S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
20,497.64 | 182.3 0.90%	44.12 | 0.1 0.18%	19,880.00 | 295.0 1.51%	84.39 | (0.3) -0.39%	6.50% - 7.25%

 
The Index of Industrial Production (IIP) for August 2010 displayed a free fall from 15.2% in July to 5.6% in August, thereby registering a 15-month low. However, the IIP number for July was revised upwards from the earlier figure of 13.8.

This nose dive in the August IIP number was attributed due to the following reasons:
 

• Decelerating manufacturing growth: The manufacturing index, which is the principal component of the IIP, decelerated to 5.9% in August, after registering a phenomenal growth of 16.7% in July. A year prior in August 2009 the manufacturing index stood at double digit figure of 11.3%.
• Poor sectoral performance: The capital goods index took the maximum beating, registering a negative growth of 2.6% (in the previous month it was 72%) followed by a negative growth of 1.2% in consumer non-durables. However, the consumer durable goods index registered a growth of 26.5% (in the previous month it was 23.7%), thus marking the overall growth in consumer goods index at 6.9% (in the previous month it was 7.8%). Growth in basic goods too took a blip – it registered a growth of 3.7%, as compared to 5.2% in July.
• Core sector growth: The core sector comprising of six key infrastructure industries - crude oil, petroleum refining, coal, electricity, cement and finished steel, also took a blip. It grew at 3.7% in August 2010 as compared with 6.4% last year.

Reacting to the IIP numbers, the Finance Minister Mr. Pranab Mukherjee said, "The trend is a little disappointing. Let us see how it fares in annualised terms. As you all know, Indian economy is on the path of robust growth, led by increased investment and capital inflows, stronger industrial output and rising aggregate demand."

The Finance Secretary - Mr. Ashok Chawla also expressed his views by saying, "It (the trend) is purely a cyclical movement. Sometimes it goes up, sometime goes down. We need to watch."
 

We believe the free fall in the IIP numbers is due to the higher base effect of last year (August 2009,), along with dampness in the core sector growth. However, we think that the Indian economy is still resilient and holds promise for the long term growth due to its strong fundamentals. As regards monetary policy actions are concerned, we don't see RBI deviating from its calibrated exit path, as inflation – especially food inflation at 16.24% (as on September 25, 2010) is still a factor of concern. We think that RBI in its next policy review meeting (scheduled for November 2, 2010) may increase the policy rates (both repo rate as well as reverse repo rate), by another 25 basis points.

 

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Inoperative PF A/cs to get interest: EPFO

Finally there is a solution for the inoperative accounts held by Provident Fund (PF) subscribers from their earlier jobs. According to the Employees Provident Organisation (EPFO), the inoperative PF account holders will not lose their interest if they file an application for withdrawal of accumulated funds or transfer to an operative account before March 1, 2011 even if the settlement happens later (interest will be received till the account is actually closed or transferred irrespective of when it happens).

A senior official of the EPFO commented – "We plan to give interest on PF deposits in inoperative accounts if the delay in transfers or closures is beyond one month of submission of applications from account holder."
 

We believe that this is a golden chance for the PF account holders whose accounts are inoperative to get their provident fund back or transfer it to an operative account and also earn interest on the amount till such time the settlement takes place. Also one needs to keep in mind that the Central Board of Trustees (CBT) of the EPFO - the key decision-making body for the fund comprising representatives from the government, employers and trade unions, has decided the government would stop giving interest on accounts that have been inoperative for more than three years from the next fiscal (2011-2012).

 

Check your balance before signing a Cheque

In order to inculcate financial discipline among bank account holders, the State bank of India (SBI) has decided to close the account of those customers who default in their cheques (bouncing of cheques) four times or more in a financial year.

The new norm will also be applicable to those who do not maintain enough balances to meet their standing instructions for electronic clearing services (ECS) where the bank is authorised to debit regular payments directly to their accounts.

According to the present Reserve Bank of India (RBI) rules, a bank can stop issuing cheque books to those customers who have had their four cheques of 1 crore, or more, dishonoured for want of sufficient funds in the account.
 

We think that the measure adopted by SBI, is intended to infuse discipline and accountability amongst customers and make them more responsible, while issuing cheques. We believe that SBI has set a good example for other banks to follow.

In an interview with CNBC-TV18, Mr. Deepak Parekh - Chairman of HDFC Ltd. shared his views on the equity markets, inflation and the commercial real estate sector.

Mr. Parekh believes that fair amount of IPOs that are coming in, and there is enough liquidity to take care of them (IPOs). The only cause of concern for IPOs according to Mr. Parekh, is that they are valued on a higher side and participation by retail public is limited. He completely ruled out a possibility of a stock market bubble, on the fact that corporate profitability in the past two years has grown significantly.

On inflation, Mr. Parekh believes that it needs to be kept under control to maintain the interest rates where they are. According to him, the food inflation will come down (as we have had an excellent monsoon) once the crops come into the market. In order to curb inflation in his opinion, RBI may not increase interest rates by more than 50-100 basis points in the next one year.

On commercial real estate Mr. Parekh, is of the view that there's surplus available in the commercial real estate market which will drag down the prices of real estate by 5% - 10%. And he believes that it will take one-and-a-half years to absorb that kind of surplus. He is also of the opinion that rents in number of cities like Hyderabad, Chennai, Bangalore, Pune and even parts of Mumbai, will come down sharply.

Self-Regulatory Organisation: A non-governmental organization that has the power to create and enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.

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• In order to widen the reach of the capital (stock) market, the Finance Ministry is considering allowing overseas individual to buy stocks and mutual funds directly. Currently, only non-resident Indians (NRIs) are allowed to invest in mutual fund schemes, while foreign retail investors participate in Indian equities through sub-accounts of foreign institutional investors (FIIs).
  
  The proposal if implemented will boost the inflow to mutual funds and widen their horizon in terms of better participation. Moreover FII participation will also increase, but will make Indian equity markets more vulnerable to FII flows.


• The Association of Mutual Funds in India (AMFI) is taking baby steps to get the status of a Self-Regulatory Organisation (SRO). It (AMFI) is no longer contented with being just an industry association and trade body for the 7.13 trillion mutual fund industry.
  
  Newly elected AMFI Chairman Mr. U.K. Sinha said "The capital market regulator, Securities and Exchange Board of India (SEBI), has been asking AMFI to do this for quite some time. We'll consult SEBI on the matter and soon start the groundwork to move in this direction."


• Among the four fund managers appointed by the Employees Provident Fund Organisation (EPFO), to manage a huge corpus of 3 lakh crore, ICICI Prudential emerged as the top fund manager giving a return of 8.72% between September 2008 and August 2010. The other fund managers of EPFO gave returns as under:
   
  • HSBC 8.64%
  • SBI 8.58%
  • Reliance Capital 8.54%


• Finance Minister Mr. Pranab Mukherjee said that the global economic recovery is fragile and cautioned that emerging economies may not be as resilient in the face of another crisis.
  
  He further added, "Countries are recovering at different rates. Growth is well below potential. And the recovery is fragile. There is a constant danger of recovery being derailed by unexpected shocks."


• SBI Life Insurance launched Saral Maha Anand, a Unit Linked Insurance Plan (ULIP) under the new norms. This new ULIP offers the following features:
   
  • Guaranteed Additions of upto 30% of one annual premium, for a 20 year policy term, subject to the Policy being in force till the maturity date
  • Option to avail additional rider benefit under SBI Life - Accidental Death Benefit Linked Rider
  • Medical examination exempted
  • 4 Fund options, as per your risk appetite
  • Minimum premium starts at 15,000 per annum


• SBI Life Insurance's Managing Director & CEO, Mr. MN Rao said, "The product offers simplicity and affordability so that a larger section of society can participate and benefit by systematically investing over a long-term horizon."


• Infrastructure Development Finance Company (IDFC) Ltd. has extended the closing date for its long-term bond issue by four days to October 22, 2010. The earlier closing date was October 18, 2010.
  
  To know whether your should invest in IDFC Long-term Infrastructure Bonds, click here


• The Organisation for Economic Cooperation and Development (OECD), in its latest Composite Leading Indicators (CLIs) indicated that the global economy is slowing down and that India and China may face economic downturn in the coming months. CLI provides early signals of turning points in business cycles - fluctuations of economic activity around its long term potential level.
  
  "The outlook given by the CLIs for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn," OECD said.


• LIC Housing Finance has approached the Pension Fund Regulatory and Development Authority (PFRDA) seeking a licence to act as aggregator under the New Pension Scheme (NPS).
  
  LICHF Managing Director Mr. KK Nair said, "If under the final guidelines, we are eligible to apply, we will certainly apply for a banking licence."


• India's Finance Minister Mr. Pranab Mukherjee won the Finance Minister of the Year (Asia) award for 2010. This award was presented by Emerging Markets – a London-based daily news paper.
  
  Mr. Mukherjee was previously honoured as the best Finance Minister in the world in 1984.


• Reliance Life Insurance Company (RLIC) launched Reliance Life Insurance Highest NAV Advantage Plan, a Unit Linked Insurance Plan (ULIP) under the new ULIP regime. This new ULIP offers the following features:
   
  • Guarantee of Highest NAV achieved during the policy term at maturity
  • Accident benefit available
  • Partial withdrawal
  • Loan facility available after two years
  • Regular as well as Single Premium payment options


• RBI Governor Mr. Duvvuri Subbarao and Finance Minister Mr. Pranab Mukherjee have expressed contrasting views over strong inflows of FIIs in India.
  
  Mr. Subbarao said, "Economies that have current account surpluses or only small deficits have intervened, that does not mean we won't intervene. If inflows are lumpy and volatile, or if they disrupt the macro-economic situation, we will do so."
  
  Mr. Mukherjee said, "I do not think that the situation has arisen in the Indian economy today, I don't think it is going to be too volatile. It "has not distorted market sentiment and, therefore, there is no question of putting any curbs."