June 22th - June 27th, 2015
‘Global economy staring at Great Depressionlike woes’
Problem a ‘broader’ one and for all, not just industrial, emerging markets: Rajan
T
he
global
economy
is
“slowly slipping” into Great
Depression-like problems of
the 1930s, Reserve Bank of India
(RBI) Governor Raghuram Rajan has
cautioned, asking central banks from
across the world to define the “rules
of the game” to find a solution.
Rajan, among the few to have
predicted the 2008 financial crisis,
said the problem was a “broader”
one and for the entire world, not just
for industrial countries or emerging
markets. The former International
Monetary
Fund
(IMF)
chief
economist, who had earlier warned
against competitive monetary policy
easing by central banks globally, said
the situation was different in India
on this front, adding RBI was more
focused on reducing lending rates to
spur investment.
“We need rules of the game in order
to effect a better solution. I think it
is time to start debating what the
global rules of the game should
be on what is allowed in terms of
central bank action”, he said at a
London Business School event here.
The RBI governor was addressing a
conference organised by AQR Asset
Management Institute on ‘The
Central Banker Perspective’.
“I am not going to venture a guess
as to how we establish new rules of
the game. It has to be international
discussion, international consensus
built over time, after much research
and action”, he said.
“But I do worry that we are slowly
slipping into the kind of problems
that we had in the 30s in attempts
to activate growth. And, I think it’s a
problem for the world. It’s not just
a problem for industrial countries
or emerging markets. Now, it’s a
broader game”.
The Great Depression refers to a
period of severe global economic
downturn in the 1930s, which had
affected almost all countries. It
began in 1929 and continued till
the late 1930s, the longest and
most widespread period of global
economic depression.
Asked about interest rate cuts from
an Indian perspective, Rajan said, “I
try to shut out market reactions as
far as I can. We (India) are still in a
situation in which we have to spur
investment and I am worried more
about that….So, I shut out the asset
price reaction and think more about
‘is this going to bring bank lending
rates down and, therefore, channel
cheaper credit into firms and then
they will invest?’ However, the issue
gets much more complicated for
other markets”.
Rajan highlighted the tremendous
pressure for growth, which in turn
created enormous pressure on
central banks to take action. Seven
years after the economic crisis of
2008, central banks had a lot,
both during and after the crisis,
he said.
In 2005, during his tenure at
the IMF, Rajan had written a
research paper, ‘Has Financial
Development Made the World
Riskier’, in which he had said
developments in the financial
sector had made the world “much
better off”. But this development,
he said, had also led to the
emergence of a whole range of
intermediaries and “under some
conditions, economies may be
more exposed to financial sectorinduced turmoil than in the past”.
At the London Business School
event, Rajan said: “The question is
are we now moving into a territory
in trying to produce growth out of
nowhere or we are, in fact, shifting
growth from each other, rather than
creating growth?...Of course, there
is past history of this during the
Great Depression, when we got into
competitive devaluation”.
Another news piece but part of this
article-- ‘Govt to infuse additional
Rs.11,500 cr in PSU banks in FY16’ The
government might infuse additional
$1.8 billion (about Rs.11,500 crore)
in public sector banks this financial
year over and above $1.2 billion
earmarked in the Budget, Finance
Secretary Rajiv Mehrishi said on
Friday. “Will put additional $1.8
billion in PSU banks apart from $1.2
billion budgeted this year”, he told
reporters here. The government
has earmarked Rs.7,940 crore in the
Budget for recapitalisation of PSU
banks this year. Earlier this month,
the government intends to provide
$9 billion(around Rs 57,000 crore)
to public sector banks towards
recapitalisation over the next two
financial years to meet global capital
adequacy norms and for growth.
Source: Business Standard
June 27, 2015
Jhunjhunwala bullish on RTA business
R
akesh Jhunjhunwala, the ‘big
bull’ of Dalal Street, believes
the
corporate
registry
business is a good place to be in
the days ahead. These companies
provide centralised record-keeping
of company shares. Jhunjhunwala
says they’ve greatly helped the
cause of the Indian shareholder in
recent years. “A lot of my friends
had shares in double names”. he
said.
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He spoke at an event that
corporate registry firm Link Intime
had organised. The company on
Friday announced the launch of
applications which allowed its
clients to check registry-related
information on their mobile
phones. Jhunjhunwala suggested
the business has much more growth
likely in the days ahead. “I think
they are in a very good position.
The volume of business for share
registration is going to go through
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the roof. Not even one per cent
Indians hold demat accounts. And,
I don’t think new players are going
to be born. So, think of a market
whose size is going to expand and
the number of players are going to…
(be the same)…Of course, it’s not
listed”, he said.
The total number of demat
accounts in the country are 23.44
million, according to the Securities
and Exchange Board of India’s
latest (April) bulletin. The country’s
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population was 1,250 million as
of 2013. This would put demat
penetration at less than two per
cent of the population. However,
experts say the actual investing
public’s figure is lower, as there
are also multiple accounts with
the same person, and many demat
accounts do not belong to active
investors.
M&A
Source: Business Standard
June 27, 2015
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June 22th - June 27th, 2015
Financials make a fourth of LIC portfolio
T
Insurance behemoth’s exposure to PSUs up to 31% from around 24% in June 2009
he financial sector has a pride
of place in the equity portfolio
of government-owned Life
Insurance Corporation of India (LIC),
with 53 of its 309 large picks from
the sector.
A Business Standard analysis of data
from NSEinfobase.com showed with
significant holdings in 33 banks,
both private and public sector, LIC’s
financial sector investments are
a little over Rs.1 lakh crore or 25.7
per cent of its total equity assets of
Rs.4.14 lakh crore as of March.
Apart from banks, LIC also has
significant stakes in 20 other financial
sector firms such as housing finance
firms, term lenders and investment
firms.
The exposure, at par with banks and
financials’ weightage in the BSE 500
index at 25.4 per cent, is a slight
increase over the previous year. The
data is the aggregate of LIC’s stake
in companies in which it holds more
than one per cent.
As companies don’t have to disclose
the names of investors holding less
than one per cent, LIC’s holdings
in companies below this limit isn’t
available in the public domain.
At the end of March 2014, the
financial sector accounted for 25.25
per cent. The numbers assume
significance as LIC has been playing
a key role in capitalising of public
sector banks. During financial year
2014-15, it bought additional shares
of UCO Bank, Union Bank, Canara
Bank, Bank of India and Central Bank
of India.
This was offset by profit booking
in State Bank of India, HDFC Bank
and Axis Bank, keeping the overall
weightage around 25 per cent. Over
five years, the insurer’s financial
sector exposure has remained in a
tight range, between a low of 23.3
per cent in March 2010 and a high
of 27.7 per cent two years later.
However, the number of financial
companies has inched up gradually
from 43 in 2010 to 53 now.
While regulators such as the Reserve
Bank of India have expressed
concern over the concentration risk
caused by the institution’s increasing
exposure to the financial sector as
banks’ demand for capital increase,
reports quoting LIC officials suggest
the institution’s bets are based on
long-term investment goals and
prudential norms. An e-mail seeking
comments on the investment
philosophy and short-term strategies
of LIC, sent to its spokesperson on
Tuesday, did not elicit a response.
Oil (13.54 per cent), despite a recent
fall in weightage from a high of 17.3
per cent two years earlier, cigarettes
(9.08 per cent), automobiles (6.68
per cent) and project contracting
(6.57 per cent) are the other major
sectors preferred by LIC, with
allocations between six and 14
per cent. Many of its top sectors
are driven by concentrated bets.
For example, ITC is its only bet in
the tobacco sector; huge holdings
in Reliance and Larsen & Toubro
dominate the exposure to their
respective sectors.
Though spread over 57 sectors, close
to 90 per cent of its investments are
in the top dozen sectors. In terms of
number of stocks, pharmaceuticals
and textiles came second with 17
each. Real estate came next with
14 companies, followed by cement
& construction (13), information
technology (IT, 12) and power (11).
While textiles and real estate did
not account for much in terms of
value, others made it to the top 10
preferred sectors.
IT, mining and minerals, power,
pharma and construction complete
the top 10 sectors, which together
account for 84.25 per cent. The
remaining portfolio was spread over
172 companies, across 47 sectors.
programme, the number of public
sector units (PSUs) in its portfolio
has gone up from 36 in June 2009,
when the programme restarted, to
56 today. PSUs account for 31 per
cent of the LIC equity portfolio, up
from 24 per cent six years ago. Some
of the significant PSU additions to
the portfolio over the past five years
include NTPC, NMDC, REC, Power
Finance Corp, Oil India, MMTC and
NHPC.
Source: Business Standard
June 26, 2015
Mining has become a recent
favourite. Last year, LIC bought
a big chunk of Coal India, which
boosted its weight in the sector to
5.59 per cent from 2.86 per cent
the previous year. As the insurer
has been a regular participant in
the government disinvestment
BSE expects migration of 18 SMEs to main board this year
E
aggressively to increase the listing
numbers on its platform, is expecting
three-fold growth in daily turnover
by end-March 2016.
from the SME platform and 18 more
are likely to graduate by (March)”,
said Ajay Thakur, head of the BSE
SME exchange.
The
“Till date, six companies have
already shifted to the BSE main
board. They were eligible to migrate
Since the platform’s establishment
in 2012, as many ass 94 SMEs
have been listed. Off these, six
ighteen companies listed on the
Small and Medium Enterprise
(SME) platform of the BSE
exchange are likely to migrate to its
main board this financial year, said a
senior official of the bourse.
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have migrated to the main board.
Thakur said, “The SME exchange
will assist (all) these (companies) to
raise equity capital for their growth,
and help them blossom into full
-fledged companies. In due time,
the exchange will enable them to
migrate to the main board”.
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June 22th - June 27th, 2015
By the existing norms, companies
that have completed two years on
the SME platform and achieved a
post issue paid-up capital of Rs.10
crore and above are eligible for
migration. If the paid-up capital
exceeds Rs. 25 crore, it is required
to migrate to the main board. If
between Rs.10 crore and Rs.25
crore, it has the option to continue
on the SME platform or move.
Many entities are evincing interest
to get listed on the SME platform.
Thakur said, “The current daily
turnover is Rs. 25-30 crore on the
exchange, which might cross Rs. 75
crore by the end of this year”.
With far easier listing rules and a
significantly smoother regulatory
mechanism, 32 companies have
reportedly agreed to get listed. An
exchange official had recently said
they were targeting listing of 100
companies by next March.
Source: Business Standard
June 26, 2015
Problem remains for
e-commerce majors
Most e-commerce firms with ‘Singapore holding
structures’ would opt out of new Sebi platform
the move “will benefit India-focused
companies like ours in the long run”.
However, the e-commerce world,
where all the action and excitement
has been bubbling over the past
year or so, has not jumped in with
Initial Public Offer announcements.
The operational part of this
sentence is “long run”. Last
August, Business Standard first
threw light on the cross-border
structure and ownership pattern of
Flipkart, gathering details filed by
the company with the Singapore
regulator
(http://www.businessstandard.com/article/companies/
de coding-flipkart-the-other-peoplenumbers- 114080400147_1.html).
As said in this article, their main
firm, Flipkart Pvt Ltd, mother ship
which owns its Indian marketplace
and other subsidiaries, is based
in Singapore. See the graphic on
the structure here: http://www.
business-standard.com/content/
general_pdf/ 080414_05.pdf.
While Flipkart has been quiet,
Snapdeal issued an statement that
In November, Mint also talked in
detail about the complex structure
T
he Securities and Exchange
Board of India (Sebi) has
announced a new institutional
trading platform for start-ups, with
fanfare.
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Equity investment norms
notified for private PF
trusts EPFO to start
equity investments in July
SLEEPING GIANT
T
he Union labour ministry
has notified the investment
pattern for company-run
Provident Fund (PF) trusts, allowing
them to invest 5-15 per cent of
the incremental corpus in equity
markets.
This is in line with the investment
pattern recommended by the
finance ministry and earlier notified
by the labour ministry for firms
covered under the Employees’
Provident
Fund
Organisation
(EPFO).
The central government has said
EPFO will initially invest no more
than five per cent of its corpus in
exchangetraded funds (investment
funds traded on stock exchanges).
In an interview to news agency
Reuters, Union labour minister
Bandaru Dattatreya said the
retirement body will start investing
in stock markets from next month.
EPFO’s overall corpus is about Rs.
6 lakh crore and its incremental
corpus for 2015- 16 is expected to
be Rs.1 lakh crore, an official said.
This means around Rs.5,000 crore
of Flipkart, revolving around its
Singapore-based firm. This story
has a beautiful infographic of
the Flipkart structure, with the
Singapore firm at its centre (http://
www.livemint.com/Companies/
VXr8oJzNJ4daOYSO5
wNETN/
Inside-Flipkarts-complex-structure.
html).
A reading of these two stories
would show that all the billions
of dollars that have come into
these structures are through the
Singapore vehicle. Since there is
uncertainty in government policy
as to whether foreign direct
investment (FDI) is allowed in such
companies, almost all e-commerce
entities have adopted this model,
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may find its way into the stock
markets this financial year.
The new pattern will allow EPFO to
park 45-50 per cent of its funds in
government securities, 35-45 per
cent in debt securities and term
deposits of banks, up to five per
cent in money market instruments,
5- 15 per cent in equity and related
instruments and five per cent in
asset-backed securities and units
of infrastructure investment trusts.
The decision to invest in equity
markets was approved by the
central board of trustees of
EPFO, chaired by Dattatreya, a
few months earlier. The labour
ministry notifies its investment
pattern after considering the CBT
recommendations.
Source: Business Standard
June 26, 2015
of routing investments through
Singapore.
Now, listing a Singapore company
(start-up or otherwise) in India is
easier said than done. Both in the old
platform and in the new. These are
simply not possible because of the
Foreign Exchange Management Act
and capital account convertibility
issues. It is rather safe to say it is
practically impossible. Can, then, the
Flipkarts and Snapdeals of the world
list their Indian subsidiaries, which
are marketplace and technology
firms?
According to the new platform rules
spelt out by Sebi, at least 25 per cent
of the pre-issue capital must be held
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June 22th - June 27th, 2015
by Qualified Institutional Buyers
(QIBs). These stories will show that
the Singapore firms typically own
90-99 per cent in these companies.
So, should these be restructured
again to include QIBs? But, if they do
that, the FDI policy could come into
play. That would defeat the purpose
of taking off to Singapore in the first
place.
Thus, there is no question of these
e-commerce
giants
operating
through a ‘Singapore holding
company structure’ listing here
under the new rules in their present
form. It might be possible after
some structural rejig but the firms
might not find it worth the trouble
until some clarity emerges on FDI
policy.
Listing abroad, say on Nasdaq,
would still make more sense for
them, as investors there are more
mature, markets are more liquid
and have the capacity to absorb
multibillion dollar listings.
Who, then, will the start-up
platform benefit? The Sebi press
release
mentions
“companies
which are intensive in their use of
technology, information technology,
intellectual property, data analytics,
biotechnology,
nano-technology
to provide products, services or
business platforms with substantial
value addition”.
According to figures quoted by Sebi,
there are 3,100 start-ups which have
got funding. It is possible that many
of these could be in the nonretail
space. It is possible that these could
have already satisfied the 25 per
cent QIB requirement. For example,
it could benefit companies such as
the taxi aggregators, provided they
operate through India-registered
entities and their investments have
come in at an India level.
ANI Technologies, which runs Ola
Cabs, is India-registered and has
local funding. Companies such as
ANI could be in a better position to
make use of the new Sebi platform
than Flipkart and Snapdeal. There
could also be intellectual property,
data and nanotech firms. But, they
are still not making those multibillion dollar headlines that might
excite the high net worth investors.
BOX -Sebi Chairman UK Sinha pic
Source: Business Standard
June 26, 2015
sold to Chennai-based Quest Life
Sciences, the data showed.
Among inbound deals from the
US, Parexel International Corp
acquired the assets of Chandigarhbased Quantum Solutions India,
while Par Pharmaceuticals acquired
Chennai-based Ethics Biolabs. An
intra-Hyderabad deal witnessed
Indovation Technologies buying out
Sristek Clinical Research Solutions,
while
venture-backed
Karmic
Lifesciences was sold to Ahmedabadbased Cliantha Research. The
clinical trials sector went through
bad phase in the end of last decade,
a phase that continued till the first
few years of this decade. According
to T S Jaishankar, managing director
of Quest Life Sciences, the sector
would see notable growth in the
near future.
“The industry faced a challenge
earlier since there were a lot of
negative reports from the media
and protests from the nongovernment organisations about
the quality standards of the clinical
trials. However, the health ministry
and the Drug Controller General of
India have taken proper steps to put
the standards in place to bring back
the industry”, he said.
Regulatory clearances, which used
to take six months from the date
of filing, have now started to come
within two months. He added that
India, which has the advantage
of availability of good doctors,
vast pool of patients and disease
profile, has regulatory systems in
place on par with the international
standards. This is expected to
boost the sector once again and
would lead to more consolidation,
with top players looking to expand
operations acquiring smaller firms.
Source: Business Standard
June 25, 2015
M&A
in
contract Mumbai Office Rentals
research space gaining Drop 4% in Q1 as CBD
momentum
Loses Out to Suburbs
I
ndia’s contract research sector
has reported an uptick in mergers
and acquisitions (M&A) in the
past year.
According to Venture Intelligence,
there were eight M&A transactions
involving
pure-play
contract
research firms between January
2014 and May this year, compared
with only five deals in three years
prior to 2014.
Unlike primary investments such as
PE deals, the value of transactions
in M&A is not available in most
cases. Two deals for which values
are available are Inogent-GVK
Biosciences’ buyout of Dai-Ichi’s
6.12 per cent voting rights for ` 8.97
crore in July 2014 and Sristek Clinical
Research
Solutions-Indovation
Technologies deal in October 2014
for ` 10 crore.
Sequoia Capital India-backed GVK
Bio was also a buyer domestically,
acquiring
Chennai-based
Vanta Bioscience, which offers
toxicology evaluation services for
pharmaceutical, biotech, food
supplements sectors.
While GVK has been a buyer,
recent months have witnessed two
large business groups - Max India
and Fortis Hospitals - sell off their
contract-research arms.
According to Venture Intelligence
data, Max Neeman Medical
International was acquired by
Canada-based JSS Medical Research
Inc. Fortis Clinical Research was
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Nariman Point rates down 3.4% in a year, finds survey
M
umbai, the country’s
commercial capital, has
witnessed a 4% drop in
average prime office rentals in
the first quarter ended March.
Exorbitant real estate prices and
a shift in demand from Mumbai’s
Central Business District (CBD)
Nariman Point to secondary
business districts like the BandraKurla Complex in the suburbs have
resulted in the drop in rentals.
The city’s CBD Nariman Point
has been steadily losing its edge
over the past five to six years
and rentals here have slipped
3.4% in the past one year. In an
earlier report, JLL had also noted
that Nariman Point is unlikely to
re-emerge as Mumbai’s power
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centre. With a
4% drop in office
rentals,
Mumbai
has
performed
better
than
only two cities,
showed a global
survey conducted
by
property
consultancy Jones
Lang LaSalle (JLL).
Only Sao Paulo
and
Moscow,
with 5% and 24%
depreciation, respectively, fared
worse in comparison among
central business districts (CBDs) of
leading cities across the world.
Mumbai figures among those
global financial centres that saw a
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June 22th - June 27th, 2015
fall in prices. Moscow and Sao Paulo,
which are also financial centres of
these emerging economies, are in
the red. Among mature economies,
only Brussels and Paris figure in the
red while Frankfurt sits on the edge.
Most other cities such as Sydney,
New York, Tokyo and London remain
in the black.
Brussels and Paris were the two
other cities which saw 4% and 3%
depreciation, respectively. Frankfurt
was the only city that saw no change.
London was the top performer with
a 12% increase in rents followed
by Tokyo at 7%, Shanghai, Hong
Kong and New York -all three at
4%, Dubai at 3% and Sydney at 1%.
The calculations were made in local
currencies and the survey tracks
only the central business districts
across these cities.
“Long-term trends differ from shortterm trends; the latter being mere
influences. The fall in Mumbai CBD
rentals could be due to a short-term
influence.The contrast in Mumbai’s
office market is that the city has
17% vacancy, which is not healthy,
but at the same time, there is gentle
appreciation seen in rentals owing
to a demand revival”, said Ashutosh
Limaye, national director, research,
JLL India.
As demand for residential properties
moves towards the suburbs, so
does the demand for office spaces.
As part of this trend, Bandra-Kurla
Complex (BKC) is now the de-facto
CBD of Mumbai, the report said.
Source: The Economic Times
June 26, 2015
STOCKS SURGE 5-20% - Investors
Chase PSU Midcaps in Hope of EPFO
Money Flow
I
nvestors lapped up shares of midsized public sector companies on
Thursday amid expectations they
would be part of the portfolios of
equity schemes handling Employee
Provident Fund (EPFO) money .
STC India, NBCC, Hindustan Copper,
MMTC, MTNL, GAIL and SCI surged
between 5% and 20%, and their trading
volumes were around 2-23 times more
than their 10-day averages.
According to the government’s
directive, EPFO can now invest 5-15%
of its incremental corpus in equity
markets starting July .EPFO will initially
start with 1% of the incremental
corpus, which will increase to 5% by
March next year. This means EPFO can
invest `4,000-5,000 crore in equities
this fiscal year.
Investors are hoping that the EPFO
money may first find its way to PSUs
because of government ownership.
The government’s plan to sell shares of its companies
through the exchange traded funds (ETF) route has
also sparked interest in PSU stocks.
ETFs may give equity IRR of 12-14%, which is quite
attractive for EPFO fund manager, ”said Prakash
Diwan of Altamount capital management.
Source: The Economic Times
June 26, 2015
“Govt could do divestment by forming an ETF in which
70% of stocks could be those that are performing
well and 30% that are yet perform well. This could
make it easier for the government to divest, and
this can get a fair response for EPFO. These govt
Disclaimer: All data and information is compilation of collective news, provided for informational purposes only and is not intended for any factual use.
It should not be considered as binding / statutory provisions. Neither Pantomath Capital Advisors nor any of its group company, directors, or employees shall
be liable for any of the data or content provided for any actions taken in reliance thereon.
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