These are the major news regarding Indian stock market during the month of January 2010

Capital Market Clippings

Changes to compliance norms
In a recent public document, the Securities and Exchange Board of India (SEBI) announced changes to the Listing Agreement and SEBI ICDR (Issue of Capital and Disclosure Requirements) regulations. These amendments will require listed companies undergoing corporate restructuring (merger, demerger or amalgamation) to submit auditors’ certificate to the stock exchange to the effect that the accounting treatment mentioned in respect of financial statements in the scheme is in compliance with the applicable accounting standards. Unlisted companies undergoing similar corporate restructuring and proposing to make an IPO (Initial Public Offering) shall make disclosures required under Accounting Standard 14 (Accounting for Amalgamations) in the Draft Red Herring Prospectus (DRHP). Formal guidelines/regulations for implementing these decisions are yet to be notified by SEBI.
The Hindu Businessline, January 28, 2010

Global ETF majors make a beeline for Indian stocks
In addition to diversified emerging markets funds and BRIC ETFs, which generally make a significant allocation to Indian equities, the number of ETFs that invest exclusively in India’s stock market is on the rise. So much so that at a recent ETF conference in the US, there was talk that of the 200-odd new ETFs expected to be launched in 2010, quite a few will have an emerging market and India focus in particular. According to conservative estimates, around 25-30% (approximately $5-6 billion) of the net secondary market flows into Indian shares in 2009 was via the ETF route. Globally, ETF assets are said to be around $750 billion.
The Economic Times, January 26, 2010

In takeover, promoters’ role will decide who is in control
The Securities Appellate Tribunal, setting aside a SEBI direction in the matter of a takeover, has defined in great detail what constitutes effective control in the case of an acquisition. “The question to be asked in each case would be whether the acquirer is the driving force behind the company and whether he is the one providing motion to the organisation. If yes, he is in control; but not otherwise. In short, control means effective control,” SAT said. The authority would include the power to nominate one director to the Board or to give an investor-director the right to be a member of any committee of the Board, to vote at all meetings of the committees, to ensure the presence of the investor-director to constitute quorum for a Board meeting or for the investor-director to be given an affirmative vote in respect of amendments to the memorandum or articles of the company or on alteration of the capital structure of the company.
The Hindu Businessline, January 23, 2010

PEs find it hard to raise money despite rebound
Private equity players investing in India are having a tough time convincing investors — both domestic and overseas — to put money into their funds. This is despite stable economic growth, buoyant stock markets and a favourable investment climate. Continuing credit crisis in the US and Europe, coupled with fear among domestic investors to invest in an illiquid asset class, has made private equity fund-raising an uphill task. Logging a near 60% fall, net PE mobilisation has declined from Rs 1,944 crore in 2007 to Rs 792 crore in 2009 (till January 15, 2010). The number of PE funds hitting the road to raise money has halved from 30 in 2007 to 15 in 2009. Surprisingly, in 2008, when the whole financial world was in the middle of the worst economic turmoil, PE funds raised over Rs 1,116 crore through 22 funds.
The Economic Times, January 22, 2010

Foreign investors want Sebi to widen SLB facility
Portfolio investors have suggested to the Securities and Exchange Board of India (Sebi) that the stock lending and borrowing (SLB) facility be extended to even those stocks in which derivatives trading is not yet permitted, in other words, the cash segment. Currently, SLB is allowed only in F&O stocks. Stock lending and borrowing is a mechanism which allows investors to sell shares which they think are overvalued, without owning those shares. They do so by borrowing the shares for a certain duration by paying an interest charge, and selling them in the market. These investors are betting that they will be able to buy back the shares at a lower rate and return them to the lender at maturity. Sebi made SLB operational in April 2008 with a seven-day tenure, but there were few takers for this. SEBI further extended the tenure to 12 months, in the hope of infusing some interest in the product which has failed to take off so far.
The Economic Times, January 21, 2010

Insurance Clippings

Reinsurance rates may rise in April renewals
Reinsurance rates in the Indian market could rise when they come up for renewal in April even though the rates in the international market have softened. The reason — general insurance companies are staring at huge claims arising from the inferno that engulfed IOC’s storage depot in Jaipur and the Kota bridge collapse. Besides, these companies continue to underwrite business at huge discounts, say industry players. While international insurance renewal takes place on January 1, in India, the renewals happen only in April. Generally, the renewals in the international market have a bearing on renewals happening in the domestic market. This year the renewal premiums have gone down by 5-10 per cent in the international reinsurance market as there were no major losses. Besides, international re-insurers have seen increased reinsurance capacity this year on higher investment incomes after the capacity shrank last year.
The Hindu Businessline, January 28, 2010

Non-life insurance sector maintains uptrend
Despite recent recessionary trends, the non-life insurance sector — comprising PSUs and private players — has sustained its composite growth rates in premium income for three consecutive April-December periods (calendar years 2007, 2008 and 2009). Declining growth rates in premium income experienced by private insurers were offset by increasing growth managed by their PSU counterparts during these periods. According to data released by the Insurance Regulatory & Development Authority (Irda), the non-life sector witnessed a 9.95% growth in premiums during the first nine months of the current fiscal against 10.24% in the previous corresponding period. Growth during April-December, 2007 was marginally higher at 12%. The private sector general insurers — 12 in all — saw growth rates decline steadily from 27% during April-December 2007 to 14% during the corresponding period in 2008 and now stands at 8% in 2009.
The Economic Times, January 27, 2010

IRDA, SEBI war may hit ULIP listings
The battle between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) over the regulation of unit-linked insurance plans could affect the plans of companies aiming to list unless the differences are resolved soon. Life companies, when contacted, said they would stick to the line that the products come under IRDA regulation and are unlikely to either stop selling ULIPs or obtain registration with SEBI. Insurers say for the issue to be now closed, the regulators will have to sort it out among themselves or it will require the intervention of the government.
The Economic Times, January 25, 2010

IRDA asks insurers for info on commission paid to banks
Sectoral watchdog IRDA asked insurance companies to provide information on commission paid to the banks for selling policies in the last three and a half years. “All insurers are hereby advised to furnish the information for the years 2006-07, 2007-08, 2008-09 and first half year of 2009-10 within 30 days,” IRDA said in a circular to all insurers. IRDA has prescribed the format for collecting information on the business generated through Bancassurance model and the payouts to the Bancassurance channel. Bancassurance or the bank insurance model (BIM) is the term used to describe the partnership between a bank and an insurance company whereby the insurance company uses the bank sales channel to sell insurance products.
The Economic Times, January 21, 2010

Insurance IPO norms by Feb-end
The Insurance Regulatory and Development Authority (IRDA) will come out with its IPO guidelines for insurance companies by the end of February. The IRDA Chairman, Mr J. Hari Narayan, told reporters “awaiting the guidance note from the Institute of Actuaries.” “Once that comes, we will bring out the guidelines by February end,” he said. The insurance-sector regulator is also mulling the introduction of a cap on charges on traditional products, as they had done with unit-linked insurance products (ULIPs). Mr Narayan said that IRDA will first study the impact of the cap on charges on ULIP products and then take a call on whether to extend the same to traditional products. From January 1 this year, IRDA had capped the difference between gross and net yields for ULIPs of 10-year tenor or less at 300 basis points, and at 225 basis points for ULIPs having a tenor of more than 10 years.
The Hindu Businessline, January 13, 2010

Mutual Fund Clippings

New strategy: Mutual funds turn focus on retail investors
The Mutual fund industry is passing through testing times, with assets dwindling owing to withdrawals by banks and investors showing little faith in the long-term prospects of Mfs. Fund houses are now going back to the basics: serving individual investors rather than chasing banks and companies for showing impressive figures of assets under management, something that the Securities and Exchange Board of India has been advocating. The attitude of retail investors is also not inspiring much confidence among fund managers. Since August, investors have been pulling out money from equity schemes. Many industry watchers feel that the money taken out of MFs won’t return to the industry entirely, as the RBI wants banks to start lending to companies rather than opting for an easy way out.
The Economic Times, January 27, 2010

MFs’ payout not for getting fresh inflows
As the financial year draws to a close, mutual funds, which had a dream run in the latter half last year, are in a dividend distribution mode . While a few had given some sort of interim dividends without calling them so, others have begun doling out yearly dividends. The quick succession in which the payouts were announced has raised the question if fund houses were making the payout to attract fresh investments. However, this is not correct because unless the fresh funds’ inflow exceeds the dividend payout, the size of the corpus would be still less than the pre-dividend payout. Funds would prefer to conserve existing capital rather than pay dividends while anticipating uncertain fresh inflow. Investors in mutual funds aren’t fooled, however. They know that the fund houses book profit to make the payment and the statutory advertisements that the NAV would fall to the extent of dividends declared would leave no investor in doubt about that.
The Hindu Businessline, January 25, 2010

No bringing back MF entry load: SEBI
The Securities and Exchange Board of India has virtually ruled out a re-think on its move to do away with entry load on Mutual Fund (MF) products. Delivering his address at the Assocham Mutual Fund Summit , Mr K.N. Vaidyanathan, Executive Director, SEBI, said the distributors of MF units and other such agents should stop complaining and stay focused to enable retail investors have maximum return on their investments and stop thinking in terms of their commission. This is necessary because with reasonable commission, the distributors and agents will be able to generate volumes of scale to enable them to earn money, which they cannot envisage in the initial phases, he said.
The Hindu Businessline, January 22, 2010

MFs to ask Sebi for central KYC bureau to cut paper work
Mutual fund distributors are set to approach the capital market regulator, the Securities and Exchange Board of India (Sebi), seeking a central bureau of registry for all ‘know your client’ (KYC) documentation. The distributors will also lobby for an electronic or digital KYC till a comprehensive system is put in place. They maintain that this would bring down the volume of paper in the system that would otherwise be generated if the distributors were to send a copy of all supporting documents to AMCs with retrospective effect. KYC is the due diligence and regulation that financial institutions and other regulated entities must perform to identify their clients and ascertain relevant information for doing business with them. Sebi had, in December 2009, clarified that all AMCs must maintain a copy of all investor documentation, including KYC, PoA and the like, thereby reiterating its stance that maintaining all the documentation pertaining to the unit-holders/investors is the responsibility of the AMC.
The Economic Times, January 19, 2010

MFs fear tax axe on liquid plus schemes
A veiled threat from the banking regulator has left many mutual fund managers worried. They fear that at the advice of the Reserve Bank of India, the government may take the fizz out of certain debt schemes that have helped them fatten their asset books as well as served as a quick money parking zone for corporates and banks. At a recent conference with money market dealers, RBI deputy governor Shymala Gopinath hinted that “since MF fixed income products enjoy certain tax exemptions not available to banks,” there may be a case to address this through regulations. The remark did not go unnoticed in the financial market. Ms Gopinath was referring to the liquid plus MF schemes which give investors a higher return and a clear tax advantage over bank fixed deposits (FDs).
The Economic Times, January 18, 2010