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RBI and SEBI make preemptive moves as Sensex sniffs 8,000
Mumbai: With share market operators propelling the Sensex close to the 8000-mark, stock and financial market regulators are taking steps to quietly apply brakes to what they see as a runaway sentiment on the bourses.

The RBI has asked banks and non-banking finance companies (NBFCs) to provide information on their advances against shares. The apex bank is making an attempt to check whether lending guidelines are being followed and also the extent of the role bank money has played in the upward climb of the Sensex.

While banks have a fixed cap on lending against shares, NBFCs have no such limit.

The Sensex has gone from about 7000 in May to near 8000 in just two and a half months.

Last week, the finance ministry okayed a Sebi proposal to radically transform the book-building process for IPOs. Under the proposed new rules, qualified institutional brokers (QIBs) will not be allowed to change their prices. The finance ministry believes that the high bids gives QIBs the power to set prices, and their lead is then followed by the smaller institutions.

Market regulator Sebi is also set to ban mutual funds from amortising issue expenses over a long period. The market regulator is acting on the basis of complaints that many mutual funds were amortising issue expenses over five years, putting long-term investors at a disadvantage.
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Finance Ministry clears new categorization for Fund of Funds
New Delhi: The ministry of Finance has agreed to permit categorisation of mother funds, also known as Fund of Funds (FoFs), into "equity-oriented" and "debt-oriented" funds for taxation purposes.

The Ministry has agreed to amend the tax laws to allow FoFs, that have over 50 per cent of their assets invested in equity mutual funds, to be treated as "equity-oriented funds". This would make such funds exempt from payment of the 12.5 per cent dividend distribution tax that is levied on debt-oriented mutual funds.

FoFs are funds that invest their assets in other mutual fund schemes and do not directly dabble in investments in equities or debt instruments. Under the present tax laws, normal mutual funds that have above 50 per cent of their assets invested in equities are categorised as `equity-oriented funds' with the remaining are termed `debt-oriented'.

Dividends declared by equity-oriented funds are tax-free in the hands of investor. Added to this, there is also no dividend distribution tax applicable on these funds. As against this, debt-oriented funds only have the benefit of the dividend declared being tax-free in the hands of the investor.

However, the laws do not provide for similar categorisation for FoFs as a result of which all such funds by default come under the debt-oriented category making them liable to payment of dividend distribution tax.

The mutual funds industry has been demanding a separate debt and equity categorisation of FoFs for tax purposes for the past couple of years.
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Assocham study: Fund mobilisation through IPOs decline
Mumbai: Despite the bull-run on the bourses, propelling blue-chip equities to record levels, mobilisation of funds through initial public offerings in the current year has declined, a Associated Chambers of Commerce and Industry study says.

The funds mobilised in the current financial year amounted only to a third of the Rs188.35 billion (US$4.32bn) that was collected in the same period previous year, the report said.

"The major reason for this drop in the funds mopped up was that previous fiscal year saw IPOs from giants like Oil and Natural Gas Corp, Tata Consultancy Services and ICICI Bank," said industry lobby group's president Mahendra Sanghi.

According to the report, there were mainly 16 initial public offerings in the current fiscal year so far against seven in the comparable period of the previous year.

The banking and financial services sector grossed in the largest resources of Rs41 billion (US$940mn) through the public issue route followed by textiles, power, IT, media, pharmaceuticals and steel.

Buoyed by the post-export quota opportunities, the textile sector raised Rs6.30 billion (US$144.56mn) through public offerings in the current fiscal to fund modernisation and upgradation plans, said the report.

Although the power sector saw only one public issue in the April-August period of the current fiscal year, it garnered Rs5.76 billion (US$132.17mn) through a big size offering of Jai Prakash Hydro Power.
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