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MUMBAI | 14 DECEMBER 2019 ECONOMY 5 <

New liquidity window for NEFT settlement

Tax woes: HNIs ANUP ROY
Mumbai, 13 December
would be set by the RBI from To give banks more flexi-
time to time, it said in a bility and to facilitate their liq-

restrict flows to From Monday, there will be

another intraday liquidity
facility to enable 24x7 settle-
ment of funds under the
statement.
However,
“the outstanding
drawing at the
end of the day
The central bank
recently allowed
round-the-clock
uidity man-
agement, as
an interim
measure, the
central bank

long-short AIFs
national electronic funds under the LS transfer under NEFT, also provid-
transfer (NEFT) payment sys- (liquidity sup- but banks raised ed an addi-
tem, the Reserve Bank of port) facility will doubts about the tional fixed-
India (RBI) said on Friday. be automatical- settlement issue. rate reverse
The RBI provides collater- ly converted into The RBI’s new repo (in
alised liquidity adjustment borrowing window, exclusively which it
PULLING BACK facility once a day — cut under the MSF”. for the settlement absorbs liq-
CategoryIII AIFs see reduced recently from two such facili- The central bank recently ly for the settlement purpose, The MSF is purpose, will ease the uidity) and
investor commitments for first- ties a few months back — and allowed round-the-clock will ease the pressure done at a 25- pressure significantly MSF
time since 2012 banks can borrow additional transfer under NEFT, but significantly. basis-point high- (through
 Commitments raised (~ crore) liquidity under an emergency banks raised doubts about All banks will be eligible er spread than which it
window called marginal stand- the settlement issue. The for the intraday facility, while regular liquidity operations, lends at a slightly higher cost)
47,055 42,223 ing facility (MSF). RBI’s new window, exclusive- the limit for such a facility which is done at the repo rate. window on all days.
40,785 43,254

Dec ‘18 Mar ’19 Jun ‘19 Sep ‘19

Source: Sebi

ILLUSTRATION: BINAY SINHA

JASH KRIPLANI
Mumbai, 13 December
lternative investment
down 6.7 per cent, and
fundraising declined over 7
per cent.
“There have been investor
redemptions in products that
investors, who opt for struc-
tured products such as AIFs for
slightly superior risk-adjusted
returns.
Recently, Sebi proposed a

A funds (AIFs), especially

those that deploy long
and short strategies, are feeling
the pinch of higher taxation as
commitment to such products
from high networth investors
(HNIs) is reducing.
The data sourced from the
Securities and Exchange Board
of India (Sebi) showed that
commitments raised by cate-
gory-III AIFs in the September
quarter had reduced 10 per
cent quarter-on-quarter to
~42,223 crore. This was the first
quarter of reduction in com-
mitment since December 2012.
“The higher component of
taxation for long-short funds
has made such products less
compelling for clients. Spreads
compared to traditional fixed-
income products have dipped
on account of higher incidence
of tax,” said Gaurav Awasthi,
senior partner at IIFL Wealth.
Besides lower commit-
ments raised, investments in
category-III AIFs were also
offered debt-plus returns,”
said an industry official.
“Further, the new money
coming in has slowed down
because of the current market
conditions,” he added.
The Union Budget had
introduced higher taxation for
trusts and associations of per-
sons. This brought most of the
category-III AIFs within the
higher tax net, given that these
are structured as trusts.
Long-short funds comprise
65-70 per cent of the funds in
the AIF-III category. These take
long positions on stocks, where
they expect to see an upmove,
and short positions where stock
prices are expected to decline.
Following the Budget
announcement, funds — in
which income earned is above
~5 crore — saw an effective tax
rate of 42.7 per cent, up from
the earlier 35.9 per cent. This 6.8
percentage point rise in tax
could significantly weigh on net
returns of sophisticated
set of new norms in a bid to firm
up disclosure and performance
reporting standards followed by
AIFs, keeping investor interests
in mind. Experts say while such
measures are positive for
investors, the rolling back of the
higher taxation rate will ensure
investor interest remains intact
in long-short AIF products.
Over the last two financial
years, the total investments
made by AIFs have grown at a
compound annual growth rate
of 75 per cent.
In its consultation paper on
AIFs, Sebi has proposed the set-
ting up of a benchmarking
agency to show comparable
returns of various AIFs and
standardising the private place-
ment memorandum (or offer-
ing document), which informs
investors about various aspects
of an AIF such as fees, condi-
tions or limits on redemption,
investment strategy, conflict of
interest, and manner of wind-
ing up of the AIF.

Trade deficit narrows to

$12.12 bn in November
DILASHA SETH
New Delhi, 13 December
IN NUMBERS
Merchandise trade figures
India’s exports declined for over last 1 year in $bn
the fourth successive month Exports Imports
in November and for the fifth 50
time this fiscal year. This was 43.17 45
on the back of continuing 38.11 40
weak global demand and
depressed global crude oil 35
prices, which impacted the 30
processed petroleum prod-
25
ucts basket, shows govern-
26.50 25.98 20
ment data.
Imports contracted for the Nov ‘18 Nov ‘19
sixth straight month, driven
by petroleum, engineering
and industrial items, indi- goods rose 46 per cent, and early 2019 before crashing
cating sustained demand engineering goods were up from June onwards, even as
slowdown in the economy. 6.5 per cent, although export the industry continued to see
Contraction in non-oil of petroleum products volatility.
and non-gold imports deep- declined 13.12 per cent. “The rise in gold imports
ened during the month, at Inbound shipments dur- is likely to reflect restocking
11.96 per cent year-on-year to ing the month stood at $38 amid the festive and mar-
$24.2 billion, compared to a billion, higher than the $37.39 riage season, benefitting
contraction of 10 per cent in billion in October, with trans- from softening in global gold
October and 8.88 per cent in port equipment contracting prices; its sustainability
September. Non-oil and non- 48 per cent, petroleum 18 per remains to be seen,” Nayar
gold imports fell for the 13th cent, leather 7.6 per cent, iron said.
successive month. and steel 26 per cent, and In the first eight months
Besides, the lower valua- electronic goods 3.9 per cent. of FY20, exports touched
tion of crude oil imports Aditi Nayar, principal $211.9 billion, 2 per cent low-
helped narrow the trade economist at ICRA, said the er than the corresponding
deficit, compared to the year- substantial decline in import period last year.
ago period. of transport In FY19, exports had hit a
Exports fell equipment was a new high of $331 billion,
0.32 per cent in The lower matter of con- registering growth of
November, while valuation of crude cern, as was the 9 per cent.
imports declined oil imports helped decline in In October, the World
by 12.71 per cent narrow the trade imports of vari- Trade Organization revised
year-on-year, deficit, compared ous industrial its forecast for global trade
leaving a trade to the year-ago inputs such as growth this year to 1.2 per
deficit of $12.12 period coal, iron and cent, from a forecast of 2.6
billion against steel, non-ferrous per cent in April.
$16.61 billion last metals, project Oil imports fell sharply to
year, showed data released goods, as well as organic and $11 billion in November 2019
by the ministry of commerce inorganic chemicals, from $13.5 billion in
and industry on Friday. although this partly reflects a November 2018, accounting
Key export sectors such as YoY decline in commodity for around 46 per cent of the
leather, gems and jewellery, prices. YoY compression in mer-
ready-made garments, and “With the sharp fall in chandise trade deficit.
petroleum posted negative merchandise trade deficit to “Prolonged trade tensions
growth, leading to lower $23 billion in October- and protectionism, along
domestic production. November 2019, from $36 bil- with sluggishness in
Industrial production lion in October-November economies across the globe,
growth contracted for the 2018, we expect the current has further dented the Indian
third consecutive month in account deficit at sub-1 per export sector. The slowdown
October, by 3.8 per cent, com- cent of the GDP in Q3FY20,” projected across economies
pared to a 4.3 per cent fall in added Nayar. in the short and medium
September, showed data Gold imports rose 6.59 per term make a return to nor-
released by the central sta- cent in November after sev- mal trade relations between
tistics office on Thursday. eral months of decline, owing countries look like a mere
Overall exports for to the festival demand. probability,” said Sharad
November stood at $25.98 bil- Incoming gold shipments Kumar Saraf, president of the
lion, lower than the $26.38 narrowed by a moderate 4.7 Federation of Indian Exports
billion in the previous per cent last month, after Organisation (FIEO).
month, with only 13 of the 30 massive drops of 50 per cent, Services exports stood at
major product groups regis- 62 per cent, and 42 per cent $17.7 billion in November and
tering positive growth. in the past three months. imports at $10.86 billion,
Pharmaceutical exports Import of the precious resulting in trade surplus of
rose 20 per cent, electronic metal saw a consistent rise in $6.83 billion.