Experts, too, feel that the decision to borrow more may not have much impact on the fiscal deficit as borrowings are aimed at making up for shortfall towards small savings
New Delhi: Finance minister Pranab Mukherjee on Friday said the decision to borrow an additional Rs 53,000 crore from the market during the current financial year may not have a bearing on the fiscal deficit, reports PTI.
"It is too pre-mature to say that there would be adverse impact on fiscal deficit... we have to borrow Rs53,000 crore to ensure that there is an un-interrupted cash flow," he said.
"As far as fiscal deficit is concerned we shall have to consider various other factors," Mr Mukherjee told reporters.
The government proposes to bring down the fiscal deficit to 4.6% of the gross domestic product (GDP) during 2011-12 from 5.1% in the previous fiscal.
In order to meet its expenditure in the second half of the fiscal, the government in consultation with the Reserve Bank of India (RBI) on Thursday decided to borrow Rs52,800 crore from the market, over and above Rs4.17 lakh crore estimated earlier.
Experts too feel that the decision to borrow more may not have much impact on the fiscal deficit as borrowings are aimed at making up for shortfall towards small savings.
"As far as fiscal deficit is concerned, present borrowing will not have any impact as it is mainly due to less of small savings," said Anubhuti Sahay, senior economist, Standard Chartered Bank.
Expressing a similar opinion, DK Joshi, chief economist of Crisil said, "Fiscal deficit numbers will depend on the small savings. We have not revised the fiscal deficit target for this fiscal yet."
According to government estimates, small savings during the first quarter (April-June) of the current fiscal declined by Rs26,542 crore. It had increased by Rs13,250 crore in the same period last year.
"The decline in small savings collection also impacted government cash management," the finance ministry said in its quarterly review tabled in Parliament in the monsoon session.
The government finances are also impacted due to lower-than-expected revenue realisation and slow pace of disinvestment.
Higher government borrowings, experts said, will further harden interest rates, which are already up following the decision of the RBI to raise its key rates 12 times since March 2010 in its bid to check rising inflation.
Bond yields, which are an indication of interest rates, have already started going up following the announcement of the government's decision.
"As far as bond yield is concerned, there will be an upward trend. We expect that 10 year bonds will inch up to 10.25% by December 2011," Ms Sahay said. Yield on 10 year G-Sec is now hovering around 8.25%-8.5%.
On crowding out of capital on account of higher government borrowings, Mr Joshi of Crisil said it will not happen in the current scenario as private investment is already subdued due to factors like high interest rate regime and global economic turmoil.
Watch 4,900 on the Nifty below which the market may make any move
Pressure on metal stocks after the Cabinet cleared the new Mines Bill, which seeks mining companies to share profit with project-impacted people, and signs of a slowdown dragged the market lower today. Although the Nifty opened below yesterday's close, it managed to make a higher low of 4,924. Yesterday we had mentioned that the Nifty may go up to the level of 5,100 if the lows hold, however, this may take some time to happen. From here, we may see the Nifty moving in the range of 4,900 to 5,000. The National Stock Exchange (NSE) saw a volume of 57.85 crore shares.
Concerns from various policymakers about the slowdown in the domestic economy pulled the index lower at the opening bell today. The Nifty slipped below the 5,000-mark at 4,990, down 25 points and the Sensex declined 98 points to resume trade at 16,600. Profit-booking in early trade saw all sectoral gauges, barring the consumer durables index, trading in the negative.
The US markets closed mixed in overnight trade with analysts asserting that volatility is expected to remain high till euro-zone members commit themselves to preventing a Greek default.
Select buying pushed the market into the green for a short while, helping the indices scale the day's high at around 11am. The market was range-bound till the noon session, but a lower opening of the European indices resulted in the domestic benchmarks falling sharply.
The market continued to drift lower in the post-noon trade and touched the intraday low in the last hour. The Nifty traded in the range of 4,924 to 5,026 and the Sensex swung between 16,405 and 16,745. The market closed marginally above those points in the day's high. The Nifty settled 72 points lower at 4,943 and the Sensex ended the session with a loss of 244 points at 16,464.
The advance-decline ratio on the NSE was 4721:923.
While the Sensex settled with a 1.46% loss, the BSE Mid-cap index fell by 0.58% and the BSE Small-cap index dropped 0.88%.
The decline in the sectoral space was led by BSE Metal (down 2.68%), BSE Realty (down 2.08%), BSE Bankex (down 1.84%), BSE Auto (down 1.76%) and BSE PSU (down 1.62%). BSE Consumer Durables (up 1.02%) was the lone gainer.
Bharti Airtel (up 0.44%) and Reliance Industries (up 0.02%) ended in the positive on the Sensex while Coal India (down 5.15%), Sterlite Industries (down 4.05%), Tata Steel (down 3.99%), Jindal Steel (down 3.78%) and Hero MotoCorp (down 3.01%) were the top losers on the index.
Among Nifty stocks, Sesa Goa (up 4.60%), Ranbaxy (up 2.73%), Power Grid Corporation of India (up 1.59%), Grasim Industries and Ambuja Cement (up 1.16% each) were the top performers. On the other hand, Reliance Capital (down 13.17%), Reliance Communications (down 7.99%), Reliance Infrastructure (down 7.27%), Sterlite Ind (down 4.72%) and Tata Steel (down 4.30%) were the major losers.
Markets in Asia were mostly down on disappointing manufacturing output data from China and factory output from Japan. The HSBC China PMI stood at 49.9 for September 2011, unchanged from the previous month, while Japanese factory output rose 0.8% in August from the previous month. Debt issues in Europe also weighed down the sentiments.
The Shanghai Composite lost 0.26%; the Hang Seng declined 2.32%, the KLSE Composite slipped 0.02%; the Nikkei 225 shed 0.01% and the Straits Times fell by 1.22%. On the other hand, the Jakarta Composite gained 0.34%, the Seoul Composite added 0.02% and the Taiwan Weighted rose 0.60%.
Back home, institutional investors, both foreign and domestic, were net sellers in the equities segment on Thursday. While foreign institutional investors pulled out Rs230.30 crore, domestic institutional investors sold stock worth Rs402.88 crore.
Pharma major Strides Arcolab today said its subsidiary Onco Therapies has received approval from the US health regulator USFDA to market generic Paclitaxel injection, used for treating cancers, in the American market. The product will be launched immediately through Pfizer, with which it has a tie-up, Strides added. The stock fell 0.55% to close at Rs353 on the NSE.
IT services major Mahindra Satyam (formerly Satyam Computer Services) today said it has deployed a new cloud-based managed services platform, 'Enlighta Deliver', to help its clients optimise service delivery performance and service levels. Enlighta Deliver will enable companies to solve client engagements faster without any customisation and offers strong performance management capabilities and faster services delivery. Satyam closed trade at Rs70.40, down 0.91% on the NSE.
Infrastructure Development Finance Company's (IDFC) committee of directors on 28th September approved the shelf prospectus of the proposed public issue of long-term infrastructure bonds of face value of Rs5,000 each. The issue will be in the nature of secured, redeemable, non-convertible debentures, having benefits under Section 80CCF of the Income-Tax Act, 1961, not exceeding in aggregate Rs5,000 crore for the financial year 2011-2012 in one or more tranches by IDFC. The stock declined 2.78% to Rs110.10 on the NSE.
JP Morgan and Baroda Pioneer are launching foreign fund schemes. But why are these foreign fund schemes flooding the Indian market, even as Indian savers are shunning the equity products of their own country?
JP Morgan has again filed an offer document to launched a new foreign fund, JPMorgan Global Financials Equity Off-shore Fund, an open-ended fund of funds (FoF). The primary investment objective of the scheme is to provide 'long-term capital growth' by investing predominantly in JPMorgan Investment Funds-Global Financials Fund, an equity fund which invests primarily in companies from the financial, banking, insurance and property sectors, globally.
The scheme will invest 80%-100% in Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) with high risk profile and it would invest up to 20% in Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) with low risk profile.
The scheme will be benchmarked against Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) and Namdev Chougule will be the fund manager of the scheme.
JP Morgan, whose performance in India is poor, wants to launch a Global Financials Equity Off-shore Fund—that too a scheme which will invest in particular sectors only, such as financial, banking, insurance and property sectors. What do we know about these sectors globally? One fact is clear—the global property sector is already in the dumps now. And above all, it's not clear whether Indians who do not invest in Indian funds for Indian stocks would be keen to invest in funds meant for overseas markets. But a number of fund houses have now planned to raise money to invest in overseas securities.
JP Morgan has already launched a number of offshore funds like JP Morgan America Large Cap Equity Off-shore Fund—which will invest in large blue-chip US companies. JP Morgan ASEAN Equity Offshore Fund will invest in ASEAN countries; JP Morgan Global Natural Resources Fund will invest primarily in natural resources companies globally, many of which are in the early stages of exploration.
It has almost become a fad. Baroda Pioneer Mutual Fund has also filed an offer document with SEBI to launch the Baroda Pioneer Global Equity-Gold & Mining Fund, an open-ended overseas FoF scheme investing in international funds. The investment objective of the scheme is to achieve 'capital appreciation' by investing predominantly in the units of Pioneer Funds-Gold & Mining Fund. The scheme may also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. It could invest a certain portion of its corpus in money market securities and/or units of money market/liquid schemes of Baroda Pioneer Mutual Fund, in order to meet liquidity requirements from time to time.
This scheme would allocate 65% to 100% of assets in units of Pioneer Funds-Gold & Mining Fund, or other similar overseas mutual fund scheme(s) with high risk profile. On the other side, it would allocate up to 35% of assets in money market securities and/or units of money market/liquid schemes of Baroda Pioneer Mutual Fund with low- to medium-risk profile
Its benchmark index will be the MSCI World Metals & Mining Index; the fund will be managed by Uzair Pradhan.
But there have been many releases of such foreign funds. Deutsche Mutual Fund had announced the launch of its DWS Gold and Precious Metal Offshore fund. This will invest predominantly in units of DWS Invest Gold & Precious Metals Equities Fund. DSP Blackrock World Gold Fund invests in a portfolio of gold & precious metal producers from around the world. DSP BlackRock had recently filed an offer document with the Securities and Exchange Board of India (SEBI) to launch four global funds—DSP BlackRock Latin American Fund, DSP BlackRock World Agriculture Fund, DSP BlackRock New Energy and DSP BlackRock China Fund. All four are open-ended FoF schemes investing in units of their respective international BlackRock Fund.
HSBC Brazil Equity Fund, another FoF, recently announced that it plans to channel its corpus into HGIF Brazil Equity Fund, managed by HSBC Global Investment Funds (HGIF). Deutsche Mutual Fund has announced the launch of DWS Gold and Precious Metal Offshore Fund which will invest in DWS Invest Gold & Precious Metals Equities Fund—benchmarked against the S&P BMI Global Gold and Precious Metals Index.
Franklin Templeton launched two foreign funds, FT India Feeder-Franklin US Opportunities Fund which seeks to provide capital appreciation by investing in overseas mutual funds/unit trusts that primarily invest in US securities; FT India Feeder-Templeton Asian Growth Fund which will invest in overseas mutual funds/unit trusts that primarily invest in securities in Asia.
Loose global monetary regimes across the globe had attracted foreigners to the Indian equity markets, and this 'hot' money had fuelled Indian indices. But Indian savers are avoiding Indian equities, despite the enormous value that Indian stocks have created over the past two decades. This has resulted in dwindling retail participation of Indians in domestic markets. Shouldn't Indian fund houses try to tap Indian savings for Indian schemes? That's not the case—many mutual funds promoted by foreign fund companies are furiously bringing in foreign funds into India to channelize Indian savings into overseas equities.
Global funds do offer diversification benefits by investing in stocks like biotech, technology, energy, agriculture and mining, which an Indian investor may not be able to buy by investing only in domestic schemes. But funds that put your money in other countries don't necessarily offer another round of diversification.
Markets in countries around the world have been moving in sync. During April 2010-March 2011, the Sensex was up 10% while the MSCI Emerging Markets Index was up 14%. Non-correlated market movement is not easy to find. That apart, you are exposed to risks unique to different countries and sectors that you know nothing about. Choose very carefully before sinking your money in these 'foreign' funds.