Amid steep decline in the value of rupee, the Reserve Bank said on Thursday that it is monitoring the situation and will do whatever is necessary to check the currency's fall."RBI will do whatever is necessary. Some structural changes are necessary for improvement in current account.Meanwhile, the RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy," RBI Governor D Subbarao said while addressing a press conference after a meeting of the central bank board here.Pointing out that the rupee has been depreciating over the last three to four months, he said, "RBI is continuously monitoring the situation. We have taken action through current account flows, encouraged inflows and also (steps) to curb speculation."After losing ground three days in a row, the rupee today touched its lifetime low of 56.38 to a dollar but later recovered around the same time when Subbarao was addressing media here.Since March 1, rupee has lost over 13 per cent and 11 per cent since the presentation of Budget on March 16 in the face of withdrawl of funds by foreign investors from stock markets.The Budget contained proposals like retrospective taxation and general anti-avoidance rules (GAAR).The movement of rupee, Subbarao said "is a function of external situation as well as development in current account and capital account and balance of payments".(PTI)
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Bowing to pressure, Finance Minister Pranab Mukherjee on Monday announced a slew of measures to provide relief to the jewellery sector and postponed implementation of the general anti-avoidance rules (GAAR) by one year, but offered no concessions to Vodafone involved in tax dispute.Moving the Finance Bill, 2012 for consideration and passage in the Lok Sabha, Mukherjee halved the capital gains tax for private equity investors to 10 per cent and relaxed the norms for arrest of persons involved in violation of Customs Act."The government has decided to withdraw the levy (one per cent excise duty) on all precious metal jewellery, branded or unbranded, with effect from March 17, 2012," he announced, bowing to demand within and outside the House.He said the threshold limit for TCS (tax collection at source) on cash purchase of jewellery will be raised to Rs 5 lakh from the present Rs 2 lakh.However, the Minister said, the threshold limit for cash purchase on bullion will be retained at Rs 2 lakh. Bullion will not include any coin or other article weighing 10 gm or less, he added, setting the tone for the debate on the crucial bill. .As regards the GAAR, which has evoked sharp criticism from foreign investors, the Finance Minister said, "to provide more time to both tax payers and tax administration to address all issues, I propose to defer the applicability of the GAAR provisions by one year...(it) will now apply to income of financial year 2013-14 and subsequent years."At the same time, Mukherjee said, he proposed to make some amendments to the GAAR provisions. These amendments including shifting of onus of proof to the revenue department from the tax payers, appointment of independent member in the GAAR panel and permitting investors, domestic and overseas, to seek ruling from the Authority for Advance Ruling (AAR).In order to provide "greater clarity and certainty" in GAAR related issues, he said, a committee has been set up. It has held several rounds of discussions with various stakeholders including foreign institutional investors and will submit its report by May 31.He made it clear that there would no relief to Vodafone- type overseas deals involving capital gains tax on sale of domestic assets and the proposed retrospective changes in the Income Tax Act would apply."I would like to confirm that clarificatory amendments do not override the provisions of the Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It (retrospective changes) would impact those cases where the transactions has been routed through low tax or no tax countries with whom India does not have a DTAA," he said.Sandip Sabharwal, CEO, Portfolio Management, Prabhudas Lilladher, Mumbai said: "GAAR (General Anti-Avoidance Rules) deferral is extremely good for markets and economy as a lot of fund flows had come to a stand still because of this.""At a time when our current account deficit is so high we can't scare away foreign capital. Now that GAAR is deferred, India will stop underperforming global peers at least."No Respite For VodafoneVodafone has won the Rs 11,000 crore tax case in the Supreme Court, but after the passage of the Finance Bill, the government can initiate proceedings to recover the tax. "I have asked the Central Board of Direct taxes to issue a policy circular to clearly state this position after passage of the Finance Bill," he said.The government had earlier said that under the Income Act, the revenue department cannot reopen cases of beyond six years.Capital Gains Tax For PE Investors HalvedThe Minister also announced that long term capital gains tax for private equity investors, domestic and foreign, will be halved to 10 per cent as is applicable for Foreign Institutional Investors (FIIs). Earlier, it was 20 per cent.In order to provide depth to the capital markets through listing of companies, the Minister proposed to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer."I propose to provide the levy of Securities Transaction Tax (STT) at the rate of 0.2 per cent on such sale of unlisted securities," he said.As regards the levy one per cent Tax Deduction at Source (TDS) on transferee of immovable property (other than agricultural land), Mukherjee announced withdrawal of the budget proposal in view representation received from different stakeholders that the move would enhance compliance burden.On the controversial and harsh proposal of making certain offences under the customs and central excise laws as cognisable and non-bailable, the Minister said, "In response to concerns expressed by members that the proposal regarding grant of bail only after hearing the public prosecutor is too harsh, I propose to omit this provision entirely."In addition, only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh, shall be cognisable. However, all these offences shall be bailable," he said. Mukherjee said the RBI is formulating a scheme for subsidiarisation of Indian branches of foreign banks to "ring fence" Indian capital and Indian operations from economic shocks external to the Indian economic scenario."To support this effort, I propose to provide tax neutrality for such subsidiarisation," he said.With a view to augmenting long-term low cost funds from abroad, the minister announced that the lower rate of 5 per cent withholding tax will be applicable to all businesses, in addition to infrastructure sector."This lower rate of tax would also be available for funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement," Mukherjee said.On concerns of state governments on Service Tax, he said, "I have decided to address their concerns by making changes in the definition of 'service' which will exclude the activities specified in the Constitution as 'deemed sale of goods'. The definition of 'works contract' has also been enlarged to include movable properties."Besides, exemption for specified services relating to agriculture in the Negative List has also been extended to agricultural produce enlarging the scope of the entry.Good For The MarketA deferment of GAAR can perk up sentiment in general, but the overall mood towards emerging markets is so weak there may not be a flood of investments, says Abheek Barua, chief economist, HDFC Bank. Under the GAAR regime, authorities can deny tax benefit to any arrangement that is entered into primarily to avoid tax. The rule will almost certainly tax foreign institutional investors that route portfolio investments into India through token operations in Mauritius with which India has a tax treaty. Foreign investors had raised concerns on two Indian provisions seeking to tax indirect investments and combat tax evasion. The first gives India power to retroactively tax the indirect transfer of assets. The second targets tax evaders via the General Anti-Avoidance Rule (GAAR), putting the onus on investors registered in countries with special tax exemptions with India to prove they do not intend to explicitly avoid tax. Last week, Mark Mobius, one of the world's best-known emerging market investors, had termed the proposed tax rules as a big mistake.Macquarie's Asia hedge fund in March exited its short positions in Indian single stock futures in response to the controversial proposed tax rules, fearing they would lower investment returns.Indian markets could have lost an estimated $10 billion worth investments from the overseas funds and ultra-rich foreign individuals over a period of little more than one month on taxation worries.These investors, who mostly invest through P-Notes (participatory notes) in the Indian markets have either pared their exposure to the Indian securities or have deferred their investments ever since India proposed a new tax policy, the General Anti-Avoidance Rule (GAAR) late in March 2012, industry sources said.FIIs Infuse Rs 876 Cr In Equities However, with the government being on the backfoot on the tax issues, overseas investors infused Rs 876 crore into Indian equity markets in the first week of May on hopes the government may review the General Anti Avoidance Rule (GAAR) provisions in coming days to address most of the concerns of FIIs, say experts.Foreign institutional investors (FIIs) had pulled out over Rs 1,100 crore from equity markets last month due to fears that proposed GAAR provisions could lead to heavy tax burden for investors putting money through tax-friendly places like Mauritius.FIIs made gross purchase of equities worth Rs 6,716.50 crore and sold shares valued Rs 5,840.40 crore translating into a net inflow of Rs 876.10 crore during May 2-4, according to the data available with the market regulator Sebi.Market experts said there is widespread expectations that government may review GAAR (General Anti Avoidance Rule) provisions in the coming days. The revision expected to address most of the concerns of the FIIs.However, last month FIIs pulled out Rs 1,109 crore after investing a hefty sum of Rs 43,951 crore the first three months of 2012.This was the first instance of monthly net outflows by FIIs since November 2011.The last month's withdrawal was attributed by marketmen to a host of factors including government's GAAR proposal announced in the Budget which has been the real dampener for several FIIs whose clients had used participatory-notes to invest in the Indian stock market.The sentiment was further soured by ratings agency S&P's move to lower India's outlook to negative from stable, citing slow progress on its fiscal situation and deteriorating economic situation, experts added.During the current month, foreign fund houses poured in Rs 876.10 crore in the stock market and Rs 748.10 crore in the debt market, taking the collective net inflow by FIIs in stocks and bonds to 1624.20 crore.The BSE barometer Sensex has fallen 320.11 points, or 1.87 per cent on the last trading session to close at 16,831.08 points.With the latest inflows, FIIs investment reached to Rs 43,717.70 crore into the equity market so far this year and Rs 16,358.60 crore into the debt market during the same period.FII pulled out over Rs 2,700 crore from the equity market in 2011 calender year.
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India is weighing further steps to brake the slide in the rupee, which hit a new record low on Tuesday, including selling dollars directly to oil importers, official sources said.However, New Delhi is reluctant to issue an overseas bond to draw fresh dollars given the costs and risks of such a move.The rupee touched an all-time low of 55.18 to the dollar on Tuesday, its fifth straight record, despite the Reserve Bank of India's move late on Monday to limit volatility by cracking down on speculation or arbitrage in the rupee futures and forwards markets.While the RBI has been stepping into the market in recent weeks to defend the rupee by selling dollars, its capacity to intervene is limited. A series of recent administrative measures to prop up the rupee have also had only a modest impact."The floating of a sovereign bond should be considered as one of the last weapons to be used if the situation really goes out of control, as the government would have to bear its cost," said a Finance Ministry official who declined to be identified.Traders and market watchers have talked increasingly in recent days of the possibility of a sovereign bond issue in order to slow the decline in the currency, which is the worst performer this year in emerging Asia, shedding some 3.4 per cent against the US dollar.Another option would be to issue a bond exclusively for non-resident Indians through State Bank of India. It issued similar bonds in 1998 and 2000."With markets testing RBI tolerance for rupee depreciation, the authorities might need to tap other measures in the toolkit to stem the unit's fall. Sovereign bond issuance is one of them, which will beef-up the country's dollar reserves," said Radhika Rao, an economist at Forecast Pte in Singapore."It would perhaps be better to expedite such an issuance, as the economy still enjoys investment grade, and thereby reach a wider investment community," she said.India's sovereign rating is at the lowest investment grade level, although Standard & Poor's recently surprised the market by lowering its outlook to negative from stable.The rupee has been battered by India's wide current account and fiscal deficits, sluggish economic policy making and global risk aversion fuelled by the euro zone crisis. Economists and traders have long called on India to do much more to improve its fiscal position and attract investment.Finance Ministry officials, noting that India has limited space to intervene in the market, said the government is reluctant to issue overseas bonds and said some of the burden of attracting dollars can be borne instead by banks."The banks can be asked to further raise interest rates on non-resident Indians' deposits to attract dollars," said another finance ministry source, who declined to be identified due to the sensitivity of the matter.Another possibility for reducing rupee volatility would be for the RBI to sell dollars directly to state-run oil companies, which import 80 per cent of the country's petroleum, a move that Nomura said would boost the rupee, although it would also deplete India's dollar reserves.P.K. Goel, head of finance at Indian Oil, said the RBI has been asking about its dollar demand but said there had been no indication from the RBI as to whether it would provide dollars to refiners at a better rate than it gets in the market.The government could also further relax limits on foreign inflows into corporate and government bonds if needed, the second Finance Ministry source said.LIMITED IMPACTThus far, the RBI has taken various administrative steps and sold dollars from its limited stockpile in order to slow the decline in the rupee, which is down nearly 14 per cent since a February peak.RBI Deputy Governor Subir Gokarn said late on Monday that it would continue to take measures to stabilise the rupee but said the currency's direction ultimately depends on capital flows.RBI officials, declining to be named, have said weakness is likely to persist.On Tuesday, Finance Minister Pranab Mukherjee also expressed resignation about the rupee's near-term prospects."Whatever is happening to rupee is due to market forces and market forces are uncertain. There is a volatility," he told reporters. "We are taking a series of steps, but it is a market related activity," he said, referring to the rupee's weakness.India does not have any outstanding overseas sovereign bonds. Issuing one would attract dollars but would also add to the government's debt burden and expose it to currency risk.Investors would be likely to demand an attractive interest rate given negative market sentiment towards India, which could prove fiscally and politically unpalatable to a government already weakened by a series of scandals.(Reuters)
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With the Indian rupee fast losing value against the US dollar, Indian Finance Minister Pranab Mukherjee Friday blamed volatility in global commodity prices for currency depreciation and said deteriorating balance of payment (BoP) situation in several Asian countries also put stress on currencies."In several Asian countries, excepting China, the BoP is under stress which leads to currency depreciation," Mukherjee told reporters.Mukherjee, who is attending 45th annual meeting of the Asian Development Bank Board of Governors here, said certain fundamentals in the Indian economy have to be corrected against the backdrop of the rating agency Standard and Poors downgrading outlook for the countrys sovereign rating.However, he did not elaborate.Mukherjee, who will assume chairmanship of ADB tomorrow, said the global issues which have a bearing on the Asian economies would be discussed at the meeting.Although the meeting began on May 2, Philippine President Benigno Aquino III formally inaugurated the plenary marked by an impressive ballets by the local artists. Indias currency has suffered sharp losses by over 15 per cent in the last few months, leaving a bruising impact on the country?s imports, which mainly comprise crude oil. The rupee depreciation has resulted in the higher landed cost of the crude oil by the state-owned oil marketing companies, which have not been able to pass on the price increase to the consumers. With prospects of subsidy bill shooting the budgeted target of Rs 1.8 lakh crore, global rating agency Standard and Poors has downgraded the countrys sovereign rating outlook. The Reserve Bank too has expressed concern over the worsening current account deficit, which is likely to be 3.5 to 4 per cent of the GDP for 2011-12. Asked about the rating outlook downgrades of the India?s sovereign rating, Mukherjee said fundamentals of the economy have to be corrected. "Fundamentals...we shall have to correct...," he said without elaborating what action the government was mulling. He said the domestic issues cannot be discussed here since Parliament is in session. The main areas of concern for Mukherjee were Eurozone and Japan, as they provide a big markets to the merchandise from the developing world."Unless recovery in Japan and Europe is fast-tracked and it will have its impact. Eurozone crisis is expected to cast its shadow...," he said The Indian Finance Minister who will assume tomorrow chairmanship of the ADB Board of Governors for a year, said the Asian region is still doing better than the developed countries. "We will review the world economy, the (Asian) region is one of the important contributors to the world economy," he said.India will be hosting the ADB annual meeting next year in New Delhi. According to ADB Bank President Haruhiko Kuroda, Asias economy this year is set to grow by 6.9 per cent, and 7.3 per cent next year. It is the internal demand within the region that is driving the Asian growth. (PTI)
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The RBI again fell short on defending the rupee again on Tuesday as it tumbled to an all-time low of 55.47 per dollar, before closing at 55.39/40, as per SBI closing rates, compared to its Monday close of 55.03/04 amid fears of slowing economic growth. Echoing the rupee fall, the BSE benchmark Sensex fell 62 points at midsession on fresh selling after gaining 152 points in early trade on Tuesday. The BSE 30-share index, which remained in the positive zone for the fourth straight session till late morning, fell back to trade below Monday's close - down 62.56 points to 16,120.70 at 1330 hrs.The 50-scrip National Stock Exchange index Nifty lost 18.35 points to 4,887.70, after touching the day's high of 4,956.35 in morning trade.The rupee hit a record low to the dollar for the fifth straight session on Tuesday, weighed down by large dollar demand from oil firms and weak global risk sentiment, especially after Fitch downgraded Japan's ratings.The falls came even after the Reserve Bank of India (RBI) announced on Monday measures to target arbitrage and speculation in futures and options markets, with traders saying this market segment was too small to have a big impact.The RBI has announced a string of measures to curb the rupee's falls, none of which has so far succeeded. It has also intervened aggressively earlier this month though it has been largely absent since Thursday.Although the rupee is now well below the key psychological level of 55 to the dollar, the RBI has refrained from intervening even as NDFs point to further falls.As the rupee breached the 55 level on Monday, the Reserve Bank had imposed restrictions of $100 million on "position limit" for forward contracts by banks."The position limit for the trading member...bank in the exchanges for trading Currency Futures and Options shall be $100 million or 15 per cent of the outstanding open interest, whichever is lower," RBI said in a notification.It also advised the banks dealing in foreign currency to bring down their trading limits by June-end.The RBI notification said that the current Net Overnight Open Position Limit (NOOPL) of the authorised banks will not include the positions undertaken in the currency futures and options (F&O) segment in the forex market.It further added that the position in the F&O segment cannot be offset by undertaking positions in the over-the- counter market and vice-versa.RBI had earlier taken host of steps to arrest the fall of value of rupee which has been declining at a rapid pace.The currency has lost over 22 per cent in the last one year and about 11 per cent since March this year. The pressure increased especially since mid-March, when the foreign funds started withdrawing from the Indian stock market.The foreign institutional investors have pulled out Rs 1,109 crore in April and Rs 206 crore in May after pumping in net Rs 44,000 crore in January, February and March exerting pressure on the country's current account deficit.Erosion in rupee value has meant increasing cost of imports, including crude oil. But for correction in the crude oil prices in the global markets, the situation would have been precarious.Net overnight rupee open position limit for Indian banks shall not include positions taken in the Bringing A Knife To A Gun FightAmong traders the RBI's latest measures to target arbitrage and speculation is seen as akin to bringing a knife to a gunfight. The announcement had the same effect as its previous actions, which is to say not much. On Tuesday the rupee hit its latest record low against the dollar."There was huge demand from oil firms. Later it turned into complete panic with the Japan downgrade, euro and pound falling and equities also turning negative," said Vikas Chittiprolu, a senior foreign exchange trader with state-run Andhra Bank.If anything, the RBI is signaling to markets the opposite of what it probably intends, according to traders: a central bank unwilling to be bold in defending the domestic currency."This won't affect the market much," said Abhishek Goenka, CEO of consultancy firm India Forex Advisors, adding it was "overall a very poor signal to the overall market that RBI is unable to take bold steps in the current market scenario."The key problem behind Monday's measures, traders say, is that India's currency futures markets are not as liquid as spot or OTC forwards markets.Traders did see more of a potential impact from the RBI's announcement that positions taken in futures and options cannot be netted out or offset by taking positions in the OTC market, or vice-versa.Until the announcement, some dealers would bet in futures and options markets without an actual underlying position in the currency, and could offset these trades with the opposite position in the OTC market.However, this practice was not widespread, limiting the impact of the measures."The arbitrage will be definitely be curbed, said Pramod Patil, a forex trader with United Overseas Bank, though he added the impact would be small."I see INR weakening only, thats the broad theme," he added.However, analysts still left open the possibility of surprise measures, probably in the form of direct dollar sales to oil importers or some type of sovereign bond issuance, adding the RBI or the finance minister would need to adopt big measures to stop the rupee's falls."Policy makers will need to take dramatic action soon if they want to stabilize the INR," Dariusz Kowalczyk, a strategist at Credit Agricole, wrote in a report.Kowalczyk added he the rupee could touch 57 to dollar ahead of the Greek elections in mid-June and cited "extreme" pessimism among the clients in India he had recently visited.
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The BSE benchmark Sensex tanked 320 points on Friday to close below the crucial 17,000 level for the first time in over 3 months after the government said it is considering a review of the tax treaty with Mauritius that sparked intense selling across sectors. The weakening rupee further attributed to the fall.The government's remarks added to the weak FII sentiment, already dampened by lack of clarity on the issue of General Anti Avoidance Rule (GAAR) and huge depreciation in the rupee.Brokers said the Mauritius issue returned to haunt investors after Minister of State for Finance S S Palanimanickam said in the Lok Sabha that the government is considering a review of tax treaty with Mauritius to raise revenues from these foreign investments.Most FIIs route their investments into Indian stock markets through Mauritius taking advantage of the existing double taxation avoidance treaty.The news comes as the finance ministry gets ready to submit a bill containing controversial provisions on taxation for foreign investors next week, under the so-called GAAR rules. The government has promised critical concessions, but investors have yet to be comforted.The worries over foreign outflows are also being reflected by a rupee that continues to plumb four-month lows, given the deep concerns about India's economic and fiscal challenges."GAAR is a serious concern for foreign investors. If India changes the terms of tax treaty, then it will discourage investors," said Adrian Mowat, Chief Asian and Emerging Equity Strategist for JP Morgan."India is the only country in MSCI indices that tax institutional investors capital gains," Mowat said.Dipen Shah, Fundamental Research Head, Kotak Securities, said "the renewed concerns over Mauritius tax treaty spooked market which was already hanging in balance with the GAAR issue, a increasingly weak rupee and negative global cues."In addition, there is nothing much to cheer about in the ongoing results season which otherwise would have supported the markets, said D K Aggarwal, CMD, SMC Investments.The 30-share index opened lower in the morning on weak global cues. Soon across-the-board selling emerged, pulling down the key index to below 17,000 level and it finally ended at 16,831.08, a drop of 320 points or nearly 2 per cent. The index was last seen at this level in the last week of January.The 50-share Nifty ended down 1.96 per cent at 5,086.85 points. Technicals for the Nifty are pointing to more falls ahead, after closing below its March low of 5,136, and below the 200-day moving average for the first time since late January.The index could target 5,081, or the 50 per cent retracement of the December 2011 to February 2012 rally. The next support is seen at 4,951, the 61.8 per cent retracement of those gains.The rupee also came precariously close to 54 levels but recouped day's most of the losses to end at 53.47/48, down six paise against the US currency, after RBI's suspected intervention in forex market.The domestic unit opened sharply lower at 53.65/66 and further plunged to 53.92 amid sluggish equities and fears of more capital outflows after reports that government is reviewing taxation treaty tax-heaven Mauritius.However, suspected strong intervention by the Reserve Bank at day's lower levels forced exporters to cover their short positions. It helped the rupee rebound to a high of 53.4350 before ending at 53.47/48, a fall of six paise.However, RBI's intervention in the forex market could not be verified independently.The bearish undertone of the markets have been pronounced in the last three sessions with Sensex losing close to 500 points due to uninspiring FII fund flows, a weak rupee and insipid January-March quarter earnings.Foreign investors have sold a net of about Rs 630 crore in April.Still, they have been net buyers of Rs 318 crore so far in May, according to provisional data, while they remain net buyers of Rs 43,701 crore in the year-to-date.Auto stocks were hit hard for the week after widespread disappointment over their April sales.Hero MotoCorp fell 4.61 per cent on Friday, marking a two-session drop of 11.5 per cent, while Bajaj Auto shares ended lower by 3.8 per cent.Banks were also routed after Fitch Ratings and Macquarie said this week's RBI directives on Basel III guidelines could lead to a equity dilution of around $30-35 billion over the next five years.HDFC Bank lost 3 per cent, while SBI retreated 4.22 per cent.Shares of Reliance Industries dropped 1.7 per cent, following media reports that the petroleum ministry has struck down its plans to recover $1.2 billion in costs before the energy major starts sharing profits with the government from its gas field off the east coast.However, among gainers, drug maker Cipla added 2.63 per cent after CLSA upgraded the stock to "outperform" from "underperform", because it expects "strong" operating performance from Lexapro, an anxiety and depression drug, and a weaker rupee.
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With investors pressing the panic button in the last hour of trade on rupee plunging to record lows, the Sensex lost initial momentum closing the day with a meagre 31 points gain.The Indian rupee finished the day lower by 61 paise at its life-span low of 55.03 against the greenback before recording its historic intra-trade low of 55.05 at the fag end on sustained dollar demand from importers, mainly oil refniers, and some corporates.The Indian benchmark sensex, which was up by over 145 points, ended up by over 30 points or 0.19 per cent.Before the gains were wiped out, the sentiment had improved following State Bank of India reporting better-than-expected earnings. SBI on Friday posted net profit of Rs 4,050.27 crore in the fourth quarter ended March 2012 against Rs 20.88 crore recorded in Q4 of the previous fiscal.Earlier in the day, the BSE benchmark went up by 145.64 points to the day's high of 16,298.39. It finally closed at 16,183.26, a gain of 30.51 points."A sudden bout of selling in last hour of trading session led markets to surrender almost all gains... the decline in rupee made the sentiments jittery. Markets managed to close in a positive territory, albeit with slight gains," said Shanu Goel, Senior Research Analyst, Bonanza Portfolio.Dollar also recovered its initial losses and and was up by over 0.1 per cent against a basket of currencies amid fresh capital outflows and some hesistancy in local stocks also put pressure on the rupee, a forex dealer said.The euro steadied versus the dollar in currency dealings today, but strategists warned that more pressure may be in store due to continued uncertainty over Greece?s fate within the euro zone and jitters over the region?s banking systems, which would help the dollar.At the Interbank Foreign Exchange (Forex) market, the domestic unit opened slightly lower at 54.45 a dollar from last weekend's close of 54.42 and immediately touched a high of 54.44.Later, it continued its downslide till fag end to close at 55.03, showing a fall of 1.12 per cent.Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said,"A rising dollar index and lack luster Indian equity markets weighed on INR which witnessed the INR moving for fresh historical lows. The INR which has been a laggard in Asian currencies has witnessed frequent RBI intervention but is still trading at its lowest levels." "With INR breaching its previous low, the 55.30 - 55.50 levels becomes the near term targets. There has been a shift in the overall range of INR. The Euro gave up its most of its gains on risk aversion and continued negativity in global markets. The rising debt costs and downgrades of banks have been weighing on the single currency," he added.The rupee was threatening to breach 55-level as stocks markets were wrapping up the day's trade. After stock market hours, the rupee breached the psychological 55 level. As BW wrote in its May 28 issue, there's a single message for those looking at the rupee's value: maybe further intervention by the Reserve Bank of India (RBI) is a bad idea. First off, we do not have the kind of reserves needed to protect the rupee's value. On a fundamental and structural basis, the rupee's value is quite representative of its current value against the dollar. (Read Free Fall, Fiscal Fix).The volatility in the rupee reflects the growing worries about India's economic outlook. Growth Forecast CutMorgan Stanley cut its India's 2012 economic growth forecast to 6.3 per cent from its prior 6.9 per cent forecast, saying the country's "bad" growth mix -- a combination of high national deficit and a policy of supporting consumption while private investment slows -- has reached its limits. Market concerns have risen as Greece's political uncertainty casts a deep shadow over the euro zone, helping spark steep falls in the rupee, which on Monday hit its fourth consecutively daily all-time low against the dollar. The rupee has declined 12.2 per cent since its yearly peak to the dollar on February 2012, while the BSE Sensex has fallen 8.8 percent in the same period. Both markets are known to track each other's directions."Rupee is the lead indicator for the market as well as the economy at this point, if rupee weakens more it can unnerve some more positions in the market," said Paras Adenwala, chief investment officer of Capital Portfolio Advisors."Indian rupee continued the downtrend and made yet another all time intra-day low of 55.05 levels. Morgan Stanley cuts India's 2012 economic growth forecast to 6.3 percent from prior 6.9 percent; 2013 forecast to 6.8 percent from 7.5 percent, making the investors cautious. Even after the continuous fall of rupee against US dollar, there are no signs of the RBI, intervening in the currency markets. RBI is currently in a state where it can neither support the rupee nor can allow the rupee to depreciate further," Mr. Abhishek Goenka, CEO, India Forex Advisors said."In the past few weeks, RBI took some important steps to control the falling rupee, by increasing the rates of interest on FCNR deposits and by asking the exporters to convert 50% of the balance in EEFC accounts into rupees. But it seems that none of these norms have been able to calm down the overheated Indian currency. RBI had also conducted Open market operations twice in the previous weeks, to offset the sliding rupee, but that did not prove to be effective enough," he commented.Despite a weak rupee, which boosts exporters' margins, IT stocks in Sensex like Wipro and Infosys were the worst-hit with losses of nearly 2 per cent each. TCS also closed 0.2 per cent down.Amongst sectoral indices, BSE-IT was the worst performer with a loss of 1.19 per cent. It was followed by BSE-FMCG (1.17 per cent) and BSE-TECk (1 per cent).On the other hand, BSE-Capital Goods (1.96 per cent), BSE-Realty (1.90 per cent) and BSE-Power (1.27 per cent) lent support to the stock market today. The NSE 50-share Nifty also moved up by 14.60 points of 0.30 per cent to 4,906.05. According to Jagannadham Thunuguntla, Head of Research, SMC Global, starting 1st January 2011 till date, about 46 IPOs were called off. The total amount they were expected to raise was about Rs 38,326 crore. All these 46 companies had valid Sebi approval in hand for their IPOs. Even then, they couldn't open their IPOs within the validity period of one year from the date of Sebi approval.Besides this, starting 1st January 2011 till date, about 4 IPOs were withdrawn due to poor response. This list includes Samvardhana Motherson, Goodwill Hospitals, Plastene, Galaxy Surfacants. The total amount they were expected to raise was about Rs 2,000 crore.All in all, 50 IPOs didn't materialized during the period between January 1, 2011 till date. The aggregate that these IPOs expected to raise was about Rs 40,326 crore.
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Hedge funds are becoming more "institutionalized" as they respond to greater demands for transparency and due diligence from pension funds and other institutional clients, according to a new survey by KPMG and global hedge fund association AIMA, the Alternative Investment Management Association.The new global report called "The Evolution of an Industry" found that among the 150 responding hedge fund managers, 88 per cent reported demand for greater due diligence and 82 per cent for increased transparency. It found that hedge fund management firms have improved their operational infrastructure in areas like investor transparency and regulatory compliance as allocations from institutional investors have increased.KPMG also found that the sizes of hedge funds and their clients are becoming increasingly correlated, with large investors allocating to larger hedge funds. Hedge funds of funds and smaller investors are more likely to allocate to smaller hedge fund mangers. Europe has been the weakest region globally when it comes to raising hedge fund assets since the 2008 crisis.It found managers who had taken in new money from Europe since 2008 (53 per cent of the respondents) were roughly equalled by those (47 per cent) who had not. In Switzerland the balance was worse, with 56 per cent of managers reporting less business from there since 2008. In all other regions - North America, Asia Pacific, and the Middle East - a larger portion of managers increased business than lost it.Institutional investor clients provided 57 per cent of respondents' assets under management; that proportion has "grown significantly since the financial crisis," according to the report.Among all respondents, who have a combined $550 billion in AUM, 76 per cent said their pension fund assets had increased since 2008, while 70 per cent said "other institutional" assets increased. Among the largest firms — defined here as having 100 or more employees — those figures rose to 87 per cent and 80 per cent, respectively. Institutional investors as a whole, including funds of funds, accounted for a clear majority (57 per cent) of assets under management. Andrew Baker, AIMA CEO, said the 'institutionalisation' of hedge funds was defined as much by these attributes at funds, as by their receiving more money from the world's largest investors.Larger hedge funds — those with assets in excess of $1 billion — were more likely to have demands for greater due diligence and transparency, and were more likely to have added one or more compliance staff members.The report finds that the increase in institutional investment has led to more thorough due diligence and greater demands by investors for transparency, with 90 per cent of respondents reporting an increased demand for due diligence since 2008. Eighty-four percent of all respondents indicated they had increased transparency to investors since 2008, which is reflected by the fact that the majority of firms have taken on multiple members of staff to respond to these increased investor demands. The report also found that hedge fund management firms had almost universally increased investment in regulatory compliance since 2008, with 98 percent of firms hiring additional staff in this area. "Institutionalisation has been described as the continuing inflow of new institutional capital into the industry, but as this report demonstrates, it is also about the increasing sophistication of operational infrastructure with respect to transparency, compliance and due diligence," said Andrew Baker, AIMA's CEO. Robert Mirsky, head of hedge funds at KPMG in the UK, commented: "The combination of an increase in regulation, the changing nature of the investor base, and the natural evolution of the business has made the industry nearly unrecognisable from only five years ago." The new report is the second of a two-part series by AIMA and KPMG on the state of the global hedge fund industry. The first, published in April, looked at hedge fund industry performance, risk and volatility.
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