| Weekly Facts | | | Close | Change | %Change | | BSE Sensex | 17,167.96 | 196.3  | 1.16% | | Re/US$ | 45.61 | 0.2 | 0.46% | | Gold Rs/10g | 16,505.00 | 540.0  | 3.17% | | Crude ($/barrel) | 79.90 | 0.9  | 1.19% | | FD Rates (1-Yr) | 5.00%-6.50% | Weekly change as on April 11, 2010 
Impact For nearly six months now, Indian mutual funds have been selling more shares
than they have been buying, as they grapple with weak inflows. According to the
Securities and Exchange Board of India (SEBI) data, mutual funds have net-sold
equity worth Rs 12,443 crore during the period September 2009 to February 2010. (Source: CSO)
Investments into mutual fund schemes have been impacted by SEBI’s decision in
August 2009, to abolish entry load. This has led to distributors pushing Unit
Linked Insurance Plans (ULIPs) to investors, since they earn a higher commission
on ULIPs. Fund managers also believe that, while the pick-up in the economic
growth this year is a positive signal, it will be sometime, before equity
schemes are back in action.
But, as expected, after a couple of days the Government intervened. Both the regulators were persuaded to seek a legal mandate from the court and seek clarification on the jurisdiction issue. The Finance Minister asked that status quo ante be maintained on this issue, thus enabling insurance companies not to be hobbled from issuing ULIPs, for now. The debate on this continues even as we write this.
While, in principle, the abolishing of the entry load is a positive step, we
feel that while introducing rules, SEBI should take into account the interest of
all the affected parties. A phased introduction of the rule, along with a
massive investor education initiative to explain this rule would have been a
preferred strategy. From the investors’ point of view, we believe that the
reducing net inflows in mutual funds should not dampen any long term views on
investing in the market.
Impact
 The Association of Mutual Funds in India's (AMFI's) new Chief Executive Officer
(CEO), H.N. Sinor has set a work agenda to stop mis-selling of mutual fund
products and also to have an ombudsman for investor grievances. The new CEO also
plans to revamp the code of conduct for the industry, which has not changed
since the launch of the apex body.
"There is rampant mis-selling and small investors are very unhappy. Often
investors have no understanding of the products they purchase. One has to
address this area on a priority basis", said Mr. Sinor. He also mentioned that,
a distributor found mis-selling should be suspended. However the plan is not to
enforce a life-long ban, but a short-term suspension.
In order to provide better service to investors, AMFI also plans to expand the
list of service providers, such as Karvy and CAMS, by allowing more players in
the business.
We believe that the plans spelt out by the AMFI’s new CEO,
are in the right direction as:
- Mis-selling will be precluded which will thus infuse transparent sale
practices and
- Will also make available a quick redressal at the ground level though the
ombudsman for investor grievances
Hence, overall we feel that the initiatives planned by AMFI's new CEO are
certainly pro-investor. But, implementation and "time to market" are going
to be key!!
Impact  Earlier the draft Direct Tax Code (DTC) proposed, to tax capital gains
irrespective of the period of holding of the capital asset. In which case, the
entire capital gains of the assessee would be added to his income and then taxed
at the marginal rate, which could be as high as 30% for those in the highest tax
bracket.
Until now, the exemption was restricted to loans for graduate and post-graduate courses in engineering, medicine and management, and post-graduate courses in applied sciences or pure sciences including mathematics and statistics.
However, now the Government, as it deliberates the draft Direct Tax Code (DTC)
is likely to maintain the distinction between short-term and long-term capital
gains, in order to encourage long-term savings. In the Budget 2010, the Finance
Minister mentioned that the new direct tax laws could be rolled out from April
1, 2011. The Government is veering around to the view that the existing regime
with regard to the taxation of capital gains should be continued, said a finance
ministry official privy to discussions. The Central Board of Direct Taxes
(CBDT), the apex direct tax body that examined the DTC, has also favoured
continuing with the current framework with regard to capital gains tax. The
Finance Minister has asked the CBDT to rework the draft code based on the
feedback received from stakeholders before it is introduced in the monsoon
session.
We believe that such a step, to continue to distinguish between short-term
and long-term capital gains is in the right direction, as it enables investors
to subscribe to long-term savings and also operates as a catalyst for long-term
economic growth.
In an interview with the Economic Times, Mr. Alroy Lobo, Chief Strategist &
Global Head - Equities at Kotak Asset Management, expressed his views on the
markets, interest rates and inflation.
On the markets he expects no significant correction and believes that the Sensex
will have strong support in the 15,500 - 16,000 range. Only if a significant
event occurs, he expects this support to be breached. He said "for FY11,
consensus estimate of growth in the Sensex earnings is 20-22%. But much of that
growth would be concentrated in commodity companies, which stand to gain from
rising commodity prices". He also mentioned that the markets will have to brace
for some monetary tightening measures, as Reserve Bank of India (RBI) tackles
inflation. He believes that from an FY11 perspective, the market is fairly
valued. Mr. Lobo is positive on select companies in media, retail, aviation,
automobiles and domestic pharma.
On interest rates he said "while we think the monetary policy will still be
calibrated, we won’t be surprised if the RBI hikes key rates by 100 - 150 basis
points over the next 12 months".
On inflation, he feels that it could be trending upto 10-11% during the first
half of this fiscal and then would taper off gradually, with the average for the
year being 7%. He said "we are in a period of high growth and high inflation".
According to him the Budget has put the onus of managing inflation on the
monetary policy.
- Foreign exchange reserves dipped USD 375 million during the week ended
February 26, 2010 to touch USD 278.4 billion. This was partly on account of
revaluation of non-dollar assets and partly on account of dip on the value of
gold in reserve.
- In a move which could benefit several employees in the private sector, the
Government has raised the income tax exemption limit for gratuity from Rs 3.5
lakh to Rs 10 lakh. This move will make private sector employees on par with
those working in the Government sector from the tax exemption point of view for
gratuity.
- Food inflation eased a tad to 17.81% for the week ended February 27,
from 17.87% in the previous week
- State owned Life Insurance Corporation of India (LIC) is likely to seek a
license to float a bank when the RBI allows more players. Sources close to
the development said, the country's largest insurer had been keen to run a bank
for a long time to manage the large premium collection and claim settlement
work. However, LIC will have legal and regulatory hurdles to clear before we see
the "LIC Bank"!!
-
- The Bombay Stock Exchange (BSE) Ltd. launched the Sensex mobile streamer,
a platform that would allow investors to access streaming Sensex data at their
fingertips. This facility will also facilitate investors to make vital
trades. The software is easily downloadable on GPRS-activated SIM cards and
java-enabled handsets.
- Indian investors may soon have access to the US markets, since the National
Stock Exchange (NSE) has decided to begin trading in the futures contract
of S&P 500 and Dow Jones Industrial Average (DJIA), two of the most
influential market indices. Similarly, the NSE’s Nifty would be traded on the
Chicago Mercantile Exchange (CME). The Bombay Stock Exchange (BSE) Ltd. on the
other hand, is also looking at listing the BSE Sensex on the US based
International Securities Exchange, which is owned by Eurex Frankfurt AG.
However, the listing and trading arrangements for these indices are still
subject to regulatory approvals in India and US.
- Mr. S. Ramadorai, vice-chairman of TCS Ltd, has been appointed as the
Chairman of BSE Ltd. Mr. Ramadorai, will replace Mr. Jagdish Capoor, who
stepped down last week as chairman of BSE Ltd. citing health reasons.
COMING
SOON Mr. Bill Bonner,
President & Founder, Agora Inc., and co-author of "Financial Reckoning Day"
and "Empire of Debt". In a
conversation
with Mr. Satish Mehta,
MD & CEO, Quantum Information Services Pvt. Ltd (Personal
FN)
About Mr. Bill Bonner 
In 1979, Bill created what is now known as AGORA Inc. What began as a small
publishing company based in Washington, DC, has grown to be one of the largest
and most successful consumer newsletter publishers in the world.
Bill, along with his friend and colleague Addison Wiggin, has
written two New York Times Best Selling books: “Financial Reckoning Day” and
“Empire of Debt”. Both works were critically acclaimed and internationally
distributed. His most recent book, co-authored by Lila Rajiva, Mobs, Markets and
Messiahs, also hit the New York Bestseller list.
In 1999, Bill founded “The Daily Reckoning”, he continues to
write for it everyday. The Daily Reckoning weaves information about the
financial world, investing, and everyday life into an educational and
entertaining format. Today, more than 500,000 subscribers read Bill’s daily
columns.
Bill has received many awards for his business successes,
including “Entrepreneur of the Year” as well as Direct Marketing “Man of the
Year.” | | IN THIS ISSUE  Think you know someone that will enjoy this email? Why not send it to a friend? Capital Gains Tax: A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold. (Source: www.investopedia.com) QUOTE OF THE WEEK Quote: "Education is not only a ladder of opportunity, but it is also an investment
in our future."
- Ed Markey ATTENTION WOMEN!
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