Posts Tagged ‘foreign direct investment’

Weekly Update 11th – 15th October 2010

Beside Indian market all global markets closed in green in the week gone by on the expectation of policy easing by developed nations. Central banks resorting to purchase of debt and currency intervention in developedeconomies is flooding markets with liquidity and funds are flowing to Asia for higherreturns. Fed Chairman Ben S. Bernanke has signaled that Fed may announce thepurchase of more Treasuries as soon as their next policy meeting in November in aneffort to boost growth and reduce an unemployment rate.

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The Bank of Japan said this week it will establish a 5 trillion yen ($61 billion) fund to buy government bondsand other assets. It also cut its benchmark overnight interest rate for the first timesince 2008, dropping it to a range of zero to 0.1 percent. Joining the league European Central Bank President Jean- Claude Trichet too said that ECB policymakers are in the “same mood” as a month ago and for now remain committed tophasing out their unlimited lending program.With the economic activity gaining pace, it is believed that Indian market wouldcontinue to see overseas buying. Moreover Indian government plans to raise $8.9billion in the year ending March 31 selling state assets including Coal India, Steel Authority of India Ltd. and Indian Oil Corp. thereby giving more investment opportunities to investors.

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While many developed nations are intervening in the currency markets in order tostem the appreciation in the currency, Indian Finance minister is of the opinion thatthe situation has not gone to an extent at which there is a need to restrict portfolio or foreign direct investment. As a matter of fact Indian rupee gained 4.5 percent inSeptember. Finance Minister said “We should try to engage the countries innegotiations and build up a consensus through which the matter can be resolved andit cannot be resolved through confrontation.” The International Monetary Fundraised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent,citing strengthening local consumer demand.

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Since we have already seen a huge run up in the broader indices meaning moreparticipation coming from large cap stocks so now going forward we may expectmore activity in mid and small cap stocks. The result season is starting in the comingweek and corporate would give their guidance for the rest of the year which wouldset the future undertone of the markets. Nifty has support between 5950-5870 and Sensex between 19640-19200 levels.What a stunning rally gold has enjoyed recently on fear of inflation. It has hit many records in fewer days.

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Silver was not behind, it made life time high of `34898 on MCX and breached the mark of `35000 in spot market. Talk of quantitative easing by US and rate cut by BoJ are creating anxiety over currency devaluation and long-terminflation is keeping gold and silver on remarkable run up. After witnessing the bigswings of both side, we can say that trend of crude oil is little bit in indecision mode.However, bias should be on upside. Michigan Confidence, CPI and advance retailsales data of US may further provide the direction to metals and energy. Industrialmetals which have made upper trading range last week, are likely to trade up onweakening dollar index.

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Single policy platform for FDI

Union Commerce and Industry Minister Anand Sharma released the final document of FDI Policy Framework.

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It would now comprise the single document on FDI policy and mark the inception of a whole new chapter on FDI policy.

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Meanwhile, he said that the current exercise had been started with the goal of incorporation of all prior regulations on FDI.

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That contained in Foreign Exchange Management Act (FEMA), RBI circulars, and various Press Notes into one consolidated document.

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This is so as to reflect the current regulatory framework.

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Moreover, having a single policy platform would also ease the regulatory burden for Government.

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The intention of this exercise is not to make changes in the extant guidelines, but to deal with them comprehensively.

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The government stated that it was considering permitting FDI in limited liability partnership (LLP) firms.

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It was also considering to clearly define whether shares and bonds issued to overseas investors could be treated as foreign direct investment.

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On the other hand, the government may also do away with Schedule IV of the FEMA that deals with sale and purchase of shares and debentures by NRIs and overseas corporate bodies on non-repatriable basis.

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Earlier, it was said that India”s Foreign Direct Investment (FDI) inflows reduced by 25 % to $2.04 bn in January 2010 as compared to the corresponding period of the previous year, breaking a trend of positive growth in the previous 3 consecutive months.

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An official said there is no specific reason why the inflows in January inched down. India”s total FDI by the end of the current financial year, will not be more than last financial year”s.

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However, last year in January 2009, FDI inflows were $2.73 bn. India attracted FDI of $2.33 bn in October 2009, about 56 % jump over the same period last year, while in November FDI surged by 60 % to $1.73 bn.

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Previously, as the response from investors did not warrant such a move, the government does not have any plan to increase the cap of foreign investments in bonds stated a top Finance Ministry official.

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The existing limit is not being used up for a long time while there is no proposal to raise the foreign institutional investment (FII) debt limit.

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Currently, the government allows foreign investments of up to $15-billion in corporate bonds and up to $5-billion in government bonds.

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India received $1.5 billion foreign direct investment (FDI) in December 2009 that is an increase of over 10% over that in the same month of previous year.

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FDI was $1.36 billion in December 2008.

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The overseas inflows decreased marginally to $20.9 billion in April-December compared to $21.15 billion in the corresponding period last year.

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In addition, Commerce and Industry Minister Anand Sharma stated that the government plans to introduce a single FDI document by end-fiscal, with a view to simplify foreign direct investment (FDI) process, and is currently discussing the various modalities.

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He said they have put this document for discussions with all stakeholders to invite their comment which is likely to close by January 31.

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By March 31, they will have single FDI document to ensure simplification, easy comprehension and predictability.

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Moreover, Commerce and Industry Minister Anand Sharma stated that India”s share in the global Foreign Direct Investment has almost doubled to 2.45% in 2008.

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India was fourth in 2008, in terms of FDI inflows, among developing countries with reference to UNCTAD World Investment Report (WIR) 2009.

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However, earlier, in order to attract $50 billion of foreign direct investment (FDI) annually by 2012, the Centre is creating an investor friendly environment, to keep up with the economic growth and build infrastructure.

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It is said that the government will aim at $50 billion annual FDI flows by 2012 and $100 billion by 2017 whereas last year the FDI inflows were $35 billion and in the H1 of 2009-10, the FDI inflows were around $15 billion.

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On the other hand, the government approved 17 foreign direct investment (FDI) proposals worth Rs 1,158.78 crore where among the major proposals are the FDI applications of ArcelorMittal and ductile iron pipe maker Electrosteel Castings.

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ArcelorMittal, with an FDI of Rs 503.37 crore, plans to infuse foreign equity into a company engaged in manufacturing cold-rolled semi-finished iron and steel products.

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Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.

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Savings accounts are accounts maintained by retail financial institutions that pay interest but can not be used directly as money ( for example, by writing a cheque).

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These accounts let customers set aside a portion of their liquid assets while earning a monetary return..

India’s Stocks Rose to Highest since May 2008

India’s stocks rose to their highest in 19 months

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India’s stocks rose to their highest in 19 months after foreign direct investment into the nation jumped 61 percent

and the government relaxed a rule to make some state-run companies globally competitive.

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Tata Motors Ltd., soared to the highest in more than two years after foreign direct investment into the nation rose to $1.74 billion in November.

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Oil & Natural Gas Corp., the largest state-owned oil explorer, climbed the most in three weeks as the government increased the cap on the amount some state-run companies can spend to acquire assets and set up joint ventures.

“Money always chases opportunity and now the opportunity is in India,” said

Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd. in New Delhi.

“There are not many options left for the global investor.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 129.50, or 0.8 percent, to 17,360.61, the highest since May 16, 2008.

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The gauge has risen 3.8 percent this week, the most in more than a month.

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The Sensex climbed 80 percent this year, set for its best annual performance in 18 years as economic expansion accelerated and the election victory of Prime Minister Manmohan Singh ruling coalition in May raised optimism he will push through reform measures to boost growth.

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The S&P CNX Nifty Index on the National Stock Exchange rose 0.7 percent to 5,178.40.

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The BSE 200 Index increased 0.7 percent to 2,169.65.

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RBI not in favour of 3-yr lock-in in realty FDI

The Department of Industrial Policy and Promotion (DIPP) proposal made last month to remove the three-year lock in period for foreign direct investment (FDI) in real estate has not found favour with the Finance Ministry or with the Reserve Bank of India (RBI). Both entities have written to the DIPP to this effect.

The developers were asking for a removal of the lock-in period in order to encourage speculation in realty. CNBC-TV18’s Latha Venkatesh reports.

It has been a long standing demand of the real estate companies that this lock-in of FDI into real estate projects should be removed because that restricts the number of investors into real estate projects. But this proposal even historically has never found favor with the RBI and the Finance Ministry. When the proposal was mooted around November 22-23 and was sent by the DIPP to Finance Ministry and related ministries—the urban development ministry as well as the RBI, what we now gather is that both the Finance Ministry and the RBI have raised their descent note against this proposal, their argument more or less similar is that allowing this lock in to be removed would mean a free flow of money coming in and parking in, pushing up real estate prices and then cashing out and booking a quick profit.

Primarily to avoid such speculative boosting of asset prices is the reason why both the Finance Ministry and the RBI are opposed to it. But sources who told us that this descent note has been sent, have added that they do not have any final authority over this kind of a proposal and that their descent in the past has been overruled. We know of the various press notes which have been opposed by various sections in the Finance Ministry and in the RBI in very recent cases and their descent need not necessarily be taken in by the Commerce Ministry or the DIPP. But a descent has been put on the record.

Source:http://www.moneycontrol.com/news/cnbc-tv18-comments/fin-min-rbi-notfavour3-yr-lock-inrealty-fdi_430429.html

India Crossed the $100 Billion Mark in FDI :)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI) through equity confirming its rising profile as a safe and sound investment objective.

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However, 44% of the money came through Mauritius as investors wanted to take advantage of India’s double taxation avoidance treaty with the island nation.

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Moreover, the cumulative FDI inflows since 2000 and up to July 2009 amounted to $100.33 billion while the inflows in the first 4 months of the current fiscal were $10.49 billion and the other big investors included Singapore, the US, UK and the Netherlands.

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Additionally, it is said that FDI’s main impact comes from new technology, new managerial capabilities and new benchmarks in corporate functioning whereas India reached the $100 billion mark at a time when the global financial crisis has had a dampening impact on FDI flows which are expected to fall this year.

Further, it is said that the global FDI flows will decline by 30% in 2009 reviving only marginally during the next year.

Although declining, FDI flows to developing countries proved to be more flexible than other capital flows such as portfolio investment and bank lending, the main reasons being that FDI is more of a long term nature than capital flows.

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On the other hand, India’s services sector received 23% of the cumulative equity FDI inflows followed by computer software, hardware, telecommunication and real estate.

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