RBI moves to counter surge in foreign inflows
In order to prevent the strong foreign capital inflows from lifting the rupee further up, the Reserve Bank of India (RBI) announced further relaxation in foreign exchange regulations. However, experts feel that the decision may be too little and too late and may not have the desired effect. Given the positive outlook on the Indian economy and corporate profit growth, foreign capital inflows will continue to pour in. So, the RBI will have to resort to a three-pronged approach suggested by former RBI Governor C. Rangarajan i.e. absorb some inflows, allow the rupee to rise a little and discourage some inflows.
As per the new RBI rules, companies can now spend up to 400% of their net worth to invest abroad, as opposed to 300% till now. They can also pre-pay up to US $500mn of their foreign loans every year, up from US $400mn, and make portfolio investments up to 50% of their net worth, up from 35%. Individuals can now invest up to US$200,000 abroad, double the amount allowed so far, and the aggregate investment limit for Mutual Funds (MF) has been raised from US $4bn to US $5bn.
In addition, the existing facility of investing up to US$1bn in overseas Exchange Traded Funds (ETFs), as may be permitted by SEBI by a limited number of qualified Indian MFs, would continue. Overall, the scope of foreign companies in which Indians can invest has been widened by the removal of the 10% reciprocal shareholding requirement. So far, Indians could only invest in foreign companies that had commitments in India.
Accordingly, capital market regulator SEBI eased investment norms for MFs. It raised the limit for overseas investment for each MF from US$200mn to US$300mn. In addition, to create a level playing field between new and existing players, the sub-ceiling linked to net assets of a MF house has been dispensed with. The requirement of 10 years of experience of investing in foreign securities for being eligible to invest in overseas ETFs has also been dispensed with. Now, there is only an overall limit of US$5bn for the overseas investments.
Investors can expect more product offerings from the MFs as the investment options have been increased. The new categories of overseas instruments that has been added include ADRs/GDRs issued by foreign companies, IPO and FPOs for listing at recognised stock exchanges overseas, derivatives for purpose of hedging and portfolio balancing. Investors may even get to indirectly invest in real estate abroad by investing in units that have mandates to invest in Real Estate Investment Trusts (REITs) listed in recognised stock exchanges.
Telecom licenses...the queue gets longer
The list of new companies seeking a slice of India's fast-growing telecom sector just keeps growing. After Parsvnath Developers and Unitech, another real estate player, Indiabulls Real Estate plans to enter this space. The company, part of the Indiabulls Group, applied for licences in 22 circles. Reports also suggested that realty giant DLF is also interested in jumping on to the telecom bandwagon. Meanwhile, white goods giant Videocon Industries applied for telecom licenses for all the 22 circles, except the north-eastern region. A financial daily reported that Videocon was likely to rope in US-based telecom major Verizon Communications as a partner in the proposed telecom venture. The two companies already have a joint venture for national and international long-distance telecom services. The move came just days after the Department of Telecommunications (DoT) said it won't accept new applications for licenses after October 1.
Over the last few weeks, the DoT has received about 160-180 new applications for new universal access service licences and many more could be in the pipeline. However, in view of the paucity of spectrum it may not be possible for the DoT to entertain all the new applicants. Some say the rush for getting new telecom licences is due to telecom regulator TRAI's latest recommendation that the number of players in a circle should not be capped. In addition, TRAI has suggested that the current norm of allocating 2G spectrum based on the number of subscribers should be increased several times before existing players are allocated fresh spectrum. If these recommendations are accepted by the DoT, then several new applicants will be eligible to get spectrum to launch telecom services.
However, another school of though is of the view that the scramble for telecom licences is aimed at making a quick buck by first getting the licences and then selling the same to overseas players at a hefty premium. To get to the bottom of the matter, the DoT is believed to have set up an agency to establish the actual identities of the promoters and shareholders behind the new applications for telecom services. Telecom Minister, A Raja, on Sept. 24, announced that the ministry will prepare a fresh set of guidelines for grant of licences to new applicants. "I have asked DoT secretary, DS Mathur to form a committee to frame guidelines for grant of licence to new applicants," Raja said.
India is expected to be the second-largest telecom market in the world with 800 million users by 2015, according to independent estimates. Currently, Indian telecom companies adds around 8mn new wireless subscribers every month. At the end of August, India had 201.3mn wireless subscribers after adding a record 8.31mn users in the month. The growth exceeded the number of subscriber additions in China.
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