Delicately Poised

A downmove is quite probable

During the week, the Indian market remained highly volatile. The Sensex managed to gain only 17 points over the entire week. It has been a frustrating wait for investors hoping for a breakout above 17,400. We may see a dip to below 16,500 before the next leg up. On Monday, 7 December 2009, the Sensex declined 118 points, ending the day at 16,983, while the Nifty declined 42 points to close at 5,067. During trading hours, finance minister Pranab Mukherjee said that the government has not issued any directive to State-run banks on consolidation and it was up to the banks themselves to decide on mergers.

Reserve Bank of India deputy governor Subir Gokarn said on Saturday that a persistent rise in food prices may raise broader inflationary expectations and the central bank is looking to strike a balance between supporting growth and taming inflationary worries. The exit from an easy monetary policy is a “graded” process and economic growth alone will not determine its pace, he said. On Tuesday, 8 December 2009, the Sensex gained 245 points, ending the day at 17,228, while the Nifty closed at 5,148, up 81 points.

During trading hours, the government said that it will seek Parliamentary approval to spend an extra Rs25,725 crore ($5.5 billion) for the fiscal year to end-March 2010. The gross additional expenditure would be Rs30,943 crore, of which Rs5,217 crore would be met through savings, the government said.
The government will spend an extra Rs3,000 crore on fertiliser subsidies and Rs3,460 crore on food subsidies. The government would also spend Rs800 crore on an equity infusion in State-run carrier Air India.

According to Mr Mukherjee, the government will complete share sales through public offers in three State companies by the end of March 2010. Divestment of 5% each in NTPC and Rural Electrification Corp and 10% in unlisted Satluj Jal Vidyut Nigam is under implementation and there is a need to adhere to fiscal prudence as early as possible, he said.

As per media reports, Reserve Bank of India (RBI) governor D Subbarao said that measures to control capital inflows into India could not be ruled out in case there was a surge in foreign funds that had to be contained. The RBI governor said that he was not willing to debate at this time on the instruments or timing, as this would depend on how the situation evolves.

Meanwhile, the government has partially lifted the ban on rice and wheat exports by allowing organic varieties of these grains for overseas sale, as per reports.

According to the Manpower Employment Outlook Survey, India Inc is all set to step up hiring in the last quarter this fiscal as employers are more optimistic than their counterparts in other nations. The survey said brisk hiring is anticipated by Indian employers during the upcoming quarter.

It further added that with 38% of employers expecting total employment to increase, 2% forecasting a decrease and 53% predicting no change, the net employment outlook is a robust 36% and once seasonal adjustment is added to the data, the outlook stands at 39%. On Wednesday, 9 December 2009, the Sensex closed at 17,125—102 points down from the previous day’s close—while the Nifty declined 36 points, ending the day at 5,112.

According to Mr Mukherjee, the government does not need to borrow more than planned to fund its additional proposed expenditure. The government said on Tuesday that it would seek Parliamentary approval to spend an extra Rs25,725 crore ($5.5 billion) for the fiscal year to end-March 2010. The gross additional expenditure would be Rs30,943 crore, of which Rs5,217 crore would be met through savings, the government said. The government will spend an extra Rs3,000 crore on fertiliser subsidies and Rs3,460 crore on food subsidies. The government would also spend Rs800 crore on an equity infusion in State-run carrier Air India.

Meanwhile, the RBI may reportedly ask banks to impose a ceiling on their investments in mutual funds and also prescribe norms for such investments, as it attempts to tighten rising exposure and rein in deployment of banking funds indirectly in sectors or companies to which banks could not lend directly due to exposure limits.

According to data from the Society of Indian Automobile Manufacturers, car sales in India rose an annual 61% to 1,33,687 units in November 2009 over November 2008.

Sales were boosted by improved consumer sentiment, easier availability of loans and a low sales base a year earlier, an industry body said. Sales of trucks and buses, a gauge of economic activity, doubled to 40,847 units in November from 20,631 a year earlier, data showed. On Thursday, 10 December 2009, the Sensex gained 64 points from the previous day’s close, ending the day at 17,189, while the Nifty closed at 5,135, up 23 points.

During the day, D Subbarao said that capital flows into India are in line with requirements and as of now there is no concern of the flows building asset price bubbles. If and when there are excess capital inflows, the apex bank will have to respond to that situation, he added.

After trading hours on Wednesday, RBI said that it would withdraw from 1 January 2010 some concessions on overseas borrowing for Indian firms introduced during the global credit crisis, although it also eased rules for the infrastructure and telecom sectors.

A facility for Indian companies to buy back their foreign currency convertible bonds under the automatic route and approval route would be discontinued from January 2010 due to the improvement in the equity market. The central bank said that it would allow non-banking financial companies which are focused on financing infrastructure projects to borrow from overseas markets under the approval route. It also extended by a year a rule which allowed firms involved in developing integrated townships to borrow overseas. The central bank also allowed telecom firms to access overseas markets to fund their bids for 3G spectrum, effective immediately. The government plans to auction 3G spectrum in January 2010.

On Friday, 11 December 2009, Indian markets came under huge selling pressure after industrial production growth—though robust at 10.3%—fell below market expectation of a growth of 13%-14% for the month. The Sensex declined 70 points from the previous day’s close, ending the day at 17,119 while the Nifty closed at 5,117, down 17 points.

According to the latest data from global fund tracker EPFR Global, emerging market equity funds received $2.30 billion in inflows for the week ended 9 December 2009, bringing 2009 inflows to $75.40 billion. Emerging-market funds are heading for record annual inflows in 2009. The previous record was $54 billion in 2007. Among the largest developing nations, Russian stock funds saw inflows rise to a seven-week high of $181 million while Indian equity funds absorbed $128 million, EPFR said.

As per the data released by the government, industrial output jumped 10.3% in October 2009 from a year earlier, helped by stimulus measures and robust domestic demand. Manufacturing output rose 11.1% in October 2009 from a decline of 0.6% a year earlier. September’s annual industrial growth rate was revised upward to 9.6% from 9.1% previously. Andimuthu Raja, communications minister, said that the government would conduct the auction for 3G wireless spectrum as scheduled. The auctions are slated to be conducted on 14 January 2010.



Twisted logic of MetLife’s Wealth Plus

The deluge of schemes offered by mutual fund houses, insurance companies and other financial services providers have only served to confuse investors rather than easing their troubled minds. Various schemes with colourful names have been vying for investors’ attention, without actually offering a glimpse of respectable returns on investment. While returns have been scant at best, product offerings have adopted fancier propositions, with service providers desperate to sell at all costs. What is compromised is the investors’ real need. 

The latest example is a brand new offering from MetLife India. Its product, MetLife Wealth Plus, is another unit-linked offering that claims to provide a cost-effective wealth-creation solution for customers. But MetLife, which positions itself as a one-stop-shop for all customer needs, has trouble distinguishing which products serve what particular needs of the customer and how its offering meets those needs. MetLife’s sales strategy is a testimony to this.
Moneylife Digital has seen an internal presentation that shows how agents and sales teams are indoctrinated in selling unit-linked insurance plans (ULIPs) by highlighting the positive aspects, running down a competing product and presenting some half-truths. The presentation is in the form of check boxes under which mutual funds are shown as products designed to meet the short-term savings needs of the customer. Even lay investors would be aware that mutual funds are meant to provide capital appreciation over the medium- to long-term. Also, while MetLife considers ULIPs not to be cost-effective, as per its internal presentation, it still argues that MetLife Wealth Plus is cost-effective, while the product is just another ULIP. The presentation does not explain how this is so.
The Met Wealth Plus plan claims to be cost-effective while providing good returns, liquidity and tax benefits to the customer. Add to this, it offers a guaranteed minimum return of 5%, five years from the end of the subscription period. This is only designed to meet the widespread customer worry about the safety of the principal amount. Of course, even when the product claims to provide a liquid and cost-effective avenue of investment, the costs associated with surrendering the policy are quite high, if one has not paid the requisite annualised premiums. This is not highlighted in the presentation, but the guarantee is.
The guaranteed return also tilts the field against a better investment product, mutual funds. The current perverse regulations allow insurance companies to provide a guarantee on ULIP products but mutual fund schemes have not yet been given such leeway. Customers easily fall for this ploy, without realising that this really means little to two products both of which would have the same stock market exposure. Despite repeated efforts, we could not get MetLife to respond to this story.



G Vijaya Kumar

5 years ago

I had some bitter experience with Metlife, that initially I preferred for a single term policy but issued with a term policy. Further on querying about the mismatch of my needs they simply evaded my question with a standard answer that the free-look periode over even they had committed several mistakes in the processing of related documents. On being asked for surrender benefit as per the policy terms and conditions, in which some literary mistake/omission committed by the company, they cleverly said that it will be read as conversely though the policy terms and conditions is an indemnified one. The IRDA also becomes a mere spectator as well as the insurance ombudsman who rejected my complaint merely stating that it is not coming in to his purview. The ombudsman till date not replied my mail for the exact reason to reject my complaint. If this the situation where will be end answer for such fraudulent business practices. For the past two years I am fighting with the company for surrender benefit as p[er the terms and conditions.


5 years ago

Use the "free-look" period to your utmost advantage - that is the only arrow in the quiver of an ordinary customer...

In my case, I was thankful to insurance company for pathetic customer service (not even sending the policy document on time), which led me to cancel the policy as soon as I received it. Cheers!

Arhant Jain

7 years ago

What a scam and what a shame. Each instance of Mis-selling found should lead to compounded penalties levied to these firms


7 years ago

I have been thru this farce. In my case it was Tata-AIG that I got wacked by and the benificiary was my Banker, HSBC, who had hawked the ULIP. It seems the the scam was imported by the US counterparts whose names appear to give a sense of honest dealings - and we fall for the farang names and never read the very fine print. Is it a wonder that they think India is "untapped" .

Legislative ambiguities hinder formation of LLPs

Individuals who wish to get Limited Liability Partnership (LLP) status are having a tough time dealing with compliance issues. The LLP Act, passed in 2008, has only seen 426 registrations so far. 

Although applicants can register and download their forms from the LLP portal, the required Designated Partner Identification Number (DPIN) can only be received from the Central government in New Delhi.
An individual has to make an application electronically via Form 7 (available on the LLP website) to the Central government for obtaining a DPIN upon which a provisional DPIN is issued. After receiving this provisional DPIN, an application to the Central government has to be made within 60 days along with the requisite fees to obtain a regular DPIN.
“There are certain compliance norms which can only be completed in New Delhi. If the process is decentralised, then it would be much easier and faster (to register an LLP). Moreover, people are not aware of the newly-amended law and its implications,” said Siddhartha Shah, of Siddhartha Shah & Associates.                                                                         
“A chartered accountant’s firm cannot convert into an LLP unless the Institute of Chartered Accountants of India (ICAI) gives its permission. When the Chartered Accountancy Act was enacted in 1949, there was no concept of an LLP. There is no provision in that law for CAs to be a part of an LLP,” said Ameet Patel, partner, Sudit Parekh & Company.  
“Tax clarifications have only come recently. There are still lurking doubts about the law. There is negligible demand from individuals opting for an LLP,” adds Mr Patel.
“Approval of a name for an LLP is proving to be a tough task, given that the concerned registrar conducts a search of the Trademark Registry’s database in India (for allotting a name). So, if the proposed name is in existence, say, in the UK, the registrar may not allow the proposed name,” said Sharada Balaji, founder of NovoJuris Services.
An LLP is taxed like a general partnership firm under the Indian Partnership Act, 1932. The entity is taxed, and the income in the hands of the partners is exempt from tax. However, in a company, the income is taxed at the entity level and tax is again paid on the dividend given to shareholders.
“The industry was hoping that the LLP would be a pass-through entity for taxation, like many other countries. Venture capital and private equity firms would have been a happier lot had the LLP been allowed as a pass-through to taxation at the entity level,” added Ms Balaji.
Currently, minimum alternate tax (MAT) is not applicable to LLPs.
The advantage of forming an LLP is that an individual’s liability is limited to the extent of the capital contribution. Only two members are required for forming an LLP and there is no upper limit on the number of members.
LLP can be useful for small and medium enterprises because the cost of forming an LLP is lower, and there is no requirement for minimum capital contributions. Partners are not liable for the acts of other partners in the LLP and the entity can be easily dissolved. The maximum cost of registering an LLP is only Rs7,000.
Moreover, books of accounts of an LLP have to be audited only if the contribution is above Rs25 lakh or if annual turnover exceeds Rs40 lakh. However, an LLP cannot raise money from the public.



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