BANKS have liquidated mutual fund investments of over Rs 50,000 crore in the second half of March to improve their balance sheet. Some banks need money to lend to corporates while others are liquidating MF investments to avoid pressure on capital requirements.
Speaking on condition of anonymity, fund managers said banks have pulled out over Rs 50,000 crore from mutual funds since mid-March. Data over the last two years show that banks have in both years exited mutual fund investments towards the end of a quarter only to reinvest them when the new quarter begins.
For example, in the last week of September 2009, banks withdrew Rs 89,000 crore only to pump back over Rs 60,000 crore in the first week of October. Another reason for withdrawing funds just before the quarter ends is that this period sees a cash crunch arising out of withdrawals for advance tax payment by businesses.
This year, banks are also under pressure to shore up loans as most of them are falling short of the credit targets set by RBI. As on March 12, banks had Rs 1,08,000 crore in mutual funds. This was five months after RBI asked them to contain such investments. The central bank in its October policy said such investments had a circular nature where banks invested in MFs, who in turn lent to banks in the money markets. Such circular investments are profitable to banks as no tax is deducted on investments in mutual funds. To break this circularity, RBI imposed a cash reserve requirement for bank borrowings through collateralised markets.
Besides the tax arbitrage, banks have been investing in mutual funds because of the lack of demand for credit. Bulk of the funds are parked in various liquid schemes or what is popularly known as ultra short-term debt funds. The funds are deployed in various short-term money market instruments such as treasury bills, commercial papers and certificate of deposits.
Although banks can generate a substantial spread by investing in government securities, there is fear that yields on bonds would rise further, leading to depreciation of all longterm instruments. The situation may change once credit starts picking up. With the capacity expansions underway in a big way, bank credit is expected to pick up by nearly 30% in FY11 as demand for funds will go up, said HSBC India economist Robert Prior Wandesford.
Wednesday, March 31, 2010
Oman keen to develop sister port in India
Oman has become the latest nation to join the long list of countries seriously trying to set up and operate ports in India. Growing trade potential in and out of the country has been attracting foreign port and shipping agencies like never before. Centres like Mumbai and Chennai hosting visiting delegations from leading maritime nations like Belgium, Norway and the US has become a routine affair.
The government of the Gulf nation of Oman, which signed a consortium agreement on Sunday for joint management of Duqm Port in Oman, has understood to have made its interest known to its partners. "Government of Oman together with Rent A Port, Belgium and Port of Antwerp is ready to participate in the equity of an Indian port on the west coast. This is due to the fact that the Omani government is expecting a growing volume of business between the two countries," said Neerav Kumar Gupta, head - India for Rent A Port.
On Sunday, March 28, 2010, Ahmed Macki, minister of national economy of the Sultanate of Oman and Marc Van Peel, chairman of the Port of Antwerp, signed the shareholder agreement for creation of a joint port management company. The company has the responsibility of entire management and marketing of the new port at Duqm and also of a large industrial land of minimum 2,000 Ha to be developed adjacent to the port.
The company 'New Duqm Port' has two shareholders. While 50% is held by government of Oman the other 50% belongs to consortium Antwerp Port (CAP). CAP is a limited Belgian company, established in August 2009, with two shareholders: Rent-A-Port n.v. a specialized port investor from Belgium and Antwerp Port Consultancy (a
100% subsidiary of Port of Antwerp).
The partners are investing in full costs of management, marketing, maintenance etc., entirely at their own risk, till the port becomes profitable, informed Mr Gupta, who was CMD of Dredging Corporation of India.
According to him, the new port is already under construction and will be completed in 2012. The total cost of the construction will be $ 1.4 billion.
As per the agreement, the new port facility will have a large petrochemical cluster, big shipbuilding and dry dock yard, and center for export of industrial minerals. More importantly, it will be fashioned as a hub for transshipment of containers to India.
Mid-way between Muscat and Salalah with approximately 850 nautical miles from Mumbai, i.e. less than 3 days sailing, the new port at Oman will be eyeing Indian container cargo for transshipment.
"Situated at Oman, it could not only give transshipment hubs like Dubai and Salalah a run for their money," said an exporter on anonymity. As it is nearer to ports in Gujarat, it could attract their cargo as well, he added.
The consortium partners along with Omani government, it is learned, are keen on developing a port in India as a sister port to the new port they are developing.
As both Rent A Port and Antwerp are not new to Indian port scene, identifying a suitable location or a potential partner in any of the non major ports could not be a problem.
Despite having the necessary resources at their disposal, both the players have been resisting putting anchors in Indian waters due to various issues. Rent A Port, for example, has looked very closely both green and brown field ports in both coasts of India and is keen to develop at least one port on each coast of India along with a local partner, said Mr Gupta.
(For more shipping stories)
The government of the Gulf nation of Oman, which signed a consortium agreement on Sunday for joint management of Duqm Port in Oman, has understood to have made its interest known to its partners. "Government of Oman together with Rent A Port, Belgium and Port of Antwerp is ready to participate in the equity of an Indian port on the west coast. This is due to the fact that the Omani government is expecting a growing volume of business between the two countries," said Neerav Kumar Gupta, head - India for Rent A Port.
On Sunday, March 28, 2010, Ahmed Macki, minister of national economy of the Sultanate of Oman and Marc Van Peel, chairman of the Port of Antwerp, signed the shareholder agreement for creation of a joint port management company. The company has the responsibility of entire management and marketing of the new port at Duqm and also of a large industrial land of minimum 2,000 Ha to be developed adjacent to the port.
The company 'New Duqm Port' has two shareholders. While 50% is held by government of Oman the other 50% belongs to consortium Antwerp Port (CAP). CAP is a limited Belgian company, established in August 2009, with two shareholders: Rent-A-Port n.v. a specialized port investor from Belgium and Antwerp Port Consultancy (a
100% subsidiary of Port of Antwerp).
The partners are investing in full costs of management, marketing, maintenance etc., entirely at their own risk, till the port becomes profitable, informed Mr Gupta, who was CMD of Dredging Corporation of India.
According to him, the new port is already under construction and will be completed in 2012. The total cost of the construction will be $ 1.4 billion.
As per the agreement, the new port facility will have a large petrochemical cluster, big shipbuilding and dry dock yard, and center for export of industrial minerals. More importantly, it will be fashioned as a hub for transshipment of containers to India.
Mid-way between Muscat and Salalah with approximately 850 nautical miles from Mumbai, i.e. less than 3 days sailing, the new port at Oman will be eyeing Indian container cargo for transshipment.
"Situated at Oman, it could not only give transshipment hubs like Dubai and Salalah a run for their money," said an exporter on anonymity. As it is nearer to ports in Gujarat, it could attract their cargo as well, he added.
The consortium partners along with Omani government, it is learned, are keen on developing a port in India as a sister port to the new port they are developing.
As both Rent A Port and Antwerp are not new to Indian port scene, identifying a suitable location or a potential partner in any of the non major ports could not be a problem.
Despite having the necessary resources at their disposal, both the players have been resisting putting anchors in Indian waters due to various issues. Rent A Port, for example, has looked very closely both green and brown field ports in both coasts of India and is keen to develop at least one port on each coast of India along with a local partner, said Mr Gupta.
(For more shipping stories)
GROWTH MAY SURPRISE FORECASTERS
INDIA has come a long way since the economic reforms in 1991, moving from rates of 5% into the orbit of 7-9% growth rates. However, how many of us really know the scope and scale of this story and how it pans out over the next 10 years? At Edelweiss, we tried to estimate this growth, and the numbers are staggering.
We have assumed Indian gross-domestic savings at around 35%, an incremental capital output ratio of four as in the past decade, inflation of 4% and a marginal current account deficit of 2%. These assumptions lead us to a real GDP growth rate of 9% and a nominal growth of 13%. By 2020, India’s GDP is likely to quadruple from the current $1.1 trillion to about $4.5 trillion. Per capita income is likely to triple from the current approximately Rs 50,000 to over Rs 1.5 lakh. The number of households with income of more than Rs 16 lakh will be over 18 million, while the number of middle class households (income between Rs 1.5 lakh and Rs 16 lakh) would grow by 50% to 180 million. Number of deprived households (with income below Rs 1.5 lakh) is likely to be reduced by almost 25% to 100 million. Indian consumption is likely to increase 3.7 times to about Rs 113 trillion, with discretionary expenditure likely to increase significantly. According to our estimates, the education sector will grow 5.7 times, domestic pharma and healthcare six times, media and entertainment five times and organised retail 6.3 times. The automobile sector is likely to grow 4.8 times, while urban premium housing will grow 6.5 times.
By 2020, we expect total savings to be about $1.4 trillion — more than our current GDP. The massive growth in savings will propel a 5.3 times growth in banking, 4.7 times in broking, 5.7 times in asset management and 4.7 times in life insurance. There are three key risks to achieving and managing this growth. Execution of planned infrastructure projects remains an area of concern, inflation is another. The third risk to growth is the inclusion of lower income segments. With a Gini index of 36, the income disparity levels in India are amongst the highest in the world. It’s important that the bottom of the pyramid participates in the growth process.
However, in the past decade, we have grown at 7.2% with 5% inflation and carried out significant reforms despite pulls and pressures of a democracy. We see no reason why this can’t continue for the next 10 years. In fact, I am personally confident that our projections may well prove to be underestimates.
We have assumed Indian gross-domestic savings at around 35%, an incremental capital output ratio of four as in the past decade, inflation of 4% and a marginal current account deficit of 2%. These assumptions lead us to a real GDP growth rate of 9% and a nominal growth of 13%. By 2020, India’s GDP is likely to quadruple from the current $1.1 trillion to about $4.5 trillion. Per capita income is likely to triple from the current approximately Rs 50,000 to over Rs 1.5 lakh. The number of households with income of more than Rs 16 lakh will be over 18 million, while the number of middle class households (income between Rs 1.5 lakh and Rs 16 lakh) would grow by 50% to 180 million. Number of deprived households (with income below Rs 1.5 lakh) is likely to be reduced by almost 25% to 100 million. Indian consumption is likely to increase 3.7 times to about Rs 113 trillion, with discretionary expenditure likely to increase significantly. According to our estimates, the education sector will grow 5.7 times, domestic pharma and healthcare six times, media and entertainment five times and organised retail 6.3 times. The automobile sector is likely to grow 4.8 times, while urban premium housing will grow 6.5 times.
By 2020, we expect total savings to be about $1.4 trillion — more than our current GDP. The massive growth in savings will propel a 5.3 times growth in banking, 4.7 times in broking, 5.7 times in asset management and 4.7 times in life insurance. There are three key risks to achieving and managing this growth. Execution of planned infrastructure projects remains an area of concern, inflation is another. The third risk to growth is the inclusion of lower income segments. With a Gini index of 36, the income disparity levels in India are amongst the highest in the world. It’s important that the bottom of the pyramid participates in the growth process.
However, in the past decade, we have grown at 7.2% with 5% inflation and carried out significant reforms despite pulls and pressures of a democracy. We see no reason why this can’t continue for the next 10 years. In fact, I am personally confident that our projections may well prove to be underestimates.
Forex reserves down $1.5b as dollar jumps
FOREIGN exchange reserves dipped $1.5 billion in the week ended March 19, largely on account of revaluation of non-dollar assets.
According to latest RBI data, foreign currency assets comprising dollar, pound and euro among other currencies dipped $1,476 million during the period. The special drawing rights (SDR) — the reserve currency with the International Monetary Fund — and the reserve capital with the IMF dipped $30 million and $9 million, respectively. The drop in foreign currency assets during the week is largely on account of the dollar gaining against euro, resulting in revaluation of non-dollar assets in yen, euro and sterling pound (expressed in dollars), said a treasury official at a public sector bank.
During the fortnight ended March 12, banks pulled out Rs 937 crore of mutual fund investments. With this, their outstanding investments in MF schemes is Rs 1,08,516 crore. Total stock of money, comprising cash, currencies and deposits, rose Rs 58,145 crore during the fortnight. At current levels, the annual year-on-year growth in money supply works out to 17.4% against 19.9% in the year-ago period.
According to latest RBI data, foreign currency assets comprising dollar, pound and euro among other currencies dipped $1,476 million during the period. The special drawing rights (SDR) — the reserve currency with the International Monetary Fund — and the reserve capital with the IMF dipped $30 million and $9 million, respectively. The drop in foreign currency assets during the week is largely on account of the dollar gaining against euro, resulting in revaluation of non-dollar assets in yen, euro and sterling pound (expressed in dollars), said a treasury official at a public sector bank.
During the fortnight ended March 12, banks pulled out Rs 937 crore of mutual fund investments. With this, their outstanding investments in MF schemes is Rs 1,08,516 crore. Total stock of money, comprising cash, currencies and deposits, rose Rs 58,145 crore during the fortnight. At current levels, the annual year-on-year growth in money supply works out to 17.4% against 19.9% in the year-ago period.
ECH MAHINDRA Single client dependence not so desirable Ranjit Shinde
ET INTELLIGENCE GROUP
AT&T’S purchase of 8% stake in Tech Mahindra is not likely to impact the Indian company’s shareholders. The management has clarified that it was a one-off deal and there is no likelihood of more such transactions being carried out in the future.
AT&T has long been a client of Mumbai-based Tech Mahindra, which offers IT solutions to global telecom players. In 2005, Tech Mahindra had entered in a longterm contract with AT&T. As an incentive, Tech Mahindra offered to sell equity stake to AT&T as and when the overseas firm achieves a given milestone revenue using Tech Mahindra’s solutions.
Now that AT&T has achieved such a milestone, it accepted Tech Mahindra’s offer and purchased the stake at a pre-determined price of Rs 162. AT&T has purchased the stake from Mauritius-based holding company MBT Mauritius. Hence, the deal value of $34.5 million (approximately Rs 160 crore) will reflect in the accounts of MBT Mauritius. After the deal, MBT Mauritius now holds a negligible stake in Tech Mahindra mentions CFO Sonjoy Anand.
AT&T’s gain from this transaction is enormous given that Tech Mahindra’s stock closed at Rs 910 on Tuesday. This culminates into a whopping six times notional gain for AT&T.
For Tech Mahindra’s investors, there is not much of a change. At 8%, the stake sale will not trigger the open-offer code. Further, the Tech Mahindra management has indicated that its board composition will not change. This means, AT&T will not have any representation in its board at least for the moment.
On the operational front, the tie-up between Tech Mahindra and AT&T is expected to strengthen further. AT&T now contributes more than 10% to Tech Mahindra’s revenue. The latter grossed Rs 4,493 crore in the four quarters ended December 2009.
A direct equity stake may mean that Tech Mahindra would become a vendor of choice for AT&T in future. This augurs well for the flagship company of Mahindra group, which is keen on reducing its dependence on the single biggest client BT (earlier British Telecom).
At the current price, Tech Mahindra’s stock trades at 16.5 times its trailing 12-month consolidated earnings. Given its high reliance on a single client and dependence on telecom as a single business vertical, the valuation looks rich at the current price levels and room for further appreciation in the stock looks limited.
AT&T’S purchase of 8% stake in Tech Mahindra is not likely to impact the Indian company’s shareholders. The management has clarified that it was a one-off deal and there is no likelihood of more such transactions being carried out in the future.
AT&T has long been a client of Mumbai-based Tech Mahindra, which offers IT solutions to global telecom players. In 2005, Tech Mahindra had entered in a longterm contract with AT&T. As an incentive, Tech Mahindra offered to sell equity stake to AT&T as and when the overseas firm achieves a given milestone revenue using Tech Mahindra’s solutions.
Now that AT&T has achieved such a milestone, it accepted Tech Mahindra’s offer and purchased the stake at a pre-determined price of Rs 162. AT&T has purchased the stake from Mauritius-based holding company MBT Mauritius. Hence, the deal value of $34.5 million (approximately Rs 160 crore) will reflect in the accounts of MBT Mauritius. After the deal, MBT Mauritius now holds a negligible stake in Tech Mahindra mentions CFO Sonjoy Anand.
AT&T’s gain from this transaction is enormous given that Tech Mahindra’s stock closed at Rs 910 on Tuesday. This culminates into a whopping six times notional gain for AT&T.
For Tech Mahindra’s investors, there is not much of a change. At 8%, the stake sale will not trigger the open-offer code. Further, the Tech Mahindra management has indicated that its board composition will not change. This means, AT&T will not have any representation in its board at least for the moment.
On the operational front, the tie-up between Tech Mahindra and AT&T is expected to strengthen further. AT&T now contributes more than 10% to Tech Mahindra’s revenue. The latter grossed Rs 4,493 crore in the four quarters ended December 2009.
A direct equity stake may mean that Tech Mahindra would become a vendor of choice for AT&T in future. This augurs well for the flagship company of Mahindra group, which is keen on reducing its dependence on the single biggest client BT (earlier British Telecom).
At the current price, Tech Mahindra’s stock trades at 16.5 times its trailing 12-month consolidated earnings. Given its high reliance on a single client and dependence on telecom as a single business vertical, the valuation looks rich at the current price levels and room for further appreciation in the stock looks limited.
I-PILL DEALI-PILL DEAL
ET INTELLIGENCE GROUP
THE sale of contraceptive brand I-pill by Cipla to Piramal Healthcare may appear to be a win-win deal for both the companies but a closer look indicates that Cipla could be a loser with Piramal Healthcare obviously gaining from the deal.
Cipla launched the I-pill brand two years ago, marking its entry into the over-the-counter products segment. It made the contraceptive pill into a Rs 30-crore strong lucrative brand commanding approximately 60% of the market. The emergency contraceptive pill (ECP) category in the OTC segment typically reports a net margin of over 30%. Thus, despite the aggressive advertising spend to promote the brand, it was a money spinner for Cipla.
The moot question then is what prompted Cipla to sell its successful and the only OTC brand in its portfolio. Industry experts believe that the government’s ban on airing the television commercials of I-pill, due to irresponsible advertising, probably raised scepticism in the company regarding the future growth of the brand. There was also an underlying fear that the emergency contraceptive pill category may not remain within the OTC segment for long and may be included under the less-lucrative prescription drug category.
Besides, this fast-growing category is attracting several new players. Apart from Cipla, there are three other companies — Mankind Pharma, Morepen Labs and the recent entrant Paras Pharma with similar branded products in the market. With rising competition, Cipla might not have wanted to spend money on nurturing the brand further. On the contrary, acquiring a premium brand such as I-pill for Rs 95 crore appears to be a good deal for Piramal Healthcare, which has proven expertise in managing OTC brands. For a brand that is growing at 36% annually, the company has paid fair valuations of three times its annual sales. Piramal Healthcare already has a strong and growing portfolio of OTC products and I-pill would be a premium addition to it.
At this juncture, one cannot say whether Cipla’s concerns were unfounded or not. Perhaps there was potential for Cipla to have hammered out a better deal for its premium brand in a niche category. However, the stock market reacted positively to the news and stocks of both Cipla and Piramal Healthcare moved up by 2.5% and 3.4%, respectively on Tuesday.
THE sale of contraceptive brand I-pill by Cipla to Piramal Healthcare may appear to be a win-win deal for both the companies but a closer look indicates that Cipla could be a loser with Piramal Healthcare obviously gaining from the deal.
Cipla launched the I-pill brand two years ago, marking its entry into the over-the-counter products segment. It made the contraceptive pill into a Rs 30-crore strong lucrative brand commanding approximately 60% of the market. The emergency contraceptive pill (ECP) category in the OTC segment typically reports a net margin of over 30%. Thus, despite the aggressive advertising spend to promote the brand, it was a money spinner for Cipla.
The moot question then is what prompted Cipla to sell its successful and the only OTC brand in its portfolio. Industry experts believe that the government’s ban on airing the television commercials of I-pill, due to irresponsible advertising, probably raised scepticism in the company regarding the future growth of the brand. There was also an underlying fear that the emergency contraceptive pill category may not remain within the OTC segment for long and may be included under the less-lucrative prescription drug category.
Besides, this fast-growing category is attracting several new players. Apart from Cipla, there are three other companies — Mankind Pharma, Morepen Labs and the recent entrant Paras Pharma with similar branded products in the market. With rising competition, Cipla might not have wanted to spend money on nurturing the brand further. On the contrary, acquiring a premium brand such as I-pill for Rs 95 crore appears to be a good deal for Piramal Healthcare, which has proven expertise in managing OTC brands. For a brand that is growing at 36% annually, the company has paid fair valuations of three times its annual sales. Piramal Healthcare already has a strong and growing portfolio of OTC products and I-pill would be a premium addition to it.
At this juncture, one cannot say whether Cipla’s concerns were unfounded or not. Perhaps there was potential for Cipla to have hammered out a better deal for its premium brand in a niche category. However, the stock market reacted positively to the news and stocks of both Cipla and Piramal Healthcare moved up by 2.5% and 3.4%, respectively on Tuesday.
TAXWISE File tax return, but get your facts right
A COMPANY/FIRM; or any other person whose total income exceeds the maximum amount which is not chargeable to income tax is required to file the income tax return on or before the due date in the prescribed form. Furthermore, the tax return form is required to be verified in the prescribed manner as per the provisions of Income-Tax Act, 1961 (the ‘Act’).
THE DUE DATE
Different dates have been specified under the Act for filing a tax return by different sets of tax payers. In the case of salaried individuals, the tax return is to be filed by July 31 as the relevant financial year draws to a close.
MAKING UP FOR THE LOSS
If any person who has sustained a loss in any financial year under the head 'Profit & gains of business or profession' or under the head 'Capital gains' and wants such loss to be carried forward to be set off against his future income, then he should furnish his tax return on or before the due date.
MISSED THE DEADLINE?
If a person has not furnished his tax return within the due date or within the time allowed under a notice issued to him by the tax authorities as per the provisions of the Act, then he may furnish his tax return at any time before the expiry of two years from the end of the relevant financial year for which return is to be filed or before the completion of the assessment, whichever is earlier.
OMISSIONS, IF ANY
If any person who has filed his tax return within the due date or in pursuance of a notice issued under the Act, discovers any omission or any wrong statement in the same, then he may file a revised return at any time before the expiry of two years from the end of the relevant financial year or before the completion of the assessment, whichever is earlier.
MORE LEEWAY
If the taxmen consider that the return filed by the tax payer is defective under the provisions of the Act, then they may intimate the defect to the tax payer and give him an opportunity to rectify it within 15 days from the date of such intimation or within such period as they may deem fit.
SIGNING THE TAX RETURN
In the case of an individual, the return is to be signed by an individual himself. In case such individual is absent for some reason, then his return could be signed by any person duly authorised by him on his behalf.
THE DUE DATE
Different dates have been specified under the Act for filing a tax return by different sets of tax payers. In the case of salaried individuals, the tax return is to be filed by July 31 as the relevant financial year draws to a close.
MAKING UP FOR THE LOSS
If any person who has sustained a loss in any financial year under the head 'Profit & gains of business or profession' or under the head 'Capital gains' and wants such loss to be carried forward to be set off against his future income, then he should furnish his tax return on or before the due date.
MISSED THE DEADLINE?
If a person has not furnished his tax return within the due date or within the time allowed under a notice issued to him by the tax authorities as per the provisions of the Act, then he may furnish his tax return at any time before the expiry of two years from the end of the relevant financial year for which return is to be filed or before the completion of the assessment, whichever is earlier.
OMISSIONS, IF ANY
If any person who has filed his tax return within the due date or in pursuance of a notice issued under the Act, discovers any omission or any wrong statement in the same, then he may file a revised return at any time before the expiry of two years from the end of the relevant financial year or before the completion of the assessment, whichever is earlier.
MORE LEEWAY
If the taxmen consider that the return filed by the tax payer is defective under the provisions of the Act, then they may intimate the defect to the tax payer and give him an opportunity to rectify it within 15 days from the date of such intimation or within such period as they may deem fit.
SIGNING THE TAX RETURN
In the case of an individual, the return is to be signed by an individual himself. In case such individual is absent for some reason, then his return could be signed by any person duly authorised by him on his behalf.
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