Government today favoured an increase in pension fund EPFO’s equity market investment to 15 per cent, from 5 per cent currently, saying it will help contain volatility in the domestic capital markets. (PTI)

Government today favoured an increase in pension fund EPFO’s equity market investment to 15 per cent, from 5 per cent currently, saying it will help contain volatility in the domestic capital markets.

“We are now saying Employees Provident Fund Organisation (EPFO) which always had the ability to put up to 15 per cent of its assets in equity markets but never did so, has to now do at least 5 per cent. And hopefully over a period of time they bring it up to 15 per cent,” Sinha said at the India Economic Convention here.

He said pension funds investing in domestic equity markets would help lower volatility in equity markets and as that comes down the cost of capital on equity side for businesses would come down.

“We are trying to ensure that we stabilise and smoothen out our equity market,” Sinha added.

The EPFO, which started investing in equity markets last month, has been investing primarily in state and central government securities.

Sinha said that the BJP-led NDA government is focusing on building productive capacity to sustain 8-10 per cent growth over a longer period of time.

“We want to build in India’s productive capacity so that we can sustain 8-10 per cent non-inflationary GDP growth rate not just for few year, but to be able to achieve that 8-10 per cent growth steadily through boom and bust cycles,” he said.

Indian’s GDP grew at 7 per cent in the first quarter of current fiscal and government expects it to grow 8-8.5 per cent this year.

Sinha said the macro economic indicators — inflation, GDP growth, current account deficit and fiscal deficit — have improved considerably since May 2014, when the BJP government came into power.

As regards cost of capital, Sinha said after factoring in the cost of hedging dollar against rupee, large companies are able to borrow at reasonable rates.

“The financial markets in India work well for a certain group of players. And I think largely for large players in India, the markets are working relatively well. Risk is being priced appropriately,” Sinha added.

He further said that bluechip companies in India borrow at around 5-5.5 per cent over a 30 year horizon in global markets, whereas in rupee terms the cost of borrowing would be 10-12 per cent.

“If you look at large companies in India they are able to borrow at fairly reasonable rates once you factor in the cost of hedging dollar against rupee,” he said.

As regards funding stressed infrastructure projects, Sinha said the National Investment and Infrastructure Fund (NIIF) would act as a special situation fund anchored by the government and could include other investors like pension funds.

Volatility in the equity market has not deterred companies from raising funds from the primary market. Since the beginning of August, four companies have filed their draft prospectus with Securities and Exchange Board of India (Sebi). Participants expect more activity on the primary market front in the months to come as they believe that the India growth story has not derailed.

Matrimonial.com, Teamlease Services, Alkem Labs and Dr Lal Path Labs have filed draft prospectus and plan to raise over Rs 1,000 crore via IPOs.

“These filings signify the positive view among investors about the long-term prospects of our markets despite the recent turbulence. The filings will stop as and when investors take a bearish view of the Indian markets. Filing draft documents doesn’t essentially mean the IPO is happening immediately. I am sure the companies will wait for the secondary markets to stabilise before actually going for the public issue,” said Prithvi Haldea, chairman, Prime database.

As per Sebi regulations, companies can go for the initial public offering (IPO) anytime within a year from the date of approval for the issue.

“When the markets were bullish, retail investors subscribed to primary issues, which were priced as high as 10-12 times the earnings of the respective companies. But during volatile times, retail investors become cautious. Given that they are crucial for the success of any public issue, companies would be forced to bring some sanity to the pricing. This was already evident in the issues that happened during the last week of August,” said B Madhuprasad, chairman, Keynote Corporate Services.

The impact of the stock market slump in the last week of August was felt on the public issue of Prabhat Dairy — the last company to tap the primary market — as it failed to get fully subscribed in the first three days of the issue. The company had to lower its price band and extend the issue by three days.

During the current calender year, companies have raised nearly Rs 6,000 crore from the primary markets — a three-year high.

Copthall Mauritius Investment Ltd has acquired over 5 per cent stake in Indiabulls Housing Finance Ltd (IBHFL).

Copthall Mauritius has acquired 19,324,503 shares equivalent to 5.334 per cent in Indiabulls Housing Finance.

The acquisition of the said number of shares in the IBHFL took place on September 14, 2015, IBHL said in a filing on the BSE.

The value of the acquisition is over Rs 1,325.41 crore on the basis of IBHL’s closing price of Rs 765.05 a share on Monday (September 14).

Shares of IBHL closed down by 2.54 per cent at Rs 730.65 on BSE.

Money funds in India and Brazil offer investors the highest nominal yields, according to a report.

The assets of money market funds (MMFs) in Brazil and India have increased significantly compared with the decline seen in Canada and Taiwan and stable asset bases of funds in South Africa and Mexico, Fitch Ratings has said.

“Money funds in Brazil and India offer investors the highest nominal yields when compared with other jurisdictions.

Nominal yields in Taiwan and Canada are near zero, more in line with the typical yield of US money funds. In Europe, even nominal yields on money funds are currently negative,” Fitch said in a report.

Assets under management (AUM) of money funds in China have surged eight fold over the past five years, pushing it past Korea to become the third-largest MMF market.

AUM of money funds in Brazil has almost tripled in the last five years and that of India has more than doubled.

In contrast, AUM in US money funds have shrunk by around 18 per cent since 2009 while Europe money funds have contracted about 3 per cent over the same time period.

The report further said money funds are less utilised in terms of broad money supply in these “second tier” jurisdictions unlike in the US where Fitch estimates that money funds account for over 20 per cent of broad money supply (M2).

Money funds represent less than 5 per cent of broad money supply in India, Canada, Korea and Taiwan.

The lower penetration rate of money funds could suggest potential for growth, it added.

AUM in money funds globally have shrunk 10 per cent over the last five years to approximately USD 4.5 trillion as of end-2014 (excluding Australia).

Korea, Mexico, Brazil, India, Taiwan, Canada and South Africa are ‘second tier’ money fund markets -large in their own right, but too small compared with the US, Europe and, increasingly China, which together account for 93 per cent of the global market.

Indian equities closed around 1 per cent up on Wednesday on positive Asian cues, even as expectations that US Federal Reserve could raise key interest rate after the two-day policy meet (Sept 16-17) loomed. (Express Photo)

Indian equities closed around 1 per cent up on Wednesday on positive Asian cues, even as expectations that US Federal Reserve could raise key interest rate after the two-day policy meet (Sept 16-17) loomed.

Although Indian stock markets will remain closed on Thursday on account of Ganesh Chaturthi, the US Fed decision will be a decisive factor for both equities and currency market movement in the coming days.

Between 2004 and 2006, the Fed raised interest rates 17 times from — 1 per cent to in June 2004 to 5.25 in June 2006. This coincided with a period of high growth in Indian economy alongwith relatively low interest rate regime.

The rate hike by US Fed that time resulted in a sharp outflow from Indian debt markets. Foreign Institutional investors (FIIs) pulled out significantly from the Indian debt market and their cumulative holding went down from $1.77 billion in December 2004 to $550 million by June 2006. On the contrary, Indian equities, chasing high growth in the economy, witnessed a strong inflow — FII pumped in a record Rs 1,22,687 crore between 2004 and 2006. But this was the time when asset classes were doing well and there were few uncertainties.

Fed policymakers will convene a two-day meeting on Wednesday and could decide to raise interest rates for the first time in close to a decade. “We feel it’s time to start gradually raising interest rates given that the US job market has more or less recovered,” Vijay Singhania, Founder-Director, Trade Smart Online said.

Gaurav Jain, director with Hem Securities also expressed the same view and said, “The markets will fall immediately. There will be global bearishness and India will be impacted by it.”

Few points to know in case US Fed goes for a rate hike

– If FIIS in debt markets rush to pull out following a possible Federal Resereve rate hike, it could end up putting pressure on the Indian rupee.

– A rate hike could potentially lead to massive amounts of pull-back of foreign funds from the emerging like India. US Dollar will strengthen against their currencies, gold and other assest classes, analysts said.

– High interest rates in the US are expected to wean away foreign portfolio investors (FPIs) from India. It is also expected to dent business margins as access to capital from the US will become expensive. Foreign funds have sold around $3 billion, mostly in Indian equities since August.

– On the rupee front, if a hike takes place then a free fall is not being ruled-out. Though the Reserve Bank of India (RBI) is expected to intervene and arrest the fall.

With inputs from Indian Express and IANS