Huge FPI inflows with a stronger rupee a concern: Sebi

Earlier in the day, Sebi chief Ajay Tyagi raised concerns about the high amount of buybacks in the market compared to earlier years. NSEBSECDSLLoading data…

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    ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES A stronger rupee, often endorsed by the central government,is worrying the capital market regulator. The huge inflow of foreign investments into the country is having an impact on the rupee and regulators need to manage it through a calibrated system, said a senior official with Securities and Exchange Board of India (Sebi) on Wednesday.

    “A huge amount of foreign inflows into the country at a time when the currency in the country has been showing a substantial amount of appreciation is something which the regulator is going to be concerned about,“ Sebi whole time member G Mahalingam said in his speech while addressing the capital markets summit organised by industry body Ficci.

    “We need to be very careful as far as allowing the foreign flows into the country are concerned. We can think of maybe different ways of allowing these flows in under a calibrated system,“ he added.

    Foreign portfolio investors have invested Rs 44,150 crore in Indian equities and Rs 1.29 lakh crore in debt so far this year, Sebi data showed. The inflows have partly contributed to the rise in the rupee. The rupee appreciated 6% against the dollar this year.

    Mahalingam, who joined Sebi from the Reserve Bank of India last year, also expressed concerns about rupee-denominated bonds or masala bonds. Masala bonds are debt instruments through which an Indian company can raise funds from overseas investors.

    “When money flows into the country from foreign investments,we are attracting some risks it is not currency risk alone. Masala bonds don’t hold any currency risk as far as the country is concerned. But at the same time the external liabilities of the country go up. This is something which we need to bear in mind,“ Mahalingam said.

    The rupee-denominated bonds accounted for 39% of the total external commercial borrowings of $7.39 billion.

    The approvals for rupee-denominated bonds surged to $2.9 billion during forth quarter FY17 from $0.8 billion in third quarter FY17 and stood at an aggregate $4.6 billion during FY17. Housing finance and asset financing non-banking finance companies have emerged as the leading borrowers of rupee-denominated bonds. Of the total masala bonds of $4.59 billion approved during FY17, 55% was for onward lending in domestic markets, 24% for refinancing of rupee loans and 14% was for general corporate purposes,rating agency ICRA said.

    Mahalingam, who is in charge of the foreign portfolio investors and mutual funds portfolio, said Sebi is in talks with other regulators on allowing foreign portfolio investors to participate in commodity derivatives market. On mutual fund industry , he said the total expense ratio charged by fund houses is far more higher than the comfort level and the regulator is looking at whether it can be reduced. “It is time for mutual funds to shrink margins and attract more retail investors.“

    He also said mutual funds should benchmark their schemes against the Total Retur n Index (TRI).Currently, Indian fund managers benchmark their schemes to simple price index, which considers the price movements of stocks that make up the index. In comparison, a total return index includes dividends and other gains in addition to the stock price movements, boosting the value of the index.

    Separately , Sebi chairman Ajay Tyagi said while fund raising through initial public offerings has been encouraging, buybacks have been 1.5 times the equity capital raised. “We found that capital re turned to shareholders in the form of buybacks was 1.5 times the amount raised through equity capital in 2016-17. Though equity capital raised was pretty impressive. This shows that in 2016-17, more money was returned back to investors than raised from investors,“ Tyagi said at the Ficci event.

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