S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
25,105.51 | -122.66 -0.49%	60.09 | -0.83 -1.40%	27,850.00 | 750 2.77%	114.15 | 3.71 3.36%	8.00% - 9.00%

Until 2008, raising money through Initial Public Offers (IPOs) wasn't difficult for companies wanting to go public. Exuberant times of the market (before the emergence of the U.S. sub-prime mortgage crisis) made it easy for companies to line-up IPOs which also garnered investors' interest. Many investors looked upon IPOs as a way of making quick money on the day of listing. However, the fiasco of Reliance Power IPO and ripples of the U.S. sub-prime mortgage crisis felt by India brought huge downturn in the Indian equity market. And it made it difficult for companies to raise money. Situation worsened from 2011 onwards. In 2011, around 37 companies went public, the number reduced to 11 in 2012 and IPO market was almost dead by 2013 with just 3 companies launching IPOs.

 

Taking serious note of this, the Securities and Exchange Board of India (SEBI) has taken a number of steps. And now, in one of the most significant developments for the primary markets, the regulator recently introduced a number of reforms. They are as follows:
 

• Minimum Public float: - All Public Sector Undertakings (PSUs) need to have minimum of 25% public shareholding. At present, the minimum public float limit is 10%. The Government will be given 3 years for making this dilution. It is expected that the Government may fetch nearly Rs 60,000 crore by equity dilution, as IPOs from usually get good response from investors (as they perceive them to be safe).
   
• Stake Dilution via IPOs: - Furthermore, it has made it mandatory for companies to dilute stake via 25% public offload or Rs 400 crore, whichever is less. This is a revision from the earlier norms which asked for a minimum 25% dilution, if the valuation was less than Rs 4,000 crore. Such a move would help promoters of smaller companies to retain higher stake and yet would let companies go public.
   
• Increase in investment limit for Anchor investors: Until now anchor investors could bid for 15% of shares from the institutional bucket (which is 50% of the issue size). But now this limit has been doubled to 30% of the issue size. You see, these investors invest in companies a few days before the opening day of the IPO. Their investments are locked for 30 days from the day of listing. Thus now by increasing the limit, almost one-third of the IPO will be covered before the opening and make shareholding more diverse. This could possibly also help reduce volatility in share prices immediately after the issue is listed on the stock exchange.
   
• Offer-For-Sale (OFS) route: OFS route helps companies which are already listed, raise money in the secondary markets. In this route, for the first time, the capital market regulator has introduced a retail quota of 10% and has also made provision for retail discount. Furthermore, the regulator has allowed top-200 companies by market capitalisation and non-promoter entities holding more than 10% stake to dilute their holdings through OFS route. You see, this is in place of top-100 companies by market capitalisation who could take OFS route for raising money.
   

Some other noteworthy measures from SEBI are:
 

• Providing more flexibility to companies desirous to offer Employee Stock Ownership Plans (ESOPS)
   
• Change in pricing methods of preferential issues and Qualified Institutional Placements (QIPs)
   

PersonalFN is of the view that, reforms introduced would have a positive impact on the primary market. Closer analysis of measures taken by SEBI suggests that, for reviving IPO market SEBI is trying to restore confidence of retail investors. For a last few years, retail investors have been shying away from equities as they feel it is not an asset class for them, since it is too volatile and thus risky. However, current bull phase has made retail investors come back to equities. SEBI has taken steps at right time. IPO prices are expected to be more transparent and post listing volatility is expected to be lower. So it is overall positive for investors' at large.

 

Having said this, PersonalFN also believes, investors need to analyse every issue before investing their hard earned money into any of them. Flow of capital, market trend, valuations of the company wanting to go public and investor' own risk appetite of investors; are some of the important factors that would decide success in equity investing.

Do you think retail investors will again start investing in IPOs with confidence? Share your views here.

IRDA cracks down on mis-seling of insurance. May issue new guidelines shortly!

After Unit Linked Insurance Plans (ULIPs) caused havoc among investors, the Insurance Regulatory Development Authority (IRDA) brought in many regulatory changes in 2010. Earlier, agents used to get as high as 60% commission on annual premium for the first year and attractive trail commissions which amounted to 5%-10% on most occasions.

 

The new guidelines that came in effect from September 2010, made ULIPs unattractive for agents as first-year commission reduced drastically in the new avatar of ULIPs and trail commissions too were affected to an extent. Moreover, IRDA made it compulsory for agents to disclose their commissions to investors.

But agents came up with new tactics. They made policy holder surrender their existing life insurance policies. Moreover, agents advised them to make the policies paid up or persuaded them to let policies lapse; for selling them new policies thereafter. And now realising this, the Insurance Regulatory and Development Authority (IRDA) is now planning to plug this loophole too.

On June 18, 2014, IRDA issued a draft on rules pertaining to the replacement of life insurance policies. In draft rules, IRDA has banned replacement of policies unless it is in the interest of the policyholder. It seeks feedback on the draft by July 20, 2014.

What is replacement of policy?
When a new policy is bought within six months of surrendering the old policy, it is called replacement of policy.

The draft guidelines require insurers to be fully transparent about communicating consequences of replacement of insurance policy. If this draft is enacted, insurance companies will have to place an agreement in the proposal form to counsel customers not to surrender old policies for buying new ones. If an insurance company fails to guide the policyholder in this regard, policyholder may call for restoration of older policy within 7 days from the receipt of the new (replacement) policy. On restored policies, the policyholder would be entitled for all benefits he / she enjoyed before surrendering policies.

PersonalFN is of the view that if this draft goes through, it would protect the interest of policyholders. However, PersonalFN believes, insurance should be bought only as a pure risk cover, i.e. as indemnification of risk, and shouldn't be mixed with investments. To safeguard your dependants against financial problems that they may have to face in your absence, you should buy a term plan. A term plans is the cheapest option to indemnify risks. If you buy a term plan online it may be even cheaper.

 

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Will the NDA Government be successful in stemming price rise?

A couple of days ago the Wholesale Price Index (WPI) inflation was released and it was much to dismay of the NDA Government. After an unexpected fall in April 2014 to 5.20%, WPI inflation rose to 6.01% in May 2014.

 

And, has the NDA Government initiated any actions?

Yes.

Recognising the risk emanating from food inflation, Narendra Modi-led NDA Government has swung into action to rein in prices of at least essential commodities. The recently taken steps are:
 

• Imposed a Minimum Export Price (MEP) of U.S. $300 a tonne on onions and has also assured a similar step for potatoes to bring down the export of the commodity and augment domestic supply.
   
• The Centre has also advised states to freely allow movement of vegetables and fruits by delisting those from Agricultural Produce Market Committee (APMC) Act.
   
• A line of credit has also been announced to offer states to directly import pulses and edible oils to meet shortages. Furthermore, additional five million tonnes of rice will be released in the open market through states. In Delhi, the Government will procure onions for sale through Public Distribution System (PDS) and at Mother Dairy outlets.
   
• Importantly, the Centre has also advised states crack down on hoarders, amid apprehensions that stocks of food items were being withheld in anticipation of a sub-normal monsoon.
   

To read whether the aforesaid steps can indeed help and PersonalFN's view, please click here.

 

Why rising crude oil prices can lead to Indian equity markets slip

 

The Indian equity markets i.e. the S&P BSE Sensex after having started the month of June 2014 on an ascending trend, being enthused by narrowing trade deficit, Current Account Deficit (CAD), relatively stronger rupee against the greenback and a lower fiscal deficit (for fiscal year 2013-14); has started shedding some gains. It is noteworthy that, the Indian equity market has been among the top performing ones in the Emerging Markets (EMs), with a return of nearly 20% clocked thus far this calendar year.

 

So what has lead markets to shed some gains of late?
Well, the reason for this is the sectarian violence in Iraq. A shadowy group known as Islamic State in Iraq and Sham (ISIS) has managed to seize control of key cities in Iraq, eyeing Iraq's wealth which is its oilfields. Iraq is the 2nd largest exporter among the OPEC (Organization of the Petroleum Exporting Countries) and such a chaos can certainly disrupt the flow of crude oil if tensions escalate.

While Libya's EL Feel oil production has resumed production (after security guards ended a protest that lasted more than two months), many oilfields and ports yet remains blocked, which again instils risk. Brent crude oil prices have already stoked up touching almost U.S. $115 per barrel.

To read more about this news and the view of PersonalFN over it, please click here.  

 

You must be getting 'hot stock tips' from a number of brokers and self-acclaimed research analysts. But, if you follow their advice and lose money, you can hardly do anything about it. To reduce such practices, and in a way to protect the interest of investors, SEBI has recently launched SEBI (Research Analyst) Regulations, 2014.

 

The new regulations are applicable to brokers, merchant bankers and proxy advisors among others. The regulator has put a minimum education and experience criteria along with minimum capital adequacy. It will now be mandatory for those who issue research reports soliciting people to 'buy', 'hold', or 'sell' securities to get themselves registered with SEBI. Furthermore, regulator wants researchers to disclose their financial interest (in the security they are recommending) along with receipt of compensation from the company, if any. The regulator has also imposed restriction on trading by research analysts and limitations on their publication of research reports and public appearances.

PersonalFN is of the view that, this is a welcome move, which may result in transparency and accountability. You may also see less of self-acclaimed research analysts giving you unsolicited advice.

 

Qualified Institutional Placement: A designation of a securities issue given by the Securities and Exchange Board of India (SEBI) that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. The SEBI instituted the guidelines for this relatively new Indian financing avenue on May 8, 2006."

 

Quote : "Investing is an activity of forecasting the yield over the life of the asset; speculation is the activity of forecasting the psychology of the market." - John Maynard Keynes