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The retirement fund manager - Employees Provident Fund Organisation (EPFO) is planning to replace the Provident Fund (PF) account number with the Unique Identification (UID) number [which will be issued by the Unique Identification Authority of India (UIDAI)] in order to speed up the process of transfer of PF money from one account to another, in case of a job change.
At present when a PF subscriber changes job, it takes several months to transfer PF money from one account to another, as the records are required to be transferred from one office to the other. This eventually translates into withdrawal of PF money by most of the PF subscribers.
The EPFO plans to replace the PF account number with the UID by inter-connecting all of its regional and sub offices by March 2012. Digitalization and use of UID as PF A/c number would also facilitate the subscriber to apply for transfer and withdrawal online.
We believe that the UID will facilitate smooth functioning of not only the EPFO but also various other Government organisations. The single UID will do away with a lot of paper work and will make life easier for all. However, there needs to be caution while implementing the UID as any kind of bogus issue of these unique numbers would tarnish India’s image. Hope the UID is miles away from any kind of a scam!!
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After being in the red for the last couple of months, the Indian equity markets (BSE Sensex) ended the last month of the calendar year in the green (by gaining 987.8 points or 5.1%), as the FIIs exuded confidence in the Indian economy by pumping in Rs 2,049.6 crore.
 (Source: ACE MF, PersonalFN Research)
Quietness on the scams stories also attributed to this up move, along with robust Q2 GDP growth rate of 8.9%, and up-roar in the IIP (Index of Industrial Production) number of 10.8% registered in October 2010. But a noteworthy point is that this time (in the month of December 2010), the FII participation was far muted (i.e. Rs 2,049.6 crore) as compared to Rs 18,293.1 crore in the month of November 2010 as valuations of the Indian equity markets remained a concern for them and they preferred investing in the developed nations - especially the U.S. due to signs of recovery there (2.6% Q3 GDP growth rate, appealing consumer confidence index of 54.3 in November 2010). Moreover, the lacklustre flow towards the Indian equity markets was also attributed to change in focus from equity to commodity as an asset class.
We believe that going forward, since the U.S. is displaying some signs of economic recovery, and the jobless claims in the U.S. coming down; the FIIs may see the U.S. as a promising investment destination till the economic data there remains upbeat. This will thus leaded to FIIs flows slowing down for India. Moreover, post the QEII announcement there seems to be a shift in focus on commodities, rather than equities, which again is witnessed by the surging prices of commodities. Domestic factors such as high inflation and slowing demand are also posing a risk to the market, which may again hinder FII flows. Hence given that we think it would be wise to become cautious and therefore go slow with investments in equities.
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Impact ![]()
In a fast growing economy, the general price levels are bound to scale upwards on a continuous basis. And this in a way creates situation where high prices start becoming acceptable to the Government and policymakers.
India too is facing such a situation, where a spike of upto 2% in the headline inflation (WPI) is being considered as a new comfort range. Thus now, from a long term perspective the new normal range for the headline inflation is 6% - 7% which replaces the decade old norm of 5% for the headline inflation.
Commenting on the new norm for headline inflation, India’s Chief Economic Advisor - Mr. Kaushik Basu said, "We will probably have to live with a little higher inflation. When a country grows very rapidly, there is inevitably a tendency for domestic prices to catch up with international prices. We know from purchasing power parity calculations that Indian prices are about a third to a fourth of those in industrialised nations. If, over the next 30 years, we are going to break into the bottom ranks of industrialised nations, there will inevitably be a bit of catch-up on prices. This could mean an additional 1.5-2% inflation per annum, which we will have to get used to as a concomitant of rapid growth."
We believe that to accept a new normal for the headline inflation makes sense as our economy is growing at a fast pace (Q2 GDP growth rate is 8.9%). This will reduce the burden on the policymakers (like RBI and Finance Ministry) to keep inflation in check. However, that doesn’t infer that the efforts to curb down the spiralling inflation should be compromised; otherwise it could lead to a detrimental impact on the growth of our economy in the long-term.
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Kotak Mahindra Mutual Fund launched Kotak Multi Asset Allocation Fund - an open-ended debt scheme. The fund aims to generate income by predominantly investing in debt and money market instruments, growth by investing moderately in equities and overall diversification by investing in gold.
The scheme aims to invest at least 75-90% in debt and money market instrument, 5-20% in equity and equity related instruments and 5-20% in gold. The New Fund Offer (NFO) will be open from December 31 to January 14, 2011.
To read more about the NFO Review Click Here | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 19,691.81 | (817.3) | -3.98% | | Re/US$ | 45.26 | (0.3) | -0.64% | Gold /10g | 20,295.00 | (365.0) | -1.77% | | Crude ($/barrel) | 95.09 | 1.5 | 1.59% | | FD Rates (1-Yr) | 7.00% - 8.00% | Weekly change as on January 6, 2011
*BSE Sensex as on January 7, 2011 |
In this issue
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In an interview with Mr. K. V. Kamath, Non-executive chairman of ICICI Bank shared his views on India’s growth prospects in 2011, regulatory autonomy and new banking licences.
Mr. Kamath is bullish about India’s growth prospects in the near future. According to him the best part of the growth momentum is that, approximately 65% of the economy does not need funding from outside and also massive capacity expansion has taken place domestically in cement, automobiles, consumer durables and chemicals with minimal borrowing. To him, this is a very significant change from 10 years ago. He also reiterates the fact that India is witnessing double digit growth by explaining that there is fair bit of uncounted growth and unaccounted growth which when accounted leads to an actual growth rate of somewhere around 13%.
Stating his views on regulatory autonomy, Mr. K V Kamath said, "After the crisis in 2008, many Governments said we are the last resort, and if that be the case, we need to have a greater say on matters involving the financial community." He believes that in India the regulators should work together in harmony with the Finance Ministry.
Mr. Kamath says he is in favour of giving banking licences to large corporate houses. However, he cautions, by saying "But a couple of conditions should be met. One, the bar for capital should be raised significantly, as the challenges and responsibilities are enormous; two, we have to consider whether there is a conflict of interest, meaning, should we give licences to an entity which itself or the group may be a significant borrower?". But having said that Mr. Kamath is quite confident that the Reserve Bank of India (RBI) will put in place enough checks and balances before granting any licences. |
Annuity : A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years
(Source: Investopedia) |
QUOTE OF THE WEEK
"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones."
- Benjamin Franklin |
This Week's Poll !!!
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