Ruppee Convertibility panel moots "Phased
Transition by 2011:
Tomorrow the equity markets might give a thumping response to report on "Fuller Capital Account Convertibility(CAC)", which was released by the Reserve Bank of India on the last Friday evening. There are clear indications from the sources close to me and media reports, that RBI might decide on CAC panel report soon (might arrive at a decision in the next few weeks, according to the apex bank governor Y V Reddy). The statement comes a day after the S S Tarapore committee released its CACy report that recommends far-reaching measures. The Tarapore committee report recommends a five-year roadmap to increase the annual limit of remittance by individuals to open foreign currency accounts overseas.
There are reports in a section of media that this report can "Electrify the Financial Markets, and allure individuals and corporates to unchartered territories."
If the policy makers have their way, in five years time, resident Indians will freely remit as much as $2 lakh abroad and open bank accounts anywhere in the world: Foreign individuals will invest in Indian stock marekts, local corporates & banks will take large foreign loans and overseas companies will do the rupee borrowings from India.
It is worth mentioning that corporate India is already on an overseas acquisition binge, and with such reports in place it will generate more ambitions.
But if the Left and other members have their way then it could be another "Stillborn Report" left to die in "Parliament Coffers".
After nearly a decade, the govenment will revisit the ticky and difficult issue of convertibility. The committee which prepared the reprt is headed by former RBI Governor S S Tarapore, who was also the author of the 1977 report.
But the two memner of the present panel--S S SBhalla and A V Rajwade---have given their dissent notes, although on different grounds.
The most dramatic fallout of this report will be a ban on participatory notes(PNs) and the removal of tax exemptions from the interest on the NRI Bank deposits.
Highlights:
For Individuals:
1. Indians can freely remit $50000 in the first phase and $200000 in the final phase.
2. MFs can invest in $3 billion in phase I & $5 Billion in phase III in overseas
market.
3. Portfolio Management Schemes(PMS) to be allowed to invest overseas.
4. Indians can have foreign currency accountsin overseas banks.
5. Foreign individuals can invest in Stocks PMS and MFS.
For Business:
1. Companies can raise ECBs up to $ 1 billion in phase III without permission.
2. No ceiling on long-term or rupee denominated ECBs
3. Cos can invest up to four times their capital in overseas subsidiaries / JVs
4. Banks can eventually raise up to 100% of their capital through overseas borrowing in phase III.
5. Foreign Companies can raise rupee loans, bonds in India.
Conditions:
1. Ban on participatory (PNs)
2. Mauritius will no longer be a tax heaven
3. NRIs will not enjoy tax exemptions on deposits.
4. FIIs to set aside reserves in volatile times.
5. Banks must consolidate; government PSUs to rein in borrowings.
Concerns:
The convetibility report has met with stiff objections even before it was submitted. Two members holding completely divergent views have expressed their dissent in notes attached to the report.
According to Mr Surjit Bhalla, a committe, the recommedations are regressive as they are more conservative than what was presecribed in the orginal reports by the committee on capital account convertiblity in 1997. He said the need to be politically correct and perhaps, economically incorrect has led to contradictory conclusions in the report.
Another member A V Rajwade has warned against increasing the remittance limits for individuals. Countries which have done so have suffered in the past he said. Mr Rawade has also opposed the limit opening up of the debt market to foreign investors. Mr Bhalla has dissented on several issues. These include the committes recomendations that there be a band on forex meobvement and that of a ban on PNs.
More in the folllowing postings.......
Financial Actions:
1. Buy Haldyn Glass Gujarat Ltd( BSE Code---> 515147) at Rs.43.55, with a first target of Rs.55 and the second target of Rs.71. Haldyn Glass is a company making glass bottles for cosmetic and beer industry which is expected to show strong growth demand in the current financial year (FY-2005-06). Since the Pharmaceutical, FMCG and Liquor Companies are expected to show good growth in the days to come, it will boost the sales of the company. Also the company has very strong order book position and is expected to get an order from an MNC soon.
2. Buy Gujarat Hotels Ltd( BSE Code--->507960) at Rs.52.20.
This 5-Star hotel is on a massive renovation and modernisation spree. The company has already increased the room rent by 5%--10% from the rates prevelent at the beginning of this year.
The hotel industry in on a massive growth path due to "Demand Over-stripping" the supply.
There are acute shortage of hotel rooms in major Indian cities. The company has a strong management and looks to grow both organically and inorganically. The company came up with a decent set of numbers for the Current quarter (30th June, 2006). The season for the hotel industry will start from this month only. With so many festivals in line, we can expect a boom in this sector.
3. Tilaknagar Industries Ltd--->Book Partial / Complete profit at Rs.57. The stock might slid to Rs.40 ---Rs.51, levels before making a major upmove in the near term. For the long term players there is nothing to worry---but why should they also miss the chance of making some profit and again enter at lower levels?
4. Hold Samkrg Piston and Rings Ltd with a stop losss of Rs.75.
5. Sothern Online Bio-Technology Ltd---> Hold with a stop loss of Rs.12
6. Hold Hazoor Media and Power Ltd with a SL of Rs.12
7. Hold Monnet Ispat and Power Ltd with a SL of Rs.167.
8. Hold Helios & Matheson Software Company Ltd with a SL of Rs.156.
9. Hold Sarda Plywood Ltd with a SL of Rs.25. The company is conducting a board meeting in this month. The good prospects of tea industry might give a boost to the revenues of the company. Also there are lot of happenings in the company, which I will let u know in the subsequent mails.
10. Accumulate Chandra Prabhu International Ltd at all declines. The season of the company has started from this month and hence we can expect to get good performance of the company in the days ahead. I am still to get the news on the Joint venture with the Australian drilling and exploration company from my sources. But the sources have indicated that the company is moving in the right direction and we will soon be able to see good growth of both topline and bottom line of the company. The company is mainly into coal and synthetic rubber business---> www.cpil.com.
11. Hold Essar Shipping Ltd with a SL of Rs.22. The shares of the company is conslidating at these levels.
12. Hold California Software Company Ltd with a SL of Rs.72. and Rs.65. If it falls below these levels then exit the counter completely.
More in the following postings as I have go out for some meetings.......
Best wishes,
Suman Mukherjee
India.
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