Impact 
In a bid to provide the much needed transaction and tracking ease to the investors, the capital market regulator - Securities and Exchange Board of India (SEBI) directed the mutual fund (MF) houses to provide investors an option to hold their units in demat account. The regulator has asked the MF houses to ensure that such option is provided to the investors in both existing and new schemes from October 1, 2011.
SEBI has also clarified that the MF houses should provide an option to the investors to receive allotment of MF units in their demat account while subscribing to any scheme, be it an open ended, close ended or interval scheme.
SEBI also observed that most of the time investors' request for dematerialising their units is rejected as depository participants are not having / or having incorrect international securities identifying number (ISIN) of each option of the scheme. As a result, SEBI has directed all the MF houses to obtain ISIN for each option of the scheme and quote the respective ISIN along with the name of the scheme in all statement of account / Common Account Statement (CAS) issued to the investors from October 1, 2011 onwards.
We believe once again keeping investors interest in forefront, SEBI has taken the right step in bringing about transparency and accountability among the mutual fund houses. Providing demat option under all schemes will make life easier for investors as this will allow them to track their investments in different mutual fund houses all at one time and on one screen, instead of going through several account statements issued by MF houses.
However, we think such steps should have been taken a bit earlier. Nevertheless, it's 'better late than never'.
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In order to boost supervision of large financial groups, a working group of the Reserve Bank of India (RBI) has proposed that all large financial groups should function under a Financial Holding Company (FHC) structure and be regulated by the RBI even if they do not have a bank in their fold.
The panel also proposed that there should be a separate regulatory framework and a new Act for such holding companies and, if necessary, amendments should be made to the existing Acts governing public sector banks, the Companies Act and other relevant Acts.
For the purpose of supervision, a separate unit within RBI should be responsible for regulation. It can have staff from both the central bank as well as other regulators and the framework should also formalize a consolidated supervision mechanism through an understanding among watchdog agencies, the panel recommended.
The RBI, which has posted the report on its website, has sought comments on the proposal until end-June.
We believe that proposed structure for the large financial institutions is an apt move by the RBI to bring them under thorough supervision and surveillance. A holding company model will provide the requisite differentiation and ease in regulatory approach for the holding firm vis-à-vis individual entities. But we think for the regulators not to intrude in each other's territory, clear framework would be required. | |
Impact   (Source : Base:  10,000
ACE MF, PersonalFN Research)
This cautious mode of the FIIs seems to be weighing heavily on the BSE Sensex Index as it has underperformed majority of the developed market indices (as shown in the graph above). Also, FIIs have been circumspect about domestic issues such as high inflationary pressure and aggressive rate tightening by the central bank of the country which could ultimately affect capex plans of companies (as borrowing costs would increase, lead to rise in labour cost, slowdown demand, slowdown credit off-take and even slump economic growth. Moreover their (FIIs) investments are also influenced by mixed Q4FY2010-11 numbers along with global issues such as withdrawal of QEII relaxation and the debt-overhang situation in the euro zone.
In our opinion this 'sell in May' dictum followed by the FIIs is a short term phenomena. Fundamentally Indian economy is strong and resilient. However, inflation is a big worry as further rate hikes by the RBI to tame the inflation may derail growth.
However, from a valuation perspective these are attractive levels as the Indian equity markets have already corrected by nearly -14.5% (from their last peak of 21,004.96 points made by the BSE Sensex on November 5, 2010), thus building a case for them to take exposure to Indian equities once again.
Hence, as an investor there is nothing to panic and instead one should look at this situation as an opportunity to invest. It would be wise to adopt the SIP (Systematic Investment Plan) route through mutual fund investing as this will enable you to manage the volatility well, and provide you the advantage of rupee-cost averaging and compounding.
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 18,266.10 | (60.0) | -0.33% | | Re/US$ | 45.31 | (0.3) | -0.73% | Gold /10g | 22,385.00 | 485.0 | 2.21% | | Crude ($/barrel) | 115.20 | 2.7 | 2.38% | | FD Rates (1-Yr) | 7.25% - 9.25% | Weekly change as on May 26, 2011
*BSE Sensex as on May 27, 2011
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In an interview with Bloomberg/UTV, Mr. Tarun Kataria - Chief Executive Officer, Religare Capital India shared his views on direction of the Indian equity markets, GDP growth in the Indian economy, RBI's monetary policy stance and effects of QE2 on India.
Mr. Kataria believes that by the end of this fiscal BSE Sensex could achieve 23,000-25,000 levels. He explains that we are in a position or time where the U.S. is in transition, and Europe too is having its share of problems. On India too he commented saying, it has its own share of problems with headwinds, inflation and nothing happening in the infrastructural fund. However, despite this he says that, the inflation will probably peak in Q3 (third quarter of the calendar year) and once that happens, in his view, the bank stocks as well as the auto stocks will start to run which in turn will drive the Sensex higher.
Mr. Kataria is relatively bullish for the Indian economy. "Look at what is happening in the U.S., in Europe, in Japan, so from a comparable standpoint; obviously 8% growth looks very interesting. But as it has been for three generations, we were perennially underperforming where we should be - should we not be growing at 14% if we had infrastructure, and that's the problem. So we have to be very mindful of how much the RBI needs to do and will do such that it doesn't take the industry down with it and that's the issue," Mr. Kataria said.
On the monetary policy front, Mr. Kataria is of the view that the RBI may raise the policy rates by another 75 basis points. Explaining his views he says, "The issue that we are all grappling with is it's not only interest rates that's the problem, it's the whole supply side constraint which in itself is inflationary. And unless we find a way to deal with that... how much you are going to raise the rates... At some point you are going to kill the economy, which is something you don't want to do."
Mr. Kataria thinks that there is a lot of uncertainty around the QEII (quantitative easing - Round II). As far as the impact of QEII is concerned he says, "Part of the volatility that we are seeing today is induced by the uncertainty around QEII. We have been saying since January that if there is any sanity in the Indian market, once June rolls around, the un- certainty around whether they actually withdraw liquidity or they leave liquidity and take rates up in itself will induce volatility. My view is that they don't take liquidity out, which generally means it is good for the global equity markets. But may be they take rates up by 25-50 basis points just so that the money is not free and you are not creating bubbles around the world. I think that will come through in the next few days, or in the next couple of months. But until then, there will be a sort of seesaw between whether it is happening or it is not happening, and therefore the Sensex trades in that sort of a range."
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Quantitative easing: A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
(Source: Investopedia) | |
QUOTE OF THE WEEK
"While values drive behaviours, principles govern consequences."
- Stephen Covey | |