Despite misgivings on the part of rating agencies and bank economists, India has emerged as the second most promising market after China in terms of maximum opportunity for rapid growth among emerging market economies. And this comes at a time when red alert has been sounded about a likely fall in India's sovereign rating with the country being put on a negative watch-list first followed by a downright downgrade. The Sensex also dropped more than 2 per cent in its biggest daily fall on Thursday since late February, while the rupee also slipped, after a spike in global risk aversion triggered fears of foreign selling. To top it all, 12 IPOs have already been called off in 2012. According to the survey by Tata Communications in association with research company Vanson Bourne, more than half of the respondents believe China offers the maximum opportunity for rapid growth opportunities, followed by India at 46 per cent and Brazil at 26 per cent. Russia comes a distant eighth with just 11 per cent of emerging market business leaders feeling it offers rapid business growth.Going ahead, 39 per cent of all global respondents stated that their organisation is looking at expanding into India, making it the second most favoured market for global expansion after China at 51 per cent. While China led the pack of FTSE Emerging Market Index countries considered to be most progressive, as 42 per cent of respondents from China, India, South Africa and the Middle East selected China. This compares with 27 per cent who selected India and just 1 per cent who indicated that they believed Russia to be most progressive.Interestingly, 75 per cent of Indian respondents selected India as the market they felt offered most rapid growth opportunities and Indian companies expect to increase their investment in emerging markets, including India, by 39 per cent in the next year.The BSE Sensex dropped 405 points on Thursday while the rupee also slipped. Global developments coupled with a waning confidence in a struggling government, saw accelerated selling in the afternoon. Unexpected sharp falls in manufacturing at Germany and France, added to data earlier that also showed a drop in the HSBC flash manufacturing index for China, ate away at the market confidence.Disappointing figures out of China and the 17-country Eurozone have prompted investors to cash out of stocks, following a strong run in previous weeks. Many traders are wary of further pushing up indexes, many of which recently hit multi-month highs.The catalyst to Thursday's retreat was a Chinese manufacturing index compiled by HSBC. Its main index fell to 48.1 in March from 49.6 in February. Figures below 50 indicate that manufacturing is contracting.The rupee dived to its weakest level in more than two months, with the RBI suspected to having intervened to prop up the local currency.The partially convertible rupee ended at 51.17/18 to the dollar, after sliding to as low as 51.28 earlier, a level not seen since January 16. The unit had closed at 50.66/67 on Wednesday.Dealers said the Reserve Bank of India is likely to have intervened for a second in a session in a row to shore up the local currency, which has dropped around 2 percent in nearly a week."Global factors weighed more than domestic reasons, as unexpected weakness in euro zone PMI data caused a massive risk sell-off and hit currencies across the board," said a currency strategist for a foreign bank in Singapore.The negative news on the global economy came in a session coloured by an outcry over a reported $211 billion loss in revenues from the sale of coalfields, according to a leaked report from the Comptroller and Auditor General's (CAG) office.That was then followed by the government's reversal in a recently announced hike in rail fares.The news combined to spark fears that foreign investors would head for the exits, especially after the government's larger-than-expected borrowing plan in its 2012-13 budget last week raised doubts about its fiscal stance.12 IPOs Called Off So Far In 2012The secondary market and global liquidity hold key for the future of IPO market, according to Jagannadham Thunuguntla, Head of Research, SMC Global. The year 2012 has already seen call-off of 12 IPOs. The probable amount that these 12 IPOs were planning to raise was to an aggregate of Rs 5,461 crore. The list of the 12 companies who have called-off their IPOs during 2012 include Micromax, Embassy Property, Joyalukkas, Lokmat Media, VRL Logistics, Aravali Infrapower, etc. This is in addition to the call-off of 29 companies during 2011 calendar year. The probable amount that these 29 companies were planning to raise was to an aggregate of Rs 32,400 crore. So, starting January 1, 2011 till date, about 41 IPOs were called off. The total amount they were expected to raise was about Rs 37,859 crore.All these 41 companies had valid Sebi approval in hand for their IPOs. Even then, they couldn't open their IPOs within the validity period of one year from the date of Sebi approval. This is expected to impact the Indian corporates' ability to raise funds to finance their expansion projects resulting in slowdown in capacity building and job creation. Further, the government's disinvestment programme which was supposed to bring public issues of several blue-chip PSUs also couldn't take off. The recent lukewarm response to ONGC auction can also impact the confidence of the public issue market. Deutsche Bank Cautions IndiaDeutsche Bank has cautioned that India's sovereign rating could be at risk in 2012 and ratings agencies could put India on a negative watch-list first and impose downright downgrade thereafter.Deutsche has warned against India's fiscal fragility. India's Baa3 sovereign rating (assigned by Moody's) reflects not just the adverse fiscal position, but balancing factors such as high GDP growth rate (nominal GDP has grown by a average of 15 per cent in the past decade) and relatively high savings rate (decadal average of 31.5 per cent of GDP). These factors have made the fiscal position tenable so far, but they cannot be taken for granted as in recent years investment has slowed, partner country (especially those in the West) trend growth has declined, and domestic economic reforms have been few and far between.A key risk to India's ratings outlook in the coming year or two is that the fiscal adjustment envisaged in the budget has not been accomplished due to unfavorable macro developments (e.g. further slowdown in growth) and policy slippages (e.g. a rise in the subsidy bill in the absence of administrative price adjustments). More crucially, if the slippage also reflects no medium term movement toward expanding the tax base (through implementation of the GST, bringing more services under taxation, and improving compliance) and expenditure restraint (by improved efficiency of social spending), the ratings outlook would invariably worsen.The saving grace has been a noticeable turnaround in the global demand environment in the past few months, which has begun to help the Indian economic outlook as well. Additionally, if food prices don't jump, inflation could remain below 7 per cent this year even with some fuel price adjustment. "The draft CAG report and fare rollback is damaging the Indian government's credibility further, which is spooking FII investors," said Nirmal Jain, chairman and managing director at brokerage India Infoline.Biggest One-Day Fall Since Feb 27Foreign investors are vital to Indian stock markets, and their strong net purchases of about $9 billion in the year to date had propelled gains of 14 percent in the Sensex as of Wednesday, gains which some fear could now be reversed.The main 30-share BSE index fell 2.3 per cent, or 405.24 points, to close at 17,196.47, its biggest one-day fall since Feb 27. The 50-share Nifty index lost 2.5 percent, or 136.50 points, to end at 5,228.45.Liquid blue chip stocks were among the hardest hit, with Reliance Industries ending down 4.1 per cent amid additional fears about slower earnings in the fourth quarter on the back of lower petrochemical margins among other factors.Banks were also among the leading decliners, with SBI dropping 3.2 per cent.(With agencies)
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The Indian equity market ended the year on a subdued note with the Bombay Stock Exchange (BSE) 30-share Sensitive Index (sensex) losing nearly 2 per cent during the week to end at 15,454.92. The market lost ground on low volumes following low interest among players that stayed on sidelines due to lack of positive triggers in the domestic as well as global markets. The average daily turnover during the week in the BSE cash market dipped by nearly 28 per cent to Rs 1,376 crore, compared to last week's average daily turnover of Rs 1,904 crore. For the calendar year, the Sensex lost nearly 25 per cent.The low turnout is not surprising as most of the investors, especially foreign institutional investors (FIIs), are usually on vacation during this period of the year and return only by the first or second week of January. This is the time when they usually make fresh country-wise allocations.Meanwhile, the Indian market can be expected to remain range-bound in the coming week. Though most of the bad news regarding the rising fiscal deficit of the government has already been discounted, news that government borrowing during FY2011-12 will exceed by 25 per cent is going to keep the market subdued. Next month, the government will borrow an additional Rs 27,000 crore from the market taking its total fiscal deficit for FY12 to Rs 5.1 lakh crore, compared to the budgetary estimate of Rs 4.17 lakh crore.Going ahead, all eyes will be on the upcoming state elections, particularly Uttar Pradesh, which goes to polls on 4 February 2012. Says Amar Ambani, head of research at India Infoline, "The outcome of state elections in Uttar Pradesh could have a significant bearing on the policy decisions of UPA II, including the Union Budget. It might also change some political and strategic equations at the Centre."One has to see whether the government gathers enough courage to implement important economic reforms. The market will keenly watch government finances, corporate results for the third quarter ended December 2011, the IIP numbers on 10 January 2012, inflation data, liquidity position in the financial system as well as rate cut expectations. This will also mean there will be volatility across markets –equity, bond and currency. Equity market may remain jittery following bond auctions in Italy and Spain starting in the first fortnight of January. These important events will underpin the markets' direction next month. Any positive will act as a trigger for the Indian market.The Week That WasAs expected, the week started on a positive note following above than expected new homes sales in the US. Last Friday, after the close of the Indian market, US reported its sales of new homes. For the month of November, the new home sales rose to a seven-month high of 3.15 lakh, up 1.6 per cent, showing the housing market was stabilizing. This encouraged the Sensex to move up, crossing the 16,000-mark on Tuesday. Though the market couldn't hold on to its high, profit- booking at higher levels pulled the Sensex lower. Reports that Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries also added to the market's woes. According to reports about 40 per cent of FII inflows and around 42 per cent of the foreign direct investment (FDI) in India are routed through Mauritius. Several companies take advantage of the double taxation avoidance pact between the two countries and escape paying taxes in both the countries. Concerns are if the concessions are removed, it could hamper FII flow which to large extent is the driver for the Indian equity market. The fall in the Sensex was also due to the selling in frontline stocks particularly index heavyweight Reliance Industries (RIL). During the week the stock RIL lost nearly 9 per cent to touch its new 52-week low of Rs 690. On Friday, the stock ended at 692.90. The stock fell on news that the gas output from the KG-D6 gas field has declined to a new low at 38.66 million cubic meters per day. The fall in RIL also pulled down the Sensex that ended the week at 15,454.92, down 284 points from its previous week's close of 15,738.7.Nothing much has changed in the last week. Markets don't like uncertainties and the existing domestic and global uncertainty has kept most investors on the sidelines. Though the negatives including poor third quarter results by Indian corporates as well as downgrades of European banks are discounted in the price, policy reforms by the government will be the trigger that can be expected to help the markets to move up. However, in a sutuation where pessimism and fear rule, there is a high probability that the market may get into a panic mood, further pulling it down. It could be the right time for investors to slowly start building their portfolio by sticking to blue-chip stocks.
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Equity has been a key component of Bhupinder Sethi's investment and he continues to invest through the systematic investment plan (SIP) in his own managed funds. Talking to Businessworld, the head of equities at Tata Mutual Fund feels the markets can always correct a little bit post a sharp run-up, but he would be a buyer on every correction though on a more stock specific basis. He feels the current rise is a good opportunity for investors to reduce holdings in companies with deteriorating economic fundamentals, poor business models and questionable governance practices.His short-term strategy in the current market condition would be to go down the cap-curve into buying some better managed mid-caps across sectors as mid-caps tend to outperform large caps in an uptrending market. At the core of the portfolio, he remains biased towards sectors with secular growth prospects and superior return ratios like consumer staples and discretionary, software, pharmaceuticals, private sector banks and upstream oil and gas. However, he feels for the index to cross the 18,000 levels, the triggers would be fiscal consolidation in the upcoming Budget in March 2012, the government shedding policy paralysis and moving ahead with infrastructure and investment thrust.Excerpts from the conversation:Do you think the recent rally in the equity market will continue and why? What is your take on the Indian equity market and why? Will you be a buyer in this market and why?Over the last four years, while our nominal GDP has grown by around 80 per cent, BSE Sensex at 18,000 is down by 14-15 per cent from the peak level of 21,000 it touched in January 2008, which gives a sense of the value that has crept into stock prices as businesses have scaled up over this period of time on back of overall economic growth. The BSE Sensex is up by around 20 per cent in the first one and half month in the current calendar year and at 18,000 it quotes at 14 times 1 year forward earnings. Post the run-up. The extent of undervaluation has definitely reduced but the market is still quoting below the long-term averages by around 10-12 per cent. The markets can always correct a little bit post a sharp run up and while I would be a buyer on every correction but now on an even more stock specific basis.What is your view on the overall financial market? Do you think crisis in Europe is behind us and why?Since the global financial markets have increasingly become inter-linked, the overall financial market's health would continue to be dictated by what happens in Europe. ECB's lending to European Banks three-year money at low cost has helped bring down the yields on Euro-zone sovereign bonds. Now there is an expectation of a second round of lending by the ECB. In the immediate near term, the biggest issue is the Greece debt rollover in March 2012. Our view is that given the improving situation thanks to ECB's flooding of the market with money, every attempt would be made to avoid a disorderly default by Greece even though there would be hard bargaining and tough negotiations till the very end. So while the ECB's recent actions have averted the European crisis in the near term, the longer term structural problems remain in Europe and would need to be addressed.What is your view on the overall corporate performance of India Inc? Have the December-ended quarterly results that have been declared so far been in line with your expectations? Which are the sectors that you are bullish and bearish about?The sales growth for corporate India continues to be very robust at over 20 per cent even in the last quarter of calendar 2011, amidst a slowing economy. The slowdown in the economy has become more broad-based with it spreading from investment related sectors to some of the consumer discretionary sectors as well.The earnings for the quarter ended December 2011, have been largely in line with the beaten down expectations with a marginal positive surprise. The operating margins showed signs of stabilization on a sequential basis, though they were down on a year-on-year basis. Profit growth continued to lag the sales growth by a big margin because of continuing high interest costs. Consumer staples, information technology, private sector banks and some industrials surprised positively. The disappointments were mainly from sectors like utilities and telecom. The key takeaway of the earnings season is that the earnings downgrade cycle seems to be bottoming out, whereas in previous three quarters, the downgrades were prominent.At the core of the portfolio our bias remains towards sectors with secular growth prospects and superior return ratios like consumer staples/discretionary, software and pharmaceuticals as also private sector banks and upstream oil and gas. On a complete cycle basis, these sectors can be expected to deliver good returns. Incrementally though, given the improving macro economic conditions and possibility of rate easing cycle, we are also looking at stock specific opportunities in interest rate sensitive sectors which have been underperformers over the last year. The actual recovery in business may take time for some of these sectors, but the fact that the stock market is a discounting mechanism; the stock prices are moving up ahead of the event.From the valuation perspective, some of the consumer stocks are richly valued. Given the high quality of capital efficiency, prospects of robust, structural growth over long periods of time, the sector lends itself to a bullish view from a medium to long term perspective. However, in the near term, the sector may underperform given the high valuation divergence with the rest of the market. The sector would still be part of our core portfolio, though tactically we have reduced our weightage.Why is the market neglecting the fact we are in a slowdown?The tops in the market are made very often amidst bullish news and the markets bottom out typically when the news flow suggests all gloom and doom. Also, at times, the equity markets can move up if the valuations become very compelling, even though the economy may be undergoing a near term slowdown.The valuations had definitely become very attractive and significantly below long term averages in December 2011 and a "risk on" trade globally was all that was required to spur the market. What are your concerns for the equity market?The biggest concern is that the government fails to live up to the now raised expectations on either of fiscal consolidation or push for investments. Also, while inflation is coming down, we believe that some of the structural issues around our economy having a tendency to have high inflation haven't been addressed. So, even if the Reserve Bank of India (RBI) does start the rate cutting cycle, the market may be disappointed with the quantum of rate cuts.While currently the Euro-zone situation seems to be in control, any deterioration or any disorderly sovereign default by a Euro-zone member country or a further flare up of oil prices because of escalation of geopolitical tension would be a major dampener for the equity market.In current market condition, where will you advice investors to invest? Currently where are you investing your own money? And why?To exploit the power of compounding, my advice to investors is that they make equities a core part of their overall asset allocation plan, since equities have delivered excellent long-term returns. At the current juncture too, investors should continue to invest systematically in equities in line with their long term asset allocation plan. Systematic investment in good quality companies and investing though mutual fund schemes with good long term performance track record is what should help create long term wealth.Another advice to investors would be that generally an uptrend is always a good time to reduce holdings in companies with deteriorating economic fundamentals, poor business models and questionable governance practices. That's what the volatility in the market should be used for, to buy strong businesses on dips during market turmoil, and to treat up-trending markets as cleansing opportunities.I personally am sticking to my asset allocation plan, in which equities are a key component. I continue to invest in the equity funds I manage through systematic investment plans (SIPs).I like equities as an investment avenue because equity shares of well managed companies, with good growth prospects and who do not dilute equity often and therefore are not easily replicable, should over the long term hold and advance in value vis-à-vis currencies which are easily replicated in the printing machines of the central banks.As a fund manager what call will you take on the overall portfolio of the mutual fund? What will be your short-term strategy in the current market condition?Short-term strategy in the current market condition would be to go down the cap-curve, into buying some better managed mid cap companies across sectors, as midcaps tend to outperform large caps in an up-trending market. In your view, what will be the next trigger for the Indian equity market? And why? And when do you see it coming such that we break the 18K levels?The triggers for the Indian equity market would be fiscal consolidation in the upcoming Budget in March 2012, government shedding policy paralysis and moving ahead with infrastructure and investment thrust, resolution to some of the problems facing the power sector both on the fuel supply side and the distribution side and start of the rate cutting cycle by the RBI. Also, globally, the current "risk on" trade has been triggered by ECB's lending to European Banks three-year money at low cost. A second round of lending by the ECB would keep the animal spirits alive. Smooth passage of the Greece debt rollover in March 2012 should also be favorable for the equity market.
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Direct Taxes Code (DTC), which seeks to modernise tax laws in the country, is expected to come into force from April 1, 2012. The proposed Direct Taxes Code brings together the policy initiatives on direct taxes. In a bid to modernise the tax system, the government has proposed to replace the Income Tax Act, 1961, with a new legislation and is expected to raise the exemption limit. But till then and certainly this year, old rates apply. Kalpesh Ashar, Certified Financial Planner - CFPCM, and associate partner with VCare Investment Services Pvt Ltd simplifies income tax to Tanushree Pillai. What are the kind of instruments that individuals can use to save tax on their income? There are various instruments available for individuals when it comes to saving tax on their income. Salaried and Self Employed / Professionals utilise these financial instruments as per the respective features and their requirements. Certain expenses, incomes and investments are eligible for deductions from an Individual's gross total income and thus induce tax savings. How do these differ from each other?The threshold limit of Rs 1,00,000 - is applicable for deduction under Sec. 80C for Individuals and HUF ( Hindu Undivided family )under which the following are included ( most commonly used ) : a. Life Insurance Premiums (for self / spouse / children). b. Recognised Provident Fund / EPF c. Public Provident Fund d. ELSS Fund – Equity linked Saving Schemes of Mutual Funds. e. Tuition Fees paid – To any university, college, school or other educational institution situated within India for full-time education of any 2 children of the individual. f. Payment for purchase or construction of a residential house the income from which is chargeable under Income from House Property, in respect of-i) Instalment or part payment towards cost of House Property allotted to him ii) Repayment of Loans g. Term deposit of tenure of 5 years or more issued by a scheduled bank. h. Senior Citizen Savings Scheme ( Post Office ). i. 5 year Time Deposit ( Post Office ) j. National Savings Certificate – VIII k. NPS ( New Pension Scheme ) •Deduction under Sec.80D :-Mediclaim :- Deduction up to Rs 15,000 paid as premiums paid towards health of an individual, his spouse and dependent children is allowed. If the individual or the spouse is a senior citizen, the limit is higher at Rs 20,000. An additional deduction of up to Rs 15,000 is available to an individual on premiums paid for his parents, dependant or otherwise. If the parent is a senior citizen, then the limit is enhanced to Rs 20,000. •Deduction under Sec.80CCF: Long Term Infrastructure Bonds: An amount of up to Rs 20,000 - is allowed as deduction under this newly introduced section. This will be over and above the overall limit of Rs 1,00,000 - eligible u/s 80C. •Deduction under Sec.80DD :Handicapped Dependant: An individual having a dependant suffering from a permanent physical disability or mental retardation is entitled to a deduction for medical treatment of the dependent. An amount of Rs 50,000 is allowed for non-severe disability and Rs 1,00,000 is for severe disability. •Deduction under Sec.80G: Donations An Individual is entitled to a deduction of 50 per cent and in some cases 100 per cent of donations made to approved charitable purposes. What the biggest misconceptions about taxation? There are a couple of misconceptions about taxation that individuals have: 1)The general misconception or shall I say perception of taxation is that by investing or contributing in certain Financial products in last leg of the Financial year, your tax savings are taken care of. This last moment panic invariably results in the wrong selection of financial products for the individual. In reality these tax saving instruments whether they are expense oriented or investments can be channelized and planned for definite financial purposes and goals through the year peacefully with the help of a Financial Planner or advisor. 2) Taxation is "complicated and taxing " -The general notion is that minimal tax has to be paid and it is the domain known only by CA's. Though a Chartered Accountant would obviously understand the taxation laws and features, the actual simplification and implementation of an Individual's personal taxation has to be done by the individual himself or with the assistance of a financial advisor or planner who will guide the investor on his taxation after analysing and understanding his financial profile first. Do women tax payers enjoy any special benefits? What are they? Apart from the minimum tax slab for women which begins at Rs 1,90,000 — in comparison to the male tax payers who have a minimum tax slab which is Rs 1,80,000, — all the other Tax provisions for women tax payers are more or less the same as for individuals. What kind of loans that an individual has taken can be used to save taxes? Home Loans and Loans on Higher Education are the only loans that can be used to save taxes. Under home loans, the principal amount and the interest on loan repayment during the year are eligible for tax deduction. In Loan for Higher Education, the Interest paid on loan taken by an individual from a bank, a notified financial institution, or any approved charitable institution for higher education is deductible for 8 successive years starting from the financial year in which the individual starts repaying the interest. Throw a little light on filing of taxes in brief. Taxes are now mainly filed online as it is faster and the response time from the IT authorities is quicker too if the mode is online. Individuals still have the option of also filing taxes and returns physically if their businesses do not come under tax audit. Employers do manage the TDS (Form 16) disclosures of their employees, but the onus of filing of taxes lies with the individual to do it individually or through his Chartered Accountant.
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The chief executive officer of Cairn India has sold more than half his shareholding in the oil and gas explorer for 512.68 million rupees, the company said in a stock exchange filing on Thursday.Rahul Dhir has sold 1.5 million shares between January 30 and February 1, Cairn said, but did not disclose any reason for the sale.Dhir, who has been CEO since August 2006, held 2.78 million shares or 0.15 per cent of the company's equity before these transactions.London-listed miner Vedanta Resources acquired majority stake in Cairn India last year in a $8.7 billion deal, buying most of the stake from Cairn Energy Plc.(Reuters)
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Reserve Bank of India Governor Duvvuri Subbarao said it pays to be unpredictable when it comes to intervening in the foreign exchange market as this approach makes intervention policy more effective.A central bank should have two policies, one strategic policy that is clearly laid out and stable, and another tactical policy that is more unpredictable, Subbarao said at an international conference organised by the RBI."On tactical policy, it pays to be a bit unpredictable on how you intervene in forex market," Subbarao said."Strategically, clearly lay out your policy, communicate the policy and keep that policy stable over time," he said.RBI Deputy Governor H.R. Khan said last week that any central bank intervention must involve the forwards market as well as the spot market.Traders say the RBI has likely been intervening in the market in recent weeks to stem the rupee's fall.The rupee, which fell close to 16 per cent in 2011, gained more than 7 per cent in January."The promise of more volatility in the exchange rate is good for India," said Jim Walker, managing director, Asianomics."It will make corporates think twice about taking on dangerous foreign debt exposure and keep the markets guessing about the direction of policy. That is the way a central bank should be operating," Walker said.Traders say the RBI probably last sold dollars at around the 50.25 rupee level on January 25, pushing up the rupee to 50.09/10.The rupee strengthened past 49 to the dollar for the first time in three months on Thursday as dollar inflows for portfolio investment remained strong.(Reuters)
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For most individuals, life insurance is the first step towards financial planning. However, many of us end up confusing life insurance products with investments products.Sanjiv Bajaj, managing director of Bajaj Capital and Balwant Jain, chief financial officer of Apnapaisa, a price and features comparison service for loans and insurance products, explain to Businessworld's Tanushree Pillai the different kinds of life insurance products available and the benefits and pitfalls of each. What are the kinds of life insurance products that are available for investors?Bajaj: The life insurance market has evolved tremendously over the last ten years, as there is a wide range of life insurance products which are available for investors now. These include Child Plans, Endowments, Retirement Solutions, Ulips, Term Insurance Solutions and Monthly Income Plans.Jain: First of all, life insurance products should not at all be treated as investment products. One should always separate insurance and investment. Typically, these are the types of products in insurance sphere:1) Term plan2) Traditional Plans 3) ULIP plans How are all these plans different from each other?Bajaj: The various life insurance products differ from each other on the basis of the risk appetite of the client, as to who can choose between unit linked (ULIP) versus non linked products. Also, based on the risk cover requirement, an investor can go for a low-cost term insurance solution or a mix of protection and investment through endowment solution. Child insurance is unique in itself because it often offers a feature called Built in Waiver of premium benefit which assures that in the event case of any mishap with the parent, the child's investments are not frozen or stopped in between. Rather, the insurance company on behalf of the deceased parent would contribute the premium on the due date so that child's financial goals are achieved as it is.Jain: a) Term plan: These are pure insurance products where only the risk is covered. These plans are available for a certain number of years (up to which the risk is covered).There are variations of this as well. A pure term plan is where if the insured person dies during the period of insurance, his nominees get the insurance money. However, in case he survives the term for which the insurance policy is taken, then he does not get anything.Then, there are ‘return of premium policies', where the premium paid is returned without any addition/bonus to that. There are single premium polices we well.These pure terms plans are available both online and off line. Online term plans are cheaper by around 35 per cent as compared to off line plans bought through agents.b) Traditional Plans: These are saving cum insurance plans and thus have higher premium. Historically they have given returns of around 5.5 per cent in the past. These consist of: 1. Whole life polices - money is payable after death of insured person. 2. Money back policies - you get your money back periodically.3. Endowment plans like child plan - money is paid at the end of the term chosen by youThen, there are ULIP plans which have higher component of saving and lower portion of insurance - it is long term product.What are the benefits and pitfalls of each of these products? Bajaj: Endowment is usually bought for a fixed tenure with the objective to receive a lump-sum on maturity to meet one of the financial goals. Being a traditional product, the investment is primarily debt based & hence the investor can expect between 6-8 per cent return only. However, investors are assured of a minimum return called sum assured which is prefixed at the beginning of the policy.Ulips are very flexible investment cum protection solutions where the client has choice in the form of fund allocation, risk cover multiple & transparency in investment returns. But being unit linked, there is no minimum assured return guarantee to the investor & hence he needs to take his own decision on choosing the asset allocation to get the desired returns.Child Plans: There is no replacement for this kind of policy because of the features mentioned above which insures continuity of investment for a child even on demise of the parent. Child products can be bought either as unit link or through traditional versions.Term Insurance Solutions: Term Insurance is the basic form of life insurance bought with an objective to meet the risk cover requirement of an individual.Broadly two types of Term Insurance Solutions are available: With Return of Premium and Without Return of Premium. Pure Term Insurance, which doesn't return anything on maturity, is the cheapest but by adding a little more, one can convert Pure Term into With Return of Premium Solution. The biggest advantage of With Return of Premium Term is that it offers the features like "No Lapse Guarantee" which means that in the situation of the client's inability to pay the premium, his risk cover would get proportionately reduced for the remaining term as against the lapse of a policy in case of the normal term plan.Monthly Income Plans (MIPs): These are the latest and one of the most sort-after products in the life insurance space as they offer guaranteed regular income to the investor for a defined period after he has initially contributed for few years of premium. Since they offer a guaranteed, tax free income, they are ideal for retirement solution or buying a second income for professionals.Jain: Except pure term plan, we would not advise any other product as the returns are abysmally low. Advice to buy only term plan can be taken as rule from us - there are no exceptions to this rule.What should an investor look for before buying a life insurance product?Bajaj: Before buying a life insurance policy, one should contact a financial advisor to help him ascertain his protection needs and investment needs like child education and retirement. Based on this, he should choose between the various type of products mentioned above and also choose the product based upon his risk taking appetite i.e a unit link versus guarantee based traditional plans.Jain: First of all a person should buy an insurance only and only if someone else is dependent on him for financial support. Hence, a student or housewife should not buy any life insurance. However, health insurance for them is a must and one should buy health insurance for all the members of the family irrespective of the age of financial dependency.What should an investor be wary of before buying life insurance?Bajaj: Discipline of staying invested is the key to any life insurance product. Hence an investor should completely satisfy himself as to the requirements and once he has committed to the product, he should stick to the commitment for the full term.Jain: One should get his insurance needs assessed by a professional based on his present living standard, present age, the age at which one wants to retire, number of dependents, life expectancy level. We suggest a person should get his insurance needs assessed through a Certified Financial Planner - one should be adequately insured, neither less nor more.One should buy his insurance term so as to co-terminate with his retirement age. Once a person retires and stops earning he does not have to have any insurance as financial dependency of the family comes to an end.What are the common mistakes that investors make while buying life insurance?Bajaj: The biggest mistake one does while buying a life insurance product is that he buys from the tax saving perspective whereas it is the incidental benefit and should not be the only base in forming a decision. One has to align his financial goals with the life insurance product he is buying. Worldwide majority of the long term savings are primarily done through the life insurance route.Jain: Not disclosing material facts while filling up the insurance proposal form. Normally the insurance agent proposes and fills in the proposal form.One should fill in all the details himself in the insurance proposal form. One should disclose the facts correctly and honestly. Even a small mis-statement on your part can jeopardize the claim in the eventuality of the death of insured.One should not mix insurance and investment at all.If one does not understand investment, there are very simple products like PPF and post office small saving products which combined with term plan will give you better returns any day.
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The rupee bounced more than 1 per cent on Wednesday after suspected RBI intervention, a day after the currency had slumped to an all-time low, but global risk aversion meant the Indian unit would remain under pressure in the near term.Foreign funds have been pulling out of shaky stocks over the past week and oil refiners who import about three-quarters of India's crude consumption have been heavy buyers of dollars in recent sessions.The rupee rebounded as much as 1.7 per cent to 51.70 per dollar from the day's low of 52.60 after state-run banks, who often act on behalf of the Reserve Bank of India (RBI), were spotted selling dollars."Lots of selling from state-run banks ... it has to be the RBI, no one else would sell like this," a senior dealer with a foreign bank said.RBI Governor Duvvuri Subbarao, reached by reporters in Hyderabad, declined to comment.Sudarshana Bhat, head of foreign exchange trading at state-run Corporation Bank, said market talk that a separate window would be opened by the RBI for oil refiners to buy dollars directly also led to unwinding of long dollar positions by large companies.By 11:30 am (0600 GMT), the rupee pared the rise and was trading at 52.02/03, 0.5 per cent stronger than 52.2950/3050 at close on Tuesday when it had hit a record low of 52.73 during trade."Today's recovery only seems like a temporary relief for the rupee," Bhat said. "Everyone from the finance ministry, government officials as also central bank officials are talking about the rupee off late, but we need to see what steps these regulators actually take."Risks RemainThe Reserve Bank has always maintained that it does not protect any particular level on the rupee and would only intervene to iron out excessive volatility.Subbarao had said on Tuesday the RBI was watching the situation and would ensure the exchange rate does not impair economic stability.Finance Minister Pranab Mukherjee on Tuesday blamed the fall in the rupee on the international market and said that central bank intervention would have a limited effect.Sensex was trading down more than 1.5 per cent on gloomy global economic outlook adding to slowing domestic growth.Foreign funds have sold more than Rs 2,340 crore worth of shares over five trading sessions till Monday, reducing the net inflows in 2011 to under Rs 1,560 crore, sharply below record investments of more than Rs 150,800 crore seen in 2010.Exposure to short-term portfolio flows, a rising oil import bill and worsening government finances have heightened the risk for the rupee, Asia's worst-performing currency this year.The rupee has lost 14 per cent of its value in 2011 to be the worst performing currency in Asia with the closest second being the Thai baht, which has lost only 3.5 per cent."I think the rupee may stabilise around current levels. It may head back towards 52.5 in the near term but if we see a bounce back again from those levels, then 51.50-52.50 could be the near-term range," Corporation Bank's Bhat said.(Reuters)
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Amid concerns over a slowdown in economic expansion, a research report has said that a fall in the growth rate to 7 per cent could drag the stock market benchmark Sensex to as low as 14,500 points by next fiscal.The report by global financial services giant Deutsche Bank, however, asserted that the long-term growth prospects of the Indian economy remained intact and an average growth rate of 8 per cent was expected in the next two years.But, factors like weakness in the investor expectations for the country's economic expansion and corporate earnings growth could nudge the investment community into a cautious posture.Seeking to evaluate the impact of any slowdown in economic growth rate on the stock market, Deutsche Bank said that a fall in GDP growth rate to 7 per cent in the next fiscal (FY2012-13) would result in a corresponding fair value range of 14,500-16000 for the BSE Sensex.The Sensex is currently trading near 17,500-point level and has not slipped below 15,000 points for more than two years, or since August 2009.The index had traded over 21,000-points in November 2010, but has been sluggish for past few months and touched its 52- week low of 15,745.43 points about a month ago on October 4.The country's economic growth has averaged 8.4 per cent over the past five years. Barring the global financial crisis period of 2008-2009, the average growth rate for past five years has been 9 per cent.Deutsche Bank said that India's position as one of the most rewarding market across the world in the past five years could see some value-erosion in the event of slower GDP growth and declining corporate earnings growth rates."Over the past few months we have seen a 260 basis points compression in India's PE (price-to-earnings) valuation, driven by rising risk aversion (due to global factors) and worries over policy uncertainties," it added.The market has witnessed heavy volatility in recent past and the Sensex has registered a dip of over 14 per cent so far this year and has fallen by about 17 per cent from its 52-week high of 21,108.64 points scaled on November 5, 2010.Deutsche Bank said that the risks were growing for a slowdown in the country's medium-term economic growth trajectory towards 7 per cent, due to concerns over policy uncertainties, conflicting demands and compulsions of a popular democracy and India Inc's growing despondency.However, these risks would decline considerably if global commodity prices cool down and policy actions are undertaken for addressing supply-side bottlenecks in coal, preventing any runaway increase in fiscal deficit and there was an improvement in India Inc's business confidence and inclination to invest.
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The Reserve Bank of India cut cash reserve requirements for banks by 50 basis points on Tuesday to ease tight liquidity, signalling a policy shift towards reviving growth after nearly two years of fighting inflation.The 0.5 percentage point CRR cut will inject Rs 32,000 crore into the system, but the measure may not lead to immediate reduction in EMIs for borrowers.With core inflation still stubbornly high, the RBI as expected left its policy repo rate unchanged at 8.50 per cent for the second consecutive review.While RBI "shifted" the policy stance from inflation to growth which faces downside risks, borrowers reeling under high interest rates can draw solace from the announcement that "future rate actions will be towards lowering them".However, the interest rate cut (repo rate) would depend on the government disciplining its expenditure, RBI said.The central bank had raised rates 13 times between March 2010 and October 2011, which made it one of the most hawkish central banks anywhere.Addressing concerns over decelerating growth, upside risks to inflation and tight liquidity conditions, the central bank has left banks with more resources for lending through CRR cut, which will come into effect from January 28."The growth-inflation balance of the monetary policy stance has now shifted to growth, while at the same time ensuring that inflationary pressures remain contained," RBI Governor Duvvuri Subbarao said in his policy statement.Despite a sharp reduction in food prices, RBI took a cautious view and refrained from reducing interest rates."Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate," RBI Governor D Subbarao said adding March end inflation would be 7 per cent.RBI lowered growth projection for 2011-12 to 7 per cent from 7.6 per cent in view of global slowdown and domestic policy constraints. The new CRR rate would be 5.5 per cent.The stock market reacted positively to the policy announcement and the banking stocks, in particular, shot up.Subbarao warned that unless the government contains its fiscal deficit, rate cut is not possible. "In the absence of credible fiscal consolidation, the RBI will be constrained from lowering the policy rates...the forthcoming budget must ...begin this process in a credible and sustainable way".Bond, Swap Markets HappyBond and swap markets initially applauded the cut in the cash reserve ratio (CRR) before disappointment that there was not definitive guidance on a policy rate cut pushed bond yields and swap rates higher. The BSE Sensex, however, was sharply higher, rising as much as 1.66 percent on the day, powered by bank shares."RBI has clearly said growth concerns have come center-stage despite lingering inflationary pressures," said Sumedh Deorukhkar, senior economist at BBVA in Mumbai, who expects a 25 basis point cut in the repo rate at the RBI's next review on March 15 and a combined 150 bps in cuts by the end of 2012.Expectations had grown in recent days that the RBI would cut the cash reserve ratio, the share of deposits banks must hold with the central bank. The cut on Tuesday lowered CRR to 5.50 percent and releases 320 billion rupees of liquidity into the banking system.Inflation Worry PersistsThe RBI kept to its hawkish stance long after most central banks shifted their focus to growth, as inflation in India remained high due to elevated food prices, infrastructure bottlenecks, and an expansionary fiscal policy that pushed up rural spending power and strained government finances.Annual headline inflation, measured by the wholesale price index, slowed to a two-year low of 7.47 percent in December, thanks to a sharp decline in food inflation.However, manufactured product inflation edged up from the previous month, and the RBI said in a report on Monday that the two drivers of rate policy will be core inflation and the impact of exchange rate changes on inflation.The 16 per cent drop in the rupee in 2011 has made imports even more expensive."Our sense is that the cut in cash reserve ratio is a reaction to the acute liquidity deficit that is persisting. As far as the inflationary situation is concerned, it has not materially changed apart from some softening in food prices," said Sujan Hajra, chief economist at Anand Rathi Securities.Subbarao reiterated his call for more fiscal discipline from New Delhi, which is widely expected to fall far short of its deficit-cutting target for the current fiscal year."In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending," Subbarao said in his report.C. Rangarajan, chairman of the prime minister's Economic Advisory Council, told TV channels that the RBI should cut interest rates only when there are definite signs of non-food inflation easing.As expected, the RBI lowered its GDP growth forecast for the fiscal year that ends in March to 7 per cent from 7.6 per cent, and left its wholesale price index inflation target unchanged at 7 per cent for the end of the fiscal year in March.Asia's third-largest economy grew 8.5 per cent in the previous fiscal year. The RBI said it expected a "modest" recovery in growth in the fiscal year that starts in April, and said that while inflation may ease, price pressures persist."Upside risks to inflation arise from global crude oil prices, the lingering impact of rupee depreciation and slippage in the fiscal deficit," it said.CRR SignalTuesday's CRR cut should be seen as a signal of easing intent, Subbarao said."The reduction can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them," Subbarao said, adding that it was premature to cut the policy interest rate based on the current inflation outlook.On Monday, Indian banks borrowed 1.42 trillion rupees from the RBI's repo window, more than double the 600 billion rupees that would indicate a liquidity deficit of 1 percent. The RBI's guideline is for liquidity deficit or surplus within 1 percent of aggregate deposits."Banks will now have access to more money. They might still do selective lending, but the environment will improve, which is right now fully chocked," Tapash Majumdar, chief financial officer at infrastructure builder C&C Constructions.(Agencies)
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