The market started the last trading day of the week on a soft note as support from the world markets was lacking. It traded range-bound in the negative zone for the entire morning session. The Sensex made a feeble attempt to touch the 18,000 mark and the Nifty managed to scale an intraday high of 5,413 in the post-noon session. But the markets were led down by disappointing opening by the influential European markets and the negative close of the Asian markets. Finally, the Sensex ended 123 points down (0.7%) at 17,868 and the Nifty settled 41 points down (0.7%) at 5,367.
The overall market breadth was negative. The Sensex had 22 declining stocks against eight advances while the Nifty ended with 35 declines over 15 advances. Bucking the trend, the broader indices ended with marginal gains. The BSE Mid-cap index gained 0.3% and the BSE Small-cap index rose 0.2%.
The top gainers on the Sensex were Mahindra & Mahindra (M&M) (up 2.7%), State Bank of India (SBI), HDFC Bank (up 1.2% each) and Tata Steel (up 0.6%). The top losers included Bharti Airtel (down 3.1%), Hero Honda (down 3%), DLF (down 2.6%), ICICI Bank (down 2.3%) and Tata Motors (down 2.2%).
All sectoral indices on the BSE ended in the negative terrain today. The top losers were realty (down 1.4%), technology (down 1.2%), capital goods, IT (down 1.1% each) and power (down 0.9%).
The Insurance Regulatory and Development Authority (IRDA) today expressed hope that the row over withdrawal of the cashless treatment facility at select hospitals by public sector insurance companies will be sorted out shortly.
Representatives of four public sector companies and private hospitals are holding a meeting in Delhi to sort out the problems following withdrawal of the cashless treatment facility by PSU insurers.
New India Assurance, United India Insurance, National Insurance and Oriental Insurance had stopped the cashless service from 1st July because of alleged over-billing by some private hospitals.
Markets in Asia, with the exception of the KLSE Composite, ended in the red today. While strong earning reports have kept the momentum going, economic concerns from the world's largest economy curbed risk-taking appetite. Japan's core consumer price index fell 1% from a year earlier in June, compared with a 1.2% drop in May, while industrial production and employment data added to the worries.
The Shanghai Composite was down 0.6%; Hang Seng was down 0.3%; Jakarta Composite was down 0.9%; Nikkei 225 was down 1.6%; Straits Times was down 0.3%; Seoul Composite was down 0.6% and Taiwan Weighted was down 0.5%. On the other side, the KLSE Composite gained 0.1%.
The National Stock Exchange (NSE) is in talks with the Tokyo Stock Exchange for a possible partnership to cross-list key products on each other's platforms.
Earlier, on 28th July, the NSE and the London Stock Exchange (LSE) entered into an agreement to evaluate the option of cross-listing their key indices on each other's platforms. Under the agreement, the two exchanges will explore the feasibility of an agreement under which the FTSE Group may license the FTSE 100 Index to the NSE and the Indian bourse may license its benchmark Nifty-50 to the LSE for trading purposes.
US markets ended in negative terrain for yet another day on Thursday on concerns over the economy and lower earnings expectations from technology and consumer companies. The Dow fell 30.7 points (0.3%) to 10,467.16. The S&P 500 fell 4.6 points (0.4%) 1,101.54. The Nasdaq fell 12.8 points (0.5%) to 2,251.69.
Indian Oil Corporation Ltd (IOC) chairman BM Bansal, while speaking to reporters today, said that global fuel prices have not seen much movement; hence there is no need to revise petrol prices. The government freed petrol prices last month and State-run oil marketing companies had decided to revise prices of the fuel once a month.
Foreign institutional investors were net buyers of Rs578 crore in the equities segment on Thursday. Domestic institutional investors were net sellers of Rs920 crore on the same day.
State-run NTPC (down 0.4%) has commissioned a 490-MW unit at its Dadri thermal power plant in Uttar Pradesh for the upcoming Commonwealth Games. The first 490-MW unit at the same power project was commissioned earlier by BHEL and has been running satisfactorily, BHEL said in a separate press statement.
Power generated from the Dadri Stage-II would be supplied to Delhi (90%) and Uttar Pradesh (10%). With the commissioning of this project, the total installed capacity of NTPC has reached 32,194MW.
Hindustan Construction Company (HCC) (up 3.8%), which posted a 55% jump in its profit after tax (PAT) in the quarter ended 30th June today said it soon plans to file its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI), for raising up to Rs2,000 crore through an initial public offering (IPO) to part-finance its ambitious Lavasa township project.
The company posted a 55% growth in its PAT at Rs28.31 crore in the quarter ended 30th June as against Rs18.19 crore in the year-ago period. Its turnover rose 5% at Rs1,008.22 crore in Q1 FY11 as against Rs964.09 crore in the corresponding quarter of the last fiscal.
Moneylife advocates avoiding NFOs, especially when too many of them are launched to take advantage of a roaring bull market. Here is more evidence that proves our point: almost half of NFOs were redeemed at losses during April 2008-March 2010
Many Asset Management Companies (AMCs) launch New Fund Offers (NFOs) to fatten their corpuses during a major bull run. While it is good for the fund companies, these usually leave a hole in investors’ pockets, since the markets tank subsequently. Disgusted with losses, investors exit NFOs at a loss. Not surprisingly, some 49% of investments in NFOs launched during April 2008-10 were sold at a loss, according to a Computer Age Management Services (CAMS)-Boston Consulting Group (BCG) study. The study found that only 22% or Rs1,546 crore was redeemed at a minor profit — Net Asset Value (NAV) between Rs10-Rs11. On the other hand, 29% or Rs2,044 crore was pulled out by investors at an NAV between Rs11-Rs12, indicating some profit booking.
In rupee terms, out of Rs6,993 crore redemptions from NFOs between April 2008-2010, only 50% was redeemed above par value. Within the remaining 50% redeemed at profit, nearly 22% was redeemed at an NAV of less than Rs11, implying a return of less than 10%. As many as 69 new equity schemes were launched during this period.
Typically, a new scheme is sold at Rs10. Around 49% of redemptions happened when the NAV went below Rs10.
“NFOs were paying higher amount of money for advertising and publicity, during this period. The entry load also existed at that point. The stock market also crashed during 2008 and recovered towards the middle of 2009,” said Debashish Mohanty, country head – retail sales, UTI MF. “All this made investors hastily exit at a loss,” he added.
During the entry load era, out of Rs100 invested in NFOs, investors used to get units equivalent to Rs95 after deducting the annual expenses and entry load.
Distributors were heavily incentivised to sell NFOs by offering upfront commissions, target-based incentives and a chance to win foreign trips, which resulted in rampant mis-selling of NFOs. However, it was also a case of mis-buying on the part of investors who usually cannot identify that NFOs are just like new wine in old bottles which end up buying the same stocks as the existing schemes at much higher prices.
Investors also have a misconception that old schemes that have higher NAVs are expensive and new schemes which come with an NAV of Rs10 are cheaper. Neither the AMCs nor the distributors tried to dispel this notion.
Market watchdog Securities and Exchange Board of India (SEBI) had abolished entry loads in August 2009. Recently the regulator also mandated fund houses to stop using investor money for marketing and distribution activities. Currently, investors are allotted full units equivalent to the amount invested.
The CMD of The New India Assurance Co Ltd, M Ramadoss, spoke with Moneylife’s Raj Pradhan and Aaron Rodrigues on various issues facing the insurance industry
Raj Pradhan & Aaron Rodrigues (ML): Can you tell us what the current situation is in the cashless facility imbroglio between public sector insurers and hospitals?
M Ramadoss (MR): Insurance companies have been witnessing inflated, fraudulent, and unwarranted claims from some hospitals when the patient wishes to go for cashless treatment. Due to this, insurer-funded healthcare cost is more than individual funded cost. The reverse is true in developed countries.
We have 380 hospitals who have agreed to be part of our Preferred Provider Network (PPN). Ideally, we want as many hospitals on board as possible. The standard rates could vary based on location, facilities, equipment, etc. It is not one-size-fits-all. If there are industry-standard rates, we will welcome it. Due to the absence of it, I have to step in but not to rob hospitals of their profits. We have benchmarked average costs of prior years and used recommendations of doctors on the panel.
ML: Removal of cashless facilities from major hospitals is causing inconvenience to policyholders. What are your comments?
MR: Out of 100 policies, 8% make claims of which 35% are cashless. It is not a great disservice. If the patient is unable to go to a PPN hospital, the reimbursement will still happen after the claim is submitted. We are technically and legally not violating the agreement with policyholders because we specify in the policy that hospitals have to agree to our terms. I don’t see any harm to our reputation. On the contrary, I have received congratulatory emails for the PPN initiative.
ML: There are reports of public sector insurers coming up with new policies for cashless facilities at high-end hospitals.
MR: We are open to talks with all hospitals and share how we arrived at costing of procedures for different grades of hospitals. Contrary to belief that hospitals are trying to get out of PPN, more hospitals are coming on board. Some of them are prevented from talking with us by different associations, but have indicated willingness to talk in the near future. Unlike in the US, the supply constraint is present in India for quality healthcare which does make it difficult to negotiate with corporate hospitals. We do need discounts on volume of business. If we are unable to convince high-end corporate hospitals to join the PPN, we will be forced to come up with a separate plan for cashless facilities at high-end hospitals. The premium for this ‘Platinum’ policy will be higher, but we have not finalised it. It is at the drawing board stage. We have solidarity from private insurers too. They are also suffering due to erratic charges from some hospitals.
ML: What are some of the checks and balances in the system?
MR: We have ongoing work to check and audit the system. At one time, we did a three-month investigation in different cities. We found cases of bogus nursing homes, bogus bills from hospitals and pharmacists as well as fraudulent claims by policyholders. We would like policyholders to assist us by reporting any aberration to us and to verify hospital bills.
We are moving towards a centralised payment system that will streamline the payment process. We have an external agency to audit all Third Party Administrators’ (TPAs) files. Public sector insurers will be starting our own TPA entity in a year’s time. We have not finalised an outside partner. It may be in-house, but a separate company. It will help to have better control over claims.
ML: It has been reported that public sector insurers want to deal directly with equipment suppliers and pharmaceutical companies to cut claims cost by 20-30%. Are these reports true?
MR: No. The news is not correct as we don’t have any immediate plans of doing so.