2019

Volume 8

THIS MONTH

Season’s greetings!

In this issue, Mr. Vijay Chandok, MD & CEO, ICICI Securities, has presented his thoughts on ‘Indian

Economy: What happened? What next?’. We thank Mr. Vijay Chandok for his contribution to the

APAS Monthly.

This month, the APAS column presents its views on ‘Securities markets scenario in India.’

The economic indicators showed mixed performance. Manufacturing PMI rose to 52.5 in July from

52.1 in June. India’s annual infrastructure output in July grew at 2.1%. India's Index of Industrial

Production (IIP) slipped to a 4-month low of 2% in June. PMI services rose to a 1-year high of 53.8

in July from 49.6 in June, while composite PMI rose to an 8-month high of 53.9 in July from 50.8 in

June. CPI inflation fell to 3.15% in July from 3.18% in June. WPI inflation slipped to a 25-month low

of 1.08% in July from 2.02% in June.

The Gross Domestic Product (GDP) growth rate for the first quarter (January-March) of fiscal year

2019-20 slowed to a 6-year low of 5%.

The Reserve Bank of India (RBI) Central Board accepted Bimal Jalan Committee recommendations

and approved surplus transfer to the Government. The operating hours in Real Time Gross Settlement

(RTGS) System were increased. RBI introduced norms for Processing of e-mandate on cards for

recurring transactions. RBI allowed on-lending to NBFCs (other than MFIs) by the Banks to be

APAS

MONTHLY

considered under priority sector lending. Union Minister of Finance & Corporate Affairs Smt. Nirmala

Sitharaman made a Presentation on amalgamation of National Banks.

Insurance Regulatory and Development Authority of India (IRDAI) introduced regulations on

regulatory sandbox, called as Insurance Regulatory and Development Authority of India (Regulatory

Sandbox) Regulations, 2019. IRDAI also introduced Insurance Services by Common Public Service

Centers Regulations, 2019.

Presentation was made by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman on

measures to boost Indian Economy. The Cabinet introduced Motor Vehicles (Amendment) Act, 2019.

Cabinet approved proposal for Review of FDI policy on various sectors. Government withdrew

enhanced surcharge on tax payable on transfer of certain assets.

Securities Exchange Board of India (SEBI) had a Board meeting in August 2019.

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts and encourage

you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Mr. Vijay Chandok MD & CEO ICICI Securities Indian Economy: What happened? What next??

ECONOMY

➢ Index of Industrial Production – June

➢ Inflation update – July

➢ PMI update – July

➢ Core Sector – July

➢ GDP Q1 – FY 19-20 ➢

APAS COLUMN

Securities markets scenario in India

INSURANCE ➢ Insurance Regulatory and Development Authority of

India (Regulatory Sandbox) Regulations, 2019

➢ Insurance Services by Common Public Service Centers

Regulations, 2019

INFRASTRUCTURE & OTHER

GOVT. INITIATIVES

➢ Presentation made by Union Finance & Corporate

Affairs Minister Smt. Nirmala Sitharaman on

measures to boost Indian Economy

➢ Motor Vehicles (Amendment) Act, 2019

➢ Cabinet approves proposal for Review of FDI policy

on various sectors

➢ Government withdraws enhanced surcharge on tax

payable on transfer of certain assets

BANKING

➢ RBI Central Board accepts Bimal Jalan Committee

recommendations and approves surplus transfer to the

Government

➢ Union Minister of Finance & Corporate Affairs Smt.

Nirmala Sitharaman's Presentation on amalgamation of

National Banks

➢ Real Time Gross Settlement (RTGS) System – Increase in

operating hours

➢ Processing of e-mandate on cards for recurring

transactions

➢ Priority Sector Lending – Lending by banks to NBFCs for

On-Lending

CAPITAL MARKETS SNAPSHOT

➢ CNX Nifty, BSE Sensex, India VIX, $/₹, GIND 10Y

CAPITAL MARKETS

➢ SEBI Board Meeting

ECONOMIC DATA SNAPSHOT

➢ Global GDP, CPI, Current account balance, budget

balance, Interest rates

As recent as six quarters ago during Jan’18, the outlook for the Indian economy was robust with fiscal 2019

GDP growth projections at 7.6%, Indian equities were the best performing asset class providing 29% returns

in the preceding one year. India was clearly estimated to be the fastest growing economy with a stable

government, strong policy making environment and adherence to the Fiscal Responsible Budget Management

(FRBM) mandated fiscal consolidation road map.

While India seemed to be sitting pretty, the US Fed, in the early part of calendar 2018 decided to hike interest

rates and signalled continued rate hikes through the year on fears of rising inflation.

This decision taken by the Fed resulted in a significant decline in on-boarding global risk including decline in

appetite for India. Global environment was further roiled by trade wars and geo-political tensions. FPI

outflows from India touched USD 4.6 bn which was the highest outflow since 2008.

As calendar 2018 ended, the global growth outlook saw significant downgrades due to reasons cited above.

India was not only impacted by these downgrades but was by then domestically facing a crisis in the NBFC

sector. India’s GDP growth was consequently estimated to be downgraded to 7% for fiscal 2019.

Growth concerns in the US resulted in the US Fed turning dovish on rates and liquidity in Feb’19, resulting in

some return of optimism in the markets. This optimism however had minimal impact on India since by then

crude oil prices rose above USD 75 per barrel and threatened to destabilise our current account and fiscal

picture, besides impacting the overall demand.

Banking system liquidity continued to be in deficit despite record OMOs by the Reserve Bank of India as

Government spending dropped due to elections in April/ May 2019 and currency in circulation continued to

grow at a fast clip. Liquidity deficit and risks of fiscal slippage resulted in 10-year bond yield continuing to

remain well above 7% even after the initial rate cuts by the RBI. Election-related uncertainty, in the minds of

investors and consumers, also had an impact on the aggregate demand. Monsoon forecasts were building in

reasonable probability of a shortfall in monsoon precipitation. Environment for autos, NBFCs, MSMEs and

private investment cycle continued to remain weak and challenging. Due to the inward-looking policies of

Indian Economy:

What happened? What

next? Mr. Vijay Chandok MD & CEO ICICI Securities

global economies and trade wars the prospects for exports were also looking bleak. The Indian economy by

now was clearly on shaky grounds.

A subsequent retraction of the oil prices and a strong mandate for the NDA brought cheer to capital markets

as expectations of strong policy measures and fiscal stimulus for reviving the economy gained momentum.

However, the union budget for 2020 focused on fiscal consolidation and a medium-term vision for economic

development instead of an immediate fiscal stimulus. This impacted sentiment in a big way and the market

cheer was short lived.

Emerging markets were further impacted by the US Federal Reserve’s backtracking and turning less dovish on

interest rates and escalating trade war between US and China. This resulted in a sharp correction in EM

equities and currencies from mid-July onwards. Consensus narrative on growth outlook turned pessimistic in

a dramatic fashion since then and the negative feedback loop from sharp correction in stock prices had a role

to play.

Factors that continue to linger now in India are slow down in private investment cycle, rural demand, NBFC

and auto sector growth. These have manifested themselves in weak Q1 GDP numbers representing a 6-year

low.

However, some of the challenges listed above are clearly turning out to be transient in nature and have started

reversing. Banking system liquidity has bounced back to surplus in Q2FY20, most likely driven by the expansion

in government spending and reversal in growth of ‘currency in circulation’. Also, the INR 1.76 trillion transfer

by RBI to the government will result in a boost to government spend and banking liquidity. Interest rate on

fresh rupee loans has fallen by 29 bps since Feb’19. Manufacturing and Services PMI during Q2FY20 indicates

robust growth in consumer durable goods and financial services. Merchandise exports data for July is at +

2.3% YoY on a high base and challenging global environment. Monsoon coverage till August has removed all

fears of any shortfall in monsoon precipitation while oil prices continue to be favorable. Strong exports growth

shown by electronic goods (48% YoY) and pharmaceutical drugs (19% YoY) in Q2FY20 is encouraging although

labour intensive sectors like gems & jewellery (-9%) continue to see a decline in growth. Demand for lifestyle

products such as apparels, footwear, jewellery, decorative paints etc. has been reasonable given the

challenging environment while organised retail sector witnessed robust double-digit growth. Residential real

estate absorption remained robust for organised players although on an overall basis real estate inventory

remains high.

Inflation continues to be benign and within the comfort zone of the RBI and opens up space for more interest

rate cuts. NPA cycle is largely behind us and corporate India is de-risking its balance sheet by shedding assets

and raising equity. Sharp correction has made stock market valuation relatively reasonable. India’s Parliament

had one of its most productive sessions in terms of utilisation of hours, with the Lok Sabha sitting for more

than 137% of its scheduled time, working on legislative and other businesses.

For the recovery to gain momentum going ahead, key factors to watch out will be the focus of the government

in terms of incremental steps for boosting sentiment and rekindling animal spirits in the economy by policy

actions and quality of spending.

While there may be no single magic bullet to fire up the Indian economy, through its recent commentary and

actions, it seems that the Government is committed to put India back on a road to recovery. This recovery, to

my mind, though gradual and not sharp, given the volatile global environment, is around the corner.

*Views are personal. Neither APAS nor any of its employees endorse any view, product or services mentioned in the article

The second term of NDA Government saw Sensex reaching a lifetime high of 40,267 on 1st June 2019. The

majority government brought a new sliver line of hope for India. Several global and domestic factors including

trade wars, sanctions, rating downgrades, global slowdown, sluggish domestic demand, etc. On the

international front, China’s slowdown has been major contributing factor for the global slowdown. The tariff

imposition by US has further exacerbated the domestic situation in China along with sluggish internal demand

(Reference to Apple sales index, whereby the company for the first time saw reduction in demand from the

previous years in China). These factors are bound to impact markets in developed and developing economies

in the form of fall in indices, currency depreciation and inversion of bond yield curves.

On the domestic front, the indices have been regularly volatile due to both domestic reforms and global

dynamics. The recent post-budgetary announcement of surcharge on FPIs and tax regime for super-rich led

to a continuous 5-day fall in Sensex of around 1186 point and 387 points in Nifty and major withdrawal of FPIs

from the markets. Sensing the negative response to the decision, the government rolled back the surcharge

and the indices rose again. The acceptance of transfer of surplus funds from RBI to the government also lifted

the market’s spirits significantly. Such measures have had tentative impact on markets. However, for a

sustained rally in the market, appropriate valuations, good corporate earnings and sustainable growth is

necessary. The volatility in the markets may be attributed to the correction in such valuations. In 2018, Mid-

cap stocks faced a sharp correction after a consistent performance in 3 years post-election of NDA

government. Sensex went on to perform in ranges of 28k in 2015 to 33k in 2018. The FPIs were regular

investors in this period. Low crude oil prices and rupee prices also worked in market’s favor. However, in 2018,

the mid-caps saw a sharp correction. Also, on macroeconomic side, crude oil prices shot up to 85 USD/barrel

and Rupee saw a low of 74.6/ USD.

In August 2018, it fell sharply on account of revelation of IL&FS crisis. Some of the key reasons for such fall of

mid-caps were overvaluation, NBFC liquidity crisis and mutual fund reclassification imposed by SEBI. The

mutual fund reclassification required the mutual funds to reclassify their equity schemes into small, mid and

large cap. This led to a huge withdrawal from the mid-cap and small caps.

Securities markets scenario

in India

Coming to 2019, the macros have slightly turned to favor the markets with inflation, fiscal deficit and CAD

under control. While FPIs had been net sellers in 2018, in contrast in 2019 - from February to June, FPIs had

been net buyers in Indian markets.

The Indian indices remain reasonably valued. The Indian indices are trading just near around their 10-year

historical averages. Nifty is trading at about 17 times (which has traded at multiples of 21-22 times in 2016

and 2017), just above its historical average of 16 times. Weak corporate earnings for the June-quarter may

have been a key reason for such valuations. Also, as mentioned earlier, sluggish demand is affecting auto and

banking businesses, which has in turn impacted the respective indices severely. The auto sector (along with

supporting industry like steel and ancillaries) are facing production cuts, high inventory at dealer level, working

capital issues and delayed capex. Auto companies have resorted to discounts to lure customers. The

government has also sensed such glut and plans to introduce reforms such as tax cuts in these sectors to

encourage growth. In case of banks, the provisioning coverage ratio (ratio of provisioning to gross non-

performing assets) has also gone up owing to IBC resolution processes, which has impacted the earnings

significantly. The RBI sensing the slowdown, has softened the provisioning. The major private sector banks

sense the loan growth to stabilize, leading to greater NIMs and lower slippages. NBFCs have also been granted

breathers including opening up of External commercial borrowing route (ECB) for funding.

IT, insurance and certain private sector banks and retail companies have performed in line with expectations

for q1. However, for IT industry certain factors to look forward to impacting EBIT margins include cross-

currency headwinds, wage-hike, increased sub-contracting and higher visa cost.

Quarter 1 results for manufacturing and banking sector have been quite gloomy for 2019. However, we must

not forget cyclical nature of markets. While q1 still glares at weak demand, we have better than average

monsoons and festive season to look forward to, for increase in capital goods demand. With inflation under

control, RBI has been continuously reducing repo rate, thereby reducing corporate borrowing costs, which

shall help in further working capital infusion.

Like an ideal developing economy, Indian security markets have always stuck to their volatile nature.

Macroeconomic factors like reduction in demand and consumption have been responsible for lower demand

in manufacturing sectors, with rural demand being directly affected. The NBFC crisis had impacted the markets

to a great extent, leading to several prompt policy measures by RBI and the government. The capital stimulus

by RBI, easing ECB norms for NBFCs, rollback of surcharge on FPIs and introduction of direct-retail FDI norms

shall go a long-way in attracting foreign investments in India. Also, in light of tariffs imposed on China, its time

India showcases itself as an attractive alternative manufacturing destination.

-APAS

IIP (Index of Industrial Production) – June

Index of Industrial Production (IIP) or factory output for the month of June 2019 slipped to a 4-month low of

2%, compared to 4.6% in May 2019, and 7% in June 2018.

The General Index for the month of June 2019 stands at 130.2, which is 2% higher as compared to that in June

2018.

The growth slipped mainly due to poor performance of mining and manufacturing sectors.

The cumulative growth for the period April-June 2019-20 over the corresponding period of last year stood at

3.6%.

As per Use-based classification, the growth rates in June 2019 over June 2018 are 0.5% in primary goods, (-)

6.5% in capital goods, 12.4% in intermediate goods and (-) 1.8% in infrastructure/construction goods.

Consumer durables and non-durables have recorded growth rates of (-) 5.5% and 7.8% respectively.

The manufacturing sector, which constitutes 77.63% of the index, slowed to 1.2% in June, compared to 6.9%

growth last year.

Electricity generation stood at 8.2% in June, compared to 8.5% last year.

Mining sector output slipped to 1.6% in June, compared to 6.5% last year.

In terms of industries, 8 out of 23 industry groups in the manufacturing sector have shown growth in June

2019 from June 2018.

The industry group ‘Manufacture of basic metals’ has shown the highest growth of 17.7%, followed by 16.5%

in ‘Manufacture of food products’ and 10.3% in ‘Manufacture of tobacco products.’.

On the other hand, the industry group ‘Manufacture of paper and paper products’ has declined most by

19.9%, followed by 14.3% in ‘Manufacture of furniture’ and 13.9% in ‘Manufacture of motor vehicles, trailers

and semi-trailers’.

ECONOMY

Source: APAS BRT, www.mospi.gov.in

CPI (Consumer Price Index) – July

India's consumer price index (CPI) or retail inflation fell to 3.15% in July 2019, compared to 3.18% in June 2019

and 4.17% in July 2018.

The corresponding provisional inflation rates for rural and urban areas are 2.19% and 4.22% respectively.

The Consumer food price index (CFPI) rose to 2.36% in July from 2.25% in June.

Among the CPI components, inflation for food and beverages eased to 2.33% in July 2019 from 2.37% in June

2019.

Within the food items, the inflation rose for fruits to (-) 0.86%, pulses and products to 6.82%, milk and products

to 0.98%, spices to 2.02%, oils and fats to 0.91% and non-alcoholic beverages to 3.38%. On the other hand,

the inflation eased for vegetables to 2.82%, sugar and confectionery to (-) 2.11%, prepared meals, snacks,

sweets, etc. to 2.56%, eggs to 2.57% and cereals and products to 1.31% in July 2019.

The inflation for housing rose marginally to 4.87%, while that for miscellaneous items moved up to 4.65% in

July.

Within the miscellaneous items, the inflation increased for transport and communication to 1.62%, personal

care and effects to 4.3% and recreation and amusement to 5.48%, while it eased for health to 7.88%,

education to 6.36% and household goods and services to 4.04% in July 2019.

The inflation for clothing and footwear rose marginally to 1.65%, while that for fuel and light dipped to (-)

0.36% in July.

1.7

0.10.1

3.43.1

2

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

IIP (% YoY)

Base rate 2011-12

Source: APAS BRT, www.mospi.gov.in

WPI (Wholesale Price Index) – July

India's wholesale price index (WPI) inflation slipped to a 25-month low of 1.08% in July 2019, as compared to

2.02% in June 2019 and 5.27% in July 2018.

The rate of inflation based on WPI Food Index decreased to 4.54% in July 2019 from 5.04% in June 2019.

The index for primary articles rose by 0.5% from the previous month.

Under primary articles, ‘Food articles’ group rose by 1.3% due to higher prices of fruits & vegetables (5%), egg,

maize and jowar (4% each), pork (3%), beef and buffalo meat, bajra, wheat and condiments & spices (2% each)

and barley, moong, paddy, peas/chawali, ragi and arhar (1% each). However, the prices declined for fish-

marine (7%), tea (6%), betel leaves (5%), poultry chicken (3%) and fish-inland and urad (1% each).

The ‘Non-Food Articles’ group rose by 0.1% due to higher prices of groundnut seed (5%), gingelly seed

(sesamum) and cotton seed (3% each), hides (raw), skins (raw), floriculture (2% each) and fodder, raw rubber

and castor seed (1% each). However, the prices declined for soyabean, raw jute, mesta and sunflower (3%

each), niger seed (2%) and raw cotton, guar seed, safflower (kardi seed) and linseed (1% each).

‘Minerals’ group declined by 2.9% due to lower prices of copper concentrate (6%), iron ore and chromite (2%

each) and lead concentrate and manganese ore (1% each). However, the prices declined for bauxite (3%) and

limestone (1%).

‘Crude petroleum and natural gas’ group declined by 6.1% due to lower prices of crude petroleum (8%) and

natural gas (1%).

2.572.86 2.92

3.053.18 3.15

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

CPI

Base rate 2011-12

The index for fuel and power declined by 1.5% from the previous month.

Under fuel and power, ‘Mineral oils’ group declined by 3.1% due to lower prices of LPG (15%), ATF (7%),

naphtha (5%), petroleum coke (4%), HSD, kerosene and furnace oil (2% each) and petrol (1%). However, the

prices moved up for bitumen (2%).

The index for manufactured products declined by 0.3% from the previous month.

Source: APAS BRT, www.eaindustry.nic.in

Manufacturing PMI – July The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) strengthened in July, due to improved

output and new orders.

The Manufacturing PMI rose to 52.5 in July 2019 from 52.1 in June 2019. It stayed above the 50 level, that

separates expansion from contraction, for the 24th consecutive month.

Consumer goods led the upturn in July, as it has done in the past 2 months through a pick-up in new orders,

output and employment. Intermediate goods producers, however, saw an even stronger improvement in

business conditions, while activity in the capital goods sector contracted, with lower sales causing reductions

in production and purchases as well as a halt on hiring.

Growth was primarily driven by domestic demand, with growth in export orders slowing to its lowest level in

15 months.

Producers faced a slight growth in input costs in July, but overall inflation was at a 3-month low.

Measures for factory orders, production and employment improved in July, although rates of expansion

remained below trend.

2.933.18 3.07

2.45

2.02

1.08

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

WPI

Base rate 2011-12

Manufacturers’ confidence levels hit a 4-month high in July, with producers expecting demand to grow

through their marketing efforts.

Source: www.tradingeconomics.com

Services PMI – July

The Indian services sector activity bounced back in July and expanded at the fastest pace in a year after

contracting the previous month, driven largely by strong growth in international demand.

The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index rose to a 1-year high of

53.8 in July 2019 from 49.6 in June 2019. The index rose comfortably above the neutral mark of 50, which

separates expansion from contraction.

India’s service economy showed renewed vigour in July as businesses and households welcome the recent

government budget announcement.

Encouragingly, service providers reported a widespread improvement in demand, from the public and private

sectors as well as domestic and international markets.

A sub-index tracking overall demand showed new orders increased at the quickest pace in nearly 3 years,

driven largely by foreign demand, which expanded at the fastest pace since IHS began to measure it in

September 2014.

The surge in demand, along with increased optimism about new business over the coming year, prompted

firms to increase hiring at the fastest pace since March 2011.

Ongoing expansions in the employment base should support household spending and consumer confidence

in the near-term.

Although input costs rose at the quickest pace in 5 months, firms did not pass all of these to consumers and

output prices rose at a slower rate.

The seasonally adjusted Nikkei India Composite PMI Output Index rose to an 8-month high of 53.9 in July from

50.8 in June, pushed by the sharp expansion in both services and manufacturing activity.

Source: www.tradingeconomics.com

Core Sector Data – July

Eight infrastructure sectors grew at a slower rate in July 2019, at 2.1%, mainly due to a contraction in coal,

crude oil, natural gas and refinery production.

The eight core sectors – coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity

– had grown by 0.7% in June 2019 and 7.3% in July 2018.

The combined index of eight core industries stood at 131.9 in July 2019.

Crude oil was the worst hit among the sectors, reporting a decline of 4.4% during July.

Coal production presented the second worst performance, with a decline of 1.4% in its growth.

Natural gas and refinery products also showed signs of slowdown, as their growth rates declined by 0.5% and

0.9%, respectively.

However, cement, steel and electricity posted decent growth during July, growing at a rate of 7.9%, 6.6% and

4.2%, respectively.

Fertiliser production marginally grew by 1.5% during the month.

Cumulatively, the growth in the eight core sectors during April-July 2019-20 almost halved to 3%, as against

5.9% in the same period last financial year.

Source: APAS BRT, www.eaindustry.nic.in

GDP – Quarter 1 – FY 2019-20

The country’s Gross Domestic Product (GDP) growth rate for the first quarter (April-June) of fiscal year 2019-

20 slowed to a 6-year low of 5%, led by a dramatic slowdown in the manufacturing sector, a sharp deceleration

in consumer demand and tepid investment.

The GDP growth rate in Q1 2018-19 was 8% and in Q4 2018-19 was 5.8%.

The gross value added (GVA) growth rate for the said quarter stood at 4.9%, also the slowest in 6 years.

Consumption, the bedrock of growth in the past few years, collapsed to an 18-quarter low of 3.1% from 10.6%

in the March quarter, pointing to fragile sentiment.

Investments grew 4%, up from 3.6% in the previous quarter.

The slowdown in investment and consumer demand derailed manufacturing, which collapsed to a 2-year low,

at 0.6% in the June quarter, against 3.1% in the March quarter.

A meagre 2% rise in farm sector added to the demand slowdown.

The plight of the real estate sector was also highlighted by the slowdown in its growth rate to 5.7% this year,

compared with 9.6% last year.

6.6

4.2 4.34.8

3.5

2.61.8 2.1

4.7

2.6

5.1

0.2

2.1

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

Only government expenditure provided support to growth and increased 8.8%.

Among services sectors, only trade, hotels, transportation, communication segment grew faster in the June

quarter, at 7.1%, compared with the March quarter growth of 6%.

Both financial services (5.9%) and public administration services (8.5%) decelerated in the June quarter.

The only sector that registered a robust pick-up is electricity, growing at 8.6% in the June quarter, from 4.3%

in the preceding quarter.

Source: APAS BRT, www.mospi.gov.in

5.76.3

7.27.7

8.27.1

6.65.8

5

Q1 17-18 Q2 17-18 Q3 17-18 Q4 17-18 Q1 18-19 Q2 18-19 Q3 18-19 Q4 18-19 Q1 19-20

GD

P %

Quarter

GDP Trend

RBI Central Board accepts Bimal Jalan Committee recommendations and approves surplus transfer

to the Government

The Central Board of the Reserve Bank of India (RBI) decided to transfer a sum of ₹1,76,051 crore to the

Government of India (Government) comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637

crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the

meeting of the Central Board.

RBI, in consultation with the Government of India, had constituted an Expert Committee to Review the Extant

Economic Capital Framework of the Reserve Bank of India (Chairman: Dr. Bimal Jalan). The Committee has

since submitted its report to the Governor of the RBI. The Committee’s recommendations were based on the

consideration of the role of central banks’ financial resilience, cross-country practices, statutory provisions

and the impact of the RBI’s public policy mandate and operating environment on its balance sheet and the

risks involved.

I. Major recommendations of the Committee with regard to risk provisioning and surplus distribution

(i) RBI’s economic capital: The Committee reviewed the status, need and justification of the various reserves,

risk provisions and risk buffers maintained by the RBI and recommended their continuance. A clearer

distinction between the two components of economic capital (realized equity and revaluation balances) was

also recommended by the Committee as realized equity could be used for meeting all risks/ losses as they

were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk

buffers against market risks as they represented unrealized valuation gains and hence were not distributable.

Further, there was only a one-way fungibility between them which implies that while a shortfall, if any, in

revaluation balances vis-à-vis market risk provisioning requirements could be met through increased risk

provisioning from net income, the reverse, i.e., the use of surplus in revaluation balances over market risk

provisioning requirements for covering shortfall in provisions for other risks is not permitted. The Committee

recommended revising the presentation of the liabilities side of the RBI balance sheet to reflect this

distinction.

(ii) Risk provisioning for market risk: The Committee has recommended the adoption of Expected Shortfall

(ES) methodology under stressed conditions (in place of the extant Stressed-Value at Risk) for measuring the

RBI’s market risk on which there was growing consensus among central banks as well as commercial banks

BANKING

over the recent years. While central banks are seen to be adopting ES at 99 per cent confidence level (CL), the

Committee has recommended the adoption of a target of ES 99.5 per cent CL keeping in view the

macroeconomic stability requirements. In view of the cyclical volatility of the RBI’s revaluation balances, a

downward risk tolerance limit (RTL) of 97.5 per cent CL has also been articulated. Both levels were stress-

tested for their adequacy by the Committee.

(iii) Size of Realized Equity: The Committee recognized that the RBI’s provisioning for monetary, financial and

external stability risks is the country’s savings for a ‘rainy day’ (a monetary/ financial stability crisis) which has

been consciously maintained with the RBI in view of its role as the Monetary Authority and the Lender of Last

Resort. Realized equity is also required to cover credit risk and operational risk. This risk provisioning made

primarily from retained earnings is cumulatively referred to as the Contingent Risk Buffer (CRB) and has been

recommended to be maintained within a range of 6.5 per cent to 5.5 per cent of the RBI’s balance sheet,

comprising 5.5 to 4.5 per cent for monetary and financial stability risks and 1.0 per cent for credit and

operational risks. Further, any shortfall in revaluation balances vis-à-vis the market risk RTL would add to the

requirement for realized equity. The Committee also recommended the development of methodologies for

assessing the concentration risk of the forex portfolio as well as jointly assessing the RBI’s market-credit risk.

(iv) Surplus Distribution Policy: The Committee has recommended a surplus distribution policy which targets

the level of realized equity to be maintained by the RBI, within the overall level of its economic capital vis-à-

vis the earlier policy which targeted total economic capital level alone. Only if realized equity is above its

requirement, will the entire net income be transferable to the Government. If it is below the lower bound of

requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any)

transferred to the Government. Within the range of CRB, i.e., 6.5 to 5.5 percent of the balance sheet, the

Central Board will decide on the level of risk provisioning.

II. Application of the Committee’s recommendations

The Central Board accepted all the recommendations of the Committee and finalized the RBI’s accounts for

2018-19 using the revised framework to determine risk provisioning and surplus transfer. The implications of

this decision are given below:

(i) Realized Equity: Given that the available realized equity stood at 6.8 per cent of balance sheet, while the

requirement recommended by the Committee was 6.5 per cent to 5.5 per cent of balance sheet, there was

excess of risk provisioning to the extent of ₹11,608 crore at the upper bound of CRB and ₹52,637 crore at the

lower bound of CRB. The Central Board decided to maintain the realized equity level at 5.5 per cent of balance

sheet and the resultant excess risk provisions of ₹ 52,637 crore were written back.

(ii) Economic capital levels: While the revised framework technically would allow the RBI’s economic capital

levels as on June 30, 2019 to lie within the range of 24.5 per cent to 20.0 per cent of balance sheet (depending

on the level of realized equity maintained and availability of revaluation balances), the economic capital as on

June 30, 2019 stood at 23.3 per cent of balance sheet. As financial resilience was within the desired range, the

entire net income of ₹1,23,414 crore for the year 2018-19, of which an amount of ₹28,000 crore has already

been paid as interim dividend, will be transferred to the Government of India. This is in addition to the ₹52,637

crore of excess risk provisions which has been written back and consequently will be transferred to the

Government.

Union Minister of Finance & Corporate Affairs Smt. Nirmala Sitharaman's Presentation on

amalgamation of National Banks

Union Minister of Finance and corporate affairs Smt. Nirmala Sitharaman presented on the amalgamation of

National Banks.

The presentation walked through the current set of reforms introduced by the Government to improve the

banking sector, the size of banking, infrastructural improvement in Indian banking, possible size of the

amalgamated entities, and several other facets of the proposed amalgamation exercise.

The amalgamation was driven towards achieving a USD 5 trillion economy. It lays down measures for

improvement of economy and past and present status of banking sector in India.

The presentation walks through the ‘Gains visible from the reforms introduced by the Government’. These

gains have been covered in terms of reduction in gross NPAs, improvement in asset quality, provision coverage

ratio, etc.

The presentation further walks through the benefits derived from the amalgamation of Bank of Baroda, Dena

Bank and Vijaya Bank.

The next set of amalgamation to be carried out include following banks:

1. Punjab National Bank, Oriental Bank of Commerce and United Bank

2. Canara Bank and Syndicate Bank

3. Union Bank, Andhra Bank and Corporation Bank

4. Indian Bank and Allahabad Bank

The link for presentation is here.

Real Time Gross Settlement (RTGS) System – Increase in operating hours

At present, the RTGS system is available for customer transactions from 8:00 am to 6:00 pm and for inter-

bank transactions from 8:00 am to 7:45 pm. In order to increase the availability of the RTGS system, it has

been decided to extend the operating hours of RTGS and commence operations for customers and banks from

7:00 am.

The RTGS time window with effect from August 26, 2019 will, therefore, be as under:

Sr. No. Event Time

1. Open for Business 07:00 hours

2. Customer transactions (Initial Cut-off) 18:00 hours

3. Inter-bank transactions (Final Cut-off) 19:45 hours

4. IDL Reversal 19:45 hours - 20:00 hours

5. End of Day 20:00 hours

Processing of e-mandate on cards for recurring transactions

The Reserve Bank of India (RBI) has, over the past decade, put in place various safety and security measures

for card payments, including the requirement of Additional Factor of Authentication (AFA), especially for

‘card-not-present’ transactions. Recurring transactions based on standing instructions given to the merchants

by the cardholders were brought within the ambit of AFA.

Keeping in view the changing payment needs and the requirement to balance the safety and security of card

transactions with customer convenience, it has been decided to permit processing of e-mandate on cards for

recurring transactions (merchant payments) with AFA during e-mandate registration, modification and

revocation, as also for the first transaction, and simple / automatic subsequent successive transactions,

subject to conditions listed below. These guidelines shall be applicable to debit, credit and Prepaid Payment

Instruments (PPIs), including wallets. The maximum permissible limit for a transaction under this arrangement

shall be ₹ 2,000.

Conditions to be fulfilled for processing e-mandate on cards for recurring transactions

The conditions are based on following items:

1. Applicability

2. Registration of card details for e-mandate based recurring transactions

3. Processing of first transaction and subsequent recurring transactions

4. Pre-transaction notification

5. Post-transaction notification

6. Transaction limit and velocity check

7. Withdrawal of e-mandate

8. Dispute resolution and grievance redressal

Priority Sector Lending – Lending by banks to NBFCs for On-Lending

In order to boost credit to the needy segment of borrowers, it has been decided that bank credit to registered

NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector under respective

categories subject to the following conditions:

i. Agriculture: On-lending by NBFCs for ‘Term lending’ component under Agriculture will be allowed up

to ₹ 10 lakh per borrower.

ii. Micro & Small enterprises: On-lending by NBFC will be allowed up to ₹ 20 lakh per borrower.

iii. Housing: Enhancement of the existing limits for on-lending by HFCs vide para 10.5 of our Master

Direction on Priority Sector lending, from ₹ 10 lakh per borrower to ₹ 20 lakh per borrower.

Under the above on-lending model, banks can classify only the fresh loans sanctioned by NBFCs out of bank

borrowings, on or after the date of issue of this circular. However, loans given by HFCs under the existing on-

lending guidelines will continue to be classified under priority sector by banks.

Bank credit to NBFCs for On-Lending will be allowed up to a limit of five percent of individual bank’s total

priority sector lending on an ongoing basis. Further, the above instructions will be valid for the current

financial year up to March 31, 2020 and will be reviewed thereafter. However, loans disbursed under the on-

lending model will continue to be classified under Priority Sector till the date of repayment/maturity.

The existing guidelines on bank loans to MFIs for on-lending as detailed in para 19 of Master Directions on

Priority Sector Lending will continue to be applicable for NBFC-MFIs.

Insurance Regulatory and Development Authority of India (Regulatory Sandbox) Regulations, 2019

Insurance Regulatory and Development Authority of India (IRDAI) intends to promote and regulate use of

technology in the insurance sector. Thereby, it has introduced these regulations to:

(1) To strike a balance between orderly development of insurance sector on one hand and protection of

interests of policyholders on the other, while at the same time facilitating innovation;

(2) To facilitate creation of regulatory sandbox environment and to relax such provisions of any existing

Regulations framed by the Authority for a limited scope and limited duration, if such a relaxation is needed.

The regulator intends to promote innovation in technology in the sector by way of encouraging current

entities to innovate or granting permission to new entities. The important aspect remains proactive regulation

of these entities.

The regulations comprise of following sections:

1. Chapter I: Procedure for seeking permission for promoting innovation in insurance in India

This chapter comprises of:

i. Categories of application

ii. Application for grant of permission for promoting innovation in insurance in India

iii. Conditions for Grant of permission

iv. Revocation of permission

v. Extension of first permission

vi. Internal monitoring, review and evaluation of systems and controls

vii. Review of proposal approved by the Authority

viii. Conclusion of the proposal

Power of the Authority to grant relaxation from the provisions of any Regulations to an applicant in the

Regulatory Sandbox –

i. The Chairperson of the Authority may relax for the applicant the applicability of one or more

provisions of any Regulation(s) notified by the Authority or any guidelines or circulars issued by

INSURANCE

the Authority, subject to the conditions mentioned in Regulation 6 and any other conditions as

deemed necessary. However, no relaxation shall be offered in respect of compliance with the

Insurance Act, 1938 or IRDA Act, 1999 or any other applicable statutes.

ii. The maximum period for which the relaxation shall be granted is one year.

Further powers of the Authority

i. The Authority shall have the right to call for, inspect or look into any document, record or

communication from the applicant.

ii. Notwithstanding the above, where the Authority is of the opinion that the operations of the

applicant are not in the interest of the Indian market or the insurance policyholders, the Authority

reserves the right to take all propriate actions including suspension or cancellation of permission

granted.

iii. The Chairperson of the Authority may issue Guidelines on matters relating to operational issues

pertaining to the Regulatory Sandbox, and such other relevant matters as deemed appropriate.

Insurance Services by Common Public Service Centers Regulations, 2019

The objective of the Insurance Regulatory and Development Authority of India (Insurance Services by Common

Public Service Centers) Regulations, 2019 is to regulate insurance related services offered by CPSC-SPV that

are incorporated by Central and State governments.

The main components of these regulations are as follows:

Chapter I: Registration of CPSC-SPV (CPSC – Special purpose vehicle)

1. Registration of CPSC-SPV

A. Certificate of registration – The certificate of registration shall be granted in following steps:

a. Application for grant of Certificate of Registration:

b. Grant of Registration to the CPSC-SPV

c. Period of Validity of Registration of the CPSC-SPV

B. Renewal of Certificate of Registration

C. Duplicate Certificate of Registration

Chapter II: Insurance Solicitation, Operational Issues and Functions of CPSC-SPV, RAP (Rural authorized

person) and VLE-Ins (village level entrepreneurs)

1. Persons engaged for solicitation

2. Enabling Registration of Insurance Business by RAP and VLE-Ins

3. Functions of CPSC-SPV

4. Functions and Obligations of RAP and VLE-Ins 5. Remuneration payable to CPSC-SPV, RAP and VLE-Ins 6. Products allowed under CPSC Model 7. Agreement between CPSC-SPV and the Insurer 8. Reports to be submitted to the Authority 9. Power of Authority to inspect

Chapter III:

1. Procedure for disciplinary proceeding

2. Suspension or Cancellation of Registration of CPSC-SPV; Certificate of RAP and VLE-Ins

3. Power of the Authority to issue clarifications

Annexures also contain schedules related to the fit and proper and other qualification criteria of the

personnel

Presentation made by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman on

measures to boost Indian Economy

Union Minister of finance and corporate affairs Smt. Nirmala Sitharaman presented on measures to boost

Indian Economy.

The presentation walked through the current global economic scenario, reforms introduced by the

Government, measures to boost economy to facilitate wealth creation and tax measures, relaxation to banks,

NBFCs, for fund raising, measures to encourage capital markets, enhance infrastructure, etc.

It presented Global economic scenario in terms of GDP growth.

The presentation walked through constructive reforms such as introduction of GST, labor laws, environment

clearances, etc.

The highlight of the reforms introduced by the Government included:

1. Relief from enhanced surcharge on Long-term/Short-term Capital Gains

In order to encourage investment in the capital market, it has been decided to withdraw the enhanced

surcharge levied by Finance (No. 2) Act, 2019 on long/ short term capital gains arising from transfer of equity

shares/units referred in section 111A and 112 A respectively.

2. Withdrawal of Angel Tax provisions for Startups and their investors

To mitigate genuine difficulties of startups and their investors, it has been decided that section 56(2)(viib) of

the Income-tax Act shall not be applicable to a startup registered with DPIIT. It has also been decided to set

up a dedicated cell under Member of CBDT for addressing the problems of startups. A startup having any

income-tax issue can approach the cell for quick resolution of the same.

3. Additional Credit expansion through PSBs

Upfront release of INR 70,000 Cr., additional lending and liquidity to the tune of ~ Rs 5 Lakh crore by providing

upfront Capital to PSBs. This will benefit Corporates, Retail borrowers, MSMEs, small traders, etc.

INFRASTRUCTURE &

OTHER GOVT.

INITIATIVES

4. Banks to effect timely rate cuts

Banks have decided to pass on rate cuts through MCLR reduction to benefit all borrowers

5. Banks to launch Repo rate /external benchmark linked loan products

Reduced EMI for housing loans, vehicle and other retail loans by directly linking Repo rate to interest rates.

Working capital loans for industry will also become cheaper

6. Simplified KYC for foreign and investors and FPIs

7. Offshore Rupee market

To bring offshore Rupee market to domestic stock exchanges and permit trading of USD -INR derivatives in

GIFT IFSC, Ministry of Finance is working with RBI to introduce this measure shortly.

8. Deepening of bond markets in India

9. GST Refund to MSME within 30 days

10. Co-origination of loans by PSBs jointly with NBFCs

11. Support to NBFCs/HFCs

The link for presentation is here.

Motor Vehicles (Amendment) Act 2019

The Motor Vehicles (Amendment) Bill, 2019 was introduced in Lok Sabha on July 15, 2019 by the Minister for

Road Transport and Highways, Mr. Nitin Gadkari. The Bill seeks to amend the Motor Vehicles Act, 1988 to

provide for road safety. The Act provides for grant of licenses and permits related to motor vehicles, standards

for motor vehicles, and penalties for violation of these provisions.

Compensation for road accident victims: The central government will develop a scheme for cashless

treatment of road accident victims during golden hour. The Bill defines golden hour as the time period of up

to one hour following a traumatic injury, during which the likelihood of preventing death through prompt

medical care is the highest. The central government may also make a scheme for providing interim relief to

claimants seeking compensation under third party insurance. The Bill increases the minimum compensation

for hit and run cases as follows: (i) in case of death, from INR 25,000 to INR 200,000 and (ii) in case of grievous

injury, from INR 12,500 to INR 50,000.

Compulsory insurance: The Bill requires the central government to constitute a Motor Vehicle Accident Fund,

to provide compulsory insurance cover to all road users in India. It will be utilized for: (i) treatment of persons

injured in road accidents as per the golden hour scheme, (ii) compensation to representatives of a person who

died in a hit and run accident, (iii) compensation to a person grievously hurt in a hit and run accident, and (iv)

compensation to any other persons as prescribed by the central government. This Fund will be credited

through: (i) payment of a nature notified by the central government, (ii) a grant or loan made by the central

government, (iii) balance of the Solatium Fund (existing fund under the Act to provide compensation for hit

and run accidents), or (iv) any other source as prescribed the central government.

Good samaritans: The Bill defines a good samaritan as a person who renders emergency medical or non-

medical assistance to a victim at the scene of an accident. The assistance must have been (i) in good faith, (ii)

voluntary, and (iii) without the expectation of any reward. Such a person will not be liable for any civil or

criminal action for any injury to or death of an accident victim, caused due to their negligence in providing

assistance to the victim.

Recall of vehicles: The Bill allows the central government to order for recall of motor vehicles if a defect in

the vehicle may cause damage to the environment, or the driver, or other road users. The manufacturer of

the recalled vehicle will be required to: (i) reimburse the buyers for the full cost of the vehicle, or (ii) replace

the defective vehicle with another vehicle with similar or better specifications.

National Transportation Policy: The central government may develop a National Transportation Policy, in

consultation with state governments. The Policy will: (i) establish a planning framework for road transport,

(ii) develop a framework for grant of permits, and (iii) specify priorities for the transport system, among other

things.

Road Safety Board: The Bill provides for a National Road Safety Board, to be created by the central

government through a notification. The Board will advise the central and state governments on all aspects of

road safety and traffic management including: (i) standards of motor vehicles, (ii) registration and licensing of

vehicles, (iii) standards for road safety, and (iv) promotion of new vehicle technology.

Offences and penalties: The Bill has increased penalties for several offences under the Act. For example, the

maximum penalty for driving under the influence of alcohol or drugs has been increased from Rs 2,000 to Rs

10,000. If a vehicle manufacturer fails to comply with motor vehicle standards, the penalty will be a fine of

up to Rs 100 crore, or imprisonment of up to one year, or both. If a contractor fails to comply with road design

standards, the penalty will be a fine of up to one lakh rupees. The central government may increase fines

mentioned under the Act every year by up to 10%.

Taxi aggregators: The Bill defines aggregators as digital intermediaries or market places which can be used by

passengers to connect with a driver for transportation purposes (taxi services). These aggregators will be

issued licenses by state. Further, they must comply with the Information Technology Act, 2000.

Cabinet approves proposal for Review of FDI policy on various sectors

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the proposal for Review

of Foreign Direct Investment on various sectors.

Background

FDI is a major driver of economic growth and a source of non-debt finance for the economic development of

the country. Government has put in place an investor friendly policy on FDI, under which FDI up to 100% is

permitted on the automatic route in most sectors/ activities. FDI policy provisions have been progressively

liberalized across various sectors in recent years to make India an attractive investment destination. Some of

the sectors include Defense, Construction Development, Trading, Pharmaceuticals, Power Exchanges,

Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting and Civil Aviation.

These reforms have contributed to India attracting record FDI inflows in the last 5 years. Total FDI into India

from 2014-15 to 2018-19 has been US $ 286 billion as compared to US $ 189 billion in the 5-year period prior

to that (2009-10 to 2013-14). In fact, total FDI in 2018-19 i.e. US $ 64.37 billion (provisional figure) is the

highest ever FDI received for any financial year.

Global FDI inflows have been facing headwinds for the last few years. As per UNCTAD's World Investment

Report 2019, global foreign direct investment (FDI) flows slid by 13% in 2018, to US $1.3 trillion from US $1.5

trillion the previous year - the third consecutive annual decline. Despite the dim global picture, India continues

to remain a preferred and attractive destination for global FDI flows. However, it is felt that the country has

the potential to attract far more foreign investment which can be achieved inter-alia by further liberalizing

and simplifying the FDI policy regime.

In Union Budget 2019-20, Finance Minister proposed to further consolidate the gains under FDI in order to

make India a more attractive FDI destination. Accordingly, the Government has decided to introduce a number

of amendments in the FDI Policy. Details of these changes are given in the following paragraphs.

Coal Mining

As per the present FDI policy, 100% FDI under automatic route is allowed for coal & lignite mining for captive

consumption by power projects, iron & steel and cement units and other eligible activities permitted under

and subject to applicable laws and regulations. Further, 100% FDI under automatic route is also permitted for

setting up coal processing plants like washeries subject to the condition that the company shall not do coal

mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall

supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for

washing or sizing.

It has been decided to permit 100% FDI under automatic route for sale of coal, for coal mining activities

including associated processing infrastructure subject to provisions of Coal Mines (special provisions) Act,

2015 and the Mines and Minerals (development and regulation) Act, 1957 as amended from time to time, and

other relevant acts on the subject. "Associated Processing Infrastructure" would include coal washery,

crushing, coal handling, and separation (magnetic and non-magnetic)

Contract Manufacturing

The extant FDI policy provides for 100% FDI under automatic route in manufacturing sector. There is no

specific provision for Contract Manufacturing in the Policy. In order to provide clarity on contract

manufacturing, it has been decided to allow 100% FDI under automatic route in contract manufacturing in

India as well.

Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under automatic

route. Manufacturing activities may be conducted either by the investee entity or through contract

manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent

basis.

Single Brand Retail Trading (SBRT)

The extant FDI Policy provides that 30% of value of goods has to be procured from India if SBRT entity has FDI

more than 51%. Further, as regards local sourcing requirement, the same can be met as an average during the

first 5 years, and thereafter annually towards its India operations. With a view to provide greater flexibility

and ease of operations to SBRT entities, it has been decided that all procurements made from India by the

SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods

procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is

proposed to be removed, to give an impetus to exports.

The extant Policy provides that as regards local sourcing requirement, incremental sourcing for global

operations by the non-resident entities undertaking single brand retail trading, either directly or through their

group companies, will also be counted towards local sourcing requirement for the first 5 years. However,

prevalent business models involve not only sourcing from India for global operations by the entity or its group

companies, but also through an unrelated third Party, done at the behest of the entity undertaking single

brand retail trading or its group companies. In order to cover such business practices, it has been decided that

'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its

group companies (resident or non-resident}, or indirectly by them through a third party under a legally tenable

agreement.

The extant policy provides that only that part of the global sourcing shall be counted towards local sourcing

requirement which is over and above the previous year's value. Such requirement of year-on-year incremental

increase in exports induces aberrations in the system as companies with lower exports in a base year or any

of ' the subsequent years can meet the current requirements, while a company with consistently high exports

gets unduly discriminated against. It has been now decided that entire sourcing from India for global

operations shall be considered towards local sourcing requirement. (And no incremental value)

The present policy requires that SBRT entities have to operate through brick and mortar stores before starting

retail trading of that brand through e-commerce. This creates an artificial restriction and is out of sync with

current market practices. It has therefore been decided that retail trading through online trade can also be

undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick

and mortar stores within 2 years from date of start of online retail. Online sales will lead to creation of jobs in

logistics, digital payments, customer care, training and product skilling.

Digital Media

The extant FDI policy provides for 49% FDI under approval route in Up-linking of 'News &Current Affairs' TV

Channels. It has been decided to permit 26% FDI under government route for uploading/ streaming of News

& Current Affairs through Digital Media, on the lines of print media.

Government withdraws enhanced surcharge on tax payable on transfer of certain assets

In order to encourage investment in the capital market, it has been decided to withdraw the enhanced

surcharge levied by Finance (No. 2) Act, 2019 on tax payable at special rate on income arising from the transfer

of equity share/unit referred to in section 111A and section 112A of the Income-tax Act,1961(the 'Act') from

the current FY 2019-20. The following capital assets are mentioned in section 111A and section 112A of the

Act:

i. Equity shares in a company;

ii. Unit of an equity-oriented fund; and

iii. Unit of a Business Trust

The derivatives (Future & options) are not treated as capital asset and the income arising from the transfer of

the derivatives is treated as business income and liable for normal rate of tax. However, in the case of Foreign

Institutional Investors (FPI), the derivatives are treated as capital assets and the gains arising from the transfer

of the same is treated as capital gains and subjected to a special rate of tax as per the provisions of section

115AD of the Act. Therefore, it is also decided that the tax payable on gains arising from the transfer of

derivatives (Future & options) by FPI which are liable to special rate of tax under section 115AD of the Act

shall also be exempted from the levy of the enhanced surcharge.

Therefore, the enhanced surcharge shall be withdrawn on tax payable at special rate by both domestic as well

as foreign investors on long-term & short-term capital gains arising from the transfer of equity share in a

company or unit of an equity oriented fund/business trust which are liable for securities transaction tax and

also on tax payable at special rate under section 115AD by the FPI on the capital gains arising from the transfer

of derivatives. However, the tax payable at normal rate on the business income arising from the transfer of

derivatives to a person other than FPI shall be liable for the enhanced surcharge.

SEBI Board Meeting

The SEBI Board in its Board meeting took following decisions:

1. Review of SEBI (Foreign Portfolio Investors) Regulations

The Board considered the recommendations of the working group constituted for reviewing the SEBI (Foreign

Portfolio Investors) Regulations, 2014 and approved the proposed new set of Regulations. Some of the key

aspects of revised regulations include:

i. To simplify and expedite the registration process and to bring about ease in compliance

requirements for FPIs, the broad-based eligibility criteria for institutional foreign investors has

been done away with. ii. Registration for multiple investment manager (MIM) structures has been simplified iii. Documentation requirements for KYC have been simplified. iv. Considering that the central banks are relatively long term, low risk investors directly/ indirectly

managed by the Government, the central banks that are not the members of BIS (Bank for

International Settlement) shall also be eligible for FPI registration v. Offshore funds floated by Indian Mutual Funds shall now be permitted to invest in India after

obtaining registration as FPI. vi. The requirements for issuance and subscription of Offshore Derivative Instruments (ODIs) have

been rationalized 2. Norms for permitting companies listed on the Innovators Growth Platform with an option to trade

under regular category The Board approved the norms for migration of companies listed on the Innovators Growth Platform (IGP)

to regular trade category of the main board.

3. Review of Buybacks The Board approved the following proposals regarding buy-back of securities:

CAPITAL MARKETS

i. SEBI shall continue with the current approach of allowing buybacks if post buyback debt to equity

ratio is not more than 2:1 (except for companies for which higher debt to equity has been notified

under the Companies Act, 2013) based on both standalone and consolidated basis.

ii. Further, if post buy-back debt to equity ratio is not more than 2:1 on standalone basis and

exceeding 2:1 on consolidated basis, in such cases, buy-back would be permitted if:

a. Post buyback debt to equity ratio is not more than 2:1 on consolidated basis after excluding

the subsidiaries that are non-banking financial companies and housing finance companies and

are regulated by RBI or National Housing Bank; and

b. All such excluded subsidiaries have debt to equity ratio of not more than 6:1 on standalone

basis.

iii. Further, the financial statements will continue to be considered on both standalone and

consolidated basis for calculating the maximum permissible buy-back size and other related

requirements relating to buy-back size.

4. Amendments to SEBI (Issue and Listing of Debt securities by Municipalities) Regulations, 2015

5. Amendment to SEBI (Credit Rating Agencies) Regulations, 1999

6. Proposed Securities and Exchange Board of India (Prohibition of Insider Trading) (Third Amendment)

Regulations, 2019

7. Amendments to SEBI (Mutual Funds) Regulations, 1996

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange

Sources: APAS Business Research Team

Source: National Stock Exchange

Source: Bombay Stock Exchange

Source: Bombay Stock Exchange

Sources: APAS Business Research Team

The market was mainly affected by fears of a looming global

recession. Domestic geopolitical concerns also weighed on

the benchmarks. Uncertainty over the possible stimulus

measures from the government to revive economic growth

kept the market in negative territory. The Security Exchange

Board of India (SEBI) eased the regulatory framework for FPIs,

simplified KYC requirements for them and permitted them to

carry out off-market transfer of securities. Speculation over

whether the Centre’s expected stimulus package would

result in a breach in the fiscal deficit target put bonds under

pressure in the first half of the week.

Sources: APAS Business Research Team

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68.00

69.00

70.00

71.00

72.00

73.00

Au

g 0

1, 2

01

9

Au

g 0

2, 2

01

9

Au

g 0

5, 2

01

9

Au

g 0

6, 2

01

9

Au

g 0

7, 2

01

9

Au

g 0

8, 2

01

9

Au

g 0

9, 2

01

9

Au

g 1

2, 2

01

9

Au

g 1

3, 2

01

9

Au

g 1

4, 2

01

9

Au

g 1

5, 2

01

9

Au

g 1

6, 2

01

9

Au

g 1

9, 2

01

9

Au

g 2

0, 2

01

9

Au

g 2

1, 2

01

9

Au

g 2

2, 2

01

9

Au

g 2

3, 2

01

9

Au

g 2

6, 2

01

9

Au

g 2

7, 2

01

9

Au

g 2

8, 2

01

9

Au

g 2

9, 2

01

9

Au

g 3

0, 2

01

9

$/₹ (Aug - 2019)

6.156.206.256.306.356.406.456.506.556.606.65

Au

g 0

1, 2

01

9

Au

g 0

2, 2

01

9

Au

g 0

5, 2

01

9

Au

g 0

6, 2

01

9

Au

g 0

7, 2

01

9

Au

g 0

8, 2

01

9

Au

g 0

9, 2

01

9

Au

g 1

3, 2

01

9

Au

g 1

4, 2

01

9

Au

g 1

6, 2

01

9

Au

g 1

9, 2

01

9

Au

g 2

0, 2

01

9

Au

g 2

1, 2

01

9

Au

g 2

2, 2

01

9

Au

g 2

3, 2

01

9

Au

g 2

6, 2

01

9

Au

g 2

7, 2

01

9

Au

g 2

8, 2

01

9

Au

g 2

9, 2

01

9

Au

g 3

0, 2

01

9

GIND10Y (Aug- 2019)

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year beginning 1st April

Countries GDP CPI

Current

Account

Balance

Budget

Balance Interest Rates

Latest 2019* 2020* Latest 2019*

% of GDP,

2019*

% of GDP,

2019* (10YGov), Latest

Brazil 1.0 Q2 0.8 2.0 3.2 Jul 3.8 -1.1 -5.8 5.44

Russia 0.9 Q2 1.3 1.5 4.4 Aug 4.8 7.2 2.1 7.13

India 5.0 Q2 5.2 6.7 3.1 Jul 3.6 -1.5 -3.5 6.55

China 6.2 Q2 6.2 6.1 2.8 Jul 2.8 0.7 -4.5 2.96^

S Africa 0.9 Q2 0.8 1.8 4.0 Jul 4.6 -4.1 -4.7 8.10

USA 2.3 Q2 2.2 1.7 1.8 Jul 2.0 -2.2 -4.7 1.45

Canada 1.6 Q2 1.6 1.7 2.0 Jul 2.0 -2.5 -0.9 1.14

Mexico -0.8 Q2 0.3 1.2 3.8 Jul 3.6 -1.7 -2.5 6.95

Euro Area 1.1 Q2 1.3 1.5 1.0 Aug 1.4 2.9 -1.1 0.0

Germany 0.4 Q2 0.8 1.4 1.4 Aug 1.6 6.5 0.7 0.0

Britain 1.2 Q2 1.1 1.1 2.1 Jul 1.9 -4.1 -1.8 0.43

Australia 1.4 Q2 2.2 2.3 1.6 Q2 1.7 -0.4 0.1 0.93

Indonesia 5.0 Q2 5.1 5.0 3.5 Aug 3.1 -2.6 -1.9 7.31

Malaysia 4.9 Q2 4.4 4.4 1.4 Jul 0.8 2.5 -3.5 3.30

Singapore 0.1 Q2 0.9 1.3 0.4 Jul 0.6 15.8 -0.6 1.67

S Korea 2.1 Q2 1.9 2.2 nil Aug 0.7 4.0 0.6 1.35

Sources: The Economist

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