Impact 
 In order to cut transaction costs of banks, the Ministry of Finance (MoF) has asked the Reserve Bank of India (RBI) to allow common ATMs, called ‘white-label ATMs’ that will be owned and managed by non-banking entities. These white-label ATMs’ are proposed to be set up in non-traditional areas and customers would have to pay some fee for using them.
At present, banks allow customers of other banks five free-of-charge cash withdrawals at their ATMs every month but end up paying around  3,000 crore a year to settle inter-bank transaction costs. Until such ATMs come up, the ministry has told state-run banks to share the new dispensers they set up under a 'lead bank' arrangement. However, some banks are of the opinion that, the decision to set up an ATM or white-label ATMs should be left to the banks. It is noteworthy that currently white-label ATMs are operated by Euronext, Clear Card and Ezee ATM.
We believe that while initiative from MoF is intended to trim transaction cost for banks (by setting up white label ATMs), it should not cause inconvenience for customers who wish to bank at ATMs. Moreover, the “fee" to be paid at white label ATMs, should not be too steep which impede inclusive banking objective.
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Impact
 The Securities and Exchange Board of India (SEBI) had proposed a minimum investment size for Alternative Investment Funds (AIFs) at 1 crore for High Networth Individuals (HNIs). This would help to channelise HNI money to mutual fund houses as a lot of HNIs with an investment corpus of less than 1 crore now would not be able to invest in investment avenues that come under the purview of AIF regulations.
Venture capital funds, private equity funds, debt funds, real estate funds and PIPE (Private Investment In Public Equity) funds, among others would form a part of the AIFs and with minimum investment limit for HNIs proposed at 1 crore (instead of earlier 5 lakh), mutual fund industry would be the biggest beneficiary as considerable funds would get channelized.
We believe that while the mutual fund (MF) industry is set to benefit from the change in the regulations governing AIFs, the MF industry should aim at creating awareness about the benefits of investing in mutual funds through various investor education programmes. Moreover, MF houses should come with easy to understand products and not vie for garnering more AUMs.
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Impact 
The nervous sentiment in the Indian equity markets accentuated by the burgeoning debt crisis in the European region and the downgrade of the U.S. sovereign credit rating (to ‘AA+’ with a negative outlook, from ‘AAA’); have led to domestic mutual funds being jittery while investing money into Indian equities.
(Source :ACE MF, PersonalFN Research)
The above graph reveals that while mutual fund industry did exude confidence in the early part of the calendar year 2011-12, the tensions in the Middle East and North African (MENA) region (during the month of February 2011 and April 2011) dampened the sentiments in the equity markets turning domestic mutual funds to be net sellers in the Indian equities.
However, in the months of May, June, July and August 2011 the equity mutual funds were net buyers due as the dark clouds filled with nervous sentiments disappeared and investors realised that the Indian equity markets were trading a fair discount to the earlier highs of 21,004.96 (witnessed on November 5, 2010 – Muhurat Trading day). But downbeat sentiments from Greece were disseminated; the Indian markets too felt the shivers and turbulence, which led to domestic mutual funds turning net sellers in Indian equities.
We believe that the Indian equity markets are under a blanket of nervous global economic sentiments, which may not allow the de-coupling theory to work. But having said that, we think the Indian economy is in a far better shape as compared to the developed economies even though the GDP growth rate has slowed down (to 7.7% for Q1FY12). Moreover, the present valuations are quite attractive (BSE Sensex has corrected by 24.8% from it last peak of 21,004.96) to invest in a staggered manner in some good diversified equity funds following a value style of investing or a large cap bias fund. In order to even out the volatility of equity markets well, we recommend that you enrol for the SIP mode of investing as it would provide you with the advantage of rupee-cost averaging and also power your portfolio with the power of compounding. However, while selecting a fund select the one which has completed at least 3 years of track record and prefer funds from mutual fund houses which follow strong investment processes and systems.
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
16,232.54 |
(221.2) |
-1.34% |
| Re/US$ |
49.35 |
(0.6) |
-1.23% |
Gold /10g |
25,915.00 |
(280.0) |
-1.07% |
| Crude ($/barrel) |
103.15 |
(5.8) |
-5.32% |
| FD Rates (1-Yr) |
7.25% - 9.40% |
Weekly change as on October 06, 2011
*BSE Sensex as on October 07, 2011
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In an interview with the Economic Times, Mr. Prashant Jain – Chief Investment Officer of HDFC Mutual Fund shared his views on the impact of Euro debt crisis on India, capital flows in India and inflation.
Mr. Jain believes that the impact of the Euro debt crisis on the Indian economy should be very limited. This is because he believes; India does not have any material investments in these geographies and at the same time even the exports to the troubled countries are very small. His advice to the investors’ is to adopt a staggered approach while investing in the current markets.
As far as capital flows from foreign countries are concerned, he is of the view that it (capital flows) can get disrupted but it'll not have a large impact on the Indain economy as savings rate in India is pretty high and the country is able to fund almost 90% of its needs internally. “It is possible for one year, till the time capital flows remain disrupted, GDP may grow slower by 1-1.5 percentage points, but it'll continue to grow. RBI is well-placed and has a lot of room to manoeuvre - interest rates are at high levels. The moment you start lowering rates, it'll be an effective counter balance," he said.
Mr. Jain thinks that the high interest rates are leading to a slowdown in interest-sensitive sectors and global commodity prices are also moderating, so inflation should be lower next year. Explaining further he said, “A global slowdown is actually supportive of a lower fiscal deficit by way of lower oil prices and commodity prices. Subsidies have been the main reason for fiscal stress. If we had increased diesel price two years ago, we'd have significantly lower fiscal deficit and lower inflation today."
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Alternative Investment: An investment that is not one of the three traditional asset types (stocks, bonds and cash). Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity. Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts
(Source: Investopedia)
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QUOTE OF THE WEEK
"Money never starts an idea; it is the idea that starts the money."
-W. J. Cameron
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