Impact 
Soon after mobile number portability and health insurance portability, the Government is now mulling ways to introduce bank account number portability. The idea behind launching bank account number portability is to save customers the inconvenience of opening and closing bank accounts or keeping multiple accounts if they have to shift to a new location or find their bank’s services unsatisfactory.
At present the Finance Ministry has started discussions with the Reserve Bank of India (RBI) and banks, including private sector lenders, to assess the feasibility of introducing the move over the next few years. In a step towards this direction, all banks will be asked to follow common KYC (know-your-customer) norms. An expert committee will be formed to explore it further and prepare a report.
We believe that the initiative by the Government for the convenience of bank customers is a credible one. However, the Government should double check the security measures undertaken for implementing such an initiative. Also, KYC should be done by the banks with utmost care or else there could be a serious threat of black money flowing into the country. There should also be a check on frequent changes of banks by the customers to escape the Prevention of Money Laundering Act. | | Impact 
The repeated interest rate hikes by the Reserve Bank of India (RBI) and lower operating profits on the back of high input cost have pulled down India Inc’s interest paying ability to a five year low, according to a report by Crisil Ratings.
In the September 2011 quarter, interest costs for companies grew 36%, bringing down the interest coverage ratio to 4.8 times versus the 7.8 times in the year ago period and the five-year average to 8.4 times, a study conducted by Crisil’s research arm revealed. Further, the study expects that the interest coverage ratio to remain under pressure on the back of a dip in overall growth expectations, even though the RBI has now hinted at a pause to its rate hike cycle.
We believe that the slowed down in the Indian economy (as revealed by the Q2FY12 GDP growth rate of 6.9%), has attributed to this problem of lower interest coverage ratio in India Inc. Moreover, the relentless rate hikes by the RBI, which have pushed up borrowing costs and input costs, also has made it tough for India Inc . But going forward the cooling down of the headline inflation (food inflation has turned negative at -3.36% for the week ended December 24, 2011) and RBI taking a pause in the rate hikes or may be even reversing them may once again pull up the operating profits of India Inc. which would ultimately result in keeping its interest paying capacity intact.
| | Impact
The Indian equity markets faced a turbulent 2011. Some of the domestic issues which grappled the markets were high inflation (above the comfort zone of the RBI), scam stories unearthing, lack of political consensus & reforms, high borrowing costs, etc. To add to this, global issues like the Euro zone debt crisis and ballooning fiscal deficit of the U.S. kindled nervous sentiments across the globe.
(Source: ACE MF, PersonalFN Research)
Due to the above factors the Indian equity markets witnessed high volatility in the Foreign Institutional Investors (FIIs) money. From the above graph it is clearly seen that the FII flows has been very unstable. However, contrary to this the investments made by the mutual fund industry in the equity markets are more or less consistent, and have shown an inverse relation to the FII flows. But a noteworthy point is that, in terms of volume they form a very miniscule part of the overall investments.
In our opinion what India requires is Foreign Direct Investment (FDI) which is quite stable in nature as compared to FII flows which are like migratory birds. The Government should realise this and bring about policy reforms conducive for the FDI flows to come in India, which can fuel the economic growth rate as well.
As regards mutual fund industry forming a miniscule part of the total investments in the equity markets is concerned, it is due to lack of understanding of mutual funds amongst investor community. The Association of Mutual Funds in India (AMFI) along with the fund houses should undertake investor educations programmes and make investors ware about the pros and cons of investing in mutual funds, as this initiative in the long-term can add depth to the mutual fund industry as well.
We believe that investors who are naïve to direct investing in stocks or lack the time and aptitude to track the markets should invest their hard earned money in well performing mutual fund schemes to take advantage of the equity as asset class. Remember while selecting mutual fund schemes for investment select those which a good track record and are from fund houses following prudent investment processes and systems. Also, invest with a time horizon of atleast 3 to 5 years to derive the full potential of the equity asset class in your investment portfolio.
| | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 15,867.73 | 412.8  | 2.67% | | Re/US$ | 52.98 | 0.1 | 0.17% | Gold /10g | 27,550.00 | 980.0 | 3.69% | | Crude ($/barrel) | 111.79 | 3.5 | 3.25% | | FD Rates (1-Yr) | 7.25% - 9.40% | Weekly change as on Janaury 05, 2012
*BSE Sensex as on Janaury 06, 2012 | | This Week's Poll !!!
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In an interview with the Economic Times, Mr. Shankar Sharma - Vice-Chairman & Joint Managing Director at First Global shared his views on the Indian markets and its road ahead in 2012, RBI monetary policy and infrastructure sector.
Mr. Sharma is of the opinion that both the domestic issues as well as Euro zone worries are threatening for the Indian market. However, he said that the though domestic issues have suddenly become more relevant ever since people discovered that India has a budding balance of payment (BoP) problem, apart from a fiscal deficit problem, the market is underplaying the Euro zone and US issues and overplaying India issues. He thinks that India's problems are temporary and nothing that some sensible economic management can't fix.
For the year 2012, Mr. Sharma believes that excessive pessimism and low self-esteem are the emotions to be avoided while equity investing. "Life is only a confidence game. Confidence begets capital. You only have to spend some time in the U.S. to turn into an inveterate bull on India. I am such a bull on India. Irrespective of what happens in the near term, I remain absolutely clear that India will be the dominant economic force 15 years out, trumping imbalanced economies and social structures like the US and China. India was the largest economy in the world in 1700. 200-plus years of the British rule saw us get relegated to near last position. And within 60-65 years of the English leaving, we are back to being the top-three economies (PPP terms) in the world. What does that tell you? That this country is intrinsically great, and you can't keep it down for too long. Nobody ever gave India a chance of surviving even post-independence," he said.
As far as infrastructure sector is concerned, Mr. Sharma is of the opinion that such grandiose projects, like power and infrastructure, are best left to the state and private firms can never make economic returns from essential services which is the core problem. "I think we should avoid falling into the trap of excessive infrastructure. Yes, we should make a few good roads, 3 or 4 airports, 3 or 4 ports. That's all. Look at all countries that have done this....the US, China, Dubai, etc...all have, or will go bust, without any doubt. We just have to build normal infrastructure...definitely not the way China has done it, wherein you have large empty motorways, towns, trains...who can afford all that? Countries that build too many roads, finish up on the road," he explained.
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Asset-Liability Management:A technique companies employ in coordinating the management of assets and liabilities so that an adequate return may be earned.
(Source: Investopedia) | | | QUOTE OF THE WEEK
"The art of progress is to preserve order amid change, and to preserve change amid order."
- Alfred North Whitehead | | |