SEBI would have now Powers to Regulate any Pooling of Funds Under An Investment Contract Involving A Corpus Of Rs.100 Crore Or More, Attach Assets In Case Of Non-Compliance And Chairman SEBI would have Powers to Authorize The Carrying out of Search and Seizure Operations, As Part of Efforts to Crack Down on Ponzi Schemes
The government promulgated an Ordinance to amend the Securities Laws today. This was consequent to the approval of the Cabinet, which met on July 17, 2013, to amend Securities and Exchange Board of India (SEBI) Act and related Acts for providing more powers to the capital markets regulator for enforcement against illegal Collective Investment Schemes and to curb insider trading
Owing to new and innovative methods of raising funds from investors, such as art funds, time-share funds, emu /goat farming schemes, there has been regulatory gap /overlap regarding types of instruments / fund raising. At the same time, SEBI receives complaints against unapproved fund raising activities of certain companies that claim that they do not come under the purview of SEBI Collective Investment Scheme regulations. With the amendments in force now, SEBI would have powers to regulate any pooling of funds under an investment contract involving a corpus of Rs.100 Crore or more, attach assets in case of non-compliance and Chairman SEBI would have powers to authorize the carrying out of search and seizure operations, as part of efforts to crack down on ponzi schemes.
Besides, SEBI would have powers to seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it. Establishment of Special Courts enabled by this Ordinance would fast-track the resolution of pending SEBI related cases.
These amendments to the SEBI Act, SCR Act and the Depositories Act were finalized after detailed consultations with SEBI and other Ministries and Departments including MHA, DoT, MCA, DFS etc. Government believes that these amendments would give SEBI the legal backing to clamp down on unscrupulous entities that are using newer methods to take gullible investors for a ride. The promulgation of the Ordinance demonstrates the firm commitment and resolve of the Government to act with speed and alacrity to curb irregularities and frauds in securities market
Foreign investment in Government Securities and Corporate Bonds Rationalised
The Central Government in consultation with Reserve Bank of India (RBI) and SEBI has been progressively liberalizing/rationalizing the scheme for foreign investment in G-Secs and Corporate bonds keeping in view the evolving macroeconomic scenario and financing needs of the economy.
Till now FIIs were permitted to invest USD 25 billion in G-Secs (Comprising of two sub-limits of USD 10 billion and USD 15 billion), USD 26 billion in General Corporate bonds (comprising of USD 25 billion limit for FIIs and USD 1 billion limit for QFIs) and USD 25 billion in Long-term infra bonds (comprising of USD 10 billion limit for IDFs, USD 12 billion limit for FII investment in long-term infra bonds and USD 3 billion limit for QFI investment in Mutual Fund Debt schemes which invest in Infrastructure sector). The various sub-limits stated above were subject to different sets of conditions in terms of original maturity, lock-in period and residual maturity restrictions.
On review, it was observed that the existing framework of various debt sub-limits and associated conditions with respect to each sub-limit led to complexity and inflexibility for investors and hampered investment in debt securities. Therefore, in order to encourage greater foreign investments in INR denominated debt instrument, it was decided in consultation with RBI and SEBI to simplify the framework of FII debt limits, the allocation mechanism of these debt limits and also lay down a perspective plan for enhancement of these debt limits in the future.The new policy has been put in place with effect from 1st April 2013 vide RBI and SEBI circular nos. A.P. (DIR Series) Cir.No.94 and CIR/IMD/FIIC/6/2013, respectively
The Silent features of the new approach are as follows
The existing debt limits will be merged into following two broad categories Government securities of US$ 25 billion (by merging Government Securities old and Government Securities long term) and Corporate bonds of US $ 51 billion dollars (by merging US $ one billion for QFIs, US $ 25 billion dollars for FIIs in corporate bonds and US $ 25 billion for FIIs in long term infra bonds).
The entire limit in both the Government securities and Corporate bonds categories will be made available to all eligible classes of foreign investors, including FIIs, QFIs, and long term investors such as Sovereign Wealth Funds (SWFs), Pension Funds, Foreign Central Banks etc.
Out of USD 25 billion limit for Government Securities, a sub limit of US $ 5.5 billion has been provided for investment in short term papers such as treasury bills Similarly in case of USD 51 billion limit for corporate bonds, a sub limit of US $ 3.5 billion has been provided for investment in short term papers such as commercial papers These sub-limits have been carved out based on the current holdings of such short term instruments by FIIs and have been provided so that existing investments are not adversely affected. Because of the room created by unifying categories, the current SEBI auction mechanism allocating debt limits for corporate bonds will be replaced by the ‘on tap system’ currently in place for infrastructure bonds In order to allow large investors to plan their investments, the Government will review the foreign investor limit in corporate bonds when 80% of the current limit is taken up.
Further, it will also enhance the limit on government bonds as and when needed, based on utlilisation levels, demand from foreign investors, macro-economic requirements and a prudent off shore: on shore balance To provide a guide to investors, it has been decided that the annual enhancement of the Government bond limit will remain within 5% of the gross annual borrowing of the Central Government excluding buy backs.
Official amendments to the Forward Contracts (Regulation) Amendment Bill, 2010
The Union Cabinet approved the proposal to move official amendments to the Forwards Contracts (Regulation) Amendment Bill, 2010 (the Bill, 2010), based upon the recommendations of the Parliamentary Standing Committee of the Ministry of Consumer Affairs, Food & Public Distribution in its 15th Report, in the next session of Parliament.
After the Bill is passed and enacted by Parliament, Forward Market Commission (FMC) as a regulator will get autonomy and power to regulate the market effectively. New products like `options` will be allowed in the commodity market. This will benefit various stakeholders including farmers to take benefit of `price discovery and `price risk management`. The Bill would enhance public accountability of the Regulator by providing for an Appellate Authority.
The Union Cabinet approved the proposal to move official amendments to the Forwards Contracts (Regulation) Amendment Bill, 2010 (the Bill, 2010), based upon the recommendations of the Parliamentary Standing Committee of the Ministry of Consumer Affairs, Food & Public Distribution in its 15th Report, in the next session of Parliament. After the Bill is passed and enacted by Parliament, Forward Market Commission (FMC) as a regulator will get autonomy and power to regulate the market effectively. New products like `options` will be allowed in the commodity market. This will benefit various stakeholders including farmers to take benefit of `price discovery and `price risk management`. The Bill would enhance public accountability of the Regulator by providing for an Appellate Authority. The recommendations of the Committee with regard to definition of the "Commodity Derivative" in Clause 3, establishment and constitution of Forward Markets Commission in Clause 4, term of office of the Chairman and every other whole time members in Clause 5, accounts and audit in Clause 9, penalties for contravention of certain provisions of Chapter IV in Clause 25 of the Bill, 2010 have been accepted and are proposed to be incorporated as official amendments. The amendment in Clause 25 will require consequential amendment in Clause 26, which is also proposed to be included in the official amendments. The Forward Contracts (Regulation) Act provides for the regulation of commodity futures markets in India and the establishment of the Forward Markets Commission (FMC). While the markets have been liberalized with effect from April, 2003 and modern institutional structures are in the process of being evolved, yet the market regulator, FMC is largely functioning in its traditional format. Many of the existing provisions of the Forward Contracts (Regulation) Act need changes to strengthen and reinforce legal provisions to meet the requirements of changing environment. In order to amend further the Forward Contracts(Regulation) Act, the Bill, 2010 was introduced in the Lok Sabha on 6.12.2010. The Bill, 2010 went through examination by the Committee which submitted its 15th Report on 22nd December, 2011.
Capital Market Scenareo
The Indian securities market witnessed volatility during 2010-11 amidst developments in global financial markets. The initial positiveheadways fizzled out as global markets became increasingly adverse owing to Euro zone sovereign debt crisis at the start and Middle East and North African crisis in later half of the year
Inflation concern and worries over surging global crude prices further aggravated the situation. The primary market segment witnessed positive trend during 2010-11.Coal India Ltd. came out with India’s biggest-ever initial public offering (IPO) having issue size of Rs 15,199.4 crore in October 2010. During 2010-11, a number of public sector undertakings (PSUs) raised money through primary market as part of disinvestment plan of Union Government. The total resource mobilisation by PSUs accounted for 56.5 percent of total resources mobilised by all companies in 2010-11 as against 54.1 percent share in 2009-10.The Secondary market witnessed volatility amidst adverse developments in global fi nancial markets. The initial positive headways fi zzled out as global markets became increasingly adverse owing to Euro zone debt crisis at the start and Middle East and North African crisis in later half of the year. Secondary market segment showed signs of recovery of Indian corporates from global financial crises witnessed in 2008. The recovery phase was clearly refl ected in substantial increase in average market capitalisation, revenues and profit after tax of top 500 listed companies at NSE and BSE. With growth in domestic demand being intact, Indian companies also showed significant improvement on export front in 2010- 11 despite the fact that the global economy is still recovering from fi nancial crises. The cumulative value of exports for the period from April,2010 to March 2011 was US $ 245.8 billion (Rs11,18,822.8 crore) as against US $ 178.7 billion(Rs 8,45,533.6 crore) registering a growth of 37.5 per cent in Dollar terms and 32.3 per cent inRupee terms over the same period last year.
During 2010-11, 91 issues (81 equity issues and 10 debt issues) accessed the primary market and collectively raised Rs67,609 crore through public (68) and rights issues (23) as against Rs 57,555 crore raised in 2009-10 through public(47) and rights issues (29). There were 53 IPOs during 2010-11 as against 39 during 2009-10.The amount raised through IPOs during 2010-11 was at Rs 35,559 crore as compared to Rs 24,696 crore during 2009-10. The share of public issues in the total resource mobilisation stood at 85.9 percent during 2010-11 as compared to 85.5 percent in 2009-10 showing a marginal increase over the previous year. The share of rights issues was at 14.1 percent in 2010-11 as compared to 14.5 percent in 2009-10. There were 10 public issues of Non-Convertible Debentures (NCDs) amounting to Rs 9,503 crore in 2010-11 as compared to three issues of Rs 2,500 crore in 2009-10.
Sector-wise Resource Mobilisation
Sector-wise classifi cation reveals that 77 private sector and 14 public sector issues mobilised resources through primary market during 2010-11 as compared to 70 private sector and six public sectors issues in 2009-10. These companies raised Rs 67,609 crore though 91 issues in 2010- 11 as compared to Rs 57,555 crore through 76 issues in 2009-10. The share of private sector in total resource mobilisation stood at 43.5 percent in 2010-11 as compared to 45.9 percent in 2009- 10, consequently, the share of public sector in total resource mobilisation increased to 56.5 percent from 54.1 percent during the sameperiod.
Industry-wise Resource Mobilisation
Industry-wise classifi cation reveals that Miscellaneous segment (which includes Coal India IPO) accounted for 46.6 percent of total resource mobilisation in the primary market during 2010-11, followed by Banks/Fls sector with 25.5 percent share, Power sector with 14.0 percent share, Cement & Construction with 4.2 percent share and Finance sector with 3.3 percent share in total.
Market Indices Movements
The Bombay Stock Exchange (BSE) sensitive index, Sensex 30 ended the year 2010-11 at 19445.2 on March 31, 2011 with 1917.2 points higher over the previous year closing value. National Stock Exchange (NSE) of India’s benchmark index i.e.Nifty 50 closed at 5833.8 on March 31, 2011,showing 11.1 percent increase over the previous year’s closing value. During 2010-11, Sensex reached its maximum level at 21005 on November 5, 2010 and touched its bottom at 16022.5 on May 25, 2010. Similarly, NSE’s Nifty 50 closed its maximum level at 6312.5 on November 5, 2010 and its minimum level at 4806.8 on May 25, 2010. In the cash segment, both BSE and NSE witnessed a negative trend in turnover over the previous year. The turnover of BSE stood at Rs 11, 05,027 crore in 2010-11 as against of Rs13, 78,809 crore in 2009-10, showing a decrease of 19.9 percent over the previous year.
Performance of Sectoral Indices
On analyzing performance of sectoral indices at Bombay Stock Exchange, though there was an uptrend in majority of sectoral indices till November 2010, however at the end of year only three sectoral indices i.e. Consumer Durable, Bankex and Auto index witnessed signifi cant increase in their levels. BSE Consumer Durables index witnessed an increase of 47.8 percent over the previous year, followed by BSE Bankex index (24.9 percent) and BSE Auto index (21.1 percent). On the other hand, BSE Metal index was the worst performer during 2010-11. BSE Metal index declined by 10.1 percent over the previous year followed by BSE Capital Goods index (-6.0 percent) and BSE Small cap (-3.8percent).
Turnover in Indian Stock Market
During 2010-11, turnover of all stock exchanges in India in the cash segment decreased by 15.1 percent to Rs 46,85,034 crore from Rs 55,18,469 crore in 2009-10. BSE and NSE together contributed almost 100 percent of the turnover,of which NSE accounted for 76.4 percent in the total turnover in cash market whereas BSE accounted for 23.6 percent to the total. Apart from NSE and BSE, the only two stock exchanges which recorded turnover during 2010-11 were Calcutta Stock Exchange (Rs 2,597 crore) and UPSE (Rs0.12 crore). There was no transaction on other stock exchanges. Month-wise, BSE and NSE recorded highest turnover in October, 2010 and November, 2010 respectively.
Stock Market Indicators
The market capitalisation to GDP ratio is an important parameter for evaluation of stock markets. The liquidity of the market can be measured by the traded value to GDP ratio, i.e., value of the shares traded to GDP at current market prices. Excluding 2008-09, since 2003-04, there has been a considerable improvement in the market capitalisation to GDP ratio. The BSE market capitalisation to GDP ratio improved from 43.4 percent in 2003-04 to 86.8 percent in 2010-11. Similarly, at NSE also the ratio increased from 40.5 percent to 85.1 percent over the same period. The turnover to GDP ratio was the highest in 2010-11 under derivatives segment. The All-India cash turnover to GDP ratio decreased to 59.5 percent in 2010-11 from 84.2 percent in 2009-10. However, in the derivative segment, the turnover to GDP ratio increased from 269.7 percent in 2009-10 to 371.3 percent in 2010-11.
Volatility in Stock Markets
Average daily volatility of a stock or index is measured by calculating the standard deviation of logarithmic returns during a certain period.In 2010-11, the stock markets around the world displayed lesser volatility as compared to 2009-10. Month-wise, average daily volatility in the Indian benchmark indices was the highest in May, 2010 and Feb, 2011. The lowest volatility in the benchmark indices was noticed during July 2010.