  | | October 29, 2010 |
Impact  
The Income Tax department has come up with an innovative idea of creating awareness among school students on ‘the importance taxes for the society', by introducing the subject in the school curriculum.
According to Mr. S S N Moorhty – Chairman of Central Board of Direct Taxes (CBDT), the main motive of doing so is to prepare children be responsible and compliant tax payers when they grow up.
Hence now from the next academic session (beginning June 2011), through this initiative school children in the age group of 10 - 18 will be educated on the importance of taxes for the society, and the text books (to be introduced by National Council of Educational Research and Training) will cover wide range of topics such as history of taxation, rationale of taxes, how the Government raises revenues and spends it etc. The programme is intended to keep children aware of the need for taxation at a formative stage, thus ensuring that they are more inclined to fulfil their tax related obligations in their adulthood.
Commenting on the Government's move, Ms. Ameeta Mulla Wattal, Principal, Springdales School said "When you bring in such a concept in learning framework, you can permeate children's consciousness and impart values that make them aware overall accountability towards society."
We think such a move would make children responsible and honest tax payers in their adulthood. We also believe, the Government hopes that aware children will act as pressure groups to convince their parents to pay their due taxes. This move in our opinion is also intended to increase tax collections in the long run. Multibagger Stock Ideas
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Impact 
 (  in crores)
(Source: ACE MF, PersonalFN Research)
The month of October 2010 witnessed the highest ever monthly infusion by the Foreign Institutional Investors' (FIIs) ever since they (FIIs) were allowed to invest in local stocks. The FIIs infused a whopping 27,000 crores or $6.11 billion in the first 25 days of the month of October 2010. This reveals FII's confidence in the Indian economy.
Moreover the Finance Minister, Mr. Pranab Mukherjee showed no interest on putting a cap on FII investment in the equity market. He said, "At this time, I am not thinking of putting a cap on FIIs investment in the equity market."
We believe that strong FIIs interest in the Indian economy is due to the huge investment opportunities along with growth potentials offered due the following fundamental factors by:
- High GDP growth (8.8% for Q1 of 2010-11) as compared to other emerging economies
- Strong fundamentals of Indian companies
- Sustained recovery from the global crisis
- Robust banking and financial system
- Growing Infrastructure sector
- Expectation of inflation trailing below 6.5%
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Impact
Life insurers are finding themselves short of investment avenues post the new norms set by IRDA for Unit Linked Insurance Plans (ULIPs). Hence, the insurers are now seeking the regulator's (IRDA) nod to put money in investment options such as Fund of Funds (FoF) and Gold Exchange Traded Funds (GETFs).
A senior official at the IRDA said, "Since investments in these segments are either explicitly or implicitly banned, clearing such products is difficult."
Mr. Sunil Kakar, Chief Financial Officer (CFO) of Max New Life said, "Gold can be one good avenue of investment. It may not be the best option compared to diversified equity but it has a lot of customer appeal."
We believe that not only the investment avenues where the insurers can invest should be defined but also there should be strict disclosure norms as regards ULIPs are concerned. Certain disclosure norms need to be enforced on the ULIPs to make them simpler, transparent and well measurable. |
Impact
The Insurance Regulatory and Development Authority (IRDA) suspended the sale of Universal Life Policies (ULPs) from October 23, 2010, which were being promoted as an alternative to unit-linked insurance plans (ULIPs), The sales of ULPs will remain suspended till such time the final guidelines for the same (ULPs) are issued.
Draft Proposals for Universal Life Policies are:
- Expenses capped at 25% 1st year onwards, 5% from 2nd year
- Agent commission may fall below 5%
- Single premium products under ULPs to be banned
- Minimum policy term to be 5 years
- Lock-in of 3 years
- No top-up premium riders allowed
- To follow investment norms under traditional policies
Insurers will now also have to show the premium separately as risk premium, expense, commission and savings components. Moreover, the draft has proposed that the policyholder will have 12 months to revive the policy from the date of first unpaid premium, while the life cover will cease.
IRDA said, "After examining the complaints, the authority is satisfied that the universal life products need a better regulatory framework for protecting policyholders' interests."
We believe that IRDA has rightly targeted the ULPs as they (IRDA) would prefer only fair products to be floated in the market for the ultimate benefit of the policyholder. It seems that of late IRDA is now concentrating more on its regulatory role rather than the development role. | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 20,032.34 | (228.2) | -1.13% | | Re/US$ | 44.52 | (0.2) | -0.45% | | Gold /10g | 19,310.00 | (175.0) | -0.90% | | Crude ($/barrel) | 82.81 | (0.1) | -0.10% | | FD Rates (1-Yr) | 6.50% - 7.25% | Weekly change as on October 28, 2010
*BSE Sensex as on Oct 29,2010 |
In this issue
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In an interview with Business Standard, Dr. C Rangarajan, Chairman of Economic Advisory Council (EAC) shared his views on inflation, capital inflows and new banking licences.
Mr. Rangarajan believes that the primary focus of monetary policy at this point should be on inflation as it is still staying at an uncomfortably high level. He believes that the continuous action of the monetary authorities is justified. However, he urges that the banking system must respond to the leads given by the central bank, otherwise the policy actions of the central bank will have no meaning. According to him, inflation will soften in the coming months and expects it to be at 6.5% in December 2010 and further down to 5.5% by March 2011.
As far as capital flows are concerned, Mr. Rangarajan believes that larger capital inflows are needed to finance the current account deficit and so far the capital inflows are not causing any distortion. He thinks that the time has not come yet to put controls on capital flows. Moreover, he feels that it is best not to let rupee appreciate in nominal terms.
In order to maintain a competitive environment in the banking system, Mr. Rangarajan believes that entry of new entities must always be encouraged. He feels that consolidation can happen even as new entrants make their appearance and it's the ‘threat of entry' which should not be eliminated. |
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Universal Life Insurance : A type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance) which is invested to provide a cash value build-up. The death benefit, savings element and premiums can be reviewed and altered as a policyholder's circumstances change. In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.
(Source:Investopedia) |
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- Food Inflation for the week ended declined sharply to 13.75% for the week ended October 16, 2010 (for the week ended October 9, 2010 it was 15.53%) on account of improved supplies, and easing prices of vegetables.
- The Chinese economy (world's second-largest economy) grew 9.6% for the period between July-September, it's slowest pace in 12months. This raises the possibility of India leading the list of fastest-growing economy.
However when judged in absolute terms, China's Gross Domestic Product (GDP) at $4.9 trillion is about 3.78 times that of India's. The US economy, the world's largest, is 2.9 times the size of China's and 11 times India's GDP.
- CRISIL, the leading credit rating agency, expects GDP to grow by 8.2% in 2010-11 and continue the same momentum in the next decade as a result of increasing consumption arising out of India's demographics.
CRISIL's Managing Director and Chief Executive, Roopa Kudva, said, "We expect the Indian GDP to grow 8.2 per cent in 2010-11 as there is a lot of demand, plus the rains have also been good this year which will help the agricultural sector grow by 5.5 per cent."
- The Securities and Exchange Board of India (SEBI) has taken the initial steps in clearing Initial Public Offering (IPO) norms for life insurance companies. In addition to the norms that are sector neutral, domestic life insurers will also be required to disclose risk factors specific to insurance companies and an overview of the insurance industry in general, while raising money through a public issue.
Mr. C.B. Bhave, the Chairman of SEBI said, "Sectoral regulators can prescribe their own rules. For issues over 500 crore, a monitoring agency needs to be appointed. This requirement has been done away with for insurance companies. In addition, there are some sector specific disclosures which these companies need to make."
However, the investment bankers believe that there wouldn't be any significant progress on this unless the Insurance Bill, which proposes to increase the foreign direct investment (FDI) limit from 26% to 49%, is passed by Parliament.
- SEBI has accorded Qualified Institutional Buyer (QIB) status to insurance funds set up by the department of posts such as Postal Life Insurance Fund (PLIF) and Rural Postal Life Insurance Fund (RPLIF). The QIB status will allow these funds to participate in equity offerings, where typically, 50% of an IPO is reserved for QIBs.
SEBI has also increased the investment limit of retail investors to 2 lakh from 1 lakh earlier. This decision will help cut the numerous applications investors make in the name of relatives to get more shares.
- The Government of India has proposed to bring uniformity in the tenure of the heads of various regulatory bodies and has asked the law ministry to amend the respective laws to make it happen. At present, the heads of SEBI, RBI and the Telecom Regulatory Authority of India (TRAI) have 3 year tenures whereas the heads of IRDA, Central Electricity Regulatory Commission (CERC) and the Pension Fund Regulatory and Development Authority (PFRDA) enjoy five-year tenures.
- The State Bank of India (SBI) will soon start its business of facilitating payment through debit or credit card at retail outlets.
Mr. O.P. Bhatt, Chairman of SBI said, "We would be finalising the equity ratio with the joint venture partner soon post which the merchant acquiring business would become operational." Merchant acquiring business is facilitation of payment through debit or credit card at the retail outlets.
- The Macquarie Group's has received Non-Banking Finance Corporation (NBFC) status from the Reserve Bank of India (RBI). The company, Macquarie Finance India (MFIPL), will start non-banking finance operations in December 2010.
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