November outflows see massive surge on PE selling, tweaked FEMA
ET Bureau|
Updated: Mar 05, 2018, 08.47 AM IST
Mumbai : At first glance, November’s capital flows data aren’t flattering for India, which has wrested the tag of the world’s fastest-expanding major economy from China in the December quarter. But the bulk of the socalled withdrawals may be explained by mere accounting changes that were made to ensure compliance with the central bank’s latest rules.
In total, $5 billion in direct investments winged its way beyond India’s shores in November, about three times more than the usual monthly withdrawals. Changes to the Foreign Exchange Management Act (FEMA), which governs overseas investments into India, may help explain the seemingly drastic outflows.
“While some private equity investors may have exited their India investments before the IPOs, the latest version of the FEMA Act is also likely to have shown higher outflows optically,” said Sahil Kapoor, chief market strategist, Edelweiss Investment Research.
Early November, the Reserve Bank of India (RBI) issued its latest notification on the rules, now called FEMA 20. Investments made on a non-repatriable basis are now to be treated as domestic investments and not included in the foreign investment limits. That means such investments will be excluded from the FDI category, showing reversals in capital flows.
Equity instruments, i.e., equity shares (including partly paid up shares), debentures, preference shares and share warrants have now been clubbed under one definition of “Capital Instruments”. This means investments may have crossed upper limits with such expanded instruments. Accordingly, those needed to be reduced to ensure compliance.
“The monthly dip was certainly not due to any negative outlook but for technical reasons. Several declassifications brought in by the latest version of FEMA have triggered fund outflows,” said Sandeep Nayak, CEO at Centrum Broking. “Another reason may have been the increase in the promoter’s stake in a large telecom company. That has naturally culminated into an exit by a foreign investor.”
Bharti Telecom has increased its shareholding in Bharti Airtel to 50.10 per cent by acquiring over 184.7 million shares from Indian Continent Investment Ltd (ICIL), a foreign equity partner based out of Mauritius. ICIL’s ownership comes down to 2.03 per cent.
During November, there were three large IPOs that hit the market, raising about Rs 19,000 crore. Those included New India Assurance, Khadim India, and HDFC Standard Life. Some private equity or venture capital funds may have exited investments at a profit.
For instance, Standard Life (Mauritius), the joint venture partner sold about 5.4 per cent in the insurance business with HDFC Life.
FDI in India increased 0.27 per cent to $35.94 billion during the April-December period of the current fiscal.
In total, $5 billion in direct investments winged its way beyond India’s shores in November, about three times more than the usual monthly withdrawals. Changes to the Foreign Exchange Management Act (FEMA), which governs overseas investments into India, may help explain the seemingly drastic outflows.
“While some private equity investors may have exited their India investments before the IPOs, the latest version of the FEMA Act is also likely to have shown higher outflows optically,” said Sahil Kapoor, chief market strategist, Edelweiss Investment Research.
Early November, the Reserve Bank of India (RBI) issued its latest notification on the rules, now called FEMA 20. Investments made on a non-repatriable basis are now to be treated as domestic investments and not included in the foreign investment limits. That means such investments will be excluded from the FDI category, showing reversals in capital flows.
Equity instruments, i.e., equity shares (including partly paid up shares), debentures, preference shares and share warrants have now been clubbed under one definition of “Capital Instruments”. This means investments may have crossed upper limits with such expanded instruments. Accordingly, those needed to be reduced to ensure compliance.
“The monthly dip was certainly not due to any negative outlook but for technical reasons. Several declassifications brought in by the latest version of FEMA have triggered fund outflows,” said Sandeep Nayak, CEO at Centrum Broking. “Another reason may have been the increase in the promoter’s stake in a large telecom company. That has naturally culminated into an exit by a foreign investor.”
Bharti Telecom has increased its shareholding in Bharti Airtel to 50.10 per cent by acquiring over 184.7 million shares from Indian Continent Investment Ltd (ICIL), a foreign equity partner based out of Mauritius. ICIL’s ownership comes down to 2.03 per cent.
During November, there were three large IPOs that hit the market, raising about Rs 19,000 crore. Those included New India Assurance, Khadim India, and HDFC Standard Life. Some private equity or venture capital funds may have exited investments at a profit.
For instance, Standard Life (Mauritius), the joint venture partner sold about 5.4 per cent in the insurance business with HDFC Life.
FDI in India increased 0.27 per cent to $35.94 billion during the April-December period of the current fiscal.
