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The Curious Case of Foreign Funding

Ali Azar

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The stock market has been volatile in the last few days. After a stellar August month, macro concerns have taken over in September and we are seeing a correction, perhaps more than what we bargained for. Adding to this volatility is the upcoming deadline of SEBI’s controversial April 10th circular which seeks to place curbs on persons of Indian origin (PIO’s) and non-resident Indians (NRI’s) from controlling foreign portfolio investment (FPI) coming into India.  An FPI (from an Indian context) is an investment vehicle in which money is pooled by foreign investors and enables them to purchase stocks, bonds or other financial assets in India. FPI’s investing in India can be run and managed by various persons including foreigners, NRI’s, PIO’s, OCI’s (overseas citizens of India) etc.

FPI rules state that NRI’s and PIO’s are not allowed to be the persons who ultimately own or control an FPI (also called as beneficial owners (BO’s) of FPI funds). The only parameter to classify a person as a beneficial owner (thereby disqualifying the FPI if BO’s are NRI’s and PIO’s) was based on economic interest. So, FPI’s investing in India, with NRI’s and PIO’s as their fund managers would position themselves in a such as way, so as to avoid being classified as beneficial owners according to Indian FPI regulations. The April 10th circular published by SEBI seeks to include a greater number of FPI fund managers within its definition of beneficial owners, thereby disqualifying the fund from investing in India. It states that beneficial ownership should not be determined based on economic interest only but should also consider who controls the fund and further goes on to mention that in cases where there are no visible beneficial owners, the senior management officials will be considered as beneficial owners. The circular also enhanced know your customer (KYC) norms for FPIs.

This stance taken by SEBI created panic amongst several India dedicated FPIs, since a lot them were managed by Indians or Indian entities. FPI lobby group AMRI (Asset Manager’s Roundtable of India) cried foul and predicted that the move by the market regulator could lead to 75 billion $ worth of investments being under threat and called for immediate intervention by regulators. Fund houses that were affected are already considering winding up some of their operations, creating strategic partnerships and change in shareholding to avoid being on the regulator’s radar.  At a time when foreign exchange is worth its weight in gold amid rapidly declining rupee, widening current account deficit and rising oil prices, can we really afford to risk an avenue for inflow of much needed foreign funds?

The government and market regulator was quick to come out in defence of their actions with Economic Affairs Secretary S C Garg stating that there is nothing new in the circular and that the deadline has been extended by two months until December. Market regulator SEBI termed claims of 75 billion $ worth of outflow as “preposterous and highly irresponsible”. Making a comparison between the Indian position and regulations concerning FPI investments elsewhere, Nandita Agarwal Parker, president of the AMRI noted “The world over, people of Chinese origin manage a lot of Chinese funds. Now, the Nigerians or the Russians can manage funds investing into India, but those of Indian origin can’t. No country in the world does this and we are having a tough time explaining to institutional investors why India is doing this,”

With general elections around the corner, the Modi government perhaps wants to block off all possible sources of funding for opposition parties in an effort to cripple them. When one analyses it from this angle, perhaps it is not an irrational move to strictly scrutinize all avenues of foreign fund flows into the country whether it be by way of FPI or otherwise. A relevant statement made by Nishith Desai of Nishith Desai & Associates, a reputed law firm was “The government may be keen to fix money laundering and nobody questions the need for KYC norms, but this circular also ends up treating all NRI fund managers as possible conduits for money laundering”. The government’s official stance on these measures taken is to prevent round-tripping of money and to curb tax evasion.

Perhaps in a move to assuage market participants not to panic, market regular SEBI in an unexpected move decided to hedge its bets and may dilute some provisions from the circular and is also mulling exempting PIOs from the ambit of its KYC and easing investment norms for NRI’s. It also referred the matter to H.R. Khan led committee, set up for an easing of FPI access norms. With the final decision yet to be known, the actions of the regulator are being closely monitored not only by the foreign investor community but also the country at large who are very keen to observe as to what length the Modi government will go to drip dry its opposition.

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Honda to close UK plant in 2022, risking 3,500 jobs: reports

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London | Japanese car giant Honda is expected to announce that it will close its plant in south west England in 2022, putting 3,500 jobs at risk, according to media reports on Monday.

The carmaker is due to announce the closure of its Swindon plant on Tuesday, according to Sky News, but still retain its European headquarters in nearby Bracknell.

Other carmakers including Nissan and Ford have also warned that jobs could be lost at British plants as it prepares to leave the European Union, but local MP Justin Tomlinson said the Honda decision was not down to Brexit. “I have already spoken to… Honda. They are clear this is based on global trends and not Brexit as all European market production will consolidate in Japan in 2021,” he tweeted. The company is not expected to announce any job losses until 2021, he added.

The carmaker said in a statement that “we are not able to make any comments regarding the speculation. “We take our responsibilities to our people very seriously and will always communicate any significant news with them first,” it added.

The Swindon plant, Honda’s only one in the European Union, has produced the Civic model for the global market for over 24 years, with 150,000 units rolling off the line every year. Rival Japanese carmaker Nissan announced earlier this month that it was cancelling plans to build its X-Trail SUV in north east England, citing uncertainty surrounding Brexit as a factor. Jaguar Land Rover has also warned about the risks of leaving the EU without a deal, triggering the imposition of tariffs on exports to the bloc.

Senior vice-president of Honda Europe Ian Howells said last year that Britain leaving the EU without a deal would cost the company tens of millions of pounds, but that they were preparing for such an outcome.

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Malvinder Singh files criminal complaint against his brother Shivinder

News Desk

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Former Indian Billionaire Malvinder Singh has filed a criminal complaint with the New Delhi branch of the Economic Offences Wing against his younger brother accusing him of siphoning funds worth 10’s of millions of dollars from their holding company, RHC Holdings, and fraudulently diverting it to benefit the companies of their renowned spiritual guru Gurinder Singh Dhillion. In the latest twist in the unravelling of a multi-billion dollar empire, the New Delhi police have opened an investigation into the public spat between the two brothers that follows the collapse of one of India’s most storied business families that once controlled the nation’s top drug maker – Ranbaxy and the 2nd largest hospital chain – Fortis.

The complaint by big brother Malvinder against his younger brother Shivinder comes after the brothers’ mother brokered a truce and convinced the younger Singh not to file a suit against his elder brother months ago.

The criminal complaint alleges that that the 43 year old Shivinder initiated as well as permitted this siphoning and malfeasance of funds entrusted to him with the ulterior motive of gaining ultimate control of the seat of the spiritual head of the Radha Soami Satsang Beas promised to him by the brothers’ spiritual guru Gurinder Singh Dhillion.

In his complaint, the elder Singh also claims that he received a death threat from their spiritual guru for exposing him to the case, he is the leader of one of India’s most powerful sects, the 130 year old Radha Soami Satsang Beas which boasts 4 million followers worldwide. Malvinder Singh also alleges that he has recordings of these threats and is fearful for his life.

 

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Sensex drops over 150 points ahead of RBI board meet

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Mumbai | The BSE benchmark Sensex on Monday fell over 150 points, led by weakness in auto, IT and financial stocks amid heavy selling by foreign institutional investors, as investors turned cautious ahead of RBI’s board meet.

The 30-share index, after rising over 100 points, fell 158.94 points, or 0.44 percent, to 35,650.01. Similarly, the 50-share NSE Nifty fell 44.45 points, or 0.41 percent, to 10,679.95.

According to traders, investors were cautious ahead of RBI’s board meeting. Finance Minister Arun Jaitley is scheduled to address the customary post-budget meeting of the central board of the Reserve Bank later in the day and highlight the key points of the interim Budget, including the fiscal consolidation roadmap. The meeting, according to sources, will take a call on the interim dividend to be paid to the government during the current fiscal.

Yes Bank fell up to 5 percent after the private bank, in a regulatory filing Friday, said it had received a letter from the Reserve Bank of India (RBI) which noted that the risk assessment report (RAR) was marked ‘confidential’.

It was expected that no part of the report be divulged except for the information in the form and manner of disclosure prescribed by regulations, the RBI letter said, adding that the issuance of a press release has, therefore, been viewed seriously by the RBI and could entail further regulatory action/s.

Other losers on the Sensex pack include HCL Tech, HUL, Bajaj Auto, TCS, Reliance, Bajaj Finance, Asian Paints, M&M and Bharti Airtel, falling up to 1.68 percent. While, NTPC, Vedanta, Tata Steel, ONGC, SBI, L&T, PowerGrid, ITC and Sun Pharma were the top gainers, rising up to 2.24 percent.

Meanwhile, on a net basis, foreign institutional investors sold shares worth a net of Rs 966.43 crore on Friday, while domestic institutional investors were net buyers to the tune of Rs 853.25 crore, provisional data available with BSE showed.

Elsewhere in Asia, Hong Kong’s Hang Seng rallied 1.67 percent, Shanghai Composite Index was up 1.79 percent higher, Kospi gained 0.73 percent, and Japan’s Nikkei soared 1.78 percent in early trade.

On Wall Street, Dow Jones Industrial Average ended 1.33 percent higher on Friday. The rupee, meanwhile, was trading depreciated 13 paise against US dollar to 71.36. The benchmark Brent crude futures slipped 0.09 percent to USD 66.19 per barrel.

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