No Direction

Indian markets remained highly volatile during the week following index heavyweight Bharti Airtel’s massive slump on reports that the company is in talks to buy the African assets of Kuwaiti telecom player Zain for $10.70 billion and on concerns that rising food inflation may force the Indian central bank to push up rates. China’s surprise move to restrict bank lending to cool its surging economy weighed on market sentiments as worries rose about the impact of monetary tightening on global growth. On the last trading day of the week, Indian markets along with other Asian markets slumped after an increase in the US Federal Reserve discount rate spurred concerns that the economic bounce-back will slow down as stimulus programs are being unwound. At the end of the week, the Sensex gained only 39 points.

Next week, we expect Indian markets to move sideways as traders roll over positions from February derivatives contracts to March contracts ahead of the Budget. The market will possibly take a direction after the Budget.

On Monday, 15 February 2010, the Sensex declined 114 points from Thursday’s (11th February) close, ending the day at 16,038, while the Nifty declined 25 points to close at 4,802. During trading hours, government data showed that the wholesale price index (WPI) rose 8.56% in January 2010 from a year earlier, driven by higher food prices. The rise was driven by a 17.4% jump in food prices, which rose on weak monsoon rains and flooding from last year. Inflation in manufacturing picked up to 6.55% from about 5% in December 2009, a sign that inflationary pressures were spreading to other sectors of the economy.

Meanwhile, the government revised upwards WPI inflation for November 2009 to 5.55% from 4.78% earlier.

D Subbarao, Reserve Bank of India (RBI) governor, said over the weekend that large government borrowing influences monetary policy. The government completed its market borrowing of Rs4.51 lakh crore ($97 billion) for the current fiscal year to end-March early this month and the RBI expects its gross market borrowing next year to be slightly higher than this year. As per data released on Friday, 12 February 2010, industrial output grew 16.8% in December from a year earlier, up from a revised annual rise of 11.8% in November. The RBI has already started to unwind stimulus, and is widely expected to tighten rates at its April meeting.

EPFR Global, the Massachusetts-based research firm that tracks global fund flows, said that investors took $2.90 billion out of all emerging-market equity funds in the first week of February 2010, the highest weekly decline since 9 July 2008. EPFR further added that global funds in particular were hurt as investors pulled out $1.76 billion, a 60-week high. On Tuesday, 16 February 2010, the Sensex shot up 188 points from the previous day’s close to 16,227 while the Nifty closed at 4,856, up 54 points.

The government amended rules for foreign currency convertible bonds (FCCBs) to allow issuers to revise their conversion price, a move aimed at reducing price uncertainty in a volatile equity market. The change would give issuers a window of six months to adjust the conversion price of their bonds to the higher of either the two weeks’ average or the six months’ average of the issuing company’s stock. The decision unveiled by the finance ministry applies to companies that issued FCCBs before 27 November 2008.

As per reports, Ashok Chawla, finance secretary, said that the government has resolved the issues related to 3G wireless spectrum auction but it is not sure if it would happen before the end of the current fiscal year ending 31 March 2010. Mr Subbarao said that the central bank cannot target inflation, as transmission of monetary policy is muted in the country. He added that it was difficult for monetary policy to attack supply-side driven inflation. On Wednesday, 17 February 2010, the Sensex shot up 202 points to 16,429 from the previous day’s close, while the Nifty closed at 4,914, up 58 points.{break}

During trading hours, agriculture minister Sharad Pawar said that food prices have started falling and will dip further next month. But the government will not restrain large sugar firms from buying sugar from the domestic market, he said. Mr Pawar also said that the wheat harvest would exceed last year’s record 80.6 million tonnes, giving a slightly higher forecast than last week's formal government estimate of 80.28 million tonnes.

Finance minister Pranab Mukherjee said that the economy may grow at more than 8% in the fiscal year 2010-11, after growing at around 7.5% in the current fiscal year ending March 2010. He further added that the government’s measures to tame rising inflation would take some time to make an impact.

On Thursday, 18 February 2010, the Sensex declined 101 points from the previous day’s close, finally ending the day at 16,328, while the Nifty closed at 4,888, down 26 points. During trading hours, government data showed that the food price index rose 17.97% for the year through 6 February 2010. The fuel price index rose 9.89% while the primary articles price index rose 16.23% for the year through 6 February 2010. The surge in food inflation for the fourth straight week in early February 2010, heightened worries of headline inflation going past official forecasts and increasing the chance of the RBI pushing up rates. After trading hours on Thursday, the US Federal Reserve raised the discount rate from 0.5% to 0.75% effective 19 February 2010 and said that the move will encourage financial institutions to rely more on money markets, rather than the central bank, for short-term loans. This led to a fall in stocks across Asia on Friday. The Sensex declined 145 points to 16,183 while the Nifty closed at 4,845, down 43 points.

According to data released by EPFR Global, investors put their money to work more selectively in the week ended 17 February 2010, choosing mostly developed equity markets and investment-grade bonds, while avoiding Chinese stocks and high-yield bonds. China-focused equity funds had net redemptions for the sixth time in the last seven weeks as fears of more central bank policy tightening spooked investors, while Latin American equity funds posted outflows for the fourth consecutive week. Russia and Indian equity funds had relatively small inflows for the week ended 17 February 2010, while Brazil had a second straight week of outflows.

During trading hours, C Rangarajan, the prime minister’s economic adviser, said that India’s economy is likely to grow at over 7.2% in the current fiscal year ending March 2010. The wholesale price inflation is seen at around 8.5% by the end of March, Mr Rangarajan said. He also said that the government’s market borrowing in the next fiscal year ending March 2011 is likely to be around or slightly lower than the Rs4,51,000 crore ($97 billion) in the current fiscal year.

The prime minister’s economic advisory council said that inflation was a down-side risk to its projected growth rate of at least 8.2% in 2010-11, and any policy action would have to factor in the “significant” danger of high food inflation spreading into broader prices. The fiscal imbalance is a matter of concern and the process of consolidation must begin in the next financial year itself, the entity said.

As per media reports, a foreign brokerage predicts that Indian equity and equity-linked offerings may jump by as much as 33% this year. Indian companies may raise $25 billion to $30 billion in share sales in 2010, up from $22 billion last year.
 

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S&P revises TCS outlook to ‘positive’ from ‘stable’

S&P also affirmed its ‘BBB’ rating on TCS on the back of a good operating performance despite the global slowdown

Credit ratings agency Standard & Poor's (S&P), has said that it has affirmed Tata Consultancy Services Ltd’s long-term corporate credit rating to ‘BBB’ and revised the company’s outlook to ‘positive’ from ‘stable’.

S&P said that it expects the company's revenue, which was steady during the downturn, to register moderate growth, going forward. “Growth will be fuelled by the global economic revival and our expectation that India-based IT service providers will continue to benefit from higher outsourcing," said Suzanne Smith, S&P's credit analyst and managing director, corporate and government ratings, for South and Southeast Asia.

TCS derives more than 90% of its revenue from overseas contracts, while its operating expenses are largely denominated in local currency, the ratings agency said.

S&P said that the positive outlook reflects its expectation that TCS’s operating performance would improve with a revival in the global economy. It also reflects the ratings agency’s view of the resilience and flexibility of the company's operating performance during the economic crisis, it added.
 

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What is a professional fee you pay a bank for buying mutual funds?

After the ban on entry load for mutual funds (MFs) by the market regulator, banking channels have become the dominant route for fund companies to distribute MFs, as small distributors are finding it unprofitable to sell these funds.

While banning entry loads, the Securities and Exchange Board of India (SEBI) has asked distributors to disclose the upfront commission to be paid by the investor to the distributor. But banks don’t exactly share SEBI’s idea of such disclosure.

Axis Bank has charged its customers a fee for subscribing to a new fund offer of Axis Mutual Fund. It does not call it advisory fee. It did not disclose it upfront. It calls it a ‘professional’ fee and has charged it to the customer’s account.

“The Professional Fees for Axis Equity Fund NFO was Rs250 as decided by the bank as distributor. All the customers investing in the Axis Equity Fund NFO through Axis Bank were briefed on the services offered and consequent professional fees to be charged by the bank at the time of investment,” said Axis Bank to Moneylife.

However, the customer’s awareness of any such deduction by the bank is open to question (unless a customer himself inquires), and should the charges be deducted as ‘professional fees’?

Clearly, while SEBI has declared that commission paid by the investor directly to the distributor should be transparent, banks have other ideas.

“Banks don’t specify that charges are deducted for sale of mutual funds. The bank should send a debit note specifying the type of professional services they have rendered to the customer. A doctor or a lawyer can charge a professional fee but how can a bank charge professional fee?” asked an independent financial advisor (IFA).

“Some banks take a mandate (signature) from the client, for instance power of attorney (POA). Everything is in the hands of the bank itself. All banks which sell MFs charge some or the other amount from customers like 0.5% of the total AUM (Assets Under Management),” said a chief executive officer (CEO) of an investment advisory firm.

“Upfront commission should not be charged under professional fees. SEBI in its guidelines has stated that banks can charge an advisory fee if the customer knows about it and hands over a cheque to the bank. It should not be deducted directly from a customer’s account. If you take a onetime mandate, it is just like a blank cheque. The customer does not read all the minute details mentioned in a form. If a mandate is taken by the bank, they can deduct any type of charges from the customer’s account,” added the source.

HDFC Bank charges Rs200 as upfront commission for selling a fund. Presently, a majority of banks have tied up with asset management companies (AMCs) to sell funds. Some banks have also appointed a mutual fund advisor who is certified by AMFI. ICICI Bank and HSBC officials could not be contacted for comments and our email queries remain unanswered.
 

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COMMENTS

amitabh narain sinha

7 years ago

in the year 1962 china attcked india and we were making shoes & clothes in arms factories.the think tanks decided to promote industrialisation by retail participation.unit trust of india came into existance for retail participation.all was well but the lobby of fiis and anti national think tanks forced the sebi to check the retail participation.in my opinion the investor should have option for entry load.investor of india is matured enough but the habit of free lunch will kill the individual financial advisors and then public who will choose to invest in mf will be forced /blackmailed by banks and corporate distribution channels so previous system should be restored but capped with maximum limit of entry load.

d k seth

7 years ago

well done u have expose the expolitation of bank. as a/c holder ar jnocent prey to bank. Amfi and sebi should take legal action against them. Finance ministy should be informed of the misused by banks.

Chetan Bhatia

7 years ago

Banks are having the last laugh with Mr Bhave's regulation.

The post sale scenario: RM is paid for the SALE & NOT the SERVICING, hence after the investment is done the RM who recommends a product leaves the client in a maze. He never talks of the previous investments done, their status/performance etc. He always approaches the client with new investments avenue either as a represenattive of the same bank or as RM from a new one. So is Mr Bhave listening. His regulations are really good, for whom???

Roopsingh

7 years ago

congrats Mr DB Desai for such cool and 'to the point' presentation-but alas,i doubt any one from SEBI will ever comment over this?it is a fact that govt has not thought to abolish commission from post office where most of black money is deposited that too without any documents-are MF brokers step-child of govt?and post office and insurance agents are real kids?why this partiality?to one evry rule is put to ultimate pressure to stop brteathing and to other there are several routes to make illegal gains-is this JUSTICE done by our SECULAR govt?and that too without thinking of consequences that how so mch of IFAs will survivedid they made any second thought.Mr Bhave had in mind that he would be awarded some MEDALS for such sweeping changes-but he has been proved a FOOL after consequences pertaining and now he has lost courage to admit that it is a mistake-a big one-he has benifited only capables and tried to remove competetion and monopolise the MF industry to few AMC"s and few national distributors-i hope some one from finance ministry will come to realise the ground situation in coming times to recorrect the mistake SEBI has done-

DB DESAI

7 years ago

The decision of SEBI is in line with usual practice of all regulators/Govt.s in India where serious, proper thinking and long term views keeping in mind interests of all the concerned is never given. Everything is done in bits and pieces. Most of the times we find that personal views are mixed with the business of governance. Rather than originating and developing genuine ideas relevant with indian conditions an effort is always made to copy something which has seen success in different conditions geographically, technologically, economically, culturally and also in terms of administratively. This has happened in banking and other financial services industries. Regulation after regulation is made to patch up the loopholes in the original regulations.

We proudly say that india is united even after too much of diversity. This diversity is historical and not under our control to change suddenly. But making regulations affecting all the people in India equally can easily be made to reduce this diversity and discrimination. In the present context I am referring to multiple regulatiors for financial sector and different provisions for apparently same type of business. There must be a unified regulator or at least an apex body to see that a single regulator is not acting against the interest of the industry/people/channels and in confrontation with the competitors.

As far as SEBI's decision is concerned, IFAs working in rurual/.semiurban ares are hit the most. That too without any fault of theirs. If major business is coming from Banks and National Distributrs then majority of problems or reasons for which this decision has been taken as a solution, can be attributed to the practices followed by these participants of the industry. Once the regulation is given effect it was the responsibility of SEBI/AMFI/AMCs to educate the customers and public in general. I agree that no industry should be run/developed to protect the interest of the Channel partners but it should be for the interest of the beneficiaries. But at the same time it must be kep in mind that channels are as important as the product and the beneficiaries. Why then the Govt. is having so many departments/agencies including SEBI and why the Govt. is spending so much of money on them? To deliver what the Govt. has palnned for the people. If SEBI or GOVT. is so keen on welfare of the common people do we find any effort to curb the GOVT. expenditure? A parrellel can be found in the field of education, transportation, telecommunication, medical fields which are very much important and even life saving for the people where the channels are earning any amount and there is no one to control. I guess people are spending more amount on availing of the services from these sectors than investing in mutual funds. It is said that around 5% of investments are done in equity/equity mutual funds. What about 95% money which is invested in Post Office, Insurance, Banks etc. where the investors are charged albeit unknowingly?

I feel rather than abolishing entry load, it should have been better regulated, similar regulation should have been made application to other financial products and a mechanism to punish the errant participant of the market should have been thought.

mohan bhatia

7 years ago

the last question the MF investor should ask Mr. BHAVE the so called SEBI chairman is that '' how much he took uniertable bribe from all current beneficiaries of this MF regime-where no retail investor has benifited-the main benificiaries r private banks and national distributors-now it seems that CBI must probe into this scam of MF regime to get all evidence what was all cooked.in this whole process-bcos no retail investor is happy with current setup-so Mr Bhave muct be raided and questioned for all this turmoil-i am sure he would find difficult to answer CBI questions-after all many SEBI officials are engaged in high level corruption.

Suresh Sadagopan

7 years ago

What has been created by SEBI now is an uneven playing field, where banks have access to their client's bank accounts where they can debit charges ( after getting a mandate which runs into 30 pages, which noone reads! ) and the individual distributor and others have to take a separate cheque for services.

Raju Bhatia

7 years ago

Dear All,

Very good article. Infact, I have just understood that the collection of AXIS Bank in the AXIS Equity Fund NFO, was to the tune of Rs. 720 crs....out of the total collection of 950 odd crs...indicating a clear trend that SEBI's directives are leading mutual distribution towards monopolistic marketing... a scary situation if it can be extrpolated.

gaurav(ARN21419)

7 years ago

These Big companies are making fools of people , Coustmors are unawer of these fees . 75% or more who invested in MF /ULIP dont know actually where he is investing .
SEBI has taken a arbitrary step of upfront comission , Ultimately loss will be of Investor who will invest in ULIPs rather than MF

K NARAYANAN

7 years ago

Just like policemen and govt.servants are authorised to loot to provide services,pvt sector banks like Axis bank find some loop hole in the legal system and indulge in petty crimes like pick pocketing.It is very difficult,time consuming and costly to recover the money from them and hence most of us grumble or write letters to the editor and send e-mail like this and bear with the problem.The banks and mobile companies/durable consumer goods co etc know about our legal system and happily loot.That is why you need to be well educated -preferably MBA(Member of the Bandits Association) to be employed in senior positions in such pvt organisations so that you can loot for the company and share a part of the loot as salary and commission/incentive.Unless the system provides for easy and quick redressal of such problems there is no solution.Sometime back Mr Shah Rukh khan said "Don't try to curtail your expenditure,but aim to earn enough to cover the expenditure." So don't bother about the looting by the banks.You also join some looters as well paid employee and pay off such small charges.Amen!

Amalaraj Marian

7 years ago

What Sebi tried to do is a situation of who is going to bell the cat.. Probably it lacked the guts to put the finger on the real problem. When the mutual funds and the bank along with the national distribution channels were having a merry time churning AUMs, SEBI choose to keep the eyes shut. Instead of clearly spelling out the requirements it choose to beat round the bush. The fact is the guliable investor is still a sitting duck. The banks would still pick-pockets of the investors any which ways. The reason for this is how else will they shore up their balance sheets and cover the costs from the other services that they provide. The customer needs education and this is what is lacking today.

Shibaji Dash

7 years ago

What SEBI banned was ' tweedledum ' and what Axis Bank charged is ' tweedledee '.

PURU

7 years ago

DICUSSING THE POLICY AT NARIMAN POINT WITH A BITE OF PIZZA IS COMFORTABLY EASY TO SEE THE GROUND REALTY.SOME SO CALLED PEOPLE TRYING TO MAKE INDIA AS SMART AS USA AND UK ON THE SUFFRING OF OTHERS. MAY GOD SAVE THE MUTUAL FUND INDUSTRY WITH RETAIL INVESTORS........!

Saket Mohan Prasad

7 years ago

All said and done most bank are charging in an arbitrary manner and now there is no regulation for that. At times i feel that old system of 2.25% through a advisor/bank or Nil % when made direct was better.

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