A section of banking analysts and experts believe investors will trace higher “risk-free” rates and move their investments from liquid funds to savings banks accounts. Liquid funds are products that invest in debt securities that include commercial papers (CPs), certificates of deposit (CDs) and treasury bills of maturities less than 91 days.

“With deregulation of interest rates in savings account, some investors might move their money to savings bank accounts as they offer higher liquidity and safety to the principal amount. The overall corpus might be impacted by the reduced difference between yields of savings account and liquid funds,” ratings agency Icra said in a report.

In its second quarter policy review, the Reserve Bank of India freed up savings account rates, enabling lenders to set their own rates for money deposited into these accounts.

The move prompted IndusInd Bank, Kotak Mahindra Bank and YES Bank to raise their savings banks rates to up to 6%. Other lenders are also looking at raising savings deposit rates by about 100 basis points to 5%.

However, money managers do not expect a large outflow of investments liquid funds, which still offer higher post-tax returns than savings deposit. At current yields, a three-month CD/CP portfolio will generate about 8.5-9.0% returns, while a one-year portfolio could yield 9.5-10%, money managers said.

“Even after a few banks raised savings bank rates, liquid funds presently yield about 100-150 bps higher than investments in savings bank accounts,” said Prateek Pant, head of wealth solutions at RBS.

Also, these two products serve different classes of investors, he said. Bank treasuries and corporate largely invest in liquid funds and are unlikely to move their money to savings deposits.

“There should not be any impact of savings rate deregulation on liquid funds as this category of funds gets 80% of the investments from corporates and banks,” said Alok Singh, head-fixed income, BNP Paribas Mutual Fund. Only high net worth investors, who do not mind sacrificing 100-150 bps additional yield, may shift their money to savings deposits.

Savings bank accounts have operational convenience and investors do not need to go through a series of redemption procedures, as in case of funds, to withdraw money, said Pant. As on September 30, mutual funds were managing more than .`1.28 lakh crore in liquid and money market funds, which is nearly 20% of the overall fund industry asset base.

Experts said though savings account scores over liquid funds in terms of safety, investors do not attach much risk either to liquid funds that invest in short-tenured papers, usually up to a period of three months.

Source: economictimes.indiatimes.com

A senior government official said around two dozen public sector undertakings (PSUs) had cash reserves of Rs 1,80,000 crore and the Department of Disinvestment was planning to ask some of them to return a portion of these funds to their owners, especially the government, the largest shareholder in these companies.

This will allow the government to meet some of the shortfall created by its inability to meet this fiscal’s disinvestment target of Rs 40,000 crore. With seven months gone, only Rs 1,144 crore has been raised from the sale of shares of state-run companies due to adverse market conditions.

A share buyback offer enables a company to purchase its own shares and extinguish them, thereby reducing its equity base. Companies with large cash reserves and no plans of making big capital investment generally go for buybacks. They are done when companies feel their shares are undervalued or when market conditions are subdued. So far, no state-owned company has opted for such a programme.

In addition, the government is exploring the possibility of asking PSUs to buy shares in staterun companies from whom they procure raw materials. This will enable the government to raise funds by selling shares as well as give ‘raw material security’ to state-run companies.

This strategy could result, for instance, in companies such as NTPC and SAIL acquiring minority stakes in Coal India and NMDC and taking board positions to ensure uninterrupted supply of raw material. The government had used a similar, though not identical, strategy to meet its disinvestment target in 1999 when it raised Rs 5,000 crore through equity swaps in oil companies.

Cash-rich cos must use funds:

Cash-rich companies should use surplus cash to acquire assets that ensure raw material security to enhance the return on equity or return them to shareholders as is prevalent in the private sector,” said Mohd Haleem Khan, secretary, Department of Disinvestment. He said consultations were on and a final decision would be taken soon.

Source: economictimes.indiatimes.com

Investors will wait for rhetoric by heads of nations after the G20 summit that ended at Cannes on Saturday. Economists in France, Germany, England and Canada, among other developed economies, have already expressed their fears about bailing out Greece, which is not game for imposed cut-backs and curtailed public spending. Heads of several countries such as Thailand and Canada have gone on record stating that Greek crisis could have an impact on their respective economies.

“The crisis in Europe has been factored in to a large extent. Unless dominant members of euro zone don’t throw Greece out of the unified Europe ring, markets are not likely to react to regular events,” said Sandeep Sabharwal, chief executive officer – portfolio management services -Prabhudas Lilladher Securities.

The Indian equities market corrected last week after the Greek prime minister announced a referendum on the bailout deal, risking a new euro zone crisis. The situation, however, eased on Friday after Greece backed off the referendum plan. The 30-share Sensex dropped over 242 points, or 1.36%, to end the week at 17,562.61. The 50-share Nifty fell over 76 points to 5,284.20. It was a rare week when both BSE mid-cap and small-cap indices outperformed the Sensex, logging marginal gains over the key benchmark.

Though markets have fared reasonably well last week, investors are jittery after the intermittent contradictory rallies over the past few weeks. Savvy investors are not likely to take huge positions this week as Indian markets will remain closed on Monday and Thursday on account of Eid and Guru Nanak Jayanti. Investors will trace global markets for cues before finalising their trading strategy.

“We’re holding a negative view on markets,” said Anish Damania, business head – institutional equities, EmkayGlobal Financial Services. “The market is getting increasingly earnings-driven. Retail investors, on their part, are moving out of equities to risk-free options such as bonds that yield 8-9%. Corporate earnings downgrades, a weak rupee and persistent inflation are our immediate concerns,” he said.

The market will start factoring in FY13 earnings growth from the third quarter onwards, he said. As of now, analysts expect earnings growth to be around 16% in FY13. This will get re-rated in the third and fourth quarters.

“Earnings have been downgraded 10-12% over the past two quarters. We expect earnings downgrades in capital goods, banking and metal companies,” he said.

Source: economictimes.indiatimes.com

Transaction charge is a fee incurred on buying or selling shares, which a broker pays to stock exchanges for being the middleman in a share transaction.

The Bombay High Court said stock exchanges give managerial services and transactions charges are the fee for “technical services” and liable to be taxed.

A division bench of the court passed the order after an appeal filed by the income-tax department in a case in which Kotak Securities was asked to pay TDS as the department said transaction charges are “technical fees” that must be taxed.

However, the Income Tax Appellate Tribunal had reversed the I-T department’s decision to levy tax on Kotak Securities, prompting the department to approach the high court.

Abhinav Gold claimed to be a subsidiary of the Birla group and said it had been dealing in gold for the past 32 years. Rajesh Rajyotish, 39-year-old deputy manager from a multinational insurance company in Surat, found the offer too hot to resist and made his investment.

He received money on a monthly basis for 6 months but the payouts from the company stopped thereafter. And Rajyotish filed an FIR with the Surat police. But this is not an isolated case. Many such ponzi schemes – a fraudulent investment operation that pays returns to its investors from their own money rather than from any profits earned by the individual or the organisation – are duping investors across the country.

These days, ponzi scheme operators are requesting investors to invest in gold and silver, and are offering fantastic monthly and annual returns for doing so. The schemes promise returns ranging from as high as 50% to 300%, which becomes too tempting for the hardpressed middle class to resist.

In fact, gold prices, which are at a good 7% below the peak at 26,300 per ten gram, were seen as a good bet by traders, brokers and consumers.” It is the greed of investors who are tempted by such unrealistic schemes apart from the lack of awareness which is leading to such a situation,” said Commodity Participation Association of India national president DK Aggarwal, adding that mostly it’s the small investors who are lured by such schemes.

Export trends shows India’s dependency on the US market has reduced by great margin and in 2011, the UAE emerged as the country’s top export destination, PHD Chamber Chief Economist S P Sharma said, adding that China and Singapore have emerged among its top five export destinations.

“Due to various government policies and benefits given under the foreign trade policy, there has been a diversification in the export destinations of the country. There had been big change in export trends over the last 10 years,” he said.

He said India’s engagement with regions like ASEANhas reduced dependency on developed economies.

The US and Europe, which account for over 40 per cent of India’s exports, now contribute less then 30 per cent, he said.

Further, he said that although the world economy is on the verge of a severe slowdown, India has managed to maintain its exports growth momentum.

During the April-September period this fiscal, India’s exports grew by 52.1 per cent to USD 160 billion.

Source: economictimes.indiatimes.com

The Index of Industrial Production, which measures factory output growth, and the export growth numbers over the past few months have shown a huge divergence. Growth in exports has remained robust despite a slowdown in industrial activity, prompting economists and policymakers to speculate that exporters may be mispricing their transactions to bring back black money stashed in tax heavens abroad.

While IIP for July fell to a 21-month low of 3.84%, exports during that month grew 72% in rupee terms. The following month, industrial output rose 4.04%, but exports registered a growth of 40%. Mispricing refers to under- or over-invoicing of transactions.

The commerce and industry ministry has carried out a study that compares factory output growth of specific items to their exports from 2004-05 to 2010-11. The ministry proposes to use this data to devise the index.

“We have conducted a comprehensive study matching export growth in manufacturing to the disaggregated export data,” a senior official at the ministry told ET.

The Department of Industrial Policy and Promotion in the ministry is responsible for collecting over 70% of the data on manufacturing in the IIP.

Economists say there has always been an element of mispricing in trade data. Discrepancies also arise as the IIP is a volume index while exports are captured in value terms. But, they say keeping in mind all the caveats, there is still some mismatch.

“There is something partially wrong,” said Abheek Barua, chief economist at HDFC Bank. “With 30% plus export growth, we should be getting a higher level of industrial growth.”

The ministry has sent its study to economists in the Reserve Bank of India for their comments and suggestions.

“We plan to put out these numbers and also come up with a monthly report matching export growth and industrial production. Exports are finally goods produced domestically,” said the official.

Matching production growth and trade data is not an easy exercise as the grouping of items is very different. Exports are classified according to the Indian Trade Classification Harmonized System (ITC HS) code, while industrial production is recorded under the National Industrial Classification.

Economists in the ministry have created tables that will match 268 items under 22 categories of the manufacturing sector with their export growth.

“This is a good move from a policy perspective, it will help solve a lot of puzzles,” said Sunil Sinha, senior economist at ratings agency Crisil.

Sajjid Chinoy, India economist at JP Morgan, said India’s export performance was in line with data from ports. He said exports were also higher as more goods were being sent to developing nations where economic activity remained buoyant.

JP Morgan had said in a recent report that Brazil’s trade discrepancy was higher than that of India.

“By 2010, Brazil’s data discrepancies still existed with 18% of its trading partners-almost double that of India,” the report said.

Source: economictimes.indiatimes.com

Duty cuts for automobiles, too, will not be steep and not cause ‘distress’ to the local industry.

“We understand the sensitivities of our low-end wine and liquor producers and also recognise the backward linkages they establish with farmers. We do not want to expose them to competition,” the official told ET. Automobile manufacturers, too, will not be stripped of all protection, the official added.

The India-EU FTA seeks to open up markets in goods as well as services and simplify investment rules to boost bilateral trade that crossed $90 billion in 2010-11. India exported goods worth $46.82 billion to the 27-member EU and its imports from the region were to the tune of $44.53 billion. Both commerce and industry minister Anand Sharma and EU trade commissioner Karel De Gucht have expressed hopes that the deal would be sealed before the India-EU summit in February 2012.

Wine and spirits and automobiles, which enjoy high tariff protection in India, are the two sectors where the EU has been promised increased market access by India in exchange for lower duties for a host of items including textiles, garments, leather and agriculture products. While import duty of 150% is levied on alcohol imports, automobile imports attract a 110% duty.

The commerce department’s plans of reducing import duties on both products has met with resistance from the industry which has so far been protected against duty cuts in the free trade agreements India has signed with countries such as Japan, South Korea and the Asean.

“The segment that the Europeans, including the Brits, are interested in does not clash with what our industry produces. They will be happy with duty cuts in the high end segment, so the lower end segment will not be affected,” the official said.

Duty cuts on expensive liquor would result in revenue loss for the government, but it is something that a country like India should not worry about when it is entering into a FTA. “We are not giving the Europeans anything for free. We will also get market access for products such as garments, leather and farm goods when the agreement is implemented,” the official said.

Despite protests from automobile associations like SIAM against duty cuts on fully built automobiles and auto parts, the government is likely to bring about some reduction.

EU, too, is expected to bring down its duties on automobiles for India which will be beneficial when India’s preferential access to the EU market under the GSP scheme for developing countries expires in 2013.

Source: economictimes.indiatimes.com

As long as Bhuvanesh was in Jaipur, the suitability of the house as an investment was not as important as the convenience and need for his family. Now that he is moving out, his decision to retain it or not will have to be made by evaluating it purely as an investment option and the effect it will have on his current and future financial circumstances and needs.

Since Bhuvanesh has an EMI obligation on this house, an important consideration is its affordability. He must think whether the rental income from the house will be enough to take care of all or most of the home loan instalment. His income should also be adequate to meet the portion not covered by the rental income as well as the rent or EMI for the house in which he will live in Delhi. If the property has scope for appreciation and earns a good rental income, it will be an asset that provides inflation-protected returns as well as growth to his portfolio. If he intends to move back to Jaipur, the house will prove to be an asset, which can be used for a specific purpose, and retaining it may be a good idea.

If, however, holding on to this property will mean a higher allocation to an illiquid asset (as real estate is), particularly once he buys a house in Delhi, he must consider exiting this investment when he gets a good price. If he believes that he can invest the money in another suitable investment and earn an equivalent, if not better, yield, he must consider it because managing a property from another city will be difficult. So, Bhuvanesh must consider the impact of holding this asset on his financial situation before making a decision.

Source: economictimes.indiatimes.com

While HDFC cannot force builders to liquidate rising inventories, officials at the financial institution are trying to drive home the point at every meeting that it makes sense to sell at current prices.

“Don’t sit on stocks; sell it fast now while you can. This is what my colleagues and I are telling developers,” Deepak Parekh, chairman, HDFC told ET. “We don’t see prices going up; selling at current prices is the best way to generate cash to repay loans than borrowing at higher rates to replace them.”

While there has been no ‘default’, builders have been delaying interest payment to banks by a month or two. Some have raised funds by selling non-convertible debentures to finance firms and local funds, and borrowing from private financiers to pay interest to institutional lenders. “Borrowing from informal market at fancy rates may not be a good idea. Instead of doing that, they (developers) can look at offloading inventory even with 5-10% discount,” said Parekh, who had repeatedly talked about a correction in prices.

It’s unclear whether builders will act on Parekh’s advice. “It’s a great advice, but may not be applicable to everyone. Someone with a lot of debt on books may want to consider this and get better cash flow,” said Niranjan Hiranandani, MD of Hiranandani Constructions.

Source: economictimes.indiatimes.com