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 NEW DELHI: Leading stock exchanges NSE and BSE, today said they will begin trading in interest rate futures (IRF) with tenures of one-three months, with underlying of 10-year government bonds. "Interest Rates Futures contracts based on 8.40 per cent central government security maturing on July 28, 2024 will be made available for trading with effect from Monday, August 4, 2014," the NSE and the BSE said in similar-worded circulars. An IRF is generally a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds. The cash-settled IRFs will provide market participants with better option to hedge risks arising from fluctuations in interest rates, which depend on various factors, including RBI policy, demand for liquidity and flow of overseas funds. Earlier this year, the stock exchanges had introduced cash settled IRFs on 10-year government bonds. IRF at NSE today recorded a turnover of Rs 14,1...

Investors pulled out nearly Rs 60,000 crore from various mutual fund schemes in June after putting in a staggering Rs 1.5 lakh crore in the preceding two months. As per the latest data available with the Securities and Exchange Board of India, there was a net outflow of Rs 59,726 crore in June as against a net inflow of Rs 1,46,094 crore in the previous two months. In May, investors had pumped in Rs 33,661 crore in various mutual fund (MF) schemes, while in April they had put in Rs 1.12 lakh crore in several such products. At gross level, mutual funds mobilised Rs 8.92 lakh crore in June, while there were redemptions worth Rs 9.51 lakh crore as well. This resulted in a net outflow of Rs 59,726 crore. This significant level of funds withdrawal has also led to the decline in the total assets under management of MFs that fell to Rs 9.75 lakh crore as on June 30, from a record Rs 10.11 lakh crore in the previous month. Overall, during the current financial year so far, mutua...

August too early for rate cut by central bank Despite the consumer price index-based inflation rate having fallen to its lowest level since the launch of the new series in January 2011, the Reserve Bank of India (RBI) is likely to go for the status quo on repo rate in its monetary policy review on August 5, shows a poll conducted by Business Standard among 10 market participants. The respondents to the BS poll unanimously said they expected the status quo. Amid an uncertainty over monsoon, if the central bank keeps the repo rate - the rate at which RBI lends to banks; currently at eight per cent - unchanged, it will be a third straight policy review in which it will do so. The reverse repo rate is seven per cent at present. The retail inflation rate had stood at 7.3 per cent in June, compared with 8.28 per cent the previous month. The current level is under RBI's January-end projection of eight per cent, though above its comfort level. Monsoon, too, has improved lately, wi...

Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings (P/E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Aviral Gupta, fund manager, Mynte Advisors, says even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good returns. "The infra sector broadly includes real estate, steel and cement companies. The kind of plans the government has will definitely help ...

Mumbai: India's 10-year bonds capped their biggest weekly advance in more than a month on optimism a revision of caps on debt purchases by foreigners will boost inflows and a pick-up in rains will restrain food prices. India raised the limit on the amount of government bonds that overseas investors can buy by $5 billion to $25 billion this week. The move is a catalyst for local bonds and the rupee in a yield-hungry world, according to BNP Paribas SA. The nation simultaneously cut the quota meant only for long-term investors such as sovereign wealth funds to $5 billion from $10 billion, thus keeping the overall limit for foreign investment in sovereign notes unchanged at $30 billion. "The raising of foreign limits, recent progress of the monsoons and the easing of inflation in June are all positive factors for the bond markets," Sujoy Kumar Das, head of fixed income at Religare Invesco Asset Management Co. in Mumbai, said by phone. "It's been a good week and...

Use arbitrage funds to park short-term money If you are wary of the pace at which the equity market is galloping and want to park some funds for the short term, you could consider putting your money in arbitrage funds. These not only give better returns than typical short-term investments such as liquid and short-term funds, but also provide your portfolio a hedge against volatility in equity markets. These are, however, not a good option for those looking to build wealth in the long term. Last month, two fund houses -- Edelweiss and L&T -- launched arbitrage funds. Some existing arbitrage funds have seen good inflows in the past six months. Arbitrage funds invest in assets in at least two markets and make money when there is a difference in prices. For instance, there could be a difference between a stock's price on the BSE and the National Stock Exchange, or between the price of an asset in the spot (cash) market and the futures (derivatives) market, or between this ...

Ration card's out, Aadhaar in to open bank accounts MUMBAI: The ration card -- the government issued booklet for availing of subsidized food under the public distribution service -- is set to lose its privileged status as a valid document for opening bank accounts. Aadhaar is now set to become the single universal document for opening a bank account in India. In a circular dated July 17 addressed to banks, the RBI said that it has revised its "know your customer" guidelines with the government's prevention of money laundering norms. One of the changes is that the RBI has now specified "officially valid documents" to be the Aadhaar card, voter ID card, permanent account number (PAN) card, driving licence, passport, or the NREGA card. The list is identical to the earlier list except for one change. The earlier definition also included "any other document as may be required by the banking company or financial institution or intermediary". This ...

Banks not allowed to trade in bonds for infra lending: RBI Banks will not be allowed to trade bonds issued by other lenders for infrastructure lending that would be exempted from mandatory reserve requirements under the guidelines issued last week, said Reserve Bank of India (RBI) Deputy Governor R Gandhi. The RBI last week allowed lenders to issue bonds for infrastructure lending, but barred the banks from holding each other's bonds. "Restriction on cross holding does apply to trading also," Gandhi told Reuters. Gandhi said the central bank would prefer that these bonds for infrastructure lending attract investors from outside the banking sector. "The idea is funds to come from outside the banking system," he said. Dealers had been confused about whether the cross holding restriction also meant that the banks were not allowed to trade in these bonds, given that lenders are crucial market makers in this segment. "Debt capital market tra...

FII investment via P-Notes rises to 6-yr high of $37 billion in June Investments into Indian shares through participatory notes (P-Notes), a preferred route for overseas HNIs and hedge funds, surged to the highest level in more than six years at Rs 2.24 lakh crore (about $37 billion) in June. According to the data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to Rs 2,24,248 crore at the end of June from Rs 2,11,740 crore in the preceding month. This is the highest since May 2008, when the cumulative value of such investments stood at Rs 2,34,933 crore. P-Notes are mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registration. According to market analysts, inves...

Bond yields to ease on revenue mop-up After moving up sharply this month, yields on government bonds are expected to find some support at these levels. This seems likely after Finance Minister Arun Jaitley said the revenue collection targets for FY15 would not only be achieved but surpassed. Besides, there is an expectation in the market the FII limit in bonds might be enhanced. The yield on the 10-year bond ended at 8.66 per cent on July 2 and been rising since in most trading days. On July 14, the yield ended at 7.81 per cent, its highest level since May 20, when it closed at 8.86 per cent. "There was selloff due to expectations of a new 10-year bond. Besides, traders were thinking the FII limits might be enhanced. If this happens, the yields can comes down," said N S Venkatesh, executive director and head of treasury at IDBI Bank. Experts say it is becoming difficult for banks to keep buying bonds, due to which the FII limit enhancement is needed. "The ...

Biyani may apply for payment bank Kishore Biyani's Future Group will apply to the Reserve Bank of India to operate a 'payment bank', an entity the latter has said it is prepared to allow. It would apply, now that supermarket chains have been permitted to float such banks, said an executive within the group. A payment bank is essentially an entity which can accept deposits and facilitate remittances and payments but cannot lend money. "We are applying," the executive said. "We can easily do money transfers and take deposits. We had this mechanism when we used to run the NBFC (non-banking finance company)." The executive didn't want to be identified. Future had earlier owned an NBFC by the name of Future Capital (now called Capital First); it was later sold to Warbug Pincus. Future Capital had a plan to set up financial supermarkets, to sell credit cards, insurance and other financial products. When asked, Kishore Biyani, the group's...

G-secs trading volumes to rise with payment banks Trading volumes in government securities are set to get a boost with the entry of payments banks, mandated by the Reserve Bank to deploy all their resources in government papers, barring the cash reserve ratio balance. According to government bond dealers, bond yields will also find support if trading volumes in government bonds improve. RBI said on Thursday in the draft guidelines for licensing these that payments banks will be required to invest all their money in government securities (G-Secs) or treasury bills with maturity up to a year. "With more players like payments banks coming into the market, trading volumes in government securities are bound to improve. The yields will find some support with increased trading volumes," said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank. Banks trade very actively in the G-secs market. The other major participants here are insurance com...

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Mumbai: Domestic ratings agency Icra today said banks, especially the state-run ones, will benefit at the expense of housing finance companies through the RBI norms for long-term bond raising for affordable housing. The incentives announced by the RBI "are likely to have a positive impact on banks' competitive position vis-a-vis the housing finance companies", it said in a note. The measures, announced on Tuesday, may also lead to an increase of market share for banks beyond the current 63 percent in the home finance market, which stood at Rs 9 trillion (Rs 9 lakh crore) as of March 2014, it said. The Reserve Bank had issued the guidelines covering incentives for issuance of long term bonds by banks for financing of affordable housing and infrastructure after an announcement in the last week's Union Budget. The guidelines say banks can raise long term resources to finance their long term loans to affordable housing through minimum regulatory pre-emption li...

MF's allocation to FMCG hits rock bottom Thanks to the broad-based rally seen in the stock markets over the last few months that FMCG, once a must have sector in fund managers' portfolio, has taken a back seat. A mere 4.62 per cent of overall equity assets deployed in stocks have gone into shares of FMCG companies. In other words, out of the deployed 2.54 lakh crore rupees in stocks, only Rs 11,785 crore could remain in counters of FMCG companies. Fund managers say that there has been pressure on volume growth of FMCG companies on the back of high inflation and reduced discretionary spending. Though they do not see any problem in the structural growth story of the sector but say that other opportunities in the market as several sectors trading at much cheaper valuations made them do away with FMCG for the time being. Of course, uncomfortably higher valuations of many of these counters have rendered them unattractive. Mahesh Patil, Co-Chief Investment Officer (CIO) a...

Infra push to boost cement firms Industry hopes to grow at 7-8% in FY15 on demand from new projects, realty revival The cement sector is expected to swing back to growth of 7-8 per cent in 2014-15 with the new government's focus on execution of infrastructure projects and rural housing. Experts said that once execution of infrastructure projects starts, demand will be back in the sector. Moreover, poor monsoon has helped cement companies to hold on to their prices as construction activities continued even during July, which is considered to be the peak of monsoon. In 2013-14, the sector witnessed a meagre growth of around three per cent. Vinod Juneja, managing director of Binani Cement, said, "The growth of the sector will mainly come from the NHAI projects and also from re-vamping of railway tracks which would require lot of cement." Juneja said if the highway and rail projects get executed cement companies would witness at least 15 to 20 per cent addit...

         

Budget proposals: MFs fear Rs 1.5 lakh cr outflows; seek Sebi help Concerned that some budget proposals may hit mutual funds hard and result in outflows worth over Rs 1.5 lakh crore, industry body AMFI has asked regulator Sebi to take up the matter with the government for necessary intervention. In a letter written to Sebi, the Association for Mutual Funds in India (AMFI) has also sought immediate measures to ensure that none of the tax proposals made in the Union Budget are brought in force with retrospective effect and asked the regulator to ensure deferring of long-term capital gains tax on debt-oriented MF schemes to the next financial year. The fund houses have also appealed for restricting the new rules to close-ended debt schemes as against all non equity MF schemes as proposed, as per the AMFI letter addressed to Sebi Chairman U K Sinha. The letter was sent last evening after mutual fund industry representatives called on Sinha on Friday last week in this regard. ...

Gold saving schemes to offer lower returns According to Pune-headquartered PN Gadgil Jewellers' gold rush investment scheme if you invest Rs 1,000 for 36 months (Rs 36,000), then the jeweller pays you Rs 7,000. That is, return of 19.44%. With a lower tenure scheme, you end up making 12.50% for two years and 8.33% for one year. For 24-month tenure investor puts in Rs 24,000 and jeweller pays Rs 3,000; for 12-month tenure investor puts Rs 12,000 and jeweller pays Rs 1,000. But next time you think of putting money in jewellers' gold saving scheme you will earn a lower return. Reason: These schemes have been brought under the definition of 'deposits' which fall under the purview of the Companies Act. Under the new rules, the effective return on the deposits cannot be more than 12% and the total amount of deposits has to be within 25% of the company's (other than banks and non-banking finance companies) networth. That would mean a loss of 6-7% for investors. Sav...

FIIs' demand for corporate bonds set to rise The demand for corporate bonds is set to soar from foreign institutional investors (FIIs). This is because to spur FII investment in corporate bonds, Finance Minister Arun Jaitley proposed in the Budget a reduction in withholding tax for FIIs to five per cent, from 20 per cent. According to experts, due to reduction in withholding tax, FIIs' investment in corporate bonds will pick up. "The withholding tax confusion was holding back the investors. Now, with this clarity, investments in corporate bonds by FIIs will pick up. FIIs' investments in G-sec (government securities) is almost at a level where there is not much room for more investments. In fact in corporate bonds the returns are higher than government bonds," said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities. According to data from National Securities Depository Limited (NSDL), as on July 11, only 39.34 per cent of the FII...

NEW DELHI: One of Finance Minister Arun Jaitley's budget initiatives seems to have killed an asset class, or at least a substantial portion of it. Stunned by the change in tax rules for non-equity funds, fund houses are deferring forthcoming issues of fixed maturity plans (FMPs). At least four fund houses have confirmed that their FMPs have been deferred. Two have even returned money collected from investors for issues that closed last week. "The budget has killed one-two year FMPs," said a fund manager. Before Jaitley's budget, FMPs were a popular investment option for many. Eight new FMP issues were scheduled to open this week and another nine that opened last week will close this week. The measure is aimed at nixing the tax arbitrage that rewarded short-term investors in such plans compared with other investment avenues such as deposits. Life doesn't change much for longer term investors though. While interest on fixed deposits is taxed as normal incom...

MUMBAI: Arbitrage schemes of mutual funds are set to make a comeback in the wake of the government's proposal in the Union Budget to raise taxes on debt schemes. Mutual fund houses are planning to push this product, which aims to benefit from price anomalies between shares and futures contracts, to attract a portion of the likely outflows from fixed maturity plans (FMPs) -- a close ended debt scheme that is expected to be most impacted by the new tax plan, according to industry officials. Arbitrage schemes, which have been fetching returns similar to a fixed income instruments, fall under the equity category for taxation. So, if an investor holds an equity scheme for more than a year, he does not have to pay capital gains tax. Below one year, equity schemes attract 15% capital gains tax. "There are very few mutual fund products left like arbitrage schemes that are tax efficient and relatively safe too," said Sunil Jhaveri, chairman, MSJ Capital & Corporate...

    How Do Tax Proposals in Budget-2014 Affect Debt Fund and FMP Investors?   Posted by:   Uma Shashikant and Arti Anand Bhargava on Sun, Jul 13th, 2014   1.      How does the budget impact the investors in debt mutual funds?          There are three things proposed in the budget that are negative for investors in debt funds.   a. Investors have to hold a debt fund for 36 months, to get any benefit of long-term capital gain (LTCG).  Currently this number is 12 months. (Effective date 1 April 2014) b. The choice of paying taxes at 10% without indexation on LTCG is no longer available. LTCG from non-equity oriented funds would be taxed at 20% tax after indexation. (Effective dat...