Impact 
In order to gauge the solvency of the non-life insurers, including standalone heath companies the Insurance Regulatory and Development Authority (IRDA) directed them (non-life insurers) to calculate the economic capital for the financial year ended March 2011 in their balance sheet and submit it to the authority by September this year.
According to the IRDA, economic capital is calculated by determining the amount of capital that the insurer needs to ensure that its realistic balance sheet stays solvent over a certain time period with a pre-specified probability.
Thus, by itself, economic capital does not represent a measure of business performance, but it provides a measure of the risk related to the business. In other words, a higher level of economic capital for one business compared to another signifies a higher level of risk, and therefore, suggests that a higher level of reward should be expected.
Also while calculating economic risks the insurers need to consider risks such as underwriting, premium, reserve, catastrophe, market, interest rate, currency, credit, expense operational and liquidity risk.
In our opinion this is a prudent step taken by the IRDA to ensure that the non-life insurers 'healthy enough' to provide insurance to policyholders. Such disclosures will help policyholders to check the credentials of their insurers and will give them a fair bit of idea of how healthy (stable and solvent) they are.
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The capital market regulator - Securities and Exchange Board of India (SEBI) has come under sharp criticism as a Right to Information (RTI) filling by the Financial Express (FE) revealed that the Investor Protection and Education Fund (IPEF) with the SEBI remains grossly under-utilised.
This is despite the fact that the market development - an integral part of which is boosting investor confidence - is one of the prime objectives of SEBI, in addition to performing its regulatory functions.
The RTI data revealed that SEBI spent a meagre  4.6 lakh out of 49.82 crore under the IPEF. Interestingly in the past - until March 31, 2009 SEBI had not spent even a single penny from this fund which was set up in July 2007.
In our opinion this inefficiency on the part of SEBI comes as a major surprise and disappointment. Being a market regulator and a pro-investor body, SEBI should come up with a reply on this matter as to why the funds meant for investor education have been so much under-utilised and gathering dust.
Investor education is the need of the hour; as a very small percentage of the population are aware of the basic investor details. Also, through education, investors will be able to make smart investment decisions and thus shield themselves from being cheated or being mis-sold. | |
Impact  (Source :ACE MF, PersonalFN Research)
India's Gross Domestic Product (GDP) at factor cost grew at 7.8% in the last quarter of fiscal year 2010-11, thereby reflecting lowest growth since the last four quarters.
The GDP performance was weighed down by a number of factors such as:
Poor manufacturing growth: The manufacturing sector grew just 5.5% in the fourth quarter of 2011 as compared to 15.2% in the fourth quarter of 2010. The sector suffered on account of higher raw material costs and borrowing costs as a result of which margins of manufacturing firms dwindled.
Dismal mining & quarrying: Mining & quarrying index took a solid beating as it registered a growth of mere 1.7% in Q4 FY11 as against a 8.9% growth in Q4 FY10.
But in remarkable contrast to the above factors, robust growth was revealed in agriculture, forestry and fishing, which grew by 7.5% in Q4 FY11 as against 1.1% growth in Q4 FY10. The farm sector's healthy performance can be attributed to the strong consumption pattern in the country and exports.
We believe that while on quarter-on-quarter basis India's GDP growth rate may appear dismaying, when assessed on year-on -year basis our Indian economy still looks robust since for the complete fiscal year 2010-11 we have grown at 8.5% (as against the 8.0% growth rate clocked in FY2009-10). Moreover, with the monsoons expected to be normal this year, harvest is also likely to be good giving impetus to overall growth economic growth led by farm sector output.
However, going forward we need to keep a constant vigil on the below factors in order to gauge the future course of the GDP growth: - High crude oil prices
- High interest rates and borrowing costs
- Lower capex plans
- High input costs
- WPI inflation
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 18,376.48 | 110.4  | 0.60% | | Re/US$ | 44.83 | 0.5 | 1.06% | Gold /10g | 22,515.00 | 130.0 | 0.58% | | Crude ($/barrel) | 114.31 | (0.9) | -0.77% | | FD Rates (1-Yr) | 7.25% - 9.25% | Weekly change as on June 02, 2011
*BSE Sensex as on June 03, 2011
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In an interview with DNA Money, Mr. Ritesh Jain - Head of Investments at Canara Robeco Asset Management shared his views on inflation, liquidity situation in the country and equity markets.
According to Mr. Jain, inflation has been on a continuous rise in India. Inflation, he says was ignited by rise in food prices, primary articles which finally culminated into generalised inflation. Explaining further his concerns over the rising inflation, he says, "With global commodity and crude prices at elevated levels, it looks difficult for inflation to come down quickly. Also, the inflationary expectations are rising, which makes things even more unclear. The Reserve Bank of India (RBI) is also concerned about this and has kept a hawkish stance for long time, but in the last policy review it took aggressive steps to tame demand side inflation. But still, we believe that inflation will remain on an elevated level, and it is difficult to control inflation without compromising on some growth."
Mr. Jain thinks that the RBI will increase rates by another 50 basis points (two rate hikes of 25 bps each) during FY11-12. Though this might lead to some compromise on growth, he believes it is needed for ensuring price stability and long-term growth.
On the liquidity front, Mr. Jain is of the opinion that the short term interest rates will continue to remain under pressure as the liquidity is expected to remain negative along with the government finances remaining in deficit. He says, "We expect that short-term rates will go up by 25-50 bps as liquidity deficit in system rises to 1 lakh crore by June-end. For boosting systemic liquidity there are three options - a cut in Cash Reserve Ratio (CRR), Open Market Operations (OMO) of gilts or intervening in USD/INR. CRR cut is not possible and inflows are not sufficient for the RBI to intervene and create un-sterilised liquidity. I feel the RBI will do OMO to infuse liquidity and support government borrowing programme."
As far as the equity markets are concerned, Mr. Jain expects there is some more downside left for the equity markets. He expects the GDP to grow at a moderate pace of 7% - 8% along with little capital formation taking place due to high levels of inflation. He further says that, "In such a scenario, it is very difficult to sustain the price-to-earning (P/E) multiples. May be by the end of the year you might get more clarity. Looking at these headwinds, I feel we might see some tough time for a couple of more quarters. Equity might not shine as a whole, but one may witness rotation in few sectors."
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Open Market Operations: The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.
(Source: Investopedia) | |
QUOTE OF THE WEEK
"Discipline is the refining fire by which talent becomes ability."
- Roy L. Smith | |