The Indian market has rallied strongly over four days. It may pause now
The local market opened in the red as concerns about high crude prices led investors to book profits early in the day, halting the three-day gains. It remained in negative territory for most part of the morning. However, news of a possibility of a solution to the crisis in Libya lifted the indices above the neutral line and up to the day's high.
The market was range-bound till around 2pm, after which selling pressure pushed the benchmarks lower. Volatile trade continued in the late session leading to a close with marginal gains.
The Nifty, which had hit an almost eight-month closing low of 5,226 on 10 February 2011 (starting 16 June 2010), has almost retraced the latest fall from 5,600 on 18th February. In the current rally the indices have made higher highs and lower lows each day which is one indication of its strength.
Today's trading session was an extremely volatile one. The Sensex and Nifty opened gap down at 18,318 and 5,478, respectively. During the initial hours of trading, the market fell to its intra-day low of 18,254 and 5,468. However, in the morning session itself, both the indices hit intra-day highs of 18,604 and 5,571, reacting to the news that the Libyan situation is likely to reach a peaceful solution. A sharp sell-off, however, followed immediately and the market went into the red in the afternoon. Eventually, the Sensex closed 43 points up at 18,490, while the Nifty rose 14 points to 5,536. The advance-decline ratio on the National Stock Exchange was 809:898.
The market breadth on the Sensex and Nifty favoured the gainers with the Sensex closing with 16 advancing stocks and 14 in the red, while the Nifty had 27 gainers and 23 losers. Among the broader markets, the BSE Mid-cap index gained 0.33% and the BSE Small-cap index rose 0.21%.
In the sectoral space, the BSE Capital Goods index (up 2.35%), BSE Auto (up 1.86%) and BSE Consumer Durables (up 0.45%) were the top gainers. The major losers were BSE Metal (down 0.79%), BSE Oil & Gas (down 0.67%) and BSE TECk (down 0.66%).
Jaiprakash Associates (up 3.31%), BHEL (up 3.30%), Reliance Communications (up 3.27%), Larsen & Toubro (up 3.17%) and Tata Power (up 3.09%) were the key performers on the Sensex. Reliance Infrastructure (down 3.30%), Bharti Airtel (down 2.12%), Infosys Technologies (2.02%), Tata Steel (down 1.72%) and Sterlite Industries (down 1.70%) settled at the bottom of the list.
Food inflation declined by more than a percentage point to 10.39% for the week ended 19th February from 11.49% in the previous week and 21.62% in the corresponding period a year ago. The fall in food inflation has been attributed to a reduction in prices of onions, potatoes and pulses. However, prices of fruit, milk and vegetables as a group continued to remain high. The decline in the prices of certain food items will have a favourable impact on headline inflation in February.
Headline inflation, as measured by the wholesale price index (WPI), stood at 8.23% in January, much above the comfort level of 5%-6%.
Recovering from steep losses incurred in the previous session, markets in Asia-with the exception of the Shanghai Composite-closed with modest gains, as the recent market decline made stocks cheaper for investors. However, concerns about the turmoil in the Middle East and the fall-out on crude prices made market participants nervous. The South Korean benchmark rose following an increase in industrial output in January, mainly on exports. On the other hand, speculation over another round of rate-tightening pushed the Chinese market lower.
The Hang Seng advanced 0.32%, the Jakarta Composite rose 0.24%, the KLSE Composite gained 0.51%, the Nikkei 225 surged 0.89%, the Straits Times was up 0.33%, the Seoul Composite jumped 2.20% and the Taiwan Weighted ended 1.37% higher. On the other hand, the Shanghai Composite declined 0.34%.
Oil slipped for the first time in three days in New York after reports that Venezuela has offered to mediate a resolution to the crisis in Libya. Crude for April delivery slid as much as $1.86, the biggest decline since 24th February to $100.37 a barrel in electronic trading on the New York Mercantile Exchange. It settled at $102.23 a barrel on Wednesday, the highest since 26 September 2008.
Brent crude for April settlement fell as much as $3.26, or 2.8%, to $113.09 a barrel on the London-based ICE Futures Europe exchange, the biggest decline since 12th November.
Gold, which touched a record $1,440.32 an ounce on Wednesday in London, is expected to ease on news that Libya's Muammar Qaddafi and Venezuelan president Hugo Chavez have discussed steps to resolve the crisis.
Back home, foreign institutional investors were net buyers of stocks worth Rs418.51 crore on Tuesday. Similarly, domestic institutional investors were also net buyers, pumping in Rs95.64 crore in the equities segment that day.
Siemens Healthcare Diagnostics has received approval from the Gujarat High Court for its merger with Siemens (up 0.64%). The company had already received similar approval from the Bombay High Court on 28 January 2011.
Siemens is the Indian arm of Siemens AG, a German infrastructure solutions company, which recently announced an open offer to buy a 20% stake in Siemens at a price of Rs930 per share, translating into a total cost of Rs6,200 crore.
Media firm NDTV (up 2.47%) has completed the process to sell 49% stake for $40 million (about Rs180 crore) in its arm NDTV Lifestyle Holdings Pvt Ltd (NLHPL) to Astro All Asia Networks Plc. By a subscription of shares for $40 million, Astro All Asia Networks now has an effective indirect stake of 49% in NLHPL.
Last September, NDTV had announced it was entering into a strategic alliance with South Asia Creative Assets Ltd (SACAL), a subsidiary of Astro All Asia Networks Plc, for lifestyle channels in India.
Panacea Biotec (up 1.27%) has signed a non-exclusive marketing agreement with Uruguay's Laboratorios Clausen SA, allowing the Latin American firm to market the Indian company's organ transplant drug, Pangraf in Europe.
The deal which will begin from the first quarter of the next fiscal is expected to rake in about $12-15 million over the next two years. With this agreement, the Delhi-based firm will be able to explore further opportunities in new global markets.
After staying shut for several months, PayPal has decided to follow RBI guidelines for online payment services while Plimus has discontinued the direct purchase option for India-based vendors
Several online payment gateways like PayPal and Plimus, which have facilitated the sale of goods and services by Indian exporters, are choosing to shut their services rather than follow the guidelines by the Reserve Bank of India (RBI). However, this may have left several small services providers like software programmers in lurch, as they are unable to receive any payment for their work or services rendered to overseas customers. In addition, they might have to opt in for costlier options to receive payments from abroad.
The central bank has said in an email to Moneylife, "While Plimus has not given any specific reasons for removing the direct purchase option for purchases from India-based vendors, it is presumed that this is a direct consequence of the card companies imposing restrictions on foreign payment gateway service providers acquiring payment transactions for Indian merchants through foreign acquiring banks, in compliance with the laws of the country as well as their operating guidelines."
"These service providers acquired and settled all card transactions in foreign currency (irrespective of whether the card is issued in India or abroad). Further, the guidelines issued by the Reserve Bank of India on 16 November 2010 on the processing and settlement of export-related receipts facilitated by online payment gateways may also have resulted in many of such services being stopped," the RBI stated.
PayPal, which facilitated sale of goods and services by Indian exporters, also conducted money transfer business without any specific authorisation from the RBI. According to the Payment and Settlement Systems Act, 2007, money transfer is defined as a payment system and therefore requires the permission of the central bank. "This was brought to the notice of PayPal and they were advised to stop their money transfer business. Further, so far they have not applied to RBI for authorisation to do this business," the central bank said in the email.
Although PayPal provided money transfer service to and from India, neither the company nor its account holders paid any tax on the transactions. According to comments posted on techcrunch.com in February last year, many Indian account holders ask the payee to make the payment as a 'gift', rather than payment for services, to avoid PayPal fees. One such comment said: "A lot of business must be transacted in India via PayPal-business done with personal transactions. So a money-hungry Indian government is aggravated at some perceived revenue loss (taxes, customs, etc) and (has) put pressure on PayPal to stop the payments either directly or indirectly." (Read: PayPal services to and from India to remain suspended for months )
In January this year, PayPal's spokesperson Dickson Seow, wrote in a blog that beginning 1 March 2011, any balance in and all future payments into the PayPal account of an Indian may not be used to buy goods or services and must be transferred to a bank account in India within seven days. He regretted the inconvenience caused specially to global users, starting 1 March 2011, in their purchases from and payments to Indian merchants valued at over $500 per transaction. "For purchases or payments above this transaction value, you will have to use an alternative payment method," Mr Seow wrote.
The service models of some online payment gateway service providers (OPGSPs) have facilitated not only conclusion of cross-border export transactions from India, but also permitted exporters to retain the export proceeds abroad without repatriation, resulting in violation of provisions of the Foreign Exchange Management Act (FEMA), 1999. For transactions routed through online payment service providers, export proceeds are required to be repatriated within seven days of the receipt of confirmation from the importer. This condition is not applicable for export transactions under FEMA, where the proceeds need to be repatriated immediately once realised. In addition, there were concerns about these service providers holding export proceeds till repatriation. In view of the need to protect exporters and ensure that they do not unwittingly violate the provisions of FEMA, the RBI has restricted the transaction value of exports to $500 and mandated that the proceeds should be placed in a Nostro account of an Indian bank by the service providers.
A Nostro account is that account with a bank in a foreign country, usually in the currency of that country. Banks usually prefer to keep a Nostro account so that they do not have to make a currency conversion (which brings with it a foreign exchange risk) should an account holder make a deposit or a withdrawal in the foreign currency.
The RBI has also asked online payment service providers to open liaison offices in India, with the central bank's approval, within three months from the issue of the guidelines. (The guidelines were issued in November, so the deadline for opening liaison offices has passed.)
Some of the service providers may have found adherence to the RBI guidelines tough and costly and so they have decided to shut services for Indians. With fewer firms remaining in the fray, the user may now have to pay more for services.
(Read more: The payment processing industry-I, ;
The payment processing industry-II, The payment processing industry-III, )
January, February and March are crucial months for the life insurance industry. The new business premium collection for January was 20% lower than December 2010 for individual single premium policies, while it was 10% lower for individual non-single premium policies
January, February and March are crucial months for the life insurance industry. It is surprising to note that new business premium (NBP) for January was 20% lower than the NBP of December 2010 for individual single premium policies. NBP for January was 10% lower than the NBP of December last year for individual non-single premium policies.
Insurance companies are coming out with new traditional plans due to business shifting away from ULIPs (Unit-linked Insurance Plans). However, this does not explain why NBP has dropped substantially. Even the behemoth Life Insurance Corporation (LIC) of India was not spared.
According to GV Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance, "The mix of ULIP to traditional policies is currently 60:40, earlier it was 80:20. The ticket size of traditional policies is smaller when compared to current ULIPs and that also leads to lower premium collection. January sales were disappointing, but we are optimistic about the balance of this fiscal year. March is the biggest month for insurance companies."
Dr P Nandagopal, managing director and chief executive officer, IndiaFirst Life Insurance, told Moneylife, "The tax pitch for selling insurance products is no longer completely applicable. Today, people are buying insurance spread over all months. There are more sales in JFM because lot of part-time agents work rigorously in these months. Our company has no agents till now and relies solely on bancassurance of Bank of Baroda and Andhra Bank."
He added, "There has been a slowdown in business after Insurance Regulatory and Development Authority (IRDA) regulations and insurers filing for new products. The industry may be coming out of traditional plans, but we are not giving any preference for traditional plans over ULIPs due to commissions. We have kept the same level of commission. Another reason for the slowdown is that the pension market has dwindled. We are waiting for new regulations for pension ULIP products. A 4.5% guaranteed pension ULIP is not in the best interest of the customer too."
It is possible that customers do not see any major benefits from the new IRDA guidelines on ULIPs post 1 September 2010. Moneylife had earlier written how the charges have increased for ULIPs instead of decreasing over the period of five or more years. (See: 'The New Old ULIPs' ).
According to the information Moneylife collected while talking with industry personnel, insurance companies that grew inorganically during the lucrative days of ULIPs closed down many branches and downsized a number of agents. Life insurance companies are on a cost-cutting spree.
Again, the agents who got into the ULIP selling business for securing high first year commissions have moved on to other careers.
The instant gratification of hefty commission in the first year is no longer present as the commissions are spread over the years and depend on renewal of policies. Insurance in India is sold and not bought. Insurance companies now lack good sales agents.
Here is an email text we recently received from a disgruntled insurance company agent (name withheld) who disclosed names of a couple of insurance companies: Please note, these comments do not apply for all insurance companies.
"Life Insurance companies are on an expense-management drive, I would like to share with you something which companies have done in the last six months to cut expenses.
- Closed down branch offices (so-called non performing branches to the tune of 10%).
- Removed the security staff in the existing branches after 8:00pm.
- Removed all the vending machines serving tea & coffee in all the branch offices. The head office has all the facilities.
- Done away with hand soap in the toilets of branch offices.
- Done away with bus facility to pick up & drop employees.
Employees are resigning due to loss of morale, employees spend more time in the office than their home and such steps are having a negative impact on their performance. Insurance business is tough, but January, February and March are our peak selling season and they are nowhere near their targets. The irrational exuberance which existed has vanished. It's an irony how will companies who are not sensitive to their employees would be sensitive to their customers."