With the new government likely to take oath on May 30th, the government is moving on a war footing on encouraging foreign investors. In this regard, SEBI has mooted major changes in rules governing foreign portfolio investors (FPIs) to encourage FPI inflows. This includes a proposal to fast-track the on-boarding process for FPIs and simplifies rules as per the HR Khan Committee recommendations. SEBI also recommended considering pension funds as Category 1 FPIs, removal of opaque structure, liberalized investment cap for prohibited sectors and permitting off-market transactions for FPIs.
With the NBFC crisis at IL&FS now snowballing, the RBI has mooted greater checks and balances for NBFCs. RBI has proposed a series of controls for NBFCs on Friday which includes mandatory investment in government bonds, maintenance of cash thresholds and limiting asset liability mismatch to 20% of the outflows. RBI also wants all NBFCs to disclose their funding concentration by instruments and counter parties. NBFCs have been in a liquidity crisis since September 2018, post the IL&FS default. Government is keen to rescue these NBFCs fast as they play a pivotal role in credit delivery.
A likely suitor in the last few days, Hinduja Group has set tough conditions for takeover of Jet Airways. According to a report in Bloomberg, the Hinduja Group is seeking an 80% haircut on the debt, which could be unacceptable to bankers. Jet has outstanding debt of Rs.10,000 crore and had ceased operations on 17th April. Also, Hinduja may only be keen on a minority stake and not a controlling stake, as per the Bloomberg report. Hinduja Group is currently in talks with Etihad. With most of their aircraft repossessed and routes and bays sold, Jet may have a tough time reviving its way back to business.
In the aftermath of the L&T buyback rejection, SEBI is likely to amend buyback regulations on the subject of consolidation of accounts. The issue of interpretation came up when SEBI rejected the Rs.9000 crore buyback of L&T as the total debt exceeded 2 times the post-buyback equity. While L&T had applied based on standalone numbers, SEBI had interpreted on a consolidated basis. As per Bloomberg, SEBI is expected to officially affirm that consolidated numbers will also be considered prior to approving a buyback. SEBI wants to avoid parking of debt in group companies.
With the NDA government likely to take over soon, gold reforms may be top on the agenda. With the voters of India giving a decisive mandate in favour of Modi and the NDA, President Kovind invited Modi to form the government. The swearing in ceremony is expected to take place on the 30th of May and the cabinet ministers will also be sworn in on the same day. One of the primary tasks is a massive revamp of gold regulation in India. The economic affairs department of the Commerce Ministry has completed its gold reforms plan and it could make big changes. As per a report in Business Standard, some of the changes include declaring gold as an asset class, revamping the Gold Monetization Scheme (GMS), creating a gold regulator with statutory powers and even the setting up of a gold spot exchange.
It looks like the problems for are unlikely to end anytime soon. Brent Crude could get volatile as Trump sends 1500 troops to Middle East. Blaming Iran for the recent attacks on Saudi facilities, Trump authorized moving another 1500 troops to the Middle East in a clear show of aggression. The US has blamed Tehran for recent attacks on oil tankers, Saudi oil pipeline and also the green diplomatic zone in Baghdad. Earlier, Iran backed Houthi rebels in Yemen had claimed responsibility. Geopolitical risk could make crude volatile next week and that would widen the trade deficit for the Indian economy.
