Weak IIP numbers: Industry asks RBI to halt rate hikes

“Any increase in interest rates at this stage will directly impact capacity additions and job creation. Monetary tightening measures to combat the stubbornly high inflation could also have long-term ramifications,” Assocham secretary general DS Rawat opined

New Delhi: Concerned over slowdown in industrial production growth, which plunged to a 21-month low of 3.3% in July, industry on Monday called upon the Reserve Bank of India (RBI) to halt its policy of hiking interest rates, reports PTI.

“The July Index for Industrial Production (IIP) data was disappointing and vindicates our expectation that the industrial sector will continue to show weak performance... CII urges the RBI to refrain from raising interest rates at its forthcoming monetary policy meeting,” CII director general Chandrajit Banerjee said.

The July data was disappointing as compared to a healthy 9.9% growth in the year-ago period. Also, the IIP grew by 8.8% in June.

The capital goods sector was the worst performer with a decline of 15.2% during the month, reflecting erosion of investor confidence. Manufacturing and mining were other laggards.

“CII is concerned about the investment outlook, given the weakness in the capital goods sector. The outlook for the sector remains weak, given that order books of capital goods companies are showing signs of moderation,” Mr Banerjee said.

The chamber asked the government to fast-track the implementation of key projects.

Ficci termed continuation of negative growth in sectors like chemicals, textiles and apparels as a cause for concern and said government should provide relief to the industry by lowering the interest cost burden.

“The situation is indeed serious as both manufacturing and mining sectors’ growth has dipped significantly vis-à-vis last year, and unless corrective policy actions are taken we may enter the negative territory soon,” Ficci secretary general Rajiv Kumar said.

The slowdown in factory output is worst since October 2009 when it grew at 2.3% when the economy was reeling under the impact of the global financial crisis.

The slowdown is being attributed to high interest rates and worsening global economic scenario.

RBI, which has raised key interest rates 11 times since March 2010, is scheduled to review the rates again on 16th September.

Inflation has been above the 9% mark since December 2010 and experts have said the August number, which is to be released on 14th September, is likely to be near double-digit, thus putting further pressure on the apex bank to continue with its policy of monetary tightening.

“Any increase in interest rates at this stage will directly impact capacity additions and job creation. Monetary tightening measures to combat the stubbornly high inflation could also have long-term ramifications,” Assocham secretary general DS Rawat said.

The PHD Chamber also asked the RBI to halt its monetary tightening and said any further rate hikes will affect both the industry and the overall economy.

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Sahara disguised OFCD issue prospectus as a DRHP: SEBI

SEBI counsel Arvind P Datar told the Securities Appellate Tribunal (SAT) that the Sahara Group disguised its prospectus for the OFCD issue as a draft red herring prospectus, as it had contained the details of price and quantum of the issue among other things

Mumbai: Market watchdog Securities and Exchange Board of India (SEBI) on Monday charged the Sahara Group with disguising its prospectus for the optional fully convertible debenture (OFCD) issue as a draft red herring prospectus (DRHP), as it had contained the details of price and quantum of the issue among other things, reports PTI.

“My submission is that the Sahara Group had actually issued their public issue prospectus disguised as a DHRP. A DHRP does not have the price or the quantum of securities. But the Sahara Group’s DHRP contained the price and quantum, as well as the period of maturity and conversion value. So, it was a full-fledged prospectus which was issued.

“This cannot be called a DHRP and hence cannot escape SEBI’s jurisdiction,” SEBI counsel Arvind P Datar told the Securities Appellate Tribunal (SAT) on the fifth day of the hearing to the OFCD issue.

SEBI had asked two Sahara Group companies to refund the money they collected through this issue, which was challenged by the company at the SAT.

The SEBI counsel said under Section 236 of the Companies Act, any document inviting deposits or offer of any shares or debentures, is termed as a ‘prospectus’. He further argued that the two Sahara Group companies also violated the provisions of SEBI’s disclosure & investor protection guidelines.

Refuting Sahara’s earlier argument that there were legal fetters which ensured that its OFCDs were not ‘marketable’ securities, he said any security which has a market value is tradable and ‘marketable’.

“Such arguments are merely to escape provisions of the Securities Contract (Regulation) Act (SCRS). The marketability argument cannot take it out of the SCRA’s purview. They cannot escape SCRA and SEBI Act,” he said.

Mr Datar also refuted Sahara's earlier argument that OFCDs were ‘hybrid’ instruments over which SEBI has no jurisdiction.

“They never intended to issue any ‘hybrid’. Even in 2009, they kept on calling it a debenture issue. It has been called a debenture in their auditor’s report as well as the returns they filed,” he argued, quoting from these documents.

Further arguments related to the case will resume on Wednesday.

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Govt relaxes norms for FII investments in infra sector

Under the revised norms, FIIs would be allowed to invest up to $5 billion out of the total limit of $25 billion in long-term infrastructure bonds, with an initial maturity of five years and lock-in period of one year

New Delhi: Concerned over low inflow of foreign institutional investor (FII) funds into long-term corporate bonds, the government on Monday announced relaxation in the norms that would allow foreign investors to invest in infrastructure bonds and trade such instruments among themselves, reports PTI.

Under the revised norms, which would be notified by the market regulator Securities and Exchange Board of India (SEBI), FIIs would be allowed to invest up to $5 billion out of the total limit of $25 billion in long-term infrastructure bonds, with an initial maturity of five years and lock-in period of one year.

The relaxation in guidelines follows low inflows of FII funds in corporate bonds. While the government on 31 March 2011 had raised the investment limit in such bonds from $5 billion to $25 billion (Rs1.12 lakh crore), only $109 million (Rs500 crore) has been received so far.

“...consultations were held with the stakeholders on the issue and it was concluded that the three-year lock in period and doubts regarding the residual maturity of five years were discouraging FIIs from investing in this scheme,” a release said.

The government, it said, has modified the scheme in consultation with the Reserve Bank of India (RBI) and SEBI to “make it more attractive to FIIs”.

SEBI last month had allowed Qualified Foreign Investors (QFIs) to invest up to $3 billion, out of the limit of $25 billion, in Mutual Fund Debt Schemes which invest in the infrastructure sector.

Out of the remaining $22 billion, $5 billion could be invested by FIIs in long-term infrastructure bonds “with an initial maturity of five-years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs”.

These investments, it said, will be subject to lock-in period of one year. The FIIs would also be allowed to trade such securities among themselves within that period and sell to domestic investors after expiry of one year.

It further said that the remaining $17 billion limit would be available to FIIs and can be invested in long-term infrastructure bonds with an initial maturity of five years or more and residual maturity of three years at the time of first purchase by FII.

The lock-in period for such investments would be three years. However, FIIs would be allowed to trade such instruments among themselves during the three-year period and after that they would be allowed to sell them to domestic investors.

The government proposes to double investment in infrastructure sector to $1 trillion during the 12th Plan (2012-17).

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