According to Nomura, the import curbs announced by the Indian government are a mere quick-fix approach. The reality is that the current account deficit-CAD is high for various fundamental reasons but nothing much is being done to address this
Continuing on its drive to restrict imports to improve the current account deficit, the Indian government announced that airline passengers would no longer be able to import duty-free flat-screen televisions from 26th August. This announcement, along with other import curbs announced last week, is aimed at lowering India's non-essential imports at a time when the country is facing balance of payments pressures.
"The reality is that the current account deficit (CAD) is high for various fundamental reasons, but nothing much is being done to address that. The risk is that policymakers will need more pressure from a weaker currency to come out with stronger policy responses. In this toing and froing between the government and the Reserve Bank of India (RBI), we see greater collateral damage to the economy due to rising bank asset quality concerns, greater stress on corporate balance sheets because of higher leveraging and increased margin pressures, and therefore, much slower economic growth," said Nomura Financial Advisory and Securities.
As per the announcement, passengers will have to pay a 35% customs duty along with other charges. Electronic goods imports have been growing in recent years, led mainly by higher mobile and TV sets. According to news reports, government officials estimate more than one million TV sets were brought into the country last year under a scheme that allowed airline passengers to bring in screens worth up to Rs35,000 as part of their baggage allowances.
Nomura feels that these are unlikely to create a big ripple, but it is an important signal that the government continues to adopt a quick-fix approach to current problems.
"The underlying assumption is that the funding gap is a temporary problem, which can be tided over through such artificial trade barriers. Not surprisingly, Indian rupee continued to depreciate against the US dollar. We do not see any quick fixes for the economy anymore," Nomura said.
Accordingly, Nomura said, it remains negative on India's economic outlook over the next six to nine months.
Many foreign funds of the have been launched as a marketing gimmick and do not offer investors much diversification. Is the new scheme from Axis Mutual Fund any different?
Axis Mutual Fund recently filed an offer document with the regulator to launch an open ended fund of funds scheme investing in a foreign fund. This scheme would invest 95%-100% of its assets predominantly in units of Schroder International Selection Fund Asian Opportunities or other similar overseas mutual fund schemes. The remaining portion would be invested in debt & money market instruments which may include units of money market/liquid schemes of Indian mutual funds. Schroder International Selection Fund Asian Opportunities launched in October 1993 is one of the funds under the Schroder International Selection Fund. Schroder’s is a global investment company that manages around 580 funds globally with a total corpus of $388 billion.
Moneylife has analysed in the past on how global funds that put your money in other countries don’t necessarily offer much diversification. (Read: Global Funds: Lacklustre performance) Other similar schemes include: ICICI Prudential Indo Asia Equity Fund, JPMorgan Asean Equity Offshore Fund, Mirae Asset India-China Consumption Fund and Franklin Asian Equity Fund. The performance of these four schemes is as follows:
The underlying scheme—Schroder International Selection Fund Asian Opportunities— has a track record of nearly 20 years, aims to provide capital growth primarily through investment in equity securities of Asian (ex Japan) companies. At least two-thirds of the fund (excluding cash) will be invested in shares of companies in Asia, excluding Japan. The fund has no bias to any particular industry or size of company. The fund believes that Asia offers superior economic growth potential, with China and India providing key support.
As on 31st July 2013, out of its corpus of $1.64 billion, the fund has invested nearly 39% of its assets in companies listed in China, and, around 11% each in companies based in South Korea and Taiwan. Around 7% of its portfolio is invested in companies from India. Out of its total of 61 holdings, the top five holding include Taiwan Semiconductor Manufacturing, Samsung Electronics, Jardine Matheson Holdings, Hyundai Motor and AIA Group. Over the one-year, three-year, five-year and ten-year period ended 31st July, the scheme has beaten its benchmark.
Sudhanshu Asthana, who has an experience of over 10 years, would be the fund manager of the scheme. The performance of the scheme would be benchmarked to MSCI AC Asia ex Japan Net TR index.
Other details of the scheme
Minimum amount for purchase/Switch in
Rs. 5,000 and in multiples of Re 1/- thereafter
Minimum Additional Purchase Amount
Rs.100 and in multiples of Re. 1/- thereafter
3% if redeemed / switched - out up to 6 months from the date of allotment
2% if redeemed / switched - out after 6 months & up to 12 months from the date of allotment
1% if redeemed / switched - out after 12 months & up to 24 months from the date of allotment
Foreign shareholding in Axis Bank has crossed 49% and the lender filed an application before FIPB to increase the limit
Axis Bank, India’s third largest private sector lender, said it applied to the Foreign Investment Promotion Board (FIPB) to increase its foreign shareholding limit.
Last month, the Reserve Bank of India (RBI) issued a notice to Axis Bank notifying that the foreign shareholding in the bank had crossed the overall limit of 49% of its paid-up capital and that no further purchases of shares of the bank would be allowed.
“The foreign shareholding by global depository receipts (GDRs), American depository receipts (ADRs), foreign direct investment (FDI), non-resident Indian (NRI), persons of Indian origin (PIO) and foreign institutional investors (FIIs) in Axis Bank has crossed the limit of 49%. No further purchases in the shares of the bank would be allowed through stock exchanges in India on behalf of GDR, ADR, FDI, NRI, PIO and FIIs,” the central bank had said in the notification.
As of June 2013, the foreign shareholding in Axis Bank 48.96%, including investments through the foreign direct investment (FDI) route in the form GDRs of 8.08% and other foreign holdings, including FIIs, of 40.88%, the lender said in a regulatory filing.