Regulatory row breaks rally

The turf war between SEBI and IRDA over ULIPs spooked market sentiment

The market took a breather after a straight nine weeks of gains. The Sensex was down 80 points (0.45%) to 17,853 and the Nifty shed 22 points (0.41%) to end at 5,339. The sentiment in the market was subdued by the row between the regulators on the selling of unit-linked insurance plans (ULIPs). The Securities and Exchange Board of India (SEBI) has barred 14 insurance companies from issuing ULIPs with immediate effect. SEBI feels that ULIPs, being a combination of investment and insurance, can only be offered after taking permission from the market watchdog. The market started with a gain—however, it soon came down from the high. Trading was volatile with the indices recovering from the low of the morning session and then sliding down in the afternoon session to touch the intraday low. Foreign institutional investors were net buyers on Friday (Rs233 crore). Domestic institutional investors were net sellers at Rs66 crore.

The rupee was strong today as the euro rose to its highest in nearly a month against the dollar. Most Asian stocks rose on Monday on news that the European Union had agreed on Sunday to details of a rescue package, if the Greek government needs one. Key benchmark indices in Singapore, Japan, Indonesia and Taiwan rose by 0.07% to 1.06%. The key benchmark indices in China, Hong Kong and South Korea fell by 0.32% to 0.82%. US stocks rose on Friday with the Dow passing 11,000 for the first time in a year-and-a-half after Chevron’s upbeat outlook and wholesale inventories data reinforced bets on an improving economy. The Dow gained 70.28 points (0.64%) to end at 10,997.35. The S&P 500 rose 7.93 points (0.67%) to 1,194.37. The Nasdaq added 17.24 points (0.71%) to 2,454.05. The World Trade Organisation (WTO) director-general Pascal Lamy said that the recovery in the global job market may be delayed by 18 months.

Data showed that US wholesale inventories rose more than expected in February and sales at wholesalers reached their highest level in 16 months, brightening prospects for first-quarter financial and earnings growth. 

Closer home, industrial output in February grew at a slower rate than expected. Industrial output rose 15.1% in February from a year earlier, less than a rise of 16.7% in January, and a 16% rise expected by analysts. A top government adviser forecasted that March inflation will remain on the higher side. The RBI has allowed foreign institutional investors to use their government bond holdings and foreign sovereign securities with ‘AAA’ ratings as collateral for stock market transactions. Sesa Goa (down 2.7%) was suppressed as China has banned import of iron ore with less than 60% iron content. Alstom Engineering (down 0.12%) has received a contract from AST Company LLC, (Dubai) for the construction of fuel storage facilities at three locations on the outskirts of Abu Dhabi. The contract is to be completed within a period of six months. IntraSoft Technologies (up 9.9%) has started trading on the bourses today. The company priced its initial public offering (IPO) at the higher end of the Rs137-Rs145 price band. Tata Motors (down 3.5%) will sell part of its shareholding to Tata Cummins in a process to divest its non-core assets to reduce debt. The key shareholders of SpiceJet (down 1.6%) have refused an offer from the Reliance Anil Dhirubhai Ambani Group to pick up 51% stake in the airline for Rs 40-45 a share. Reliance Infrastructure (up 0.2%) expects the governments of Gujarat and Andhra Pradesh to invite bids to develop regional airports. Exxon Mobil is reported to be in the process of assessing the eastern offshore assets of ONGC (down 1.1%) for a possible tie-up. DB Corporation (up 1.95%) has set up a committee of directors to consider the demerging of its FM radio business and merging the Bhaskar Publication & Allied Industries with the company.

As we predicted on Friday (9th April), we seem to be headed for another correction, possibly a longer one this week.

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Indians still shy away from investing in mutual funds

Perceived high risk and lack of awareness on how mutual funds work are the two major reasons preventing investors from going in for these instruments 

Despite being available in the market for over two decades, less than 10% of Indian households have invested in mutual funds, according to a report.

The report on mutual fund investments released by research firm Boston Analytics, suggests that investors are holding back from putting their money in mutual funds due to their perceived high risk and a lack of information on how mutual funds work, reports PTI.

The report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010.

Among respondents with a high savings rate, close to 40% of those who live in metros and Tier-I cities said that such investments were “very risky”, whereas 33% of those in Tier-II cities said that they did not know “how and where to invest” in such assets.

On the other hand, among those who invested, close to nine out of ten respondents did so because they felt these assets to be more professionally managed than other asset classes.

Non-investors cite “risk” as one of the primary reasons they do not invest in mutual funds. Those who do invest cite the fact that they are “professionally managed” and “more diverse” most often as the reasons why they invest in mutual funds versus other investments.

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Emami introduces balms in low-unit packs

The pain-relief segment is now taking the low-unit pack route, after the success of this strategy in shampoo and hair-oil marketing

Velvet Shampoo was the trend-setter in the sachet market many years back when it introduced shampoo sachets at Re1 to penetrate the rural market. This gave an edge to the company and better market penetration due to the low price point.
 
Other fast-moving consumer goods (FMCG) players like Hindustan Unilever Limited, Godrej Consumer Products and Dabur India Ltd have also tried this route for their different products, at different price points. Now the pain-relief segment is also trying to penetrate the rural segment with this time-tested strategy.

Emami Group is launching low-unit packs (LUPs) of Zandu Balm at Rs2. The pack will weigh 1.2 grams and it will be used to penetrate the rural market. “We feel that any consumer suffering from headache, cold or backache will be able to get relief from the LUPs instead of looking for a Rs-20 packet. This will not only add to the convenience of the consumers, but will also generate rapid sales of the product,” said Mohan Goenka, director, Emami Group.

The LUP market forms 35% of the total Indian FMCG market. “The market size for LUPs is different for different categories. For example, in shampoos, close to 80% of sales come from sachets. The LUP market for balms is around Rs100 crore; it is currently contributing about 20%-25% of the total sales of balms. Looking at this trend, we are confident that the LUP market for balms is certainly bound to grow and hence the decision to launch LUPs for Zandu Balm,” said Harsh V Agarwal, director, Emami Group.

The company is trying to push the product deeper into rural areas through its mobile trading scheme (selling products door-to-door through vans or bicycles) and the ‘small village shop scheme’ (where products are sold from shops based in rural houses).   

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