Non-resident Indians (NRI) will now have to settle for lower returns from their deposits in India. The central bank has reduced the ceiling on NRI deposits – FCNR (B) and NRE – by 50 basis points, making these deposits less attractive for investors. The downward revision in the cap on interest rates comes in the wake of large capital flows into the country. 
 
At present, the interest rate ceiling on FCNR (B) deposits is fixed at London Inter Bank Offered Rate (Libor) minus 25 basis points for all maturities. Now, this will be Libor minus 75 basis points. 
 
For NRE deposits, where the depositor takes the exchange rate risk due to the conversion of the funds into rupees, the interest rate ceiling has been brought down to Libor. Earlier, the ceiling was not to exceed 50 basis points above Libor. 
 
“These measures should result in smaller net inflows and help stabilise the rupee in the medium term,” said Romesh Sobti, country executive, India ABN Amro Bank. 
 
RBI’s decision is expected to reduce the scope for interest rate arbitrage and check the rise in money supply. The central bank had lowered the ceiling as late as in January 31, 2007, on FCNR (B) by 25 bps and NRE by 50 bps. 
 
The inflow of NRI deposits showed a quantum jump between April and December 2006 over same period in 2005. They (flow) registered an increase of $3.2 billion in April-December 2006 over that of $1.1 billion in April-December 2005. 
 
The outstanding NRI deposits rose from $ 35.13 billion as on March 31 2006 to $ 39.31 billion at the end of January 2007, according to RBI data. 

The rupee was overvalued by 12.21 per cent as on April 18, 2007, according to the Reserve Bank of India. The rupee, which was Rs 41.98 per dollar on April 18, surged further to close at a nine-year high of 41.67/68 on Monday.

According to the six-currency, trade-weighted real effective exchange rate (REER), the rupee has appreciated by 7.8 per cent since April 2006, when the rupee was overvalued by 4.12 per cent.

The rupee has been gaining on the back of large capital inflows due to foreign fund investments, foreign direct investment (FDI) and overseas borrowings by companies and banks.

The RBI, which is staying away from intervening in the foreign exchange market to prevent the rupee from appreciating, has also added to the domestic currency’s strength.

The rupee had gained by over 2 per cent in March 2007 alone as the RBI refused to buy dollars and infuse rupee liquidity, diluting its tight monetary stance.

Capital flows during 2006-07 were substantially higher than a year ago led by FDI flows on the back of strong growth prospects and buoyant investment demand. FDI inflows at $16.4 billion during April 2006-January 2007 were substantially higher than the inflows of $5.82 billion in 2005-06.

NRI deposits increased to $39.13 billion from $35.13 billion at the end of March 31, 2006, and Indian companies and banks raised a total of $28.71 billion from overseas markets in 2006-07, 29 per cent more than a year earlier.

The country’s foreign exchange reserves crossed the $200 billion mark at the end of March 2007, with forex interventions by RBI during 2006-07 (upto February) totalling more than $24 billion, almost triple the amount of interventions in 2005-06. However, with headline inflation continuing to average over 6 per cent in March, the central bank did not mop up dollars from the forex market.

According to Ajit Ranade, chief economist, Aditya Birla Group, the current spurt in the rupee was unusual, and mainly on account of the RBI not having intervened in the forex market.

“The underlying macro economic indicators, be it current account deficit, fiscal deficit or domestic inflation, all point to rupee weakening,” he said.

Reflecting the growing interest rate differential, in view of increasing domestic interest rates, the one-month forward premia has increased to 6.99 per cent in March 2007 from 3.79 a year earlier. The six-month premia has also moved up to 3.8 per cent from 2.43 per cent over the same period.

The Indian consumer’s obsession with gold is very well known, and Akshya Tritiya heightens that frenzy. The traditional reasons for buying gold have been mostly to do with creating an asset that has a high level of liquidity. It is still easy to pawn gold and realise money across the country, even in the smallest of villages. After gold bars became available with banks, many buyers have shown an interest in pure solid gold. That banks do not buy back the bars still remains a limitation, though.

The appreciation in gold prices in the past three years has created interest in gold as a pure investment option. There is wide recognition that jewellery shopping can be segregated from investment in gold. The availability of gold exchange traded funds (ETFs), which are now listed and traded on the National Stock Exchange (NSE), provide the opportunity to several who like to invest in gold. Without the bother of holding physical gold.

Gold ETF units are available as units that represent the value of 1 gram of gold. The net asset value (NAV) will move in line with the price of gold. If one has a demat account, one can accumulate all the gold he wants to buy using this simple tool. The surge in volumes around Akshya Tritiya indicates the choice investors are making in buying paper over solid gold. Those moms who accumulate gold for their daughters can now buy ETFs every month, and sell them in one lot when the need to buy solid gold for the wedding arises.

Easy succession
Claiming the deposits and investments left behind by a deceased must rank as one of the most harrowing experiences faced by families, even as they come to terms with their grief. A simple nomination in accounts and investments goes a long way in making the process easy. In a recent judgment, the Allahabad High Court observed: “It will be most appropriate that the Reserve Bank of India issues guidelines to the effect that no savings account or fixed deposit in single name be accepted unless the name of the nominee is given by depositors.”

An RBI circular, issued earlier this month, only persuades banks to ask for nominations, but doesn’t make it mandatory. The circular, in fact, clarifies that an account-opening request should not be turned away for refusal to provide nomination, but only record this fact with the papers. It is then left to the wisdom of individuals to fill up that nomination form.

It is a simple form that takes a minute to fill, but makes it possible for the nominee to claim the proceeds of the investments and deposits with great ease. Considering that most of us don’t have a registered will or even a detailed account of our investments for our family to fall back on, the nomination is the least we can do. Without waiting for the RBI to make it mandatory.

An NRI asks…
An NRI reader, Anil Pandey, has settled in the US and married a foreigner. He wants to know if he can invest in mutual funds and in small savings schemes like RBI bonds in India, in his name, as well as in the name of his wife and children. He also wants to know why some mutual funds don’t accept investments from NRIs in the US. To answer…

First, Pandey and his family will be eligible to invest as persons of Indian origin (PIOs), and will therefore be eligible to invest in mutual funds. Second, small saving schemes and RBI Bonds are not available to NRIs for investing. Third, if the mutual fund is sponsored by an entity registered in the US, it cannot offer its products to US citizens without regulatory approvals. Therefore, some funds in India that are , sponsored and managed by US companies exclude NRIs in the US from being eligible to invest in them.

Exit options
The issue of reinvestment option in an ELSS fund has been a bugbear for many investors, as the reinvested units are also subject to the three-year lock in. Several funds have removed the reinvestment option in ELSS, and several have changed the default option from reinvestment. To provide relief for investors who have been historically stuck, funds are now willing to change the option from dividend reinvestment to dividend payout. This technically does not amount to a switch from one option to another. In a scheme with lock-in, switches cannot be made. Those investors who are stuck with dividend reinvestment in ELSS might want to effect this change in option.

In a further cleaning-up operation in the capital markets, the Securities and Exchange Board of India (Sebi) has ordered an in-depth investigation into the nature of dematerialised accounts frozen by the depositories in January 2007. 
 
Sebi has directed the depositories, National Securities Depositories Ltd (NSDL) and Central Depositories Services Ltd, to ask all the depository participants to examine the origin of such accounts which did not comply with the requirement for Permanent Account numbers (PAN). 
 
The investigation will primarily aim at tracing the origin of the accounts and the nature of transactions undertaken through these accounts when these were operational. 
 
According to market sources, the investigation is aimed at examining whether such accounts were used by the market players to evade tax or for money-laundering. Around 30 lakh accounts were closed down due to Pan non-compliance, out of which 13 lakh have balances and remaining are no-balance accounts. 
 
The investigation will cover both such accounts. The preliminary data available with the regulator has shown that there was no debit or payment of money from many such accounts. It is an inter-regulatory effort and data will be transferred to the respective authorities after the facts are clear, according to sources. 
 
In January 2007, both NSDL and CDSL had closed down the dematerialised accounts which did not have Pan numbers. 
 
For the convenience of the capital market players, the government had asked SEBI to rationalise the customer identification process by making PAN as the core number. This resulted in doing away with the numbers such as MIN for mutual funds, MAPIN for equity market and so on. 

There seems to be a rush to open new demat accounts by investors with a total of about 15 lakh accounts getting opened in the first three months of this year.
 
The number of demat accounts — an investor is required to own for making investments in the stock markets — has crossed the one-crore mark for the first time since the trading in dematerialised or paperless shares was introduced more than a decade ago.
 
“There has been several number of quality IPOs (initial public offerings) such as MindTree Consulting, GBN-IBN, Idea Cellular and Power Finance Corporation. The rise in number of demat accounts is mainly coming from retail investor to participate in these IPOs,” said S Muhnot, managing director of brokerage outfit IDBI Capital Market Services.
 
In the last three months alone, over 11 lakh new accounts were opened with National Securities Depository Ltd (NSDL) and this includes activation of those accounts which were frozen from January this year due to non-compliance of Income Tax Department’s Permanent Account Number (PAN).
 
According to Reserve Bank of India’s last year’s report, only about five per cent of household savings are channeled into the stock market. But, analysts feel that this figure may have gone up a couple of percentage points in the last 6-8 months.
 
The increase in number is significant considering all the new demat accounts opened go through the stringent Know Your Clients (KYC) norms stipulated by the market regulator Securities and Exchange Board of India (Sebi).About 26 lakh demat accounts were frozen on January 1 this year, after Sebi made it mandatory that investors holding demat accounts should produce the PAN cards for opening demat accounts. “Most of new investors come into the stock markets through the primary market,” said Dalpat Mehta of Relegare Securities. “Some of the issuers are really good. The rush in opening new accounts is mainly for new issue applications, “ he added.
 
MindTree Consulting is trading at Rs 830-range almost double from its issue price of Rs 425 per share while shares of Idea Cellular is quoting at Rs 95, a 26 per cent premium to the issue price of Rs 75. GBN-IBN shares have more than doubled to Rs 534 since listing on February 8.
 
Currently, demat accounts with premier depository National Securities Depository Ltd (NSDL) stands at 79 lakh while the other depository Central Depository Services Ltd (CDSL) has 23.67 lakh accounts, making the total demat accounts in the country at over 1.2 crore. Still, there are over 11 lakh account holders with NSDL who own shares in their accounts but yet to activate their accounts following the PAN requirement.

Mumbai: The Securities and Exchange Board of India (SEBI) will respond to applications for registration of venture capital funds (VCFs) or foreign venture capital investors (FVCI) within 21 days, the market regulator said in directions issued to investors.

SEBI said applications for VCF or FVCI should be accompanied by all necessary documents and a fee of Rs100,000.

A fee of $5,000 should accompany the application for registration of an entity as FVCI. The registration fee would be Rs10 lakh for VCF and $20,000 FVCI, SEBI said.

An entity seeking registration as FVCI would, in addition to other documents, have to submit copies of certificate of registration with the home regulator, income tax return field in the home country and a banker’s certificate of fair track record.

The documents should be in conformity with SEBI (Foreign Venture Capital Investors) Regulations, 2000.

In case of VCFs, the applicants have been advised to follow the procedure prescribed by the Sebi (Venture Capital Funds) Regulations, 1996.

VCF applicants are also required to submit copies of memorandum and articles of association, registered trust deed in case of a trust and investment management agreement, as applicable, along with the application form.

The stock market benchmark Sensex recovered from a 490-point crash on Friday and ended 17 points up at 11,851.93, shrugging off the initial panic following market regulator SEBI’s ban on key depository participants.

The market witnessed a intra-day swing of 532.71 points, the biggest since May 17, 2004.

The recovery was credited to constant buying support after midsession by Foreign Institutional Investors (FIIs) and Indian financial institutions.

Crumpling to the day’s low of 11,344.61, the Bombay Stock Exchange (BSE) Benchmark 30-share Index later staged a sharp recovery and even jumped to the intra-day high of 11,877.32 before ending the day at 11,851.93 from Thursday’s close of 11.835.02, a net gain of 16.91 points or 0.14 per cent.

FIIs and mutual funds salvaged the situation by making aggressive purchases in blue chip counters, particularly key stocks RIL, TCS Ltd, NTPC, HLL, ACC, Maruti Udyog, ICICI Bank and Bharti Tele, which even ended with handsome gains.

Initially, investors were jittery over the Securities and Exchange Board of India’s (SEBI) overnight move to bar 24 key operators, including Indiabulls and Karvy Stock Broking, from operating in the stock markets and banned 12 depository participants from opening fresh accounts.

The crucial institutional purchases, however, provided the moral support to retail traders and operators.

Meanwhile, the SEBI deferred its order banning Indiabulls Securities subject to verification of clients.

Investors termed initial mayhem as a knee-jerk reaction from market players.

Sebi seeks US help for regulating investment advisers

NEW DELHI: Seeking to rein in the growing crop of investment advisers dishing out “hot” market tips through various media that include SMS, sector regulator Sebi has turned to its US counterpart for some regulation advice.

Worried about the proliferation of unregistered entities acting as self-proclaimed investment advisers on stocks and other investments, Indian regulator is looking for the “experience and expertise” of its US counterpart – Securities and Exchange Commission – for overseeing these advisers.

A team from SEC was in Mumbai late last month to conduct a four-day training programme on Investment Company Regulation, Examination and Enforcement, which was attended by more than 60 officials from Sebi as well as domestic securities exchanges and depositories.

This was SEC’s first ever foreign regulator training programme focused on regulating and examining investment companies and investment advisers.

According to a SEC statement, Securities and Exchange Board of India Chairman M Damodaran said after the completion of the training programme that Sebi was looking “forward to benefiting from the considerable experience and expertise that the US SEC has gained over the years — especially in matters related to regulatory oversight, monitoring and examining of investment advisers and investment companies.”

Incidentally, Sebi has also mooted the idea of creating a private sector Regulatory Organisation (RO) as a first-level regulator for investment advisers and is inviting public comments and suggestions on the issue of regulation of investment advisers till the end of this month.

While introducing a consultative paper on regulation of investment advisers, Sebi, however, noted that there was no separate RO for regulating investment advisers in the US and the job was split between SEC and state governments.

Amid the sharp rally in the Indian stocks over the past few years, the public interest has grown manifold in the market and so has been the number of advisers — who keep inundating investors with “hot tips” on which stocks to buy or sell through TV channels, newsletters, magazines, newspapers, websites and some innovative media like SMS and phone calls.

Damodaran has expressed his discomfort on many occasions over the the growing number of self-appointed advisers, while there also have been certain cases when the regulator has fined individuals and entities for dishing out tips on market activities without proper disclosures.

The SEC training programme included sessions on registration of securities of an investment company, regulation of advertising and sales literature, responsibilities of the board of directors of an investment company and issues related to valuation of portfolios, portfolio management and internal operations of investment companies.

In the past 18 months, the SEC has provided training to over 300 officials in India, the US regulator said.

While pointing out the tremendous growth and development in the Indian market over the past several years, SEC’s International Affairs Director Ethiopis Tafara said that the training programme provided an opportunity to provide technical assistance on regulatory challenges involving investment advisers, which might help in protecting investors’ interests.

Sebi currently does not regulate investment advisers as a separate class of intermediaries. Those currently under the regulator’s oversight include portfolio managers, stock brokers, merchant bankers and credit rating agencies.

According to Sebi’s consultative paper, there have been concerns regarding misuse of investment advice, particularly in publicly accessible media like TV and print and Sebi had also to take regulatory action against some investment advisers found to be misusing the media.

Sebi had also mooted the idea of journalists and media persons rendering investment advices getting registered and made to abide by the code of conduct and disclosure needs, while adding this might constitute denial of freedom of press.

Citing the US example, it noted that “the publisher of any bonafide newspaper, magazine or business or financial publication of general and regular circulation is excluded from the definition of Investment Adviser.”

-india times

Securities and Exchange Board of India has issued circular permitting BSE and NSE to launch corporate bond trading platforms to enable efficient price discovery and reliable clearing and settlement in a gradual manner.

“To begin with, the trade matching platform shall be order driven with essential features of OTC market.  BSE and NSE would make use of their existing infrastructure with necessary modifications to set up the said platform with effect from July 1, 2007,” says the SEBI press release.

The minimum trading value for Corporate Bonds for all entities has been reduced to Rs 1 lakh from the existing Rs10 lakh. The stock exchanges may also have a limited segment for transactions in smaller market lots, says the circular. Once the trade matching system stabilises BSE and NSE would be allowed to move to an anonymous order matching system.