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Sluggish India state auction exposes bond market reform hurdles MUMBAI: A move by India to make the pricing of roughly $30 billion in debt sold each year by individual states more market-based has met resistance from both issuers and investors, underscoring the difficulties it faces in deepening its bond markets. The Reserve Bank of India (RBI) this month proposed to scrap a 14-year-old system under which state debt is valued at a fixed spread of a quarter-percentage point over government bonds, though it has told Reuters the recommendation is not final. Two auctions of state debt held since the rule was proposed, including one on Tuesday, fell short of targets as investors, mainly state banks, worry that they will be forced to book losses if their holdings are subject to market pricing. "Demand has already come down for SDLs (state development loans). If it becomes a rule, then investors are staring at losses on their existing portfolio," said Anindya Dasgup...

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MFs raise expenses for liquid funds The Rs 9 lakh crore mutual fund (MF) sector has finally decided to increase the expense ratio for liquid schemes - which have attracted the largest amount of short-term money, of Rs 2.5 lakh crore - to 20 basis point (bps). According to sector sources, the top 10-15 fund houses have come together and decided to charge 20 bps from February. "While there is no written understanding, we decided it's time, so that schemes do not incur losses," said the chief executive officer (CEO) of an MF who was part of these discussions. Many fund houses were charging as little as 2-5 bps in their liquid schemes. The decision comes at a time when liquid funds have been driving the sector's growth. As a recent CRISIL report noted, the assets of MFs rose to Rs 9.03 lakh crore in January, primarily because of the increase in liquid assets by 43 per cent or Rs 77,500 crore (total increase in assets was Rs 83,000 crore). Liquid or money market fu...

The income-tax department on Thursday clarified that the 25-30% additional tax charged to income distributed by mutual funds is not applicable to the money received by unitholders at the time of redemption, repurchase or receipt of bonus shares. At present, income distributed by mutual funds to individuals is taxed at the rate of 25%, while the same received by others such as companies is taxed at 30%. The ministry said in a statement that field officials were taking a view that funds paid by MFs at the time of redemption and repurchase as well as issue of bonus shares to existing unitholders were chargeable to additional income-tax under Section 115R. The department clarified that since these are not in the nature of "distributed income", they will not be subjected to levy of additional income-tax under Section 115R. In a separate circular, the department addressed another controversy over whether tax officials could disallow any expenditure incurred for earn...

The board of market regulator Sebi, on Thursday, approved proposals to tighten the corporate governance norms for all listed entities. It has restricted independent directors to serve as directors on a maximum of seven listed companies and limited their total tenure to two terms of five years each. The board also approved the long-term policy for mutual funds where it has recommended the government to provide additional tax incentive on investment of Rs 50,000 in mutual fund-linked retirement plan. The Sebi board took several decisions in a bid to align the listing agreement norms with the Companies Act 2013 as there were several gaps. The announcements will come into effect from October 1, 2014. While it prohibited independent directors from taking stock options in the companies, the Securities and Exchange Board of India also directed them to hold a separate meeting among themselves. "One can serve in seven companies as independent directors, however, if someone is an E...

In sweeping changes to the way listed companies are governed in India, the Securities and Exchange Board of India (SEBI), on Thursday, also asked them to follow an orderly succession planning, put in place whistle-blower policy for employees, have at least one woman director, get public shareholders' nod for related party transactions and carry out performance evaluation of all directors. The new corporate governance norms were approved by the SEBI board at a meeting held here on Thursday, wherein a long-term policy was also cleared for the mutual fund industry while proposing tax benefits to the tune of Rs.50,000-Rs.2 lakh for those investing in such products. After the board meeting, SEBI Chairman U. K. Sinha said the tax related proposals would be sent to the government for due consideration, while new corporate governance norms would become applicable for all listed companies with effect from October 1, pursuant to being incorporated in the listing agreement. SEBI has been ...

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Bond yields rise ahead of borrowing numbers The benchmark 10-year bond yield was up 4 basis points at 8.85 per cent. Dealers say market jittery ahead of the new fiscal year borrowing numbers which Finance Minister P Chidambaram will unveil on Monday. "Dealers are still sitting heavy. Cash is also tight, and the market is expecting the RBI to announce an OMO. If the gross borrowing number comes in above 6.3 trillion rupees, markets may sell-off," said a senior dealer. Yields dropped to 8.76 percent in early trade after inflation dropped to a two-year low. Overnight rate at 9.10/9.20 per cent, above the MSF rate, reflecting cash tightness. Economics Times Thanking you Regards, Rajesh Kumar Kathpalia ¤ SMC Global 17,Netaji Subhash Marg,Daryaganj, New Delhi-110002 Mobile No 9891645052 Email Id: rajesh.ipo@smcindiaonline.com -- You received this message because you are subscribed to the Google Groups "Product Updates for AMC...

US employment growth disappoints The benchmark 10-year U.S. Treasury note rose,pushing its yield down to 2.6820 percent .................................................................... The US economy added just 113,000 jobs in January, as the unemployment rate edged down to 6.6 per cent - dashing hopes of a steady acceleration in the recovery and posing a challenge to Janet Yellen in her first weeks as Federal Reserve chair. After job creation slumped in December, economists were very keen to assess whether that dip was an anomaly or a reflection of a deeper slowdown in the strength of the US economy. With payroll formation in January rebounding only slightly, and well below economists' expectations of 180,000 new positions, fresh concerns are likely to mount about the US economy entering a new rough patch. But last month's figures may also be a poor guide, in that bad weather across big portions of the country could have distorted the data. US equity futu...

MUMBAI: Government bonds gave up early gains on Thursday to end lower as optimism from the cancellation of a previously deferred auction and part completion of a scheduled debt switch was offset by caution ahead of key data next week. The immediate focus is on Friday's Rs 100 billion ($1.60 billion) bond sale which will mark the end of the current fiscal year's borrowing plan for the government. After trading hours on Wednesday, the government cancelled a previously deferred debt auction worth Rs 150 billion and partially completed its government bond switch through a private transaction with an institutional investor it did not name. The central bank on Thursday also extended liquidity support to banks, saying it will conduct a 14-day repo auction for Rs 390 billion on Friday. "The market wants to get the auction out of the way first and take cues from the cut-off because there are a large number of data points coming in the next week," said Prasanna ...

MUMBAI: In view of government's comfortable liquidity position, RBI has cancelled Rs 15,000 crore bond auction and switched Rs 27,000 crore worth of papers into longer tenor gilts. "It has been decided to cancel the deferred auction scheduled on January 17, 2014 amounting Rs 15,000 crore. This would result in decrease in Government market borrowing programme for 2013-14 to that extent," the Reserve Bank said in a statement. Last month, the government had deferred the bond auction citing comfortable cash position. RBI further said that it has switched Rs 27,000 crore worth bonds scheduled to mature on 2014-15 and 2015-16 fiscal into longer term papers. Under the debt switch plan of Rs 50,000 crore stated in the Budget 2013-14, the government plans to buy short-dated debt, and in turn sell longer-dated bonds. This is aimed at spreading out redemptions of debt to later years. "Securities from 2014-15 and 2015-16 maturity buckets for face value of about Rs...