Sunday, July 27, 2008

Sail through easily - Money & You (The Sunday ET)

ASHISH Arora’s son, who recently joined a college in the United States, called up late one night requesting him to send money to his account to meet emergency expenses. Next morning, Arora rushed to the nearest bank which provides transfer services, only to be handed a few forms and asked for documents that he hadn’t even thought of carrying. To make sure that next time you don’t make the same mistake, SundayET lists out steps which you can follow to sail through the outward and inwards remittances process.

Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier.

The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft (FCDD). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT instead of wire transfer. “A wire transfer could be done via SWIFT (Society for Worldwide Interbank Financial Telecommunications), which is a secure and standardised system by which banks are able to correspond with each other. While the charges for a wire transfer are higher, it scores over FCCD in terms of time as the transfer can be made within 24 hours,” says Sudip Bandyopadhyay, CEO, Reliance Money. A demand draft, on the other hand, needs to be sent abroad physically and takes time to get cleared.

You primarily need to fill a remittance request form where the purpose behind sending the money needs to be indicated clearly. If the amount you are sending is large, you may also have to indicate the source of money. You are also required to fill Form A2 and be in possession of a certificate from a chartered accountant. “There is a limit to the amount that can be sent. RBI has placed an annual cap of $200,000 per person per year,” says Girish Nayak, head (NRI services), ICICI Bank. While the forex rate is mentioned to the customer before the transaction, you should cross-check the same with the forex rate card of the bank. “While you may have sent the money keeping a certain exchange rate in mind, the actual exchange rate applicable will be the one on the day when the beneficiary receives the money,” informs Bandyopadhyay.

Remittances for the purpose of gambling, margin trading and so on are not allowed by the RBI. “Hence, if your remittance is not for a common purpose like education or family maintenance, check if it is allowed under the FEMA,” warns Nayak. Experts caution that you should be wary of the regulations of the country to which you are sending your money to. Otherwise, you can get yourself in trouble and get caught under an AML (anti-money laundering) filter or any such filter. This can risk the chance of your transaction being blocked or reported to the regulator.

In case of inward remittances (sending money to India), in addition to bank channels and wires, foreign currency cheques can be issued which can be taken to a branch in India for collection. Rupee cheques are also issued in the Gulf countries. Of late, many people are using the online money transfer service offered by banks. Now banks even offer a shorter turnaround time of one day for sending money to India. This is in contrast to the general turnaround time of three to five days. If you are looking for a really time-efficient method, you can rely on money transfer agencies which can reduce the time lag to about five minutes.

If you are collecting the money in cash, you need to carry a proof of identity and proof of residence such as your passport, voter’s ID or driving licence. A money transfer system generally gives the sender a code, which needs to be passed on to the recipient before he gets the money. “Charges such as administrative costs, transfer fees and agent commission are taken care by the sender and depend on the amount transferred, the mode of transfer and the country,” explains a Western Union official in India.

You must keep in mind that money transfer systems generally have a limit to the amount that you can send per transaction and a certain number of transactions are only permitted in a year. There are also limitations set by the country from where you are sending the money from. “Moreover, if the money is being sent for investment purposes, you need to make sure that these are in line with the norms governing NRI investments,” says Nayak. “If the payment is not received by the receiver with 45 days from the date of sending money, the transaction will not be conducted and the money will be refunded to the sender after deducting the administrative cost,” warns Chandok.

Friday, July 25, 2008

Bear market turns PE attractive, 150 deals likely in Q3- Market ...

MUMBAI: The bear market has led to resurgence in private equity deals. “More than 150 deals are expected in the third quarter of 2008. Investors from Mauritius, Europe and Middle East are poised to strike deals with Indian companies with good valuations,” said YEN Management Consultant Managing Director and Chief Executive Officer, Sunil Shirole, who recently visited 10 countries meeting 50 private equity investors.

Investors still believe in the strong fundamentals of Indian economy and they are coming to India with a 5-7 year time horizon, Shirole said.

Some recent PE deals: Reliance Money acquired 26 per cent stake in National Multi Commodity Exchange for $25 million; Bupa Asia Pacific took 26 per cent stake in Max New York Life Insurance for $24 million; Chrys Capital picked up 7 per cent in Amtek Auto for Rs 229 crore; Estee Lauder bought 15 per cent stake in Forest Essential for an undisclosed amount; Dubai’s Eastgate Capital invested Rs 100 crore in Avendus Capital.

“Valuations have turned reasonable and attractive. This is the right time to look at investments,” said Alok Gupta, MD & CEO, Axis Private Equity.

Axis is currently evaluating investments in healthcare, renewable energy, hospitality, and logistics. Recently, it invested $15 million in Vishwa Infrastructures and Services which specializes in water and sewage projects.

“PE investment is bound emerge as a popular route to raise funds for mid size companies which are currently dragging their feet on entering the capital market,” Gupta said.

The US subprime crisis and its aftermath have helped PE placements in India. Investors across the world are shifting focus to emerging markets where they see good returns.

“Big companies in US are incurring huge losses due to the sub-prime crisis. If they continue to make losses in the next quarter, emerging markets like India and China will get more and more PE investments,” added Gupta.

A week back, SOMA Networks, engaged in providing mobile WiMAX products and professional services, secured $51 million of equity financing from Daiwa Securities Group, Daiwa Securities SMBC Principal Investments, Ridgeway Capital Partners, and India Knowledge Fund, a private equity fund of Japan-based SBI Holdings and others.

Asserted Sanjay Randhar, director, India Knowledge Fund, “Due to rising interest rates and tight liquidity, debt funding has become difficult. But companies need to continue with their expansion projects. This scenario holds good for PE investments.”

“With IPOs on the backburner, companies have no other option but to raise money from PEs. I expect 20-30 per cent growth in private equity deals in a year,” said Srini Vudayagiri, MD, Lightspeed Venture Partner.

The continued bearish phase in the market has created opportunities in striking pipe deals, added Vudayagiri.

As per SEBI regulations, six months average price or current market price, whichever is higher, should be considered for pricing in pipe deals.

Bangalore-based Lightspeed is also looking at investments in infrastructure-derived industries, media & entertainment, and financial services. However, the fund house refuses to reveal any details of the ongoing negotiations.

YEN Consultant is also mediating 2-3 deals between Middle East and Indian companies in the education and health care sectors. These are expected to be inked in 2/3 weeks.

Sunday, July 20, 2008

Brokerages try to reach out to NRIs and PIOs

Though data on NRI investments is hazy, preferred asset classes are stocks, mutual funds and property, experts say. According to RBI data, $3.9 bn of NRI money flowed into India in 2006-07 , compared to $2.8 bn the previous year. About 46% of the net investible sum is put in the abovementioned assets classes. The US, UK, UAE and Saudi Arabia are the top countries from which a majority of the NRI inflows are coming into India.

According to the recently-published Merrill Lynch-Capgemini Asia-Pacific Wealth Report, the NRI segment is emerging as a niche segment within the high networth individual (HNI) market globally.

One of the ways to enter foreign markets is to forge partnerships with local financial institutions . In a similar pact, Anil Ambani-promoted Reliance Money recently tied up with Chellarams Plc, a leading South Africa-based industrial house, to offer financial services to retail investors in Nigeria.

With this arrangement, Indians (including PIOs) living in that country will be able to invest in Indian equities, equity options and commodities futures, mutual funds, insurance products and offshore investment instruments. The company has got into similar arrangements in Oman, UAE, Hong Kong and Saudi Arabia. It has plans to expand its operations in over 15 countries spread across Europe, North Africa, the West Asia and South East Asia by next year, company officials said.

According to Reliance Money CEO Sudip Bandyopadhyay, the brokerage is aiming to generate 50% of our revenues from overseas markets by 2012. Geojit Financial Services has also forged similar partnerships with local institutions to facilitate NRIs (living in UAE, Saudi Arabia and Oman) trade in Indian equities.

Not stopping at forging local partnerships, broking firms like Religare Capital have gone ahead buying established foreign companies to widen their operational reach. The Ranbaxy-promoted brokerage firm acquired 98% stake in the London-based Hichens Harrison & Co, that claims to have presence in 10 overseas markets including rare Latam equity hubs like Argentina and Brazil.

“We plan to have an India-desk in all these countries. Initially, we will start with institutional investments, but later on help retail investors as well,” said a Religare spokesman. The brokerage expects its revenues to jump over 40% as a result of its overseas expansion.

Sunday, July 13, 2008

Nervousness to continue- Money & You-The Sunday ET-Features-The ...

An interesting point was made on the sidelines of the G-8 summit in Hokkaido, Japan, regarding the role of any nation’s central bank in controlling inflation in today’s globalised and open world. As global trade/ GDP ratios rise sharply, the price of tradable goods is increasingly determined by international, rather than domestic, demand and supply. Most of the inflation in tradable goods over the past year, in India and abroad, has been in oil, other non-agri commodities and food — marked by global demand-supply imbalances.

Prices of most other tradable goods are still relatively stable on account of the efficiency effects of globalisation. While the world economy taken together can be seen as closed, the role of nation-based monetary policy is becoming increasingly marginal in impacting domestic consumer price inflation. However, the central banks of developing economies do have a role in correcting the internal imbalances.

International oil price rises should be passed on to the consumer as soon as possible and in as graduated a manner as feasible so as to avoid shocks. If everybody expects oil prices to reign high in the foreseeable future, it is best for the consumer to feel the pinch and curb consumption. Then over time, all economic agents will veer round to a less energy-intensive regime.

The markets during the last week displayed an upward bias initially but were unable to sustain the rise following a combination of both macro and political factors. On the political front, the Left finally withdrew its support to the UPA government, which was on anticipated lines and actually impacted market sentiment positively.

However, two other negative factors which continued to keep the market edgy were the sustained rise in crude prices, which touched a record high of $147.25a barrel after correcting earlier to $136 a barrel just a couple of days back on rising political tensions between Iran and Israel, and a weakness in dollar.

Crude price rose sharply on concerns that Israel may be preparing to attack Iran, while a strike in Brazil and renewed militant activity in Nigeria have continued to threaten supplies. The second negative factor was the continuous rise being witnessed in bond yields on government 10-year paper during the last two to three weeks which has now averaged a new high of 9.5%, clearly indicating that some stringent steps from RBI are expected soon to tone down inflation pressures in the near term.

Also, on the macro front, IIP numbers released for May 2008 during the week turned out to be extremely disappointing and alarming. In May ’08, IIP growth has come down to 3.8% as compared to 10.6% in May last year, and also the April IIP numbers were revised downwards to 6.2% from 7% earlier.

In line with global slowdown in industrial production, India’s industrial growth will moderate in 1H2008 and hence, will impact the GDP growth negatively. Also, the infrastructure growth during May ’08 is down to 3.5% as compared to 7.8% in May last year. The only soothing factor is that food production in the country is all set to touch a record high of 231 mn tones which will hopefully bring down inflation, which is now close to 12%.

We would soon be in the midst of the earnings season and corporate earnings — in the light of higher interest costs, increased cost push and a slowdown in demand — are bound to get impacted adversely. While the full impact of increased interest costs has not yet been reflected on corporates till date, the going ahead is expected to be choppy as battling higher input costs coupled with slowdown in demand will pose a big challenge.

Sectors such as IT, telecom and pharma will continue to show improved earnings numbers during this quarter but capital-intensive sectors such as cement, metals, real estate, construction, banking and auto are likely to show significant margin pressures.

Interestingly, FIIs during the last week, which earlier had hedged positions in F&O, which was largely responsible for the high July series Nifty discount, have now unwound their hedged positions and turned sellers in the cash segment. This is a dangerous trend and could be read as an indication of some more outflow on account of the FIIs.

The outlook for this week continues to remain edgy and negative. Although the markets are now clearly in the process of a bottom formation, a fall to the recent low of 3,800 levels for Nifty is not ruled out considering the impending RBI action which will be very stringent looking at the macro numbers and the earnings trend seen in corporate results which will now set the tone ahead for the markets.

However, a value investor may be advised to favour domestic to external consumption story and also look for value in those sectors that have been beaten up the most.
(CEO, Reliance Money)

HNIs see future(s) in exotic oil products

While crude-oil futures soared to a new record of above $147 a barrel this week on the New York Mercantile Exchange, the energy-tracking ETFs were sitting atop in the first-quarter performance posting more than 40% returns. US 12-Month Oil Fund (43.4%), PowerShares DB Oil (41.3%) and PowerShares DB Energy (40.1%) were the top performing ETFs on the New York Mercantile Exchange during April-June 2008.

According to Sonu Bhasin, senior vice-president (retail banking) and head of wealth management group at Axis Bank, with the markets continuing to remain volatile, HNIs are reluctant to take more exposure in Indian equities.

“They’re actively looking for new opportunities and now that they can legally invest a substantial amount in foreign ventures, they’re more open towards taking exposure in exotic products such as oil ETFs,” said Ms Bhasin. She said they’ve received a number of requests from their clients. However, RBI doesn’t allow banks to offer any products which are non-rupee denominated. “But we’ve heard that some other companies in the wealth management space are offering such products,” she said.

Sudip Bandyopadhyay, CEO of Reliance Money, feels that it’s not surprising that Indian HNIs are also now actively speculating in oil futures and oil ETFs. “These are savvy investors who are looking to sense every opportunity they can seize from the markets. Today they are investing in oil products, tomorrow you will find them investing in gold ETFs and probably the day after that they might be buying copper.

They are a handful of people who are investing in these leveraged ETFs and short funds that allow them to profit from market pullbacks,” he said. A CEO of a wealth management company, in fact, blamed this short-sightedness of HNIs worldwide for the rising crude oil prices in the world markets. “It’s short-term money and they should understand they cannot live a life with it.

Middle-East oil politics apart, the HNIs globally are to a great extent responsible for building speculative short positions in the crude oil futures, which is driving the prices up. With Indian HNIs also jumping into the bandwagon, it’s only adding fuel to the fire already raging on,” the CEO said.