Economy
What Brexit could mean for India
Markets bracing for the Monday of the week of "Brexit", when Britain possibly exits from the European Union, will now, following the BSE Sensex fall of 400 points last week provoked by this possibility, now have to contend with the shock news of RBI Governor Raghuram Rajan's Saturday decision to step down when his term ends in September.
 
Rajan's bombshell, coming just ahead of the Brexit vote on June 23, could trigger volatility in the stock bond and currency markets.
 
In the letter to his colleagues on Saturday announcing that he was not seeking a second term and will return to academia when his tenure ends in September, Rajan made reference to the upcoming referendum in Britain.
 
"Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit," he said.
 
But the biggest risk to the key equity indices stems from Britain's possible exit from the EU. There might be far-reaching effects on global stock markets, as well as the international currencies, if Brexit materialises.
 
Besides, domestic investors will be concerned about the direct negative impact that some of the India-based companies and sectors that have investments and exposure to Britain will suffer.
 
The possible British exit will also lead to greater investments into less risky assets like gold and increase the overall outflows from the domestic equity markets.
 
"It is expected that the market would remain a little volatile due to the global events. Brexit is expected to heighten global volatility, thereby impacting capital flows at home," D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, told IANS.
 
Minister of State for Finance Jayant Sinha has said the government is assessing the possible fallouts of Brexit.
 
Both Brexit and Rajan's decision not to seek a second term might flare up volatility in the Indian equity markets in the upcoming week.
 
Investors will also be concerned over an initial deficit in monsoon rains, fluctuations in rupee value and food prices.
 
According to market observers, come Monday, June 20, a dour mood is expected to engulf investors.
 
"The RBI Governor's exit news could prompt investors to recheck their bullish convictions," Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services, told IANS.
 
But the biggest risk to the key equity indices stems from the possible exit of Britain from the EU, with the decision subject to a referendum which will be conducted on June 23.
 
"India invests more in the UK than in the rest of Europe combined, emerging as the UK's third largest FDI investor. Access to European markets is therefore a key driver for Indian companies coming to the UK," said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII).
 
"Anything that lessens this attractiveness may have a bearing on future investment decisions. It is important also to ensure continued border-free access to the rest of Europe for the many hundreds of existing Indian firms that have base in the UK," he added.
 
Britain ranks 12th in terms of India's bilateral trade with individual countries. It is also among just seven in 25 top countries with which India enjoys a trade surplus.
 
As per data with the Commerce and Industry Ministry, India's bilateral trade with Britain was worth $14.02 billion in 2015-16, out of which $8.83 billion was in exports and $5.19 was in imports. The trade balance thus was a positive $3,64 billion.
 
This apart, the country brief of India's Ministry of External Affairs says Britain is also the third largest investor in India after Mauritius and Singapore, with a cumulative inward flow of $22.56 billion between April 2000 and September 2015.
 
Likewise, India is also the third largest investor in Britain. Last year alone the value was estimated at 1.9 billion pounds (around $2.75 billion). "UK attracts more Indian investments than the rest of the EU altogether," says the brief.
 
A. Didar Singh, secretary general, of industry chamber Ficci has said: "We firmly believe that leaving the EU would create considerable uncertainty for Indian businesses engaged with UK and would possibly have an adverse impact on investment and movement of professionals to the UK."
 
Also, if Britain does leave the EU, it could lead to volatility in the pound, which would increase the risks for Indian businesses.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Regulations on a new tax regime, foreign portfolio investors and new bankruptcy code will transform India’s finance market
Global credit rating agency Moody's Investors Service on Monday said the three recent regulatory changes made by India will have transformative implications for its structured finance market.
 
"The changes will improve returns to investors, promote foreign investment, and improve the resolution process in the event of default, thereby strengthening creditor rights," Vincent Tordo, an analyst with Moody's, was quoted as saying in a statement.
 
"Specifically, the measureas are a new tax regime that will lift post-tax investment returns from securitisation trusts; changes in regard to foreign portfolio investors (FPIs) that will encourage foreign investment and changes to deal structures; and a new bankruptcy code that will reinforce creditors' rights," Tordo said.
 
Moody's conclusions were contained in a just-released report on India's securitisation market, "New Regulations Pave Way for Market's Transformation; Improved Creditor Rights".
 
"Together, these three changes will help -- as indicated -- further develop India's structured finance market, and allow securitisation to play a bigger role as a source of funding in the economy, an objective promoted by the government," said Tordo.
 
According to Moody's, the new tax rule will increase post-tax returns from investments in pass through certificates (PTCs). The issue volume of PTCs have fallen due to lower demand from bank investors put off by current lower returns.
 
The participation of foreign investors through the new FPI rules will help the Indian market evolve so that it becomes more in line with global practices; for example, encouraging it to evolve away from structures with single tranches and single investors into those with multiple tranches and multiple investors.
 
The bankruptcy code, once implemented, will over time strengthen the legal framework of India's credit markets by significantly increasing the bargaining power of creditors against debtors in the resolution of distressed assets, Moody's said.
 
The code will also provide greater clarity on the insolvency process, a key aspect of the risk analysis of securitisation transactions, Moody's said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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India eases foreign equity norms for defence, aviation, retail
Putting its economic liberalisation agenda on the fast track, India on Monday relaxed its foreign equity norms further, notably in defence, aviation, pharmaceuticals and retailing, with automatic approval rather than a case-based route as the preferred model.
 
In aviation, extant policy allowed up to 49% foreign equity in scheduled airlines under the automatic route. Now, while the cap has been raised to 100%, up to 49% would be under automatic and beyond that will be under the government approval routes, officials said.
 
Then in pharmaceuticals, both greenfield and brownfield projects could get 100% foreign capital, but with an automatic route for the former and government route for the latter. Now, brownfield projects, too, will come under automatic route for up to 74%.
 
In defence manufacturing, the 49% norm under automatic approval will continue. But while looking at the proposals that call for investment beyond 49%, a condition that they will bring with them access to "state-of-the-art" technology has been done away with.
 
"The Union Government has radically liberalized the foreign direct investment regime today, with the objective of providing major impetus to employment and job creation," an official statement said.
 
"The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi. This is the second major reform after the last radical changes announced in November 2015. Now most of the sectors would be under automatic approval route, except a small negative list," it said.
 
"With these changes, India is now the most open economy in the world for foreign investment."
 
Commerce and Industry Minister Nirmala Sitharaman told reporters later that the steps taken on Monday were in line with the idea of making India a preferred destination for industry with a focus on employment. She said investments shall be encouraged so that more jobs can be created.
 
"We've made sure foreign equity inflows are given a clear direction with the objective of 'Make in India'. Our focus clearly is on creating jobs and ensuring that India becomes a manufacturing hub," the minister added.
 
Other Highlights:
 
- Foreign equity of 100% under government approval for trading in processed foods, including via e-commerce, in respect of products manufactured in India.
 
- Foreign equity of 100% under automatic route in broadcast service industry, including direct-to-home, mobile TV, head-end in the sky and cable networks.
 
- Equity cap on private security agencies tweaked to permit up to 49% under automatic route, as opposed to government nod, and up to 74% under government route, which was not permitted at all earlier.
 
- The requirement of local sourcing relaxed for three years and some sops in this regard for five years for foreign equity in single-brand retailing, for products having state-of-art and cutting edge technologies.
 
The decision on single brand retailing should particularly help US-based Apple which has its own stores globally but sells through other retail chains in India due to sourcing restrictions.
 
"Today’s amendments to the foreign direct investment policy are meant to liberalise and simplify the policy so as to provide ease of doing business in the country leading to larger inflows, contributing to growth of investment, incomes and employment," the statement said.
 
In the past two years the Narendra Modi Government has made major policy reforms in the area of foreign direct investment in areas such as defence, construction, insurance, pension, single-brand retailing, plantations and aviation.
 
As a result, official data suggests, India attracted $55.46 billion worth of foreign investment in 2015-16, against $36.04 billion during the financial year 2013-14. "This is the highest ever foreign direct investment inflow for any particular financial year," the statement said.
 
"However, it is felt the country has potential to attract far more foreign investment, which can be achieved by further liberalising and simplifying the foreign investment regime. India today has been rated as Number One FDI investment destination by several international agencies."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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