A close below 5810 will be the first sign of correction for Nifty
On Friday (13th September), we had suggested that the Nifty was losing momentum and a close below 5805 would signal that a decline has started. Today, Nifty sold off sharply from the high it hit today morning and went below 5800 but bounced back and closed a tad lower than Friday. A close below 5810 tomorrow will be the first sign that a decline is about to begin.
The domestic indices opened on a positive note on the back of Larry Summers withdrawing his nomination to lead the US Federal Reserve (US Fed). The strong opening all over Asia apart from India, was used by market players to sell. The selling was compounded when latest inflation turned out to be higher than expected.
The BSE 30-share Sensex opened at 19,977 while the Nifty opened at 5,930. Soon they hit their respective intra-day highs of 20,086 and 5,957, highest since 25 July 2013. The indices were pulled into the negative, post the announcement of inflation data. The indices hit the low of 19,596 and 5,798 in early afternoon. The benchmark tried recovering from the low. While Sensex barley managed to close in the positive, the Nifty ended marginally lower. The Sensex closed at 19,742 (up 10 points or 0.05%) while the Nifty closed at 5,841 (down 10 points or 0.17%). The National Stock Exchange (NSE) recorded a volume of 66.10 crore shares.
The top five gainers among the other indices on the NSE were Bank Nifty (1.85%); Finance (1.29%); Consumption (0.49%); PSE (0.46%) and Auto (0.45%). The only five losers were Pharma (2.48%); Realty (2.33%); MNC (1.92%); IT (1.90%) and Metal (1.20%).
Of the 50 stocks on the Nifty, 18 ended in the green. The top five gainers were BPCL (3.88%); IndusInd Bank (3.75%); Maruti (3.50%); I C I C I Bank (2.98%) and Bharti Airtel (2.87%). The top five losers were Ranbaxy (30.03%); BHEL (5.11%); HCL Technologies (4.95%); UltraTech Cement (4.12%) and Sesa Goa (3.94%).
The annual rate of inflation, based on the monthly wholesale price index (WPI), accelerated to 6.1% in August 2013, from 5.79% in July 2013, according to data released by the government today. A surge in primary food articles inflation to 18.2% in August 2013 from 11.9% in July 13 mainly contributed to increase in inflation during August 2013. Meanwhile, the government revised the rate of WPI inflation for June 2013 to 5.16%, from the 4.86% reported earlier.
Build up inflation rate in the financial year so far was found to be 3.91% compared to a build up rate of 4.35% in the corresponding period of the previous year.
The market now awaits the US Fed move on tapering of the stimulus at the meeting to be held on 17 September and 18 September 2013 and Reserve Bank of India's mid-quarter monetary policy review on 20 September 2013.
HSBC downgraded Indian shares to "underweight" from "neutral", citing the recent rally and downside risks to growth. The bank says that after the recent bounce, India looks relatively expensive and is most exposed to growth adjustments. HSBC adds that it expects GDP forecasts to decline and earnings growth forecasts to follow.
US indices closed in the positive on Friday in spite of the average retail sales report and a disappointing read on consumer sentiment. The consumer sentiment reading in September issued by Thomson Reuters and the University of Michigan was 76.8, down from the 82.1 reading in August.
The US and Russia announced a deal on Saturday, 14 September 2013, for Syria to destroy its chemical-weapons stockpile by the middle of 2014. The agreement halted preparation for a possible US attack on Syrian government targets in retaliation for the apparent use of chemical agents on civilians last month.
Except for Shanghai Composite (down 0.22%) and KLSE Composite (down 0.09%) all the Asian indices closed in the positive. Jakarta Composite, top gainer, up 3.35%.
European indices were trading in the positive and the US Future was trading a 1% higher.
IRDA's Insurance Repository System is going online. Insurers will save money with the green initiative due to less paperwork, mailing and one-time KYC. But will they pass on the savings to customers?
In a move to lower the costs for insurance companies and bring transparency to policyholders, finance minister P Chidambaram on Monday launched the Insurance Regulatory and Development Authority (IRDA)'s Insurance Repository System (IRS). The System will help insurers to save costs on printing and dispatching policies.
IndiaFirst Life Insurance is amongst the first to offer all life insurance policies in demat format. Its press release states, "The electronic insurance account will do away with the need for KYC norms like address and identity proof for every purchase and will bring in all the benefits of demat to the insurance business, including automatic reminders for premium."
According to IRDA's senior official, Life Insurance Corp of India (LIC) spends Rs600 on storing each policy. With e-insurance, insurance companies will save crores of rupees every year on storing of physical insurance documents, mailing and repeat KYC. According to IndiaFirst press release, "Insurance companies will have a huge cost incentive in encouraging customers to hold their policies in electronic form." But, will the savings be passed to policyholders with increased bonus or lower premium? Unlikely, because insurance companies will be paying the 'insurance repositories' for maintaining the data in an electronic format. The savings on dematerialisation of stocks has not been passed on to customers (i.e. shareholders), so why would it be any different this time?
According to Dr P. Nandagopal, CMD, IndiaFirst Life Insurance, "Going forward, we will also implement the demat format for low cost plans especially micro insurance. In these cases the costs saved will automatically be transferred to the customer. This will be taken into consideration while designing the plan itself."
IRDA recently said that five companies have been given the status of insurance repositories and are provided with a licence that will be valid till 31 July 2014. Insurers can enter into agreements with one or more repositories. The five companies are: NSDL Database Management Limited, Central Insurance Repository Limited, SHCIL Projects Limited, CAMS Repository Services Limited and Karvy Insurance Repository Limited.
The repository will give a unique number to every individual and all his life insurance policies will come under that account. The IRS will also have digitised non-life insurance policies soon. The data maintained by the repository will include history of the claims of the individual. It will also have the names of the beneficiaries, assignees and nominees. There is no trading of insurance policies in demat form and, hence, this facility may be of limited use for the customer.
Procedure for opening an e-Insurance account:
• Download the e-Insurance Account opening form from the IndiaFirst website
• Fill the form and provide the KYC documents (attested)
• Send the filled e-Insurance Account application form to IndiaFirst
• e-Insurance Account form will be sent to the respective IR (Insurance Repository) by IndiaFirst
• IR (Insurance Repository) will generate the e-Insurance Account number on the basis of information in the account opening form and inform the e-Insurance Account number to IndiaFirst Life
• IndiaFirst will credit the policy information in electronic form against the customer e-Insurance account on IR portal
• IR will intimate customer on successful upload of his policy in e-Insurance account
During August, food items became costlier by 18.8% on year-on-year basis, mainly on 245% increase in onion prices and 77.8% hike in vegetable prices
Costlier onion and other vegetables pushed inflation up 6.1% in August for the third month in a row, making it difficult for the Reserve Bank of India (RBI) to cut rates in the monetary policy review due later this week. The inflation stood at 5.79% in July and 8.01% in August 2012.
In a research note, Nomura Financial Advisory and Securities (India) Pvt Ltd, said, "Today’s data show that, even as demand remains weak, supply-side shocks from a weak rupee and higher food prices are pushing wholesale price index (WPI) inflation up. Even as we expect vegetable prices to reverse in coming months, we expect this trend of cost-push inflation to continue to drive WPI inflation higher in the near-term from currency weakness, elevated oil prices and impending fuel price hikes. We do not see demand-driven inflation as a problem in the current environment; instead, supply shocks will likely be the key driver."
During August, food items became costlier by 18.8% on year-on-year basis. The highest increase during the month was witnessed in the case of onion, which reported an increase of 245% year-on-year. Vegetable prices in general rose 77.81%. The high increase in prices was also seen in other essential food items like rice, cereals, egg, meat and fish.
India Ratings & Research, in a note said, although it expects cyclical inflation to subside from September 2013 due to good monsoon, structural factors driving food inflation will continue to exert pressure on inflation. “Moreover, the danger of suppressed inflation due to non-pass through of currency depreciation still persists. Therefore, inflation will increase as companies begin to pass through rising import costs on account of a weak rupee into the domestic market,” the Fitch group company said.
On the positive side, potato prices declined about 15% followed by pulses, which became cheaper by 14% compared to August last year.
In the case of manufactured items, sugar and edible oils became cheaper by 4.2% and 3.86%, respectively. Overall, manufactured items showed a moderate increase of 1.9%.
Raghuram Rajan, the new governor of RBI, who is scheduled to come out with his first credit policy review on 20th September, will have to take into account the rising inflation while announcing steps to boost the sagging growth.
"The key challenge for the RBI is the continued elevated level of food inflation, which is also reflected in high CPI inflation and elevated inflation expectations; these factors reduce the available space to stimulate domestic demand. In its policy meeting on 20th September, we expect the central bank to keep key policy rates (the repo rate and cash reserve ratio -CRR) unchanged, in line with consensus," Nomura said.
Ratings agency CRISIL said, it had highlighted last month that there was an upside risk to inflation from the weak rupee, which is now materialised. “Accordingly, we have revised upward the average WPI inflation forecast for this fiscal to 6.2% from 5.3%. Core inflation is low right now, but loosening of monetary policy to support growth runs the risk of creating a situation of high-generalised inflation as the supply shocks persist. We expect the RBI to leave interest rates unchanged on September 20 and also for the rest of the year,’ the unit of S&P said.
According to Nomura, the focus on 20th September would be whether the RBI starts to unwind some of its recent liquidity tightening measures, which were aimed at stabilising the currency. "Should rupee remain stable after the 17-18th September Federal Reserve meeting, a calibrated reversal of some of the liquidity tightening measures cannot be ruled out, in our view," it added.