Fortnightly Market View: A Foggy picture

On Friday, 14th May, the Sensex fell 317 points, closing well below 17,000. All the talk of bullishness around us leaves us with a feeling that the market is gradually trending up. This is similar to the situation from September last year. The Sensex closed at 17,127 on 30th September, despite a huge post-Budget rally and thousands of crore of institutional investments having poured in for months together.

That is worrying. If the market cannot stage a strong rally from here, we will face another down-leg—towards 16,000. Long-term investors may assume that this does not change anything. They are confident that the India growth story is in place, corporate performance will be good and the market’s overvaluation is gradually getting corrected. This may be true in a normal situation. However, we are not even sure whether we are in a normal situation.

The market was up 1% over the week supported by a huge rally on the first day of the week on concerted efforts of the Eurozone to help the weak nations to come out of the debt crisis. This was followed by a correction on Tuesday, which can be termed as factoring out the measures taken. While trading was range-bound for the next two days, it sharply plunged on the last trading day of the week on concerns that the measures taken by the Euro nations to curb the fiscal deficit would impact the economic growth of these nations.

Among the top gainers on the BSE Sensex during the week, auto majors Tata Motors and Mahindra & Mahindra (M&M) jumped 6% each, HDFC Bank surged 6%, while DLF and Reliance Infrastructure (Reliance Infra) gained 5% each.

The top losers on the benchmarks were Cipla and Bharti Airtel, down 8% each, Reliance Communications (RCom) was down 6%, while metal majors Sterlite Industries (India) and Tata Steel shed 2% each.

In the sectoral space on the BSE, realty and auto indices were the top gainers, advancing 4% each. On the other hand, capital goods and metals ended flat with a negative bias.

India’s sugar output is likely to rise to 24-25 million tonnes in 2010-11. Domestic consumption was about 22-23 million tonnes while production was only 18.5 million tonnes in 2009-10. 

The food price index rose 16.44% in the year to 1st May, above the prior week's annual rise of 16.04% on the rise of vegetable prices as a heat wave in the country damaged perishable foods, government data released on Thursday showed. The fuel price index stood at 12.33%, down from the previous week's annual rise of 12.69%, while the primary articles’ index was up 16.76%, compared with the previous week's reading of 13.93%.

The annual wholesale price index was 9.59% in April from a year earlier, which is lower than 9.9% in March’s data and 10% in February. 

The chief economic adviser suggested the Reserve Bank of India’s (RBI) intervention to counter the rupee’s appreciation against the dollar. The rupee’s rise against the greenback has put huge pressure on the exporters. In 2009-10 the rupee has strengthened 12.6% against the dollar and 8.3% against the euro year-on-year.

India has secured a contract of buying 4.7 million tonnes of the soil nutrient at $370 per tonne for FY 2011 with an option to buy more, nearly 20% cheaper than the previous year’s price. The country also imports most of its di-ammonium phosphate (DAP) requirement and has tied up for 7 million tonnes DAP at $500 a tonne.

Industrial output grew slower than expected 13.5% in March from the year-ago period. The slow growth is because of the partial withdrawn of stimulus measures and an increase in interest rates. The Planning Commission however believes that the slowdown in the March industrial output will not affect the GDP of FY 2009-10.  RBI said that the capital account will be opened gradually and there is no plan of imposing Tobin tax to curb currency speculation. Tobin tax is a transaction tax on currency conversions intended to curb volatility and speculation. The capital account convertibility is integrally attached with the broader goal of economic growth. However, RBI also expressed its preference for long-term equity flows over the short-term debt flows.

In the global arena, US market regulators and six major exchanges accepted the need for new safeguards to curb trading in plunging markets, an effort to address last Thursday’s mysterious market freefall.

The European Union (EU) agreed to a loan package, along with International Monetary Fund (IMF) support, to stop a credit crisis in Europe. The European rescue plan, valued at more than $900 billion (€720 billion), has three main components. The biggest provision at nearly $570 billion (€440 billion) takes the form of government-backed loans to regain confidence in the weak credit markets. A second measure is the expansion of a $77 billion (€60 billion) stabilisation fund, which will be available to Eurozone states facing exceptional circumstances. Finally, the IMF said that it would contribute $284 billion (€220 billion). The European Central Bank (ECB) will buy eurozone government bonds and private debt. The IMF said that Greece's public debt is sustainable over the medium-term; however, low growth could be a setback for the country.



Weekly Market View: A Rough patch ahead

A fresh downturn may have started

The market was down on concerns over the tough austerity measures taken by eurozone nations, which may slow down the global economy. The Sensex ended at 16,994, lower by 271 points (1.5%) while the Nifty shut at 5,093, lower by 85 points (1.6%). The bourses started the day with an initial gain. However, they pared their gains around noon with weak European equities dragging the indices lower. Bank, realty and metal stocks were down.

Asian stocks recovered from an initial fall triggered by an overnight decline on Wall Street. Key benchmark indices in Indonesia, South Korea and Taiwan were up by 0.02% to 0.24%. On the other hand, benchmark indices in Singapore, China, Hong Kong and Japan fell by 0.39% to 1.49%.

US stocks were down on Thursday as downbeat comments on the economy from Cisco Systems and retail chain Kohl’s Corp shadowed concerns over the economic recovery. The Dow dropped 114 points (1.05%) to end at 10,783.

The S&P 500 fell 14.23 points (1.2%) to 1,157. The Nasdaq lost 30.66 points (1.26%) to close at 2,394. US central bankers said that the promise to hold the interest rate lower for an extended period depends on the economic conditions. 

Back home, India's foreign exchange reserves fell to $276.23 billion as of 7th May, from $279.63 billion a week earlier, the Reserve Bank of India (RBI) said in its weekly statistical supplement.

India has secured a contract for buying 4.7 million tonnes of soil nutrient at $370 per tonne for FY2011 with an option to buy more, nearly 20% cheaper than the previous year’s price. India also imports most of its di-ammonium phosphate (DAP) requirement and has tied up for 7 million tonnes DAP at $500 a tonne.

The chief economic adviser suggested that the RBI may intervene to counter the rupee’s appreciation against the dollar. The rupee’s rise against the greenback has put huge pressure on exporters. In 2009-10, the rupee had strengthened 12.6% against the dollar and 8.3% against the euro year-on-year.

Foreign Institutional Investors (FIIs) were net sellers, offloading stocks worth Rs15 crore. On the other hand, Domestic Institutional Investors (DIIs) were net buyers, purchasing stocks worth Rs222 crore. The rupee was down on the weak equity market and the greenback’s strength against the euro.

HDFC (down 1%) has extended its concessional home loan scheme till 30 June 2010. As per the scheme, the housing finance major would offer a fixed interest rate of 8.25% up to March 2011; 9% for the next one year and a floating rate thereafter. Reliance Industries (RIL) (down 2.6%) will join the ONGC-led consortium that may get rights to oil fields located in the Orinoco belt of Venezuela. RIL did not take part in an earlier consortium led by Indian State-owned oil companies, which won the $20-billion Carabobo 1 oil block in Venezuela as it was busy trying to tie up the LyondellBasell acquisition. 

Infosys (down 1.6%), Mahindra Satyam and unlisted company Cognizant have been shortlisted by UK's National Grid, which manages the country's natural gas and electricity networks, for an outsourcing contract. Seven offices of Parsvnath Developers (down 2.6%) in Delhi and the National Capital Region (NCR) have been searched by the Income-Tax Department. Oil PSU stocks were in demand as crude prices are on the lower side. Light, sweet crude oil dropped $1.25 or 1.65%, to $74.40 a barrel on Thursday. Zensar Technologies (down 0.5%) has received a contract worth over Rs100 crore from a leading South African insurance company for a period of five years.






Insurance companies try to woo commission-starved mutual fund distributors

Many insurance companies are trying to empanel distributors whose earlier core business was mutual funds, especially after the ban on entry load on funds by SEBI

A few days back, a Chennai-based certified financial planner (CFP) allegedly received an email communication from Aviva Life Insurance detailing two business proposals from the insurer.

The first model is ‘Business Service Associate’ (BAS) under which one distributor has to refer at least one person to the company who can pass an Insurance Regulatory & Development Authority (IRDA) examination. The distributor who referred this person enters into an agreement with the company after which he gets a business code. The former gets an amount from all the business generated by the new agent.

Moneylife could not confirm from the company that such a communication emerged from their end. The Independent Financial Advisor (IFA) who received this proposal was not available for immediate comments either. Distributors contacted by Moneylife indeed confirm that various insurance companies have approached them with similar proposals in the past and they have refused to be part of such a deal. These distributors’ core business area was selling mutual funds (MFs). Since the ban on entry load by the market regulator Securities and Exchange Board of India (SEBI), smaller intermediaries who found it unviable to continue selling MFs have been gradually shifting towards insurance products, especially Unit Linked Insurance Plans (ULIPs), which offer better commissions.

“I sell only relationship and trust with my client. It will be very difficult to stay in the business if you start selling for the extra commissions. They had met me in my office. I have received several proposals like this, which I had refused,” said Thiru Murugan, CEO, Wealth Creation & Management Services.

The benefits of this business BAS model were detailed in the email are as follows: Distributor A gets an average 20% commission in the first year plus an additional overriding commission ranging from 30%-55% and around 5% from the second year onwards. The proposal also assured marketing and advertisement support for the scheme including reimbursements of stationery, phone and staff expenses.

The second proposal is ‘Corporate Alternate Database’ (CAD), also similar to the first plan. Unlike the first plan, here the distributor only has to refer a client to the company’s exclusive manager who advises the client. Here the IFA gets 20%-55% commission depending on the product bought by the investor. Financial advisors say that such business models are prevalent among many insurance companies.

While some intermediaries question the morals of such proposals, others say that if the business is done in a fair manner there is nothing to worry about.

Established distributors believe that they prefer not to work on a referral model as it can be detrimental to their long-term relationship with the client. Financial advisors say that insurance companies have been wooing them since more than a year and especially after the SEBI’s ban on entry load.

“These sorts of plans are business models with all leading companies with minor changes but the spirit is the same. I don’t see anything wrong as long as all people are properly licensed and you work as a team manager and licensed individuals work under your code,” said Vivek Rege, CFP, VR Wealth Advisors Pvt Ltd.
“It’s like you start a business and they fund it. They don’t want to manage a big team under them. Recruiting under payroll is becoming an issue. Since IFAs know the business well they want us to sell ULIPs. They want us to manage it because IFAs can motivate better,” added Mr Rege.

“They (insurance firms) have approached me for this. In fact, since the ban on entry load by SEBI in August, I started getting calls from insurance companies. I don’t agree with this concept. I don’t want to become empanelled just for the sake of business. When I told them about my view, they (insurance firms) never got back to me. Insurance companies are not interested in selling other products like term insurance. Commission is good but I run a risk of losing all my customers whom I know from quite some time,” said Harish Mohan, MD, Time Financials.



Tejas shah

6 years ago

Dear Mr.Roopsingh,
Please understand and compare all charges of Birla sunlife classic life premier with and other fund. The fund management charge is a killer as far as expenses are concerned with mf also. i have done it. I am proud to sell ULIP's and my clients are happy. Mr.Bhave made a mess by following what D.Swaroop said and applied in his system. Today PFRDA's NPS is bleeding very badly. There's no business even after so many benefits.


6 years ago

Mr Dilip,i guess u did not understand my point when i call my self a courier or rather messenger-just bcos we dont manufacture financial products-we are informed by the manufacrers about that product and we spread information-
do u think once top ranking JM basic,HDFC core and satellite,or ICICI emerging star funds will be beaten so severly?did any IFA had knowledge that these top funds will go in last rows -
we did not-and today also we cannot predict abt any funds or products performance-
this is bcos we are not in touch with those cos or bonds where the fund manager is putting money-
and there comes the real problem-
if we take responsibilty to a client abt any guarantee of performance of the fund in comparison to other benchmark funds-then we can be proved wrong-
we may be very very knowledgeble and expert about product history but we cant be sure of its future-
we can make only assumptions-
so advising is a real real tough job-which we try to do-but in doing this we are just spreading the products aming client base-
so i call ourselves as messengers-just like a medical representative gives advice to medical stores abt a medicine-but he can never give guarantee of success rate of medicine-bcos he is not manufacturing-he is just marketing-so our job is spreding and marketing financial products-
we should avoid any guarantee to our clients-either you call it advisory or you call it marketing-
but when we call ourselves advisor it becomes a matter of responsibilty which cannot be taken for mere1 or 2 % in this unceratin financial world-
i have written all this just so that we IFA do not get caught in any trouble with disputes to clients-if markets dont perform as per our assumptions-
i have adopted this strategy-and all others are free to awork in their style-choice is theirs-i hope you understand my point

rakesh bhatia

6 years ago

Suhas,whatever you stated is very polite and true-this has been conveyed to authorities several times and several ways-but why this has not been listend is a BIG SECRET-may be a bib big hidden agenda-
so lets wait for the time to come when deaf and blind authorities will accept their mistake of nullyfying the MF industry-
they will one day realise that this was a big mistake-
let the time come-those who trying to corner out the MF industry are yhose who are all culprits for bigger scandals-they have big skeletons hidden-some day justice will be done

Prem Panjwani

6 years ago

How can company aviva or any other insurance company can pay to two people for the one business I Mean one premium one to BAS and other the agent recurrited thru them_ how and what r they showing in their book of account for such payout_ if company can tamper book of account for payout they can tamper premium and other profitability issue and subsequently will be cheating our Indian policy holder_ what is our regulator IRDA is doing in this matter- every nook n corner we are getting calls form insurance company _ It is big danger will burst the Indian economy in future for misselling - of insurance_IRDA pls conrol the same

abhishek jain

6 years ago

People like dilip swain dont understand PMS or may be selling some other .it is much more transparent than any other product.PMS is much more liberty.

suhas varadkar

6 years ago

 Mutual Fund penetration in India is just 5% of investible surplus way below the developed country’s figures which are more than 40% of investible surplus; where standard norms for investor protection are maintained.

 Mutual Funds charge 2.25% Entry Load to the investors and pay the same to Distributors after deducting 12.36% Service Tax. This is direct source of revenue for the Government, in addition to the 30% Income Tax paid by the distributors. Hence the net earning of Distributors is only 1.25%, negligible compared to the Expertise provided and Service rendered. In addition he works for diverting money to the better return products so that the investor is benefited in the long run and serves for the better cause of the country.

 In India there are lot of other investment products where there are NO CONTROLS on investment objectives, disclosures of portfolios, declaration of NAVs, Registration of Companies, intimation of risks to clients etc for the case of INVESTOR PROTECTION and no noise is made.

 Mutual Fund industry is considered to the most regulated industry in any country, where the Structure, AMCs, Investment pattern of various schemes, Expenses are all authorized within the limits.

 Considering the financial intellectual of the common Indian investor it is really Herculean task to bring the investor to MF Products where the returns are not guaranteed (like the fixed rate products), and even the past is never the indicator for the future growth. Therefore the intellectual capacity of both the Financial Advisor as well as the Investor is at high level of understanding. Investments are to be made projecting the growth story; understanding the economy and considering the risk capacity of investor.

 There should be level playing field among the distributors of all categories of investment avenues; like in Post-Office, Bank FDs, Company FDs & Shares, RBI Bonds where 1-2% commission is distributed for promotion as well as distribution cost for these products. In case of Insurance Products commission distribution is very high: 15-40%, which is illogical even to common mind. Insurance companies never inform their customers the LOAD they charge on various policies. These companies are not even informing yearly portfolio and valuation / NAVs to their investors. AND NO NOISE IS MADE.

Let us hope Government/SEBI/AMFI will provide level playing field for all.

Dillip kumar swain

6 years ago

Mr ROOP SINGH providing his comments in wrong place.First thing IFA are not courier boy,they are advisor.Executives of industry are white elephant courier boy/collecting agent I wellcome if amc has DUMM hire salaried people.PMS is TOTALLY bogus product for any kind of investors.If u believe in gamble, then it is ok.


6 years ago

todays article abt KOTAK PMS has revealed the hidden fact that no one is expert in this field-
so if a surgeon makes a opeartion with only luck by chance and not by his skills-will any body pay fees?
i have always wrote that we IFA's are mere mere courier people-we should be pid commission same like a medical rpresentaive gets for his selling-if IFA"s dont sell-AMC's will hire salried people-
things will not change mere by laws-
Mr Bhave should realsie that what are results coming of his actions-are they really benifitting the investor or benifitting stock marekt exchnage brokers or so called EXPERT PMS managers?


6 years ago

for yor kind information i sell only mutual funds-and i am trying to just keep on going with present scenario which we never dreamed which has been created by honourable Mr BHAVE-
it is really very tough to LIVE with morals in heart-bcos most people are lured by words and by presentaion methods-very few understand the genuinity of a honest broker-
but i have faith in my heart that some day truth will come to surface-and they will get their due position-
with todays article abt PMS fiasco launched by most of broking firms and MF cos-it has been revealed that normal diversified equity funds are far better managed then of most other schemes-
and in due course regulator will realsie that KILLING MF will kill every other avenue-bcos every retail investor is here to make profits-not losses-
his losses become sprofits of few-
when this retail guy will vanish-no one wil survive-
remeber LION cant survive without herbivorous-if lion eats up every cow goat-he will starve to death-


6 years ago

Mr SURI- dont blame moneylife team-bcos these are the journalist who report from the ground realities unlike other publications-the facts provided are utter truth-i am getting daily calls from all of insurance cos-many invited to come to office-everyone offerd a handsome package-but that was at the cost of my clienst pocket-which i do not want to be cut-so i just refuse them starightly that i dont sell insurance-
today i can go and meet my cleints proudly with eye to eye contact just bcos i did not cheat them-
most clients tell me story of their ulips being too much undervalued-and some even threat to pull the collor of that run-away agent who sold them such policy-most of them have been cheated by their own young cousins-wher they cant make a fight-
i guess Mr Suri u wont blame me for manipulating these comments-as u have commented for moneylife team-
i can write still more if u will raise any doubts about my comment-



In Reply to Roopsingh 6 years ago

Mr. Rupesh,

Thanks for your response. Perhaps I went a little overboard.

It is a fact that Insurance Cos as well as MFs try to reach the mktg force each of the other for the elementary reason that the market is more or less the same.

This has nothing to do the "Commission Starved MF Agents". My objection was for the very word and the attempted inference there from. It is belittling the entire profession and is certainly painful to those who make every attempt to live up to their name how so ever small in number they are. Are all Doctors, Lawyers, Journalists, Accountants Bad? Yet we find quite a few of them doing the wrong deeds in conduct of their profession which should not be projected as a general way of life in media. And if it is done, it should be protested.

Sincerely appreciate your response and share many of your views.




6 years ago

This chap Ravi Samalad is really "NEWS STARVED".

He wants to cook up a believable story and publish in his name, no matter if there isn't any truth in it.

I strongly object to his terminology
"commission-starved mutual fund distributors".

Neither Insurance Companies nor the MF Distributors are that third rate as he is trying to project.

Knowing nothing about the industry and the people working for it for ages, suddenly these journalists come and write nonsense and also find access to their writings to be published. In fact such Journalists are livelihood starved.


Hemant Beniwal

6 years ago

Why after ban on Entry Load in Mutual Fund, many agents started selling Structured Products, PMS from Mutual Fund Companies or Highest NAV Gurantee Plans from Insurance Companies? No prize for answer.

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