  | | March 08, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 19,683.23 | 764.7 | 4.04% | | Re/US$ | 54.57 | (0.2)
| -0.39% | | Gold Rs/10g | 29,425.00 | (268.0) | -0.90% | | Crude ($/barrel) | 110.59 | (0.8) | -0.71% | | FD Rates (1-Yr) | 7.25% - 9.00% | Weekly change as on February 21, 2013
*BSE Sensex as on February 22, 2013 | |
Impact 
Now soon equities - an asset class for long-term wealth creation, would provide you an option to invest in 'listed' preference shares. The capital market regulator - Securities and Exchange Board of India (SEBI), will soon be permitting preference shares to be listed on the stock exchanges. The SEBI board is expected to meet on Friday, and is likely to approve changes that will pave the way for listing of these securities, as well as permitting infrastructure companies to raise long-term capital through issuance of preference shares with life of over 20 years.
It is noteworthy that under the existing rules, public issue and listing of preference shares is not covered and therefore the aforesaid approval is needed.
Unlike regular equity issue, companies planning to raise capital through public offering of preference shares will not have to file draft offer document with the capital market regulator, but instead their merchant banks hired for the issuer would be permitted to file documents with stock exchanges. However as a disclosure requirement, it will be necessary for the cover page to spell out in bold letters that "preference shares are riskier then debentures".
We are of the view that, permitting preference shares to be listed would make it easy for banks and infrastructure finance companies to raise long-term capital, thereby do away with the funding constraints. The Reserve Bank of India (RBI) has also earlier requested SEBI, to facilitate capital mobilisation efforts of the banks to enable them meet the conditions laid down by Basel III norms (global standard for banks). However, we think that while allowing preference shares to be listed, the capital market regulator may put in conditions such as minimum tenure, minimum credit rating, and there could also be a restrain over usage of funds (which may include precluding companies from acquiring shares and lending to companies that are part of the same group).
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Impact
Until recently, some influential investors in debt mutual fund schemes made a quick buck by using a loophole in debt mutual fund investing to their advantage. As per the guidelines, investors investing a sum of money below Rs 2 lakh in a debt mutual scheme, enjoy the NAV of the date of application of the scheme, although the cheque takes couple or more days to clear. This had encouraged rich investors to participate in debt mutual funds for the short-term, where they were induced even to exit their investments even without their application money leaving their bank account. Moreover, those who wanted to invest a lump sum amount over Rs 2 lakh too preferred to split their investment to obtain the benefit of same day benefit.
But now to crack the whip, the Association of Mutual Funds in India (AMFI) vide a circular has told mutual fund houses that, for deciding the Net Asset Value (NAV) for amounts lower than Rs 2 lakh, they should club investments through multiple applications in debt funds by an individual or an entity, on the basis of the Permanent Account Number (PAN) of the investor for aggregation.
The latest circular would apply to all transactions received on the same day. It would also apply to transactions at the option level - investments across dividend, growth and direct schemes of a fund would be lumped together. However, certain transactions such as switches and systematic investment plans would be excluded.
We are of the view that, this is a proactive move from AMFI asking mutual fund houses to follow a uniform practice for aggregating split transactions across AMCs (asset management companies), which lead to some investor to take advantage of.
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Impact 
The Indian equity markets in the month of February 2013 eroded gain seen in the month of January 2013, as edgy disposition led to a descending move of -5.2% (or 1,033.44 points). Overall nervousness seemed to grip the market in the month gone by, with economic growth forecast being murky and industrial growth numbers depicting a “see-saw” trend (with contraction reported in November 2012 and December 2012).
S&P BSE Sensex vs. FII flows
Data as on February 28, 2013
(Source: ACE MF, PersonalFN Research)
But despite the descending trend of the market and lull in industrial activity, FIIs continued to buy into Indian equities. They net bought to the tune of Rs 24,439 crore, thereby accelerating a little further from their last month’s activity, where they net bought to the tune of Rs Rs 22,874 crore.
So what led them to buy in Indian equities?
Well, they seemed to have exuded confidence in Indian equities on account:
- GAAR being deferred until April 2016 and P-Notes excluded therefrom
- Inflationary pressures reducing (WPI inflation at 6.62% for January 2013)
- RBI turning focus to address to growth risk
- Government showing commitment on its path of fiscal consolidation
- Union Budget 2013 being a balancing act
- Weakening Indian Rupee facilitating their flows
- Easy monetary policy adopted by the central bankers in the developed economies
- Better economic growth prospects in the future with reform measures being supportive thereto
But going forward would this ascending trend of FII buying activity continue?
We believe that, for FIIs flows to gush into Indian equity market, acceleration on reform measures would be needed if India wants to moniker as the Asia’s fastest growing economy. Also, prudent policies need to be adopted in order to tread successfully on the path of fiscal consolidation and even achieve the ambitious fiscal deficit target of 4.8% for fiscal year 2013-14. At present Budget 2013 seems to have done a balancing act, but how these proposal indeed go through in the Parliament and their implementation thereafter, needs to be seen. The RBI has turned it focus on addressing to growth risk; but intermediate inflationary pressures (occurring on account of increase in freight and diesel prices) remain a challenge for the central bank. Moreover with India heading for general election next year (i.e. in 2014), political environment would also be carefully watched. Therefore the path for the market will depend on confluence of economic and political factors.
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Impact
On the inauguration ceremony of an insurance brand last month, finance minister had appealed insurers to come up with simple products and refrain from mis-selling. In his opinion, the reason behind poor growth in insurance sector over last few years has mainly been complex product structures and unrestrained mis-selling.
Ever since Insurance Regulatory and Development Authority (IRDA) issued guidelines governing Unit Linked Insurance Plans (ULIPs) in July 2010; insurance brokers and agents have been pushing hard the traditional plans. Traditional plan were not regulated so far.
However, to make traditional plans more transparent and attractive to investors, IRDA has recently issued guidelines for traditional life insurance products. To read the guideline and to read our view over it, please click here.
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Impact
The Union Budget 2013 announced by the finance minister, might have brought cheers for many individuals in the middle-class segment. The budget provided for an additional tax incentive of Rs 1 lakh on interest paid on their first home loan of upto Rs 25 lac, by the first time buyers of property (not costing over Rs 40 Lac); as well as providing tax incentive of Rs 2,000 for individuals having annual income of upto Rs 5 Lac, were basically targeted towards lower income group.
On the other hand, some announcements in the budget proposal such as imposing additional surcharge and additional duty and taxes, sounded disheartening for individuals in the high income segment. One among these was 1% deduction of tax at source (TDS) on the value of transfer of immovable properties (excluding agricultural land), where the consideration is above Rs 50 lac. The central government has noted that transactions in immovable properties are usually undervalued and underreported and around 50% of the transactions do not carry the PAN of the parties concerned. The government has taken this step in order to improve the reporting of such transactions and the taxation of capital gains. To read more about this budget proposal and our view over it, please click here.
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- In today's times, with mounting healthcare cost many of you would agree that having a health insurance policy is imperative. Recognising the solemnity of this, we are quite sure that many of you would be covered for mediclaim. And in case if you are not, here's a good opportunity coming your way which would help you save on the premium you'll pay therefor.
Recently, the Insurance Regulatory and Development Authority (IRDA) allowed general insurance companies to launch three-year health policies, instead of the yearly plans. Moreover, the insurance regulator in its new guidelines has also stated that, insures cannot throw away requests for renewals without sufficient cause.
We are of the view that with aforesaid guidelines from the insurance regulator, soon longer tenure products would be launched by general insurers, which in turn would help prospective policyholders to save on premium defrayed by them and save them from the hassle of getting the policy renewed every year. Moreover, guidelines asking insurers to provide sufficient cause for not accepting renewals, would not subject renewals to whims and fancies of insurers.
- The RBI has directed all banks to facilitate exchange of cut or mutilated bank notes with clean notes at all their branches.
"The facility of exchange of cut/mutilated banknotes, in addition to soiled notes and issue of good quality clean banknotes/coins, should be made available at all bank branches including those of co-operative banks and RRBs," RBI said in a notification. Moreover, the central bank has asked banks to provide this facility to all member of the public without discrimination on all working days.
However, if a bank branch is not able to immediately adjudicate cut or mutilated notes across the counter, it may accept and send such notes to the currency chest to which is it linked, and ensure that the tenderer receives the exchange value within a reasonable time.
We are of the view that, this is a good move by the RBI as there a numerous such Indian currency notes which are with the general public, and cannot be used. Now with the conversion of the same, it could help many to obtain value of such respective denomination notes.
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Preference Shares: Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights.
Source: Investopedia
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Quote : "The gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application." - Miguel de Cervantes
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