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Monday, September 29, 2014

NAMORICA - Modi pledges a stable tax policy to woo US business




`Will Use Coal Scam Order To Clean Up Past'
Prime Miniser Narendra Modi made a powerful pitch on Monday to top honchos of American business and industry , with the promise of a stable tax policy and an assertion that he wants to convert the Supreme Court ruling on coal block allocation into an opportunity to move forward and "clean up the past".

"It is my conviction that tax stability is essential for confidence building," Modi told the chiefs of top US companies over a breakfast meet, among them Google chairman Eric Schmidt, Citigroup chief Michael Corbat, Mastercard CEO Ajay Banga, Pepsico's Indra Nooyi, Cargill's David W MacLennan, Caterpillar's Douglas Oberhelman, Merck's Kenneth Frazier, Carlyle Group's David Rubenstein, and Warburg Pincus' Charles Kaye. He also met CEOs of six other companies, including Boeing, IBM, and GE, in oneon-one meetings.

Modi's comment on a stable tax regime comes amidst severe criticism of the UPA's policies, including retrospective amendments to the law to claim taxes from Vodafone after it acquired Hutch's telecom assets in India. Modi and his team have not shied away from referring to the policies as "tax terrorism".

Asking the CEOs to be part of India's growth story, Modi pledged to smoothen the path for them. "Infrastructu re development is a big opportunity; it creates jobs & enhances the quality of life of our citizens," Modi said.

"India is open-minded. We want change that is not one-sided. Am discussing with citizens, industrialists & investors," the MEA spokesman quoted Modi as saying in a tweet. PM Narendra Modi, during a breakfast meet with industry leaders in the US on Monday, promised a stable tax policy. In the past, tax administration and frequent changes in government policies have been cited as major hurdles to investing in India. In recent years, even Indian business houses have often shunned investing in the country, preferring to go overseas.

The Modi government is keen to revive the investment cycle and is wooing investors, especially in the manufacturing sector, although the PM made it clear last week that the government does not believe in doles and concessions to attract flows into the country. Describing the meeting as "excellent and very good", business leaders said the PM heard their concerns and listed out the government's priority areas. "He answers questions brilliantly and is very focused on improving India. So, we are thrilled to be working with him," Nooyi said.

Mastercard CEO Ajay Banga said Modi can execute plans like he did in Gujarat.

"I have every belief he can do that. I believe then you can have a very good decade or ahead of growth in India and that would make every American investor happy to put their capital, technology and their people into India." Banga said Modi was focused on generating jobs for which there was a need to improve manufacturing, tourism and infrastructure. "His view is that he will get those with clear policies as well as about willingness to execute and he made the point many times over and I think from his perspective of his focus and his energy around Asia," he said.

While Boeing CEO James McNerney, who met Modi separately, promised to "accelerate engagement with India", GE's Immelt said his company is looking to scale up investments. "We discussed India. We are enthusiastic about the changes and the reforms in India and we are anxious to do our part in making India a better place," Goldman Sachs CEO Lloyd Blankfein said.







Saturday, September 27, 2014

Jaya gets 4-yr jail term in corruption case, barred from being CM or MLA for 10 yrs




Former Foster Son, Friend Sasikalaa, Her Niece Also Found Guilty After 18-Year-Long Trial

TN CM Fined Rs 100Cr In Rs 66.65-Cr Case

BangaloreChennai: Four years in jail. Rs 100 crore as fine. Confiscation of all seized properties. Immediate imprisonment, and no private medical treatment. This is the crux of special judge John Michael D'Cunha's verdict in the Rs 66.65-crore disproportionate assets case against Tamil Nadu chief minister J Jayala lithaa. The immediate consequence of Saturday's shocker is that Jayalalithaa ceases to be both MLA and CM.

The conviction may push Jayalalithaa's party into a tighter embrace with the central government as AIADMK will now have to fight off rival DMK which, no doubt, will be enthused by the court's order. AIADMK has 37 MPs in the Lok Sabha and 11 in the Rajya Sabha. For BJP, such a development would be helpful, especially after its split with Shiv Sena, which has 18 MPs in the Lower House and three in the Upper House.

This is the first time anyone has been convicted while being a CM. However, this is the third time Jayalalithaa, 66, has been convicted in a corruption case, and the second time she has been forced to step down as CM. Her two earlier convictions-on February 2, 2000 and October 9, 2000-came when she was not in power. Both those convictions were overturned. The case she is now convicted in deals with offences such as abuse of office and amassing of wealth during her first term as CM. It has dragged on for nearly 18 years.

Three of Jayalalithaa's aides and co-accused--N Sasikalaa, V N Sudhakaran, J Elavarasi--were also awarded four years in jail. They were fined Rs 10 crore each.

As details of the ruling trickled out, violence broke out across TN with AIADMK cadres forcing businesses to down their shutters, torching buses and blocking roads.

First CM in office to be convicted

Several former and serving chief ministers have been imprisoned for political reasons and a handful of former CMs for corruption, but J Jayalalithaa is the first CM in office to go to jail for amassing illegal wealth.Former CMs who have been jailed for graft are Lalu Prasad, Madhu Koda, B S Yeddyurappa, O P Chautala and Jagannath Mishra. A member of AIADMK's legal team told TOI that they would appeal against the order in the disproportionate assets case against J Jayalalithaa as soon as Karnataka high court reopens after Dussehra on October 6.

"Since the sentence is more than three years, it was not automatically suspended by the trial court. The only option available to the convicted persons now is to file an appeal in the high court and seek bail.Whatever be the speed, a few weeks of imprisonment cannot be avoided," he said.

The prosecution scored a perfect 10 of sorts as it got all the four convicted on all the three charges against them. While Jayalalithaa was convicted under provisions of Section 13 of the Prevention of Corruption Act (criminal misconduct by public servants), the other three were guilty of Sections 109 (abetment) and 120(B) (criminal conspiracy) of IPC, special public prosecutor Bhavani Singh told TOI.

Singh and his assistant M S Maradi said the prosecution had proved its case and law had taken its course. Maradi said, "Since the sentence is four years, she has to move the high court by way of a criminal appeal for getting bail". As sporadic violence broke out across Tamil Nadu, officials briefed governor K Rosaiah, who expressed concern over the situation.

"Technically , the Tamil Nadu cabinet does not exist now as the head has been disqualified," said former HC judge K Chandru. Under the Constitution, the governor is in charge in the absence of the council of ministers. While the governor can hold official meetings and issue instructions, he cannot issue any ordinance or convene the assembly . Sources said AIADMK MLAs would meet in a day or two to elect their new leader. "We hope the same ministry will take oath again," a senior partyleader said.

For the full report, log on to http:www.timesofindia.com












Friday, September 26, 2014

Banks tell cos to raise funds abroad




Say Rates Will Go Up In 2015 After US Fed Tightens Monetary Stance
Banks are telling clients that this is the best time for corporates to raise funds abroad as globally rates will go up in 2015 when the US begins tightening its monetary policy .Cost of raising funds overseas has come down for Indian companies and is likely to dip further in the coming days in wake of S&P's upgrade of India's sovereign rating outlook to `stable'.

"Credit spreads on Indian dollar-denominated bonds are around 5 bps (basis points) tighter on the back of the announcement of the change in outlook. We could see a fur ther 10 bps of tightening as the market digests this news, as it was not expected. We see better value in high-grade (HG) Indian corporates over financial institutions given still-significant fundamental headwinds, especially for weaker public sector banks," said Anubhuti Sahay , economist, Standard Chartered Bank.

Bank stocks, which were hammered on Wednesday following the Supreme Court verdict on coal allocation, staged a smart recovery with the S&P BSE Bankex rising by nearly 2%.

Canara Bank gained 5.3% to Rs 360, Yes Bank rose 5.2% to Rs 574 and Punjab National Bank rose 3% to Rs 896. The rupee also ended its losing streak against the dollar and firmed up to 61.16 as against 61.35 on Thursday .

For debt issuers in the international market, the present pricing might be as good as it gets. Even if growth were to pick up, S&P rarely issues a `double promotion' by going from a `stable' outlook to an upgrade. The best issuers can hope for is a revision in outlook to `positive' after next year's Budget. However, by that time the US is expected to start tightening interest rates.

"Of the three main global rating agencies, S&P was the only one with a negative outlook on India (Moody's never changed India's outlook, while Fitch upgraded it to `stable' in 2013). Hence, the outlook change by S&P is a belated move, although it should have some positive impact on sentiment. We reiterate our view that India is entering a `Goldilocks' phase of rising growth and falling inflation," said Sonal Varma, economist with Nomura. A sudden change in sentiment on the back of global ratings major S&P revising India's ratings outlook to stable led to a nearly 350 points rally in the sensex in the closing hour of Friday, although foreign investors continued to sell. S&P said the Lok Sabha poll mandate and improved political setting offered a positive environment for reforms in India.

It also said that India's external debt position and improving current account balance also influenced its decision to revise upwards India's ratings outlook to stable from negative.

After dipping to a low of 26,354 just before the S&P decision news, the index rallied to an intra-day high at 26,712 and closed at 26,626, up 158 points on the day. The rally was totally driven by sentiment backed by buying by local investors, as end of the session data on the bourses showed a net FII selling of Rs 1,134 crore, dealers pointed out.

The close of session on Friday also saw the end of a volatile week with the sensex down a little over 450 points on a weekly basis. However, outside of the sensex, trading during these five sessions also saw mid-cap and small-cap stocks crashing.

Going forward, the market players are looking at positives from the has a truncated trading Prime Minister Narendra Modi's US visit although given the truncated 3-day trading week beginning Monday, they expect volatility . "We had a hectic and volatile expiry week which clearly points to the market losing some momentum. Expectation from Prime Minister Narendra Modi's US visit is extremely high. Although there would be good news, currently everything is factored into prices," said Arun Kejriwal, director, KRIS, an investment advisory firm.








Flipkart taunts Bezos with welcome ad




Puts Up Billboards Along Route Amazon Founder Will Take During His B'lore Visit
The e-commerce war is playing out hot and heavy between Amazon and Flipkart ahead of the muchstoried US e-tailer's founder Jeff Bezos' visit to Bangalore on Sunday .

Sources told TOI that Flipkart is executing what it calls the `Welcome Mr Bezos' campaign. The company has put up huge billboards at the airport, highways and close to Amazon's headquarters ­ places where the communication is sure to hit Bezos' eyes ­ for its festive season sale campaign called Big Billion Day .The communication will follow Bezos to Delhi where he is scheduled to go next, sources privy to the matter said.

Flipkart, which is fighting an all-out battle with Amazon, is looking to send out a message to its arch-rival that it's the number one e-tailer in the country . Sources said Flipkart is also running a `Project Victory' campaign within the organization, a celebration of what it calls a win in the first round of war with Amazon.

When asked about Flipkart's response to Bezos' visit, Sachin Bansal, co-founder of Flipkart said, "It's a panic reaction to the fact that Amazon is not able to make any inroads in India. Our market share has increased in the last six months."

Flipkart, founded by two ex-Amazon employees Sachin and Binny Bansal, is moving rapidly towards touching $2 billion in annual sales (known as gross merchandize value in e-commerce industry) while Amazon is moving close to the billion-dollar figure. Delhibased Snapdeal, the other big player, is also at about $1 billion in annual sales. For the Seattle-based $75billion Amazon, India is an extremely crucial market, which was signalled by Bezos' announcement of a $2 billion investment two months back.That statement came just a day after rival Flipkart raised $1 billion in a new financing round, valuing it at $7 billion.

Having started its marketplace in June last year, the online retail juggernaut has been doubling down on competitors with top dollar being put in to advertising, heavy discounting and bringing on new merchants and sellers on to its platform. It bought the sponsorship for the Indian Premier League cricket tournament and unleashed a price war, taking the challenge right up to Flipkart. Over the past few months, though, Flipkart went on an overdrive with exclusive tie-ups with mobile phone makers like Motorola and Xiaomi even as the Myntra acquisition gave it a leg up in the fast-growing apparel and fashion space.

Known as a ruthless competitor, Amazon has always focused on giving the best prices to its customers and undercutting other players to the extent that Bezos once said, "There are two kinds of retailers, those folks who work to figure to charge more, and there are companies that work to figure how to charge less, and we are going to be the second, fullstop." The war between the two players has only just begun and Bezos' visit will simply help fuel the e-commerce fire.

In a boost to govt, S&P revises India outlook to `stable'




First Such Rating Since Modi Took Over
After years of pessimism on the economy , there were finally signs of positive perception on Friday as Standard & Poor's revised India's rating outlook from `negative' to `stable'. This indicates that there are fewer chances of government and other public sector bonds being treated as junk papers.

The revision is the first measure undertaken by any rating agency since the Modi government took office about four months ago, "Our outlook revision reflects our view that India's improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management," S&P said in a statement, which coincided with PM Narendra Modi's US visit, where he will court international investors.

Although India still retains the lowest investment grade rating of BBB+, the news made the rupee gain the most in six weeks and closed 61.15 to a dollar, compared to 61.35 on Thursday . Bond prices too strengthened on expectation that a better outlook may result in higher investment and more dollar flows into the economy .

Besides, it raised hopes of a rating upgrade in the coming months. Finance secretary Arvind Mayaram said the agency is expected to upgrade India's rating in the future."The country is well on a path of faster than anticipated fiscal consolidation and it could be a positive surprise going forward," SBI chief Arundhati Bhattacharya said. But S&P—the only major agency that threatened a downgrade of India's rating in the wake of rising current account and fiscal deficit in April 2012—said it will wait for the economy to grow faster and the fiscal, external or inflation parameters to improve before it decides on an upgrade. It cited at least two constraints—India's weak public finances that may stay weak for some time and low per capita income, which results in a low tax base and gives the government less flexibility in taking dramatic measures during times of economic stress.

The change in S&P's outlook was, however, driven by several factors, which included an improvement in the current account situation on the back on curbs on gold imports as well as India's credit strength, from low level of foreign debt and improved cash availability overseas. The country's "well entrenched democratic political system" and the strong electoral mandate were cited as the third key reason by the agency. "Although the paralyzing effect of legislative gridlock can blunt government effectiveness, our outlook revision indicates that we believe the current government's strong mandate will enable it to implement many of its administrative, fiscal, and economic reforms."

The ratings company said it expected the government to adhere to the fiscal consolidation plan and estimated an improvement in the fiscal performance due to the possible rollout of goods and services tax (GST)--something that the BJP government has identified as a key thrust area.



Thursday, September 11, 2014

Sell-off in CIL, ONGC, NHPC may fetch record Rs 46,000cr




Coal India Alone May Match '12-13 Divestment Gains
The government on Wednesday kicked off the most ambitious disinvestment programme ever, aiming to mop up a record Rs 46,000 crore by selling shares in blue-chip public sector companies-Coal India, ONGC and National Hydroelectric Power Corporation (NHPC).

While the exact dates are yet to be finalized, SAIL's disinvestment, which was cleared earlier, is likely later this month, with a 10% stake sale in Coal India expected around Diwali.The energy behemoth will help the government raise around Rs 23,600 crore based on its current share price. If prices hold, this sale alone could match the best ever disinvestment receip ts of Rs 23,957 crore in 2012-13, when the government had sold shares of NTPC and NMDC, among others.

ONGC, where the govern ment can garner close to Rs 19,000 crore via a 5% sale, is expected later in the year as the Centre is awaiting clarity on gas prices before the issue, sources in the government told TOI. Somewhere during the course of the year, it will also sell 11.3% in NHPC which, going by current price, will help generate around Rs 3,100 crore.

Apart from helping improve the government's fiscal health, the issues come with the additional attraction of a higher quota for retail investors as 20% of the sale in case of offer-for-sale, or auction through stock exchanges, will be set aside for small investors.Now, market regulator Sebi has provided additional flexibility for these issues. There are several other companies, such as BHEL, Power Finance Corporation and REC, which are also on the disinvestment department's radar but their stake sale has not been cleared by the cabinet committee on economic affairs. Then, there is Axis Bank, where the government is looking to sell shares held by the Specified Undertaking of the erstwhile UTI, although ITC and L&T, two other prominent stocks, are being retained. The government holds these shares after it cleared all liabilities of UTI. Further, the Centre is looking to offload its remaining shares in Hindustan Zinc and Balco, which had been sold to Anil Agarwal's Sterlite Industries during the Atal Bihari Vajpayee government's term.

Finance minister Arun Jaitley -who attended Wednesday's cabinet meeting within hours of being discharged from hospital -has budgeted for disinvestment receipts of over Rs 58,000 crore during the current fiscal. Going by current trends, he appears to be on course to meet the target.



Tuesday, September 9, 2014

Wilful defaulter tag for entire group if 1 firm defaults: RBI




In a move that will put intense pressure on businessmen whose companies default in future, the Reserve Bank of India (RBI) has tightened wilful defaulter norms and said failure of a company to repay could result in other group units and the management being termed wilful defaulters. SBI notice to Mallya, P 25 This cross default condition will apply if the delinquent borrower has raised funds on the strength of the balance sheet of other group companies. Banks have also been told to recover from perso nal guarantees provided by promoters even without exhausting other avenues.

"In cases where guarantees furnished by group companies on behalf of the wilfully defaulting units are not honoured when invoked by the banks, such group companies should also be reckoned as wilful defaulters," the RBI said.

The new norms appear to be a fallout of cases like Kingfisher Airlines where despite having a promoter guarantee and the presence of cash-rich companies in the group, lenders are finding it a challenge to raise funds.

Close to 5% of loans in the Indian banking system are in default while another 5% are under stress and have been provided some leeway in repayment under a restructuring programme. Private bank chiefs can work till 70 I n a move that will give HDFC Bank chief Aditya Puri and IndusInd Bank MD Romesh Sobti many more years at the helm, the RBI has said bank chiefs and full-time directors can stay on till 70. An RBI panel had recommended the retirement age of 65 earlier this year. The revised guidelines however will not be of much help to banks in recovering from existing borrowers like KFA. "It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees," the RBI said in its circular.

Clarifying on its earlier norms the RBI had said the defaulting 'unit' appearing therein would include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not.

"In case of business enterprises (other than companies), banks may also report the names of those persons who are in charge and responsible for the management of the affairs of the business enterprise," the RBI said.

The new norms come less than a week after the RBI governor Raghuram Rajan told investors at a Citi conference in Boston that the wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets and it shuts out all credit from the financial system for a borrower.

Rajan has been personally taking stock of the bad loans in the banking sector and has called for detailed lists of large defaulters.

In some cases the RBI has discovered that multiple banks have advanced funds without knowing each others exposure to the borrower.

Last year the RBI had made it mandatory for lenders to obtain personal guarantees of the promoter at the time of restructuring the loan. This was to ensure that the promoters had adequate 'skin in the game' while getting a project back on the rails.




Tuesday, September 2, 2014

TOI-IPSOS SURVEY - Cities cheer Modi's first 100, say he can be matchwinner




Inflation Main Concern, Poor Least Enthusiastic About Govt
So far, so good. That, in a nutshell, seems to be the popular assessment in big Indian cities about the performance of Prime Minister Narendra Modi and his government in the first 100 days in office. They believe that the government has got its priorities largely right and holds promise for the future, but are not too enthused by its tackling of inflation. Modi's own style is seen as a mix of decisive and dictatorial. These are among the findings of an exclusive poll done for TOI in Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune and Ahmedabad. Interestingly, there were relatively minor differences in responses of different genders, age groups and socio-economic strata, but huge variations among cities.

On the whole, Chennai and Kolkata emerged as the cities most sceptical of the new government's performance, while Pune, Ahmeda bad, Hyderabad and Bangalore seem the most in awe of Brand Modi. The scepticism of Chennai and Kolkata would seem to reflect the BJP's poll performance in the states and the presence of strong regional parties riding popularity waves. Overall, 16% of respondents rated the performance of the government as `excellent' and another 42% rated it as `good', which means a good majority approve the Modi government. About a third thought it was `average' and roughly a 12th char acterized it as `poor' or `very poor'. As in the responses to several other questions, the lowest socio-economic strata, SEC D, was less enthusiastic about Modi sarkar than the top one, SEC A. Among the top bracket, only one in 20 said the performance was poor or very poor, while in SEC D that proportion was about one in eight. The more sharp variation was in cities, with just 12% in Chennai describing the government's performance as excellent or good against 86% in Pune and 76% in Ahmedabad.

Asked whether the government had got its priorities right, 36% said it had them absolutely right and 53% said they were more or less right. Once again, while 58% in Pune thought the priorities were on the dot, only 5% in Chennai and 24% in Kolkata thought so.

Modi's style was seen as decisive by 51%, dictatorial by 19%, and both dictatorial and decisive by 25%, though these proportions varied significantly across cities. So, overall, Modi was viewed as a leader well in control. On the price front, the government's performance was seen to be not so good. Only 11% felt it had done an excellent job on this front and 37% said it had done a good job, 40% said it was average and the rest said it was either poor or very poor. Mumbai was the most critical with just 20% saying the government had done a good or excellent job versus 33% who said it had done a poor or very poor job of reining in prices.

Leading research agency IPSOS conducted the poll, covering over 2,000 people in the ages 20-60, split equally between male and female and between SECs A to D.

`BJP can't keep promises'

Rae Bareli:

Asked to comment on PM Narendra Modi's 100 days in power, Congress president Sonia Gandhi on Monday, avoiding rhetorical flourish, pointed towards her constituents in Rae Bareli and asked them, "Have the prices reduced?" When locals complained of high costs, she turned to the reporters and said, "See for yourself." On a two-day tour, Sonia wentto villages like Tanda and Bakuliha, where the common refrain was inflation. "They (the BJP) made promises they are unable to keep." Sonia said. TNN






Monday, September 1, 2014

How to invest in property with Rs 2 lakh




You no longer need deep pockets to invest in property. Find out how Reits will help you participate in the real estate market
If you have Rs 2 lakh to invest, your bank may roll out a red carpet, your stock broker may inundate you with hot tips and the neighbourhood jeweller may even offer a discount on making charges. However, you will probably get laughed out of the estate agent's office.Not anymore. With Sebi issuing final guidelines for real estate investment trusts (REITs), you will soon be able to get a piece of the action in the property market with as little as Rs 2 lakh.

REITs are just like mutual funds, but instead of using the money collected from investors to buy stocks and bonds, they invest in property .Last month, the Union Budget removed an important hurdle by giving pass-through taxation status to REITs. Last fortnight, Sebi issued the guidelines, settling several of the concerns raised by the real estate industry . The launch of REITs will increase the flow of funds to the cashstarved real estate industry . "Even if half of the currently available Grade A office space gets converted to REIT and is listed in the next 2-3 years, it can mean an inflow of Rs 60,000-72,000 crore," says Anuj Puri, chairman and country head, JLL India.High entry barrier Whether you invest in a residential property or commercial space in a metro or tier I city, the minimum investment is normally upwards of `30-40 lakh. Sebi's guidelines for REITs have pegged the minimum investment at Rs 2 lakh, which will allow retail investors to participate in the real estate market. In the secondary market, the minimum holding could be even lower at Rs 1 lakh. "REITs will allow even middle income individuals to invest in real estate. Without this, they can't participate because of the huge entry barrier," says Keki Mistry, vice-chairman and CEO, HDFC. The low ticket size means that investors can diversify their portfolios by including real estate without investing huge amounts in the asset class. The high entry barrier is not the only problem with investments in real estate.With no real estate regulator in place, individual investors are at the mercy of politically connected builders in India. If, however, they invest in a REIT, they will be able to join hands and get bargaining power against the developers.

The other benefit is diversification. When one invests in a real estate project, the returns are dependent on how well that project is received in the market and the rental income it is able to command. On the other hand, REITs invest in several projects and, therefore, provide the benefit of diversification to the investor. With a low entry barrier of Rs 1 lakh in the secondary market when units are listed, an investor can spread his investment across 3-4 REITs launched by different asset managers. The liquidity offered by REITs is another positive feature of this mode. While selling a property can take weeks, even months, REITs will inject liquidity into the investment by listing the units on the stock exchanges. The day is not far when one will be able to buy and sell property at the click of the mouse.How attractive is the investment?
While Sebi has given the go-ahead to REITs, right now they can invest only in commercial real estate. This narrows the scope considerably because most of the action in the sector is in residential real estate. Even in commercial projects, 80% of the investment must be in rent-earning projects. The balance 20% can be in other assets, including projects under construction (restricted to 10% of the total REIT assets), listed or unlisted debt of real estate companies, equity shares of real estate companies having 75% income from realty activities, government securities and money market instruments.

Though some may see this as an unnecessary restriction, the straitjacket of rental yielding projects is actually a blessing in disguise. First, there is major difference between rental yield from commercial and residential properties in India now. "While rental yield on commercial property is slightly lower than the interest rate, the one on residential property is very low. So REITs will not work in the residential market now," says Mistry . If rental yield from commercial projects is less than the prevailing interest rate, why should one consider investing in REITs? "The rental yield is not very attractive now, but is expected to rise in the future," says Ujwala Rao, national director, capital markets, JLL.Besides, there is always the possibility of capital appreciation that will push up the NAV .Bottom of the cycle Still, there are several factors that investors need to keep in mind. As of now, the commercial real estate market is in doldrums. "In several pockets, the price of commercial real estate is around 30% cheaper compared to residential real estate," says Kapoor. Though there is an escalation clause in most commercial real estate projects, it is a users' market and, therefore, they are able to renegotiate the rents downwards. This also means that commercial real estate is reasonably priced right now. There is a greater scope for appreciation. As the economy picks up momentum and commercial activity increases, things are likely to improve. "This is the time to get into commercial real estate because it is at the bottom of the cycle," says Kapoor. Other experts join the chorus of optimism. "For REIT to work, you need a buoyant real estate market. Nothing much had been happening in the past 3-4 years, but things have started picking up now," says Mistry . "Commercial real estate is linked to economic recovery . Rentals may remain under pressure for the next 12-18 months given the oversupply , but with the speed of supply moderating in the coming years, the situation should improve," says Mittal.Taxation of REIT income This was the biggest bone of contention for REITs. The recent budget offered some relief when the finance minister announced that REITs will be a pass-through vehicle. In the earlier structure, both the trust as well as the investors had to pay tax. Now, the trust will not pay tax on income. Only the investor will be taxed when he gets the income or sells the units. However, experts warn that this pass-through benefit is not applicable to all types of incomes from the REIT (see table) "The pass-through benefit is only for interest income earned by the REIT from its special purpose vehicle (SPV). As of now, there is no pass-through for rent or other income received by the REIT from property directly held by it," says Sriram Govind, core member of the international tax team, Nishith Desai Associates. He says the REIT has to pay corporate tax on such income earned by the SPV . Similarly, the REIT will also have to pay capital gains tax on sale of shares of the SPV . There is also no relaxation on the dividend distribution tax on payouts by the SPV to the REIT," says Govind.Though the dividend received from SPVs is taxfree for REIT as well as investors, the SPV would have already paid corporate tax and dividend distribution tax on such income. Factor this tax into the calculation of returns from REITs.

Though the dividend distribution tax is a prickly problem, what more than makes up for it is the treatment of capital gains from the REIT.Since there is a securities transaction tax (STT) on the listed REITs, the long-term capital gains will be tax-free while short-term capital gains will be taxed at a concessional rate of 15%.

However, you need to hold the REIT units for at least three years to qualify for long-term capital gains. In addition, the investor has to pay tax on part of the income received during the period. "The listed pass-through vehicles are at a tax disadvantage," says Feroze Azeez, director, Investment Products, Anand Rathi Private Wealth Management.

Since some of the income from the REIT will be tax-free and some other will be taxable, the big question is, how will investors know the difference? "There will be some reporting mechanism and the break-up will come at the time of income distribution from the REIT," says Rao of JLL.

Interestingly , REITs offer a better deal to NRIs on the tax front. The withholding tax for them is only 5% compared to 10% for resident Indians.And the amount received may be tax-free for them, at least in most countries, while the Indian investors have to pay tax based on their slab rates. If the NRI has to pay tax on the income in the country of residence, he can claim this 5% as a rebate.What are the risks?
The biggest risk can come in the form of developers keeping their prime rent-earning properties and dumping their not-so-good assets on REITs. Though there will be professional valuers, the real estate market is notorious for its opacity . It is still a builder's market and the investors don't have any access to the valuation process. Though the introduction of REITs is expected to improve the situation, the lack of transparency and the black money component in the real estate deals is another possible risk.Finally , there may be stable regular income, but the capital appreciation or depreciation depends on the market price of commercial real estate and, therefore, will be volatile.

Sebi's guidelines for REITs is only the first step. There are bound to be teething problems when the market starts functioning. However, this has paved the way for a more vibrant market for real estate. If you want to invest in real estate but don't have deep pockets, you can consider REITs as the vehicle that can take you there.

Sebi allows govt room to lure retail investors




20% Share For Retail Players In Divestment Issues | No Immediate Change In FPO Norms
The Securities & Exchange Board of India (Sebi) has decided against giving any immediate relief to the government to boost its share sales through follow-on public offers (FPOs), even as it has provided some flexibility in offer-for-sale (OFS) on stock exchanges to boost retail investor participation in the disinvestment programme.

The government has decided to double the share of OFS reserved for retail investors to 20%, using the flexibility available in Sebi rules that allow issuers to raise the floor beyond 10%. It has also decided to give an additional day to announce the OFS against the current stipulation that the issue can only be announced a day before the auction on the stock exchanges. The finance ministry had argued that the move will help generate more awareness about the issue among retail investors and get them to invest.

In case of FPOs, however, Sebi is of the view that the process of easing the rules will take at least six months, a move that will not help a majority of the government disinvestment programme and only a handful of share sales in March will benefit. "Sebi needs to follow a process that requires consultation and decision by its board.That may take a while," said a source privy to the discussions between the regulator and the North Block.

The finance ministry has lined up 10-odd share sales, including by blue chips such as ONGC, Coal India and Bhel, to raise over Rs 43,000 crore from them. The NDA government is keen that instead of allowing institutional investors, both domestic and foreign, walk away with the shares, a larger share of the pie should be shared with retail investors, prompting the government to seek a change in rules.






 

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