Following are the major News Developments in Indian Capital Market during February 2010.It will give you an outline of major events in Indian Market.

Capital Market Clippings

Sebi’s restraining order not a punishment: SC
The Supreme Court has ruled that the Securities & Exchange Board of India (Sebi) order merely restraining entities from dealing in the securities market, but not holding them guilty of an offence under the prevalent law cannot be equated with ‘punishment’ and as such entities are not entitled to avail the protection of Article 20 (1) of the constitution against such order of the regulator. The Sebi Act of 1992, being a social welfare legislation to ensure an orderly growth of securities market and to protect the interest of the investors, has to be interpretated for furtherance of the purpose of law and not to frustrate it, said apex court. The court said, the word ‘offence’ under Article 20 (1) of the Constitution has not been defined. But Article 367 of the Constitution states that unless the context otherwise requires, the General Clauses Act, shall apply for the interpretation of the constitution as it does for the interpretation of an Act.
The Economic Times, February 28, 2010

This time, Pranab plays ‘good cop-bad cop’ with India Inc
Even as Corporate India was beginning to warm up to Mr Pranab Mukherjee’s Budget proposals, the Finance Minister seems to have decided to cut their happiness short. Playing the ‘good cop-bad cop’ role to perfection, while the Minister spread cheer by cutting the surcharge on corporate tax from the current 10 per cent rate to 7.5 per cent levels for domestic companies, he also took up the minimum alternate tax rates for some companies. The Minimum Alternate Tax (MAT), or the tax that companies with negligible tax outgo pay on their book profits, will, from the coming fiscal year be increased to 18 per cent from the present 15 per cent levels. This continues a trend set in the previous budget in which the Minister had raised the MAT rate by five percentage points.
The Hindu Business Line, February 27, 2010

User friendly FDI policy
Foreign Direct Investment (FDI) inflows during the year have been steady in spite of the decline in global capital flows. The Government has taken a number of steps to simplify the FDI regime to make it easily comprehensible to foreign investors. For the first time, both ownership and control have been recognised as central to the FDI policy, and methodology for calculation of indirect foreign investment in Indian companies has been clearly defined. The Government also intends to make the FDI policy user-friendly by consolidating all prior regulations and guidelines into one comprehensive document.
The Hindu Business Line, February 27, 2010

Share transfers within closely held companies to be taxed
Shares transferred from a closely -held company to another closely-held company for no or inadequate consideration will be taxed according to the fair market price or the difference, following the amendment to section 56 of the Income-tax Act, proposed in the Finance Bill 2010. Before the amendment, section 56 of I-T Act was applicable only to transfer of assets among individuals and HUFs. Gifts worth over Rs 50,000 given to persons other than relatives were taxed under section 56 of IT Act in the hands of the recipient. By proposing the amendment to this section, the government seeks to bring in its fold unlisted companies which transfer shares to other companies without any consideration.Such exercises are normally carried out between group companies.
The Economic Times, February 26, 2010

SEBI bars 16 people from market for circular trading
Market regulator SEBI has barred 16 people from dealing in securities with immediate effect until further directions on charges of synchronised trading. “… by way of ad interim ex-parte order restrain the following persons from accessing the securities market and further prohibit them from buying, selling or dealing in securities in any manner whatsoever,” SEBI said in an order dated February 20. “The group had indulged in creation of artificial volume by trading among themselves SEBI said the National Securities Depository Ltd and the Central Depository Services (India) Ltd have been directed to freeze the beneficial owner accounts of the 16 people. It also directed the National Stock Exchange and the Bombay Stock Exchange to square off any existing open positions of them in the futures and options segment.
The Economic Times, February 22, 2010

Insurance Clippings

Insurers happy with service tax change for ULIPs
In a move that could make unit-linked products (ULIPs) more attractive for customers, the Budget for 2010-11 has removed the service tax on all charges on unit-linked products offered by life insurance companies, with the exception of the fund management charges. Life insurers have been demanding for some time that service tax should be levied only on fund management charges. Till now, the insurance industry had to pay service tax on fund management charges, risk premium, agents’ commission and exit load. Besides the removal of service tax, the Budget for 2010-11 has also increased the threshold limit of Tax Deducted at Source for commission to agents to Rs 20,000 from the current level of Rs 5,000.
The Hindu Business Line, February 28, 2010

Union Budget 2010: Health insurance costs set to go up
Health insurance costs are set to soar with the government deciding to impose service tax on payments made by insurance companies to hospitals in settlement of claims where policyholders had received cashless service. Each year the non-life industry pays around Rs 6,000 cr by way of claims to the healthcare sector. Over half of the payments are by way of settlement of claims for cashless treatment. “The proposal to impose service tax on payments made to hospitals under health insurance schemes, which could push up costs for end customers.” said an industry expert. During the year the IT department had made tax demand on third-party administrators who were making payments to hospitals on behalf of insurance companies. The union budget has made it clear that the payments made by the insurance company will be subject to service tax.
The Economic Times, February 26, 2010

Union Budget 2010: Non-life insurance cos benefit
Non-life insurance companies can heave a sigh of relief with the government roling back their decision to tax unrealised gains on their investment. “The appreciation in the value of investments, being in the nature of unreal-ized gain is not taken into account for determining profit or loss of non-life insurance business as per the IRDA regulations. It is, therefore, proposed that the unrealized gains due to appreciation in the value of investments will not be included in the total income” according to a the budget documents. This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.
The Economic Times, February 26, 2010

Survey favours introducing catastrophe bonds
The Economic Survey 2009-10 has suggested the introduction of catastrophe bonds in the Indian market, to transfer insurance risk arising out of natural calamities such as earthquakes, hurricanes and floods, to the capital markets. Catastrophe bonds (commonly known as Cat bonds) are widely used in advanced countries, and there is scope for introducing it in countries such as India to provide insurance against contingencies, the Survey said. Insurance or reinsurance companies can issue these bonds and place them with various investors. This helps them transfer a part of the risks to the investors. The insurance company can further invest the money generated from selling the bonds.
The Hindu Business Line, February 26, 2010

Life insurers seek higher FDI, tax sops for long-term policies
Ahead of the Budget, the insurance industry has urged the government to move ahead with the proposal to raise foreign direct investment cap to 49 per cent and provide separate tax incentives for policies that have long tenures. Currently, the deduction under Section 80C of the Income Tax Act also includes short-term saving instruments like some mutual funds and fixed deposits. Forwarding the wishlist of the life insurance sector, the Life Insurance Council said carry forward of losses for long-term gestation insurance business should be increased to 10 years. At present, insurers are allowed to carry forward losses for only eight years.
The Economic Times, February 21, 2010

Mutual Fund Clippings

H.N. Sinor is AMFI’s new CEO
Mr H.N. Sinor has been appointed as the CEO of the Association of Mutual Funds in India (AMFI). The appointment was decided unanimously at AMFI’s board meeting on Wednesday, and is with immediate effect. His term will be for a period of three years, an AMFI release said. Mr A.P. Kurian, who has served as Executive Chairman of AMFI since 1998, will retire in September this year. Mr Sinor has served as CEO of Indian Banks Association. Prior to that he was the Managing Director of ICICI Bank.
The Hindu Business Line, February 26, 2010

New fund offers drying up
Are the days of mega new fund offers (NFOs) from mutual fund houses over? If you look at the number of draft offer documents posted at the SEBI site in February just one, compared with nine in January it may seem so. At least, that is what most mutual fund industry players would love to believe. They think fund houses are shying away from lining up NFOs mainly because of a comatose distribution network, rendered ineffective after the Sebi abolished entry load on fresh investments in mutual fund in August. Mutual fund houses are not filing draft offer documents the first step to launch an NFO as they fear that distributors wont push NFOs without the upfront commission they were enjoying before the Sebi ban on entry load.
The Economic Times, February 22, 2010

SEBI’s KYC circular puts MFs in a fix
An innocuous-looking paragraph in a circular issued by market regulator Sebi to intermediaries has put asset management companies (AMCs) in a quandary. The circular, which lists the requirements to prevent money laundering and terrorism financing, has mentioned that no threshold levels or category (class) of investors will exist for implementing know-your-customer (KYC) norms. Fund houses are interpreting this as a step taken by Sebi to tighten KYC norms for those investing less than Rs 50,000, which could also mean permanent account number (PAN) requirements. Until now (till date of the circular), MF investors having microsip (small ticket SIPs) investments of up to Rs 50,000 per financial year need not have PAN.
The Economic Times, February 22, 2010

Study shows large-cap funds are better bet for long-term investment
If you are looking to outperform the indices, then plan to hold your equity fund for the long term and stick to funds that invest in blue-chip stocks. That seems to be the lesson from the 10-year performance of open-end equity funds that have a long track record. 58 of the 360 plus equity funds in India have been in existence for ten years or more. These funds averaged a return of nearly 13 per cent (compounded annually) over the ten-year period, beating the Sensex and Nifty (11 per cent) and easily outpacing the broader BSE 100 (9 per cent). Nearly 62 per cent of the funds (36 in number), beat the Sensex returns over a ten-year period. Only 45 per cent of the equity funds have bettered the Sensex over a shorter five-year period.
The Hindu Business Line, February 22, 2010

MF distributors chase ‘retail HNIs’
Ever heard of the term retail HNIs? Well, its a new class of investors with a ‘little large purse’ that mutual fund distributors are busy chasing these days. According to industry experts, the recent impressive inflows registered by the mutual fund industry is thanks to this emerging class of investors. They add that mutual fund distributors may be tapping this group to earn a viable source of income as they were wilting under pressure ever since the market regulator Sebi abolished the entry load of mutual fund investment in August, denying upfront commission to distributors. Ever since the Association of Mutual Funds in India (AMFI) has released its latest data on assets under management (AUM) of mutual funds, the industry players have been debating whether the improved inflows is a sign of revival of interest among retail investors or their slightly-richer counterparts aka ‘‘ retail HNIs” .
The Economic Times, February 18, 2010