities, and investors' recent focus on liquidity is "overrated." However, he said he has been focused on avoiding the debt woes affecting the Southern Rim countries in Europe. "We don't have a single cent invested in Spain, our own country," Parames said.

Surging markets fuel IPO boom in Asia

Coal India Ltd ., the world's largest coal company, announced Tuesday a $3.4 bn initial public offering that is India's largest-ever and adds to a growing list of record-breaking IPOs in Asia this year.

Foreign investors fleeing slow growth and low returns in the developed world have rushed into Asia, pumping up stock markets and snapping up shares in new offerings, which can more easily absorb large chunks of capital.

``There's a surge of liquidity created in the western world,'' said Naresh Kothari, president of Edelweiss Securities in Mumbai. ``The belief in the recovery of their economies is not very high. A lot of this liquidity is looking for returns and the best growth is available in Asia and emerging markets.''

So far this year, IPOs in Asia, excluding Japan, have totaled $100.5 bn, up from $36.9 bn in the same period last year. It's even topped the $59.1 bn raised in the same period of 2007 when share issues were booming.

According to Dealogic, China had the largest IPO in history in July, with the $22.1 bn offering of the Agricultural Bank of China Ltd. Singapore hit a new record high in October, with the launch of a $2.6 bn IPO for Global Logistic Properties Ltd.

South Korea notched its largest IPO ever in April, with the $4.4 bn offering of Samsung Life Insurance Co. Ltd. and the Philippines broke its record in October with the $537 million Cebu Air share sale.

The Indian government is selling 10 percent of its stake in state-run Coal India Ltd., part of a broad divestment plan to reduce the fiscal deficit and loosen state control over some of the nation's biggest companies. India aims to sell off pieces of state-run companies worth 400 bn rupees ($8.9 bn) this year.

Coal Minister Sriprakash Jaiswal said Tuesday that the government hopes to raise at least 150 bn rupees ($3.4 bn) from the Coal India IPO, setting a price band of 225 rupees to 245 rupees ($5.03 to $5.48) a share. The offering opens Oct. 18 and retail investors and employees will get a 5 percent discount.

That would top India's prior record, set by Reliance Power's $2.96 bn offering in 2008.

``Unlike the U.S., India doesn't have a printing press which it can use without impacting interest rates or inflation,'' said S. Subramanian, head of investment banking at Mumbai's Enam Securities. ``It has to monetize some of its central assets.''
14 Oct, 2010, 06.26AM IST, Deeptha Rajkumar,ET Bureau

FII interest in Coal India IPO to disturb forex market

MUMBAI: Even as foreign portfolio investors are lining up cash to subscribe to the $3.4-billion Coal India initial public offering (IPO), bankers are expecting some volatility in the forex market, because of huge dollar inflows. At least 50% of the issue is reserved for qualified institutional buyers (QIBs), and foreign investors are expected to bid for a sizeable chunk of that quota.

Overseas investors have net-bought over $22 billion of shares in 2010 so far, and most brokers expect the momentum to sustain for the rest of this calendar. The rupee closed at 44.51 to the dollar on Wednesday, and has gained over 4% in the past one month alone.

"The forex market is on tenterhooks in anticipation of lumpy flows in wake of significant investments coming in for Coal India," says Hemant Mishr, MD and head global markets at Standard Chartered Bank. He expects the rupee to hit 43.50 in a knee-jerk reaction on the day the money comes into system.

The issue opens for subscription on October 18, and the remittance is expected to come in by October 20. Coal India's $3.4-billion IPO stands heads and shoulders above those of Reliance Power ($2.9 billion), DLF ($2.2 billion), Cairn India ($1.2 billion), NHPC ($1.2 billion), TCS ($1.1 billion) which have been among the top 5 India IPOs so far.

"Going by the trend of portfolio flows, FIIs are likely to bring in fresh capital for institutional bidding," says Tirthankar Patnaik, chief strategist at Religare Capital.

This will exacerbate the impact on the rupee he added. Though FIIs typically put in their bids on the last day, investment demand for CIL is such that some portfolio investors are also weighing the option of liquidating a part of their holdings in sectors like banks, infrastructure and construction, which have given good returns lately.

"These sectors could come under pressure," said a senior strategist who is of the view that FIIs have been overweight on these sectors and are looking to exit for sometime now. The interest in CIL is also expected to see a spurt in domestic institutional flows

"Insurance companies are sitting on cash, but given the interest in CIL, mutual funds will have to churn portfolios to take positions," says Mr Patnaik of Religare Capital. Brokers and fund managers expect the IPO to be subscribed 4-5 times at the very least, and as much as 10 times, on the higher side.

Fund managers maintain that close to $6-8 billion in cash has already come in. While data available with custodians of leading foreign banks may not determine a pattern in the run-up to the IPO, officials maintain that volumes are up by 20%.

"Gross FII data reveal that inflows are much higher than anticipated," said the head-custody at a foreign bank. He believes there are indications that some savvy investors have planned ahead as a firm rupee base will move against them.

Over the past week, the buoyant equity capital market activity for issuers in Asia (excluding Japan) continued its momentum with the launch of four record-breaking IPOs in Australia, India, Malaysia, and Singapore, with combined proceeds of $17.8 billion.

According to data from Thomson Reuters, year-to-date IPO volumes for Asia (excluding Japan) total $97.2 billion from 548 issues, up 165% from the same period in 2009 that saw IPO proceeds of only $36.6 billion. Year-to-date Asia (excluding Japan) IPO proceeds are the highest same-period volume on record, beating 2007's full-year proceeds of $93.3 billion.

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