Impact ![]()
 A few weeks back the Securities and Exchange Board of India (SEBI) had written to the mutual fund houses asking them to conduct necessary due diligence at the time of empanelling institutional distributors (such as banks and companies) to sell their products.
But the mutual fund industry body - AMFI (Association of Mutual Funds in India) interestingly conveyed to SEBI that fund houses are not well equipped to do due diligence of institutional distributors and the regulator instead is in a better position to carry out the exercise.
Mutual fund houses are of the belief that it is practically not possible for them to conduct due diligence of institutional distributors in the absence of a regulatory framework.
In our opinion while we think that a regulatory framework would enforce greater accountability (through legal checkpoints); we believe that instead of just passing the buck, the mutual fund industry should go ahead and take the responsibility of undertaking due diligence of institutional distributors (such as banks and companies). We are also of the view that AMFI should also participate in this initiative, thereby refraining from just being a mere industry body, and get into the SRO (Self Regulatory Organisation) mode. AMFI at present has the KYD norms in place, but a thorough due diligence through regulatory check-points would enable strengthening of the whole exercise which is in the interest of investors. | Multibagger Stock Ideas
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Impact ![]()
 In a bid to offer a one-stop shop to account holders for all banking and financial services, public sector banks are now going gung-ho to introduce equity broking services. Leading from the front are Bank of Baroda, Allahabad Bank and Corporation Bank who are looking to offer retail broking services to their customers through their respective capital market subsidiaries.
Under existing rules, banks cannot get into broking directly but they can offer these services under a separate subsidiary.
We believe that the whole germination of the idea of foraying into broking services is to convert the dominant portion of the CASA (Current Account & Savings Account) client base into prospects. We believe that while providing broking services may help banks to broaden their revenue streams, it would also require additional financial and physical resources to be deployed.
In our opinion, while this provides a one-stop shop to account holders of the respective banks, we strongly believe that banks should focus on pure banking services, which is their core area of operation.
Moreover, you investors should also distinguish each financial service requirement of yours to respective experts for better advice, so that you can create wealth in the long run and keep away from the atrocities of mis-selling. | |
Impact ![]()
 (Source :ACE MF, PersonalFN Research)
During the last quarter of the fiscal year ending 2010-11, banks and corporates withdrew most of their mutual fund investments (mainly from liquid plus or ultra short-term funds) due to their year end requirements. Banks were in dire need to dress up their balance sheets to meet the statutory requirements whereas corporates had to shell out money to fulfil their advance tax commitments.
Thus facing the heat of redemption from banks and corporate, the Indian mutual fund industry lost a whopping Rs 46,582 crore. The industry's Average Assets Under Management (AAUM) stood at Rs 700,538 crore as on March 2011 as compared to Rs 747,120 crore for the same period last year.
We believe that there is nothing to panic about. It is a momentary thing which takes place at the end of every financial year since banks and corporates have to fulfil their commitments. Hence, the current pressure on the AAUM of the mutual fund industry is temporary.
The mutual fund industry has evolved immensely over a number of years. There has been a lot of consolidation and innovation in this industry. It still remains and will remain the safest route for investment in equity markets. | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 19,451.45 | 31.1  | 0.16% | | Re/US$ | 44.21 | 0.4 | 0.85% | | GoldRs /10g | 20,980.00 | 205.0 | 0.99% | | Crude ($/barrel) | 121.93 | 6.8 | 5.87% | | FD Rates (1-Yr) | 7.00% - 9.00% | Weekly change as on April 7, 2011,
*BSE Sensex as onApril 8, 2011.
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In an interview with DNA Money Mr. Prashant Sharma - Chief Investment Officer at Max New York Life Insurance shared his views on Indian equity markets, fourth quarter corporate earnings, Reserve Bank of India's (RBI's) monetary policy stance and domestic & FII flows in FY12.
Mr. Sharma believes that the current rally in the Indian equity markets comes on the back of strong Foreign Institutional Investors (FIIs) flows of over $1.7 billion, reduced domestic political risk and a balanced budget. However, he cautions that risks around inflation, under-recoveries from high oil prices and global fears of a slow recovery will remain. He further explains that for the market to sustain or exceed these levels the government will require a strong focus on reforms agenda, pragmatic clearance of projects and strong FII interest in the Indian market.
On the fourth quarter corporate earnings, Mr. Sharma points out the fact that the base effect into Q4 would be more challenging as the earnings cycle started reviving into second half of FY10. However, he expects the full year (ending March 2011) growth of 25% year on year due to higher than expected sales, but margins may come off a bit he says.
As far as RBI's monetary policy stance is concerned, Mr. Sharma expects that going forward RBI may raise rates by another 50 basis points by early 2012 owing to the upside risk in inflation.
Mr. Sharma believes that it is difficult to predict FII and domestic flows in the country as they depend on the relative valuation across markets, flows into emerging market funds and the growth and earnings projections of Indian companies. Though, he is bullish on the economy due to fundamental drivers such as the demographic dividend, improving governance and gradual reduction of infrastructure constraints, next year he says, will depend on how the economy, as a whole, tackles commodity inflation, especially fuel inflation. | |
Margin Account (Margin Funding): A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock
(Source: Investopedia) | |
QUOTE OF THE WEEK
"To invest with success, you must be a long term investor."
- John C. Bogle | |