The Insurance Regulatory and Development Authority (IRDA) is planning to assess the cost of its decisions on insurers and the subsequent impact on the cost of insurance policies.
Last year IRDA began its "clean-up" drive by tightening its grip over Unit Linked Insurance Plans (ULIPs) and subsequently extending it to the traditional plans. As a result of these drastic changes forced upon by the IRDA, insurance companies had to incur higher costs in order to meet the higher disclosure requirements, large regulatory changes in products and tightened distribution norms.
Insurers also incurred costs over strengthening accounting teams, reworking product structures, training sales teams, reprinting brochures and working out new advertising strategies.
We believe that such an initiative from the IRDA was required keeping in mind the pace at which it brought about changes in the insurance industry. It will be interesting to see how policyholders have been affected due to the "clean-up" drive started by IRDA.
IRDA now will be in a better position to gauge the impact (good or bad) of its decisions and if necessary should find a solution to reduce the adverse effect of its decisions on policyholders.
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Going by the mantra of self-regulation is the best regulation, the Securities and Exchange Board of India (SEBI) is planning to set up an intermediary regulatory body with representation from among the wealth managers themselves. Under this proposed self-regulatory model the market watchdog will put the onus of complying with regulations entirely on the wealth managers.
The Self-Regulatory Organisaton (SRO) thus created under SEBI's guidance would work as the first-stage regulator as also market development authority. SEBI's decision of setting up a self-regulatory organisation for wealth managers has been taken with a twin objective of regulating them without hampering growth prospects.
Further the wealth managers or investment advisors would be asked to develop a stringent code of conduct in consultation with SEBI, which would be complemented with stern penalty measures for erring entities. As an initial funding SEBI would provide Rs 10 crore for setting up of this SRO for wealth managers, after which the industry would have to pool in their own resources.
In our opinion there is no harm in setting up a SRO for wealth managers as long as the interests' of the investors is kept in forefront. Self-regulation would bring a sense of urgency amongst the wealth managers as the responsibility of complying with the regulations will be entirely on them (wealth managers).
However, SEBI should carry out regular checks and balances of the SRO to ensure that it is moving ahead on the right track. This is necessary as many a times wealth managers develop complex products which are difficult to understand. Keeping the product simple and easy to understand is in the best interests' of both investors as well as wealth managers.
Also, the SRO should have proper grievance redressal mechanism to cater to investor complaints and a quick turnaround time to provide relief measures.
(Source :ACEMF , PersonalFN Research)
(Data for DII (Domestic Institutional Flows) are available on a provisional basis)
Buoyed by consistent Foreign Institutional Investor (FII) flows, the Indian equity markets gained 3.18% for the period March 28, 2011 to April 26, 2011. However, the upward journey of the BSE Sensex was cut short twice by the lack of support from the Domestic Institutional Investors (DIIs) (as seen in the above graph). On a cumulative basis DIIs were net sellers to the tune of Rs 3,620 crore whereas FIIs were net buyers to the tune of Rs 12,651.
The sell-off in the DII segment and subsequently in the BSE Sensex can also be attributed to heavy buying in the precious metals like Gold and Silver. Many High Networth Investors (HNIs) began to shift their exposure in equity to re-own safe haven assets like Gold and Silver, as these precious metals have been breaking all the barriers to their northward journey. Many PMS Managers have recently lured HNIs with attractive looking structured products (some of them even backed by silver futures as their underlying asset). This has led to increase in demand for silver and at the same time has reduced the interest in equities. Also, in the present scenario of uncertainty in the long term growth prospects in the developed nations, gold and silver provide the perfect hedge to shield a portion of one's investment portfolio.
We believe that as long as the crude oil prices remain high (above $120), unrests like Libya takes place across the MENA region, dollar remains weak and political scenario remains tense due to various scams, precious metals like gold and silver will continue to attract investors across the globe. As such we may see more shifts in the asset allocation of Indian investors from equities to gold and silver going forward. Unless the actual long term money starts flowing in from the foreign investors (in the form of FDI) which can bring confidence back among the Indian investors and the Indian equity markets, we may continue to see such weak support from the DIIs.
Gold will however continue its secular upward trend being a safe haven. Moreover, silver too will continue to shine on the back of huge industrial demand due to its characteristics (silver is the most ductile and malleable metal after gold).
|Weekly Facts |
|Close ||Change ||%Change |
|BSE Sensex* ||19,135.96 ||(466.3) ||-2.38% |
|Re/US$ ||44.43 ||(0.1) ||-0.23% |
|GoldRs /10g ||22,130.00 ||410.0 ||1.89% |
|Crude ($/barrel) ||125.67 ||4.1 ||3.37% |
|FD Rates (1-Yr) ||7.00% - 9.25% |
Weekly change as on April 28, 2011,
*BSE Sensex as on April 29, 2011,
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In an interview with the Economic Times, Mr. Thomas Kalaris - Chief Executive at Barclays shared his views on European debt crisis, agriculture sector in India, Indian equities and alternate assets like gold, silver and real estate.
Mr. Kalaris believes that the Europe has strong fundamentals. Explaining further on the issue of Europe debt crisis, he said, "I don't expect any European state to default on repayments. The fundamental strength of countries involved in the process (debt financing and restructuring) will take Europe out of debt. It will be a painful process, but it will surely work. Europe is moving through a phase where there is fiscal stringency and monetary leniency co-existing at the same time."
On agriculture sector in India, Mr. Kalaris thinks that growth in the agriculture sector will fuel growth in India. He explains further that India has had a good monsoon for years in a row and has predicted a decent one this year as well. However, he cautions that power is a big problem in India but he believes that there is enough going at the government level to solve the power crisis in the country.
As far as Indian equity markets are concerned, Mr. Kalaris is of the opinion that at a forward PE of 15.5 times, Indian market is quite attractive. He advises that investors should bet on consumption stories in India. According to him, the balance of trade is moving in favour of the rural economy and that the investments in and around rural economy will provide buffer from external challenges or shocks.
Expressing his views on alternate assets like gold, silver and real estate, Mr. Kalaris said that, "I am not long on gold or silver. I expect prices of both gold and silver to drop in a year's time. Our analysts feel the rally in gold and silver is plainly due to the appreciating currency factor. Given the demand-supply situation, gold and silver do not warrant such high valuations. Real estate is more of a regional play. Our analysts expect a downward pressure on real estate prices as a result of the rising interest rates and low affordability of people to buy real estate at high prices."
Forward P/ E: A measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. While the earnings used are just an estimate and are not as reliable as current earnings data, there is still benefit in estimated P/E analysis. The forecasted earnings used in the formula can either be for the next 12 months or for the next full-year fiscal period.
QUOTE OF THE WEEK
"Wealth is not his who has it, but his who enjoys it."
- Benjamin Franklin