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The Securities and Exchange Board of India (SEBI) is mulling ways to get the $1 trillion wealth management industry under its ambit (regulatory control) after the recent Citibank scam ( 400 crore fraud) sparked questions on the inadequacy of regulations relating to the wealth management business.
SEBI's Executive Director - Mr. K.N. Vaidyanathan, who is in charge of the investment management department and the division of foreign institutional investors (FIIs) and custodians said, "It will happen that every component of the capital market is regulated... if not tomorrow, a few months down the line. The recent incidents will make it (regulations) faster." He also stressed the need for the regulator to be ahead of the curve on any wrongdoing related to the markets.
We believe that SEBI is taking prudent pro-active measures in order to protect investors' interest thus safeguarding them against unscrupulous distributors /agents and relationship managers who mis-sell (some even embezzle) investors. Unfortunately in the name of wealth management many ponzi schemes are floated in the market luring investors by promising enticing returns, which make distributors /agents rich (as they earn good commissions), but dupe investors (as the returns promised are never delivered and sometimes even the money invested is embezzled). We think investors' should invest with responsibility, and not get lured by enticing returns promised.
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 (Source: Office of the Economic Advisor, PersonalFN Research)
After mellowing down in the month of November 2010 to 7.48%, the Wholesale Price Index (WPI) jumped to 8.43% in December 2010. This sudden spurt in the headline inflation was due to the upward trend in prices of certain food and non-food items.
As per the official WPI data, prices of prices of primary articles; food, non-food articles and minerals shot up by 16.46% on an annual basis. Manufactured goods too became expensive by 4.46% on an annual basis. Also, during the month of December 2010 fuel and power prices scaled up by 11.19%.
Considering the northbound journey of the headline inflation, the Prime Minister's Economic Advisory Council's (PMEAC) Chairman said that the WPI for the fiscal ending March 2011 may end up higher at 7.00%. Also now the Finance Secretary - Mr. Ashok Chawla too expects the WPI for the fiscal ending March 2011 to be at 6.5%.
We believe that the headline inflation would still remain above the comfort levels of the RBI, and is expected to remain stiff as the impact of spiralling food and crude oil prices would start creeping in the headline WPI inflation. As an effect of this we may see RBI increasing policy rates by 25 basis points in third quarter review of monetary policy 2010-11 (scheduled on January 25, 2011), despite the drop in the Index of Industrial Production (IIP) to 2.7% (for the month of November 2010).
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Impact 
In order to boost retail investors' participation in the stock market, SEBI is considering higher allocation of public offer shares for mutual funds (MFs). Traditionally Initial Public Offers (IPOs) / Follow-on Public Offers (FPOs) have been dominated by the Foreign Institutional Investors (FIIs).
At present, all Qualified Institutional Buyers (QIBs), which includes a whole range of institutional investors such as mutual funds, are together allocated 50% of shares being sold through IPOs and FPOs. But there is no direct reservation for MFs. Though there is an indirect allocation (less than 10%) available to MFs, intense competition in the QIB segment deters them (MFs) to get the desired number of shares.
We believe that if SEBI does actually increase allocation of IPOs and FPOs shares for MFs, it will enable fund managers to pick-up some good companies at the very initial stage giving due importance to the business model of the company, growth offered and off course valuations of the offering.
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- Fidelity Mutual Fund (FIL Fund Management Private Ltd.) launched Fidelity India Children's Plan (FICP) - a hybrid fund which combines equity, fixed income instruments and gold ETFs. The fund offer three distinct funds under it viz. Education Fund, Marriage Fund and Savings Fund, where one can invest in, and each of them are intended to achieve their stated objective. Investors can opt for any of the funds for their investments, depending upon their financial goal - being children education, marriage or mere savings.
To read more about FICP, Click here. | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 19,007.53 | 147.1  | -4.22% | | Re/US$ | 45.53 | (0.3) | -0.62% | | Gold/10g | 20,270.00 | (75.0) | -0.37% | | Crude ($/barrel) | 97.33 | 0.0 | 0.0% | | FD Rates (1-Yr) | 7.00% - 8.00% | Weekly change as on January 20, 2011
*BSE Sensex as on January 21, 2011 | |
In this issue
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In an interview with DNA Money, Mr. Vikaas Sachdeva - Chief Executive Officer of Edelweiss Asset Management shared his views on FII flows in India, IIP numbers, food inflation, crude oil prices and liquidity situation in India.
Mr. Sachdeva believes that the India story is now well entrenched and does not need to be ‘sold’ to international investors like it was 10 years ago and thus he expects Foreign Institutional Investor (FII) flows to be in positive terrain on an annual basis.
According to Mr. Sachdeva, the Index of Industrial Production (IIP) numbers have been volatile, but the trend seems to be downward, at least in the immediate term. He also says that the uptick in credit growth and exports in recent months as well as a robust PMI (Purchasing Managers’ Index) are indicative of industrial activity recovering from its soft patch. Meanwhile, he points out that the weakness in the consumer non-durables (negative growth in IIP- November 2010) category can be partly attributed to inflation.
Mr. Sachdeva sights inflation as a major concern, more specifically food and commodities. He believes that unseasonal rains and supply side bottlenecks have led to high food prices and this could be a significant concern for the market, if it does not cool down. He expects RBI to raise policy rates by 25 basis points in January 25, 2011 meeting and additional 50-75 basis points over the course of calendar year 2011.
Mr. Sachdeva believes that there is always a debilitating impact of higher oil prices on the Indian economy - prices above $100 per barrel start hurting the Indian economy disproportionately. He further adds, "On one hand, inflation starts to spiral upwards thereby hampering consumption growth. On the other hand, it is estimated that every $10 per barrel increase in Indian oil price basket adds roughly $7-8 billion to the current account deficit.
Sharing his views on the liquidity scenario in the country, Mr. Sachdeva said that liquidity has started easing marginally and is expected to remain tight till the second week of February 2011. However, he believes that post mid-February the liquidity is expected to pick up as Government spending will pick up coupled with shift of money in circulation to the banking system, due to higher deposit rates on offer.
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Sector Fund : A stock mutual, exchange-traded or closed-end fund that invests solely in businesses that operate in a particular industry or sector of the economy. Because the holdings of this type of fund are in the same industry, there is an inherent lack of diversification associated with these funds.
(Source: Investopedia)
| | QUOTE OF THE WEEK
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
- George Soros
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