Rupee was at day's low of 56.20 from 55.67/68 last close as traders continue to play on euro weakness, stock losses. Dealer with private bank says rupee may move toward life low of 56.40 in session, but unlikely to breach.The RBI has not been spotted in recent sessions, with traders saying the fall in rupee over past two sessions has been orderly, with exporter selling also seen. BSE Sensex was down 0.7 per cent.The rupee approached its record low against the dollar on Wednesday as oil importers ramped up demand for the greenback ahead of the end of the month, while global risk assets were hit by rising worries about Spain.Though global cues are providing a trigger, traders said the rupee was also being weighed down by deep concerns about India's fiscal and economic challenges, and doubts about slowing policy reforms.Traders were on alert about RBI intervention should the rupee test its record low of 56.40 to the dollar hit on Thursday.That fall was the culmination of seven consecutive daily all-time lows against the dollar, though the local currency had recovered since then to as high as 55.01 on Monday."USD/INR made a definite move-up once the last technical retracement level of 56.05 was breached. However, today's upmove is in line with the euro's fall and I don't expect the RBI to come in at these levels," said a senior trader with a private bank.At 10:27 a.m., the partially convertible rupee was at 56.09/11 per dollar, weaker than its 55.67/68 close on Tuesday.Traders cited strong dollar demand from oil importers looking to meet their commitments at the end of the month.Global risk aversion also weighed as the euro hit a two-year low on Wednesday, hurt by worries about Spain's soaring borrowing costs and expectations that more spending may be needed to support its ailing banks.India's move to allow foreign retail investors to buy up to $1 billion in local corporate bonds on Tuesday was seen as too mild to significantly bolster capital inflows and support the shaky rupee."The INR is unlikely to benefit from news that policy makers almost doubled the number of countries eligible for the QFI program and allowed foreign investors to open INR accounts onshore, as the steps will take time to be implemented," said Dariusz Kowalczyk, senior economist at Credit Agricole.He was referring to the qualified foreign investor programme under which the government will allow retail investors from overseas to buy corporate bonds.The RBI had been intervening frequently this month, in both forwards and spot markets, and adopted measures such as forcing exporters to convert half of their foreign currency holdings into rupees.However, the actions have failed to have much of an impact.(Reuters)
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Faced with realpolitik, on Thursday the UPA government took the face-saving decision of deferring the proposal to raise the limit on foreign direct investment in insurance firms, possibly until after the 2014 elections. The indefinite deferment of the proposal, which had been pending for years, dashed the hopes of foreign insurers to spread their wings in a promising emerging market.When the government's Chief Economic Adviser Kaushik Basu had acknowledged in a statement in Washington last month that economic reforms have slowed down and may remain that way till 2014, the year of general elections, it had sparked off a major political row in India (Courageous Adviser). Basu ultimately had to issue a clarification.Hemmed in by maverick allies and the fallout from a slew of corruption scandals, the Congress party-led central government has failed to carry out any meaningful structural reforms since it was re-elected in 2009. Thursday's move underlined the difficulty Prime Minister Manmohan Singh's beleaguered government faces driving reforms that are sorely needed to shore up weakening economic growth.Domestic and foreign insurers, which have invested billions of dollars in India over the last decade, have been lobbying the government for years to raise the FDI limit to 49 per cent from 26 per cent.Finance Minister Pranab Mukherjee on Friday said in a federal structure with multi-party democracy reforms are possible only with broad consensus after dialogues and discussions."While some stakeholders might be desirous of fast-paced reform process, reforms are possible only with broad-based agreement after dialogue and discussion," he said in the Lower House of the Parliament, the Lok Sabha."With a federal structure and vibrant multi-party democratic polity, reforms in India have been made possible through a process of dialogue and consensus with different stakeholders," he said.Perhaps, the government ought to take a leaf out of the Chinese experience (Sequencing Reforms ). For the first twenty years, China concentrated only on the export, agricultural and infrastructure. The reforms in retail, banking and other problematic areas were not touched. At the same time, huge expenditure by the Government on the social sector lifted some 500 million people from poverty. Only afterwards, it aimed at opening banking, insurance and retail sectors. It took twenty five years of sustained growth of 10 per cent to make such transition from one type of reforms to another. Blocked ReformsSeveral reform steps have been blocked by partners in Singh's coalition government, most notably the Trinamool Congress, which is now standing in the way of the insurance bill as well as a plan to allow foreign airlines to take stakes of up to 49 per cent in domestic carriers."There is no question of supporting the government on 49 per cent FDI limit in insurance sector," a Lok Sabha MP belonging to Trinamool said, declining to be named.As well as proposing a rise in the limit on FDI, the insurance amendment bill aims to strengthen regulation of the sector and allow foreign re-insurers to enter the Indian market."Our stand is clear: unless the FDI cap is kept at 26 per cent for the insurance sector, the government should not expect our support for the bill," former finance minister and opposition leader Yashwant Sinha told Reuters.A Congress party MP conceded that the proposal to increase the FDI limit for foreign insurers may now be shelved until after the elections due in two years.Finance Minister Pranab Mukherjee had promised to push through three critical finance-sector reforms, including the insurance bill and one on pensions, during the current or next session of parliament. Unless he can win over allies and opposition parties, however, they will remain on hold.A parliamentary standing committee headed by Sinha has asked the government to cap FDI in the pension sector at 26 per cent, confounding the government's plans to raise the limit in tandem with an opening up of the insurance sector.Insurance reform is widely seen as crucial because, according to Insurance Regulatory and Development Authority (IRDA) estimates, the sector needs a capital infusion of over $12 billion over the next five years.India has 24 life insurance companies and an equal number of general insurance companies that include subsidiaries of HDFC, Metlife and Aviva.A survey by Ernst & Young had come out with the fact that consumers prefer the brand of the service provider, customer service and convenience over price while buying general insurance productsA number of legislative measures or amendments are being taken up in this session of Parliament as part of financial sector reforms, he said.The Union Cabinet had approved on Thursday a Bill to regulate the micro finance industry and bring micro lenders under the purview of the Reserve Bank.This has paved way for introduction of Micro Financial Sector Development and Regulation Bill in Parliament.(With Agencies)
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In an interview with BW's Mahesh Nayak, IFC's South Asia's Ayaan Adam talks about why fund raising still continues to be difficult in India (and emerging markets), upcoming trends in the PE industry and where and why IFC is likely to invest money Why are private equity players in India finding it difficult to raise money? Aren't limited partners (LPs) confident in investing in Indian markets?Appetite for emerging markets private equity in general has been muted —although in 2011 it has shown a positive trend — with $26 billion raised, it is still lower than the peak of $40 billion in 2008.Fund raising for Indian PE in 2011 hasn't recovered to the $8 billion levels of 2008 either. "A lot of liquidity constrained LPs had reduced allocations to emerging markets PE. Within that allocation they have also favoured some of the larger markets and this is, in some part, also driven by the level of exits.IFC has run counter to this trend and as an LP has been happy to develop a deep PE investing program in India and South Asia focused on GPs who are small and/or new and focused on expansion capital largely in the SME sector. We have announced commitments to 7 strong funds in the past nine months and are looking to further develop our presence in the region in the coming year. Apart from the SME focus we have also made commitments to funds investing in the low income states and funds that address climate change issues.What trend do you see in the coming year for the overall private equity industry in India?Indian PE has evolved from a venture capital (VC) oriented market to a quasi-public model and latterly a more operationally focused environment. This shifts away from pure multiple expansion to a focus on earnings improvement is what we expect to see more of. India has a wealth of trained professionals who are functional experts. PE funds that combine this pool with the entrepreneurial energy of the Indian promoters are better able to foster earning growth and therefore control exit outcomes - irrespective of market volatility.Though IFC acts both as an LP as well as a general partner (GP), what has been the expectation of IFC as a LP? What are your expectations from GP when you invest in India dedicated funds?We look for three things. Firstly, does the fund have a team and investment strategy that is compelling and able to deliver strong returns? Our PE funds portfolio at the global level has a 10 year track record in excess of 20 percent at the net level.Secondly, we look for development impact of these PE funds in terms of increased access to finance, jobs created, impact on low income states, impact on climate change, promotion of South-South linkages.Thirdly, we try and ask what value does IFC bring as an LP? If having IFC as an anchor investor helps a GP mobilise more capital, improve governance standards and adopt Environmental and Social standards, then we feel there is a role for us to play in fostering such GPs in countries where we operate. Our investments are usually in first and second time funds and at the smaller end of the market.Why are we seeing desperate exit(s) in India?Indian PE — like a lot of emerging markets PE — is a young asset class. From a low base at the turn of the century, the size of the market (funds raised) grew very rapidly on the back of some very strong exits. The expectations based on that initial set of exits remains but the pool of capital is much bigger and the public market conditions are different. This pool of capital is, of course, not uniform and we see the ecosystem developing in a positive way with a greater number of full and partial exits from the small funds to the larger funds.Which are the markets that IFC would bet its money? And why?IFC is very active in lower income countries and in frontier markets. We see our role as a counter cyclical capital provider and our track record shows that we have generated top quartile returns globally precisely because of those attributes.
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The current account deficit is widening and a weak global investment climate coupled with policy paralysis in New Delhi, sticky inflation and slowing growth have increased the aversion of foreign investors to India, pushing the capital account into the red.Last week's move by rating agency Standard & Poor's to cut the country's credit rating outlook to "negative" has complicated matters further for the RBI, which has few options other than intervention and tinkering with rules on export credit to encourage inflows, RBI officials say."The main problem now is lack of confidence among investors and this is getting reinforced every time by either data or events like S&P cutting rating outlook," said a senior RBI official who is not authorised to speak on record to the media."When risk aversion is high, the success rate of intervention is low and that is why we are seeing rupee at such low levels despite intervention," he added.The rupee fell as much as 0.5 per cent immediately after S&P's move but has recovered much of that loss.Still, it is down nearly 6 per cent since February, recording most of the drop in March and April as foreign investment dried up. It had touched a record low of 54.30 to the dollar in December.India's balance of payments slipped into the red for the first time in three years in the December quarter as dollar inflows shrunk and imports soared.It could worsen given India's need to import 80 per cent of its oil, high crude prices, and unhappy foreign investors.Foreign investments into Indian stocks have swung into negative with an $545 million outflow in April from a robust $7.1 billion net inflow in February. Foreign direct investments fell to $2.2 billion in February from $5.7 billion in May 2011."Symbolic Significance"These are some of the concerns that UBS took into account when it said it expects the rupee to test 56 per dollar this year."If we are right that the exchange rate takes its cues more from the capital account side till better fundamentals emerge then regulatory risk must rise in importance," UBS wrote in the note."In this respect (the) negative outlook on India sovereign credit by S&P may not have much immediate impact, but has great symbolic significance."That leaves RBI in a bind. Selling dollars to defend the rupee without policy reforms provides only temporary respite and further reduces its reserves.India's foreign reserves fell to around $295 billion on April 20 from about $321 billion on September 2, after the RBI sold dollars to prop up the currency.The RBI is officially agnostic about the level of the currency but steps in to smooth volatility and took several administrative and market moves to defend it in late 2011.The RBI has sold $20.14 billion in the spot market from September to February besides intervening in the forwards.The country's foreign exchange cushion is dwindling. S&P figures India has reserves to cover about six months of current account payments, down from eight months in 2008 and 2009."We work only reactively when it comes to the currency. The proactive measures are to be taken by the government. Surely it will be a problem for us to control the currency if they (government) don't do so," said a second RBI official.However, if S&P's move forces New Delhi to get its act together, then funds could return quickly, given India's robust long-term growth prospects.New Delhi, embroiled in several corruption scandals, has put off foreign investors with recent plans to retroactively tax indirect investments and target tax havens. The Congress party-led government's bargaining power to push through key reforms like raising fuel prices and allowing foreign supermarket chains was further weakened after recent state election defeats."Economic activity is going on - we do not have lock-outs in factories. But government is not facilitating as it is too busy fire-fighting corruption, scams," said the third RBI official.(Reuters)
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Despite receiving a sustained flow of money into his insurance equity schemes, Lakshmikanth Reddy, executive vice president, investment, at ICICI Prudential Life Insurance, is cautious in his approach to equities and prefers to sit on the fence and wait for the opportune time to invest in the stock market. "Though it's a look to buy market, today the number of investable opportunities are few," says Reddy and will prefer to buy once the price corrects.Speaking to Businessworld, Reddy says it's a drag market and agrees that there isn't much appetite for equity following high valuation and unfavourable macro economic indicator. He, however, isn't much worried about what happens in the Europe and US as he feels the Indian market will eventually be driven by what happens to our growth, specifically corporate profit growth. Reddy is of the opinion that Indian market will move sideways within a narrow band over the short-term, as there are no significant catalysts to move it sharply in either direction.Though he agrees that given the environment, investors should avoid equities, but at the same time, says it will not be prudent to ignore this important asset class because of uncertainty in the short-term. He feels it is extremely difficult for retail investors to predict market movements and they should opt for systematic investments in equities over a long term, particularly given that equities have become attractive after performing poorly for almost five years now.Excerpts from the conversation:How do you view the impact of the S&P downgrade on the Indian economy and equity markets?What the rating agency has done is bring forth all prevailing issues into their opinion to make it current – as such there has not been anything new or unknown that the market has discovered. Equity markets have underperformed for the last two years, notwithstanding the growth in economy, essentially for the reasons highlighted by the rating agency. However, it might have an impact on policy makers and if indeed some positive actions come forth on fiscal consolidation etc that will be a good outcome.Despite a rate cut why is the market not reacting positively? What are your concerns for the Indian equity market?Yes, the market has not really reacted positively to the much expected reversal of rate cycle. The accompanying central bank's commentary indicated that the likelihood and extent of further cuts could be much more moderate than what the market would have liked. The concerns plaguing the market are a slowdown in economic growth, particularly weak capital spending by the private sector, and therefore anaemic corporate earnings growth and the need for lower interest rates. In addition, negative surprises on the policy front in several areas have also dampened investor risk appetite.What is dragging the market and what is your overall view on the equity market for the next three to six months?The market is struggling with near-term issue of slow economic growth with high interest rates on one hand, and the longer-term prospect of reverting back to higher growth on the other. We are of the opinion that the market is likely to move sideways within a narrow band over the short-term, as there are no significant catalysts to move it sharply in either direction. Inflation falling on a consistent basis, with a possible fall in oil price could be a catalyst to move the market higher. On the other hand, negative surprise to forecast 7 per cent growth rate in FY13 with inflation persisting at high levels can take the market lower.What is your view on the overall financial market? Do you think the crisis in Europe as well as US is behind us and why?Europe and US would influence our market through the impact of capital flows rather than in any fundamental manner significantly. The critical question is whether there is any systemic risk to the global financial markets which can adversely impact capital flows. It appears that given the recent interventions by policymakers, the likelihood of such a systemic event is very low. Our markets will eventually be driven by what happens to our growth, specifically corporate profit growth.In the current market conditions where will you advice investors to invest? (Any short-term strategy)While high interest rates and sideways movement of equity markets will naturally tempt investors to avoid equities, it will not be prudent to ignore this important asset class because of uncertainty in the short-term. Since it is extremely difficult for retail investors to predict market movements it will be arduous for them to forecast when equities will start performing. We recommend systematic investments in equities over a long term, particularly given that equities have become attractive after performing poorly for almost five years now.Were you surprised with RBI cutting 50 bps in the last monetary policy? And why? Despite rate cuts why is the market still struggling for liquidity?The RBI move was a surprising one, the reaction was not as absolutely positive as it may have been due to the accompanying hawkish commentary of the central bank stating that inflation is still a major concern and the extent of further rate cuts could be small. The liquidity deficit is on account of several factors including possible liquidity drain on account of the central bank's intervention in the currency markets and a weak deposit growth in the banking system relative to credit demand.What is your assessment of the Indian economy?We are optimistic about long-term prospects of the economy. The economy has had a phenomenal decade of 2000s where significant changes happened across several sectors which created numerous opportunities for investors. The growth rate had picked up from 4-5 per cent to 8-9 per cent, prior to the recent cooling off. We expect the future to be good with high single digit growth rate on an average. However, given natural vagaries of an economic cycle, the markets will see years of bullish trends accompanied by years of bearish markets and investors should learn to take it in their stride.At ICICI Prudential Life Insurance what has been your current strategy of investing in equities?We are a net inflow company and the quantum of flow varies. As a policy we always maintain a well diversified portfolio with exposure to major segments of the economy. We are currently somewhat cautiously positioned on some capital goods sectors where there is over-capacity, some commodity stocks which are exposed to the global capital expenditure cycle and certain highly valued domestic discretionary consumption stocks. We are largely sector or market cap agnostic – our investment decision is a combination of fundamentals and valuations. However because of the size of our portfolio, we invest in small cap companies more by exception.
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India's Infrastructure Development and Finance Co is in the early stages of raising $1 billion-$1.5 billion for a new fund to invest in infrastructure in the country, two sources with direct knowledge of the matter told Reuters.The funds will be raised for IDFC Project Equity, in which Citigroup and India Infrastructure Finance Co., a state-owned infrastructure finance firm, are key investors, the sources said.The company already has a project equity fund, which manages about $930 million in roads, ports, airports and power projects.The new fund, which is set to be launched in the second half of this year, will also invest in such projects, said the sources."We have invested nearly 80 per cent of our first fund and exited a couple of investments. Now, we are looking to launch the second fund," said one of the sources.An IDFC spokeswoman declined to comment.The previous fund drew investors from India, the United States, Canada, Europe, Japan and the Middle East, and the new fund will target investors in the same places, one of the sources said.The existing IDFC Project Equity fund is part of the $5 billion India Infrastructure Financing Initiative announced in early 2007 by IDFC, Citigroup, Blackstone Group and India Infrastructure Finance Company (IIFCL). The initiative was to have a $2 billion equity component and $3 billion debt portion.However, Blackstone later pulled out of the venture.Several private equity groups, including the 3i Group PLC and a fund jointly managed by India's State Bank of India and Australia's Macquarie Group, are on the road to raise India infrastructure funds worth a combined $4.5 billion, sources have said.Others raising India infrastructure funds include the private equity arms of no.2 Indian lender ICICI Bank and Kotak Mahindra Bank.Private equity investments in Indian infrastructure fell 60 percent to $183 million in 10 transactions during January-March quarter compared with $459 million in 16 transactions a year ago, according to industry tracker VCCircle.com, as policy concerns and slowing growth dampened sentiment.Poor infrastructure acts as a bottleneck to India's economic growth, which slowed to 6.1 per cent in the December last quarter, the weakest annual pace in almost three years.India wants the private sector to invest hundreds of billions of dollars in infrastructure over the next five years.But bureaucratic red tape, a lack of domestic long-term debt and battles between farmers and industry over land have hit construction and funding targets, hurting industrial growth.(Reuters)
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Concerned over sluggish growth and poor investment climate, Assocham President Rajkumar Dhoot on Thursday met Planning Commission Deputy Chairman Montek Singh Ahluwalia and demanded the controversial tax proposal GAAR be put in "cold storage".In his 30-minute meeting with Ahluwalia, Dhoot raised issues like delay in GST, the introduction of General Anti-Avoidance Rules (GAAR), high interest rates and financial problems of the SME sector."To boost the economy, GAAR which has been doing the rounds for the last few months and has investors worried, should be immediately put in cold storage."Secondly, pending projects like Mumbai-Delhi industrial corridor should be immediately given green signal, so that investments start flowing in and boost is given to the economy," Dhoot told reporters after meeting Ahluwalia.Several other industralists like Mukesh and Anil Ambani, G P Goenka (from Kolkata-based Duncan Group), Vodafone India Chairman Analjit Singh and Chairman of UB Group Vijay Mallya have also met Ahluwalia in recent days.Following the exit of Pranab Mukherjee, who is contesting Presidential election, Prime Minister Manmohan Singh has taken charge of the finance portfolio.Ahluwalia, who had played a key role in the economic reforms initiated by Singh in 1991, is considered close to the Prime Minister.(PTI)
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Shriti Vadera, the Indian-origin economist who worked closely with former prime minister Gordon Brown, has come under focus in the latest scandal that has hit British banks, forcing the top leadership of Barclays to resign for rigging interest rates.Barclays chairman Marcus Agius and chief executive Bob Diamond have resigned after regulators in the UK and US slapped a $453 million penalty on the bank.The penalty was on charges of trying to rig Libor and Euribor, the key interest rates at which banks lend to each other and which is the basis for trillions of pounds of financial transactions.Vadera, 50, was one of Labour Party's chief economic advisors, and co-wrote a document titled ‘Reducing Libor' in November 2008.The document has come under focus as the current scandal prompted an inquiry announced by Prime Minister David Cameron on Tuesday.Vaderas document, written at the height of the credit crunch, reportedly mentions that bringing down Libor would be "a major contribution to the stability of the banking system and to the health of the economy", and concludes: "Getting down Libor is desirable".Noting that there had been concerns in the government about Libor figures, Vadera insisted that was 'very different' to issues of alleged market manipulation now.Traders at Barclays rigged the Libor rates over several years, trying to raise them for profit and then, during the financial crisis, lowering them to hide the level to which Barclays was under financial stress.The Serious Fraud Office is considering whether to bring criminal charges against individuals in the bank. In its notice on June 27, regulator Financial Services Authority (FSA) said Barclays had breached three of the FSAs principles for businesses through misconduct relating to its submission of rates which formed part of the Libor and Euribor setting processes."There was a risk that Barclays misconduct would threaten the integrity of those benchmark reference rates", it said.(PTI)
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