FIIs Stay with their Bearish Positions as Clouds Gather Indices end marginally lower; open interest dips 8% from the last expiry, indicating nervousness

 Foreign investors carried forward bearish positions to the April futures and options series on expiry of the March contracts amid worries companies' earnings in the January-March quarter could disappoint and the central bank might not cut policy rates. Retail and rich traders unwound their long positions in March at a loss, but did not initiate fresh shorts in the next series. 

The market-wide rollover in December futures to January was 79%, almost in line with the previous expiry, according to provisional data. Rollover in the most-actively-traded Nifty March futures to April was at 58%, as against 65% during the previous expiry. Bank Nifty futures witnessed 65% rollover, falling from about 71% during last expiry. 

"Unlike FIIs who built up shorts and rolled over their bets, many retail and high net-worth individuals booked losses and squared off their futures positions," said Siddarth Bhamre, head - equity derivatives at Angel Broking. 

Sectors such as capital goods, infrastructure and sugar witnessed strong rollovers. However, banks and information technology firms saw weak rollover, especially in large-cap scrips, said Amit Gupta, head - derivatives, ICICI Securities. The Nifty index declined 0.3% on Thursday to close at 5178.85 points. The index has fallen over 5.5% since February 23, the last derivatives expiry, when it had closed at 5,483.30 points. Open interest, or the number of outstanding contracts, dipped 8% from the last expiry, indicating nervousness among investors, said analysts. 

"During the last rollover, we saw the momentum in the market was intact and rollover of Nifty futures was strong despite a high premium. This time, the premium is similar, but people are very jittery about the month ahead," Gupta said. 

The nervous undertone was also reflected in the weak rollover of contracts in sectors like banking. SBI futures witnessed 65% rollovers, and HDFC Bank saw 57% positions being rolled over, both fell short of their average of 70-75%, according to Gupta. 

Bank shares are likely to be the most affected by changes in RBI's policy, due to be announced on April 17. RBI's unwillingness to pare policy rates and the government's heavy borrowing schedule are expected to push up bond yields, affecting their value on banks' books. "Domestic derivatives investors seem to prefer staying on the ringside in April, with rising crude prices and falling rupee adding to the fiscal deficit," Bhamre of Angel Broking said. "The government's handicap with reform measures is taking its toll," he added. 

Benchmark indices ended marginally lower on Thursday, erasing most of the early losses as traders covered short positions after the India's infrastructure output growth in February jumped to 6.8% from a year ago, against 0.5% in January. Foreign investors net sold shares worth . 1,333 crore on Thursday. 

Traders sold shares in the capital goods, information technology and consumer goods sectors and covered shorts in healthcare, consumer durables, autos and metals. Of the 2,914 shares traded on BSE, 1,539 advanced while 1,270 declined. Indian markets, which were the best performers since January, shed around 6% since the Budget on March 16 as the government's proposal to tax Vodafone-like deals retrospectively raised fears that overseas sales of shares deriving value from India would not be exempt from capital gains tax. 

However,according to market analysts, the recent market correction has made valuations attractive and, with the government clarifying its stance on the General Anti-Avoidance Rules (GAAR), FII inflows could once again retest the robust levels in the calendar year through February. Against net inflows of . 36,298 crore in the first two months of 2012, foreign investors pumped in a mere . 2,075 crore in March. 

DK Agrawal, CMD, SMC Investors & Advisors, said the current Sensex valuation, at 13.6 times FY13 earnings, is "very attractive" as historically, long-term investment at these levels have given handsome returns. "I feel that FII selling is a short-term phenomenon and they will return as, normally, those who invest at current PE have seen shares bouncing back," he said . 

Dinesh Thakkar, CMD, Angel Broking, said with Nifty trading near its bottom of 5150, FIIs would return as the long-term fundamentals of the economy were still "sound". "With the FM's admission that the government is comfortable with 6% inflation, chances are that the RBI will cut interest rates, if not in April, in the next policy. I think this will once again lure FIIs into the market," said Thakkar.

PM assured no retrospective taxation Wrote To Ex-UK PM Brown In 2010 That Voda Will Have Protection Of Law

New Delhi: Finance minister Pranab Mukherjee's move to amend the law retrospectively to get merger and acquisition deals such as the Hutch-Vodafone transaction in the tax net may cause embarrassment to the government, especially after Prime Minister Manmohan Singh's assurance to Gordon Brown in 2010, the then British Prime Minister. 

    "I can assure you that Vodafone will have the full protection of law and access to the legal system in India. I also understand there is no retrospective application of taxation and a recent court judgment has affirmed this position," Singh said in a letter to Brown on February 5, 2010. Brown, a former finance minister, like Singh, had written to the Indian Prime Minister twice in December 2009, questioning the jurisdiction of Indian tax authorities to levy capital gains tax on Vodafone, the plea the telecom giant took in the court. In his response, the Singh made it clear that the action taken by the income tax department "was based on specific facts of the case" and came with the assurance that "a transparent and growth-oriented environment for profitable international investment" will be provided. 

    Two years later, Mukherjee, after a setback to a tax claim of Rs 11,000 crore in the Supreme Court, has proposed to amend the Income Tax Act with effect from April 1962 to ensure that the government does not lose revenue. While the Budget proposal has come in for strong criticism from all quarters, the finance ministry has sought to defend the move arguing that it cannot lose revenue. In fact, Mukherjee had gone to the extent of saying that there will be "fiscal chaos" if the law was not amended and cited the trend of retrospective amendments to argue his case. 

    "Retrospective fiscal legislation normally should not be done. There is no two opinion about it. But at the same time, I cannot create a fiscal crisis and fiscal chaos. Suppose, if I do not do it and because of a court judgment Rs 5 lakh crore revenue is to be returned, will it be possible?" the finance minister had said during a post-Pudget meeting with journalists.

Manmohan Singh

Army chief fires another letter salvo Forwards TMC MP Missive To CBI For Probe On Lt Gen Suhag

New Delhi: The Central Bureau of Investigation (CBI) will seek the defence ministry's nod to probe Lt Gen Dalbir Singh Suhag, who is alleged to have been involved in corruption as the head of the Special Frontier Force (SFF), officials said here on Thursday. CBI sources also said "we have asked Cabinet the secretariat to give details of probe, if conducted" in the matter. 

    The CBI is examining a letter written by Trinamool MP Ambica Banerjee, alleging corruption by Lt Gen Suhag in procurements for the SFF, officials said. The MP's written complaint was forwarded to the CBI by army chief Gen V K Singh, along with a covering letter, seeking a probe into the allegations. 

    Banerjee's allegations, made last May, pertain to the period when Lt Gen Suhag was the SFF's inspector general. He currently commands the Dimapur-based 3 Corps and is in line, after Lt Gen Bikram Singh, to be the army chief. 

    Banerjee has alleged that kickbacks were paid in the deals relating to supply of crucial equipment for SFF, ranging from night vision devices and communication systems to parachutes, sources said. The MP has named a number of senior army officers who have allegedly received kickbacks in these deals, they claimed. CBI sources said the agency will also write to the MoD as the matter relates to procurements for SFF, a secret force working with the Research & Analysis Wing (RAW), India's external intelligence agency that falls under the Cabinet secretariat. SFF is also known as 'Establishment-22' and was raised after 1962. 

    Meanwhile, CBI officials on Thursday said they have been unsuccessfully trying to contact Gen V K Singh for the past 2-3 days. The agency is likely to talk to Gen Singh about Banerjee's letter on Friday, when it takes a formal complaint from him on the Rs 14 crore bribery allegations in the Tatra truck purchase. Sources told TOI it will register a case by this weekend after taking a formal complaint from Gen Singh.

The CBI may now probe Lt Gen Dalbir Singh Suhag after the army chief forwarded Trinamool MP Ambica Banerjee's letter alleging that the Lt Gen, as the head of the Special Frontier Force, was involved in a procurement scam

Retrospective tax in the land of law unbelievable: Goldman CEO

Mumbai: Lloyd Blankfein, chairman and CEO of Goldman Sachs, the world's largest investment bank, has said it is "unbelievable" that India could introduce a tax legislation that would apply with retrospective effect. The move would undermine the country's image as a place where the rule of law applied, he said on Thursday. 

    Interacting with the who's who of India Inc at a luncheon meeting in Mumbai, Blankfein expressed surprise at the budget proposal to introduce a tax on offshore transactions with retrospective effect, according to those present in the meeting. He indicated that the move could spook investors who were positive on India's growth story. 

    Blankfein's is the most serious voice yet to oppose the proposal that has met with widespread criticism. 

Voda won't face tax issues, PM told Brown P rime Minister Manmohan Singh had assured his UK counterpart Gordon Brown in 2010 that Vodafone would have protection under the Indian law in its Hutch deal and courts had affirmed that there would be no retrospective application of taxation. P 21 'Keen to pursue growth in India' 

Mumbai: Goldman Sachs chairman and CEO Lloyd Blankfein on Thursday warned that the proposal to tax offshore deals with retrospective effect would put off potential investors. Those present at the luncheon meeting with him included Tata Group chairmandesignate Cyrus Mistry, businessmen such as Prashant Ruia and Adi Godrej, bank CEOs like Chanda Kochhar of ICICI and Shikha Sharma of 

Axis, and Infosys chairman KV Kamath. 

    Finance minister Pranab Mukherjee in his Union Budget earlier this month proposed amendments that allow taxmen to raise claims on overseas transactions involving Indian assets with retrospective effect. Among other deals, the amendment was aimed at recovering $2.2 billion withholding tax from Vodafone on payment made to Hutchison Whampoa for acquisition of the latter's mobile telephone business in India. This sent jitters across global corporations, investors and dealmakers who argue the move would jeopardize India's investment climate. The board of Blankfein-led Goldman Sachs was in Mumbai for its first-ever annual meeting in India. After the meeting, board members met industry leaders for a sense of the economy. Speaking on the situation in the US, Blankfein said a recovery was underway; the Fed and government would need to focus on ensuring that the recovery is sustainable. 

    Later, at a dinner that was attended by such leading lights of India Inc as Rahul Bajaj and Sajjan Jindal, Blankfein said Goldman was interested in pursuing and promoting growth in high-potential markets such as India.

Lloyd Blankfein

FIIs Short Nifty Futures Amid Rising Uncertainty

Lack of clarity on cap gains tax and RBI policy rates triggers worries

 Faced with lack of clarity on whether share sales by overseas investors will attract capital gains tax, uncertainty surrounding policy rate action by the central bank and quarterly results next month, foreign institutions have been building up short positions on Nifty index futures. 

Data since last Friday shows that a decline in Nifty futures premium over its underlining, the Nifty 50, has been accompanied with a buildup in open interest, or outstanding positions, indicating creation of bearish bets. Nifty futures hit a monthly low of 5171. They have declined steadily from 5285 last Friday to 5197 on Wednesday. Simultaneously, open interest by FIIs has increased from 5.99 lakh contracts to 7.48 lakh over the same period, indicating sentiment is negative. 

"FIIs are playing the markets cautiously ahead of the imminent RBI policy meet and how corporate results play out next month," said Karun Mutha, senior VP & head equity and derivatives advisory, HSBC InvestDirect, said. "They have been building short positions in index futures, indicating that domestic events will be key determinants of market direction, going forward." The Union Budget for fiscal 2013 (April-March) introduced legislation that will, under certain conditions, deny double taxation treaty benefits to foreign institutions routing their money through Mauritius. Fears that these investors will sell their Indian stock holdings following the new rule has negatively affected sentiment. 

That apart, FIIs are treading cautiously ahead of the RBI monetary policy meeting on April 17 amid concerns the central bank may not cut rates given that the government has frontloaded its borrowing programme for the next fiscal year. 

"The undertone in the Indian market remains nervous and a fresh bout of selling is not ruled out. At the same time, upside seems capped from here given the plethora of problems the Indian market is confronting," Amar Ambani, research head of India Infoline. The 200-DMA for Nifty at around 5160 will be closely watched, said Ambani. Monal Desai, head-institutional equities (derivatives)—Prabhudas Liladher, said many foreign investors could have sold Nifty futures to hedge their stock portfolios. A few derivatives strategists feel that the build-up in index futures OI has been caused by index arbitrageurs who are shorting Nifty against the purchase of a basket of stocks. 

"At least 70% of the short positions should be from arbitrageurs," said TS Harihar, head — institutional derivatives, ICICI Securities. 

ram.sahgal@timesgroup.com 

India will be No. 1 economy by 2050: Report

Mumbai: India will outpace China to become the world's largest economy by 2050, boasting a Gross Domestic Product (GDP) of $86 trillion, forecasts a report by global property firm Knight Frank and Citi Private Bank. Leading the elephant's charge will be Mumbai and New Delhi, which will feature in the list of top 20 cities globally within the next ten years. 

    "China will overtake the 

US to become the world's largest economy by 2020, which in turn will be overtaken by India in 2050. The Indian economy will reach a size of $85.97 trillion in terms of purchasing power parity by 2050 while the Chinese GDP would be $80.02 trillion during the same period,'' said the report. The US—currently the world's largest economy—is expected to have a GDP of $39.07 trillion by 2050. 

    In terms of growth from 2010-2050, India would be the second fastest, with its economy growing at a rate of 8% annually during the period. 

GROWING GLORY 

• The report, by Knight Frank and Citi Pvt Bank, forecasts that by 2050, India's GDP at $85.97 trillion will overtake China's $80.02 trillion. The US will be third with $39.07 trillion 

• From 2010-50, India will grow the fastest, at 8% p.a. 

• Mumbai will be ranked 16th and New Delhi 20th among global super-cities within the next 10 years 

• Nagpur and Surat will be the other cities to watch out for by 2050 GROWING CLOUT 

'India, China will 

be economic 

centre of gravity' 

Mumbai: A report by Knight Frank and Citi Private Bank forecasts that India will beat China to become the world's largest economy by 2050. Going only by GDP growth, the wealth report says Mumbai and New Delhi will rank among the top 20 global cities in the next decade. While Mumbai is ranked 16th, New Delhi is 20th on the list of cities surveyed in terms of economic activity, political power, quality of life, and knowledge and influence. The report also named Surat and Nagpur among the fast-growing cities to watch out for by 2050. 

    "We believe the cities to watch in 2050 are the 400 emerging market middleweights — fast-growing cities with populations between 200,000 and 10 million. This dynamic group includes many cities that are not household names today: Linyi, Kelamayi and Guiyang in China; Surat and Nagpur in India; Concepcion and Belem in Latin America," it said. 

    Citing calculations by London School of Economics professor Danny Quah, the report predicts that the world's economic centre of gravity, a theoretical measure of the focal point of global economic activity based on GDP, will shift eastwards to lie somewhere between China and India. Professor Quah calculated that in 1980, it was in the middle of the Atlantic. 

    The growing importance of Asia is also reflected in the rise of its super-wealthy population. For the first time, the number of Asians with at least $100 million in disposable assets has overtaken those in North America. "There are now 18,000 centa-millionaires in the region covering South-East Asia, China and Japan. This is more than North America, which has 17,000, and Western Europe with 14,000," the report says. South-East Asian deca-millionaires (those with $10 million or more in assets) already outnumber those in Europe, and and are also expected to overtake those in the US in the coming decade.

L&T Finance Buys Fidelity’s Mutual Fund Biz in India

WITH . 13,500-CR ASSETS, MERGED FUND TO BE 13TH-BIGGEST IN INDIA

Pips bids from HDFC, Pramerica with reported . 550-crore offer

L&T Finance has agreed to buy Fidelity's Indian funds, becoming the tenth-biggest equity fund house in a highly fragmented and competitive market marked by wafer-thin profitability. 

The financial services arm of construction major Larsen & Toubro pipped rivals, including HDFC Asset Management and Pramerica, to purchase Fidelity. The deal will immediately boost L&T's assets to . 13,500 crore, making it the 13thbiggest fund and the 10th-largest on the basis of equity portfolio. "A large part of the L&T Finance business is lending," YM Deosthalee, chairman & managing director of L&T Finance Holdings, told a press conference. "This is part of the move to increase fee-based income which is a steady business over mid-to-long term," he said. Shares of L&T Finance rose 4.6% to close at . 49.80 on Tuesday after a late spurt. "It will be a turning point for L&T Mutual Fund and sad for the mutual fund industry, because a good fund house has decided to walk out of the country," said Dhirendra Kumar, managing director of fund tracker Value Research. Fidelity Deal will Confer Size on L&T Finance 

Experts said the deal will confer size on L&T. "This acquisition will catapult L&T Mutual Fund into the big league of Indian asset managers. With an excellent blend of equity and debt assets, combined with a great brand in L&T and a complementary distribution network, this provides a great platform for L&T Mutual Fund to potentially attain market leadership," said K Balakrishnan, chairman & managing director, Lazard India. But L&T's task of growing the business has been made difficult by global investor unhappiness over the weak performance of the Indian economy and the government's stumbling and erratic response. 

The Budget has been widely panned and foreign investors have turned off the spigot after pouring over 45,000 crore into the markets during January-February 2012. FII purchases so far in March have been a measly $960 million.

The financial details of the transaction were not disclosed, but Deosthalee said the valuation is in line with that of recent deals in the mutual fund industry. Industry sources said L&T has paid about Rs 530-550 crore to buy Fidelity, valuing the deal at 6.2% of Fidelity's total assets under management of Rs 8,881 crore as on December 31. 

L&T, which entered the mutual fund industry in September 2009 by buying DBS Cholamandalam Asset Management, had assets worth Rs 4,616 crore as on December 31. 

Mutual fund industry sources said other bidders had offered to buy Fidelity at higher valuations than L&T —as much as Rs 600 crore — but these funds were not willing to absorb Fidelity's staff, which includes its sales and marketing officials. However, the deal does not include the equity fund management team led by Alexander Treves, the chief investment officer of Fidelity Mutual Fund. 

"The equity fund management team will be with us till the integration process is complete," said Deosthalee. He said Fidelity's India Chief Executive Officer Ashu Suyash will be a key part of the integration process. As per the agreement, L&T will absorb most of the employees of Fidelity Mutual Fund. "Fidelity employees need not worry about this deal. L&T Finance is an equally strong brand. And historically, Indian funds have done much better than foreign fund houses," Deosthalee pointed out. 

The deal comes at an opportune time for Fidelity, which is facing a regulatory deadline to shift its trading desk to India by September. 

The mutual fund industry has lurched from crisis to crisis since the global financial meltdown of 2008. The ban on entry load — the upfront fee that mutual funds charged investors to pay distributors — in August 2009 has compounded their woes as distributors now have lesser incentive to sell schemes. 

The key challenge for L&T will be to retain investors in Fidelity funds, many of whom had invested in the 'Fidelity' brand. The deal will not make any sense to L&T if it fails to retain these investors, industry sources said. This is more so because apart from assets under management, which can be fickle most of the time, L&T Mutual Fund has not been able to buy out the experienced equity fund management team of Fidelity. But L&T could take heart from the performance of Templeton and HDFC asset management houses after their takeover of Zurich and Kothari Pioneer in the early years of the past decade. The buyouts happened just before the equity boom of 2004-08, helping both fund houses build a sizeable advantage over rivals. 

"We'll be able to retain investors… We're an equally good brand. We have good fund management capabilities to satisfy investors. The integration will also happen at the distributor level," Deosthalee said. 

Tough business conditions have prompted several fund houses to strike similar deals. Japan's Nippon Life Insurance bought 26% stake in Anil Ambani-controlled Reliance Capital Asset Management, India's second-largest mutual fund by assets, for roughly Rs 1,450 crore. The deal valued Reliance Mutual Fund at 6.8% of its total assets under management of Rs 82,305 crore on December 31. In December 2010, Parisbased Natixis Global Asset Management bought 25% stake in IDFC Mutual Fund valuing it at 5.5% of total assets. IDFC had bought Standard Chartered Bank's asset management business for close to 5.7% of its assets in 2009. 

Earlier in 2010, US-based investment management firm T Rowe Price acquired a 26% strategic stake in UTI Asset Management Company, one of India's most profitable mutual funds with a large equity asset base, for about 3.6% of its assets under management. In June 2010, Japan's Nomura bought a stake in LIC Mutual Fund for about 2.5% of the fund's assets. In 2009, IDFC bought Standard Chartered Bank's asset management business for close to 5.7% of its assets.

New property tax system to be tabled today

Mumbai: After rejecting the new property tax system twice last year, the proposal for implementing the capitalvalue based property tax system is once again to be tabled at the standing committee on Wednesday. With no consensus among political parties, the new system was put in cold storage as no party wanted to take the risk ahead of the civic polls. 

    In the budget speech a few days ago, municipal commissioner Subodh Kumar had mentioned that the civic administration would "adopt property taxes based on the capital value system" but was awaiting the standing committee's nod. Data for around 50,000 properties has been entered into the capital value system. "The administration can issue special notices and also finalize property tax bills on capital value as soon as rules for fixation of capital value and rates of property taxes are approved by the standing committee and the corporation. The rules and rates have been proposed to the standing committee," said Kumar. 

    The BMC plans to shift the property tax calculation structure from the rateable value system, based on rent, to a capital value system—based on the property's market price. Under the present structure, property tax is computed on the basis of rent paid by tenants, but now it will be computed on the market rate. 

    The civic body has missed the deadline for implementation of the capital value-based property tax regime. The state cabinet has granted a year's extension for implementation of the system. The legislature had approved the switchover in March 2010. 

    The civic body was expected to introduce the system from April 1, 2010. But, with the BMC unable to frame business rules, decide tax rates and collect data of properties to be assessed on time, it was granted the extension. It was again granted time to complete procedures by the end of 2011-12 and implement the new regime from April 1, 2012. 

Govt scraps octroi in Ulhasnagar 

    The Maharashtra government has decided to abolish octroi in Ulhasnagar from March 31; it will be replaced by a local body tax (LBT) from April 1. Traders are happy with the abolition but instead of the LBT system, prefer the Gujarat pattern. The government plans to do away with octroi in all D class municipal bodies in a phased manner. Traders here have often protested against octroi, alleging harassment by Konark Infrastructure, which has been collecting octroi for four years. Prakash Bajaj, president, Ulhasnagar Mobile Association, said, "For many years, the contract has been going to a contractor who has been harassing our traders." Naresh Durgani, president, Federation of Sindhunagar Vyapari Association, said, "We prefer the Gujarat pattern, where the local body charges one percent of the goods." –Pradeep Gupta

SENSEX PLUNGES 309 POINTS TO END AT 17,053 Tax Worries, Weak Rupee Throw Street Out of Gear

Lack of clarity on taxing of FIIs coming via Mauritius hurts

 April could well turn out to be a cruel month for the stock market and foreign institutional investors who drive it, if the government does not step in to clear the tax fog caused by sweeping Budget proposals. Amid a weakening rupee, Indian shares slumped on Monday to their lowest close in two months as investors looked for answers to two big questions: 

•Will FIIs coming through Mauritius have to pay tax on their short-term stock market gains? 

•Will offshore investors of participatory notes (PNs) — instruments to trade Indian shares — also have to pay tax on profits from their indirect exposure? 

With no clarity on these issues, FIIs as well as domestic investors sold shares worth . 135 crore and . 201 crore, respectively, on Monday. Their concerns emanate from the General Anti-Avoidance Rules (GAAR) proposed in the Budget, according to which tax authorities can override the tax avoidance treaty between India and Mauritius to tax FIIs that invest through special purpose vehicles in Mauritius without setting up an office or commercial establishment in the tax haven. Secondly, FIIs fear that the government's stance in the Vodafone tax case and its decision to tax indirect transfers of Indian assets could drag PN holders into the tax net because even though PNs are overseas instruments, the underlying assets are Indian shares. PNs are issued by FII entities to investors with no direct access to the Indian securities market. 

"There can be a view that since capital gains realised in the hands of the FII entity itself are not taxed, PN holders to whom the gains are distributed should also be spared of tax," said Siddharth Shah, principal and head-fund formation, Nishith Desai Associates. Even though finance ministry officials informally assured that GAAR, which many countries have put in place, will apply only above a threshold, investors looked for greater clarity. 

Sources said some foreign brokerages and FIIs have stopped issuing PNs and more may discontinue from April 1. Leading groups like CLSA, Goldman Sachs, Morgan Stanley and Deutsche have cautioned their clients about the tax confusion. They refused to comment when asked whether PN issuance will stop. 

"Some FIIs would not be comfortable with the probability of the taxman breathing down their necks with arbitrary powers to interpret the provisions under GAAR. This resulted in the selloff," said UR Bhat, managing director, Dalton Capital India. BSE's 30-share Sensex fell 308.96 points, or 1.78%, to end at 17,052.78. NSE's 50-share Nifty dropped 93.95 points, or 1.78%, to close at 5,184.25. 

Large banking groups with a base in Singapore will be able to lessen the tax burden by fulfilling conditions like minimum annual expenses of $200,000. Rupee Likely to Recover by April 

"Investors have to understand that GAAR is going to become reality though some of the provisions are over the top. Even before GAAR amendment came into the picture, we were advising many clients to use their Singapore operations to invest in India," says H Jayesh, founder partner of Mumbaiheadquartered law firm Juris Corp. 

But FIIs fear that relocating from Mauritius to Singapore will not help them shield their PN clients from the Indian tax department. Here, the tricky issue of taxing gains from transfer of underlying assets will continue to linger. 

"We are receiving so many inquiries regarding GAAR proposed in the Budget," says Akil Hirani, managing partner of Majmudar & Co. "For those who want to set up new funds, setting up base in Singapore is the only viable option. While for old funds that are already operating from Mauritius, there will be matter of concern," he said. 

A PN holder enters into a total return swap deal with an FII that agrees to pass on all gains — dividend, bonus, and profit from the sale of underlying shares — to the former. Under the circumstances, if FIIs are simply considered as passthrough vehicles or conduits, then there are chances that such gains could come into the tax scanner. 

The rupee closed weaker at 51.26 per dollar against its previous close of 51.17. It has appreciated 4% in this calendar year against the dollar. "There is genuine demand for dollars from oil companies and there is dollar buying for loan and other interest payments. But come April, we believe this kind of demand pressure will not be there. The rupee is likely to gain then, but again we will need to look at the capital flows, given that current account deficit has always been a driving force. By April, the rupee could recover up to 51 per dollar or thereabout," said Ashok Gautam, senior vice-president and head, global markets, Axis Bank.

Last-minute options to save tax

  Another four days are left for the current financial year to end and you have just that many days to put money in a select few products to save some taxes. Some of the popular options are equity-linked savings schemes (ELSS), pension funds, insurance policies and public provident fund (PPF). Your financial advisor/planner can help you invest in the product which is best suited for you, helping you save up to Rs 1 lakh this year, and also an additional Rs 20,000 through infrastructure bonds. 

    ELSS offered by mutual funds comes with a three year lock-in, which means you cannot withdraw the money invested for the next three years. Similarly, other investment products that offer you tax rebates also come with lock-in provisions. For example, in PPF you can withdraw only after seven years from the date of investment. 

You can save Rs 6,180 

The Budget in February 2010 had given taxpayers a new option to save up to Rs 20,000 every year by investing in notified bonds of infrastructure finance companies. Popularly called infrastructure bonds, the last of such bond offerings, from IDFC, is now open and will close on Friday. If you have not already invested in these bonds, you can put Rs 20,000 in these bonds and claim tax deduction of up to Rs 6,180 for the current financial year, which is for assessment year 2012-13. 

    Interestingly, this year's Budget has not specifically spelt out about the continuation of infra bonds for next fiscal, so there is some ambiguity whether the similar bonds will be available next year. 

    The ground rule for investing in infra bonds is first to check the credit ratings for these instruments, assigned by the ratings agencies. Higher a company's/bond's ratings, lower is the risk associated with it. These bonds are for a 10-year tenure, and come with a lock-in of five years, meaning one cannot sell these bonds for the first five years after investing. You can avail of the annual interest-payment option or the cumulative option. IDFC is paying 8.43% per annum on these bonds. Under the cumulative option, at the current rate of interest, your initial investment will more than double at the end of the 10-year tenure. But you will not get any money during these ten years. 

    Another important point to note here is that although you can claim tax deductions on your initial investments of up to Rs 20,000 in these bonds, the interest that you earn every year from these bonds is not tax free. Every year when you file your returns, the interest income from infrastructure bonds should be included in your income. 

YOU STILL HAVE TIME 

Equity Linked Savings Scheme (ELSS) of a Mutual Fund 

Consult your financial advisor and if these plans are suitable for you, ask how much to invest. Once you know that, your advisor can help you invest in the right plan, or you can also call the fund house to help you out Pension funds You can choose from select fund houses offering pension plans Insurance policy Again, check with your financial advisor and select the right one suited to your long term goals PPF You can open an account & deposit up to Rs 1 lakh Infrastructure Bond 

From IDFC (up to Rs 20,000): Your broker can help you; this is over and above the Section 80C limit under which you can invest up to Rs 1 lakh to lessen your tax burden

Soon a bill to protect flat buyers from errant bldrs

Mumbai: A bill to rein in errant builders and protect the rights of flat purchasers is likely to be tabled in the state assembly shortly. 

    The state government has proposed Housing Regulatory Authority and a Housing Appellate Tribunal to protect "public interest" and monitor the "conduct and integrity" of promoters, builders and those engaged in the construction industry. Under the law, when approved, developers who fail to comply with some of the stringent provisions of the proposed Act could be fined up to Rs 1 crore. The Act, however, will not cover a majority of residents because it does not pertain to people, whose buildings are being redeveloped, including tenants living in over 16,000 Mhada properties. "Flats or buildings constructed for providing permanent alternative accommodation to existing occupants of redevelopment projects shall not be governed by the provisions of this Act," said the draft bill. It will also not apply to Maharashtra Housing and Area Development Authority (Mhada) and boards established under the Mhada Act. 

    Officials reasoned that the Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act 1963, was not effective 

enough in protecting flat buyers from malpractices. "Flat purchasers could only approach consumer forum or civil courts. The new Housing Regulatory Authority will ensure effective implementation of the Act," an official said. 

    The proposed Maharashtra Housing (Regulation and Development) Act states that a builder must disclose the nature of his project, including the title of the land. The developer will also "disclose information relating to number and size of plots, layout plan, carpet areas, and utility areas of the flat, FSI/TDR/additional FSI consumed in the building." Builders will have to register the project and display it on the website of the Housing Regulatory Authority. 

    Besides, they will also have to put up on the website the time schedule of completion of the phase of each project. They will have to "specify in writing the date by which possession of the flat is to be handed over". "No transaction, including sale or marketing for sale, of apartments/flats in a new project without registration of the project and displaying such apartments/flats on the web site of Housing Regulatory Authority. No person shall start any transaction including sale or marketing for sale of apartments or flats in a new project or phase of such project without displaying such apartments /flats on the website," it said.

Surplus estimate ends as 2,059cr deficit

The Maharashtra government's budget estimate for the current fiscal year missed its mark by a mile. While presenting the 2011-2012 budget last year, it had predicted a revenue surplus of Rs 58.21 crore. But five days before the end of the fiscal year, finance minister Ajit Pawar admitted to legislators that the state now anticipated a revenue deficit of about Rs 2,058.71 crore in 2011-12. The overall fiscal deficit (which includes capital account and borrowings and other liabilities) too was revised from the originally anticipated Rs 678.37 crore to Rs 1,325.34 crore. 

    The admission of the poor financial performance and the slowdown in the economy made political observers wonder if the positive picture painted for the coming fiscal year will also prove illusory. Based on the guidelines of the 13th finance commission, the government has estimated a revenue surplus of Rs 152.49 crore in 2012-13 and an overall fiscal deficit of Rs 1,159.69 crore. It has also estimated the revenue income to rise from Rs 1,25,312 crore in 2011-12 to Rs 1,36,712 crore in 2012-13. Observers however doubt that a rise of about 10% in revenue income can be realized. 

    The financial statement tabled by Pawar on Monday shows where the figures fell short of the state's expectations in 2011-12. In at least nine of the 26 revenue earnings heads, set targets could not be met. With the real estate market remaining sluggish, the stamp and registration department's revenue missed the estimated figure by Rs 1,676 crore—it was expected to generate Rs 15,677.14 crore but ended up collecting Rs 14,000.88 crore. 

    The revenue side also suffered on account of non-receipt of 1,120 crore from the Centre as assistance for housing and urban development projects under the Jawaharlal Nehru National Urban Renewal Mission. While the state expected 

Rs 8,077 crore as central funding for such projects, the Union government released only Rs 6,957 crore. Due to non-realisation of income through sale of FSI, another Rs 708 crore could not be collected. High liquor prices meant that the excise department fell short of its target by Rs 254 cr. 

    The saving grace was the sales tax department, which not only met its target but also collected about 9% extra. Against a target of Rs 46,000 crore, the department is anticipated to collect Rs 50,000 crore. Pawar attributed the boon to the computerization and modernization of the department and drives against hawala operators. Increase of grant-in-aid for Union government-sponsored schemes also aided the state treasury. 

    Pawar said that additional financial burden—including a Rs 2,000 crore assistance package for cotton, soya bean and paddy farmers, and increased subsidies and grants in the agriculture sector and industry—led to a 4% rise in expenditure. By casting a wider tax net, Pawar plans to mop up an additional Rs 600 crore in 2012-13. While chief minister Prithviraj Chavan praised Pawar for tabling a "balanced budget", opposition leader Eknath Khadse dismissed it. He alleged that the state treasury was bankrupt and the state was being run on funds received from the Centre.

Telenor wants $14bn in damages from govt

New Delhi: Norwegian telecom operator Telenor, which faces the prospects of its Indian joint venture losing 22 2G mobile licences due to the 

Supreme Court order, served a notice on the government on Monday, threatening international arbitration and claiming damages of nearly $14 billion (Rs 70,000 crore). 

    Telenor invoked the provisions of India's Comprehensive Economic Cooperation Agreement (CECA) with Singapore to slap a notice seeking a solution from the government within six months, failing which it would seek an international arbitration for failure to protect its investment. 

    "The cancellation of licences, and the resultant loss of investments made by Telenor Asia Pte Ltd constitute a breach of India's obligation under the CECA. It is also possible that there could be a further breach of CECA from the manner in which these licences are now redistributed through auctions," Telenor said in its notice, which was sent to the Prime Minister's Office, the telecom department and the corporate affairs ministry. 

COLLECT CALL 

•Telenor-Unitech JV could lose 22 2G licences due to SC order 

•It has now cited India's trade pact with Singapore to claim $14b in damages, threatens international arbitration 

•It says it invested in India based on licences issued by the govt "in accordance with their own policy and process" 

• It's the second such notice for govt after Sistema's Telenor notice follows Sistema's 

New Delhi: Telenor, which holds a 67% stake in Unitech Wireless, is engaged in a separate legal battle with its Indian partner Unitech, and has made public its decision to begin its hunt for another local ally. The Norwegian firm entered the Indian market through its Singapore arm. 

    In its notice to the central government, the telecom firm said that it invested in India based on licences issued by the government "in accordance with their own policy and process" and cited approvals from the Foreign Investment Promotion Board and the Cabinet Committee on Economic Affairs (CCEA) to argue that it had complied with the laid-down procedure. "Despite having no role to play either in the policy or in the process through which these licences were awarded, Telenor stands to lose its entire investment made in India," it said. 

    For the government this is the second such notice after Sistema invoked the provisions of the India-Russia Investment Agreement a few weeks ago. Telenor's notice coincides with Russian president Dmitri Medvedev's India visit this week where he is expected to broach the Sistema notice with Prime Minister Manmohan Singh. "We can confirm that we informed the government of India of our intent to invoke the provisions of the CECA between India and Singapore. We are hopeful that it remains the government's intent to protect and encourage bona fide foreign investment in the country. We are convinced that we can resolve this matter through continuing dialogue with the government such that Telenor Group remains a serious and long term participant in the Indian market that brings the benefit of competition to the Indian consumers," a Telenor Group spokesperson said in response to a questionnaire from TOI. 

    Citing clauses of the CCEA, the notice said that the compensation has to be equivalent to the market value of the expropriated investment at the time of the decision, which in case of Unitech Wireless is February 2, the day when the SC cancelled 122 licences issued during ex-telecom minister A Raja's term.

Coal block auctions to kick off by June

Mumbai: The government is gearing up to hold the first round of coal block auctions in the second quarter of 2012. This will throw up 50 coal blocks for grabs immediately, Union coal minister 

Sriprakash Jaisawal was quoted as saying by news agencies on Monday. 

    On March 22, TOI had front-paged a draft report of the Comptroller and Auditor General which stated that public and private commercial entities had reaped windfall gains of Rs 10.67 lakh crore because the government distributed 155 coal blocks to them without auction. 

    The coal ministry has now called for bids from consultants to devise a methodology to fix the floor/reserve price of the blocks to be put up for auction for captive use. 

    On February 2, the ministry had notified rules for auction by competitive bidding and last week asked for applications from domestic as well as international service providers to set up a bid management system for the auction process. The bids will be opened on April 17. 'Auction an alternative to costly coal imports' 

Mumbai: The Central Mine Planning and Design Institute, under the aegis of the coal ministry, will rope in consultants for the coal block auctions by mid-April. They will also help the government structure a tender document for the selection of successful bidders, and the model agreement between the government and the successful bidder. 

    Several agencies had earlier called for a process of competitive bids through a transparent auction for handing over precious natural resources to companies in the light of the 2G telecom scam. "The coal ministry intends to offer captive coal blocks through the bidding route for captive mining of coal for permitted enduse like steel, power and cement sectors notified by the government," said the notice inviting tenders for selection of service providers. The hiring of consultants will end by April and based upon their advice, the government may call first bids by the end of June this year. In a gazette notification last month, the government had notified the rules for auction of coal mines through a competitive bidding process called the Auction by Competitive Bidding of Coal Mines Rules 2012. As per this notification, separate bids would be called for government, non-government firms and power projects won through competitive bids. 

    "The modalities of the auction process are yet to be seen. However, it is expected to draw significant interests from private cement, steel and power firms, besides state-owned SAIL, NTPC and state-utility firms, said an analyst.

Life’s just got Maha costlier State Hikes Taxes, Cars Worst Hit

Mumbai: There was little cheer for Maharashtra when finance minister Ajit Pawar tabled his second budget in the assembly on Monday, with taxpayers facing the possibility of seeing any income tax gains they made in the Union Budget being totally wiped out if they purchase a new car. While Rs 22,660 is the expected gain in the highest income tax bracket, the purchase of a Rs 14-lakh petrol car, for example, will now set a buyer back by an additional Rs 30,000. Such a vehicle currently attracts a tax of Rs 1.1 lakh, which will go up to Rs 1.4 lakh in the budget for 2012-13. 

    Buyers saw 2% to 4% tax hikes across price groups for petrol and diesel vehicles, respectively. Pawar gave "environmental reasons" for the hikes, saying, "The sale of diesel cars is on the rise. The proposed tax hike is to discourage the use of diesel and petrol cars." Simultaneously, in a relief for taxis and autos, the tax for new 'green' CNG vehicles was reduced by 2%. 

    Cooking will also get more expensive, with a 5% levy introduced for LPG cylinders, which were earlier exempt. A cylinder costing around Rs 398 will now cost Rs 418. However the Congress, Shiv Sena, BJP and MNS have objected to the rise. "A Congress delegation will meet the chief minister and urge him to roll back the tax on LPG," said Sanjay Dutt, party spokesperson. 

    In a major relief to the realty industry, stamp duty rates for flats and leave-and-licence were not hiked. But sand will be taxed at source and levy on Plaster of Paris has shot up from 5% to 12%.

Leave-licence: State plans 16,000% hike in stamp duty

Move Will Hit City's Realty Market Hard

Mumbai: The cash-strapped Maharashtra government says it wants to restore Mumbai to its past glory of being the country's global financial capital. But the way it is going about is bound to leave many investors gasping. Seeking to increase its kitty, the government has proposed an up to 160 times hike in stamp duty for leave -and-licence agreements for residential and commercial properties. 

    The government has proposed 0.1% stamp duty on the market value of the residential property, or 1% of the premium plus average annual rent (deposit) paid (whichever is higher) for up to 36 months. 

    For commercial lease agreements, the duty for 60 months would be 0.4% of the property value. The maximum stamp duty payable now for commercial premises is Rs 50,000 for 60 months and Rs 25,000 for 60 months for residential ones. 

The govt will earn 

1,000cr a year, but at what cost? 

• A bank or an MNC that has signed a leave-and-licence agreement for one lakh sq ft for 60 months in BKC will now have to pay Rs 80 lakh as stamp duty. Currently, the maximum stamp duty payable is Rs 50,000 

• An individual renting a flat in Nariman Point for 36 months will have to pay Rs 41,000 as stamp duty. If the agreement is for 60 months, he will have to shell out Rs 82,000 against the prevailing maximum stamp duty of Rs 25,000 High rates will make stamp duty dearer 

    If the proposal to amend the Maharashtra Stamp Act, 1958—which is likely to be tabled in the state legislature soon—is accepted, it is bound to have an impact on the city's already sluggish commercial market. 

    For individual leases between 36 and 60 months, the rate proposed is 0.2% of the market value of the residential property or 2% of the premium, plus average annual rent paid (whichever is higher). For commercial leases, the proposed duty is 0.4% of the market value of the property. So a bank or corporate entity that has signed a leave and licence agreement for one lakh sq ft for 60 months in the BKC would have to fork out Rs 80 lakh on the property valued at Rs 200 crore. Similar is the case with residential premises. An individual will have to pay Rs 41,000 as stamp duty for a Rs 4 crore flat taken on leave and licence for 36 months at Nariman Point. If the agreement is for 60 months, the lessee will have to shell out Rs 82,000. Pranay Vakil, chairman of Knight Frank, says on the face of it the impact of the hike seems tremendous as property rates in the city are high. Of the state's total tax collection, nearly 60% comes from VAT and 20% from stamp duty. The balance 20% is mobilized from state excise tax, electricity duty and vehicle tax. The government hopes to mobilize at least Rs 1,000 crore annually from its proposed revision.

Govt lost 10.7 lakh cr by not auctioning coal blocks: CAG

Draft Report's Estimate Of 'Undue Benefits' To Firms Is 6 Times 2G Loss Figure

New Delhi: The CAG is at it again. About 16 months after it rocked the UPA government with its explosive report on allocation of 2G spectrum and licences, the Comptroller & Auditor General's draft report titled 'Performance Audit Of Coal Block Allocations' says the government has extended "undue benefits", totalling a mind-boggling Rs 10.67 lakh crore, to commercial entities by giving them 155 coal acreages without auction between 2004 and 2009. The beneficiaries include some 100 private companies, as well as some public sector units, in industries such as power, steel and cement. 

    The CAG-estimated loss figure of Rs 10.67 lakh crore at March 31, 2011 prices is six times that of its highest presumptive loss figure of Rs 1.76 lakh crore for the 2G scam. This, it says, 
is actually a conservative estimate, since it takes into account prices for the lowest grade of coal, not the median grade. CAG says even by the price levels prevailing at the time of allocations, the estimate of loss would be over Rs 6.31 lakh crore. 
    Here's how the auditor has calculated the "windfall gains". First, an estimate of the cost of production for each block was arrived at by taking into account the actual cost of production in a similar Coal India mine for the same year. Then the difference between CIL's sale price and cost of production was multiplied by 90% of the reserves in each block. The figure thus obtained was the windfall gain for that block. 
    The reasoning behind taking 90% of the total reserves rather than the entire lot, according to CAG, is that "detailed exploration establishes reserves at a confidence level of 90%". The report points out that the coal ministry had maintained in 2004 that the chances of any allocatee not being able to recover this much from the reserves "would be, if at all, very remote". CAG has added that "the actual amount of gain to the allocatees may change depending upon the mining plan, cost of extraction of coal, market price of coal and quality". 
    The 110-page draft report, a copy of which is with TOI, takes into account the coal ministry's views and, sources say, is as good as a final report. It is expected to be tabled in Parliament after the Union Budget is passed. Calculated on the basis of the 90% of coal reserves indicated in the geological reports for each block, the auditors have worked out a total of 33,169 million tonnes (MT). Industry sources say this would be enough to fuel over 150,000 mw of generation capacity—a little less than the country's current level—for 50 years. 
    The report has listed both private entities and public utilities as beneficiaries of the alleged largesse. It says private firms cornered more than Rs 4.79 lakh crore of the giveaway, while around Rs 5.88 lakh crore went to government utilities. Significantly, most PSUs employ private miners to extract the coal. CAG dismisses coal ministry defence 
    Among the major private sector beneficiaries are Tata Group entities, Jindal Steel & Power Ltd, Electro Steel Castings Ltd, the Anil Agarwal Group firms, Delhibased Bhushan Power & Steel Ltd, Jayaswal Neco, Nagpurbased Abhijeet Group, and Aditya Birla Group companies. Essar Group's power ventures, Adani Group, Arcelor Mittal India, Lanco Group and a host of small to medium players also figure in the list. 
    A major player in power, Reliance Power, which is setting up the Sasan and Tilayia ultra-mega power projects (UMPPs), is missing from the list because the section on "Windfall benefit to private companies" does not include12 coal blocks given for the government's showpiece power projects as they were allocated through a tariff-based competitive bidding route. 
    (The blocks given to Reliance Power are dealt with in a separate section, which TOI first reported on February 15 and March 5. CAG's estimate of the "undue benefit" to Reliance Power for these two projects is now placed at Rs 15,849 crore over a 25-year period.) 
    Spokespersons for the Tatas, Adanis, A V Birla Group and Essar declined to comment. Bhushan Power spokesperson did not respond to a text message. Repeated attempts to get a response from the Abhijeet Group's Delhi office also were in vain. 
    But Jindal Steel and Power Ltd promoter Naveen Jindal responded, saying: "It is all project specific. Often you find (state-run) companies unable to start work. I am proud to say that JSPL has started two of our blocks and is contributing towards creating wealth for the country. For all these 155 blocks, Coal India did not have any mining plans as it found them unattractive... CAG may have its view but whether it is JSPL or any other private company, they are all Indian entities and are creating wealth for the country." 
    Among the public sector entities that have benefited the most are central generation utility NTPC and trading firm MMTC, several West Bengal government corporations, and mines and mineral development corporations of Chhattisgarh, Jharkhand and Madhya Pradesh. 
    Senior executives of several companies, on condition that neither they nor their company be identified, said many of these blocks are yet to be transferred. Some others said mining has not started in several mines in the absence of various clearances. However, a few agreed that there might have been some unforeseen gains as coal price has risen since the allocations. "If the draft report talks of windfall gains, it shows CAG's lack of sense of time or knowledge of market realities. It fails to see the price of everything-—from fuel, equipment to wages and industrial services—has risen in this period," said a top executive with one of the companies in CAG's list of beneficiaries. 
    The coal ministry's justification, quoted in the report, is not dissimilar: "... coal produced from captive blocks was not available for commercial sale and out of 137 blocks, 62 coal blocks were allotted to power sector where tariff is regulated on the basis of input costs and the transfer price of coal is assessed on actual cost basis. In case of steel and cement sectors, though prices of end products are not regulated, a competitive market ensures the best benefit for consumers." 
    CAG counters by saying, "While appreciating the constraints and the viewpoint of the ministry, the fact remains that coal being a natural resource ought to have been allocated to private players on competitive bidding as it brings in more transparency and objectivity in the system. In fact, audit observations have also been corroborated by the recent SC (Supreme Court) judgment on 2G spectrum which, inter alia, held that the State is deemed to have a proprietary interest in natural resources and must act as a guardian and trustee in relation to the same." 
    The draft report adds: "They (private companies) can augment their resources but the object should be to serve the public cause and to do the public good by resorting to fair and reasonable methods. Every action/decision of the State or its agencies/instrumentalities to give largesse/confer benefits must be sound, transparent, discernible and well defined policy. Thus, the State legally owns the natural resources on behalf of citizens and the natural resources cannot be allocated to private hands without ensuring that the benefit of low cost of the natural resources would be passed on to the citizens." 
    It uses the ministry's view, conveyed to the government auditor in June 2004, to bolster CAG's contention by noting that the ministry itself had said, "...there was a substantial difference between the price of coal supplied by CIL (Coal India Ltd) and the cost of coal produced through coal blocks allocated for captive mining and as such, there was windfall gains to the allocates, part of which the government wanted to tap through competitive bidding. The windfall gains to the allocatees were expected to be substantial". 
    The report rejects the ministry's argument that allocations to the power sector need to be viewed in light of the fact that Central Electricity Regulatory Commission (CERC) regulates the power tariffs. The report says such regulations do not apply to merchant power plants set up by independent power producers. "Further, CERC tariff regulations 2009-14, allow normative operation and maintenance expenses for coal- and lignitefired generating stations as against the actual cost of production of coal. In fact, for steel and cement sectors, the competitive market forces cannot ensure that the allocatee would pass on the benefit of low cost of natural resources to citizens." 
    The section in the report titled 'Competitive Bidding For Coal Blocks Yet To Commence' points out how "...the policy initiative to introduce competitive bidding with the objective to bring in transparency and objectivity in the allocation of coal blocks commenced from 28 June 2004. However, the process got delayed at different stages and the same was yet to materialize even after a lapse of seven years".

REGULATOR GETS CRACKING ON MARKET MANIPULATION

Sebi Short-lists 19 Cos in 2011 IPO Fraud Case

Regulator to probe possible misuse of fund or price manipulation by some cos last year

Capital market regulator Sebi has widened the scope of its investigation to probe misuse of fund or price manipulation by some of the companies that came out with IPOs last year. 

Sebi's integrated surveillance department and investigation department have short-listed 19 companies that were listed in 2011, said a person familiar with the probe. This is in addition to seven companies and a few merchant bankers who were pulled up by the regulator in December 2011. "In the past few weeks, exchanges have been told to share bidding details, merchant bankers have been asked to provide due diligence details and some companies have been directed to give details on the utilisation of fund proceeds," said the person. "Soon, banks will be told to give account statements. It will take some time to complete the investigation." Sections of brokers and intermediaries may also come under the probe. Within a short time, stock prices of most companies that figure in Sebi's list have dropped significantly from prices at which the shares were issued. Sebi has taken recent initiatives to bring down instances of manipulation in IPOs. It has formed a forensic accounting unit under its corporate finance department to step up the rigour in inspection. It also introduced listing-day circuit filters to rein in price swings on the listing day and mandatory reporting of merchant bankers' track record. In the recent cases that are being investigated, sources said the regulator has come across instances where a few thousand IPO applications came from the same set of investors in most of the small-sized IPOs. "It will be probing if there are any KYC issues," sources added. 
Most of these are dummy applications and investors who lend their names are provided an assured return by operators. Operators and brokers end up controlling thousands of applications to influence the price of new listings with low floating stock. "While Sebi's December order restrained companies and its promoters from accessing markets in some cases, investors' continue to remain in losses. There should be a way to compensate investors without causing moral hazard," said Ashok Bakliwal, president, Bombay Shareholders Association. 
But market sources said that on charges like fund misuse, the ministry of corporate affairs (MCA) has to step in. "Many companies are yet to deploy the IPO proceeds as stated in the DRHP. Some of them have not even informed exchanges in a timely manner to update the status of funds raised," said a source. 
"While the statement of IPO proceeds is filed with stock exchange, it is the MCA that has the power to take action against erring companies. Filings on RoC happen with a lag of 12-18 months which make monitoring difficult. Most independent directors, who are supposed to defend shareholders' interests, are found to be ineffective. There should be a detailed format that provides specific details about the investments with status of the project for which funds were raised," said Pavan Kumar Vijay, MD of Delhi-based Corporate Professionals.

‘Property Registrations in Mumbai Fall 11% in Feb’

Small discounts fail to work; buyers hold back on hopes of rate cuts

Property registrations in Mumbai fell 11% year on year in February, as consumers continued to shy away from buying homes and offices. However, developers can draw some relief from the fact that the absolute number of registrations rose to 4,203, which is relatively higher than the bottom of 4,060 witnessed in November 2011. 

Property sales dipped 19% in the island part of Mumbai, while suburbs saw the number fall 9% from a year ago, according to a report by the broking firm Prabhudas Lilladher. In the month, the number of lease transactions grew to 8,515, up 6% from a year ago. However, no offer or incentive scheme seems to be working as outright sales numbers remain weak. Market experts expect this to improve with new launches starting around Gudi Padwa — considered an auspicious time for new purchases — later this week. 
Developers are also pinning their hopes on new launches and are expecting a revival in sales volume on hopes of interest rate cuts by the Reserve Bank of India soon. But many of them are not sure if anything other than a price cut will work. 
"Sales volume has been falling for over a year and a half now, it's scary. It clearly indicates that developers will have to cut prices across the board now, and announce it than making it customer specific," said Ramesh Nair, managing director - west, Jones Lang LaSalle India. 
Although some prospective home buyers are waiting for an interest rate cut, price correction will be the most feasible factor that will attract customers, he said. However, developers do not seem to be convinced that prices can be reduced now. "Given the various proposals in the Union Budget, construction cost will go up by 5%. Apart from this, there is the additional burden of service tax, all of which will be passed on to the consumer. Not much of supply is also likely to hit the market as approvals from various committees and departments are still taking time," said Sunil Mantri, chairman, Real Estate Committee of Indian Merchants Chamber. 
Following the clarity emerging on amended development control rules in January, new launches have started gaining the momentum. However, most developers are in the process of submitting revised project plans to the civic authority to take advantage of new fungible floor space index. This may affect execution at these projects for some time as approvals under new DCR would take at least three months, acting as a further dampener on sales, said Kejal Mehta, real estate analyst at Prabhudas Lilladher. 
Developers have almost failed to attract home buyers in Mumbai, the country's biggest property market, with marginal price discounts and other incentives as they are deferring their decision to buy property in the anticipation of an interest rate cut. In January, property registrations had declined 13% from a year ago to around 4,427 in Mumbai, after witnessing a spike in December to 5,900, led by higher transactions in the secondary market. 
kailash.babar@timesgroup.com 

Kingfisher Teeters as DGCA Loses Faith

Airline to halt foreign flights; aviation minister talks tough

Troubled Kingfisher Airlines teetered on the edge on Tuesday, fast losing support of both the government and the regulator and unable to come up with a credible plan to revive its flailing fortunes. 

Vijay Mallya, chairman and promoter of the airline, emerged from a two-hour meeting with the Director General of Civil Aviation (DGCA) sounding confident and promising a revival, but the government remained far from impressed, questioning Mallya's optimism and highlighting various financial and legal issues. For the first time since it was launched with great fanfare in 2005 — with Mallya promising a completely different flying experience — the airline stands on the brink of closure. The government has so far shied away from commenting publicly on the airline's fate. But on Tuesday, a chorus of voices led by Civil Aviation Minister Ajit Singh seemed to indicate a substantial and complete rethink on the government's part. 
On Tuesday evening, Singh tossed the ball firmly in Mallya's court, saying the onus of revival is firmly on the liquor baron. More importantly, he held out the prospect of legal action by saying dues and taxes have to be paid. "Kingfisher Airlines is liable for prosecution over unpaid taxes," Reuters quoted Singh as saying. Civil Aviation Min Sounds Caution 
Schedules can't be jeopardised in this business. But the bigger thing is non-payment of airport, fuel and salary dues. Today he should be able to convince the DGCA that he can clear those dues," Singh added. Singh said if the DGCA report is of the opinion that safety cannot be assured in Kingfisher operations, then the government could suspend the airline's licence. "We are not giving last or first chance to Mallya. He has to decide whether to run the airline or how to run the airline. To continue to have the licence, they have to have five aircraft but at present the financial situation is bad," the minister admitted. 
The DGCA, Bharat Bhushan, also doubted the revival plan submitted by Mallya, his fourth schedule in as many months and this time with just 16 aircraft. 
"The airline is severely hamstrung for want of funds and there is no assurance on whether he (Mallya) will be able to defray his liabilities," Bhushan said, adding he may submit a report on the airline to the government "as early as tomorrow (Wednesday)". Kingfisher has debt of . 7,057 crore and accumulated losses of about . 6,000 crore. The airline has cut domestic operations and is set to suspend all international flights. Banks have refused to give more money till the promoter brings in new equity and fuel companies have put the airline on cash and carry. The International Air Transport Association has suspended KFA from its inter-airline transaction body IATA Clearing House (ICH) and Billing & Settlement Plan (BSP) accounts on March 9 for non-payment of dues. 
Its five-star rating service has also been suspended by SkyTrax Research after cuts in its international network. State-run AAI has decided to allow Kingfisher to operate only those flights for which the airline has paid from Monday midnight to Tuesday midnight.

HC: Follow DCR rules in Aarey no-devpt zone

Mumbai:Developer RoyalPalms' sprawling projectin Aarey Colony hascomeunder thescanner of the Bombay high court. Declining to stay the sale of over 3.25 lakh sq ft of officespace, a division benchof Chief JusticeMohit Shah andJustice Roshan Dalvi directed the BMC,state government anddeveloper to strictly follow the developmentcontrol regulations(DCR)in the no-development zone. 

    The court was hearing an application filedby activistRajendra Thacker,objecting toRoyalPalms' plan to sell 6,000 sq m of land with sanctioned construction rights in the form of floor space index of 3.35 lakh square feet for setting up IT infrastructure for Rs 85 crore. The judges asked Thacker to file a separate petition if he had grievances in the Royal Palms' case. 
    Advocate Sumedha Rao told the high court that Royal Palms may go ahead with the sale and create third party rights. "It will be at their own risk," remarked the judges. 
    The land, spread over around 240 acres, is located in Marol-Maroshi and falls in the no-developmentzone.Over 73,000sq m of this plot was covered with slums. According to the BMC, it had left out the slum land and allowed development by dividing the area into a tourism development zone (TDZ) and no-development zone (NDZ). Plansfor threehotelswere permitted in the TDZ area, while 14 IT buildings and 78 residential buildings, including 50 bungalows, were approved in the NDZ area. 
    Assistant government pleader G W Mattos told the court that even in an NDZ area, some relaxations are permitted. This allows 20% of the total FSI to be used for constructing IT parks and residences. Setting up tourism infrastructure is also allowed. 
    Advocate Rao claimed that the proposed sale was in violation of rules. The lawyer representing Royal Palms denied the allegations and said that all rules were complied with.

State boon for 24 developers

Mumbai: The state government on Monday said developers will have to pay the authorities only half of what was stipulated in its public parking policy, in a bonanza for those who have already received permission under it. 

    The Brihanmumbai Municipal Corporation (BMC) had earlier said that developers pay 40% of the ready-reckoner rate (RRR) for availing the incentive floor space index (FSI) under the parking scheme. But a notification by the urban development department on Monday reduced it by half, or 20%, of the RRR. 
    This will benefit around two dozen developers who had procured sanctions, including letters of intent and commencement certificates before the controversial policy was amended by civic chief Subodh Kumar last May. Builders who submit proposals now will have to pay the full 40% premium to the BMC and state government. 
    A developer described it as "discriminatory''. Few builders who had got permission moved the Bombay high court, after the BMC insisted they pay the new rates. They contended that the state and not BMC could issue a circular asking them to pay a premium. The court concurred with the developers and Monday's notification was an outcome of its directive. 
    The scheme was introduced by then chief minister Vilasrao Deshmukh in 2008 
and pushed through at breakneck speed by his successor Ashok Chavan. It offered incentive construction rights to builders who erect parking towers on part of their land and hand it over free to the BMC. 
    Last March, chief minister Prithviraj Chavan told the BMC to review the policy. Developers used the scheme to plan 50-60 storey-high luxury skyscrapers, mainly in central Mumbai.