Impact 
During the pre-September 2010 period (i.e. before the regulatory changes came into effect for the insurance industry from September 1, 2010) insurance companies focused on selling regular premium insurance products. The insurance agents too were enticed in selling them, as insurance companies were offering attractive commissions in the range of 12% - 15%.
But ever since the regulatory changes were effected from September 1, 2010 the sale of regular premium products lost steam as commissions dropped in the range of 5% - 8%. The insurance companies and their agents focussed on pushing single premiums products, as the gap between commissions offered by single premium plans and regular premium plans had narrowed, but nonetheless helped the agents to luring commissions due to high premiums commanded by single premium insurance product.
According to the latest data by the insurance regulator (IRDA), the share of income from single premium products has gone up from 36% in 2009-10 to 43% in 2010-11. Moreover, private sector companies reported an even higher increase from 10% in 2009-10 to 27% in 2010-11.
In our opinion, the motive for insurance companies behind focusing once again on regular premium products is to build a renewal base, along with increasing the corpus size managed by them. This strategic move we believe is an attempt to fuel competition by garnering more Assets Under Management (AUM).
Investors in our opinion should focus on insurance products to indemnify the risk to their life and thus treat insurance and investment needs separately.
While catering to your life insurance needs you should only opt for a term insurance plan as it truly reflects and caters to your insurance needs and provides a better cost-benefit advantage (in terms of better life insurance coverage, against a reasonable premium payment).
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 (Source :CSO, PersonalFN Research)
After being around the 4% mark in the last couple of months (January 2011 and February 2011) the Index of Industrial Production (IIP) shot up to 7.3% in the month of March 2011, as core sector witnessed an encouraging growth.
The smart up-tick in the IIP for March 2011 can be attributed to the following factors:
- Core sector growth: The six-core sector industries (crude oil, petroleum refinery, cement, electricity, finished steel and coal) grew at 7.4% in March 2011.
- Strong Manufacturing growth: The manufacturing index (which constitutes 79.4% of IIP) registered a robust growth of 7.9% in March 2011 (as against 3.6% in the previous month.
- Decent sectoral growth: The capital goods index too jumped back to the positive terrain by registering a staggering growth of 12.9% after a diminutive performance (negative growth) for three consecutive months. However, the intermediate goods index slowed down and registered a growth of 5.4% as against 8.6% in the previous month. The consumer goods index too experienced a slow down by registering a growth of 7.7% as against 11% in the previous month.
In our opinion the strong IIP number for March 2011 is not just a statistical phenomenon, supported by a base effect. On the contrary the stellar growth in the core sector, manufacturing and capital goods have contributed to the up-move.
But having said that, we are cautious because when assessed on a year on year basis, the industrial output for the FY2011 has grown at only 7.8% as against a 10.5% growth clocked in the previous fiscal year. Moreover, the RBI's monetary policy stance for taming the inflation bug has already put upward pressures on the lending rates (so far the repo rate and the reverse repo rate has been increased by 250 basis points and 300 basis points respectively), thereby hampering capex plans and also led to rise in input and labour cost.
Going forward too if WPI inflation still remains sticky we may witness RBI increasing policy rates by another 50 - 75 basis points, which may again have an adverse impact on the industrial growth numbers. | |
Impact
In a move to infuse discipline among debt mutual fund schemes, the Securities and Exchange Board of India (SEBI) has directed fund houses to furnish data on all debt-oriented schemes launched in April-December 2008 as it suspects that many fund houses may not have adhered to proper accounting norms.
The mutual fund houses need to furnish details such as the types of instruments bought or sold, the names of the issuers of such instruments, the total amount invested and the amount rescheduled. The motive behind such directive is that, SEBI wants to ensure that none of the fund houses have transferred any loss to any scheme while handling the redemption pressure during that period.
SEBI is also seeking details of all non-performing assets under debt-oriented schemes and the provisioning made by the fund houses.
We believe that SEBI's vigilance is prudent and healthy for the long-term benefit of investors. Many a times during high redemption pressures, these MF schemes transfer losses from one scheme to the other in order to honour redemptions, but in this bargain the investors are the ultimate losers.
Furthermore, by demanding the above mentioned details from the fund houses will improve the quality of debt investment instruments held by these MF schemes and also ensure right accounting policies be followed by mutual fund houses.
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 18,531.28 | 12.5  | 0.07% | | Re/US$ | 45.00 | (0.2) | -0.54% | Gold /10g | 21,755.00 | (150.0) | -0.68% | | Crude ($/barrel) | 112.59 | (8.0) | -6.66% | | FD Rates (1-Yr) | 7.25% - 9.25% | Weekly change as on May 12, 2011
*BSE Sensex as on May 13, 2011
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In an interview with the Economic Times, Reserve Bank of India's Governor - Dr. Duvvuri Subbarao shared his views on inflation, stance of increasing interest rate offered on savings bank account and new banking licences.
On the inflation front Dr. Subbarao expects that in the first six months of FY 2011-12 it would remain elevated due to impact of crude oil prices, demand side pressures and the time it takes for a cumulative policy action to play in. However in the second half, he explains - "In the second half of the year, we expect our tightening (of rates) would play out and have an impact on demand. We are also hoping that some supply response will come."
Justifying the RBI's stance in increasing the savings bank account rate, Mr. Subbarao said, "On a stand-alone basis, there was sufficient justification for raising the rate—the inflation has gone up; other rates have gone up. There was a strong case for giving a fairer deal to millions of households dependent on this deposit facility." Moreover, he said that the RBI is quite open-minded about deregulation. According to him, the RBI has spoken to banks and at present is waiting for their (banks) reply.
On the new banking licences front, Mr. Subbarao said that the RBI has devised guidelines based on the feedback they (RBI) received from the banks. Moreover, he says to start the process of the new banking licences, the Banking Regulation Act, 1949 needs to be amended. On the draft guidelines being sent to the Government for feedback, Mr. Subbarao explained that, "We need to have autonomy on monetary issues of regulatory policies—we demand that and the government gives it to us. But on the issues such as new bank licensing, there are many implications—foreign investment, financial inclusion.... The government is an important stakeholder and I believe that the government should have a say. We may not concede everything that the government is asking for, but I believe that it's right to give the government the right to say before we put the guidelines for public consumption."
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Debt Rescheduling: A practice that involves restructuring the terms of an existing loan in order to extend the repayment period. Debt rescheduling may mean a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments.
(Source: Investopedia) | |
QUOTE OF THE WEEK
"The money has to be there (to show financial solvency), but it won't make any difference without a plan."
- Edward Spears | |