The medium-term trend remains down. A 3-4 day rally may be met with renewed selling
The market settled higher despite the dismal macro-economic numbers released today, with the Sensex snapping its eight-day losing streak. However, the medium-term trend remains down. A 3-4 day rally may be met with renewed selling. The National Stock Exchange (NSE) reported a volume of 75.64 crore shares and advance-decline ratio of 573:919.
The market opened mixed despite lacklustre global cues. The US markets closed with minor losses on Monday even as Federal Reserve vice-chairperson Jannet Yellen said the central bank’s ongoing easy monetary policy would continue as the labour market is yet to show some progress. The few Asian markets which were open today were trading higher in morning trade.
The Nifty opened down four points to 5894 while the Sensex resumed trade at 19,490, up 29 points over its previous close. The market remained choppy in early trade ahead of the release of the industrial output figures and retail inflation data. PSU, oil & oil, banking stocks were trading higher while IT and power sectors were in the negative.
However, the contraction of IIP for December to a three-month low of 0.6% and retail inflation for January rising to 10.79% saw the benchmarks dipping into the red and touching their intraday lows in late morning trade. The Nifty fell to 5,886 and the Sensex went back to 19,439 at their respective lows.
Brushing aside the negative indicators, the market soon picked up momentum as buying activity resumed, pushing the indices into the green. Gains in oil & gas, healthcare, PSU and consumer goods sectors kept the benchmarks firm in post-noon trade.
Firm trade continued in the late session, as well, on buying in market heavy-weights. The benchmarks hit their intraday highs towards the end of trade with the Nifty rising to 5,928 and the Sensex climbing to 19,584.
The market closed in the green as investors ignored weak macro-economic indicators, ending the eight-day losing streak on the Sensex. The Nifty gained 25 points (0.42%) to 5,923 and the Sensex climbed 100 points (0.52%) to settle at 19,561.
The broader indices underperformed the Sensex, as the BSE Mid-cap index fell 0.31% and the BSE Small-cap index dropped 0.51%.
The top sectoral gainers were BSE Oil & Gas (up 1.52%); BSE Healthcare (up 1.19%); BSE PSU (up 1.15%); BSE Auto (up 0.94%) and BSE Bankex (up 0.63%). The main losers were BSE Realty (down 3.96%); BSE IT (down 0.63%); BSE Metal (down 0.35%); BSE TECk (down 0.33%) and BSE Power (down 0.28%).
Seventeen of the 30 stocks on the Sensex closed in the positive. The chief gainers were ONGC (up 3.81%); Sun Pharmaceutical Industries (up 2.84%); Tata Motors (up 2.65%); Coal India (up 1.85%) and Bharti Airtel (up 1.79%). The major losers were Jindal Steel & Power (down 3.35%); Sterlite Industries (down 1.31%); Infosys (down 1.29%); Tata Power (down 0.77%) and Cipla (down 0.48%).
The top two A Group gainers on the BSE were—AstraZeneca Pharma India (up 10.06%) and Strides Arcolab (up 7.56%).
The top two A Group losers on the BSE were—Unitech (down 17.86%) and Hindustan Copper (down 4.45%).
The top two B Group gainers on the BSE were—Quintegra Solutions (up 20%) and Baba Arts (up 15.47%).
The top two B Group losers on the BSE were—Softech Infinium Solutions (down 19.93%) and Govind Rubber (down 19.78%).
Out of the 50 stocks listed on the Nifty, 31 stocks settled in the positive. The major gainers were ONGC (up 3.62%); Sun Pharma (up 3.29%); HCL Technologies (up 3.16%); Tata Motors (up 2.46%) and Coal India (up 1.94%). The key losers were JSPL (down 3.39%); ACC (down 1.52%); IDFC (down 1.49%); Infosys and DLF (down 1.27% each).
In Asian trade, Japan’s Nikkei 225 surged 1.94% as reports indicated that the Japanese government would continue with monetary easing to spur growth. The Seoul Composite fell 0.26% on political concerns after North Korea carried out a nuclear test. The Jakarta Composite gained 1% in trade today. Markets in China, Hong Kong, Malaysia and Singapore remain closed for the Lunar New Year holidays.
At the time of writing, two of the three the key European indices were in the green. At the same time, the US stock futures were mixed with a positive bias.
Back home, foreign institutional investors were net buyers of shares totalling Rs995.83 crore on Monday while domestic institutional investors were net sellers of equities amounting to Rs940.89 crore.
IT services exporter Zensar Technologies has signed a five-year pact with Assurant Health, a US-based provider of health insurance products, to provide information technology support. The deal includes development, testing, maintenance, enhancement and IT support for suite of business applications used by Assurant Health for policy administration, underwriting and claims. The stock fell 0.44% to close at Rs239 on the NSE.
Infrastructure major Punj Lloyd has reported more than 87% plunge in consolidated net profit at Rs8.77 crore for the quarter ended 31 December 2012, mainly due to muted sales growth and higher interest burden. Net profit for the corresponding previous period was Rs70.35 crore. Net sales rose 3.68% to Rs 2,775.29 crore from Rs2,676.81 crore earlier. The stock tanked 5.47% to close at Rs49.25 on the NSE.
IRDA came out with many initiatives last year including the integrated grievance management system (IGMS). Still, given the amount of mis-selling and fraud, a lot needs to change to improve customer satisfaction including empowering the insurance ombudsman to levy penalty on insurers
The Insurance Regulatory and Development Authority (IRDA) launched new system “Integrated Grievance Management System (IGMS)” to help with consumer redressal. It facilitates online registration of policyholders’ complaints and track the status of their complaints. It gives insurance regulator a tool to monitor the effectiveness of the grievance redressal system of insurers. IRDA can have real-time monitoring and tracking details of all grievances lodged with all insurers, along with their disposal status. It gives mirroring of the complaints database of the insurers through the IRDA portal.
However, customer grievance redressal has not drastically improved even after introduction of new system. There is a need for proactive action against insurers and for IRDA to stop being just a facilitator. IRDA should institute senior citizen-centric nodal officers at the director-level, and also at insurance companies, to specifically address all elder-related issues.
Part of the solution would also be a changed stance from IRDA. At the Moneylife Foundation seminar on 16 May 2012, IRDA chairman J Hari Narayan clarified that IRDA’s job is not to focus on individual complaints; but it does take up such cases on a random basis and investigates insurance companies to protect the insured. IRDA’s approach is to put systems in place and see how they work and the corrections that need to be done in the processes, he added.
It means individual complaints may not get solved by IRDA’s IGMS. Consumers still have to go to the insurance ombudsman, consumer court or civil court. The advantages of ombudsman are no cost to the insured and binding decision on insurance companies. While the insurance ombudsman is good option, there is often a delay in getting a hearing. It can range from six months to one year after making a complaint. In some places the ombudsman’s post gets filled after being vacant for over nine months. This increases the backlog of complaints. The Mumbai ombudsman’s post is currently vacant since October 2012.
In June 2011 we had written about the post of the Ahmedabad insurance ombudsman lying vacant for the past nine months. () The post has since been filled, but the backlog of complaints has increased.
Last month, the Bombay High Court suggested that IRDA should empower the insurance ombudsman to levy compensatory or penal costs on insurance companies for repudiating medical insurance claims on flimsy grounds. It is now up to IRDA to issue guidelines on it.
In the second part of the article we will discuss pending issues that IRDA needs to address to improve customer satisfaction.
Senior citizens, who have no voice, are the soft target for the government. However, the government is not bold enough to withdraw the extra interest of 1% given by banks to their present and past employees, as they have the capacity to shut the doors of banks through agitation and strikes
As per the Business Standard report dated 1 February 2013, the finance ministry has sent a missive to public sector banks (PSBs) to withdraw the additional interest of half a per cent paid to senior citizens on fixed deposits to reduce the cost of funds of banks. This, the ministry feels, will help the banks to reduce their lending rates, as the Reserve Bank of India’s (RBI) decision last month to reduce repo rates by 0.25% has apparently not gone well with the ministry, which expected a bigger cut to spur growth.
The directive from the finance ministry to PSBs is nothing short of robbing Paul to pay Peter. If the intention of the finance ministry is to cut the interest cost of banks by withdrawing the additional half a percent interest paid to senior citizens by public sector banks, and pass on the benefit to borrowers by reducing the lending rates, the whole approach is not only ill-conceived but also a retrograde step affecting PSBs very badly in their future growth.
Here are a few reasons why ministry should reconsider its decision and withdraw the directive not only in the interest of regaining the trust and confidence of the banking public, but also to retain the sanctity of independence of the RBI in matters of deciding interest rates in the country.
1. As these instructions of the ministry apply only to PSBs and the RBI is not a party to this decision, private banks that are not bound by this directive of the government, hopefully will continue to pay the preferential interest to senior citizens as hitherto. This will result in shifting of deposits of senior citizens into private banks, which will be too happy to continue this small benefit to senior citizens who have a record of locking their deposits for long periods, helping these banks to reduce maturity mismatch in their assets and liabilities position.
2. Bank deposits as of now generate negative returns to the depositors because of the high inflation existing in the economy. The interest earned on bank deposits is fully taxable, not adjusted for inflation even for tax purposes, and the agony of tax deduction at source on bank interest is the added pain, making it virtually the most unattractive investment destination for the common man. Now that senior citizens, who depend on bank interest for their daily life, have to forgo this small additional interest, will also be tempted to shift their deposits into other investments like mutual funds, or gold ETFs, which will only worsen the deposit growth in banks, affecting their lending capacity and in turn profitability too.
3. As per the RBI report, deposit growth in the last few years has been lower than credit growth, thereby containing the capacity of banks to lend in a growing economy. In the current financial year, deposit growth during the first nine months has been said to be 13.3% year-on-year, which is lower than 16.7% recorded last year for the corresponding period. But the credit growth continues to outpace deposit growth and said to be 16.3% during the first nine months of this fiscal. Therefore, the present step of the government to reduce interest rates given to senior citizens will have a negative impact on the progress of banks, adding fuel to fire so far as deposit growth is concerned.
4. As per the latest statistics, India’s gross domestic savings has fallen from 34% to 30.8% of GDP in 2011-12 and the biggest percentage fall has been in household savings, which has fallen from 10.4% to 8%. The government should have first arrested this fall by giving tax incentives to savers; instead, cutting interest rates on deposits selectively would be suicidal to banks as well as the economy as a whole. Any diversion of deposits into investment in gold, which is considered as hedge against inflation, will only worsen the trade deficit of the country, which has been a cause of concern both for the government and the RBI.
5. Good corporate governance requires the government to give total autonomy to the boards of banks to decide what rate of interest to offer to depositors, what rate of interest to charge to borrowers, and how to manage their income and expenditure portfolio within the guidelines of the RBI, if any, to achieve the annual business plan approved by it. Issuing of piecemeal instructions on the normal banking functions is not only an avoidable interference in the day-to-day functioning, it also robs the banks’ autonomy to function as independent institutions taking care of the interest of all their stake holders.
6. This is the third time in the last six months that the finance ministry has stepped on the toes of the RBI by giving directives to PSBs on issues that is mainly the prerogative of the RBI. While RBI is keeping a steady silence, what is not desirable is dual control of banks, as this will only weaken the powers of the RBI and serve neither the interest of banks nor of the economy.
Considered from all angles, the proposal of the ministry to withdraw the extra interest of a paltry half a per cent is most uncharitable to the senior citizens, who do not have any welfare schemes of the government to depend on during the sunshine years of their life. Moreover, the government is not bold enough to withdraw the extra interest of 1% given by banks to their present and past employees, as they have the capacity to shut the doors of banks through agitation and strikes, whereas the senior citizens who have no voice, are the soft target for the government, which appears to be in a tearing hurry to appease the big wigs of industry, at the cost of the ordinary citizens of this country, even before bringing down inflation to a comfort level of the RBI to bring down interest rates further.
(The author is a banking professional and writes for Moneylife under the pen-name ‘Gurpur’)