Effect on Financial Market of Budget 2014

Narendra Modi headed new government announced its first union budget on Thursday twisting and turning the markets until ending Nifty flat.

In order to promote capitalization in the market, government has worked on a bunch of measures. The major change bringing policies cover tax benefits, eased norms of regulations for foreign investors, much talked about corporate bonds besides creating a new instrument Bharat Depository Receipts (BDR), helping BSE benchmark Sensex to climb up 434 points.

Real Estate and Investment Trust (REIT) charmed up the market as Finance Minister Arun Jaitely announced special incentives for it. Financial sector reforms introduced a uniform system of Know Your Customer (KYC) service allowing inter-exchange of data records. Simple understanding of using a single demat account to access and work in all the transactions. 

The union budget 2014 is aiming to increase the freedom in the markets allowing foreign investors and presenting BDR similar to ADR and GDR. In order to promote international trades, FM changed the terms and conditions of Indian Depositor Receipt (IDR) scheme easing its use. Additional, he proposed Indian debt securities international settlements in his plan. 

FM said that he is willing to provide necessary incentives for REITS when asked about his plans in real estate market. “In innovation, a modified REITS type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP and other infrastructure projects,” Jaitley said.

Jaitely said that he is going to allow the liberalization facility of five percent withholding tax to all bonds issued by Indian corporate abroad, revising the validity date of the scheme to June 30, 2017. (At present, the tax rate varies across bonds and could be higher as well).

Banking system is receiving relaxation from the free-floating structures geared to enter the market. Fresh equity issues  will be successful with eased norms for international investors. Major contribution is coming from NRIs who have been willing to participate in the market. Such instruments are designing for attract long-term investments in India.

Financial sector regulators should take early steps for a vibrant, deep and liquid corporate bond market, and necessary steps for currency derivatives market by eliminating unnecessary restrictions, according to Jaitley.

Financial Sector Legislative Reforms Commission (FSLRC) recommendations are processing under the leadership of new FM Jaitley and the process of consultancy with all the stakeholder will complete soon. He said, "the suggestions of the FSLRC are a necessity for better governance and accountability".

Jaitley  addressed the tax concerns of Foreign Portfolio Investors (FPIs) stating that the income arising to this class of investors from transaction in securities is classifying under capital gains.


Industry bodies laud Narendra Modi's Rail Budget

Apex industry body ASSOCHAM on Tuesday called the Rail Budget presented by Narendra Modi government very businesslike and smart.

It said the Rail Budget focuses on "delivery not populism." 

"Clearly spelling out the economic model of the Narendra Modi government, the Railway Budget is banking heavily on involvement of the private investment- both domestic and overseas on modernization and a smart functioning of the country's largest transport operator," ASSOCHAM President Rana Kapoor said.

"The emphasis is clearly on improving efficiencies, passenger amenities with promise to take them to global standards and the much-needed safety of passengers," he said.

"The Railway Budget opens up vast opportunities for the public-private-partnership in a whole gamut of areas including cleanliness, upkeep of major stations like the airports, IT infrastructure. The smart strategy lies in trying to get the new businesses out of the sheer necessities and ordinary looking but important services such as catering."

"Besides, a clear strategy has been spelt out to retrieve the Railways' share in the freight movement. Though the freight movement gives over two-third revenue to the organisation, it had been neglected in the past. IT-driven parcel management and special trains for parcel movement for capitalizing on the growing e-commerce business is an intelligent move," he said.

"We are sure, that unlike in the past, the PPP models will attract a lot of private and overseas investment as the new government enjoys a great amount of credibility to deliver. For the first time perhaps, the Railways Minister's Budget speech read like speech of a Rs. 1,47,000 crore corporate which is wanting to go about servicing its customers," Kapoor said.

Rohit Gadia, Founder and CEO, CapitalVia Global Research Limited said the budget announced sounded more realistic.

He said industries like Kalindee and Titagarh wagons appear strong as the budget announced is having plans for new trains , railway infrastructure development and completion of ongoing projects. This will directly benefit these stocks.

Promising course correction and pledging to move away from populism, Railway Minister Sadananda Gowda on Tuesday presented the Narendra Modi government's maiden Railway Budget focussing on a public-private partnership in infrastructure development, infusion of FDI, announcing introduction of a diamond quadrilateral of high speed trains, an inaugural bullet train service besides harping on e-ticketing augmentation, safety of passengers and cleanliness.

While the Lok Sabha was adjourned after budget speech of Sadananda Gowda amid din by disgruntled MPs of Opposition from largely TMC, Gowda promised on infrastructure and modernization besides taking forward wi-fi system.

"I have an open mind to correct," said Gowda, who emphasised on logistic parks and private freight terminals on PPP model. 


SEBI says NO to MCX-SP holdings

Market Regulator Securities & Exchange Board of India (SEBI) denied Multi-Commodity Exchange's (MCX) request. MCX appealed SEBI to hold shares of MCX Stock Exchange (MCX-SX). SEBI clubbed its shareholdings of MCX-SX with that of Financial Technologies (FTIL).

SEBI found it unfair to own shares in bourses following its alleged role in the "Rs 5,600-crore National Spot Exchange (NSEL) scandal". It is a clear mark for MCX to divest its entire stake in MCX-SX.

MCX held 37.98 percent stake in MCX-SX as on 31 March 2014, as warrants worth 63.41 converted to shares. The co-founder of MCX-SX, FTIL is holding 33.86 percent including 4.99 percent equity and other converted warrants.

FTIL is amongst the first promoters of MCX. MCX recently cut off FTIL's voting rights to 2 percent after the events of NSEL fiasco. 26 percent of MCX stake still comes under FTIL holdings.

A SEBI official confirmed that the market regulator recently posted a letter to MCX, stating that SEBI will not allow any such leeway to the comex.

MCX said, "FTIL's voting rights in the comex are minimal. MCX board is working independently of FTIL hence, the two entities are not acting in concert."

Chairman at MCX Satyananda Mishra said,"We were hoping that SEBI will accept our request for not merging MCX's shareholding in MCX-SX with that of FTIL's. We have reconstituted out board and canceled FTIL voting rights proving that MCX is not influenced by FTIL. SEBI's decision is disappointing."

Following SEBI's declaration in the letter passed off to MCX, Mishra said, "We will now have to examine how to divest our stake in MCX-SX."

FTIL's problems began with unraveling of its subsidiary NSEL Rs 5,600-crore scam in previous year July closing.

In December 2013, commodity market regulator Forward Markets Commission (FMC) declared FTIL inadequate to own more than 2% in MCX. SEBI then passed an order in mid March this year allotting FTIL three months through June 18 to divest its stake in exchanges, including MCX-SX.

FTIL is challenging both SEBI's and FMC's orders that declared it unfit. MCX subsequently wrote to SEBI asking, "its holding in MCX-SX not be clubbed with FTIL," a request that the capital markets watchdog discarded.

MCX-SX allows trading in currency futures, stocks and derivatives. Most trades on MCX-SX are in rupee-dollar contracts competing with NSE and BSE.

Its other shareholders at the end of the March quarter were IFCI, Union Bank of India, Punjab National Bank and IL&FS.


Indian Companies moving to pay off debts

After Narendra Modi took over the charge of governance in India, markets are surging. In this scenario, Indian firms are planning to balance their debts by issuing shares worth $5 billion this year. 

High leveraged firms like GVK Power & Infrastructure Ltd , Adani Enterprises Ltd lead the trend of issuing equity shares to pay off their debt. Capital intensive industries such as infrastructure, metals and telecommunications are following them to bring down their debt-equity ratio.

Most of the companies borrowed heavily in the past few years. India's economy grew well enough to support them until last year's breakdown. In the FY 2013-14, Indian economy dropped the growth rate with the steep fall in rupee bringing in inflation and problematic conditions in the market.

In most cases, banks refused to issue fresh loans to these indebted companies since debt often exceeds their equity several times over. Firms left with fewer options resort to raising funds through equity shares to balance the ratio and grow further.

Mumbai's new airport terminal building developer GVK capitalized on the market gains participating in the bull run.

An economist and fund manager of Indian stock said "There will be an obvious rally of Indian companies entering the markets, trying to reduce leverage to take advantage of this kind of Modinomics."

"The access to capital is easier now. One needs to clean up the balance sheet before starting investment mode again. The engine begins now," an economist quoted.

Bankers say 2014 is counting among the best years of India. Soon to be declared the best year for equity offerings in India since 2010. In 2010, state-run and private companies issued equity worth $24 billion.

In 2014, further state-run firms are speculating raising $6 billion via share sales. In the first half of the year, state raised capital figures summed up-to $5.4 billion. Private sector's figures pushed up the number by $16 billion.

The rush to raise capital could gather speed if the federal budget to be declared on July 10 is playing a decider role. The policies declares might facilitate the trend or impede the growing equity shares in the market. If budget is favoring the way it could be a revival of the economy after the longest spell of growth below 5 percent in the quarter of a century.


Lavasa announced IPO after 3.5 years; Hopes up!

Lavasa Corporation, is building India’s first new hill station. They have announced the proceeds of its initial public offering (IPO) after being postponed for years because of protracted battles with environmental authorities and slow market growth.

Mumbai-based group behind the project Hindustan Construction Co sought fresh permission from authorities to list Lavasa, three and a half years after its initial IPO plans was derailed.

Construction magnate, chairman of HCC Ajit Gulabchand dreamt about creation of an entertainment old fashioned luxurious city. Gulabchand envisioned the idea and is privately managing city offerings. The project highlights the need of a well-planned and comfortable urban environment along with high-quality services – in contrast to India’s teeming, chaotic cities.

Gulabchand is hoping to attract more than 240,000 people, business parks for clean industries, schools and recreational facilities  for investing in the enterprise. Additionally, he dreams that it will serve as a blue-print for India as the country is under pressure to match accelerating urbanization.

Managing India’s move from a predominately agrarian society to a more urban-oriented economy is one of the biggest problems ahead for Narendra Modi, India’s new prime minister. 

In its draft prospectus for a listing to raise $125m, HCC said, “We view Lavasa as an ideal model for the development of coming cities, and we will, in our view, have a competitive advantage with respect to bidding for and executing such future cities”.

Spread over 25,000 hilly acres along a lake 180km from Mumbai, Lavasa got approval for a $440m IPO by securities regulators in November 2010.

After 10 days of the go-ahead signal given to it,  Jairam Ramesh, the then environment minister,  sent a red signal issuing a “stop-work” order, saying HCC had failed to obtain the requisite environmental clearances.That brought work at the site to a standstill for a year. Lavasa’s backers now insisted they had obtained all necessary permissions and were able to secure New Delhi’s approval to resume.