SEBI chairman suggests that AMFI should seriously examine playing the role of a self-regulatory organisation. This idea was first mooted in 1994 and is of dubious merit because the concept of SRO does not quite work in India
The capital markets regulator, Securities and Exchange Board of India (SEBI) has asked the industry body Association of Mutual Funds in India (AMFI) to don the hat of a self-regulatory organisation, instead of acting as a plain-vanilla industry body as it is doing currently. This comes close on the heels of a rash of rapid-fire changes made by the regulator over the last one year. However, this is one idea that dates back all the way to the tenure of GV Ramakrishna.
Speaking on the occasion of the CII Mutual Fund Summit 2010 in Mumbai today, SEBI chairman CB Bhave did not mince words while discussing the current state of the mutual fund industry. After introducing a series of game-changing initiatives over the past one year, that have virtually shaken the very foundations of the mutual fund industry, the SEBI chief came up with the proposition that AMFI take up more responsibility and consider playing the role of a self-regulator for the industry.
Mr Bhave said, "One thing we would strongly suggest is to examine the role of AMFI and SEBI. All this while, AMFI's stand has been that it is not a self-regulator, but an industry body. You need to examine for yourself whether this is the right way to go. The advantage of being a self-regulator is that you can have your own rules about how the industry will operate, without having to turn to statutory laws which are so much more difficult to change. Because this is an industry, you can take this route. But for that we need some commonality of purpose and a certain coming together of minds. This is not criticism but an examination of where we need to go. You need to ask whether in order to reach where you need to be by 2015, the organisation needs to take on a self-regulatory character." It is interesting to note that this 'proposition' from SEBI has come after various attempts on its part at micro-managing the industry, which have mostly led to a lot of confusion.
The truth is that this concept of self-regulatory organisations (SROs) has never worked out well in India. Similar attempts in the past have been in vain. There are no SROs of investment bankers, brokers, depositories or stock exchanges. At one point, there was a vague idea of brokers forming an SRO but this not happened. In practice, the stock exchanges, which wield substantial powers of their own, are not willing to take on the role of even minimal regulation. They prefer instead to pass on the buck to the regulator. When asked about price-rigging in illiquid scrips, the BSE keeps mum. The concept of SRO is really on paper.
The bigger question is, is SEBI, in allowing AMFI to play the role of an SRO, willing to pass on some of its powers to AMFI for that purpose? And if it does, will the regulator stop micro-managing AMFI?
As suspected, the Sensex was supported at around 16,000 and went up. A new short-term high is near if the world market remains bullish
The market witnessed volatile trade on the rollover of positions by traders in the derivatives segment from the near month June contracts to July contracts, ahead of the expiry of the near-month June derivatives contracts on Thursday. The Sensex closed at 17,756, up 6 points (0.04%) and the Nifty ended at 5,323, up 6 points (0.1%). The indices started the day with a sharp plunge, taking cues from Asian markets. They recovered from there in the mid-morning session, touching their intraday highs in the afternoon session. However, the market pared some gains in the remaining part of the trading session and ended flat.
Asian markets were mostly down on Wednesday on concerns over the unexpected decline in US home sales. Key benchmark indices in China, Japan, Indonesia, South Korea, Singapore and Taiwan fell by 0.19% to 1.8%. Hong Kong's Hang Seng recouped initial losses to rise 0.18% at the end of the session.
US stocks were down more than 1% in yet another late-day sell-off on Tuesday as poor housing figures and the puncture of a key technical level weighed on the sentiments of investors. The S&P 500 was down through its 200-day moving average, which had been a basis of support in the last few days. The Dow dropped 149 points (1.4%), to 10,293. The S&P 500 was down 17.8 points (1.6%), to 1,095.3. The Nasdaq lost 27.3 points (1.2%) to 2,261.8.
US economic leaders said that any measure to control the fiscal deficit in the short-term could affect long-term growth. There have already been signs of differing approaches among G-20 members about how to better insulate the global economy against a repeat of the devastating 2007-2008 crisis that caused a severe recession.
Back home, the Reserve Bank of India (RBI) said that it could increase interest rates soon as inflation is at an uncomfortable level.
Foreign institutional investors were net buyers of equities worth Rs975 crore on Tuesday. Domestic institutional investors were net sellers of stocks aggregating Rs197 crore.
Shree Renuka Sugars (down 1%) has successfully concluded a revised agreement to acquire controlling stake in Equipav SA Acucar e Alcool. As per the new terms, the company will invest 450 million Brazilian real in Equipav leading to a majority, controlling stake of 50.34%. Equipav consists of two very large and modern sugar/ethanol mills with integrated co-generation facilities in Sao Paulo in Southeast Brazil having a combined cane-crushing capacity of 10.5 million tonnes of cane per annum (44,400 tcd). In addition, Equipav has a co-generation capacity of 203MW.
Larsen & Toubro (L&T) (down 3.1%) has been disqualified from the bulk tendering process for supercritical boilers and turbine generators for NTPC.
Khaitan Electricals (down 1%) said that the Share Transfer Books will remain closed from 7th to 16th September 2010 (both days inclusive) for the Annual General Meeting for the year 2009-10. The AGM is scheduled to be held on 16th September.
Tricom India (up 6.1%) is in the final stages of acquiring Mastiff Tech Pvt Ltd and Mastiff Internet Media Solutions Pvt Ltd. These companies are leading providers of niche Internet technology solutions. The formalities for these acquisitions are expected to be completed within the next few weeks. The purpose behind these acquisitions is to strengthen Tricom's BPC operations by using Mastiff's technology team and to support its own software development clients.
A PricewaterhouseCoopers report says mutual funds will have to come up with more innovative products to sustain growth
Though the Indian mutual fund (MF) industry has weathered the recent economic meltdown with its average assets under management (AUM) growing at 47% in FY09-10, growth in the next couple of years will be influenced hugely by the changing demographic profile of investors, a PricewaterhouseCoopers (PWC) report said.
"The performance of the MF industry has been strong with aggregate AUM growing at 47% to Rs6,13,979 crore. However, the next few years would be influenced by the journey undertaken so far and changing demographic profile of the investors," PWC said in its report released at a CII event on the mutual funds industry in Mumbai today.
PWC said that if the industry needs to sustain the growth level, it has to come out with more and more innovative and diverse range of products catering to the ever-changing requirements of the customers.
"Diversified products will keep the present momentum going for the industry in a more competitive and efficient manner besides competing with bank deposits and Government securities. Hence, MFs have to mature and keep on offering comprehensive life-cycle financial planning and not just the products," the report said.
It also added that there should be a regulatory body for MF distributors that would inform the investors about the efficacy of the product for a particular risk profile.
The Association of Mutual Funds in India (AMFI) has been for long demanding a self-regulatory organisation for the MF industry.
Market regulator Securities and Exchange Board of India (SEBI) is planning to put in place an on-line compliance certification examination, which is expected to run by end-this month.
SEBI is also likely to come out with a new set of guidelines to check mis-selling of MF products.
The report further stated that the real estate mutual funds could be the next big thing for the industry provided the regulators bring in more clarity on the tax and regulatory aspects.
The PWC report also stated that despite the industry posting a robust growth, it continues to deal with challenges of low retail participation and penetration levels.