Stocks
Sensex, Nifty may give up gains: Monday Closing Report

The indices may trend lower unless the Nifty manages to again close above day’s high

 
The market snapped its four-day winning streak and ended lower today on pressure from the pharmaceutical sector on concerns about the new drug price order. The indices may trend lower unless the Nifty manages to again close above day’s high. The National Stock Exchange (NSE) recorded a turnover of 59.63 crore advance-decline ratio of 596:818.
 
The market opened mixed despite support from its Asian peers which were in the positive in morning trade on firm economic indicators from the US over the weekend. US consumer sentiment rose to its best in nearly six years in early May and a gauge of future economic activity rose to a near five-year high in April.
 
Back home, the Nifty opened 11 points higher at 6,198 and the Sensex started the week at 20,278, a fall of eight points from its previous close. Buying in metal, auto and fast moving consumer goods stocks led the market higher in early trade.
 
While the Nifty hit its intraday high in the first half hour of trade with the index touching 6,229, the Sensex’s high came in at around 10.55am with the benchmark climbing to 20,444.
 
Profit booking at the highs saw the indices paring part of their gains on selling pressure from consumer durables and healthcare sectors. The selling intensified in the post-noon session sending the market into the negative terrain.
 
The market touched the lows of the day in the last half of trade. The Nifty went back to 6,146 and the Sensex fell to 20,186 at their respective lows. However, the benchmarks settled off the lows but in the red, snapping their four-day winning streak.
 
The Nifty closed 30 points (0.49%) lower at 6,157 and the Sensex settled 62 points (0.31% down at 20,224.
 
Markets in Asia, with the exception of the Seoul Composite, settled in the positive with the Nikkei 225 settling 1.47% higher as prime minister Shinzo Abe last week asserted to increase private investment to the pre-crisis level and triple infrastructure exports in a bid to overcome deflation. Real estate stocks in China extended gains as new home prices in April rose at their fastest pace in two years.
 
The Shanghai Composite gained 0.75%; the Hang Seng surged 1.78%; the Jakarta Composite climbed 1.35%; the KLSE Composite advanced 0.45%; the Nikkei 225 surged 1.47%; the Straits Times rose 0.14% and the Taiwan Weighted settled 0.11% higher. Bucking the trend, the Seoul Composite lost 0.22%.
 
At the time of writing, key markets in Europe were in the green while the US stock futures were marginally in the red.
 
Back home, foreign institutional investors were net buyers of shares aggregating Rs867.93 crore on Friday. On the other hand, domestic institutional investors were net sellers of equities amounting to Rs716.69 crore.

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Govt proposes to arm SEBI with more power to tackle Ponzi schemes

The proposals to make required amendments in the SEBI Act and other relevant regulations have been finalised after detailed consultations with SEBI and are being presented before the Union Cabinet for its approval

 
With an aim to provide stronger powers to the Securities and Exchange Board of India (SEBI) for taking on perpetrators of Ponzi schemes and other fraudulent activities, the government has proposed to arm the market watchdog with direct powers to carry out search and seizure operations and for attachment of assets.
 
Besides, it has also been proposed to provide SEBI with powers to seek information such as telephone call data records, from any persons or entities in respect to any securities transaction being probed by it.
 
The proposals to make required amendments in the SEBI Act and other relevant regulations have been finalised after detailed consultations with SEBI and are being presented before the Union Cabinet for its approval, a senior official said.
 
A Cabinet note in this regard has also been circulated by the Department of Economic Affairs to other departments in the finance ministry, as also to the corporate affairs, home, law and telecom ministries, along with to the Reserve Bank of India, Planning Commission and Prime Minister’s Office for their comments and feedback on the proposals.
 
After getting the Cabinet’s approval, the government plans to introduce the Securities Laws (Amendment) Bill, 2013, in Parliament to carry out the proposed changes for grant of stronger powers to SEBI, the official added.
 
SEBI has been seeking an overhaul of regulations governing its powers and mandate for a long time, given the changing nature of the securities market in general, and newer tools being used by manipulators to take gullible investors for a ride, in particular.
 
The government has decided to accept most of the proposals made by the market regulator in this regard and the amendments would be carried out after the Cabinet approves the move and the required amendment bill is passed by the Parliament, he added.
 
With regard to the regulation of Collective Investment Schemes (CIS), the proposal calls for SEBI being empowered to deal with all kinds of investment schemes involving pooling of funds totalling Rs100 crore or more. Also, any investment scheme floated by a ‘person’ and not only a ‘company’, has been proposed to be brought under SEBI’s jurisdiction for CIS activities.
 
The proposed amendment seeks to bring all kinds of Ponzi schemes, which are thriving in various semi urban and rural areas at the expense of gullible investors, are brought under SEBI’s oversight, which itself would be made much more effective to safeguard investors from being defrauded.
 
Besides, the government has also proposed to provide SEBI with direct powers to conduct search and seizure with authorisation from its chairman. Currently, SEBI can conduct search and seizure only after approval from the chief metropolitan magistrate, but this provision is often seen to delay proceedings and hamper the confidential nature of probe.

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BOI AXA Equity Debt Rebalancer Fund: A dynamic scheme aiming to time the market

A handful of dynamic schemes vary their allocation to equity according to a pre-defined formula. Some of these schemes have done no better than any other equity diversified schemes. Would the new scheme from BOI AXA Mutual Fund be any better?

 
Last year, Bank of India re-entered the mutual fund business by acquiring 51% stake in Bharti AXA Mutual Fund. Now known as BOI AXA Mutual Fund, the asset management company is probably planning to set itself apart by launching schemes different from that of other fund houses. Earlier the fund house filed offer documents for hybrid schemes with gold as an asset class—BOI AXA Gold Income Stabiliser Fund and BOI AXA Triple Asset Allocator Fund. The company recently filed an offer document to launch an open-ended dynamic asset allocation fund—BOI AXA Equity Debt Rebalancer Fund. The fund will invest in two asset classes namely; equity and debt securities. Similar to the Triple Asset Allocator Fund the proportion of the portfolio invested in equity or debt is determined based on the month end price-to-equity (PE) ratio of the CNX Nifty Index.
 
The scheme has the flexibility to vary its allocation in equity and debt from 10% to 90% depending on the PE ratio of the Nifty index. “If the valuation of the broader market measured by PE ratio is high, the fund will take greater exposure to debt and vice versa. The proportion between equity and debt securities is determined by PE bands,” mentions the offer document. The allocation would be defined as per the table below:
 
 
Does the scheme make sense? 
We have analysed such market timing schemes in the past. (Read: Dynamic Plans:Dart-throwing) The schemes which invest based on PE valuation of the CNX index have done relatively well compared to other schemes. However, the proportion of equity to debt of all the three schemes vary. Therefore, even the fund houses are divided on an optimum allocation at a particular PE. Another important factor that would affect returns is the stocks selection of the scheme. For the equity portion of the new scheme, stocks would be chosen out of the top 100 companies by market capitalization listed on the National Stock Exchange and the Bombay Stock Exchange. What if the PE of the overall market is low but that of stock selected is high or vice versa? Stock selection would impact the performance of the scheme, maybe even negating the . A better way would probably be to use a market-timing strategy along with a top mutual fund scheme (Read: SIP vs Market-timing)
 
Alok Singh, chief investment officer-fixed income, would manage the debt portion of the scheme and has seven years of experience in the mutual fund industry. Gaurav Kapur, who has just five years of experience in research & fund management, would manage the equity portion.
 
Other details of the scheme:
Benchmark : CNX Nifty: 50% + Crisil Short Term Bond Fund Index: 50%
 
Load Structure:
Entry Load – Nil
Exit Load – 1% if redeemed within one year from the date of allotment
 
Minimum application amount:
Rs5,000 and in multiples of Re1 thereafter
Minimum Additional investment:
Rs1,000 and in multiples of Re1 thereafter
Investment through SIP/STP:
Monthly SIP: Rs1,000 and in multiples of Rs100 thereafter
Minimum duration: 12 months
 
Expenses:
Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i) and (6)(a): Up to 2.50%
Additional expenses under regulation 52(6A)(c): Up to 0.20%
Additional expenses for gross new inflows from specified cities: Up to 0.30%
 

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