The key assumption behind the expected recovery of the rupee is that developed economies will witness slowdown, but they will avoid another recession. This will lead to a pick-up in FII inflows towards early 2012 as the risk appetite for investment in emerging markets returns, rating agency Crisil said in a report
New Delhi: Rating agency Crisil on Monday said it expects the rupee to strengthen to Rs45-Rs46 level against dollar in the next five months on the back of pick-up in foreign institutional investment (FII) inflows towards early 2012, reports PTI.
The rupee is expected to strengthen to Rs45-Rs46 per dollar by March 2012, from the current lows of around 50, Crisil said in a report.
The rupee in the past one month has dived from 45 level to near 50 levels against the US currency on continued FII outflows and strong dollar overseas.
The Rupee closed at 49.45/46 against the dollar yesterday.
The key assumption behind the expected recovery of the rupee is that developed economies will witness slowdown, but they will avoid another recession. In our opinion, this will lead to a pick-up in FII inflows towards early 2012 as the risk appetite for investment in emerging markets returns, it said.
However, in a worst-case scenario, it said, a potential double dip in growth in advanced economies could have a sharper-than-expected impact on the Indian currency, causing it to slide further and prolonging its recovery.
The rupee fell to almost 50 against the dollar on 23rd September from 44.4 in July 2011. The fall is almost as steep as that during the peak of Lehman crisis in 2008, it said.
The rupee depreciation during the Lehman episode was characterised by a global recession and the consequent credit freeze. The current slide of the rupee is due to two factors—first, rising demand for dollars by Indian companies, in conjunction with reducing supply of dollars due to weak FII inflows, it said.
Repayment pressures on corporate India, rather than capital outflows, seem responsible for the sharp weakening of the rupee, it said.
While rising risk aversion has led to portfolio outflows from India in the past few weeks, the quantum of outflows has not been too large, it said, adding, in fact, the withdrawal of portfolio investments from India during August-September 2011 has been much lower as compared to October 2008 and January-March.
The entities, which include banks and fund managers, would have to be registered with a Self Regulatory Organisation (SRO) as investment advisors, said the concept paper on Regulation of Investment Advisor issued by SEBI
Mumbai: In the backdrop of the alleged multi-crore fraud by a Citibank employee, market regulator Securities and Exchange of Board of India (SEBI) on Monday proposed to bar investment advisors from acting as agents for promoting financial products, reports PTI.
The entities, which include banks and fund managers, would have to be registered with a Self Regulatory Organisation (SRO) as investment advisors, said the concept paper on Regulation of Investment Advisor issued by SEBI.
“No financial incentives/consideration would be received from any person other than investors seeking advice. In case of advice regarding investment in entities related to the investment advisor, adequate disclosures shall be made to investor regarding the relationship,” said the paper on which SEBI has invited comments from stakeholders by 31st October.”
It further said, “The person who interfaces with the customer should declare upfront whether he is a financial advisor or an agent of the manufacturer.”
The paper further said that “conflict of interest in the financial product distribution space” due to the dual role played by the distributors raises doubt on their credibility to protect interest of investors.
“This (conflict of interest) is due to the fact that with respect to many financial products, agents receive their payments from two sources: commissions from the manufacturers, and advisory fees or other charges received from the investors,” it added.
The paper has proposed that investment advisors, or banks providing such services, should be regulated by an SRO, registered with SEBI.
It also said the advisors should be strictly identified as ‘investment advisors’ and not by names like wealth managers or private bankers. Besides, they should be highly qualified.
“This causes much confusion as to their role and responsibility. Hence the (proposed) regulations will provide that no person can carry on the activity of offering investment advice unless he is registered as an investment advisor under the regulations,” SEBI said.
Last year, a Rs461-crore fraud was unearthed at Citibank’s Gurgaon branch allegedly engineered by its global wealth manager Shivraj Puri.
SEBI’s proposed regulatory framework intends to regulate the activity of providing investment advisory services in various forms by a wide range of entities, like independent financial advisors, banks and distributors.
Duties of an SRO would include registering and setting professional standards for investment advisors.
“While the activity of giving investment advice will be regulated under the proposed framework through an SRO, issues relating to financial products other than securities shall come under the jurisdiction of the respective sectoral regulators...,” the paper added.
Reliance’s stated aim is “transforming the DNA” from being a predominantly energy major to a more consumer-focused business group. Will it work?
Reliance Industries (RIL) is known to be moving away from a focus on its energy business, to create a larger and more diversified conglomerate. The emphasis is on a stable consumer-focused business to capitalise on consumer opportunities in the Indian economy. Of course, major investments would still be done in the energy & petrochemical business, but Reliance is keen to develop retail, financial services, telecom, and other infrastructure. According to published reports, total investments in all these ventures would aggregate more than Rs1,00,000 crore over the next five years alone.
However, these ambitious plans hit a block when its retailing business, Reliance Retail failed to take off. It had to shut down around 100 stores of its food-retailing arm, Reliance Fresh, after it ran into trouble in the northern heartland when it had to put up with a political storm.
Now, in a bid to revamp its retail business, RIL has brought in new management talent over the last six months to reinvigorate the segment. Media reports have indicated that RIL has hired former Wal-Mart executives, Rob Cissell (former CEO of the US-based giant retailer) and Shawn Gray (former COO). Reliance Retail is finally shifting its emphasis to eliminating supply-chain efficiencies and strengthening the back-end of its business—both of which were proven to be weak links in the past.
Again, RIL plans to focus on a mix of retail and wholesale cash & carry formats. It is looking at an initial rollout of 14 such stores in select cities across India under the name 'Reliance Market'. In a few cases, the existing hypermarkets will be expanded to merge with the new business model.
RIL is also looking at expanding its presence in the IT domain. IDFC, a brokerage & analyst firm expects that the opportunity provided by the broadband space "warrants optimism." The firm feels that with LTE (Long Term Evolution) formats gaining credence globally in the broadband space, the technology ecosystem to implement the system will be in place earlier than what people estimate. Again, data services as a percent of business for telecom companies are rising globally, and the same trend is expected to be replicated in India. But the question is if the number of India's broadband consumers will grow at a scorching pace. Last year, various reports indicate that India had only 12 million broadband subscribers. Does that justify RIL's optimism?
RIL is looking at investing $5 billion into this venture, and it hopes that this business will deliver a return of potential sustainable EBITDA (earnings before interest, tax, depreciation and amortisation) of $400 million-$800 million. Though IDFC sees "long-term promise in the opportunity," this will be a tough task. A rough estimate indicates that broadband users will have to be around 150 million in around 5 years for this foray to yield substantial margins.
RIL has recently announced entry into the financial services space (in addition to insurance) in a joint venture with US-based DE Shaw & Co, an international financial services firm which manages around $20 billion globally. The venture has indicated plans to enter into several segments of the financial value chain including (i) private and project equity, (ii) investment banking and brokerage, (iii) asset management and (iv) advisory services. But this space is crowded, and the markets-both local and global—are not out of the woods yet.
In the June AGM, RIL chairman Mukesh Ambani had promised that the company would become "debt-free" by 31 March 2012.
Though IDFC seems optimistic about RIL's future, not many seem to be convinced—the company's falling share price is surely an indication. It has a long way to go before it comes close to its debt-free goal.