Vijay is a sub-dealer of Angel Broking at his office in Bhandup, a suburb in north-east Mumbai. He has been busy updating his clients who trade derivatives, asking them to keep deposit adequate margin money with Angel Broking to avoid penalties that could be levied because of Securities and Exchange Board of India's (Sebi) new directive. Sebi's objective appears to be to limit excessive market volatility stemming from higher than normal trading activity in derivatives on the stock exchanges.Starting Friday, stock exchanges will monitor the margins in the derivative (future & options) segment at the client level, and not just at the broker level. If the margin requirements fall short, exchanges will levy a heavy fine on the client as well as the broker. As a consequence, traders and investors may have to keep a larger than hitherto required amount of money on deposit with their brokerage firms, which could dampen the level of trading activity. And that may be exactly what the markets need.Earlier And NowHere's an example: if a client has gone short on Reliance Industries, and the price of Reliance Industries moves upwards, it creates a shortfall. Earlier margin shortfalls were monitored by the exchanges at the broker level at a threshold acceptable to the exchange, At such times, members were issued a warning. Beyond the threshold, members are charged a penalty which is a certain percentage of the shortfall amount with a cap on the same. Now the exchanges will monitor the margin shortfall at the client level and any shortfall in margin money, clients will have to pay the differential immediately. In case the client fails to provide additional margin money or even if it is short by a single rupee it will attract a penalty. For shortfall up to Rs one lakh, the exchange will levy a penalty of 0.50 per cent of the shortfall amount per day and if the shortfall is greater than Rs one lakh, it will attract a flat 1 per cent penalty on the shortfall amount per day. However if there is a shortfall for 3 consecutive days or 5 days in a month, the penalty will be increased to 5 per cent of the shortfall amount per day. In fact the exchanges are going to be strict to the extent that it can even suspend trading of a member in case it comes to know that the collections are reported wrongly. With the new norms it's unlikely that with large number of brokers and their multiple branches and large number of clients they won't default on margin collection on a daily basis. One wonders why the regulator, Sebi has been harsh on brokers who have not run into problems even on days when the market has gone into freeze. It clearly shows that the regulator perceives risk in the market and with the new norms it is trying to cut down the risk. This would certainly cut down risk as the new norms will increase cost of trading and in the current scenario with markets being volatile, clients will prefer to stay away from the market thus in the near term bringing down the volumes in the market.
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With residential property rates falling, buyers can heave a sigh of relief! Going by the National Housing Bank's Trend and Progress of Housing in India (2010) report and the housing price index or RESIDEX (January – March, 2011) released on Friday, property prices in seven cities across India saw a fall of 2.63 per cent to 17.6 per cent during the January to March quarter. Another five cities are showing a marginal change in prices in the same period. However, three cities, Pune, Lucknow and Delhi, showed an increase in property rates by 2.6 per cent to five per cent.NHB RESIDEX covers the residential properties in different parts/locations of the cities. It estimates the value of the property to be financed and assesses the adequacy of security cover on the outstanding loan. The Residex for the first quarter of the 2011 calendar is a comparative study with the previous quarter. The latest NHB Residex results are in contrast to the previous quarter data. During October to December 2010, property prices went up in 13 out of the 15 cities surveyed, compared with the July to September 2010 data. In the remaining two cities, prices had either remained the same or dropped marginally. NHB is planning to add another five cities to the Residex this year, taking the number of cities being covered to 20.When asked about the possible range of property price correction in the coming months, NHB chairman RV Verma said: "We can't hazard any guess on property price correction as it may impact the market." He added: "There are blips in the property market." NHB's trend report has analyzed the impact (during the year 2009-10) of the operations of Housing Finance Companies (HFCs), Scheduled Commercial Banks and the co-operative sector on the housing sector and the housing finance in the country. ‘Affordable housing for all' --- the national policy of the government of India--- seemingly caught the attention of the stakeholders, builder community and the lending institutions. To support the cause of ‘Affordable Housing', NHB seeks to pursue its interventions and partnerships with National and State Governments in implementation of various financial sector-related programmes and schemes.The report highlights an exponential growth in housing finance during the last five years with the Compounded Annual Growth Rate (CAGR) around 28 to 30 per cent, due to the participation of banks in the housing finance sector.The Wholesale Price Index (WPI) measured inflation at 8.6 per cent in January, 2010 as against 5 per cent in January, 2009 on year-on-year basis. The bank credit growth on year-on-year basis was 15.1 per cent during 2009-10 compared to 19.8 per cent during 2008-09. The National Sample Survey Organization's (NSSO) Reports on Housing Conditions and Amenities in India based on the 65th round survey during July 2008 to June 2009 comprise of the report, with the focus on quality housing, ownership vs rental housing and the housing and the infrastructure conditions in the slums.The housing loans registered a growth of 20.79 per cent during the year March 2009 to March 2010. The Net Owned Funds of the registered HFCs recorded an increase of 26.41 per cent. The Regional Rural Banks (RRBs) have emerged as an important channel for rural housing in the report. NHB sanctioned Rs. 2.25 crore for Housing Micro-Finance (HMF) lending, during the year. Rs 70,640 crore worth home loans were disbursed by public sector banks during 2009-10 . This was mainly on account of low interest rates that prevailed during the major part of the financial year 2009-10 and teaser rates also played a part in that.At the end of March 2010, the outstanding housing loans of banks and housing finance companies stood at Rs 3.16 lakh crore and Rs 1.53 lakh crore.
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Policymakers on Monday rushed to calm jittery investors, pledging to take necessary steps to weather a new bout of global economic uncertainty stoked by US and euro zone sovereign debt worries, helping shares pare their losses. Amid a fall in the stock markets in the wake of economic problems in the US, Finance Minister Pranab Mukherjee said India's fundamentals are strong and the government is ready to address any concern that may arise, while admitting there could be some impact."We would focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth", Mukherjee said while talking to reporters outside Parliament.Chief Economic Adviser to Finance Ministry Kaushik Basu reiterated the government stand saying the centre and the RBI will step in to contain the impact of an uncertain global economic situation, if needed. The RBI said the Indian banking system does not face any immediate liquidity stress, and it vowed to ensure adequate rupee and forex liquidity.The government, Mukherjee said, will fast track the implementation of the pending reforms while keeping an close watch on international developments.India, Mukherjee said, is in a better position than other nations to meet the challenge posed by the developments in the US and the Eurozone.The BSE Sensex, which tumbled more than 3 percent in early trade as a rating downgrade of the United States by Standard & Poor's triggered panic selling across Asian equity markets, recovered to end the day 1.82 per cent lower.Shares across Asia fell sharply on Monday despite efforts by global policymakers to stem a collapse in investor confidence after S&P downgraded US credit rating from AAA to AA+ last week.Another rating agency Moody's, repeated a warning on Monday that it could cut the US rating before 2013 if the fiscal or economic outlook weakens significantly but said it saw the potential for a new debt agreement in Washington to cut the budget deficit before then.The Finance Minister expressed confidence that India could see faster and greater FII inflows unlike after 2008 meltdown, in view of the higher returns that global investors could get here."The recent developments in the US and the Eurozone have injected certain uncertainty in global markets. These developments could have some impact on India. But as India's growth story is intact and its fundamentals strong, we are in a better position than many other nations to manage the challenge," he said. Mukherjee also mentioned about the steps being taken by RBI to deal with the problem."The most important part of the RBI statement is that in the immediate future the Reserve Bank priority is to ensure that adequate rupee and foreign exchange liquidity are maintained in domestic markets to prevent excessive volatility in the interest rates and exchange rates," he said, adding, "this is very much reassuring".The Finance Minister also spelt out views expressed by G-20 Finance Ministers and Central Bank Governors."We, the Finance Ministers and Central Bank Governors of G-20, affirm our commitment to take all necessary initiative in a coordinated way to support financial stability and to foster stronger economic growth in a spirit of cooperation and confidence..."...We will remain in close contact throughout the coming week and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets." Moreover, we will continue to work intensively to achieve concrete results in support of strong, sustainable and balanced growth in the context of G-20 framework on growth," the finance minister said. US investment bank Goldman Sachs on Monday upgraded India to "market weight" from "underweight," given a likely turn in the macro cycle, lower oil prices, lower valuation, and policy reforms.The Melting WorldWorldwide, the grim market mood was caught by economist Nouriel Roubini writing in the Financial Times."The misguided decision by Standard & Poor's to downgrade the US at a time of such severe market turmoil and economic weakness only increases the chances of a double dip and even larger fiscal deficits," he warned."So can we avoid another severe recession? It might simply be mission impossible."The rout was all the more alarming as it came despite an assurance from G7 finance ministers that they were "ready to take action to ensure stability and liquidity in markets".In early trade, the BSE Sensex fell 2.5 per cent on Monday, while the rupee weakened past 45 to the dollar for the first time in five weeks following a global equities rout.In an announcement early on Monday before the markets opened for trading, RBI said it would ensure adequate rupee and forex liquidity, a move to calm the jittery markets.Noting that India was not insulated from global developments like the downgrade of the US, the Reserve Bank of India (RBI) Monday said it was closely monitoring the situation and would continuously assess the impact on the Indian economy and financial markets.The RBI also said the entire policy and regulatory framework of the country must be "prepared to respond to turbulent financial market conditions arising out of external developments"."Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition," the RBI said in a statement."The Reserve Bank is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. We will respond quickly and appropriately to the evolving situation," it added.The US lost its top-notch 'AAA' rating this weakened and the development has further added to the worries of global markets, already grappling with the debt crisis in Europe."A sharp fall in US equity markets on Thursday was followed by a downgrade in the long-term US sovereign rating by rating agency Standard & Poor's from AAA to AA+ with a negative outlook on Friday," the RBI said."Two other rating agencies, Moody's and Fitch, had recently maintained their AAA rating, but suggested that this could change."The downgrade has raised concerns of continuing turmoil in global financial markets, as investors re-allocate portfolios in response to heightened risk perceptions stemming from both developments," the RBI said. Inflation OutlookRiding on its robust domestic demand, India managed to withstand the global financial crisis in 2008-09, clocking an economic growth of 6.8 per cent.Worries over the health of the global economy are clouding the export outlook for Asia's third-largest economy -- after recent double-digit export growth -- but are also helping moderate global commodity prices, particularly oil.Oil fell as much as $3 a barrel on Monday as worries over a possible double-dip recession spread after S&P cut the United States' top-tier credit rating and European central banks struggled to contain a deepening debt crisis. A moderation in global oil prices is expected to help rein in India's oil subsidy bill, or the cash compensation the government offers to state-run firms for cheaper fuel sales, and ease inflationary woes."It (the fall in international crude and commodity prices) can have a dampening effect on Indian inflation," said Kaushik Basu, chief economic adviser to the finance ministry.India has been struggling with high inflation for the past two years. The RBI has raised interest rates 11 times since mid-March 2010 to tame price pressures, but headline inflation of 9.44 per cent in June continues to be well above the central bank's comfort zone of 4-4.5 per cent.Policymakers globally intensified efforts to contain the fallout from the historic downgrade of the US debt rating."I can take the rating as a special event which is telling us that a double-dip recession will occur ... that is possible," Basu said.The European Central Bank stepped into bond markets on Monday, backing up a pledge to support Spain and Italy with the aim of averting financial meltdown in the euro zone, while the G7 and G20 offered soothing words to investors shaken by a historic downgrade of the US debt rating.US Still Needs To Find Further Cuts: Moody'sMoody's repeated a warning on Monday it could cut the US rating before 2013 if the fiscal or economic outlook weakens significantly but said it saw the potential for a new debt agreement in Washington to cut the budget deficit before then.With markets in the US still to open after rival Standard & Poor's stripped the United States of its AAA rating on Friday, Moody's said in a statement its own decision to affirm the US rating on August 2 was on the condition that further cuts were found.It said the United States had a tough job ahead to come up with additional deficit-reduction measures needed to safeguard its Aaa rating from Moody's, but a new debt agreement in Washington was not impossible before 2013.Three days after rival Standard & Poor's stripped the United States from its AAA rating, Moody's said it could do the same before 2013 if fiscal discipline weakens in the next few months or the economy deteriorates significantly.Questions about whether US lawmakers will be able to agree on further budget savings next year lie on the center of the disagreement between the two ratings agencies. While S&P downgraded the United States to AA-plus after an Aug. 2 debt deal fell short of its expectations, Moody's is willing to give the government more time tackle its debt problems.(Agencies)
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The government is set to unveil on Monday a schedule for a stock offering worth about $2.6 billion for state-run explorer Oil and Natural Gas Corp (ONGC), sources with direct knowledge of the deal told Reuters on Friday.The timetable would set the deal in motion, two sources said, after it was postponed several times this year because of turmoil in global markets and lingering concern over government fuel subsidies.A separate source said ONGC, as the company is called, is ready to file a prospectus with regulators at short notice and could also start meetings with investors next week.The sources did not want to be identified as they were not authorised to speak to the media on the plans.The government owns 74.14 per cent of ONGC and has said it plans to sell a 5 per cent stake in the offering.The sale is part of broader proposal to raise about $9 billion through share sales in public sector firms to help plug the government's fiscal gap and generate funds for schemes for the poor.(Reuters)
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Shares in Cairn India rose more than 5 percent in Mumbai trade, a day after the cabinet gave conditional clearance to miner Vedanta Resources to buy controlling stake in the firm.At 12:11 p.m. (0641 GMT), Cairn India shares were up 4.1 per cent to Rs 324.80, but had risen as high as Rs 327.85 in early trade."It has been under pressure because of uncertainty over the deal. It seems to be adjusting for the rise in crude prices since, and the likely faster development of its fields," an oil & gas analyst at a Mumbai brokerage, who declined to be named, said.On Thursday, India approved the deal valued at around $6 billion, but said Cairn would have to share royalty and cess burden with partner Oil and Natural Gas Corp for its key oilfields in western India.Shares in ONGC, which will gain from sharing of the royalty burden that it had entirely borne so far, rose more than 6 per cent in early trade, but had since eased to Rs 278.40, still up 1.5 per cent in a weak Mumbai market.(Reuters)
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India may allow foreign investment of up to 26 per cent in the pension sector, giving global players access to a roughly $2 billion pool of assets that is expected to grow quickly as more people join the organised workforce.The recommendation by a parliamentary panel on a pending pension bill is the latest fillip to economic reforms that have stalled as the government was paralysed by a spate of scandals.The government has been taking steps of late to make the country more investment friendly, backing in principle foreign direct investment in multi-brand retail, a reform that has been delayed for years.Some of the reform measures, including a proposal to lift the cap on foreign holdings in insurance companies to 49 percent from 26 percent, require parliamentary approval.Now, pension funds of over a million employees in India are managed by IDFC, State Bank of India, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Reliance Capital and Life Insurance Corp of India.Foreign firms have been lobbying for liberalising access to the pension and insurance sectors in a fast-growing country where most of the 1.2 billion population lack such investments.Most of the 23 life insurance players in India, nearly all of which have a foreign partner holding a 26 per cent stake, are eager to enter the pension fund market, analysts said.Global players holding stakes in Indian operators include Aviva, AIG, and AXA.The pension and the insurance bills are currently being examined by a parliamentary panel, headed by Yashwant Sinha, former finance minister and a leader of the main opposition Bharatiya Janata Party.The panel has also recommended that the returns from a new government pension scheme -- subscribed by employees of the central and state governments -- should fetch a minimum return at par with the state-run social security fund, the Employee Provident Fund (EPF).The EPF, covered by separate law, manages more than $50 billion worth of assets for around 40 million employees and paid a 9.5 percent return in the fiscal year that ended in March 2011.(Reuters)
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India finalised the structure of infrastructure debt funds, an instrument it wants to use to source long-term debt to finance the country's infrastructure needs, saying they could be set up as companies or trusts, according to a finance ministry statement.India plans to pour $1 trillion from next year to 2017 to expand its clogged road and rail network, build more power plants and ports, so it can overhaul its creaking infrastructure, long seen as hobbling faster growth in Asia's third-largest economy.Finance Minister Pranab Mukherjee had in his budget speech for fiscal year 2011-12 announced the setting up of infrastructure debt funds (IDFs) to source long-term debt from both foreign and domestic investors, and also eased taxation rules to make IDFs more attractive to off-shore funds.If an IDF was set up as a trust, it would issue rupee denominated units which will mature in five years and will have to invest at least 90 percent of its investible resources in debt securities of infrastructure projects, the finance ministry statement said on Friday.Such IDFs would be regulated by the capital markets regulator, the Securities and Exchange Board of India.They could also be set up as companies, in which case they would be regulated by the Indian central bank and could raise resources through rupee- or dollar-denominated bonds with a minimum maturity of five years.Non banking financial companies, infrastructure finance companies and banks can set up an IDF as a company."The structure of IDFs would be closely reviewed for its efficacy and further refinement," the statement said.Indian commercial banks face difficulties in lending to infrastructure projects that have long payback periods as the banks mostly lend short-term funds, which creates an asset liability mismatch. Most banks are also nearing the maximum limit that they can lend to the infrastructure sector, the statement added.IDFs will take over these exposures and commercial banks are then free to lend money to other infrastructure projects and deploy their funds in other productive avenues of the economy.IDFs will also help tap long-term resources through pension and insurance funds and, thereby, help create a deeper secondary market for long-term paper, which is lacking sufficient depth, it said."IDFs through innovative means of credit enhancement is expected to provide long-term low-cost debt for infrastructure projects by tapping into source of savings like insurance and pension funds which have hitherto played a comparatively limited role in financing infrastructure," the statement added.(Reuters)
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The Indian stock markets have been affected by the US market sentiments in the short term, even though the country's economy is robust and its growth story is intact, the finance minister said in a statement released after market hours on Friday.Indian shares fell nearly 2 per cent on Friday to log their fourth straight weekly loss, their longest weekly losing streak since the Lehman collapse, as fears that the US economy was heading towards another recession and that some European lenders were facing a short-term funding crunch triggered risk aversion.The main 30-share BSE index, which is down 21 per cent this year, dropped 5 per cent on the week, extending its losses to 14 per cent in four straight weeks."The effect of the market sentiments in the US and Europe has a bearing on our markets as well in the short term....In comparison to Asian markets, our performance has been better," Pranab Mukherjee said in the statement.The steep selloff in the Indian markets triggered by the economic crises in the United States and the euro zone had prompted a review of the global economic situation by top Indian policymakers including Mukherjee, RBI chief Duvvuri Subbarao and C. Rangarajan, a top adviser to the prime minister."The present crisis can, however, be expected to encourage increase in the equity exposure by foreign pension funds and other long-term institutional investors. India is well positioned to capture this flow," the statement added.Net foreign institutional investor (FII) inflows into local stocks in this calendar year stood at $912.2 million until Thursday."India's economy is robust and its growth story, intact," the statement added.The comments come on the eve of a meeting of India's powerful planning commission, which will be chaired by Prime Minister Manmohan Singh.The plan panel is expected to target an average annual growth rate of 9 percent for the five-year period starting from April 1, 2012.(Reuters)
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