Stocks
Nifty, Sensex overbought but are being supported by a benign macro environment – Wednesday closing report
We had mentioned in Tuesday’s closing report that Nifty, Sensex lack momentum. The major indices of the Indian stock markets rallied on Wednesday and closed with gains of around 0.45% over Tuesday’s close. The trends of the major indices in the course of Wednesday’s trading are given in the table below:
 
 
Positive European indices and US premarket futures buoyed the Indian equity markets on Wednesday, as healthy buying was witnessed in healthcare, oil and gas, and capital goods stocks. On the NSE, there were 965 advances, 448 declines and 61 unchanged at the close of Wednesday’s trading.
 
The European Union (EU) downgraded its economic outlook for Britain and the rest of the bloc on Tuesday, saying the Brexit vote ushered in uncertainty and would weigh on growth. The gross domestic product (GDP) growth in the 19-country eurozone is expected to slow to between 1.3% and 1.5% in 2016 from the previously estimated 1.7% in May. The same growth figures are expected for next year. This implies a loss of GDP of 0.25% to 0.5% by 2017, which is less than in Britain (1.0% to 2.75%), said a report published by the European Commission, the bloc's executive arm.  "The UK's 'leave' vote is expected to slow private consumption and investment and impact on foreign trade," it noted. The report warned that Britain's referendum had created an "extraordinarily uncertain situation," which is likely to prevail for some time, and would affect not only Britain but also the rest of the EU economy through several transmission channels, mainly uncertainty, investment, trade, and migration. These issues are likely to have a bearing on the investments by foreign institutional investors in emerging markets like India.
 
The government has not allowed any pharmaceutical company to increase prices of drugs beyond permissible limits, parliament was told on Tuesday. "Few companies have given representations for increasing prices of medicines beyond permissible limits mentioning various reasons like increase in cost, tax, foreign exchange rates etc. However, no company has been given permission to increase the prices so far," Minister of Chemicals and Fertilisers Ananth Kumar told the Lok Sabha. He said the government has brought down prices of 404 medicines under the National List of Essential Medicines, 2015 (revised schedule-I) of the Drug Price Control Order (DPOC) 2013. The government has earlier "reduced the ceiling prices of 530 medicines as on 2/3/2016 under NLEM 2011 of DPCO 2013 (original schedule-I) on the basis of the negative wholesale price index," he said. Schedule I of DPCO 2013 contains the national list of essential medicines. The S & P BSE Healthcare index closed at 16450.18, up 2.38% on Wednesday on the BSE.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 
 

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Buying mutual funds from banks? Know what they push at you
In FY15-16, mutual fund distributors earned as much as Rs3,648 crore in the form of commission and expenses. Of this, the 28 banks on the list earned a commission of Rs1,286 crore or nearly 35% of the total commissions paid out. As we have often pointed out in the past, for banks, a high concentration of in-house mutual fund sales is of their sponsored asset management companies (AMCs). Based on the distributor commissions of FY14-15, more than 1/3rd of the commission pay-outs to banks are sourced from its in-house AMC. Not much has changed in FY15-16.
 
Bank-sponsored mutual funds are hugely dependent on their sponsor for inflows. Bankers command enormous reach and trust among their customers compared to other distributors. For Axis MF nearly 21% of the gross inflows were from Axis Bank. Axis MF paid out Rs92 crore to Axis Bank, nearly 56% of the total commissions paid to distributors. NJ IndiaInvest, a national distributor, earned a commission of Rs20 crore or about 14% of the total commissions paid by Axis MF.
 
 
For ICICI Prudential MF, nearly 40% of the gross inflows were through ICICI Bank. Therefore, not surprisingly, the banks earn the highest commissions compared to other distributors on the list. For ICICI Prudential MF, nearly 21% of the total commissions were paid to ICICI Bank. Citibank was the next highest commission earner of ICICI Prudential MF earning 5.80% of the total commissions. ICICI Securities earned nearly 4% of the total commissions paid.
 
 
Similarly, in the case of HDFC MF, as much as 16% of the total commissions were paid to HDFC Bank. Second on the list was NJ IndiaInvest earning about 9% of the total commissions paid by HDFC MF. SBI had a share of 28% in the total commissions paid by SBI MF, while Kotak Mahindra MF paid nearly 33% of the total commissions to Kotak Mahindra Bank and Kotak Mahindra UK. While HSBC MF has not disclosed the distributor’s commissions for FY15-16, in FY14-15, as much as 46% of the total commissions were paid to HSBC Bank, Standard Chartered Bank followed behind earning a commission of 11%.
 
 
 
 
The top three banks on the list—HDFC Bank, ICICI Bank and Kotak Mahindra Bank earned total commissions of Rs261 crore, Rs170 crore and Rs166 crore in FY15-16. HDFC Bank, earned Rs91 crore (or 31% of the total commissions) from HDFC MK. Nearly, 61% of the total commissions of ICICI Bank were from ICICI Prudential MF. For Kotak Mahindra Bank, about 29% of the commissions were sourced through Kotak Mahindra MF. Canara Bank, State Bank of India and Union Bank of India earn over 90% of their commissions from their in-house AMCs.
 
 
Clearly, for each bank, the best mutual schemes are none other than the schemes belonging to their own group or the ones that offers the maximum commission. The data showing that banks push hard schemes belonging to the group which may or may not be in customer interest proves our point once again. Unfortunately, savers don’t know this and tend to trust their bankers blindly. After all, that is the place where they keep their savings.
 

 

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COMMENTS

JP SINGH

10 months ago

its bankers game to misguide innocent investors and make money out of it. if some one have little bit time then visit the individual AMC site and buy direct plans. or open account with MFU (mutual Fund Utilities) once and start purchasing direct plans across the fund houses online.

SuchindranathAiyerS

10 months ago

I have found buying mutual funds from banks convenient. Convenience has come at a price. This is a good analysis and break down of the collective price. But, beyond convenience, there is the profit motive that made the Banking Industry into an arena for Harvard, Princeton, Wharton and other MBA Junk Bond Salesmen.

I have found HSBC fairly sensible since more than fifteen years. But, Richu Singh,from Dehra Dun, then of HSBC, Bangalore, did rook me out of some 4.6 Lakhs (2010) by selling Canara Bank - HSBC life insurance to me. An insurance that I certainly did not need, and was a foray into Life Insurance and portfolio management by unqualified, incompetent and greedy bankers.

HDFC offers a good "entirely at your risk" on-line option. I have been rooked very badly by SBI, UTI and LIC.

Dilip Modi

10 months ago

Equally unreasonable is the distinction made between direct purchased MF plans and so called indirect ones. When a share deal / MF portal is used, one expects the cots to be considerably less than going via a broker but to the best of my understanding both sets of via purchases attract the same commission? Why?

Dilip Modi

10 months ago

It is incomprehensible to me that whilst the banks can sell MFs, Equity, Bonds, Insurance, etc but when it comes to "Know Your Customer", it acts as a separate entity and puts the customer through the same wringer, several times, periodically and only acts with the directive of the Regulator. With so much commission revenue is it too much for them to take a joint initiative to create a single window?

Param

10 months ago

this is interesting. thanks for sharing. while other distributors push the funds that give highest commission, banks might have some commitment with their sponsor to sell those funds. i wonder who will put an end to this incest.

Ravindra Shetye

10 months ago

One more thing. They also try to push the Close Ended Schemes where your investment is blocked for the tenure of the scheme. Do the employees get any extra commission for selling Close Ended/Fixed Tenure Schemes?

Sanjay Saxena

10 months ago

Lot of MF investors don't realise that by investing through banks or MF portals they end up buying regular MF plans which have higher expenses to compensate the 'broker' who may be their bank RM. This automatically results in a lower performance compared to an identical Direct MF plan.

M Muralidharan

10 months ago

INVESTORS should pay for advisory services with Planners, get advice and buy directly without commission. No Banks, brokers, agents....

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