Govt moots relaxation in FDI rules on JVs

The government on Friday proposed a major relaxation in FDI rules to allow foreign firms to bring in new technology and set up new independent business without clearance from their existing local partners.

The move is aimed at attracting foreign direct investment (FDI) into the country, which has recently slowed down.

Under the present dispensation, a foreign player who had set up a joint venture (JV) in India before January 12, 2005 but now wants to open a new business independent of the existing domestic partner faces barriers.

The foreign player not only needs the government approval but also a 'no-objection certificate' from the domestic partner to the effect that the new forays would not "jeopardise" interest of the existing JV.

"The proposal is a welcome move it will attract more and more FDI and will also bring in high quality products for Indian consumers at competitive price," Naresh Makhijani, Executive Director, KPMG said.

The FDI rules proposed to be relaxed were not applicable to the joint ventures entered after January 12, 2005. Thus, the changes would help foreign investors who entered JVs before this date.

Suggesting abolition of this rule, the Department of Industrial Policy and Promotion (DIPP) said in a discussion paper, "There is a need to examine whether such a conditionality continues to be relevant in the present day context."

Alternatively, it has suggested that the stipulation of no-objection from the domestic partner should not be applicable to JVs which are 10-year old.

It has invited comments from the stakeholders till October 15.

The move follows representations from foreign investors pointing out that their domestic partners were using a string of press notes since 1998 "as a means of extracting unreasonable prices/commercial advantage. These press notes had become a stumbling block for further FDI coming into the country."

The DIPP, the nodal agency for FDI related matters, said India has entered into a number of free trade agreements and several others are under negotiations.

"In such a scenario if an industry (FDI) is discouraged from being set up in India, it could be set up in a neighbouring country with whom a trade agreement exists or is being negotiated," it said.

India received USD 25.8 billion FDI in 2009-10.

After a pick up in the first two months of the current fiscal, the inflows have slowed down for June and July.

KRBL: Stock that gained 54% in 5 days

The catastrophic floods which have destroyed Pakistan's rice crop seem to have opened doors for India's Basmati rice producers. One of the beneficiaries has been Basmati rice exporter KRBL. Its stock price gained 54% over the last five days. Today, however, it managed just 1.80% or Rs 0.65 to end at Rs 36.80. It touched an intraday high of Rs 38.50 and an intraday low of Rs 36.05 and touched a 52-week high of Rs 38.50.

Why the run-up?

The most devastating floods in Pakistan’s history has destroyed crops and damaged infrastructure severely. A rice exporters’ group in Pakistan has forecast that exports may plunge significantly for the year.

In an interview, Anil Mittal, CMD, KRBL said, "The rice prices have increased by about USD 100 in the last 10-15 days. This is primarily because Pakistan floods have helped India to boost their prices. Since Pakistani prices have also increased by USD 100-150 in the last one month, that is the reason Indian prices have been boosted by USD 150 per tonne.

India, the second largesst producer of rice, had put into practice a trade ban on non-Basmati rice in April 2008 to increase the country's domestic supplies. The drought in 2009 further compounded issues for the government with a double-digit fall in rice production forcing it to continue with its restrictions in 2009.

Mittal however expects relaxations on export parameters for non-Basmati rice any time soon. "Looking at the monsoons and looking at the prospects of non-Basmati crop, I am quite confident that by October, the government will take the position of the crop and will definitely open the exports of non-Basmati rice."

As compared to about 2.8 million tonne of the total Indian export, KRBL's export this year is about 140,000 tonne. "We are expecting a 20% rise overall. The Indian exports of Basmati will jump by 20% this year because of the Pakistani floods," said Mittal.

What experts said during the week:

Rahul Mohindar, viratechindia.com told, "KRBL is pretty good from a long term count. But the stock has obviously run up to a good degree. It had a significant price and volume breakout over the last couple of weeks, which certainly makes this very potential longer run. But again if you are worried about the short term, Rs 36 to Rs 38 is a resistance area. We are still sitting in that zone where we might knock off 8% or 10%. So unless you are really worked out about the very short term I would still recommend holding on to the stock. We see this as a candidate for about Rs 52 and one has to be prepared that the stock can correct to something like Rs 31–32. So keeping that downside cushion, one should continue holding on to KRBL. It has made a case with the kind of volumes and price breakouts that we have seen over the last week where it shows that there is a lot more potential to come."

He added,"I am obviously looking at a timeframe of about 6 months plus. It’s a stock which can give you one of those sudden momentum moves. But again one should keep a timeframe of approximately 6 months in mind."

Mitesh Thacker, Technical Analyst, miteshthacker.com said, "We have seen a strong run-up in all the rice stocks. KRBL though it is difficult to give a price target on it, because it has broken into all time highs, but if we look at the momentum and the technical setup, there is at least a 15% upside, and Rs 40-42 should be easily tested probably even higher."