Bonds, Currencies & Commodities
SEBI to auction over Rs10,000 crore debt investment for FIIs

SEBI is conducting auction in government and corporate debt security investments worth Rs10,616 crore or over $1.9 billion on 20th November for foreign investors

New Delhi: Enthused by growing interest of foreign investors in debt securities in the country, market regulator  Securities and Exchange Board of India (SEBI) will conduct an auction this week for investment worth over Rs10,000 crore by foreign investors, reports PTI.
The auction will be conducted on 20th November in both the government and corporate debt securities.
There are individual caps on investment by foreign institutional investors (FIIs) in each category and SEBI conducts monthly auctions for the available limits within these caps.
At the last month's auction, the FIIs had bid aggressively for both the government and corporate bonds.
Incidentally, the FII investment in Indian debt market hit its eight-month high level of Rs7,852 crore (about $1.5 billion) last month.
A higher amount of Rs10,016 crore was invested by FIIs into the Indian debt market in February this year.
This month, SEBI is conducting auction for government and corporate debt security investments worth a total of Rs10,616 crore or over $1.9 billion.
SEBI has relaxed norms for FIIs' debt investment by allowing them to avail the debt limits in the corporate debt (long-term infrastructure category) without obtaining its approval till the overall FII investments reaches 90% of a prescribed cap of $12 billion (Rs53,806 crore).
After 90% of this limit, FIIs would need to bid through an auction mechanism for allocation of remaining limits or about Rs5,381 crore in this category.
As per SEBI data, an investment limit of about Rs26,000 crore was available in this category as on 31 October 2012.
There are two categories of government debt bonds with $10 billion of FII investment cap in each of them, while different categories of corporate debt securities face investment limits ranging from $one billion to $20 billion.


World Bank fears devastating 4.0 degree warming

According to a World Bank study, the planet could warm 4.0 degrees Celsius above pre-industrial levels in as early as the 2060s if governments' promises to fight climate change are not met

Washington: The World Bank has warned that global temperatures could rise by four degrees this century without immediate action, with potentially devastating consequences for coastal cities and the poor, reports PTI.


Issuing a call for action, the World Bank tied the future wealth of the planet -- and especially developing regions -- to immediate efforts to cut greenhouse gas emissions from sources such as energy production.


"The time is very, very short. The world has to tackle the problem of climate change more aggressively," World Bank President Jim Yong Kim said yesterday on a conference call as he launched a report conducted for the global lender.


"We will never end poverty if we don't tackle climate change. It is one of the single biggest challenges to social justice today."


The study said the planet could warm 4.0 degrees Celsius (7.2 Fahrenheit) above pre-industrial levels as early as the 2060s if governments' promises to fight climate change are not met.


Even if nations fulfill current pledges, the study gave a 20% likelihood of a four-degree rise by 2100 and said that a three-degree rise appeared likely. UN-led climate negotiations have vowed to limit the rise of temperatures to no more than two degrees.


"A four-degree warmer world can and must be avoided. We need to hold warming below two degrees," Kim said. "Lack of ambitious action on climate change threatens to put prosperity out of reach of millions and roll back decades of development."


UN Secretary-General Ban Ki-moon said in a statement that the study showed the need to hold nations to their commitment, made last year in Durban, South Africa, to put in place a legally binding new climate agreement by 2015.


The more than 190 nations in the UN Framework Convention on Climate Change start their latest annual talks on November 26 in Qatar.


Global temperatures have already risen about 0.8 degrees Celsius. The planet has charted a slew of record-breaking temperatures over the past decade and experienced frequent disasters some experts blame on climate change, most recently superstorm Sandy, which ravaged Haiti and the US East Coast.


The report said that, if temperatures rise by four degrees, regions will feel different effects -- recent heatwaves in Russia could become an annual norm and July in the Mediterranean could be nine degrees higher than the area's warmest level now.


Under that scenario, the acidity of the oceans could rise at a rate unprecedented in world history, threatening coral reefs that protect shorelines and provide a habitat for fish species.


RBI must enter forex market to support rupee, curb inflation: BoA-ML

According to BofA-ML, the Indian rupee will remain volatile till RBI recoups the forex reserves of $65 billion, including the forwards which it had sold since the 2008 global credit crisis

Mumbai: Leading brokerage Bank of America- Merrill Lynch (BofA-ML) has said that the Reserve Bank of India (RBI) needs to intervene in the forex market to recoup the rupee and thus arrest the imported inflation, considered the main reason for spiralling prices, reports PTI.
Stating that lending rate cuts and higher forex reserves hold keys to the market and growth recovery, a BoA-ML India report, authored by its chief economist Indranil Sen Gupta, said: "The rupee will remain volatile till RBI recoups the forex reserves of $65 billion, including the forwards which it had sold since the 2008 global credit crisis following the fall of Lehman Brothers."
"We do not expect the forex market to get bullish on the rupee until the RBI has recouped forex reserves. After all, the country's import cover has halved to just about seven months -- the least since 1996....
"The RBI will need to buy $90 billion if it is to replenish the import cover to even nine months. Just as importantly, the forex market will also fear that the rupee may see disproportionate losses in case the dollar shoots up," Sengupta said.
The report also said that to stabilise the rupee "the best solution surely will be for RBI to accumulate forex and buy the rupee."
On imported inflation, it said a 10% fall in the rupee translates itself into a 100 bps rise in inflation.
Stating that non-intervention is the reason for the rupee fall, it noted that RBI is not buying forex to comfort the market because it thinks that market may sell the rupee due to a forex shortage which will further fuel inflationary pressures.
The report notes that "in September-November 2011, the steep 13.4% of the rupee depreciation was, after all, aggravated by payment of bunched up dues of about $5 billion to Iran for oil imports. A 10% depreciation of the currency typically translates into 100 bps of inflation." 
The rupee is the second worst performer among the BRICs currencies, after the Brazilian real, losing nearly 19% since September 2011, the report said.
Last Friday, the rupee hit a two-month low of 55.15 to the dollar. The life-time low of the local unit was in mid-June when it had plunged to 57.15 to the greenback. In the year-to 2nd November, the RBI had sold over $21 billion to prop-up the rupee. Between August and December 2011, the rupee had lost 17%.
"The RBI should then achieve its twin objectives of stabilising the forex market and reducing 'imported' inflation pressures. The forex market could easily make 5-10% and its gains would be relatively better protected if RBI is in a stronger position to protect the rupee from contagion," the report said.
The report said "not only has RBI not been able to buy forex, but it has also actually had to sell $14 billion forwards.
"Barring occasional bouts of optimism, most of which have ended in grief, the forex market has sold the rupee for the large part since end-2011. If this continues, the local unit would become a story of lower tops and deeper bottoms," it warned.
Stating that higher forex reserves can drive the rupee again in the 1990s fashion it said, "With the import cover down to seven months, last witnessed in 1996, RBI will again have to generate investor confidence by recouping forex reserves." 
In the 1990s, the RBI used to build forex reserves as insurance cover to protect the balance of payments from a 1991-type crisis. The then governor Bimal Jalan and deputy governor YV Reddy used to buy as much forex as possible during capital inflows and sell as little as they could during capital outflows.
They also floated the 5-year Resurgent India Bonds in 1998 after the Asian crisis and India Millennium Deposits in 2001 to raise $5 billion each, after the dotcom bust.
As these measures built up forex reserves, improved investor confidence led to capital inflows and by extension, appreciation. In fact the rising forex reserves drove the rupee during the FY98-2004 period.
Noting that RBI's exchange rate policy shifted gears by the mid-2000s, the report said surplus capital inflows began to push up the rupee. As a result, the RBI had to buy forex during the up-cycle of 2004-07 to stop undue appreciation the report noted.
However, it notes that the situation changed dramatically after the Lehman crisis. Capital outflows began to pull down the rupee. In response, RBI had to sell dollars to prevent a run on the rupee in 2008 and end-2011.
But it also notes that RBI attempts propping up the rupee between the second half of of 2009 and first half of 2011 against imported inflation at the cost of buying forex, pulled down the import cover down to 1990s levels.


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