22 December 2015

Bill for bankruptcy law

The bill seeks to consolidate and amend the laws relating to reorganization and insolvency resolution and will also apply to partnership firms and individuals. 

The bill is a money bill, implying that Rajya Sabha will have a limited role in it, brightening its chances of passage. 

Bankruptcy bill provides for creation of an Insolvency and Bankruptcy Fund, an Insolvency and Bankruptcy Board of India to regulate insolvency professional, agencies and information utilities. 

The code allows a corporate debtor itself to initiate insolvency resolution process once it has defaulted on a debt. 

The code provides for time limit of 180, days extendable by further 90 days, for completion of insolvency resolution process 

Financial creditors can also initiate corporate insolvency resolution process. 

The cumbersome insolvency resolution is one of key reasons for India's low ranking of 130 on the World Bank's Ease of doing business ranking. India is currently ranked at 136 on this measure in the 189-country ranking. Resolving a bankruptcy case can take on an average over four years in India. The government is keen to address this through a specific law to resolve insolvency. 

16 December 2015


Image result for fed
How did the markets, especially Indian markets, react to earlier fed rate hikes? Since 1983, the US Fed has raised rates six times, the last one being in 2004. For Indian markets, however, the last three – in 1994, 1999 and 2004 – are more relevant since foreign money data has been maintained by Sebi only from 1993 onwards.

The first hike, which could have impacted Indian, markets since 1993 was announced on February 4, 1994. BSE Sensex had rallied by 69% from 2,336 to 3,947 six months prior to the hike. In the next six months, the pace slowed to 8.3% touching levels of 4,276. But importantly FII inflows were positive in the six months following the rate hike.
The second rate hike started just before the dotcom bubble burst as the US government felt its economy was heating up. The Fed started increasing rates from June 30, 1999. Indian markets were warming up to the global rally with some help from participants like Ketan Parekh. From levels of 3060 Sensex touched 4144, a gain of 35% as the US Fed decided to hike rates. Indian markets continued to move higher, taking the rate hike in its stride and touched 5375, a gain of nearly 30% in the next six months.
FII flows were positive for all the six months prior to the hike and saw selling in three months after the hike. The month of July 1999, the very next month after the hike was a positive month for FII flows, but small levels of selling was witnessed in the following three months. The last two months saw good buying interest resulting in a strong positive figure for the six months following the rate hike.
The most recent hike was on June 30, 2004. Indian markets had fallen, thanks to a change in government after the popular Vajpayee government lost the mandate. Markets were trading 18 per cent lower from 5,915 levels at the start of the year to 4,874.
FII flows were negative in the month of May 2004, when election results were announced. Inflows trickled in for the next two months but zoomed higher in the final four months of the year. This resulted in market posting a sharp 28 per cent gain in the six month period following the hike.
As we head in for a likely scenario of a rate hike in mid-December 2015 Sensex is down by nearly 11% in the last six months. FIIs have been net sellers in four of the last six months with the total being a negative figure.
This scenario has not been witnessed in any of the earlier rate hikes as new players like ETFs and Hedge Funds are wary of the uncertain future. History however suggests the following six months of a rate hike are better.