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| October 22, 2010 |
Impact 
The new norms framed by the Insurance Regulatory and Development Authority (IRDA) for Unit Linked Insurance Plans (ULIPs) have finally taken a toll on the new business income of life insurance companies in September 2010.
Earlier, in August 2010, private life insurers have expressed fears, that their ULIP sales may slip, once the new norms for ULIPs come in force. The industry (insurance industry) has witnessed a decline of 48% in the new business income in September compared to the month of August this year.
Reacting to this -
Mr. Sanjiv Bajaj, Chief Executive Officer and Managing Director of Bajaj Finserv Limited said, "We expect a flat to medium growth in new business sales since we will need 12-18 months to redo our distribution model."
As analysed earlier and rightly so by PersonalFN ULIP’s performance in September 2010 has suffered. We think that now insurance companies need to focus more on the knowledge quotient of their workforce rather than pressurizing them to get more and more business.
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Impact
 In order to widen the reach of the insurers, the Insurance Regulatory and Development Authority (IRDA) has allowed IndiaPost (post offices) to sell policies of multiple insurance companies.
According to the revised IRDA guidelines, each of the 22 circles of IndiaPost will act as a corporate agent of two non-life insurers, two life insurance companies, one agricultural insurance company and one stand alone health insurance company. Each of the 22 circles will be treated as a separate unit in order to grant independent corporate agent licence with various insurers. However, the IRDA has barred IndiaPost from selling customer data to insurance companies under some referral arrangement.
We believe that such a move from IRDA will prove beneficial to the insurers as the department of posts have a wide pan- India reach (155,000 post offices spreads across India). However, in our opinion the method of operations, along with the level of knowledge of their staff needs to be upgrade in order to provide efficient and effective insurance advice to clients. The present unprofessional environment in IndiaPost is quite a put-off.
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Impact
(Source: ACE MF, PersonalFN Research)
The Wholesale Price Index (WPI), after being in double-digit territory for the last six months, mellowed down to the single-digit terrain in the month of August 2010, and provided some sigh of relief to the Government. However once again, WPI inflation is heading northwards as revealed by September inflation data of 8.62%.
The major contribution to this northward movement in WPI was caused by food inflation, which stood at 16.37% for the week ended October 2, 2010 (for the week ended September 25, 2010 it was 16.24%). High food inflation was accounted due to elevated prices of vegetables and milk.
As the inflation data was announced, Finance Minister Mr. Pranab Mukherjee expressed his concern over the rising prices by saying; managing inflation has been one of his biggest challenges. But meanwhile the Chief Economic Advisor - Mr. Kaushik Basu exuded confidence by saying, "Inflation is virtually holding constant between 8.5 - 8.6 per cent... for the first time both the core CPI and the WPI are in single digit...Hopeful of year-end estimate holding at 6 per cent."
We believe that the northward movement in WPI inflation may tempt Reserve Bank of India (RBI) to follow the calibrated exit path by increasing policy rates (both repo rate as well as reverse repo rate) by another 25 basis points in the next quarter policy review meeting (scheduled for November 2, 2010), in order to tame inflationary situation in the country.
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- Axis Mutual Fund launched Axis Gold Exchange Traded Fund (ETF) focused on gold-related investment and derivatives. The New Fund Offer (NFO) will be available for subscription for subscription till November 3, 2010.
The minimum investment in the NFO is  5,000. The fund will allocate a maximum of 100% of its corpus for investment in gold, including derivatives. It may invest up to 10% of its corpus in money market instruments.
- L&T Infrastructure Finance, a unit of Larsen & Toubro is set to raise 700 crores via issue of long term infrastructure bonds to retail investors.
The issue opens for application on October 15, 2010 and will be available till November 2, 2010.
For more information on L&T Infrastructure Finance Bond click here
- State Bank of India (SBI), country's largest public sector bank has announced the issue of "SBI Lower Tier II Bonds". The issue size of the bond is aggregating to 1,000 crore, and has a green shoe option of 500 crore.
The issue opens for subscription on October 18, 2010, and is available for application till October 23, 2010 (earlier October 25, 2010), and the allotments would be made on a "first come first serve basis". 50% of the issue size is reserved for retail investors, 25% for HNI (High Networth Investors) and 25% for NII (National Institutional Investors)/Corporate/QIBs (Qualified Institutional Buyers).
To know more about the bond issue click here.
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex |
20,260.58 |
(237.1) |
-1.16% |
| Re/US$ |
44.32 |
(0.2) |
-0.45% |
| Gold /10g |
19,485.00 |
(395.0) |
-1.99% |
| Crude ($/barrel) |
82.89 |
(1.5) |
-1.78% |
| FD Rates (1-Yr) |
6.50% - 7.25% |
Weekly change as on October 21, 2010
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In this issue
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In an interview with the Economic times, Mr. Adrian Mowat - Chief Asian Strategist, JP Morgan, shared his views on the Indian capital markets and its growth rate.
Mr. Mowat believes that the money flowing into the debt market in India is driving its (India) outperformance. According to him India like Turkey, runs into current account deficit, and therefore needs other people’s money to grow rapidly. The current credit environment he believes is very favourable for India, and thus expects flow of money in the credit markets to remain very robust as we enter 2011.
According to Mr. Mowat, India has a very powerful medium term story to tell, with a real possibility that perhaps it (the Indian economy) will grow faster than the Chinese economy. In his opinion, despite very large inflows into Exchange Traded Funds (ETFs), it has been the small and midcap stocks that outperformed in emerging markets in general. However, he believes that India is an exception to this and the fact that global credit markets are so favourable in financing India’s growth, it is benefiting the banks, the engineering construction companies, real estate building materials and those tend to be large cap companies in India, whereas elsewhere in emerging markets the focus is more on consumer related names which tend to be smaller midcap.
However, in his opinion the main cause of concern for the emerging markets is the combination of increase in core inflation combined with strong real credit growth which may force central banks into interest rate tightening cycle; but he believes that these conditions are not to be seen in India as of now. |
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Disinvestment : The action of an organization or government selling or liquidating an asset or subsidiary. Also known as divestiture.
(Source:Investopedia)
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QUOTE OF THE WEEK
"I learned to embrace risk, as long as it was well thought out and, in a worst-case scenario, I’d still land on my feet."
- Eli Broad
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This Week's Poll !!!
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Will you buy Gold through an ATM?
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- The Reserve Bank of India (RBI) divested its 71.5% stake, aggregating to 1,430 crores in the National Bank for Agriculture and Rural Development (NABARD) to the Government of India (GoI). Following this RBI’s stake in NABARD will be 1% whereas that of the GoI will be 99%.
- According to the Centre for Monitoring Indian Economy (CMIE), the Indian economy is expected to grow at 9.2% in 2010-11 following impressive growth in the manufacturing and services sectors.
- You may soon be able to buy your precious yellow metal - gold through an ATM, as Germany's Ex Oriente Lux AG is in talks with Indian entities for setting up gold dispensing automated machines in India.
Ex Oriente Lux AG, which also operates an online shop for the yellow metal, is the maker of gold vending machines.
The gold vending machines can issue upto ten different products and their real time prices are updated every ten minutes, according to the company (Ex Oriente Lux AG). Currently, such ATMs are there in four countries, the UAE (Abu Dhabi), Germany, Italy and Spain.
- The Prime Minister’s Economic Advisory Council (PMEAC) has estimated that Inflation is likely to decline to 6.5% by December 2010 from 8.62% in September 2010.
PMEAC Chairman - Dr. C. Rangarajan said that the RBI may need to raise policy rates yet again in its quarterly policy on November 2, 2010 to tame high inflation.
- Bharti AXA Investment Managers and Pramerica Asset Management Company are planning to sell their stake to Bank of India (BoI). BoI has decided to re-enter the mutual fund business after a gap of six years.
- ICICI Bank Ltd., India’s largest private sector bank has launched I-Express an instant cross-border money transfer option for Non-Resident Indians (NRIs) and partners in GCC (Gulf Cooperation Council).
I-Express facilitates an individual to remit the funds into another person’s (beneficiary) account maintained with ICICI Bank. Moreover, if the beneficiary does not have an ICICI Bank account, funds can still be credited (to the beneficiary’s non-ICICI Bank account), as ICICI Bank has tie-ups with 65,000 branches of other Indian banks.
- Standard Chartered Bank (Mauritius) Ltd., (a wholly owned subsidiary of Standard Chartered Bank Plc) has sought permission from the Foreign Investment Promotion Board (FIPB) to operate a stock exchange in India.
In its proposal to FIPB, Standard Chartered has also shown interest in creating a platform for trading in currency and interest-rate futures.
- The sharp run-up in the prices of Gold has dampened the demand for gold jewellery in this ongoing festive season. However, sales of non-gold jewellery and non-jewellery gold, which comprises of gold coins and bars, has risen compared with the sale of gold jewellery on the whole.
Pinakin Vyas, Assistant Vice-President, Treasury, IndusInd Bank said, "It is volatility rather than high prices that is killing demand for gold."
- The Finance Ministry has decided that the Employees’ State Insurance Corporation (ESIC) is liable to pay service tax. This move will increase the cost to India Inc to provide mandatory health cover for workers.
Reacting to the Finance Ministry’s decision, a senior Official of the ESIC said, "We are not running a for-profit activity that can be taxed as a commercial service. We are a social security scheme set up under an Act of Parliament."
- The UTI Mutual Fund will now provide Systematic Investment Plans (SIP) facility through National Stock Exchange - Mutual Fund Service System (NSE-MFSS) platform. UTI Mutual Fund is the first fund house to introduce SIP on the NSE-MFSS platform.
Terminals of NSE brokers will be the official point of acceptance and hence the date of acceptance of the transaction will be the date of entering the request on the terminal. Investors will also have the added advantage of obtaining the same day's Net Asset Value (NAV) (before 3 p.m.) at a large number of outlets in more than 1500 towns and cities, including remote locations.
- According to the ING Investor Dashboard Survey, the India index, which provides market insights into investor attitude and outlook, has been the highest among the Asian economies in the July-September period. The index allows each market to be benchmarked and tracked against the overall investor sentiment across Asia.
ING Investment Management (India) Managing Director and Chief Executive Navin Suri said, "India will continue to be an attractive investment destination, on the back of strong domestic investment and consumption demand."
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Disclaimer:
This newsletter is for Private Circulation only and not for sale, is only for information purposes and Quantum Information Services Limited (PersonalFN) is not providing any professional/investment advice through it and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. PersonalFN disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this newsletter, including without limitation the implied warranties of merchantability and fitness for a particular purpose. PersonalFN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this newsletter. Use of this newsletter is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. PersonalFN does not warrant completeness or accuracy of any information published in this newsletter. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This newsletter is for your personal use and you shall not resell, copy, or redistribute this newsletter, or use it for any commercial purpose.
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