  | | December 28, 2012 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 19,444.84 | 202.8 | 1.05% | | Re/US$ | 54.94 | (0.1) | -0.15% | | Gold Rs/10g | 30,435.00 | (160.0) | -0.52% | | Crude ($/barrel) | 111.44 | 0.0 | 0.01% | | FD Rates (1-Yr) | 7.50% - 9.00% | Weekly change as on December 27, 2012
*BSE Sensex as on December 28, 2012 | |
Impact 
Very often, many of you may have experienced that an insurance agent is trying to impress upon you to buy an insurance policy from him, by showing you cheques which policyholders have drawn in favour of an insurance company. But have you questioned for which policies are these cheques for? Well, it is vital for you do so, and not get carried away by his tall claims. It is noteworthy that, insurance agents often exhibit premium renewal cheques of their existing clients and try to impress upon, that galore of people are buying an insurance policy in which he has persuaded you to evince interest in.
But now to crack the whip and to checkmate fraudsters, the Insurance Regulatory and Development Authority of India (IRDA) is try to mull a new rule, by considering a suggestion that renewal cheques should be made in favour of specific policy numbers. Such a practice would be similar to credit cards, wherein while making the credit card bill payment one draws a cheque in favour of the company along with the his / her credit card number. It is noteworthy that, at present most premium renewal cheques do not specify the policy number. The guidelines are bit fuzzy in this regard, where some insurer accept cheques made out to a specific policy number but don't refuse those that are simply in favour of the insurance company.
We are of the view that, there has been a disturbing rise in number of cases of misrepresentation, cheating and fraud. Policyholders are saddled with unwanted policies and insurance companies are facing the tide of disgruntled customers. If the IRDA indeed implements the aforesaid suggestion it would help in curbing unscrupulous practice adopted by insurance agents in their attempt to push products. At present insurance companies are also trying to educate investors onto how they can avoid such frauds; but we think that if there are strong systems and regulations in place, such a menace can be reduced to a considerable extent.
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Impact
The year 2012 has been rather eventful. We began the year with an exuberant impulse for the Indian equity markets although gloomy clouds of debt-overhang situation in the Euro zone were evident. The following initiatives taken by the Government in power did help the Indian equities to depict an uptrend, especially in the second-half of the calendar year:
- Allowing foreign individual investors, pension funds and trusts to directly invest in equities
- Deferring General Anti-Avoidance Rules (GAAR) by 3 years, thereby making investment climate conducive in an uncertain global economic environment
- Simplification in the process of Initial Public Offerings (IPOs)
- Making mandatory for companies to issue IPOs of Rs 10 crore and above in electronic form through nationwide broker network of stock exchanges
- Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities
- Reducing Securities Transaction Tax (STT)
- Reforms measures taken with passage of important bills thereto in the Parliament
- Government showing determination on its path of fiscal consolidation
Performance of Indian equities vs. International equities vs. Gold
Base: Rs 10,000
Data as on December 26, 2012
(Source: ACE MF, PersonalFN Research)
Yes, in the intermediate both Indian as well as global markets were exposed to worries such as rating downgrades, lull in economic growth rate, "Grexit", a double-dip recession in the Euro zone, fiscal situation in the U.S. and political uncertainty. But the markets did depict smart gains especially in the second half of the calendar year 2012, when worries did fade to an extent and reported absolute returns as revealed in the chart above. While equities did undergo a turbulent phase in the first-half of calendar year 2012, gold trended steadily up and acted as a good hedge.
We are of view that, going forward too we may encounter volatility due to global factors such as debt crisis in the Euro zone and fiscal cliff faced by the U.S. The Federal Reserve may extend its monetary stimulus (commonly known as Quantitative Easing) but they are cognisant about the fact that this (the fiscal cliff) may pull the country into a recession, if the taxes aren't increased. In the Euro zone although tense nerves of debt crisis have calmed down with European Union (EU) and the International Monetary Fund (IMF) have agreed to unblock Greek bailout with a package of measures worth €40 billion (aimed at bringing an immediate 20% reduction to the country's debt) and loan restructuring being approved (by European Commission) for Spanish bank loans (which is expected to inject around €37 billion into the Euro zone); it would not be too long before fresh crisis in Europe could flare up. Moreover in the domestic market, we may witness political turbulence ahead of general election in 2014, which could affect the equity markets. But if the
Reserve Bank of India reduces policy rates as hinted beginning first quarter of calendar year 2013, we may see intermediate impulses and revival of economic sentiments and if the Budget 2013 too is populist (before we head for general elections in 2014).
In the background of the above, we recommend investor to stagger their investments to mitigate risk. While in investing in equity mutual funds, we recommend one to
opt for the SIP (Systematic Investment Plan) mode of investing, as it will enable you to mitigate the volatility through rupee-cost averaging and power your portfolio with the benefit of compounding. However while selecting mutual funds for your portfolio, prefer the diversified equity funds which follow strong investment processes and systems, and invest with a long-term horizon of at least 5 years.
Gold will continue to do well in the backdrop of an uncertain global economic environment yet.
Smart investor would continue to take refuge under gold, and therefore demand too would pick-up. We recommend that you should have a minimum of 10% -15% allocation to gold and invest in it with a long term perspective, with a time horizon of 10 to 20 years.
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Impact
Online insurance products are buzzing in today’s times. Insurance companies too are revamping their website and are offering
host of insurance products online, with most citizens getting tech savvy and evincing interest to buy products online due to the ease in transacting. But is easy in transacting the only criteria while buying an insurance policy?
At present the Insurance Regulatory and Development Authority (IRDA) and the Finance Ministry are at odds over over nod for online sales of insurance policies. The Finance Ministry is of the view that insurers need not seek approval for insurance sold online, while the IRDA feels that e-products too should be go through their approval, as it is a practice followed globally.
To know more about this news and our view over it, please click here.
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Impact
Many of you may be aware that current account holders have never earned a rate of interest for money in bank. This is prima facie because, the present regulations (of the Reserve Bank of India) prohibit offering a rate of interest on current accounts. Thus very often corporate treasuries and other
smaller business organisations in order to earn a return on investment in the intermediate prefer to park their short-term requirement of funds in investment avenues such liquid fund, ultra-short term funds or shorter tenure
bank fixed deposits (FDs) - which at present have a minimum tenure of 7 days. But now if the RBI honours the request of country’s largest bank – State Bank of India (SBI), it could leave open an option for many to invest in a FD with a minimum tenure of even 3 days.
To know our view on whether minimum tenure of FDs should be reduced, please click here.
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- The tax-free infrastructure bonds which are designed to encourage long- term investment in infrastructure have flooded the markets in the recent times, but they haven’t been able to attract many investors leading to their total issue size being underutilized. For instance, according to merchant bankers Rural Electrification Corporation (REC) fell short of its aim to raise Rs 4,500 crore through tax-free bonds, attracting just Rs 2,100 crore earlier this month. Likewise
Power Finance Corporation (PFC) which launched its tax-free bond issue after REC has been able to garner just about Rs 670 crore worth of bids and therefore had to extend its closing till Thursday, December 27, 2012 (from the December 21, 2012 as planned earlier).
We are of view that the retail investors have not perceived yields to be very luring attractive and therefore the interest evinced in tax-free bonds has been pretty lacklustre. Many companies too have stayed away from investing in tax-free bonds on the fear of contravention of provision in the company law. According to section 372A(3) of the Companies Act, 1956, “no loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934.” Hence companies have refrained from investing in inter-corporate deposits. Going forward too, for the ensuing issues of tax-free bonds in the current fiscal, we think there would be lacklustre participation due to not very attractive yields and provision in the company law acting as a deterrent for companies to invest as well.
- With increasing number of smart phone users and mobile trading applications made available by several brokerage houses, the year 2012 saw a steady uptrend in mobile trading numbers. Latest monthly data on the NSE revealed that mobile trading made up 0.39% of the total trades executed on the exchange. The number of clients trading through platform has increased to 29,879 in November 2012 from 2,526 in April 2011. The notional turnover increased to Rs 16,129 crore (November) from Rs 709 crore (April 2011).
We are of the view that, increasing number of large mobile screens and tablets have resulted in a steady uptrend in mobile trading. What has facilitated the usage of mobile trading applications is:
- Ease;
- Convenience;
- Better data connectivity; and
- Lower data costs
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Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
(Source: Investopedia)
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Quote : : "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." - Warren Buffett
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