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| October 12 , 2012 |
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
18,675.18 |
(263.3) |
-1.39% |
| Re/US$ |
52.69 |
(0.9) |
-1.82% |
| Gold Rs/10g |
31,170.00 |
190.0 |
0.61% |
| Crude ($/barrel) |
114.13 |
6.1 |
5.66% |
| FD Rates (1-Yr) |
7.50% - 8.50% |
Weekly change as on October 11, 2012
*BSE Sensex as on October 12, 2012
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Impact 
In an attempt to maintain the 'feel good' factor prevailing in the Indian equity markets after a slew of reforms announced by the Government in the past one month, the capital market regulator - Securities and Exchange Board of India (SEBI) is expected to reduce transaction costs to attract more investors and implement a faster public issuance and settlement mechanism. The regulator is also looking at ways to relax the investment norms for foreign investors that have been the prime drivers of the current stock market rally.
SEBI has already rolled out the plan for electronic distribution of IPOs through the nation-wide broker network of stock exchanges. SEBI may make ASBA - application supported by blocked amount - mandatory for retail investors to cut down on the time taken to complete an IPO. Among other intermediary-friendly measures, the SEBI is working on a simpler know your customer procedure and a single registration for all segments of the market. Moreover, SEBI is also likely to take up the issue of the settlement cycle, which is currently T+2 to reduce it to T+1.
Apart from SEBI, the Finance Minister - Mr P Chidambaram too, conveyed his commitment to bolster the economy and said, "We have to rediscover the path that we have walked on two years ago and I think it can be done if we have confidence in ourselves and we follow the laws of economics." While the government has raised the price of diesel and limited the subsidy on LPG, Mr Chidambaram said these steps will push inflation in the short term but the overall measures will bring prices down over time.
We are of the view that, the brisk pace of reforms indeed will drive the growth trajectory in the country. Effective and seamless implementation of reforms will now hold the key in sustaining the strong positive momentum. Moreover, efforts on the part of the Government to create a conducive environment for Foreign Direct Investment (FDI) will attract stable long-term foreign money; much is needed to put India back on the high growth trajectory.
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Impact
With the Government putting reforms in the forefront and focusing on path to fiscal consolidation, domestic worries (such as dismal IIP growth and stiff WPI inflation) were shunned. The announcement from the Government of India on the following aided in uplifting the market sentiments:
- increase in diesel prices by Rs 5 and cut in subsidised LPG to 6 cylinders;
- increase in multi-brand retail Foreign Direct Investment (FDI) upto 51%; and
- increase in FDI civil aviation upto 49%
Thus bouts of backlash for policy paralysis from opposition and rating agencies, which they were harping about a few months back, were also put to rest. Also with the Government reducing the withholding tax to 5% (from 20% earlier) on interest earned by overseas holders of Indian debt and formalising a scheme with tax sops for equity investments; helped to make the investment climate more conducive and enabled cheaper and easier for India Inc. to access overseas funds.
Data as on September 25, 2012
(Source: ACE MF, PersonalFN Research)
Enthused by such positive newsflash from India, FIIs too evinced interest in the Indian equity markets and it was quite heartening to see the ascending trend in their net buying activity continuing. In the month gone by, they net bought bought to the tune of Rs 19,262, thereby accelerating from their August 2012's buying activity (where they net bought to the tune of Rs 10,804 crore). But contrary to the participation of FIIs, domestic mutual funds continued to be net sellers in the Indian equity markets. They net sold to the tune of Rs 3,008 crore thereby nearly doubling from their August 2012's net selling activity (where they net sold to the tune of Rs 1,543 crore). Although, the Government did bring in slew of reform measures as mentioned above, fund managers were helpless due to continuous pressure of redemption from equtiy mutual fund investors. Also the political uncertainty prevailing due to some opposition parties not being comfortable with the measures adopted by the Government, refrained them (fund managers) from being net buyers in the Indian equity markets.
We are of the view that with reforms being put in the forefront, many investors are reminded of the year 1991 (when Dr. Manmohan Singh, the then Finance Minister had opened the flood gates of India's economy, in an attempt to liberalise it). We think increasing FDI limit in multi-brand retail (to 51%) would provide an impetus to India's strong consumption story, create employment opportunities and even facilitate better infrastructure. Likewise allowing a 49% FDI limit in civil aviation would provide aid to the ailing civil aviation sector in India. Also with announcement on reforms continuing even now, with the cabinet approving increase in FDI for the insurance sector (to 49%) - and even for pension sector if the insurance reforms passed by the Parliament; the Indian economy looks well responsive. But political consensus is still lacking, and it will be interesting to watch the political environment very closely ahead of 2014 general elections. On the global front too, in the Euro zone, Greece is adding to most of the turbulence even today, and thus remains a key threat.
While taking an investment decision it is imperative that you be cognisant about all such macroeconomic and political factors, and then take a prudent investment decision which is congruence to your investment objective and risk appetite.
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Impact
The Indian Government has been on a fast track as far as reforms are concerned in the past couple of weeks. This has not only brought back investor confidence but has also made the rating agencies to think again about downgrading Sovereign Credit rating of the country. Till now the reforms have touched various sectors in the country right from retailing to civil aviation. All of these reforms have a common objective of bringing India on its high growth trajectory.
Similarly, even in the insurance sector the Finance Ministry has proposed Foreign Direct Investment (FDI) upto 49%. Furthermore, to ease investment norms for the insurance companies, the IRDA may consider relaxing minimum requirement of 75% in AAA-rated instruments. At present, there is a stipulation that 75% of investments must be in AAA-rated debt instruments, excluding investments in Government Securities (G-Secs). The regulator has decided to include G-Secs in the minimum stipulation. This is expected to release about 12.5% for investments in less than AAA rated debt instruments. To know more about how risky your endowment policy will be, please click here.
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Impact
The financial world has evolved dramatically over the last decade and so has the number of investment avenues for the investors. But galore of investment avenues makes the average investor confused and most often he falls prey to financial mis-information. And even if the investor manages to spread his or her investments in different baskets (investment avenues), keeping a tab on the same becomes difficult as all the investments under different asset classes are not available at a single point of contact. This is possible only through technological innovation as it acts as an enabler in making life easy for people. To know more about the dematerailisation process proposed by SEBI, please click here.
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- To address the growing concerns such as misuse of investor funds, low fiduciary accountability on the part of investment firms, unclear money trail and dubious beneficiary owner accounts, the UAE's Securities & Commodities Authority (SCA) has instructed distributors and investment advisors to seek its approval before selling a product. Apparently, the UAE is an important fund-raising destination for Indian mutual funds, private equity funds and offshore pooled accounts.
According to the directives, prior to any promotion, an application for the promotion of foreign mutual fund units must be submitted to the SCA by the local promoter (i.e. here the product distributor, banks selling third-party investment products, etc.), enclosing the documents stated in the form for each fund wishing to promote its units within the UAE.
We believe that, the stringent norms may restrict some investment offerings from Indian institutions which do not hold a decent and consistent track record as the SCA has retained the right to disallow products that could potentially be detrimental for investors in the UAE. These norms will infuse more competitiveness amongst the Indian asset managers.
- In order to comply with the SEBI's 'one plan one scheme' guidelines, SBI Mutual Fund and L&T Mutual Fund have decided to discontinue 19 schemes cumulatively for fresh SIP investments. The two fund houses have informed the BSE, where these schemes were listed, that 10 schemes of SBI MF and nine of L&T MF would be discontinued for fresh SIP (Systematic Investment Plan) registration and subscription.
Earlier this month, five fund houses, including leading players including Reliance and ICICI Prudential MF, had listed out a total of 190 schemes that have been discontinued for fresh SIP investments to comply with SEBI guidelines.
We are of the view that, the 'one plan one scheme' regime will remove multiple plans of the same scheme and thus will be beneficial for the investors due to less confusion on which plan to opt for. Moreover, the AMCs would also treat all investors at par.
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Settlement Period: The period of time between the settlement date and the transaction date that is allotted to the parties of a transaction to satisfy the transaction's obligations. The buyer must make payment within the settlement period, while the seller must deliver the purchased security within this period.
Source: Investopedia
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Quote : "To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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