Capital Market Clippings

Prospects to have more clarity on directors’ details
The SEBI Board directed companies raising capital to make certain disclosures regarding their board of directors. The offer document of companies raising capital should contain disclosures from their directors on whether they were directors of any company whose shares were suspended from trading for more than three months during the last five years, SEBI said in a release issued after the board meeting. It is learnt that the market regulator is coming out with detailed amendments to its issue of capital and disclosure requirements prescribing the enclosures for such disclosures in the offer document.
The Hindu Business Line, May 20, 2010

SEBI eases listing rules for SMEs
The Securities and Exchange Board of India (SEBI) has relaxed share-listing norms for small and medium enterprises (SMEs) by allowing them to disclose their financial results every six months instead of three months, as is the norm for bigger companies. Companies listed on the SME exchange will not be required to send a full annual report to their shareholders and also need not publish their financial results as required in the main stock exchange. “Companies listed on the SME exchange may send to their shareholders a statement containing the salient features of all the documents,” the regualtor said in its circular. But these companies will have to maintain a public shareholding of at least 25% of the total number of issued shares at all times. A company listed on the SME exchange, having post-issue capital between Rs 10 crore and Rs 25 crore can migrate to the main exchange provided it meets the listing requirements of the stock exchange. For this purpose, the company must first make a proposal to list the specified securities and obtain the prior approval of its shareholders.
The Economic Times, May 19, 2010

SEBI asks brokers to submit report on rollout of new norms
Market regulator SEBI has asked stock brokers to provide the exchanges with a status report on the implementation of new client-broker agreement, which will become effective from June 30. The deadline has been extended a couple of times, as brokers sought time to prepare for the proposed changes, and also due to ambiguity over some of the rules. SEBI had announced the guidelines in December last year. The new rules require brokers to keep records of the people introducing new clients, and regulatory actions against them (clients), detail the systems for settling client funds and securities once a calendar quarter/month, among other things. For existing clients, the broker has to inform the exchanges if he has obtained a signed confirmation letter for the e-mail id to which transactions details will be sent, and the necessary consents for running accounts, annual renewal, among other things.
The Economic Times, May 19, 2010

SEBI panel recommends higher net worth for market intermediaries
A SEBI committee for review of eligibility norms (CORE) for various market intermediaries has recommended increased minimum net worth for market intermediaries, including asset management companies, brokers and merchant bankers. One sub-group of the core committee suggested a minimum net worth of Rs 50 crore for mutual fund asset management companies (AMCs) as against existing networth requirement of Rs 10 crore. “Although the operations of AMCs are in the nature of a pass through, a larger net worth is required to build up the minimum infrastructure that is sufficient to service investors,” said the study paper on the SEBI Webs ite requesting comments by June 14. The sub-group also recommended that existing AMCs be given an appropriate period by SEBI to build up their net worth to Rs 50 crore level.
The Hindu Business Line, May 15, 2010

SEBI proposes stronger disclosure norms for rating agencies
Concerned over the practice of certain companies influencing rating actions, market regulator SEBI proposed a stronger disclosure norms for credit rating agencies (CRA). “It is recommended that all registered agencies be required to disclose publicly on their websites their shareholding pattern and the names of the owners,” said a SEBI sub-group in its recommendation on which the regulator has invited comments from public. Rating agencies, the report added, “have to manage this conflict and prevent it from influencing rating decisions. Both regulations and internal procedures have to be designed towards this end.” On disclosure of rating performance, the sub group recommended that every CRA be required to publish, every six months, a list of its publicly outstanding ratings that have moved by more than one notch over the preceding six months.
The Economic Times, May 13, 2010

Insurance Clippings

IRDA’s new norms to provide strong cover for Ulip holders
Holders of unit-linked policies will in future get more of their money back if for any reason they are forced to surrender their policy within a couple of years. New norms by the Insurance Regulatory & Development Authority (IRDA) now provide very strong incentive to insurers to ensure that policies do not lapse. The regulator unveiled new regulations on unit-linked insurance plans, capping the surrender charge on policies that are returned after a year at 15%. This is a huge benefit for the customer as today there are several plans where the customer gets nothing if s/he surrenders her/his long-term policy after paying the first year premium. For example. If the policyholder paid Rs 100 in the first year, a big chunk of around 40% is deducted by way of various charges. The remaining 60% is allocated to the Ulip fund. If for any reason the policyholder fails to pay the renewal premium, the insured would get back 85% of Rs 60 thereafter, i.e., Rs 51 after the lock-in period.
The Economic Times, May 19, 2010

IRDA seeks financial condition reports from non-life insurers
The non-life insurance companies need to submit financial condition reports on an annual basis from March 2010, the Insurance Regulatory and Development Authority (IRDA) said. In a circular,  Dr R. Kannan, Member (Actuary), IRDA, said the insurers should submit the report for the year ending March on or before September 30. The report should be sent in a prescribed format with details including business projections, analysis of business growth, adequacy of premium/capital, risk management, investment and asset liability management and current and future financial condition. “Based on the experience gathered, the format (of the report) will be reviewed by the end of January 2011, if required,” Dr Kannan said.
The Hindu Business Line, May 17, 2010

Ulip investors face changes in DTC
Holders of unit-linked policies (Ulips) are a troubled bunch these days. The insurance grapevine has it that there may be changes in the tax treatment of Ulips. For instance, if the sum assured for a Ulip is less than 20-times the premium paid for such policies, chances are one may end up paying taxes on the returns from April 2011 onwards. It is exempt now but that could change once the revised direct tax guidelines come. Ulip holders will need to modify their plans accordingly to ease the tax burden. But in case the sum assured isn’t 20 times the premium a Ulip holder pays, returns on Ulips may decline if one has to adjust it to make it tax exempt by increasing the sum assured value. More sum assured means an increased portion of premium going into paying mortality charges which will leave less money to be invested into units — the portion of the money that goes into either equity or debt to earn returns. The draft Direct Tax Code submitted last August proposed a tax on returns for insurance policies where the premium paid is less than 20 times the sum assured. A final version is expected in the next couple of months which will lay down the fineprint on the issue.
The Economic Times, May 18, 2010

Ulips formed half of all life insurance biz!
Private life insurers in the country are lucky that the recent Sebi ban on unit-linked insurance plans (ULIPs) was cancelled. They would have lost almost half their businesses if the market regulator’s ban on 14 insurers from raising funds through the investment-cum-insurance product. That is because Ulips constitute 46% of the total business in the life insurance space. “Ulip has taken a prominent place in the global insurance market and India is not far behind. It has become the growth engine over the years in the Indian insurance market,” said an industry expert. Of Rs 2,00,000 crore-plus life insurance premium collected in the first 11 months of 2009-10, a little over Rs 91,000 crore came from Ulips, according to the Life Insurance Council of India, an industry body representing 23 life insurers. Premium collection from renewal of Ulips registered a 33% year-on-year jump in the April-February period to Rs 46,927 crore, showing that majority of the consumers are banking on Ulips for better long-term return.
The Economic Times, May 14, 2010

No quarterly financial statements for insurers: IRDA
The Insurance Regulatory and Development Authority (IRDA) has directed non-life and reinsurance companies to submit complete details about solvency margins from 2010-11. The date of submission of quarterly solvency reporting would be same as prescribed for public disclosures, Mr R.K. Nair, Member (F&I), IRDA, said in a circular. In a separate circular, the authority had also said all insurance companies need not submit quarterly financial statements as prescribed by a circular issued in November 2007. “As a new system of comprehensive public disclosures was introduced in January, the authority feels that there is no need for separate filing of quarterly financial statements,” it said.
The Hindu Business Line, May 11, 2010

Mutual Fund Clippings

Rally in G-secs has positive impact on MF income schemes
The rally in the Government securities market over the last one month has had a positive impact on the income schemes of mutual funds. These schemes have given investors attractive annualised returns of 15-20 per cent the one-month period. A host of factors including global economic uncertainty, receding probability of the Reserve Bank of India going in for rapid increase in interest rates when major central banks were persisting with an easy monetary policy, a thaw in global commodity and oil prices, and volatility in stock markets have triggered a rally in the bond market, which in turn has boosted the net asset values of income schemes, say market players. Income schemes of mutual funds typically invest 80-100 per cent of their corpus in debt instruments including the Central Government securities, State Government securities, and debt securities issued by public and private sector companies and up to 20 per cent in money instruments such as treasury bills, certificate of deposits, commercial papers, etc.
The Hindu Business Line, May 24, 2010

Sebi may close equity options route for MFs
The Securities and Exchange Board of India (Sebi) may shortly ban mutual funds from selling equity options. Option sellers potentially face unlimited losses if their bets go wrong, because they are obliged to honour the contract if the buyer chooses to exercise it. Conversely, buyers of option contracts lose only the upfront premium should their bets go awry. The logic behind Sebi’s plan to bar mutual funds from selling equity options could be that the market regulator feels some fund houses are taking ‘excessive exposure’ to options, a person familiar with the development told. In a circular sent only to mutual funds late-March, the market regulator sought feedback from asset management companies (AMCs) on proposals such as barring them from selling equity options, reducing their exposure to equity derivatives and disclosing more about their bets in this segment.
The Economic Times, May 14, 2010

SEBI asks MFs to disclose investor complaints
Market regulator SEBI asked mutual fund houses to disclose the details of investor complaints on websites, as well as in annual reports, to enable clients to make more informed decisions. “Mutual Funds shall henceforth disclose on their websites, on the AMFI website as well as in their Annual reports, details of investor complaints received by them from all sources,” the Securities and Exchanges Board of India said in a circular. Following the circular, all Asset Management Companies (AMCs) will have to put up the data for the bygone fiscal by June 30, 2010, and for each new fiscal within two month of the close of the year. SEBI expects the disclosure norms would improve transparency in functioning of the AMCs and would enable investors to take informed decisions.
The Economic Times, May 13, 2010

MF agents flout SEBI rule on sub-brokers
Self-styled distributors, lacking basic qualifications to sell mutual fund units are advising investors as to where they should put their hard-earned money. Distributors need to pass the Amfi Advisors’ Module if they want to sell mutual fund schemes to investors. If industry officials are to be believed, top national distributors, who sell investment products across asset classes, are not insisting on Amfi certification while appointing sub-brokers (sub-advisors or franchisees). This is more prevalent in franchisees or sub-broker offices in tier-II and tier-III cities, according to sources. “Top distributors simply ask for a small membership fee at the time of empanelling as a sub-broker. They are not really concerned about Amfi registration or any certification. The sole criterion is how many investors you can bring into the branch,” said a fund industry source. These distributors are allowed to sell products across asset classes, from equity mutual funds to ULIPs, corporate deposits and even Nabard bonds on certain occasion. For mutual funds, market regulator Sebi has made it mandatory for distributors to pass certification test (advisors module) and obtain registration number from Amfi.
The Economic Times, May 10, 2010

New guidelines to make ultra short-term funds more volatile
Even as ultra short-term funds were the most sought-after investment avenues in 2009-10, the current fiscal could prove challenging for these funds as the returns are likely to get more volatile once the new money market and debt security valuation guidelines are introduced from July 1. For investors, this would result in a trade-off between liquid schemes that provide low returns and stable net asset values (NAV) and ultra short-term funds that provide slightly higher returns with marginally higher volatility in NAV. Ultra short-term funds are popular with investors for the management of short-term surpluses. The increase in assets under management in 2009-10 was due to banks and corporate entities parking their surplus in mutual funds as part of their cash management and treasury operations. In the last quarter of 2009-10, however, the AUM of the industry declined sharply, largely on account of year-end redemptions by institutional investors.
The Hindu Business Line, May 06, 2010

Capital Market Clippings

Market making must for SME bourse: SEBI
SEBI has made market making mandatory for the proposed small and medium enterprise (SME) exchange. Under the guidelines issued by SEBI , any member of the exchange would be eligible to act as a market maker provided the criteria laid down by the exchange are met. Market making has been made mandatory for stocks listed and traded on the SME exchange. There would not be more than five market makers for a scrip. These would be selected on the basis of objective criteria to be evolved by the exchange which would include capital adequacy, net worth, infrastructure and minimum volume of business, among others. The market maker will have to provide a two-way quote for 75 per cent of the time in a day. The quote will be monitored by the stock exchange. Further, the market maker has to inform the exchange in advance of blackout periods when the quotes are not being offered.
The Hindu Business Line, April 28, 2010

SEBI permits volatility index trading in F&O
Securities and Exchange Board of India gave a go-ahead to the stock exchanges to introduce derivative contracts on Volatility Index (VI). Volatility Index is a measure of the market’s expectation of volatility over the near term. At present, only the National Stock Exchange of India has a volatility index called India VIX. The introduction of the derivative contract based on Volatility Index would be subject to the condition that the said Volatility Index has a track record of at least one year and the relevant bourse has in place the appropriate risk management framework for such derivative contracts. The exchanges before introducing such contracts have been directed to submit contract specifications, the economic purpose it is intended to serve, details of settlement procedures and systems along with other related details. Exchanges have to also submit details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 and -0.25 respectively and actual value of the underlying, a SEBI circular said.
The Hindu Business Line, April 28, 2010

New PE valuation norms for unlisted cos
Foreign private equity firms will face stiff valuations when they decide to buy stakes in unlisted companies following a change in valuation norms by the RBI. The shares in unlisted companies will now have to be valued using a discounted cash flow model. This will remove any discretion in price-fixing and also reduce the chances of lower valuation under the earlier guidelines that fixed the price at average of two different valuations. The central bank has amended the provisions under the Foreign Exchange Management Act and a circular is expected shortly, an RBI official said. Experts think the change is significant as it would ensure that the value of Indian business that gets transferred outside of India will not be less than the consideration received. “A financial investor would typically invest at lower-than-market value depending on the risk profile of the asset. Imposition of discounted cash flow method for investments completely rules out commercial negotiations between a financial investor and the company,” said an industry official.
The Economic Times, April 26, 2010

Do away with power of attorney from clients: SEBI to brokers
Market regulator SEBI asked brokers not to refuse services to investors in case they fail to furnish power of attorney in favour of them. Power of attorney (PoA) is a legal arrangement that allows brokers to access bank and demat accounts of their clients. “No stock broker or depository participants shall deny services to a client if the client refuses to execute a PoA in their favour”, SEBI said in its new PoA guidelines. The guidelines, issued after consultation with various stakeholders, further said brokers will be prohibited from using clients account for off-market trade. SEBI came out with the guidelines in view of complaints of misuse of PoA by brokers. “In some cases, the PoA even allows a broker to open and close accounts on behalf of client and to trade on client’s accounts without the consent of clients”, it said.
The Economic Times, April 23, 2010

BSE reduces membership deposit to Rs 10-lakh
The Bombay Stock Exchange (BSE) has reduced membership deposit and fee requirements for new members in its cash and equity derivatives segments with immediate effect. The Exchange membership can be obtained by paying a deposit of Rs 10-lakh in place of the existing Rs 1-crore, the Exchange said in a press release. “By offering this exciting pricing scheme, we intend to make it affordable to all those aspiring for BSE membership,” the Exchange’s Managing Director & CEO, Madhu Kannan, said. The Exchange hoped that this new scheme would generate a good response from market participants thereby building and expanding its existing membership base to promote financial inclusion, Kannan said. In addition to the Rs 10-lakh (interest-free deposit), the member has to pay a base minimum capital of Rs 10-lakh, trade guarantee fund of Rs 10-lakh, annual subscription of Rs 25,000 plus service tax as applicable and initial contribution towards trade guarantee fund of Rs 10,000.
The Economic Times, April 22, 2010

Insurance Clippings

Life insurers must reveal commission on policies
Life insurance firms will now have to spell out to customers the commission they pay to agents on each policy. The insurance regulator has told insurers to disclose explicitly the commission in the `benefit illustration’, a document that contains the benefits due to a policyholder upon maturity of an insurance policy. A signed copy of the illustration along with the proposal form is mandatory for issuing a policy. In a circular to all life companies, the Insurance Regulatory and Development Authority (Irda) said companies will have to disclose the commission paid to agents with effect from July 1, 2010. The regulator said this will bring about enhanced transparency by providing prospective policyholders the exact amount of commission/brokerage paid by insurers.
The Economic Times, April 28, 2010

New business for life insurance industry grew 25 pc in FY2010
Led by state-owned LIC, new business for the life insurance industry recorded a growth of 25 per cent during 2009-10, overcoming the decline witnessed a year ago on account of the global financial meltdown. According to industry sources, the 23 life insurers mopped up a first year premium of Rs 1.09 lakh crore in 2009-10 compared to Rs 87,108 crore in the previous year. In 2008-09, the insurers registered a degrowth of 6 per cent.
The Economic Times, April 22, 2010

Govt examining lock-in period of 5 years for insurance cos
The government said it is examining to allow insurance companies to list after five years of operation, instead of the current 10-year norm, Parliament was informed. “The issue of reducing the lock-in period of insurance companies for initial public offer (IPO) is under examination in consultation with the Insurance Regulatory and Development Authority (IRDA) and other stake holders,” Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha. He, however, said that a final decision on this matter has not been taken yet. Last month, IRDA had said that the initial public offer guidelines for the insurance sector is likely to come out in April. “The IPO guidelines could take a month-time and SEBI will take the final call,” IRDA chairman J Hari Narayan had said.
The Economic Times, April 20, 2010

ULIPs: Finance Ministry told to resolve spat
In a thinly veiled criticism of the Finance Ministry, a Parliamentary Panel has asked it to “immediately intervene” in the deadlock between SEBI-IRDA on the ULIPs regulation matter. The Finance Ministry cannot remain a “mute spectator” to posturings of “one-upmanship” by its regulatory bodies, the Standing Committee on Finance said in a report tabled in the Lok Sabha. This comes a week after the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority, at the behest of the Finance Ministry, agreed to seek a binding legal mandate from an appropriate court to resolve the jurisdictional dispute. The Panel also expressed surprise that the regulatory jurisdiction over the Unit-Linked Insurance Policies, despite being an old product, was still hazy and not clearly defined. The Standing Committee, headed by Dr Murli Manohar Joshi, has asked the Finance Ministry to put in place comprehensive regulations for ULIPs, incorporating the concerns of both SEBI and IRDA.
The Hindu Business Line, April 20, 2010

SEBI order may not affect life insurers in near term
The ongoing SEBI-IRDA turf war is unlikely to impact life insurance companies’ business, at least for the time being. This is because April is a lean period for the companies after the busy January-March quarter. Almost 40-45 per cent of sales of insurance policies happen in the Jan-March quarter due to the tax-saving season. In contrast, the April-June quarter is comparatively lean, with around 10 per cent of the industry sales coming from this quarter. Even though SEBI issued show cause notices to the life insurance companies in January, the order barring 14 insurance companies from selling ULIPs was issued only on April 9. This ensured that there was not much impact on sales, said officials of insurance companies and distributors.More than 80 per cent of the new business premium collected by the insurance companies comes from the sale of unit-linked plans.
The Hindu Business Line, April 16, 2010

Mutual Fund Clippings

Mid-cap funds post returns of 101% over a year
Funds that focussed on mid-cap stocks have clocked impressive returns over a one-year period. The average return for the mid-cap funds category was 101 per cent (as on April 19) against the 76 per cent generated by the diversified peers. The mid-cap stocks barometer – the CNX Mid Cap – generated 104 per cent, while the BSE Midcap index has delivered generated 102 per cent against 56 per cent and 60 per cent generated by bellwether indices CNX Nifty and BSE Sensex . Despite such a stellar performance both the mid-cap indices were some way away from their all-time highs achieved in the early part of 2008. The segment bore the burnt of the market meltdown. The return divergence between mid-cap funds was however wide. The gap between the best in the category and the worst was quite wide at 42 percentage points.
The Hindu Business Line, April 28, 2010

Agent freebies: MFs under lens
Mutual fund houses have come under the scanner of market regulator Sebi for allegedly lavishing their agents and distributors with incentives like cash payouts and foreign junkets in return for higher sales. Instances of distributors of various fund houses being showered with cash incentives as also trips to locations in India and abroad have come to light, especially since the scrapping of entry-load charges from investors putting their money in mutual funds, a top Sebi official said. Besides finding such practices as unethical, Sebi is also examining whether these incentives are being funded by investors’ money in the name of fund expenses, the official noted. Strong remedial actions are said to be being contemplated for such practices and the market regulator might come out soon with appropriate guidelines in consultation with the industry body Association of Mutual Funds in India (AMFI) to tackle these issues, an industry official said.
The Economic Times, April 26, 2010

Sebi may cap PMS fees on realty fund
The Securities and Exchange Board of India (Sebi) is considering a cap on the fees charged by portfolio management service (PMS) providers for their real estate fund, sources said. Investors have complained to Sebi that most PMS providers are charging the full management fee upfront , rather than in proportion to the net invested amount. The capital market regulator recently met some of the top fund houses to understand their fee structure, and recommend changes to make it more investor-friendly. Most real estate funds collect money from their clients in phases. Assuming , a client wants to invest Rs 100 in four instalments of Rs 25, and the annual management fee is 2%. Ideally, the money manager should charge a fee of 50 paise on every instalment of Rs 25. Instead, he charges the client Rs 2 at the time of the first instalment itself.
The Economic Times, April 23, 2010

SEBI for check on mis-selling of mutual fund products
Market-regulator Securities and Exchange Board of India (SEBI), said that it is looking at the need to put a check on mis-selling of mutual fund products by the distributors through a compliance certification examination. “There is a need to put a check on distributors, who mis-sell mutual fund products in the market. By May or June, we will come out with an online test for distributors,” SEBI’s executive director, KN Vaidyanathan, told reporters. Currently, AMFI is conducting the test and accepts the registration formalities. From May onwards, the programme will be carried out by the National Institute of Securities Markets (NISM), a division of SEBI. Sebi wants to bring all financial products certification programmes under NISM. Presently, NISM conducts certification programmes for intermediaries in currency derivatives, registrar and transfer agents for stocks and registrar and share transfer agents for mutual funds.
The Economic Times, April 20, 2010

Pension schemes may be next on SEBI radar, say fund managers
Pension fund managers fear that pension schemes regulated by the Pension Fund Regulatory and Development Authority (PFRDA) could be a potential target for SEBI to assert its jurisdiction. While asserting its regulatory authority over unit-linked plans, SEBI had highlighted the investment component in them to justify its stance. Pension fund officials say that SEBI could use the same logic to assert authority over the pension schemes as well. Pension scheme for the unorganised sector provides the option to investors of investing most of the funds in equity markets. In the other schemes also, funds are invested in the equity markets. Industry experts feel that SEBI’s proactive stance in the case of ULIPs had more to do with regulating the exorbitant distributor commissions than the product. Due to this, SEBI may not look to encroach upon the jurisdiction of PFRDA as pension products do not have commission structures. Instead, they are fee-based. Also, the PFRDA Act has not been passed as yet. PFRDA has only signed investment management agreements with the pension fund managers.
The Hindu Business Line, April 15, 2010

Capital Market Clippings

SEBI may get powers to monitor use of IPO funds
The new Companies Bill will give SEBI the powers to look into the end-use of Initial Public Offerings (IPOs). Changes to this effect would be incorporated in the draft Companies Bill, 2009, Corporate Affairs Ministry sources said. Simultaneously, to enhance transparency, SEBI guidelines are likely to direct all issuer companies with IPOs of even less than Rs 500 crore to appoint an agency to monitor the use of such proceeds. Currently, SEBI guidelines specify that a monitoring agency is required only for issues of over Rs 500 crore. The monitoring agency, such as a bank or a financial institution, is appointed by the company going for an IPO. The agency reports to the company’s Audit Committee regarding the use of IPO money. During official discussions, SEBI had said Section 55A of the Companies Act does not grant it powers to look into the end-use of IPOs. SEBI currently has powers only until the issue of the IPO and not beyond it.
The Hindu Business Line, March 30, 2010

Investor awareness website in local languages soon
The Ministry of Corporate Affairs will launch the regional version of its just-launched investor education protection fund (IEPF)
website in the next six months to educate investors about the stock markets, ministry secretary R Bandyopadhay said. “We will be launching website in all the regional languages in the next 5-6 months … our target will be for all such languages, but we will have to work on the final outcome,” Bandyopadhay said. The ministry on Friday launched the IEPF website in Hindi. “We are spreading investor awareness across the country and launching website in Hindi is part of that,” Minister of Corporate Affairs Salman Khurshid said while launching the site. In the current financial year, the ministry has organised 300 investor education camps and a target of at least 400 such camps has been kept for the next financial year.
The Economic Times, March 28, 2010

RBI for firm regulation of clearing houses
The Reserve Bank has made a case for further tightening the regulatory mechanism for clearing houses saying they are critical for smooth functioning of the markets.”Central counter-parties have emerged as critical elements for the smooth functioning of the financial markets…they need to be regulated more firmly for robust risk management systems,” RBI said in its financial stability report. Though clearing houses help in reducing systemic risk posed by derivative markets, they do not make risks disappear, RBI said. They accumulate a large share of the smaller pool of counter-party risks, it added. “Their capital, margining and collateral requirements need to be assessed from a prudential and systemic stability perspective,” the central bank said.  Clearing houses are central counter-parties (CCPs) that stand between trading partners and guarantee the trade. CCPs serve an important role in reducing counter-party risks and help in reducing the liquidity requirement by multi-lateral netting, RBI said.
The Economic Times, March 28, 2010

Independent directors must be truly so: Govt
The Union Minister of State for Corporate Affairs and Minority Affairs, Mr Salman Khurshid, said that the Government was keen that independent directors on the boards of companies should be truly independent. Mr Khurshid stressed that it was important that the independent director should be “independent in a way we perceive an independent mind functioning”. He defined independence as “a person not beholden to anybody else”. “You can define ‘nexus’ in terms of number of dealings that the person has had (with the company), but can also be defined in terms of number of years they worked together,” he said. He said that while one might disagree on the extent of say the Government might have on this issue, nobody could disagree that there has to be “some transparent form of internal assessments on remuneration.”
The Hindu Business Line, March 28, 2010

FIIs make a beeline for CPs as rates inch up
Foreign institutional investors (FIIs) bought bonds worth $3.8 billion in India since January 2010, the highest ever in any fourth quarter. Dealers in the debt market say most of this investment is in short-term corporate paper. This demand for short-term corporate debt has resulted in a situation where top-rated companies are able to borrow at a lower cost than banks. Dealers said yields on commercial paper (short-term debt by companies) is now lower than yields on certificates of deposits (tradable wholesale deposits) issued by banks. Indian laws allow FIIs to invest up to $15 billion in corporate debt, majority of the limit still lies unused. The official Sebi data includes both government and corporate bonds. The regulator does not provide a break-up between these two segments. FIIs have invested only $3.5 billion in shares in the January-March 2010 period so far.
The Economic Times, March 23, 2010

Insurance Clippings

Unit-linked schemes’ returns go up as insurers tighten their belts
The insurance regulator’s revised cap on management expenses has pushed up returns for investors from unit -linked insurance policies (ULIPs) by approximately a percentage point. It has also forced insurance companies to launch new policies which conform to the lower ceiling on management expenses. The Insurance Regulatory and Development Authority had mandated that all ULIPs should cap the difference between the gross and net returns (also termed yield) to investors to a maximum of 2.25-3.00 percentage points (the higher limit is applicable to policies with a tenor of less than 10 years). The net yield for investors in ULIPs is likely to move up by at least 1-1.5 percentage points on an annual basis.
The Hindu Business Line, March 29, 2010

IRDA advertisement stirs up debate
An advertisement issued by the Insurance Regulatory and Development Authority (IRDA), asking investors to consider Unit Linked Pension Plans, has raised a debate. “If you have not already provided for regular income/pension during your retired life, consider a Unit Linked Pension Plan,” says the advertisement, which goes on to ask investors to keep in mind five points of advice before deciding to buy a ULIP (Pension). The advertisement must also be seen in the light of the recent dispute that arose between IRDA and the stock markets regulator SEBI when the latter wrote to insurance companies asking them to show cause why they did not get its approval for ULIPs, which partly invest in the capital markets. “It is a possibility that through this advertisement, IRDA simply wanted to signal that ULIP falls clearly within its territory. But in principle, a regulator should not recommend investment or disinvestment in any product that it regulates,” said a legal expert. An official at IRDA said it must be seen as an exercise in investor awareness, which as a development authority, IRDA had the right to do.
The Hindu Business Line, March 23, 2010

Unorganised sector workers to get ESIC medicare facilities
Millions of workers in the unorganised sector would be able to take advantage of the ESIC medicare facilities with the government is going to amend the Employees’ State Insurance Act 1948 to significantly enhance the social security coverage. A decision to amend the existing Act to ensure effective implementation of the Employees’ State Insurance Scheme was taken at a meeting of the Union Cabinet chaired by Prime Minister Manmohan Singh. The facilities of ESIC would now be extended to workers in the unorganised sector under Rashtriya Swasthya Bima Yojana by making optimum use of under-utilised hospitals and dispensaries of ESI Corporation, sources said. It would apply to all places where ten or more workers are employed.
The Economic Times, March 19, 2010

IRDA hardselling unit linked products amid spat with SEBI
In the midst of its spat with SEBI over regulating ULIPs, insurance regulator IRDA today sought to hardsell unit-linked insurance policies as an alternative to regular income or pension payouts. “If you have not already provided for regular income/ pension during your retired life, consider Unit Linked Pension Plan,” Insurance Regulatory and Development Authority said. In a public notice , IRDA highlighted various risks as also benefits associated with the ULIPs. ULIPs — one of the most common insurance plans sold by life insurers where the money collected from consumers is invested into equity and debt markets and returns are linked to the same — has become a bone of contention between the two financial sector regulators, with both claiming authority to regulate these schemes.
The Economic Times, March 18, 2010

IRDA asks public not to buy health policies of Aetna Networks
IRDA warned the public not to buy health insurance policies being offered by Bangaluru-based Aetna Healthcare Networks as the company is not registered with the regulator. “…the general public is hereby cautioned not to deal with or to purchase or subscribe to any of the plans stated to provide medicare health cover or life insurance benefit of the said company or through any person claiming to be its agent, advisor or representative,” Insurance Regulatory and Development Authority (IRDA) said in a statement. The regulator said that Aetna Healthcare Networks (India) claiming to be a unit of US-based Aetna Inc is collecting money by selling health insurance policies in an unauthorised manner. The company, IRDA said, “has not been issued any licence or certificate of registration.”
The Economic Times, March 17, 2010

Mutual Fund Clippings

AMCs, fund distributors seek more time for KYC compliance
Asset management companies (AMCs) and mutual fund (MF) distributors have sought more time to comply with know-your-client (KYC) norms and will soon make a representation to capital market regulator Securities and Exchange Board of India (Sebi) on the matter. In December last year, Sebi had made it mandatory for fund houses to maintain a copy of full investor documentation, including KYC details and power of attorney, with retrospective effect. Currently, this documentation is maintained by the respective mutual fund distributors, who in turn, would have to provide the details to fund houses. If the distributors fail to do so, fund houses can stop paying them upfront commissions and trail fees. Mutual fund distributors have been given time till April 1, ’10 to comply with this fiat. Already, registrars and transfer agents (RTAs) of some asset management companies have not been processing commissions for non compliance of KYC norms.
The Economic Times, March 27, 2010

Why not demat mutual funds
The Securities and Exchange Board of India’s recent directives that seek to expedite the new fund offer (NFO) process for mutual funds will help make the process more efficient and investor-friendly. Investor interests could be served even better by simultaneously implementing a centralised electronic depository system for mutual fund holdings, akin to the one in use for stocks. Requiring mutual funds to shorten the time for which NFOs are open from the present 30 and 45 days for open and close end funds respectively to 15 days, will help investors get both their units and the fund’s first NAV sooner. Taken together with the ASBA (application supported by blocked amount) facility, this move will cut down the opportunity cost and waiting period for investors. Given that NFO applications typically pour in only on the final three-four days, a shorter offer period is unlikely to materially impact response.
The Hindu Business Line, March 23, 2010

MFs bet on companies with rural links
Rising budgetary allocations, strong rural consumption, surging food prices and a probable food shortage over the long-term are prompting fund houses to bet on companies which have linkages to the agriculture and rural economy. In the next few months, fund houses such as Deutsche Asset Management, Taurus Mutual, Tata Mutual and Reliance Mutual, among others, will launch schemes with rural economy and agriculture as broader investment themes. Fund managers, who are planning to launch agri and rural funds, are expecting the farm sector to do well against the backdrop of a looming food crisis. According to fund managers, the rural economy will benefit from the huge outlay for social infrastructure development. Under the Bharat Nirman Plan, micro-sectors such as irrigation, roads, water supply, housing and rural electrification will get support from the government.
The Economic Times, March 19, 2010

Liquid fund investors to gain from rate rise
Even as gilt funds lose money when interest rates rise, those that invest in the money market gain. Money market is the shorter-term market where the tenure of instruments is less than one year. Liquid funds are investors’ popular choice. They invest in very short-term securities such as commercial papers, short-term treasury papers and bank deposits. These instruments do not lose much value when rates rise. So, if one holds on till the maturity of the product, the investor stands to gain from a rising yield. So, while they are offering returns of around 4-5% currently, this number will rise when the Reserve Bank raises rates later in the year. Floating rate funds are another good option when interest rates are expected to rise. The merit of floaters is self-evident from the returns. Most floating funds have delivered a return of 4-4.5% for the past year.
The Economic Times, March 19, 2010

Hang Seng ETF opens firm, ends weak
India’s first international exchange traded fund (ETF) in India, Benchmark Mutual Fund’s “Hang Seng BeEs” listed on the National Stock Exchange (NSE). On the first day of trading, the opening value of 1,430.90 per unit was higher than notional unit value of 1,251.73 arrived at on the basis of the previous day close of the Hang Seng index. The daily net asset value (NAV) of a single unit of the fund is arrived at, by calculating the daily Hang Seng index close multiplied by the currency rate of Hong Kong dollar-Indian rupee and divided by 100. However, after surging to the day’s high of 1,435, the per unit value settled lower and closed at 1,246 per unit. The Hang Seng index closed at 21,330.67, a fall by 0.25 per cent over its previous close. On the first day of listing 26,686 units of Hang Seng ETF were traded on the NSE, marking a turnover of Rs 3.35 crore. Benchmark’s open-ended ETF tracks Hong Kong’s Hang Seng index, one of the oldest and among the most popular indices on the Hong Kong stock exchange. The index currently comprises 42 stocks and can have a maximum of 50 stocks.
The Hindu Business Line, March 19, 2010

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

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

Stock market indices not only in India but across the globe also witnessed an upward trend during calender year 2009. Stock markets and commodity markets rallied during the period. Calender year 2008 witnessed the worst financial crisis in modern times. Beginning of the year 2009 was the passing phase of the recession. Within no time indices all around the world staged a comeback and during the second half of year 2009 they all remained in the bullish phase.

Bombay sensitive index recorded a growth rate of 80 percent during 2009. Sensex started the year at 9721 as a result of global financial meltdown but it closed at 17465. During 2009 sensex was in the range 8047-17531. 2009 started with the Satyam scam. Which was a shock in Indian stock market. Another negative factor during the period was the raising commodity prices. But Indian investors were optimistic. FIIs also chose Indian market as favourite destination, in 2009 they bought equities worth 83424 crore. Which played a crucial role in the recovery of Indian indices. There are expectations that Indian bourses would break their past records during 2010.

So many policy changes including time change happened in Indian market. From 4^th January onwards the new time schedule came into effect. The bourses will open at 9.00AM and will close at 3.30PM. In the days to come there would be more policy changes. Leaving all odds behind one can surely says that Indian market is growing faster than any other market in the world. Equities were the worst performing asset during 2008 but it bounced back in style in 2009 and became the best performing asset.

Last week of December witnessed bullish rally in Indian stock market. In December Indian market was slightly volatile. Less than expected IIP figures were one negative factor behind the volatility soaring food and commodity prices added fuel. But when reached towards the end of 2009 investors started buying Indian stocks. Apart from stock market Mutual Fund and Insurance sector also witnessed drastic changes. SEBI abolished entry load in Mutual Funds which attracted severe protest from fund houses. SEBI also allowed exchanges to trade in Mutual Fund units. These were the major reforms in the Mutual Fund industry during 2009. In December Mutual Funds sold Indian equities woth 1515.60 crore.

IRDA also made some changes in Insurance sector. The major one is the implementation of a cap on the expenses of the ULIP plan. Another one is allowing life insurers to sell policies online. It is believed that these moves will protect policyholder’s interest.

Sensex closed the year at 17465.It’s November closing was 16926-an increase of above 3 percent. FII inflow continued in December also. They bought equities worth 10233.10 crore. Nifty also recorded a growth rate of 3.3 percent against it’s November closing to close at 5201. From index stocks now the buying interest came down to midcap and smallcap stocks. This is a good sign for Indian market. Smallcap stocks recorded a growth rate of 11 percent during December whereas midcap stock’s growth rate is at 4.7 percent against November 2009. Recovery in global markets also influenced Indian traders. US markets recorded biggest annual gain since 2003 in 2009. IT and Consumer Durables witnessed major buying interest during December. They recorded 9 percent and 8 percent growth respectively. Power, metal, auto and engineering stocks also witnessed renewed buying interest. Oil and gas sector was the least performing one during December.

2009 proved the strength of equities. It is believed that increased trading time would attract more participants to Indian market. Market volume would increase. Inflationary pressure is the major concern now. There are rumors that there will be some changes in key rates in order to tackle inflation. More and more traders will be attracted towards midcap and smallcap stocks. Invest in stock markets with long term plans is the need of the hour.