Impact 
The Securities and Exchange Board of India (SEBI) and the Unique Identification Authority of India (UIDAI) are planning to link all securities transactions with the Unique Identification (UID) number or Aadhaar number.
A pilot project would be carried out by HDFC Asset Management Co. Ltd and IFMR Trust (which works in the area of financial inclusion) in order to explore the possibilities of how securities transactions would be linked with the Aadhaar number.
The idea behind linking transactions in the stock market to Aadhaar is to prevent fraud and increase transparency. The fact that Aadhaar numbers are being generated based on biometrics of a person (fingerprints, iris scan, etc.), it will be very difficult to fake identities and thus prevent frauds.
We believe that the wide scale use of UID offers immense benefits in preventing fraud of the likes of IPO scam unearthed in 2005, wherein shares reserved for retail investors were cornered illegally by large investors through at least 59,000 fake demat accounts.
Also, UID will benefit the investors in a big way as very soon the KYC norms would require only a single UID document instead of multiple documents earlier. Banks too would soon require the mention of your UID only for opening banks accounts.
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Once again maintaining its pro-investor stance, the Securities and Exchange Board of India (SEBI) has asked the mutual fund (MF) houses to inform their investors on an urgent basis about their support or opposition to various business decisions of the companies.
SEBI is of the view that the fear of a possible opposition by institutional investors like mutual funds being made public would force the companies to follow best corporate governance practises while conducting their businesses.
Moreover retail investors will benefit from this practice and will be aware of the stance taken by the MF houses on various business proposals entered by the companies they are invested in. Also since they have a significant holding in these companies it provides them, as institutional investors a considerable say in the business proposals of these companies.
In the past too, interestingly it was stiff opposition from MF houses such as Reliance Mutual Fund, SBI MF and Templeton MF, which led to the circumstances exposing the Satyam Computer fraud - one of the country's biggest ever corporate scam.
In our opinion such a vigilant move on the part of SEBI, infuses transparency in the way MF houses manage investors' money. This is because since the vote on the proposal (either for or against the business proposal) is being made available in public domain, it helps you investors' to assess whether the fund management team does consider a qualitative parameter like corporate governance.
We also feel this would bring a sea change in how corporate governance is adhered to by various companies. It will not only make the companies more alert in their transactions but also will aid you investors in knowing the quality of your investments.
Prudent vigilance over a period of time will lead to good corporate governance practices and in turn will increase the value of investments for you investors.
This move by SEBI could attract more investors to the mutual fund industry as it becomes more and more investor centric or investor friendly. | |
Impact   (Source :ACE MF, PersonalFN Research)
After exuding confidence in the Indian equity markets in the month of April 2011, the Foreign Institutional Investors (FIIs) manifested nervousness as shivers went down their spines due to consistent high WPI inflation and more than expected rate hikes by the Reserve Bank of India (RBI) (hike of 50 basis points in repo rate as well as reverse repo rate).
Thus, in the month of May 2011, the FIIs started reducing their exposure to the Indian equity markets. In fact on May 16, 2011 they pulled out a record huge (highest single day pull out by FIIs in a decade) sum of Rs 6,007 crore, but ended the month by being net sellers to the tune of Rs 3,706 crore in the Indian equity markets.
Also, according to the latest IMD World Competitiveness Yearbook 2011, India has slipped from 31st in 2010 to 32nd rank in 2011 in global competitiveness, while China ranked 19th position (it enjoyed 18th position in 2010). This huge difference in rankings for India and China has been attributed to two factors economic performance and infrastructure.
We believe that FIIs are turning very watchful about every macro-economic data released by India. Moreover, with the markets turning turbulent and the valuations still looking expensive, along with lack of immediate future up-beat economic data, FIIs are doing slow with their India investments.
Also for them since the U.S. economy is trailing on the growth path (GDP growth rate of 1.8% in the 1st quarter of 2011) they are preferring to invest there, but again while doing so they are watchful about their April 2011 unemployment rate of 9.0%.
But, we see this downswing of the FII flows momentary, as fundamentally the Indian economy is positioned to report better growth prospects. Investors should stagger investments in the corrective phase of the market. In fact it would be prudent to adopt the SIP (Systematic Investment Plan) route by investing in mutual funds as it provides the advantage of rupee-cost averaging along with compounding. | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 18,326.09 | (205.2) | -1.11% | | Re/US$ | 44.98 | 0.0  | 0.04% | Gold /10g | 21,900.00 | 145.0 | 0.67% | | Crude ($/barrel) | 112.52 | (0.1) | -0.06% | | FD Rates (1-Yr) | 7.25% - 9.25% | Weekly change as on May 19, 2011
*BSE Sensex as on May 20, 2011
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In an interview with the Economic Times, Mr. A Balasubramanian - CEO of Birla Sun Life Mutual Fund shared his views on equity markets post RBI's policy rate hike and commodities sector.
According to Mr. Balasubramanian, the outcome of the annual policy statement of RBI clearly indicated that for both the RBI and the Government, the focus is to control inflation even if it is at the cost of slowdown in growth. He further explained by saying that,- "what is also probably needed to be seen post the policy is that most of the banks have raised the benchmark rate and the lending rate. And all these things are going to indicate, with respect to what extent, that the cost of borrowing for the corporates and the individuals is increasing and they are actually reducing their borrowings from the banks. It ultimately brings the demand down and then supply is getting, in some sense, balanced. At least the biggest advantage what we have at this point of time for the market is that the valuations are reasonable."
On the commodities sector , Mr. Balasubramanian is of the opinion that at the end of the day, they (commodity stocks) are trading bets. It is important to see how much of money they (commodity stocks) are making actually in the domestic sales as well as the global exposures.
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Real economic growth rate: A measure of economic growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another. Gross national product (GNP) can also be used if a nation's economy is heavily dependent on foreign earnings.
(Source: Investopedia) | |
QUOTE OF THE WEEK
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