Indian Rupees against US Dollar at Record low - Reasons and Effects

First of all we have to understand that how the rate of Indian Rupee is determined against US Dollar or any other currency, then only we can understand that why the Indian Rupee is at record low against US Dollar.

Determination of Rate is basically a game of Demand and Supply means how much is the demand (to pay) and supply (to receive) for US dollars against Indian Rupee. During the time of Export to USA, the Indian Bank receive US dollars as payment and the Indian Bank convert the US dollars at the rate prevailing on the date when amount received and credit the amount in the account of Exporter, this creates supply of US dollar as Indian Bank receive US dollar. During the time of Import to USA, the Indian Bank pay US dollars to the exporter in United States at the rate prevailing at the time of payment for imports, this creates demand of US dollar as Indian Bank have to pay US dollars. 

Currently, Indian Exports were up 14.32% year on year in July,2018 at $25.77 billion while imports clocked at $43.79 billion, an increase of 28.8% resulting in trade deficit of $18.02 billion. This is the highest monthly deficit since May 2013 when it stood at $19.1 billion. The sharp rise in India's imports is attributed to the $12.35 billion of Oil Imports, up by 57.4%, followed by higher purchases of electronics and gold. Imports of electronics rose 26.4% on year last month at $5.1 billion while gold imports up by 40.9% at $2.9 billion. Non-Oil and Non-Gold Imports in July valued at $28.47 billion has recorded a positive growth of 18.42%.
Major Commodity segments that showed positive growth in exports are engineering goods which increase 9.1%, petroleum products at 30.1%, gems & jewellery at 24.6%, organic & inorganic chemicals at 19.9% and drug and pharmaceuticals at 2.2%.

One more factor affecting the Rupee against US dollar is the depreciation in the currency of Turkey currency Lira which has depreciated more than 40% against US dollar this year due to Turkey's President's influence on economy, his repeated calls on lowering interest rate against inflation in double digits and worsening ties with United States. 

RBI's foreign exchange reserves stood at $402.70 billion in the week ended on August 3,2018. RBI stated position that it does not seek to target a particular level for rupee's exchange rate and against the US dollar and uses its reserves to ease volatility in the currency market.

Effect of weak Indian rupee against US dollar
1. Fuel prices will rise as mostly the fuel is imported from outside India. 
2. Laptop, smartphones and other electronic goods which are manufactured outside India and get assembled or directly imported into will become costlier.
3. Educational loans for overeas study will become costlier as you have to pay more Indian rupees against same amount of US dollars.
4. Exporters will be benefited as they earn more dollars for goods they sell overseas while Importers will be hit as they have to pay more for foreign goods.
5. Remittances for Non-Resident Indian will be on rise as their relatives in India receive more Indian rupees against same amount of US dollar.


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Highlights of RERA [Real Estate (Regulatory and Development) Act, 2016]

What is RERA (Real Estate Regulatory Act) ?
The Real Estate (Regulatory and Development) Act, 2016 is an Act passed by Indian parliament to protect the interest of home buyers and also boost investment in real estate sector. Under this Act,central and state government notify their own rules under the Act on the basis of rules framed under the Central Act. This Act came into force on May 1,2016.

Why RERA ?
In the past, home buyers have complained that real estate transactions are loopsided and in favour of real estate developers. RERA aim to create a more equitable and fair transaction between the seller and the buyer of property. The RERA will give the real estate market its first regulator. The Real Estate Act makes it mandatory for each state and union territory, to form its own regulator and frame the rule that govern the functioning of regulator. 

How RERA will protect the home buyers ?
1. Enforcing timely delivery of projects 
In case of project delays, buyers have the right to -
a) Seek withdrawal of booking (the developer is liable to refund the entire amount along with interest).
b) Go ahead with project (with the condition that developer will pay interest for every month of delay until the property is ready for possession). The maximum time for refunding the buyer's investment is within 45 days of it becoming due.

2. Facility to check RERA registration number
All builders have to mandatorily register their projects under RERA with respective state regulatory authority and obtain a registration number for every project. Without RERA registration, developers are not allowed to sell their project. The project details, construction progress, commencement/occupation and other certificates, sales details, etc must be updated on single-point window i.e RERA portal, at regular intervals.

3. Financial safety via an escrow account
Home buyers investment can be considered safe, as RERA obliges developers to deposit at least 70% of the buyers money received for a particular project into an escrow account. This prevents the developer from rolling these funds into other projects. The rolling of funds was a major reason for project delays in the past.

4. Ability to verify the builder's track record
Buyers can now opt for properties from reputed developers who are complying with RERA norms and have a good track record and financial stability which can be verified by buyers.

5. Transparency in advertisement and marketing collaterals
Developers can now promote a project only after registering it with RERA. The unique RERA registration number has to be published with every advertisement/brochure or in any kind of project promotion at all.

6. Clarity on Carpet Area
The hitherto conventional practice of developers charging home buyers on the basis of the super built-up area no longer works. Under RERA, the quoted price has to be mandatorily based on the carpet area of the property.

7. Strict Norms on building changes
Around 2/3rd of the buyers consent in a particular project is necessary in case the developer intends to modify the building or layout plans/ specifications/ liabilities in the project.

8. Booking Amount cannot exceed 10%
Developers can only take 10% of the total property cost as a booking amount while the sale agreement is drafted at later stages. RERA prohibits developers to accept more than this. If guilty of charging more than 10%, the developer potentially invites penalty of imprisonment of upto 3 years.

9. Brokers must be registered under RERA, too
As service providers to real estate consumers, property brokers are also liable for all deliverables committed by the developers they represent. Hence, they must register themselves with their respective state Regulatory Authorities.

10. At long last, a reliable redressal mechanism
RERA provides a strong redressal mechanism to consumers by imposing a penalty on brokers/developers for any breach of obligation. Home buyers can file complaints against developers/brokers which will mandatorily be resolved in a span of 60 days from the date of the complaint.

11. Structural defects must be addressed
In case of issues within the building or apartment, such as inefficient plumbing, visible cracks, etc. In the initial five years after possession, developers are liable to rectify the defect in less than 30 days or else give compensation to the buyer.

12. Availability of land title documents
These vitally important documents were, more often than not, inaccessible to buyers before RERA. Now, they can scrutinize documents related to a project's land title ownership on the RERA website.

13. Goodbye to soft/ pre-launches
RERA has put a complete halt to soft launches, pre-launches and any other interpretations of selling something which doesn't exit as yet. 

Overall, RERA is a boon to the home buyers. While the progress of RERA implementation across states, barring a few, is going at a pace slower than predicted, it is definitely regaining the trust of home buyers by consolidating the sector and plucking out unscrupulous real estate players.

Source - The Hindustan Times               

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What is Private Equity and PE Funds?

1. Private Equity is capital not listed on a public exchange. Private Equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies. Institutional and retail investors provide the capital for private equity and the capital can be utilized to fund new technology, make new acquisitions, expand working capital.

2. Private Equity Funds invest in mature businesses, they are not early stage investors and do not invest in the stock markets either. The major foreign PE funds investing in India are registered as foreign portfolio investors.Indian PE funds are registered as category II Alternative Investment Funds. They do not invest directly in the market but can invest in a company before an IPO.

3. How Private Equity Investments Create Value?

Private Equity firms perform two critical functions:

a) deal origination/ transaction execution

b) portfolio oversight

Deal origination involves creating, maintaining and developing relationships merger and acquisitions (M&A) intermediaries, investment banks and similar transaction professionals to secure both high-quantity and high-quality deal flow. Deal flow refers to prospective acquisition candidates referred to private equity professionals for investment review. Some firm hire internal staff to proactively identify and reach out to company owners to generate transaction leads. In a competitive M&A landscape, sourcing proprietary deals can hep ensure that the funds raised are successfully deployed and invested.

4. In 2017, funds operating in India set new records, with investments in excess of $26 billion and exits from investments at $16 billion. The first half of 2018 saw a slight slowing of investment run rate but the exits topped all records, with the aid of Flipkart - Walmart deal, to touch $26 billion. Even without Flipkart, 2018 has seen $11 billion worth of PE exits already.

5. By one estimate, more than 100 funds, old and new, are trying to raise an estimated $15 billion India- centric PE funds right now. Many are inspired by China model and how the country has bunch of independent home grown PE funds and home grown investors.

6. Terms used in private equity:-

a) Limited Partner - Investor who puts money in a fund

b) General Partner - The entity that sets up a fund and manages it

c) Operating Partner - The one who manage the assets

d) Carry or Carried Interest - Share of profit on an investment paid to the manager, in excess of his contribution to the fund

e) Dry Powder - Amount not invested in a fund and still available for investing

f) Deal - Investing fund's money into a company's shares or other instruments

g) Exit - When a fund sells its investment in a company, usually after holding it for 5-7 years or more

h) Hurdle Rate - The return that funds should generate for limited partners so that general partners or fund managers can take home their incentive in the form of the carried interest. The hurdle rate is often set between 8% and 13%

7. Major Private Equity Players in India

a) Foreign - TPG, KKR, Blackstone, Carlyle, Apollo, Warburg Pincus, Bain

b) Indian Startups - Multiples, Everstone, Kedaara, True North

c) Sponsored PEs - Aditya Birla PE, Tata Capital PE, Motilal Oswal PE, Kotak PE, Mahindra Partners

8. Top 5 Exits of 2018

a) Target - Flipkart, Exits - GIC, Kalaari Capital, Tiger Global, IDG Ventures India, Accel India, Premji Invest, SoftBank Corp, Sofina, Naspers, others, Value - $16,000 mn Route - Strategic Sale

b) Target - Intelenet Global Services, Exits - Blackstone, Value - $1000 mn, Route - Strategic Sale

c) Target - Global Logic, Exits - Apax Partners, Value - $960 mn, Route - Secondary Sale

d) Target - Indus Towers, Exits - Providence, Value - $451 mn, Route - Strategic Sale

e) Target - Flipkart, Exits - Tiger Global, IDG Ventures, Accel India, Iconiq Capital, DST Global, Value - $350 mn, Route - Buy Back

9. Top 5 Investments of 2018

a) Company - Global Logic, Funds - GIC Pvt Ltd, Azim Premji Foundation, PI Opportunities, KKR, Carmignac, Gestion SA, OMERS Administration, Value - $1743 mn 

b) Company - Paytm E-Commerce, Funds - Alibaba Group Holding Ltd, SoftBank Vision Fund LP, Value - $350 mn

c) Company - Helathium Medtech, Funds - Apax Partners India Advisers Pvt Ltd, Value - $350 mn

d) Company - Future Retail, Fund - Premji Invest, Value - $254 mn

e) Company - RattanIndia Finance, Funds - Lone Star Global Acquisitions Ltd, Value - $199 mn 

10. There is now growing awareness among Indian business families about new ways of investing their money. While the larger ones like Aditya Birla or Piramal end up starting up their own PE initiatives, there are other who manages their funds through family offices and these have started putting their faith in private equity funds. Last year, India registered PE funds, which are category II Alternative Investment Funds, were allowed to make pre-IPO investments in companies.

Source :- Investopedia, The Economic Times

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E-Commerce Draft Policy - India

Data Localisation Measures

1. Various social media and e-commerce companies that have their head office outside India like Google, Facebook, Amazon that generate user data through ecommerce platforms, social media and search engines have to store data exclusively in India.

2. Government of India to have access to data stored in India for national security and public policy subject to privacy and consent rules.

3. Government of India to incentivise domestic data storage in India, provide data infrastructure, make domestic data storage more economically attractive.

India First Measures

1. Limited Inventory based B2C model for online sale of locally produced goods to be allowed, as long as-
 a) "Made in India" products are sold on the platform.
 b) The founder or promoter is resident Indian.
 c) The company is controlled by Indian management and foreign equity does not exceed 49%.   

2. Government of India to promote businesses in India through preferential treatment for digital products created within India and custom duties on electronic transmissions.

3. Government of India to help e-commerce companies to raise funds locally and incentivise investments by large Indian companies in startups.

4. Government of India to empower the Indian e-commerce entrepreneur by allowing founders to have control over their e-commerce business despite having small shareholding.  

Measures to Support Micro, Small and Medium Enterprises (MSME's)

1. Establishing an e-commerce retail platform in public-private partnership (PPP) mode exclusively for MSME vendors and suppliers.

2. Implementing pilot initiatives for online sale of products from small industry clusters such as Moradabad, Ludhiana, Aurangabad and Meerut.

3. Reexamining the TCS provisions in GST which impose additional burden on SME's.

Measures on Press Note 3

1. Government to create a separate wing in the Directorate of Enforcement to handle grievances related to implementation of Press Note 3.

2. The e-commerce companies not able to benefit the group companies of the e-commerce marketplace. This is likely to have impact on companies such as Amazon since it holds a stake in some of its seller entities.

3. Deep discounts given by e-commerce companies are to be wiped out as Government of India proposes to introduce a sunset clause for differential pricing strategies.

How will payments be monitored ?

1. A centralised agency for KYC data to be setup to reduce the KYC cost for individual operators and burden on the consumer.

2. A social credit database to be setup through PPP to facilitate digital lending.

How will the Sector be Regulated ?

1. A single legislation will address all aspects of e-commerce industry.

2. A single regulator would be setup to consider Foreign Direct Investment (FDI) issues and consumer protection among other issues.

3. Competition Commission of India (CCI) will examine the entry barriers and anti-competitive practices.

4. There will be more scrutiny of merger and acquisitions that may disrupt the competition.

Source : The Economic Times


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Vodafone Idea Merger Analysis

1. British telecom Vodafone and Aditya Birla Group company Idea Cellular announced the merger of their operations, creating the largest mobile operator by customer (38.6 percent) and revenue (40.1 percent). The joint entity will have about 430 million subscribers. The debt of merged entity will be Rs 1,25,000 crore. The Revenue of merged entity will be Rs 63,000 crore. The Average Revenue per user (ARPU) of merged entity is between Rs 100 to Rs 102 (These figures are as on 30th June 2018) .

2. The merged entity "Vodafone Idea Limited" will be headed by Kumar Mangalam Birla as chairman and Vodafone will have its nominee as the Chief Financial Officer (CFO), its Vittorio Colao. 

3. The all share merger for both partners excludes Vodafone's 42 percent stake in Indus Towers Limited and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone deconsolidating Vodafone India.

4. Vodafone will own 45.9 percent in the new company after transferring 4.9 percent to Aditya Birla Group for Rs 3,874 crore in cash. Idea will hold 26 percent of the new company while the rest will be hold by public shareholders. Idea and Vodafone said the merged entity will be jointly controlled by Vodafone and the Aditya Birla Group as per shareholder's agreement.

5. With 222 million customers, Vodafone enjoys market share of 26.40 percent. Idea has 25.04 percent with 211 million customers in wireless subscriber base as on March 2018 according to TRAI data.

6. Aggressive entry of Reliance Jio has launched a big price war. With its free services, Jio has upset the big players. The Vodafone  Idea will only add fuel to the fire. Since the merged entity will have more resources, the telecom price war is going to be messier.

7. Though the consolidated entities would fight for price war for a year or two, prices are going to be increased in long term. With fewer players in the telecom industry, there is higher chances of consensus on prices.

8. Overall consolidation in the debt ridden telecom industry will lead to better financial health and sustainability of companies. Since the consolidation will leave only 3 players in telecom industry, there will be less competition and bigger revenues.   

9. The transaction is subject to necessary approval from SEBI, Department of Telecom, RBI etc. "Upon amalgamation becoming effective, the entire business of Vodafone India Limited and Vodafone Mobile Services Limited, excluding Vodafone India Limited's investment in Indus Towers Limited, its international network assets and information technology platforms, will vest in the company.  

10. Vodafone India has 17 circles with 4G capability, covering 90 percent of the company's total revenues and 94 percent of mobile data revenues. Also it has the largest voice and data traffic usage within the Vodafone Group. Idea is trying to attract premium 4G customers, having launched services in seven circles so far. Idea's wireless broadband network is spread across 17 circles with a population of over 880 million, with 50 percent of this population already covered. 

11. The two companies agreed to merge their companies with a swap ratio of 1:1. This means every Idea share you hold will be exchanged with a new share in the merged entity. However, independent valuation of the two businesses suggests Vodafone's business is worth more. The assessment suggests that Vodafone's India business is worth Rs 82,800 crore, while Idea's business is valued at Rs 72,200 crore. 

12. Vodafone India (Rs 3926.34 crore in cash) and Idea Cellular (Rs 3322.44 crore by way of Bank Guarantee) have paid the Department of Telecommunications (DOT) Rs 7,268 crore that was sought as a key condition for approving their merger, thereby clearing the final obstacle in the largest merger in the sector which will create India's biggest telecom operator.

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