SEBI gives ultimatum to MFs to merge similar schemes

It might have happened to you when you wanted to invest in mutual funds but got all confused due to numerous schemes in the capital market offered by existing as well as ever growing mutual fund companies. In order to simplify multiple mutual fund products available in the market, SEBI has given clear message that no new schemes to be launched until fund houses merge their existing schemes with similar characteristics. The Indian mutual fund industry currently manages about 715 schemes out of which half are equity based whereas other half provide fixed income. Earlier one scheme’s merger into another was considered as sale resulting in capital gains in the hands of investors. But 2015-16 budget said, merger of schemes will no longer be considered as fresh investment, a move that had the effect of removing the tax obligation on the investor.

Comments:

The step taken by regulator has many advantages some of which are as under:

1.   Less number of schemes will enhance investor’s interest and awareness eventually encouraging higher capital investment.

2.   Tracking of return would be lot easier as comparison among different mutual funds becomes tedious task in the present scenario.

3.   Manageable portfolio of assets, i.e. MFs would be able to focus more on core assets and shredding non-core assets, hence increasing returns.

4.   Lesser promotion and advertisement costs.

         5. Lesser schemes = Increased accountability, disclosure

Sunnyvale based Bidgley raises $1.16mn, leading investor Constellation Tech Ventures

What is Bidgley?

Bidgley derived its name from the hindi meaning of the word i.e. बिजली which means electricity. It is a company founded by Mr. Abhay Gupta and Mr. Vivek Garud based in Sunnyvale, California. The company provides domestic as well as industrial level analytics of data about consumption of power by various devices. For example, if my monthly consumption in terms of units of electricity is say 500 units then the Bidgley provides solutions that can monitor the exact number of units consumed by which unit i.e. Air Conditioner used 250 units, water pump consumed 100 units, etc. Most importantly it provides the data in terms of currency i.e. units consumed multiplied rate of electricity per unit. The products and solutions offered by the company also includes monitoring solutions i.e. you will receive notifications via app installed on your smartphones if the usage has exceeded particular limit fixed by you, very similar to data pack monitoring done by our smartphones. The devices are cloud based, which means it helps you compare your usage with others who have signed off for cloud services in a particular area as it offers you Wi-Fi connectivity.

Fund raising

The company has recently raised around $1.16mn in which the lead investor is Constellation Technology Ventures which is VC arm of Exelon Corporation which itself is largest competitive U.S. power generators manufacturer.

SEBI to introduce e-IPOs

SEBI has proposed to reduce post public issue processing time and cost by introducing the concept of e-IPOs which will facilitate investors submit their Initial Public offer (IPO) application form online through the stock exchange platform without requiring to sign any document physically. Stock brokers will have to use the National Automated Clearing System (NACS) implemented by the National Payments Corporation of India (NCPI), as there will be high volume of banking transactions that too repetitive in nature.

CARO 2003 vs CARO 2015

Central government by exercising the powers conferred by sub-section 11 of section 143 of Companies Act 2013 published in the gazette, the Companies (Auditor’s Report) Order, 2015. There have been some major changes in the order and only new and relevant things are highlighted here. Highlights of a comparison between new and Companies (Auditor’s Report) Order, 2003 and Companies (Auditor’s Report) Order, 2015 are as under:
1.   CARO 2015 as CARO 2003 shall not be applicable on Insurance, Banking and companies having charitable activities. It will also not be applicable on One Person Company and Small Company, both the concepts were introduced in the Companies Act 2013.
However there have been some changes in the criteria for applicability of the order on private limited companies, i.e. the maximum amount of loans from any banking or financial institution that can remain outstanding for non-application of CARO has been increased from Rs 10 lakhs to Rs 25 lakhs.Also the words ‘public deposits’ have been removed for the CARO to be applicable on private companies. This is a logical amendment as private companies cannot raise deposits from public as per the provisions of Companies Act 1956 as well as Companies Act 2013.2.   There was requirement in erstwhile order to report whether any substantial part of fixed assets have been disposed off during the year and if it has affected the going concern assumption or not. However such requirement has been dispensed with in the new order.
3.   Auditors had to report whether companies have either granted or taken loans, secured or unsecured from companies whose names have been entered into register maintained u/s 301 of the erstwhile act. In the new order auditor has to report only on the loans granted by the company during the period under audit. Also the requirement to comment upon whether the rate of interest and other terms and conditions of loans are prejudicial to the interests of the company has been dispensed with.
4.   There was requirement to comment whether a separate register has been maintained regarding the transactions entered into with parties whose names have been entered into u/s 301 and such transactions are reasonable in regard to prevailing market prices. Such requirement has been dispensed with in the new order.

Would legislation forcing to appoint women directors on board serve the purpose?

As per the provisions of Section 149 of Companies Act 2013 and compliance with Clause 49 of listing agreement it has been mandatory to appoint at least one woman director on board latest by 31^st March 2015. There has been research by BNY Mellon, the wealth and asset management firm, that economic power and corporate governance policy of an organization are the key factors which give shape to gender diversity on the board of an organization. Research has been made after studying data collected from a sample of 1002 companies from the Forbes Global 2000 list of 2013 which included businesses from 41 countries on 6 continents. It has been found that majority of corporations believe that placing of a women director on board by way of legislation will not serve the purpose of socially as well as economically empowering women. Placing of woman directors on board by the fear of complying legislation will not even lead to compromise of board’s formation but will also create hurdles for the women who are deserving candidates for the position. Countries which have highest levels of female economic power are Australia followed by Norway and Denmark whereas United States ranks 6^th and Britain ranks 9^th.

Spectrum allocation to Telecommunication companies to hamper their growth in the near future

Aggressive bidding in the telecommunication spectrum allocation hampered Telecommunication growth. TRAI estimates that to cover the losses and liquidity crises companies may have to increase their call rates by 6 to 7 paise per minute which is in contradiction to the figure provided by government that is 1.3 paise per minute. The prices of spectrum were higher than the price recommended by TRAI by an average of 20%. The difference in the calculations are arising as government has not considered cost of capital employed by such companies.

Government created a scenario which forced the companies to bid aggressively which resulted in:

1.      Fall in the operating margins for the ensuing fiscals.

2.      Non up gradation of infrastructure resulting in poor services to consumers as a consequence of liquidity crunch.

3.      Debt portfolio of Telecom companies to increase to over Rs 350,000 crores after auction.

4.      Telecom companies to introduce differential pricing for the use of internet, thus defeating the notion of freedom of media and speech by disrupting the concept of Internet Neutrality in the country.      

MAT to be applicable on FIIs and FPIs

The Income Tax department has issued demand notices of MAT to around 100 FIIs and more than 50 FPIs. Department has been reopening cases as it believes that income has escaped the assessment in the previous years based on decision given by Authority of Advance Ruling a quasi-judicial body, in the favour of government stating that MAT shall be applicable to FIIs and FPIs. FPIs are currently paying 15% tax on capital gains for less than 12 months and no tax on long term capital gains as the same are STT paid. Investors are treating issuance of such notices as retrospective action on the part of government however the government has exempted applicability of MAT from the FY 16-17. IT department believes that FPIs are required to maintain accounts under the Act and hence liable to pay tax on book profits. Finance Minister Mr. Arun Jaitely comments on the recent development that there has been no retrospective applicability of MAT and every demand of tax is not tax terrorism and opposite of tax terrorism doesn’t mean tax haven. Finance Minister also feels that FIIs and FPIs cannot escape their moral duty to pay tax on the grounds of tax terrorism.

Earn salary and enjoy privileges of an owner

The service industry has seen a tremendous rise in the trend where the entrepreneurs joining an organization are also involved in purchasing some stake of the organization upfront. The benefit of taking part in the equity shareholding is that a person who is working for the organization earns his emoluments for the services offered by him and also enjoy the benefit of wealth creation as and when the share of the company scales up in the market. The major benefit of the practice is that the employee who has been working to earn his pay-scale will now have degree of independence in taking the decisions. An example of Centrum Wealth Management will make the things crystal. The employees who are also shareholders in the Centrum Wealth Management sometimes save money by travelling by auto-rickshaw instead of cabs in order to save some money to the organization. Many working as such believe that there is no hesitation in saying that their wealth has been created due to the stock options held by them in the organization. Karan Bhagat who is MD and CEO of IIFL Wealth Management is also holding equity shares in the company which have a current value of around Rs 90 crores. Such a tremendous increase in the wealth creation has encouraged many to take this road. There are types of options available to an employee of the organization brief of which are as follows:

a.          MSOP (Management Stock Options Plans): Management Stock Options Plans help key management personnel, mostly CEOs, get an upfront stake in the company.

b.        SOP (Stock Option Plans): Most CEOs also have a normal sweat equity plan alongside where more options to buy shares are vested with them on a certain date that can be exercised later.  

c.                  SAR (Stock Appreciation Rights): Every year, some equity shares are allotted but only to the extent of appreciation of value between grant and exercise date.

d.       Warrants: Some firms used warrants convertible in future to vest shares with employees at the time of joining.

e.                 Full Value Shadow Equity: An employee is assumed to hold the equity shares and at some agreed point an employer virtually buys back the equity paying the current listed price of price determined by valuation under an agreed scheme.

f.                 Phantom Equity: Actual equity shares granted but an employee is assumed to hold an agreed amount of shares and is paid a bonus equivalent to the increase in the share price of valuation.

Coal blocks allocation starts with a bang

Government of India is happy to see aggressive mood of the industrialists in the bidding and is expecting to cover the loss of Rs 1.86 lakh crores as estimated by CAG. For instance Reliance Cement’s bid of Rs 1,402 per tonne which has been more than the base price by nine times. Also in the case of Talabira – I block GMR energy bid for Rs 402 per tonne which is four times the base price of Rs 100 per tonne. Such an enthusiasm in the bidding process has encouraged the government and has given hope that the amount of revenue to be generated from such bidding to be more than the loss estimated by CAG. 

Export demand declines but the trade deficit reduces

There has been significant decline in the exports due to slump global market demand. The industry has witnessed decline of around 11% YoY in the exports. The poor economic conditions in European Union and Japan has resulted majorly in the decline of exports. Despite of lower exports in the current fiscal year the trade deficit has reduced to 11-month low of 8.3% due to lower crude prices. The contraction in the demand for non-oil merchandise is a bad indicator. There has been rise in the gold, non-oil merchandise and non-gold imports and reduction in the exports of non-oil merchandise will result in the reduction of trade surplus in the service sector which rose from $ 6.3 billion to $7.6 billion in a year. Government of India needs to introduce radical changes in the Union Budget and foreign trade policy to support the export sector as the Indian exports have been hovering around a figure of $ 300 billion since 2011-12.

E-Commerce industries’ roping in candidates in campus placements increased

Recently there has been growth in the trend of campus placements with most of the recruitments being made by huge e-commerce establishments such as Flipkart, Amazon, Snapdeal, Ola Cabs, Myntra, etc. from leading B-Schools such as IIM Lucknow, Shillong, J&K, Jamanlal Institute of Management, SP Jain Institute of Management, Xavier School of Management, etc. Offers from e-commerce companies has gone up by more than 120% as compared to last year. The e-commerce companies’ jobs mainly constitutes of operations management, merchant acquisitions and product management. Many HR experts have compared the boom in the e-commerce job industry to that of IT industries i.e. increase in operations would result in larger recruitments. E-commerce industries’ jobs are not only attracting fresher’s group but also experienced managers. For instance online clothing website Myntra itself appointed more than 10 lakh persons who have been earlier working at firms like McKinsey, BCG, ATKearney, etc. The exposure that these e-commerce establishments are providing and the pay scale in double digit has been successful in attracting many young as well as experienced MBAs in the industry.

Companies issuing Bonus debentures instead of bonus shares

NTPC has recently preferred issuing bonus debentures to its shareholders instead of bonus shares due to number of reasons. There are many benefits of issuing bonus debentures some of which are:

a.             Interest on bonds issued by company are tax-deductible and hence resulting in lower taxes.

b.            Issue of debentures does not increase the base of equity capital and hence there is no dilution of equity shares.

c.             The bonus debentures issued to shareholders is deemed dividend u/s 2(22) and hence companies are liable to pay dividend distribution tax on the same and hence no burden of tax on the shareholder.

A very few companies have earlier issued bonus debentures some of which are Blue Dart, Coromandel International, Dr. Reddy’s etc.  

'Make-in-India’ vision looks good but not feels good to PC makers

Modi’s government vision of ‘Make-in-India’ and his furious promotions of Vibrant Gujarat and other states in the row, the PC makers of the country are still not satisfied with the government. The reasons why PC makers such as Dell, Acer, etc. are avoiding manufacturing in India and preferring to import the components:

a.      High rate of Tax: The rate of duty on manufacture is 16% along with the VAT varying from 4 to 12 percent depending upon the state as compared to mere 17.42% duty levied on imports.

b.      High Rate of Interest: Rate of interest on finance if obtained from within the country is around 15% whereas the same in global financial markets is not more than 2 to 4 percent.

c.      Costlier Power: Electricity is much costlier in the country as compared to other countries. Irregular supply of electricity causes further troubles to the manufacturers.

All these factors along with some other hurdles has made manufacturing less preferable. The maximum units established in the country are used most of the times only for assembly of the PCs and the capacity is underutilized. India imported an estimated $38 billion worth of electronics last year while only about $19 billion worth of goods were manufactured here.

After e-commerce and m-commerce, now it’s time for neighbourhood commerce

Companies who are already providing on demand delivery of goods to doorstep as well as new companies are eager to start delivery of groceries, flowers, meals, etc. Bengaluru’s Delyver and Gurgaon’s Grofers deliver groceries and meals. These companies have tied up with hypermarkets, meat shops, flower shops and restaurants for delivery to doorstep. The growing trend of home sitting shopping has encouraged the growth of such ‘neighbourhood commerce’.

Grofers: Delivers grocery, fruits & vegetables, bakery, meat, flowers. Operates in NCR, Bengaluru, Mumbai. Approximately 1500 deliveries per day.

Delyver: Delivers meals from restaurants, grocery. Operates in Bengaluru. Approximately 1000 deliveries per day.

Scootsie (Meals on wheels): Delivering meals from restaurants. Operates in Mumbai. Approximately 200 deliveries per day.

Amazon India aims at linking offline stores through Junglee

Amazon India aims at linking offline stores by allowing such offline stores to publish their listings on the Junglee website so that the buyer can select the seller and make arrangements for either delivery or pickup from the stores of offline sellers. The initiative is in sync with strategy to get small offline businesses into the digital economy.

E-tailers trying innovative ideas to woo customers

Flipkart is trying to increase its customer base to 3,4 & 5 tier cities by establishing pickup locations. The concept is such that the concerned customer will be sent a text message regarding details of the orders and the pickup location for the same. The step is to be taken as a very big portion of demand is from such cities due to non-availability of infrastructure and logistical facilities create hurdles for the e-tailers. Flipkart aims at establishing 270 such pick-up or collection centers by the end of March 2017.

Time span for closure of cases to be reduced to not more than 5 years

• The apex level judiciary committee headed by Chief Justice HL Dattu has recommended that any litigation must end within a period of 3 to 5 years. Also the judiciary is planning to become part of much evolved information technology by incorporating practices like sending summons and notices by email and updating about progress of cases via text messages.
• With an intention to reduce the overburdened courts, the committee has suggested formation of dispute redressal systems as the normal time per litigation on an average sometimes goes beyond a term of 10 years causing residents as well as non-residents serious amount of trouble.
• The time limits for disposal of a case may depend on the type of case, i.e. the time limit will depend on the facts and circumstances of each case.

Use of modern means of communication such as emails and text messages have become part of various State level government departments as well as country level departments. Use of such means will enhance the connectivity among courts and will result in effective and efficient delivery of justice.