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Why do NRIs/FPIs pay more?

Regulatory gotchas

The Reserve Bank of India (RBI) publishes a list of securities that are off-limits for NRIs and FPIs. This list can be found here.

As you can tell, the process is very unstructured and adhoc. The execution risk (the risk of buying a security that is off-limits) rests on the broker (StockViz). We have attempted to quantify that risk in terms of higher fees.

Operational friction

Typically, there are 3 parties to a transaction: the client, StockViz and Composite Investments. Composite provides margin, client executes trades through StockViz and the pay-in goes directly to Composite.

However, with NRIs, there is an additional party: the bank that manages the NRI’s PIS account. Here, Composite has to present the contract note to the bank, who will then transfer money from the client’s account to Composite. If there were any transactions that were deemed “off-limits” by the RBI, StockViz will only get to know about it at this stage. Also, with the additional cog in the wheel, there is an element of payment risk that we have attempted to quantify in terms of higher fees.

Account opening charges

All documents provided by the NRI/FPI needs to be notarized in India. These docs typically run into 20-30 pages. Plus, the account opening docs need to be couriered to the prospective client. We have quantified these charges in our upfront account opening fee of Rs. 5000/-

 
 

Sunder’s List: Bye Bye Commodities?

Roundup: S&P +0.47%, Dow +0.14%, Nasdaq +0.86%, Gold $1,429.50, London -0.09%, Germany +0.24%, France flat. Nikkei at pixel: -0.28%, Hang Seng: -1.15%

Flash China Manufacturing PMI at 50.5 (51.6 in March). Two-month low. New export orders contracted suggesting external demand for China’s exporters remains weak. Weaker overall demand has also started to weigh on employment in the manufacturing sector. (Markit)

The US yield curve says investors have given up on inflation. The TIPS yield curve has been turning structurally negative and this has been affecting commodities. (FT)

Fluctuation in gold prices will not have any significant impact on the portfolios of gold loan companies… say gold loan companies. (ET)

Asia is witnessing one of the strongest waves of physical gold buying in 30 years. The feverish buying has left many of Hong Kong’s banks, jewellers and even its gold exchange without enough yellow metal to meet demand. In Shanghai, the gold exchange saw volumes – often seen as a proxy for demand – rising to a record on Monday, while queues formed outside some jewellery shops in Beijing. (FT)

Speaking of gold, the RBI’s gold stock of about 400 tonnes has appreciated 41% since it bought 200 tonnes in October-November 2009 from the IMF. So we can now pledge 400 tonnes of gold the next time we have a balance of payments crisis. (ET)

Good luck!

 

High-Frequency Trading is Hitting the BRICs

in India, the BBC noted that nearly a quarter of all trading is now done using algorithms, a number that’s virtually assured of an exponential jump as well. The Bombay Stock Exchange, a $1.5 trillion marketplace, said it expects such trading to double over the next three years, which would put that nation on par with Europe and the U.S.

via High-Frequency Trading is Hitting the BRICs – Advanced Trading.

Indians can now buy expensive coffee and assemble their own furniture

The government ratified a Nov. 24 cabinet decision to raise the ownership limit to 100 percent from 51 percent for single- brand, Trade Minister Anand Sharma said in a statement yesterday. The new rules take effect immediately and require the companies to use smaller Indian companies for at least 30 percent of procurement, he said.

via India Lets Starbucks, Ikea Open Wholly Owned Stores After Wal-Mart Reverse – Bloomberg.