JPMorgan Asset Management Company on Monday said it will seek the approval of unitholders of JPMorgan India Treasury Fund and JPMorgan India Short Term Income Fund to segregate illiquid assets from the schemes. Market players welcomed the move and said it would give investors the option to redeem their ‘liquid assets’.

Both schemes have exposure to secured redeemable non-convertible debentures issued by Amtek Auto, currently illiquid in the market owing to credit concerns of the issuer.

On August 27, the credit rating of Amtek Auto’s previously rated other non-convertible debentures was downgraded from “BWR A+” to “BWR C” by Brickwork Ratings. Immediately thereafter, the reference price of the bond held by the two JPMorgan schemes was reduced to 75% by Crisil and Icra. This change in price was reflected in each scheme’s NAV on August 28 and, subsequently, the two schemes received an unexpectedly high level of redemption requests.

On August 28, the fund house capped the redemptions at 1% of the total outstanding units. In a release, JPMorgan AMC said: “If effected, this can allow for the gating to be lifted, providing unitholders of the schemes with as much liquidity as possible.”

The press note also stated that unitholders were being given a notice of seven clear business days to vote (by post or drop-off at various CAMS locations across India) on the proposed segregation of illiquid assets and the decision would be made by a simple majority.

As a result of the proposed segregation, the NAV of the existing units in the schemes would drop by the value representing the illiquid segregated asset and all unitholders on the record date will receive proportionate units to reflect their interest in the value of the segregated asset.

“This mean that there will be two NAV of the schemes — one will be of the liquid assets and other of illiquid assets of Amtek auto. Investors will be free to redeem their units in the liquid portfolio,” said a senior official from the from the mutual fund industry.

Meanwhile, JPMorgan “will continue to take all steps in pursuing satisfaction of Amtek’s obligation under this bond and/or any other means of receiving cash value for these investments in the best interest of the unitholders and to the extent rights under the bonds and applicable law allow”, said the press note.

Despite heavy bouts of volatility, Indian stock markets continue to receive impressive inflows from domestic institutional investors (DIIs), comprising mutual funds, insurance players and domestic financial institutions.

The DIIs — who have been net buyers for the last 24 sessions — purchased equities worth Rs 22,866.6 crore since August 11, making it their best buying streak ever. The average daily buying during the period was Rs 952.8 crore, Bloomberg data showed.

Market participants say that such strong purchases by domestic players have helped the Indian equity market avert a sharp crash like that in 2008.

In dollar terms, the net buying of DIIs in the mentioned period equals to $3.46 billion at an average rupee rate of  65.93 against the US dollar, which roughly matches the FPI selling of $3.8 billion during the period.

“One thing that has been different about this FPI selling compared to 2008 is that, back then, there was hardly anyone with enough muscle to absorb this liquidation without a significant price damage. Hence, the price and sentiment impact of selling was very high. Today, DIIs, mutual funds and insurance companies are much stronger and are able to absorb most of the impact. The FPI selling is more or less matched by DII buying,” said UR Bhat, director, Dalton Capital Advisors.

Market experts said domestic fund flows have been driven by the strong performance of the MF industry and change in investor perception towards real estate and gold as asset classes. The mutual fund industry witnessed inflows of Rs 8,903 crore into equity funds during August, which include ELSS, Amfi data showed. In FY15 so far, MFs have received inflows of Rs 47,948 crore.

“In the last one year, mutual funds have seen inflows on a consistent basis. Participation of retail investors during such a volatile time signifies that retail and domestic institutions of India have matured. In the past whenever markets crashed, investors would redeem their money, but now we are seeing a trend where investors are pumping in money at every fall in the market, “ said Sundeep Sikka, CEO, Reliance Capital Asset Management.

The Indian markets corrected sharply during August as FPIs slashed their exposure across emerging markets over concerns about China.

In mid-August, the Chinese government devalued yuan more than three times. The BSE Sensex lost more than 8% since the beginning of August.  There also seems to be concerns among foreign investors over the impending interest rate decision by the US Federal Reserve, adding to their selling activity.

Now that the government has appreciated the difficulties faced by steel industry from the alarming threat of rising imports, it has rendered policy support by first enhancing duties on flat products from 7.5% to 12% in two tranches and secondly by announcing a provisional safeguard duty of 20% for 200 days.

The concern by the government centered on the Rs 1,230 billion of stressed assets of steel industry in the banks and the inability of the steel majors to invest significantly in augmenting capacities due to market distortions caused by cheap flow of imports. Thus stepping up of actions by the Government against increasing imports was timely and most appropriate.

There are a few associated issues that need to be addressed.

Firstly, enhancing customs duties, including provisional Safeguard duties, is being termed as protective as user industries of flat steel are well spread out and some of them are small and medium enterprises and exporters. While more dialogue and interface with the user segments are needed to resolve the issues, it is not exactly known if the erstwhile gain out of the availability of cheaper steel from imports was reflected in lowering the prices of the finished products by the user sectors. If not, there is no perceptible reason that it would go up now on the back of additional duty on imported steel.

Secondly, it may be argued that their products became competitive in the market due to the lowering of the cost of steel and now they would lose with the impending rise in cost of steel. Taking this argument a little further, the power distribution companies might prefer transmission towers (either complete or semi-knocked down form) imported at a cheaper rate from abroad than procuring the same from indigenous TLT manufacturers. Under the current scenario, this may actually be happening, however, in a smaller way. But the matter would definitely be hotly resisted by the domestic industry and would go against our “Make in India” programme. Therefore it is logical to conclude that in areas where adequate capacities have been created and more are in the offing with superior technology to generate value-added cost competitive products to cater to the emerging demand from various end users, the government must come forward to extend a helping hand to the sector suffering disastrously from unfair trade.

By looking around, we find that governments in each of the steel-producing countries threatened by massive rise in imports from some of the countries shaking off their excess capacity load at throw away prices or under the garb of free-trade agreements are taking suitable measures to eliminate this risk.USA is currently investigating dumping and subsidy charges on CR sheets and coils imported from Brazil, India, China, Japan, Korea, Russia and UK. This is in addition to similar duties already in vogue on imports of HR, coated products. India must learn to protect its critical industrial segments from the onslaught of unfair imports.

The issue of cost competitiveness of Indian steel is paramount in all these trade measures. Cost competitiveness determined by efficiency parameters, raw material availability and prices, labour and capital costs must be seen separately from the prices of the finished products determined by compulsions of selling the products and this is to be distinguished from the prices based on fairly traded market forces. As per studies by World Steel Dynamics, Indian steel is cost competitive below China and CIS countries, but well above South Korea, Japan, USA, EU in spite of high capital costs. However, when steel transported from steel plant in the country reaches far-away customers in the country and abroad, it becomes costly due to very high internal freight (both rail and road) and excise duty, VAT, entry tax etc. It is reported that China has an operating cost of $384/t of HR coils, marginal cost of $335/t , export price at $295/t FOB port ($315-$320 CFR Mumbai) with ex-works price realization $80/t less than marginal cost. If this is set as a standard, Indian steel would continue to remain uncompetitive.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

As per data available on BSE, FIIs held 21.75 per cent in Maruti Suzuki as of quarter ended June 2015. (Reuters)

The Reserve Bank has allowed foreign investors to invest up to 40 per cent of the paid up capital in Maruti Suzuki under the Portfolio Investment Scheme.

The foreign shareholding by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors (RFPIs) in Maruti Suzuki India Limited have gone below the revised threshold limit, RBI said in a release.

“Hence, the restrictions placed on the purchase of shares of the above company are withdrawn with immediate effect,” RBI said.

RBI said Maruti Suzuki has passed resolutions at its Board of Directors’ level and a special resolution by shareholders, agreeing for enhancing the limit for the purchase of its equity shares and convertible debentures by FIIs/RFPIs.

The purchases could be made through primary market and stock exchanges, it said.

As per data available on BSE, FIIs held 21.75 per cent in Maruti Suzuki as of quarter ended June 2015.

FIIs, NRIs and PIOs (Persons of Indian Origins) can invest in primary and secondary capital markets in India through PIS.

RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis and has fixed the cut-off points two percentage points lower than the actual ceiling.

Maruti Suzuki shares closed at Rs 4,320.15 apiece on BSE flat from previous close on BSE today.

JP Morgan Asset Management Company (AMC) on Monday announced that, they will seek the approval of unit holders of JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund to segregate the illiquid assets from the schemes. According to the market players this is the move in the right direction and will give an option to investors to redeem their ‘liquid assets’.

Both the schemes have an exposure to a Secured Redeemable Non-Convertible Debenture issued by AMTEK Auto Limited, which is currently illiquid in the market owing to credit concerns of the issuer. On August 27, 2015, the credit rating of AMTEK’s previously rated other non-convertible debentures was downgraded from “BWR A+” to “BWR C” by Brickwork Ratings. Immediately thereafter, the reference price of the bond held by the two JPMorgan schemes was reduced to 75% by the valuation agencies CRISIL and ICRA. This change in price was reflected in each scheme’s NAV on August 28 and subsequently the two schemes received an unexpectedly high level of redemption requests.

The fund house on 28th August had capped the redemptions at one percent of the total outstanding units on both the schemes. In the release issued by JP Morgan AMC it stated that, “If effected, this can allow for the gating to be lifted, providing unitholders of the schemes with as much liquidity as possible.”

The press note also stated that, fund house also said that, unitholders are being given a notice of seven clear business days to vote (by post or drop off at various CAMS locations across India) on the proposed segregation of the illiquid asset and the decision will be made by a simple majority.

As a result of proposed segregation, the NAV of the existing units in the schemes would drop by the
value representing the illiquid segregated asset and all unitholders on the Record Date will receive
proportionate units to reflect their interest in the value of the segregated asset. “This mean that there will be two NAV of the schemes, one will be of the liquid assets and other of illiquid assets of Amtek auto. Investors will be free to redeem their units in the liquid portfolio,” said a senior official from the from the mutual fund industry.

Meanwhile J.P. Morgan will continue to take all steps in pursuing satisfaction of AMTEK’s obligation under this bond and/or any other means of receiving cash value for these investments in the best interest of the unitholders and to the extent rights under the bonds and applicable law allow, concluded the press note.