The market will continue to react to only specific events, like oil prices
The Indian markets suffered a rough day today following an oil price spike on the worsening crisis in Libya and fears of an interest rate hike that hit rate-sensitive stocks across the board. The global weakness was compounded by worries in the political arena for the ruling United Progressive Front government as it southern ally, the DMK decided to pull out its ministers from the cabinet.
Today's fall on Sensex and Nifty was the second biggest fall since 21 February 2011. Both the Sensex and the Nifty opened with a negative gap at 18,362 and 5,490 respectively. It turned out to be the day's high for the Sensex, whereas for the Nifty the intra-day high was 5,491.
The market was sharply down till around 1pm, after which it tried pulling back and recovered quite a bit of the day's losses. The intra-day low on both the Sensex and the Nifty was 18,059 and 5,408 respectively. In the end the Sensex closed down 264 points at 18,223 and the Nifty ended down 76 points at 5,463. The advance decline ratio on the National Stock Exchange was 400:1319.
In the Sensex stocks, five gained while 25 were in the red. The major gainer was Wipro which gained 1.04%, while Tata Power, Cipla, NTPC and ITC also ended up between 0.03% and 0.96%. Oil price fears dragged auto stocks to the bottom of the 30 stocks. Tata Motors and Maruti Suzuki were the major losers on the benchmark, falling 3.64% and 3.73% respectively.
Among the Nifty stocks, there were nine gainers while 41 stocks fell. Here too Tata Motors was the worst loser (down 4.21%).
All the 13 sectoral indices on the BSE were in the negative. The biggest loser was BSE-Auto, which fell 2.55%. The other major loser was BSE-Capital Goods that lost 2.36%. it is widely expected that the Reserve Bank of India will raise key interest rates by 25 basis points in its monetary policy review on 1st March, as inflation has stayed well above the target. The BSE Bankex was among the bottom five sectoral indices today. Losing 1.60%.
In line with the 1.43% fall in the Sensex, the BSE Midcap and BSE Smallcap also fell 1.41% and 1.43% respectively.
US crude rose to a 30-month high above $106 on Monday as civil unrest worsened in Libya. At home, the pull-out by the DMK could make things more difficult for prime minister Manmohan Singh to push through his agenda and economic reforms. But reports that the DMK would continue to support the government from outside contributed to recovery of the market post-noon. The Sensex rose 164 points from its intra-day low of 18,059, but still closed in the negative.
The sale of equities is finding its way to precious metals. Both gold and silver surpassed all previous records to hit new highs today. While gold surged Rs200 to Rs21,420 per 10 grams on rising seasonal demand, silver rose by Rs1,250 to Rs54,450 per kg on heavy buying by stockists and industrial units.
Dr C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said today that a hike in domestic fuel prices would become "inevitable'' if oil prices remained high. However, he said food inflation would decline from March.
"You see, the impact of the decline in vegetable prices started somewhere in the second week of February. Therefore, even the February numbers may not fully reflect the impact of the decline in vegetable prices. March numbers, I believe will show the result (and) it will come down. One can expect a sharper decline in March,'' he said.
In the Asian markets, the Nikkei 225 fell 1.76%, the Seoul Composite lost 1.22% and the Hang Seng was down 0.41%. The Shanghai Composite was the top gainer up 1.83%, the Jakarta Composite gained 0.53% and the Straits Times was up 0.17%.
Today, FIIs were net sellers of equities worth Rs92.24 crore, while the DIIs were net buyers by Rs45.57crore.
Pune: Enforcement Directorate officials today conducted raids at the Koregaon Park house of stud farm owner Hasan Ali Khan, who has been accused of money laundering and tax evasion, a day before the Supreme Court's 8th March deadline to the government to inform it about how it is tackling black money hoarders.
Two teams of the Enforcement Directorate (ED) from Mumbai that came here this morning searched the residence of Mr Khan, who lives at Valentine Society in the posh Koregaon area. Khan, also a real estate consultant, is under the scanner for suspected money laundering and for allegedly transferring cash and valuable assets outside the country by unlawful means and with the help of some foreign nationals, PTI reports.
It has been estimated that he had stashed away over $8 billion in Swiss banks. However, no offence has been registered against Mr Khan by Pune police. Mr Khan has been summoned by the ED to appear in person on 10th March, under the Prevention of Money Laundering Act. It has been reported that be is undergoing medical treatment in Mumbai.
Meanwhile, a report from Kolkata, quoted the Enforcement Directorate as saying that it had conducted raids on the residence of businessman Kashinath Taparia, allegedly an aide of tax evader Hasan Ali Khan. Mr Taparia is the brother of late Priyamvada Birla. His wife is also said to be a party to hawala operations.
Mr Khan appeared before income-tax authorities in Mumbai on 18th February, apparently in connection with notices issued to him on 31 December 2008, for alleged tax evasion on undisclosed funds in several foreign bank accounts, including $8 billion in an account in the Zurich branch of UBS. However, UBS denied any business relationship with him.
Previously, the income-tax department had searched Khan's Koregaon residence in January 2007.
Tax enforcement agencies are trying to locate properties that Mr Khan may have abroad which could be attached or auctioned to extract from him the huge tax liability amounting to about Rs 40,000 crore.
On Thursday, the Supreme Court criticised the central government for not having the "will power" to act against black money hoarders and asked why Mr Khan and others were not subjected to custodial interrogation, despite investigating agencies having sufficient material. "What the hell is going on in this country," the judge asked, and observed that the alleged offenders were a "pampered lot".
Expressing its displeasure over the manner in which Mr Khan and other alleged offenders were given repeated opportunities through adjournments by the ED, the judge said the authorities were "hoodwinking" everybody and wondered whether the same leniency would have been extended to petty offenders.
The Court also indicated that if the government failed to act, it would be compelled to appoint a special officer to supervise the probe against the offenders. The court granted the Centre time till 8th March to declare its position in the matter, failing which it would be constrained to pass appropriate orders.
On Friday, the ED also issued a 'look-out' notice to all airports for Mr Khan, to try and ensure that he does not leave the country.
Birla Sun Life has launched an innovative ULIP. It is a combination of the highest NAV concept along with entry at lowest NAV of that year. How long will it be before other insurers copy it? Will investors really benefit with this unique approach?
Birla Sun Life Foresight is a new concept that combines an offer of highest NAV (net asset value) approach along with an offer of entry at the lowest NAV of that year to attract the conservative investor. It surely is a unique approach, but investors need to understand the concept before jumping to buy the policy. The concept is applicable only when premiums are paid for five years and the policy remains in force for the policy term of 10 years. It is not going to perform any worse than a 'regular' highest NAV ULIP (unit-linked insurance plan), but the gains will also be limited due to high exposure to debt just like in a highest NAV ULIP. The highest NAV plan is not for those interested in good returns from their insurance.
The highest NAV part is the same as other products wherein the policyholder gets the highest NAV recorded on any day in seven years (say, the 1st calculation). The lowest NAV concept is a separate calculation made for five years wherein the premiums are invested with the lowest NAV of that year. This is to give policyholders the cheapest entry point of the year for their premium. The highest NAV in five years is used to calculate gains with respect to lowest NAV entry of each year for the premium paid (say 2nd calculation). We cannot assume that this 2nd calculation will yield more money than the 1st calculation. This is simply because the duration for the 2nd calculation is five years and 1st calculation is seven years. An investment that is mostly in debt funds will increase its NAV over time. The maturity value at the end of policy term of 10 years is greater of the above two calculations (1st calculation and 2nd calculation) or fund value at the end of the policy.
On 25th February, Moneylife received an email from a reader who explained her interaction with a Birla Sunlife agent regarding this plan. We assume agents had already started sales even though the official launch of this product was only on 3rd March. The reader mentioned about the highest NAV in seven years combined with the lowest NAV for entry in that year. This is how mis-selling may happen. It is not seven, but five years.
Moneylife explained the highest NAV concept in a cover story, "What is the right life insurance" (22 April 2010) and why these policies are not the best options. (What is the Right Life Insurance?).
The most important point to understand is that insurance companies are guaranteeing NAVs and not returns! Are the two different? Yes. The NAV is a number at a point in time, whereas returns happen over a period of time. For instance, your 10-year plan may have hit an NAV of Rs14 after five years. At that point, it is the highest NAV. This Rs14 is guaranteed for the next five years. What if the NAV remains at Rs14 for the next four years, or goes down to Rs13? You would still get this NAV of Rs14. But Rs14 happens to be just 4% over 10 years!
Birla Sun Life Foresight plan has self-managed and guaranteed options (concept explained above). In the self-managed option, the policyholder has 10 options of varying debt/equity ratio to choose from. The maximum equity exposure is 80% to 100%. The policyholder can switch between different options. Consistent with other highest NAV plans, the insurer reserves the right to have investments in different instruments (debt, equity) in proportion of 0% to 100% for the guaranteed option.
The policyholder can switch from guaranteed option to self-managed option, but not vice-versa. In that case the policyholder loses the guaranteed benefit.
The minimum premium for the Foresight plan is a hefty Rs2lakh for a single premium or Rs1 lakh for regular premium of 5-pay. The policy term is 10 years.
The premium allocation charge (PAC) is 5% of the premium. There is no policy administration charge. There is a fund management charge of 1% to 1.35% p.a. of the fund value and an investment guarantee charge of 0.25% p.a. (single premium) or 0.40% p.a. (regular 5-pay). The overall charges are in line with the average charges for other new ULIPs. The mortality charges vary with the age and given in the tables, seem to be on higher side.
On the unfortunate demise of the life insured prior to maturity, the insurer shall pay to the nominee the basic sum assured plus the fund value as of the date of intimation of death.
The minimum sum assured under the regular 5-pay policies for age (at entry) below 45 years is 10 times the annualised premium, while it is 7 times the annualised premium for others. In case of single-premium policies, for age (at entry) below 45 years, the minimum sum assured is 1.25 times the single premium, while it is 1.10 times the single premium for others.
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