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| December 21, 2012 |
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| Weekly Facts |
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Change |
%Change |
| BSE Sensex* |
19,242.00 |
(75.3) |
-0.39% |
| Re/US$ |
54.86 |
(0.4) |
-0.72% |
| Gold Rs/10g |
30,595.00 |
(250.0) |
-0.81% |
| Crude ($/barrel) |
111.43 |
2.5 |
2.31% |
| FD Rates (1-Yr) |
7.50% - 9.00% |
Weekly change as on December 20, 2012
*BSE Sensex as on December 21, 2012
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Impact 
If you are thinking of going on a long drive and allowing your friend to drive your vehicle, you go to think again. God forbid, but in case if an accident occurs there are chances that your motor insurance claim may get rejected.
Among the latest proposal which the general insurance industry is taking to the Insurance Regulatory and Development Authority (IRDA) to boost profitability, it is said that claims in case of accidents would be rejected, if the vehicle is driven by a person not a part of the list provided at the time of buying the policy. Moreover, there are chances that your motor insurance premium would go up depending on how many in your family use the vehicle.
We are of the view that, the proposal is forwarded by general insurers to IRDA in an aim to increase their profitability, because it's been quite some time now that a number of them have been facing losses. Such a move could also help in reducing fraud in case of third party claims. But we think that enforcing such a proposal could be difficult, because authenticity of the case could remain under doubt.
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Impact
In its agenda of financial inclusion, the Government of our country had been emphasising on the need for providing more banking facility and releasing additional banking licenses to private sector players, by bringing in some amendment in the Banking Regulation Act. But the RBI wanted the Government to amend the banking laws before starting the process of issuance of new banking licenses.
In the week gone by, in the winter session of the Parliament, the crucial Banking Laws (Amendment) Bill, 2011 was approved in the Lok Sabha, which was a major reform move for India's banking sector. The said Bill brought about changes in the three laws:
- Conferred more power to Reserve Bank of India (RBI) to regulate banks;
- Raised voting rights for investors in banks; and
- Allowed state-owned banks to raise capitals through bonus and right issues
The controversial proposal of allowing banks to trade in commodities futures was dropped, after their being strong resentment over it from the opposition.
BSE Bankex vs. BSE Sensex
Base: Rs 10,000
Data as on December 18, 2012
(Source: ACE MF, PersonalFN Research)
The approval of this Bill exuded confidence in the Indian equity markets and caught attention of corporate houses intending to make a foray into India's banking sector evaluating the potential it holds. The chart above reveals that the BSE Bankex has outperformed the BSE Sensex over a three year time frame led by sound fundamentals depicted by India's banking sector along with prudent regulatory framework too being in place (which has been supportive for the sound fundamentals).
We are of view that, with the Bill being passed one may see quite a number corporate houses - especially those which are Non-Banking Finance Companies (NBFC) and those in financial services, evincing interest to foray into India's banking sector. With privatisation, one may also experience better service from banks in a fiercely competitive environment.
At present, although the Bill is passed in the Lok Sabha, approval is yet awaited from the upper house (i.e. the Rajya Sabha) and the RBI too has to come out with revised guidelines.
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Impact
If you think like an entrepreneur and have always longed starting a venture - a "company" exclusively by yourself, here's some good news for you.
The passage of the Companies Bill has paved in new concept of "One Person Company" (OPC), whereby even one person can start a company, being its member (i.e. shareholder). It is noteworthy that the Companies Act, 1956 required at least required two people to form a company; and thus most often while forming a company, an enterprising individual (i.e. the main founder member) used to pull in another family member just for the sake of adding a second name. Well, the main reason of having two members (i.e. shareholders) was to differentiate it from sole proprietorship form of carrying out the business which is excluded from the aforementioned Act.
An OPC can be formed by subscribing the name of a person to the memorandum and complying with the requirements of the Act in respect of registration. As regards the name of an OPC, the Act provides that the words "one person company" shall be mentioned in brackets below the name of such a company, wherever its name is printed, affixed or engraved. Such company will also be required to maintain copy of the resolution passed as well as the minutes book. It also provides that the memorandum of an OPC shall indicate the name of another person as a nominee, with his prior written consent in the prescribed form, who shall, in the event of the subscriber's death, become the member of the company, and the written consent of such person shall also be filed with the registrar at the time of incorporation along with its memorandum and articles.
We are of the view that, introduction of OPC will enable enterprising individuals to be a part of the organised sector, whereby they would have better access to capital vis-à-vis proprietorship or partnership concerns, due to "companies" being well regulated under the Companies Act. This concept of a company is quite popular in the west - the U.S. and European countries, where entrepreneurs have an option to decide the constitution of company as per their need and the option of an OPC is available to them.
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Impact
Salaried earners often boast of several allowances conferred upon them by the virtue of their employment. But soon these allowances could upset millions of household budgets. How? Well, recently, the Employees Provident Fund Organisation (EPFO) released a circular which stated that certain allowances must be added to the salary, while computing EPF contribution. Thus as an effect of this, higher amount would be deducted as employees contribution to the PF account, which will leave many salaried earners with a lower net take home pay.
At present employees contribute 12% of their salary (which include Basic Salary and Dearness Allowance), while employers too contribute a matching amount. But going forward if the revised rules are implemented, the other allowances too would be included for calculation purpose. To know more about this news and our view over it, please click here.
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Impact
Most of us are desirous of buying a dream home, but the rising property prices are making this dream rather far-fetched and for some, even impossible. Although home loans are available in today's times, stiff interest rate cost has been a deterrent for many property buyers - be it in the residential segment or commercial segment. Moreover, the situation of sky high reality prices at present has been heightened by real estate developers by sitting on huge inventories (unsold flats), and as a consequence there has been a slack in the realty sector.
While there were expectations that the Land Acquisition Bill (which was passed by the Union Cabinet last week) will mend this; there seems to be a new row over it, fuelled by realty industry protecting their interest. They are realising that that the proposed Land Acquisition, Rehabilitation and Resettlement Bill (LARR Bill) will not make their lives easier; but instead be detrimental to the new projects. To know what is making the realty sector unhappy over the said bill and to know our view, please click here.
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- If you are looking at a health insurance policy, offering coverage for Out Patient Department (OPD) procedures, dental expenses, doctor's consultation fees, lab tests, spectacles, contact lenses, hearing aids and so on; here's a product for you.
Recently, private sector health insurer - Cholamandalam MS General Insurance launched a new health policy named, "Chola Tax Plus Healthline" covering the aforementioned medical expenses and other alternative forms of medicine such as homeopathy and ayurveda.
We are of view that health insurance policy offered by the esteemed general insurance company is good, provided one is look at exhausting the maximum tax deduction limit as available under section 80D of the Income Tax Act, 1961; because the premiums are expensive for a broader coverage which the said policy offers. If one has not utilised the premium paid on this policy for the aforementioned coverage, then it would defeat the purpose of buying such a policy.
- A couple of weeks back we apprised you that it is imperative for you get your bank's cheque book CTS-2010 compliant before December 31, 2012. But in the week gone by, the RBI extended the deadline for implementing the CTS-2010 by another three months. Therefore now, all your cheque books need to be CTS-2010 compliant from April 1, 2013.
We are of the view that, this is second extension from the central bank for the implementation of CTS-2010 system. The earlier deadline of October 1 was extended to December 31, 2012. The cheque truncations could speed-up the clearing process and thereby provide better service to customers and reduce the scope of clearing related frauds and also marginalise cost related to collection of cheques. So, one would experience a more efficient, secure and a quicker clearing process under CTS.
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Non-Banking Financial Company: Non-banking financial companies, or NBFCs, are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still covered under banking regulations.
(Source: Investopedia)
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Quote : "The Stock Market is designed to transfer money from the Active to the Patient." - Warren Buffett
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