Changing from trusts to corporate for FPIs may be easier said than done according to Nandita Parker, the founder promoter of Karma Capital. Karma is one of the major FPIs operating in India. According to Parker, the change in FPI structure may not be feasible as a shift for purely tax purposes would invoke the provisions of the General Anti Avoidance Rules (GAAR). Even if a one-time exception was given to FPIs, it would still be open to future scrutiny. There have been instances of such hounding in the past. Parker also pointed that India was the only major market that taxed capital gains.
Rate cut expectations from the Fed had a bullish impact on Brent Crude prices. In fact, crude oil closed 159 bps higher at $64.72/bbl on Fed rate cut expectations. The Fed is expected to announce the outcome of the FOMC meet on Wednesday evening. The markets are still split between the likelihood of 25 bps rate cut and a 50 bps cut by the Fed and even the CME Fedwatch indicator is quite tentative at this point of time. A weak dollar is positive for oil prices. In addition, the markets are also expecting a sharp drawdown in US oil inventories and that also pushed oil prices higher. Iran remains tense.
The mysterious disappearance of V G Siddhartha of the Coffee Day group was the latest overhang on Dalal Street as it touched a 5-month low in the midst of sustained weakness. Over the last one year, some corporate groups have continued to be an overhang on the markets from a systemic risk perspective. After IL&FS, DHFL and Jet Airways, it is now the turn of Coffee Day Enterprises. With the sudden disappearance of the founder chairman of the group, the Indian markets reacted negatively to the news over debt exposure of banks and MFs to the group which is in excess of Rs.10,000 crore.
In a bid to boost growth engines in the country, Japan is likely to infuse $40 billion (Yen 4 trillion). Japan government is likely to infuse the big money in the 2020-21 Budget to spur private investment as well give a boost to developments in science and technology. According to Japanese sources, ministries may be also asked to cut spending on public works by 10% to fund such high growth sectors. The proposals are still await Abe’s approval but could be big as a global multiplier effect. Global markets have been eagerly waiting for the large and powerful economies to take the lead in big spending.
RBI has made some interesting tweaks to ease the situation for NBRCs. Bad loans to the manufacturing and infrastructure sector can now be sold to overseas investors giving them direct exposure to Indian corporates. Such a facility will only be allowed as a one-time settlement of NPAs. Defaulters will be allowed to raise money in the form of ECBs against the sale of such assets to repay liability to banks. Dollar debt could be a worry. Additionally, NBFCs will also get relief on the end use of external commercial borrowings (ECB). RBI has relaxed the norms for end use of ECB funds. Now the ECB will be allowed for funding working capital, general corporate purposes and for repayment of rupee loans. This is likely to help the NBFCs ease their current liquidity situation. NBFCs can also borrow to on-lend.
Institutional investors have made a long standing call for more transparency on US hedge funds. Large global investors like pension funds and sovereign funds have already been quite dismayed by the uninspiring returns given by hedge funds. Now they are calling for more transparency from hedge funds on their fee calculation, investment strategy, underlying risk in their strategy etc. In the last few years, there has been a huge shift to passive investing, which has actually done better. The challenge for the hedge funds is to continue to remain relevant at a time when the general trend is risk-off.
