India Financial and Legal Press Review

The annual inflation rate in India rose to 0.26% for the week ended April 11, 2009. During the previous two weeks, the annual inflation rate was 0.18%, which is the lowest level that the annual inflation rate has reached in the thirty-two years that annual records on inflation in India have been kept.
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Indian technology company Tech Mahindra has raised funds to complete its Rs.2,910 crores (approximately US$582 million) acquisition of a 51% stake in Satyam Computer Services Limited (Satyam). Tech Mahindra raised the majority of the acquisition funds by issuing non-convertible debentures and commercial paper and by borrowing from non-banking financial institutions. It is also using Rs.700 crores (approximately US$140 million) in internal accruals to fund the acquisition. The acquisition of Satyam is being made through Tech Mahindra's subsidiary Venturebay Consultant.
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French bank Calyon stated in a research note that it expects the Indian economy to grow by 5.5% in 2009. This would be the lowest level of economic expansion in India since 2002. The reduced level of expansion in 2009 is attributed to a decline in both domestic demand and exports.
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U.S. Treasury Secretary forecasts that the Indian economic growth rate will fall to 5.5% in the fiscal year ending March 31, 2010 (The Economic Times)

US Treasury Secretary Timothy Geithner stated that India's economy is expected to grow by only 5.5% in the fiscal year ending March 31, 2010 due to reduced external demand for Indian goods and lower foreign direct investment. India's average economic growth rate for the previous three years was 8.8%.
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The RBI cuts the repo rate and reverse repo rate by 0.25% each (The Economic Times)

The Reserve Bank of India (RBI) has cut the repo rate and the reverse repo rate by 25 basis points each to 4.75% and 3.25%, respectively. The repo rate is the rate at which the RBI lends money to banks while the reverse repo rate is the rate at which banks make funds available to the RBI.
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Indian companies raised Rs.37,800 crores (approximately US$7.45 billion) through bond issuances in the three months ended March 31, 2009.  This is a 44% increase over the amount raised through bond issuances during the same period last year.
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Foreign direct Investment into India increases sharply in 2008 (Economic Times)

Despite the global economic downturn, foreign direct investment into India increased from Rs.65,495 crores (approximately US$12.98 billion) in 2007 to Rs.139,725 crores (approximately US$27.68 billion) in 2008, an increase of 113.3%. Foreign direct investment from Mauritius accounted for 43.7% of all foreign direct investment into India during 2008, making Mauritius India's biggest investment partner. Singapore was India's second biggest investment partner in 2008, accounting for 11.3% of the total foreign direct investment into India. In contrast, the U.S., the United Kingdom and Germany accounted for 5.4%, 5% and 2.4%, respectively, of the total foreign direct investment into India in 2008.
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Private equity investment in India declines to US$210 million in March 2009 (The Financial Express)

Private equity (PE) investment in India during March 2009 totalled US$210 million from 15 deals compared to total PE investment of US$291 million from 18 deals in February 2009. Furthermore, total PE investment in India during March 2009 contrasted sharply with total PE investment in March 2008, when 22 PE deals totalled US$1.3 billion.

The average PE deal size in India in March 2009 was US$16 million compared with US$68 million in March 2008.
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Data released by India's Central Statistical Organisation showed that India's industrial output fell by 1.2% in February 2009 due to weak domestic and global demand. In contrast, Indian industrial output grew by 9.5% in February 2008. The 1.2% decline in February 2009 was the steepest annualized decline in India's industrial output in fourteen years.
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Former RBI governor forecasts that the Indian economy is likely to recover in the second half of 2009 (Business Standard)

Former Governor of the RBI and Member of Parliament C. Rangarajan has stated that he expects the Indian economy to recover in the second half of 2009.
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The Indian Finance Ministry has imposed a maximum levy of US$1,823 per ton on cold-rolled flat stainless steel products, largely used by the automotive industry, imported into India for a period of six months on the recommendation of India's Directorate General of Anti-Dumping (DGAD). The DGAD recommended the imposition of a duty on imported high-end stainless steel products as it believes that India's high-end stainless steel industry has suffered a material injury due to cheap imports from China, Thailand, the U.S., Spain, Korea and France.
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Funds raised through rights issues in India declined by 61% in the fiscal year ended March 31, 2009 to Rs.12,622 crores (approximately US$2.57 billion) from Rs.32,518 crores (approximately US$6.63 billion) in the previous fiscal year according to a report released by New Delhi based Prime Database.

The report also states that the fiscal year ending March 31, 2010 promises to be a better year for rights issues in India as twenty Indian companies have already applied for or obtained approval from the Securities and Exchange Board of India (SEBI) for their respective rights issues. In contrast, only twenty-three companies undertook rights issues in India during the entire fiscal year ended March 31.
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A survey conducted by Korn/Ferry International at the end of March 2009 found that 53% of Indian executives interviewed believe that the Indian economy is still in a severe recession. On the other hand, 24% of the executives interviewed felt that the Indian economy is now recovering from the recession. The number of executives who believe that the Indian economy is still in a severe recession fell 8% compared to the results of a similar survey conducted in early March 2009, while the number of executives who believe that the Indian economy is now recovering increased by 11% since the early March 2009 survey. The increasing optimism is attributed to the sustained stock market rally in March.
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According to data released by India's Central Statistical Organisation, India's information technology (IT) sector is likely to have grown 9% during the fiscal year ended March 31, 2009, compared with an average growth rate of 25% for the previous three years. The IT sector constitutes 3.5-4% of India's gross domestic product.
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A research report entitled "Private Equity Pulse Education" prepared by Venture Intelligence has found that over 80% of PE and venture capital fund managers are considering plans to invest in education sector companies in India during the next six to eight months.
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A survey conducted by the Indian School of Business and the Vale Columbia Centre on Sustainable International Investment at Columbia University has found that Indian multinational corporations are particularly focused on Europe as an investment destination. A third of all foreign affiliates of Indian multinationals are located in Europe. The survey identified 24 Indian multinational corporations that are among the largest outbound investors from India.
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SEBI will now permit foreign institutional investors (FIIs) and mutual funds to invest in Indian depository receipts (IDRs). SEBI expects this change to widen the investor base for IDRs thus increasing liquidity for IDRs. Previously, only Indian citizens were allowed to invest in IDRs.

An IDR is a tradable receipt representing a fixed number of shares of a non-Indian company that are on deposit with a custodian. IDRs enable foreign companies to raise funds on Indian stock exchanges.
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SEBI is currently considering a proposal to make it mandatory for all companies listed on an Indian stock exchange to purchase directors and officers (D&O) liability insurance. Statistics show that less than 10% of the companies listed on the Bombay Stock Exchange have any type of D&O insurance policy in place. D&O policies typically provide cover for directors and officers against liabilities resulting from misleading financial statements and mismanagement of funds. They may also provide coverage to companies with respect to litigation payments made on behalf of directors or officers.
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SEBI is set to reconsider the need for a maximum 10% quota for the reservation of shares for employees in initial public offerings (IPO). SEBI regulations provide that up to 10% of the issue size of an IPO may be reserved for subscription by employees. Companies are free, however, to set a quota below 10% and often do so. Moreover, the employee quota is often undersubscribed or much below the overall subscription levels.
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SEBI has announced that no Indian mutual fund can invest more than 30% of its net assets in the money market instruments of a single issuer. The cap, which is intended to mitigate the risk of concentration, does not apply to investments made in government bonds, treasury bills and collateralised borrowing and lending obligations.
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The RBI has provided notice that it will allow banks to guarantee loans for periods of more than ten years. Previously, only certain government-designated financial institutions dedicated to financing developmental projects in India were allowed to guarantee loans for periods of more than ten years. The RBI has cautioned banks, however, to properly assess the impact of issuing long-term guarantees beyond ten years and stated that a policy on issuing such guarantees must be approved by each bank's board of directors.
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©2010 Dorsey & Whitney LLP.  This article is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances.  An attorney-client relationship is not created or continued by reading this article.   Members of the Dorsey & Whitney LLP group issuing this communication will be pleased to provide further information regarding the matters discussed therein.