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| December 17, 2010 |
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Impact 
 In order to boost investor confidence in the equity markets, the Parliamentary Standing Committee (PSC) on Finance may soon bring a stricter regime relating to vanishing companies (they being listed entities), thus intending to make a more holistic framework for investor protection.
The PSC on Finance has criticised the current structure that provides a narrow definition of a vanishing company, resulting in weak enforcement action against entities disappearing with public money. "The ministry of corporate affairs should consider widening the scope of vanishing companies by broadening its definition to include, within the statutory ambit those entities collecting huge sums of money from the public by way of IPOs, deposits, insurance and myriad savings schemes," the committee said in its report.
At present a Co-ordination and Monitoring Committee (CMC), set up jointly by the Ministry of Corporate Affairs (MCA) and the capital markets regulator - SEBI, is the regulatory authority that tracks cases of vanishing companies and initiates action against its directors to retrieve the lost money. But this kind of protection is available only to listed companies and does not cover those that may be raising deposits or chit funds.
We believe that the Government is taking the right step in re-defining the law related to vanishing companies in order to get them under a stringent vigilance. According to the RBI, there have instances of as many as 736 companies vanishing with public deposits. Thus, if this mechanism of investor protection from vanishing companies is put into place and managed well, then there would be some avenue for the general public for their grievances to be heard and would also increase their confidence in equity markets.
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Impact
(Source: CSO, PersonalFN Research)
After maintaining its downward streak in the last couple of months, the Index of Industrial Production (IIP) for the month of October 2010 showed a smart up-swing by registering a growth of 10.8%, as against a meagre 4.4% shown in the previous month.
This smart up-swing in the October IIP number can be attributed to the following reasons:
- Accelerating manufacturing growth : The manufacturing index, which is the principal component of the IIP (constitutes around 80% of the index), rose to 11.3% from 4.5% in September 2010.
- Growth in sectoral performance : After taking a beating in the last couple of months, the capital goods index jumped to 22.0% from -4.2% registered in September 2010. Consumer durables too, registered a robust growth of 31.0% from 10.9% in September 2010. However, consumer non-durables took a beating by growing at meagre 0.1%, as against 2.5% in September 2010.
Reacting to the IIP, the Finance Minister - Mr. Pranab Mukherjee said, "This (industrial growth) is quite encouraging. I hope this trend will continue and double-digit growth in industry would be possible."
We believe that the sharp up-swing in the IIP number is fuelled by increase in production to meet festive demand during the month of October and November. |
Impact 
 The Securities and Exchange Board of India (SEBI) in the week before had said that the investments above  1 crore in short-term debt funds, if done after the cut-off time of 2 pm, would be eligible for the Net Asset Value (NAV) of that day and not the preceding day. This implies that any investment below 1 crore will not be subjected to such treatment.
Spotting this loophole to get around the SEBI diktat barring companies from pocketing 'dual returns', some of the institutional investors (corporate treasury departments) have begun spreading their cash surpluses in a series of liquid schemes, so that no single scheme has an investment of 1 crore and above. This makes the investment eligible for previous day's NAV. The institutional investors then make an application for a switch to liquid plus schemes (which works on the basis on daily NAV), thus pocketing dual returns without actually investing in liquid fund.
We believe that since the loophole has been spotted by some of the institutional investors, SEBI should take prudent steps to curb this menace of pocketing dual returns. This in a way would help make the liquid schemes less volatile for the retail investors. |
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| Weekly Facts |
| |
Close |
Change |
%Change |
| BSE Sensex |
19,864.85 |
356.0  |
1.82% |
| Re/US$ |
45.36 |
(0.1) |
-0.31% |
| Gold /10g |
20,455.00 |
25.0 |
0.12% |
| Crude ($/barrel) |
91.38 |
0.5 |
0.52% |
| FD Rates (1-Yr) |
6.50% - 7.25% |
Weekly change as on December 16, 2010
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In this issue
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In an interview with the Economic Times, Mr. Rohit Chatterji - Managing Director and Head (Investment Banking) at JPMorgan shared his views on the forces driving Merger and Acquisitions (M&A) activity in India and "game-changers" for foreign capital flows in India.
Mr. Chatterji is of the opinion that inbound (domestic) M&A has been driven by confidence around projected growth rates in the Indian consumer and industrial segments for over next 5-10 years, as evident by activity in healthcare, consumer and steel sectors. As regards outbound (overseas) M&As are concerned, he is of the view that it (outbound M&A) has been led by a search for backward integration into resources like coal, or for technology and expanded footprint in new markets. Further he expects consolidation in telecom and associated towers businesses.
On the "game-changers" for foreign capital flows in India, he's of the opinion that most efficiently channelling foreign capital in the infrastructure sector will be a "game-changer". "Connecting the capital-hungry segments in infrastructure to the investible pool available internationally, both in debt and equity, in a cost-effective and well-structured manner can add a new dimension to our growth", he said. |
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Close-ended Fund : A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
(Source: Investopedia)
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QUOTE OF THE WEEK
"Remember, a real decision is measured by the fact that you've taken new action. If there's no action, you haven't truly decided."
- Anthony Robbins
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This Week's Poll !!!
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Do you want your mutual fund’s management fee to be linked with its performance?
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- The Prime Minister Economic Advisory Council (PMEAC) has revised the India's fiscal growth rate (GDP growth rate) to 9% from 8.5% earlier.
However, Mr. Pranab Mukherjee, India's Finance Minister expects the GDP growth rate at 8.75%.
- India's Wholesale Price Index (WPI) for the month of November 2010 eased to 7.48% as compared to 8.58% in October 2010. When analysed with the data available last year during the same period i.e. November 2009, the headline inflation still appears elevated due to low base effect (last year in November 2009 WPI inflation was 4.78%).
- The Aadhaar or unique IDs issued by the Unique Identification Authority of India (UIAI) has triggered a tremendous growth in opening of bank accounts by the people enrolling for the IDs.
Mr. Nandan Nilekani, Chairman of UIAI said, "India's financial depth today is substantially lower than other Asian countries, including Thailand, Korea, China and Malaysia. I believe a pro-poor approach towards financial inclusion will trigger a growth curve similar to what we witnessed in the telecom sector."
- The SEBI has asked mutual fund houses to strengthen their know-your-customer (KYC) norms. The new disclosures will also apply to Members of Parliament, Legislative Assembles and Legislative Councils. The new guidelines will come into effect from January 1, 2011. The new norms will help prevent money laundering and help track investments by bureaucrats and politicians in both stock markets and mutual funds.
- The Insurance Regulatory and Development Authority (IRDA) plans to set up an investor protection fund to protect the interests of policyholders and spread awareness about insurance. The fund will be set up, after approval from the board meeting on December 28, 2010 with an initial corpus of 100 crores. Unclaimed policies, which form a part of the miscellaneous income of insurance companies, will go into this fund.
- In a move to inject liquidity into the banking system, the RBI will buy up to 12,000 crores of Government bonds through Open Market Operations (OMO). The auction will take place on December 15, 2010. Government securities to be purchased under the programme include the 7.02% 2016 bond, the 7.99% 2017 bond, the 8.13% 2022 bond.
- Nilesh Shah, the Deputy Managing Director at India's third-largest mutual fund -ICICI Prudential Asset Management will demit his office in February 2011 after serving for seven years. During his tenure the Assets Under Management (AUM) at ICICI Pru quadrupled to 70,000 crore from 15,000 crore.
- ING Life India launched ING Market Shield, a new Unit Linked Insurance Plan (ULIP), in the Uttar Pradesh market. Following are the key benefits of the plan:
- Guaranteed NAV (anytime): Guaranteed NAV can be availed anytime in policy term, not only on maturity
- Flexibility: Option for limited premium payment term, charge free withdrawals; Top Ups
The term of the policy can either be 15 or 20 years with a minimum premium paying term of 5 years.
- UTI Mutual Fund Chairman and Managing Director (CMD), Mr. U K Sinha is set to become the next SEBI Chairman, since the search panel headed by Cabinet Secretary Mr. K M Chandrasekhar, has recommended Mr. Sinha's name.
Mr. C B Bhave, present Chairman of SEBI will demit his office on February 17, 2011.
- The capital market regulator - SEBI is considering a proposal wherein the fund management fees charged by equity mutual funds, will be linked to the performance of the scheme.
The proposal for "returns-linked management fee" was discussed at a meeting with investor associations last week. An internal discussion paper on this also said, "For investors, to pay the maximum amount in a scheme, which is consistently underperforming in relation to its benchmark is unreasonable and part of the burden should be shared by the mutual fund." To read more Click here.
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