We may witness a minor rally on domestic bourses
The market was down to its two-month low as the Greece debt crisis sent jitters among investors. The Sensex ended at 16,987, down 100 points (0.6%) and the Nifty ended at 5,090, down 34 points (0.6%). The bourses were down in the early session on weak global cues. However, they staged a strong recovery in the afternoon session. At the late trading session the market slid to pare some of its gains posted in afternoon trading.
Asian stocks was down on Thursday on concerns that the Greek deficit crisis may spread through Europe after Moody's Investors Service placed its credit rating for Portugal on a review for a possible downgrade. Key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan fell by 0.5% to 3.27%. The Shanghai Composite lost 4.11%.
US stocks were down on Wednesday on concerns that the Greece debt crisis could spread to bigger European economies. However, generally positive data on the US private sector job market and the economy's services sector limited the slide. The Dow was down 58 points (0.54%) to 10,868. The S&P 500 fell 7.7 points (0.6%) to 1,167. The Nasdaq Composite lost 22 points (0.9%) to 2,402.
Fed Chairman Ben Bernanke will speak today at the Chicago Fed's 46th annual conference on bank structure and competition. The US weekly jobless claims data and April sales reports from chain stores is also due today. The European Central Bank is likely to hold interest rates at existing levels. European laws prevent ECB to buy government bonds directly from the government; however, it can buy second-hand bonds from the banks.
The wholesale price index is expected to fall 6%-7% within three months, the finance ministry's chief economic adviser said on Thursday. India’s annual wholesale inflation rose to 9.9% in March, compared with the 9.89% rise in February and 1.2% a year ago. The food price index rose 16.04% in the 12 months to 24th April, slower than an annual rise of 16.61% in the previous week, government data showed on Thursday. The fuel price index rose an annual 12.69%, same as the week ago.
Wheat stocks have increased more than seven times the target; however, the ban on wheat exports is still on. Wheat stocks on 1st May were at 30.8 million tonnes (MT). The government has decided to give 3MT of subsidised grains in aid to states for the next six months.
Foreign institutional investors were net buyers purchasing stocks worth Rs1,589 crore. Domestic institutional investors also bought stocks of Rs691 crore. The rupee rebounded from its low on possible dollar selling by the Reserve Bank of India (RBI).
JSL (up 1.6%) plans to set up a 1320MW (660x2) super critical power plant at Luni, Orissa. D-Link (up 8.3%) has launched a green managed switch—the D-Link Green 24 port managed gigabit switch. EIH (up 1%) plans to acquire 45.85% equity in Amex Investment, through its international hotel joint venture company, EIH Holdings Ltd British Virgin Islands for $45 million.
IRB Infrastructure Developers (down 1.5%) has said that it has emerged as the preferred bidder for the design, build, finance and operation of the six-laning of the Tumkur- Chitradurga section from 75km to 189km of NH 4 in Karnataka. The project is on a premium basis with a concession period of 26 years. The company has to pay a premium of Rs140.40 crore for the project to the National Highways Authority of India (NHAI) in the first year.
Developers are busy constructing six feet wide flower-beds in their properties for hiking FSI
Developers in Mumbai are vigorously using the super-built up area and misleading consumers. In November 2008, the Maharashtra government came up with a housing policy which stated that sales of all properties should be done on carpet area basis. However, developers still do not sell the properties on carpet area basis because they get a chance to play with the free Floor Space Index (FSI) areas by including it as part of the super built-up area and they charge the consumers for the same.
The regulation was supposed to become a law within three months of the draft legislation. By March 2009, it should have been a law, but it is not being followed. Builders are still constructing properties on super built-up basis without passing on the benefit of the free FSI to consumers.
“The Brihanmumbai Municipal Corporation (BMC) only allows four feet flower beds,” said Pranav Desai, a Mumbai-based architect.
Most new properties have huge spaces dedicated towards flower beds, which are given to the developers free of FSI. “Today developers are talking of flower beds, which are 12 feet wide—how can you call it a flower bed? Developers are bucking the system openly and blatantly and no one is telling them anything,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.
If you glance through the brochures of various developers, you will come across a common feature—they mention the super built-up area, built-up area and (in brackets) the carpet area. They are following the law, but only indirectly. One high-rise at Peddar Road, south Mumbai, has not received the occupation certificate because all the balconies are flower beds, which are approximately six feet wide.
An industry expert pointed out that after the law was passed, all the properties have to be sold on a carpet area basis. However, a few developers have cleverly converted the total built-up area into carpet area, which has eventually raised the price of the property. It has not made any difference to the developers, but consumers have had to suffer.
“Developers have drastically raised the super built-up area of the new properties. From 50% super built-up area, it has almost reached 100%,” said Pankaj Kapoor, founder, Liases Foras.
However, with the increase in super-built up area, the cost of properties has also doubled over a period of time. Consumers are getting lesser space at a higher cost. For example, if an apartment of 1,000 sq ft carpet area had a saleable area of 1,400 sq ft in Kandivali (a Mumbai suburb) in 2005, at that time, the apartment was priced at Rs2,500 per sq ft. The total cost came to Rs25 lakh. But now, an apartment of 1,000 sq ft is quoted as 2,000 sq ft saleable area. Taking the current cost into consideration, it is priced around Rs8,000 per sq ft. The total cost of the apartment has jumped to Rs1.60 crore.
Despite government initiatives, the NPS has not generated enough interest among the masses. What needs to be done to prop up this excellent scheme?
Investors have not responded with much enthusiasm to the ‘Swavalamban’ initiative extended by the government under which it will contribute Rs1,000 per year (for a period of four years) to every New Pension Scheme (NPS) account opened this year with at least a matching contribution from the subscriber. Citizens in the non-government segment continue to abstain from investing in the NPS. The number of non-government subscribers to NPS registered as of 30 April 2010 has touched 5,532. Although the figure is more than double that of October 2009 when non-government subscribers were 2,321, the absolute numbers are still small.
The total central government employees registered under the NPS have gone up to 6,09,376 from 5,38,276 in October last year. However, there has been a large increase in numbers from among the state government employees during the same period. The number of subscribers under this category rose to 2,55,903 from the earlier 1,10,024.
An officer from one of the point of presence service providers (PoP-SP) pointed out that there have been no significant additions since the budget announcement. He said, “The momentum has not picked up much despite various initiatives from the government and banks. We have been told that this product should be bought and not sold. So we are not expected to advise customers in any way. The policy is that we wait for the customers to approach us. We are fully equipped and ready to accept subscriptions in the NPS.”
Incidentally, this PoP-SP has commissioned more than 300 of its branches to provide NPS registration facilities to the subscribers. Several other banks have also mobilised a chunk of personnel and designated a part of their infrastructure for catering to the NPS subscriptions. Another PoP service provider confirmed, “Although there is an improvement in the NPS accounts, it is not as much as what was expected.”
Commenting on what needs to be done to popularise the scheme, the official stated, “We need to approach private sector companies and talk to employees about the benefits of the scheme. The government could also probably offer a minimum dividend or guarantee as people may be worried about what they will end up with after so many years. Things will change if the scheme assures a minimum return.”
Speaking about the possible actions being considered to promote the scheme, an official from the Pension Regulatory and Development Authority (PFRDA) said, “The Swavalamban initiative has seen a slow and steady rise from the earlier rate of enrolment. The first phase of implementation is almost over. We are now looking at various promotional and monetary incentives for enrolment. We are considering media campaigns and strengthening the regulatory mechanism through monitoring the PoPs more closely and how to make them promote the scheme better.”
The still lukewarm response to the NPS is unfortunate considering that it is a product that is actually tailor-made for the requirements of the masses. It is among the least expensive balanced investment products in the market and the cheapest pension product in the offing, which would make a huge difference to long-term wealth.
Lack of confidence in the product is also a mitigating factor. Investors are wary about how much they will end up with after the contribution period. Investors should be advised by the PoPs regarding the portfolio allocation to debt and equity before investing. Awareness among the masses still remains a concern for the pension regulator and hence, its plans to promote the scheme need to take shape for the NPS to achieve its true potential.