A Progressive railway budget Feb 26, 2010

SEBI and IRDA cross swords once again

Feb 26, 2010

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,254.20	73.6	0.45%
Re/US$	46.41	0.1	0.26%
Gold Rs/10g	16,480.00	135.0	0.81%
Crude ($/barrel)	77.59	2.1	2.75%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on Feb 25, 2010

A Progressive railway budget

Impact

The Railway budget announced by Ms. Mamata Banerjee, the Railway Minister, appeared to be pro-Consumer, since it concentrated on social sector spending. The ministry also emphasised the importance of Public Private Partnership (PPP) for the development of railways. For the first time ever private players too will be allowed to run special freight trains. However Ms. Banerjee also mentioned that “the railway department will not be privatised and will remain with the Government”.

Keeping a check on food inflation, the railway ministry also reduced the freight on food grains and kerosene by Rs 100 per wagon. Drinking water too will be made cheaper for the commuters by setting up six water plants. Service charges on AC class have also been cut to Rs 20 as against Rs 40 earlier. Also service charge on sleeper class has been cut to Rs 10, thus making the rail fares cheaper.

Some of the other highlights of the railway budget were:

Emphasis on development of robust business model to generate revenue and also to overcome administrative delays

Freight rates have been kept unchanged

Withdrawal of railway examination fees for women, minorities and backward class and for households with annual income of less than Rs 50,000

Setting up of mobile e-ticketing counters at IITs, IIMs medical colleges and universities

Setting-up of e-ticketing centres at district head office of village panchayats

Information on reservation status will be made available through SMS updates

Housing for all railway employees, in the next 10 years

Setting up of multi-functional hospitals by railways

Betterment of passenger amenities by allocation of Rs 1,302 crore for the same

Construction of 1,002 kms of new line in 1 year, with a goal of having 25,000 kms of new lines by the year 2020

101 new suburban trains made available for Mumbai

We believe that the railway budget is pro-consumer and the emphasis on PPP will give a boost to the railway ancillary industries. But, we also feel that such a progressive agenda would have some implementation lapse on account of the bureaucratic impediments in our country.

Inflation soars to a 15 month high

Impact

The broader price index as measured by the Wholesale Price Index (WPI) touched a 15 month high of 8.56% in the month of January 2010, up from 7.31% in the previous month.

(Source: CSO)

The present inflation level has breached Reserve Bank of India’s (RBI) projection of 8.5% for March end 2010. The industry body - Assocham, said, “inflation is likely to move into double digits in March 2010 and touch 10% due to supply constraints in food items coupled with lower base effect”. Inflation in manufactured items too has surged to a 13-month high of 6.55% for January 2010.

We believe that in order to control the inflationary situation, RBI might drain liquidity through a hike in the Cash Reserve Ratio (CRR) by 150 bps in 2010 (of which a 75 bps hike has already been announced by the RBI, in its third quarter review for the year 2009-10), and also a hike in the reverse repo by around 125 bps. This also seems to be a measure of RBI to withdraw from the current accommodative policy. In such a scenario hardening of interest rates can be expected in the year 2010.

Now investor education in schools

Impact

The Securities and Exchange Board of India (SEBI) has launched an optional three-month course, which teaches class 8 and 9 students the following:

1) Importance of money
2) How to manage money
3) Concepts of budgeting and saving

Currently 26 schools are taking lessons in investor education. Of the 26 schools, 13 are from north India, 11 from the south and 2 from the east.

The initiative follows SEBI’s decision to facilitate financial literacy to children before they complete their secondary education. SEBI feels that catching them young is the only way of increasing the number of households investing in the equity market.

SEBI is implementing the financial literacy programme through the National Institute of Securities Markets (NISM), set up for the purpose of improving the quality of the market through educational initiatives. A pilot project called the School Financial Literacy Programme is being supervised by the National Progressive Schools Conference.

We believe that this initiative taken by SEBI will enable integration of basic financial education with basic school education and will thus ensure deepening of knowledge.

We at Personal FN strongly encourage investor education and hence constantly educate investors through our series of financial articles.

INTERVIEW

In an interview with the Business Standard, Mr. Marc Faber, the legendary contrarian investor and author of The Gloom, Boom & Doom Report, expressed his views on the Indian equity markets, global economic recovery, withdrawal of global stimulus packages and whether there is a bubble in China or not.

On the equity markets he is of the opinion that, even if equity markets including India, continue to rebound over the over the couple of weeks, it is unlikely that they will touch new highs. According to him the upside is limited; the Sensex may make marginal new highs around 18,000 – 19,000, but the risk has increased and the days of big moves are over. “I will be cautious about buying now. I think markets will correct further”, he said.

He also believes that there will be a double-dip economic recovery, since there is an unprecedented increase in fiscal and monetary stimulus. According to him the main problem that caused the crisis was debt overhang.

On the withdrawal of global stimulus packages he said, “I do not think they can get out of the stimulus at this point in time. I would expect more stimulus packages to be announced in the US”.

On whether there is a bubble in China or not, he said, “I think to some extent, China is a bubble. Last year, total loans by Chinese banks increased by quarter of the country’s gross domestic product. In addition, China has excess capacity across industries. Hence, I expect its economy to slowdown considerably”.

We at Personal FN also do believe that the probability of such bubble burst happening are higher, given the current global economic scenario.

AND OTHER NEWS...

The International Monetary Fund (IMF) said it would soon begin sales of 191.3 tonnes of gold in the open market, under its gold sales programme, which was launched last year to raise more money for lending.

As many as 23 firms are awaiting approval from Securities and Exchange Board of India (SEBI) to enter the mutual fund space, which is already overcrowded with 38 players. Some of the Indian companies whose applications are with the regulator include Indiabulls, Future Finance, SREI Infrastructure Finance, ASK Investment Holding, India Infoline, Prime Securities, Karvy Stock Broking and Jaypee Capital Services. But on the other hand, there is an interesting study which suggests that there isn’t room for even 10 players in this market.

Foreign exchange reserve rose to $458 million to $279.2 billion during the week ended February 12, 2010, mainly on account revaluation of non-dollar assets in reserves.

Commodity bourse MCX (Multi Commodity Exchange) has surpassed the London Metal Exchange (LME) to become the sixth-largest commodity futures exchange in the world, in terms of the number of contracts traded in 2009.

As many as nine stock exchanges face the risk of losing recognition this year, according to SEBI. Those facing de-recognition include Bhubaneshwar Stock Exchange, Cochin Stock Exchange, Guwahati Stock Exchange, Interconnected Stock Exchange of India Ltd., Ludhiana Stock Exchange, MCX Stock Exchange Ltd, Pune Stock Exchange and Uttar Pradesh Stock Exchange Association Ltd.

Competition Commission of India (CCI), the anti-monopoly watchdog may fine banks or ask them to stop the practice of imposing penalty on borrowers for pre-paying loans if the lenders are found guilty.

Geojit BNP Paribas, the first broking firm in the country to offer online trading facility, is awaiting approval of SEBI for launching mobile trading. The Managing Director of the company, Mr. C.J. George said, “this (mobile trading) will revolutionise the way trading is taking place. There is very high intensity of mobile users…mobile trading will change internet trading and commerce”.

Former Indian Bank’s Association chief H.N. Sinor has been appointed as the CEO of the Association of Mutual Funds in India (AMFI), with immediate effect. Mr. Sinor’s Tenure will be for three years. Mr. A.P. Kurien, the current Chairman of AMFI, will retire from his post in September this year.

IN THIS ISSUE