Will Equities continue the March to year end

The Equities have been out performing the other markets in last 3 months and have taken many aback. The Left outs have been sort of blaming on ' Liquidity Tap' in US and European Banks and faulting markets for playing this ' CLiff Hanger'.
While, Commodities and particularly Oil has fully recovered the ' Paralysis ' Much faster than thought by any one. Gold and Silver not falling in sympathy, While ' Equities' running ' blind Fold' action. The USD still remains a suspect. And, lastly bonds in US and Europe are ' dead wood'
Indian markets struggling from the brink and remains as suspect.

Will this ' contrariness ' sustain itself..? Many think Yes and more think and lurk on the background to enter.
However, the discipline investor should wait for the last episode of this Play and keep waiting for the next day till .. Markets scale a new peak. Markets are going up for end of ' selling ' season in June and likely to test the virtue of being patient But, the upcoming FOMC meeting shall be the end of the ' Game of Waiting' and shall be the decider. 

Indian Government notification: Infrastructure Bonds for FII

Ministry of Finance12-September, 2011 19:30 IST

FII Investment in Long-Term Corporate Debt in Infrastructure Sector Liberalized

Following the announcement by the Union Finance Minister Shri Pranab Mukherjee in his budget 2011-12, the Government in consultation with the regulators had raised the limit for FII investment in long-term corporate bonds issued by the companies in the infrastructure sector from USD 5 billion to USD 25 billion. This scheme was operationalised vide SEBI circular CIR/IMD/FIIC/5/2011 dated 31st March 2011. As per the SEBI circular, investments under this scheme were allowed in listed and unlisted bonds that had a minimum residual maturity of five years and these investments were subject to a minimum lock-in period of three years. The scheme was conceived and operationalized to open new channels of funding for the infrastructure sector while deepening the corporate bond market. The Government has been monitoring FIIs subscription under the scheme. It was observed that additional steps would have to be taken to increase the level of subscription by FIIs. As on 31st August 2011, against a ceiling limit of USD 25 billion or Rs 1,12,095 crores, investments by FIIs under this scheme were only USD 109 Million or Rs 500 crores. In view of this, consultations were held with stakeholders on the issue. It was concluded that the three-year lock-in period and doubts regarding the interpretation of the requirement of residual maturity of five years were discouraging FIIs from investing in this scheme. Therefore, in order to make this scheme attractive to FIIs, the scheme has been modified in consultation with RBI and SEBI. The scheme would now have the following features. a. As per SEBI circular CIR/IMD/DF/14/2011 dated August 09, 2011 Qualified Foreign Investors (QFIs) were permitted to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of USD 3 billion within the existing ceiling of USD 25 billion. b. It has now been decided to carve out USD 5 billion out of the remaining USD 22 billion for FII investments in Long-term infra bonds. FIIs can now invest in long-term infra bonds, subject to the above USD 5 billion limit, in bonds which have an initial maturity of five years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs. These investments are subject to a lock-in period of one year. FIIs can, however, trade amongst themselves but cannot sell to domestic investors during the lock-in period of one year. c. The remaining USD 17 billion limit available to FIIs can be invested in Long-term infra bonds which have an initial maturity of five years or more at the time of issue and residual maturity of three years at the time of first purchase by FIIs. These investments are subject to a lock-in period of three years. During the three-year lock-in period FIIs can trade amongst themselves but cannot sell to domestic investors. SEBI is expected to issue notifications incorporating the above changes in the scheme by 15th October 2011. DSM/SS/GN (Release ID :75912)

Inflation Index Bond.. A hedge against Inflation..?

The Reserve Bank Governor Duvvuri Subbarao today said the central bank is planning to introduce inflation-indexed bonds, under which an investor would get a return on the basis of the prevailing inflation at the time of maturity.

 "One cause of concern is whether in a period of relative high inflation...whether they (inflation-indexed bonds) will be successful. We will think through this... but certainly we will introduce that," Subbarao told a national finance symposium organised by the Indian Institute of Foreign
Trade and the Bombay Chamber of Commerce here.

When bonds are indexed to inflation, the return on them will be linked to the prevailing rate of inflation at maturity of the instrument on both the coupons as well as on the principal repayments at maturity.

The existing bonds are capital-indexed and only protect the capital/principal against inflation, but an IIB (inflation-indexed bond) will be offering investors
inflation-based returns. The index in this case will be based on the monthly wholesale price index.

Pointing out that the past experience with such an instrument was not received well, the Governor said, "we have diversified the instruments for government borrowings now...The zero coupon bonds, capital indexed bonds and now there is a proposal to introduce inflation indexed-bonds.

We tried those inflation indexed bonds earlier, but it did not work out very well but now we want to reintroduce them."

The first capital indexed bond (CIB), known as inflation indexed bonds, was a 2002 Paper, issued on December 29, 1997. But no further issuance was made for want of response from market participants both in the secondary and primary markets.

The RBI formally floated the idea of inflation-indexed bonds when Rakesh Mohan was the deputy governor, though the concept was mooted in the late 1990s.  Later, an RBI technical committee had proposed introduction of fully-inflation indexed bonds for institutional investors with maturities of 10-12 years.

 Under the existing yield norms governing bonds, there is only fixed rate of return and for an issue that was bought when inflation was down does not guarantee higher returns to investor when the inflation goes up.

The CIBs, according to an RBI discussion paper, would help meet the diverse investment and hedging needs of investors and to impart depth to the bond market in general.

The basic feature of IIBs or CIBs is that the coupon is specified in real terms. Such real coupon will be applied to the inflation-adjusted principal to calculate the periodic semi-annual coupon payments.

Unlike the existing capital indexed bonds, which protect only the capital/principal against inflation, the new scheme promises investors inflation-based returns. Under this, if inflation remains high at the time of maturity over the rate when the bond was bought, then the investor will gain, and if it is lower than that rate prevailing at the time of maturity, then the investor will lose out.

SEBI Invites Investment in Infra Bonds to F.I.I.

                                                         

     


















CIRCULAR
CIR/IMD/FIIC/15/2011                                                                                    August 26, 2011


To
All Foreign Institutional Investors
through their designated Custodians of Securities

Dear Sir/Madam


Sub: Infrastructure Finance Companies (IFCs) -- as eligible issuers for FIIs
investment limit in debt instrument for infrastructure


1. Please refer to SEBI circular dated November 26, 2010 & March 31, 2011, regarding
FII investment in the corporate bonds issued by Indian companies which are in the
infrastructure sector, where 'infrastructure' is defined in terms of the extant guidelines
on External Commercial Borrowings (ECB).

2. In partial amendment to para 3 of circular dated November 26, 2010 and para 4 of
circular dated March 31, 2011 it has been decided that Non-Banking Financial
Companies (NBFCs) categorized as Infrastructure Finance Companies (IFCs) by the
Reserve Bank of India (RBI) shall also now be considered eligible issuers for the
purposes of FII Investment under the corporate debt long term infra category.

3. This circular is issued in exercise of the powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act 1992, read with Section 10 of the
Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market.

4. A copy of this circular is available at the web page “F.I.I.” on our website
www.sebi.gov.in. The custodians are requested to bring the contents of this circular to
the notice of their FII clients.

                                                                           Jeevan Sonparote

                                                                           General Manager