|December 10, 2010 |
In order to increase the subscriber base in the unorganised sector (i.e. private sector), for the struggling New Pension Scheme (NPS), Mr. Yogesh Agarwal - Chairman of PFRDA (Pension Fund Regulatory and Development Authority) is now making smart moves.
One of the strategy adopted by the regulator, is to use technology to offer the pension plan online. And hence as a step in that direction, earlier this week PFRDA tied up with ICICIdirect.com to offer investors the option of investing online. Hence, now one can start an SIP (Systematic Investment Plan) (by signing in an ECS mandate form with ICICIdirect.com) for as low as 500 a month and also track the net asset values online. But in order to avail the same, ICICIdirect will charge 40 for opening an account and 20 for every subsequent transaction.
Also as a strategy for the off-line model (of business) to promote NPS, PFRDA has decided to put distributors (who run "points-of-presence"), on notice for non-performance and de-register them if they fail to take measures to improve sales. The 40 points-of-sale which consists mostly of banks, receive 40 for every new pension account they open. According to Mr. Agarwal, 90% of them have failed to perform. "If they fail to perform, we will ask them to make way for ones that are willing to," he said.
He also added further saying - "The total corpus of NPS is 7,000 crore, whereas collections from the unorganised sector under the scheme is only 40 crore. The Bajpai Committee report is expected by January 2011, which will help in studying as to why the contributions from the unorganised sector are low."
While we think that the steps taken by PFRDA will help in increasing sales. But in our opinion the main reason why NPS has failed to appeal the unorganised sector specially, is due to lack of withdrawal facility upto the age 60 years (in Tier I account). Also when you withdraw the money after attaining 60 years of age, it is taxable.
The month of November 2010, saw a couple of scams unfolding in India. First the 2G spectrum scam and then "Adarsh" along with the housing loan scam which exposed some big names such as LIC Housing Finance, Central Bank of India, Bank of India, Punjab National Bank and Money Matters Financial Services Ltd.
These scams created both economic as well as political uncertainty, as some bigwigs from the corporate and political sphere were also forced to submit their resignations.
The markets in effect took a beating due to these factors along with the global ones (Ireland debt crisis and increase in unemployment number in U.S.) and ended the month in the negative terrain by 511.1 points (or -2.6%).
(Source: ACE MF, PersonalFN Research)
But FIIs (Foreign Institutional Investors) did not reveal any signs of worry from this. Rather they exuded confidence in the Indian equity markets. In fact at every correction of the Indian equity markets, the FIIs bought more thus betting on the robust long-term economic outlook. In the month of November 2010 FIIs bought worth 18,293 crore, whereas on a YTD (Year Till Date) basis they have bought 1,33,680 crore in the Indian equity markets.
We believe that continuous participation by the FIIs in the Indian equity markets reveals their confidence in India's long-term economic prospects. However, as we go forward and if bigger picture of these scams are displayed, then that would pose a risk for the markets. Also another noteworthy point is that huge dependence on FII inflow would make India vulnerable to volatility caused by FII flows. Hence, in such a situation taking into account that the market are at their all time high of 21,000 it would be prudent to adopt the Systematic Investment Plan (SIP), while investing in equity mutual funds, and continue to invest for the long-term.
To read more about FII and mutual fund activity during November 2010, Click here
Bank's investments have been under the scanner of the Reserve Bank of India (RBI) as the analysis of the pattern of banks' investments in mutual funds (MF) shows that inflows tend to be volatile, typically during the beginning and end of a quarter and also during times of a sharp surge in loan demand. This was evident when the banks emptied their MF investments when they had to lend around 1 lakh crore to telecom companies to pay various spectrum fees.
The RBI has also been concerned over the investments in mutual funds by banks, essentially debt funds because it amounted to diverting from its (banks) core business of lending. There have also been fears of 'circularity' of fund flows from banks to mutual funds and back through the Collateralised Borrowing and Lending Obligation (CBLO) route. Also, mutual funds subscribed to commercial papers issued by corporates, which affected the resource flow to commercial sector by banks.
Therefore in order to keep a check on banks' investments in MFs, the RBI in collaboration with SEBI (Securities and Exchange Board of India) will finalise the guidelines for banks' investments in mutual funds.
We believe that if such a prudent step is taken by RBI in collaboration with SEBI, volatility would be reduced considerably which in turn would help mutual fund investors. This initiative by the RBI may also direct banks to regularise their investment options.
|Weekly Facts |
|Close ||Change ||%Change |
|BSE Sensex* ||19,508.89 ||(458.0) ||-2.29% |
|Re/US$ ||45.22 ||0.2 ||0.15% |
|Gold /10g ||20,430.00 ||(95.0) ||-0.46% |
|Crude ($/barrel) ||90.91 |
|2.3 ||2.65% |
|FD Rates (1-Yr) ||6.50% - 7.75% |
Weekly change as on December 09, 2010
*BSE Sensex as on December 10,2010
In this issue
In an interview with Mr. Ashish Gupta - Director, Credit Suisse Securities India, shared his views on earnings outlook of India, markets in 2011 and FII (Foreign Institutional Investors) flows in the country.
On the earnings outlook Mr. Gupta believes that India's earnings growth for the current fiscal would be over 25%, and over 20% for the next financial year thus offering good growth potentials. In terms of valuations he thinks that India is relatively expensive to other regions but still not at its peak relative to its history, and thus the index (BSE Sensex) has a target of about 21,600 which offers a growth rate of about 8% levels from the current level.
Mr. Gupta is of the opinion that India's share to FII inflow would moderate. But given the global liquidity environment, FII inflows into Asia in absolute term will larger than last year. "We expect 2011 inflows into Asia to be better than inflows of 2010. Although India's share in that will come down, we are not expecting a major slowdown in the absolute level, at least. We are not expecting foreign flows to turn negative", he said. Also according to him, none of the scams unearthed recently pose a systemic risk. But he's also of the view that, if there is something which escalates further and thus starts posing a systemic risk then there are chances of some volatile FII flows. He estimates that there could be $20 billion of new paper (IPOs and FPOs) coming in 2011 including $6 - $7 billion coming from Government; and for that he says India would need about $30 - $40 billion of foreign flows in the year just to have a flat market.
Principal Mutual Fund launched "Principal Smart Equity Fund", an open-ended equity scheme mandated to invest in large cap stocks by following a dynamic asset allocation model.
According to the offer document, the scheme's investment objective is "to generate long term capital appreciation with relatively lower volatility through systematic allocation of funds into equity; and in debt / money market instruments for defensive purposes. The Scheme will decide on allocation of funds into equity assets based on equity market Price Earning Ratio (PE Ratio) levels. When the market become expensive in terms of 'Price to Earnings' Ratio; the Scheme will reduce its allocation to equities and move assets into debt and/or money market instruments and vice versa."
The scheme follows the under-mentioned dynamic asset allocation model by tracking weighted average Price Earnings Ratio (PER) of S&P CNX Nifty.
(Source: Scheme Information Document)
To read more about Principal Smart Equity Fund
Dynamic Asset Allocation : A portfolio management strategy that involves rebalancing a portfolio so as to bring the asset mix back to its long-term target. Such rebalancing would generally involve reducing positions in the best-performing asset class, while adding to positions in underperforming assets. The general premise of dynamic asset allocation is to reduce the fluctuation risks and achieve returns that exceed the target benchmark.
QUOTE OF THE WEEK
"Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected."
- George Soros
This Week's Poll !!!
Should SEBI Chairman - Mr. C.B. Bhave get an extension in his term by another 2 years?
To Vote Now!
- In a surprise turn of events, present SEBI Chairman - Mr. C.B. Bhave would probably get an extension in his term by another 2 years.
Until Mr. Bhave's name came up, the contenders topping the list of the high-level search panel, included name such as Mr. U. K. Sinha, AMFI (Association of Mutual Funds in India) Chairman and Mr. R. Bandyopadhyay, Corporate Affairs Secretary.
A proposal to extend the SEBI Chairman's term from three to five years will be in line with the Sixth Pay Commission's recommendation that regulators should be given a fixed tenure of five years.
- Kotak Mahindra Mutual Fund revised the investment objective of its flagship fund - Kotak Mahindra 30 Unit Scheme (Kotak 30) to aid the fund's performance in light of changing stock market dynamics.
It has also proposed to change the name of the scheme to Kotak 50. As per the new investment mandate, Kotak 50 will invest in maximum of 59 stocks from a mandate of maximum 39 stocks earlier. However, the asset allocation and the investment strategy of the scheme shall continue to remain the same consequent to the change.
- The Lok Sabha informed that the additional interest of 1.0% (i.e. the difference between 9.5% and 8.5%) on Employees Provident Fund (EPF), would be exempt from income tax.
Earlier on September 15, 2010 the provident fund trustees raised the EPF interest rates from 8.5% to 9.5%. And as per the present tax rules interest on EPF is exempted only upto 8.5 %.
"The matter has been discussed with Finance Ministry and they have informed that they will revise the notification to 9.5% once it is approved by the Government", Minister of State for Labour and Employment Harish Rawat said.
- Bajaj Allianz Insurance introduced unique range of products under the name of Ability Insurance for the specially-abled under general, life, motor and health insurance categories.
The features of the products will be explained in audio-visual format with sign language as well as in Braille for the visually-impaired in order to cater to all kinds of physical disabilities and simplify the process of buying Ability Insurance.
- Motilal Oswal Asset Management Company filed a draft Scheme Information Document (SID) with SEBI for the Motilal Oswal MOSt Shares Midcap Exchange Traded Fund (ETF).
MOSt Shares Midcap ETF, will be open ended and will seek to track the CNX Midcap Index. This ETF will be first of its kind in India which will track the performance of the mid cap segment of the broader stock market.
- UID (Unique Identification) may soon be required for all securities transaction. At present the Ministry of Finance (MoF) is seeking views of capital market regulator - SEBI on making UID number mandatory.
This move, if implemented, could help the former track incidents of frauds and money laundering in market transactions.
- The Government of India (GoI) enhanced the economic projections for the fiscal year 2010-11 from 8.5% to 8.75%, and is also not ruling out the possibility of it breaching the 9.0% mark.
However, while making such a projection the Government hasn't ruled out the spill-over of the European economic woes and increase in global food prices.
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