--- On Fri, 1/29/10, Financial News Simplified. <[email protected]> wrote:
From: Financial News Simplified. <[email protected]> Subject: RBI Credit Policy Review – CRR increased, liquidity squeezed!! To: [email protected] Date: Friday, January 29, 2010, 10:05 PM #yiv1457447041 .TableStyle { width:80%;font-family:georgia;color:black;} #yiv1457447041 .arial9ptfont { font-family:Arial;font-size:9pt;color:Black;} #yiv1457447041 .georgia8ptfont { font-family:georgia;font-size:7.5pt;color:black;} #yiv1457447041 .georgia10ptfont { font-family:georgia;font-size:10pt;line-height:20px;color:black; } #yiv1457447041 .georgia14ptfont { font-family:georgia;font-size:12pt;color:black;} Friday Jan 29, 2010 Weekly Facts Close Change %Change BSE Sensex 16306.87 744.3 4.36% Re/US$ 46.36 0.3 0.67% Gold Rs/10g 16405.00 150.0 0.91% Crude ($/barrel) 71.68 3.7 4.96% FD Rates (1-Yr) 5.00%-6.50% Weekly change as on Jan 28, 2010 RBI Credit Policy Review - CRR increased, liquidity squeezed!! Impact The spiralling effect on inflation, of excess liquidity prompted Reserve Bank of India (RBI) to increase the Cash Reserve Ratio (CRR) by 75 basis points from 5% to 5.75%, in its third quarter monetary policy review 2009-10. The increase in the CRR will be in a phased manner in two stages: First Stage: Increase of 50 basis points will be effective the fortnight beginning February 13, 2010. Second Stage: Increase of 25 basis points effective the fortnight beginning February 27, 2010. The other highlights of the monetary policy review are: Bank rate left unchanged at 6 percent Repo rate left unchanged at 4.75 percent Reverse repo rate left unchanged at 3.25 percent Statutory Liquidity Ratio (SLR) has been left unchanged at 25 percent We believe that the policy announcement is a cautious step to "test the waters" and thus gauge readiness for a withdrawal of the stimulus packages. It could also lead to mutual funds facing redemption pressures from banks. Equity Markets feels inflationary pressures Impact (Source: ACE MF) WPI inflation at a 13 month high of 7.31% in the month of December 2009 and food inflation at 16.81% for the week ended January 9, 2010, brought nervousness to the equity markets. The BSE Sensex has fallen 7%, since the time the inflation numbers were posted. The announcement of a hike in the CRR of 75 basis points in a phased manner, by the RBI in its third quarter review of monetary policy 2009-10 added to some knee jerk reaction to today's trade, but later the markets did recover smartly. At the time of writing this article the BSE Sensex was up 73.37 points at 16,380.24. We believe that these are opportune times for investors to buy fundamentally sound stocks and/or mutual funds and stay invested for long-term. SEBI and IRDA crossing swords over ULIPs Impact The Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) are crossing swords over the regulation of Unit Linked Insurance Plans (ULIPs). SEBI has also issued a show-cause notice to all life insurance companies, including the biggest player Life Insurance Corporation (LIC), who sell such products. The insurance companies have been asked to explain as to why they have not taken SEBI's approval before selling ULIPs. SEBI's contention is that, ULIPs raise money from the public and the money is invested in a fund chosen by public and the valuation is through the Net Asset Value (NAV) methodology, which is unitised fund value. Thus having characteristics akin to mutual fund schemes, ULIP's should come under SEBI's jurisdiction. SEBI's display of authority has not gone well with IRDA. Mr. R. Kannan, Member of IRDA, said "ULIPs are internationally sold by insurance companies and not by any other segment of financial services. This product is structured as per international practice and is well within section 2(11) of the Insurance Act". He also said that he will take up this issue with the Government. We feel this turf war between the respective regulators could affect the plans of life insurance companies aiming to come up with an Initial Public Offer and may also show a negative impact on the stock market, as it may dampen the investment spirit of fund managers of ULIPs. The faster this issue is resolved, one way or the other, the better for all concerned. Demat account for insurance soon Impact Life insurance policyholders may soon be able to hold their policies in a demat mode. The Insurance Regulatory and Development Authority (IRDA) is awaiting a proposal from the Life Insurance Council, which will allow life insurers to dematerialize life insurance policies, just like shares. The 12-member committee of the council is expected to submit its recommendations to IRDA for approval. The proposal of dematerializing the policies holds the following merits: For policyholders: Ready disclosure of all policy-related information, including commissions and fees paid to the insurer, exact benefits offered, premium payment, renewal related dates and the terms and conditions for the risk covered Saves them the hassle of maintaining all related documents till the term of the policy Gives a comprehensive one point snap shot of all policies taken. For Insurers: Significantly save on distribution costs Smoother operations Currently, the Life Insurance Council's committee is checking whether the technology available with the two depositories - NSDL and CDSL is suitable, and if all required information related to different types of life insurance policies can be handled by the respective depositories. We think that the move is pro-investor and is also an attempt to infuse transparency and ease in buying and managing a life insurance policy. INTERVIEW In an interview with the Economic Times, Mr. Anand Shah, Head of Equities at Canara Robeco Asset Management Company expressed his view on the challenges, India's economy and equity market faces in the foreseeable future. Mr. Shah believes that 8-9% GDP growth rate can be achieved but it cannot be taken for granted. It will depend upon a lot of factors such as sustenance of global economic recovery, infrastructure creation at a faster pace, revival in private sector capex and above all the rate at which fiscal stimulus and monetary easing are withdrawn in light of the rising inflationary pressures. He opines that economic recovery worldwide is still at an early stage. Inflation pressures too are very high due to high food prices. He expects RBI to wait and watch in the coming weeks, till it is sure of sustained economic recovery. He feels that equities will remain range bound for the next 12 months, especially till economic growth comes back fully and dependence on policy support is reduced. He believes that in the long-term markets are always driven by earnings and in the short-term driven by liquidity. In the short-term liquidity driven markets provide an opportunity to buy companies at attractive valuations during panic. Mr. Shah is bullish on sectors such as banking & financial services, pharmaceuticals, media & entertainment, power, FMCG, telecom and organised retailing. AND OTHER NEWS... The Bajaj group plans to enter the banking business and is considering applying for a license through its financial services arm - Bajaj Finserv. Mr. Sanjiv Bajaj, Managing Director of the company said "we are keen to enter the banking business and will consider applying for a license once RBI comes out with regulations allowing Non-Banking Finance Companies (NBFCs) to convert themselves into banks". Banks have moved the Finance Ministry to make available deduction under section 80C of the Income Tax Act, 1961, to 3 year term fixed deposits. As per the Bank Term Deposit Scheme, 2006, currently this deduction is available only on investments in term deposits of 5 year maturity in a scheduled bank. We feel that this measure will encourage depositors to deploy their savings in 3 year term deposits since they avail of tax benefits and also reap assured returns on such term deposits. A body constituted by SEBI has recommended that shareholding pattern of all credit rating agencies should be made public so that the relationship, if any, with the rated company could be known. Foreign exchange reserves rose by $ 899 million during the week ended January 15, 2010 to $ 285.1 billion. This was mainly on account of revaluation of non-dollar assets in reserves. The Centre for Monitoring Indian Economy (CMIE) expects India to grow at 9.2% in 2010-11, due to strong performance expected in industrial and agricultural sector. IN THIS ISSUE RBI Credit Policy Review - CRR increased, liquidity squeezed!! Equity Markets feels inflationary pressures SEBI and IRDA crossing swords over ULIPs Demat account for insurance soon Interview And Other News Financial Terms. Simplified. FORWARD TO A FRIEND Think you know someone that will enjoy this email? Why not send it to a friend? PRINT FEEDBACK PERSONAL FN HOMEPAGE WRITE TO PERSONALFN ARCHIVES FINANCIAL TERMS. SIMPLIFIED. Unit Linked Insurance Plan - ULIP: A type of insurance vehicle in which the policyholder purchases units at their net asset values and also makes contributions toward another investment vehicle. Unit linked insurance plans allow for the coverage of an insurance policy, and provide the option to invest in any number of qualified investments, such as stock, bonds or mutual funds. (Source: www.investopedia.com) QUOTE OF THE WEEK "The key to making money in stocks is not to get scared out of them". - Peter Lynch ATTENTION WOMEN! ************ We bring you something invaluable, interesting, exclusive...and FREE! Click here to know more... Disclaimer: This is a generalized Service , provided on an "As Is" basis by Quantum Information Services Pvt. Ltd. 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