MUTUAL FUND

Mutual funds make most of the good run, now look for signals

Bakul Chugan Tongia, ET Intelligence Group

Returns from equity schemes of mutual funds are soaring, thanks to the record rally and near full investment by fund managers who believe that shares may still appreciate.

The net asset values (NAVs) of most schemes have surged to their 52-week high in September 2009 from their yearly lows around six months ago, according to ETIG calculations.

The average cash levels in equity schemes across fund houses today have slumped to around 4-5 % of their total funds, from average highs of nearly 12-20 % six months ago when the fund managers were not sure about the direction of markets.

http://economictimes.indiatimes.com/quickiearticleshow/5025039.cms

Third-party info may nab tax evaders

NEW DELHI: The Central Board of Excise and Customs is examining a proposal to put in place a third party information system to tackle service tax evasion, a move that could place an obligation on some key data sources such as the Reserve Bank of India, Telecom Regulatory Authority of India, Registrar of Companies, National Highways Authority of India to provide the relevant information to the apex indirect tax body.

A finance ministry official told ET that the proposal had figured in the discussions at the recent annual conference of chief commissioners of excise and customs.

The board had introduced a Third Party Information System (TPIS) for excise duty last year and now wants to replicate the experiment with service tax. The idea is have an effective and non-intrusive system that can provide all relevant data without causing any hardship to taxpayers, the official said requesting anonymity.Data from stock exchanges on brokers’ turnover, details of revenue of telecom companies from Trai, external commercial borrowing and agency commission received by banking and financial services providers from RBI, information of e-ticketing from Railways and highway toll collected by contractors from NHAI are some of the third party sources of information that are under consideration.

The TPIS, effectively used world over to check tax evasion, was first introduced by the Central Board of Direct Taxes in the form of annual information returns (AIR). AIRs are filed by Mutual Funds , credit card issuers, property registrars reporting transactions above the specified threshold.

Purchase of property for over Rs 30 lakh, over Rs 2 lakh spend in a year through credit card or investment of over Rs 2 lakh in mutual funds have to be mandatorily reported by these third parties. This data is then matched with a taxpayer’s income tax return to detect any discrepancy in the income declared and expenditure incurred to ensure there is no evasion.

The CBEC had devised a third party information model for excise duty last year that made it mandatory for manufacturers to file a separate statement on installed capacity, details of electricity supply connection including total number of meters installed and sanctioned electricity load, permanent account number and value added tax registration number. Power consumption data has proved very useful for the Excise Department in tackling evasion.

http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/Third-party-info-may-nab-tax-evaders/articleshow/5024647.cms

FIIs, MFs keep fingers crossed over valuation, eye correction

MUMBAI: The Nifty may have revisited the 5,000-mark, but there appears to be a lack of euphoria that was seen, when the level was first breached  around the same time in 2007. At least the data suggests this.

The share of turnover of foreign institutions and mutual funds in Indian equities has fallen to around 25-35%, of late, from 50-60% in 2007. The data does not include the share of insurance companies and retail investors.

Though there has been a surge in the number of foreign institutions participating in Indian equities over the last six months, brokers said, of late, they are now waiting on the sidelines for a correction. This is because these investors are conscious about stock valuations, with most stocks doubling since March 9.

What differentiates the current period from that in 2007 is that investors still lack the confidence in the global economy and markets that was seen then. In 2007, most foreign funds invested heavily in emerging markets, including India on borrowed money, several times their capacity. The unwinding of such positions precipitated the market fall starting January 2008.

Brokers said valuations factor in estimated earnings of 2009-10 and even some part of 2010-11, but still they do not expect the recent upsides to recede soon. The reason is the significant money supply sloshing around.

“The past few days’ run-up in the market is largely liquidity-driven. But what is driving this liquidity is optimistic future. We have already seen most of the worst and there is a strong belief that from hereon, fundamentals will only get better,” says the head of a Mumbai-based brokerage.

The upcoming earnings season will be closely watched by investors to get a hint of what is in store in terms of corporate earnings, going forward.

Some in the market feel it would not be reasonable to compare the foreign institutional activity in 2007 and 2009, given that economic conditions are different. While in 2007, the Indian economy was moving at a rapid 8-8.5% growth rate, now it has mellowed to around 6%.
http://economictimes.indiatimes.com/articleshow/5024785.cms

Regulator wants systems audit of mutual funds

Within two days of making a series of proposals to prevent Satyam-type accounting scams, the Securities and Exchange Board of India (Sebi) today said mutual funds would need to have a systems audit conducted by an independent certified information systems auditor (CISA) or its equivalent authority.
The market regulator has advised fund houses that the audit should be conducted once in two years. For financial years 2008-2009 and 2009-2010, Sebi said the systems audit should be completed by September 30, 2010.
The domestic mutual fund industry manages assets of over 7.5 lakh crore.
“The audit should be comprehensive, encompassing systems and processes inter alia related to integration of the front-office system with the back-office system, fund accounting system for calculation of net asset values, and financial accounting and reporting systems,” said Sebi. It added the audit would also look at “unit-holder administration and servicing systems for customer service, fund flow processes, system processes for meeting regulatory requirements, prudential investment limits and access rights to systems interface.”
Nimesh Shah, chief executive officer of ICICI Prudential Mutual Fund, said, “We welcome this step and we will follow the direction as we have been given a year’s time. It is good for the industry and since the industry is in a serious business of managing people’s wealth, it is an important requirement.”
Fund CEOs that Business Standard spoke to said since new regulatory norms had come up and more players were preparing to enter the market, the systems of fund houses should be in compliance with the new regulatory norms.
Such a move would bring robustness to the industry, they said.
Sebi also asked the fund houses to place both audit and compliance reports before the trustees. These, along with the comments of the trustees, should be communicated to Sebi.
http://www.business-standard.com/india/news/regulator-wants-systems-auditmutual-funds/370293/

HDFC Mutual likely to float IPO by early 2010

HDFC Mutual Fund is planning to float an initial public offer (IPO) by early 2010, industry officials said today.
The fund house is planning to list itself in January,” a leading mutual fund distributor said. Other details about the IPO were not available. HDFC Mutual Fund officials, when approached, did not comment. Milind Barve, managing director, HDFC MF, could not be reached for comments. Recently, Housing Development Finance Corp (HDFC) Chairman Deepak Parekh had said it plans to list both insurance, and mutual fund companies, and plans to come out with the mutual fund’s IPO first. India’s second largest HDFC-sponsored fund house in August managed average assets worth Rs 93,874 crore, up 12.6 per cent over the previous month. HDFC Mutual will become the first domestic mutual fund to list on bourses if the proposed IPO materialises. In 2008, UTI Mutual was forced to shelve off its IPO plans due to turbulent and weak stock market conditions.

http://www.business-standard.com/india/news/hdfc-mutual-likely-to-float-ipo-by-early-2010/370417/

BANK

Citigroup CEO says $100 mn annual pay is too much

NEW YORK: Citigroup Chief Executive Vikram Pandit said on Thursday that $100 million is too much for an employee to earn given the bank's  circumstances.

In an interview before an audience in New York, when asked if $100 million was too much money for a Citigroup employee to earn given the government support the bank has received, Pandit said, "Yes."

Andrew Hall, a trader at a Citigroup unit, is contractually entitled to a 2009 pay package that could be worth $100 million. Pandit noted that the business Hall works at, an energy trading unit known as Phibro, had contracts in place that predate Pandit's tenure.

Pandit said Citigroup is working to turn the Phibro business from an operation that trades the bank's money into a unit that manages other investors' capital.

http://economictimes.indiatimes.com/news/international-business/Citigroup-CEO-says-100-mn-annual-pay-is-too-much/articleshow/5025297.cms

SBI eyes more profits from overseas operations

MUMBAI: State Bank of India, the country’s largest bank, plans to increase the share of profits from overseas branches to 10% of total profit from 8%  in 2008-09, said bank chairman OP Bhatt.

He also said that over the next few years the bank is aiming to increase the share of overseas operations in its business to 25% from 13.5%, currently. In a year’s time SBI is looking to add 40 overseas offices. Currently, the bank has 132 foreign offices.

SBI is looking to scale up presence in the UK by setting up five new offices in the next one year. In Nepal, SBI is planning to add 11 more branches. Other destinations SBI is looking at expanding include Canada, California, Sri Lanka, Bangladesh, Saudi Arabia, West Asia and Hong Kong.

Mr Bhatt also said that the bank plans to make London its administrative hub to control its European business. “London will be one of pillar for growth of our international operations,” he said.

At present, SBI has seven branches in the UK and has balance sheet size of close to £3 million. He made this announcement in presence of Lord Mervyn Davies, UK’s minister for trade and investments. State-run SBI is also likely to finalise its expansion plan in Singapore in the next couple of months.

SBI has received approval for opening 25 points of presence, which include branches and ATMs, under the treaty between India and Singapore. So far, the bank has opened eight offices in Singapore and it plans to add 16 more in the next one year.

As of now, India-related services dominate its overseas operations. “Going forward, we would like to have at least 25% of business from local non-Indian customers and balance can be connected to India,” Mr Bhatt said. Talking about overseas acquisitions, Mr Bhatt said that the bank was not averse to inorganic growth.

http://economictimes.indiatimes.com/News-by-Industry/SBI-eyes-profits-from-overseas-ops/articleshow/5024513.cms

IT projects to cut costs for banks: KPMG

Many of the banks in the country are planning to deploy technology related projects over the next one year, with an aim to reduce costs and ensure business growth, a study by global consultancy KPMG says.
According to the IT current status survey, which focused on identifying key technology trends in Indian banks, about 40 per cent of the respondents have a technology-related project lined up over the next one year to address cost reduction issues.
“Technology is now being considered for deriving strategic advantage for effective business growth and cost reduction projects within the bank,” the report said.
Around 50 per cent of the banks surveyed consider e-commerce, mobile banking and financial inclusion initiatives as key areas for strategic growth, the survey revealed.
Meanwhile, capital and operational expenditure in IT by majority of the banks currently hovers around one to three per cent of their annual revenues, it added.
“Appropriate investment in technology is today considered key. This has various ramifications— ensuring profitability, enhancing value to the end customer and addressing overall societal development,” KPMG India (IT Advisory Head) Kumar Parakala said.
“Over the past year, various banking institutions have been introspecting on efficacy of their system implementation through programmes such as constitution of reviews of core banking systems, conducting IT security efficacy studies and evaluation of value-added systems,” Kumar added.
Besides, close to 60 per cent of the banks surveyed feel the top technology challenges are in keeping up with changes to regulatory guidelines and implementing Basel II.
It was also noticed that important channels of customer outreach such as automated teller machine (ATM) and card service management have been outsourced, showcasing increasing levels of comfort with respect to technology outsourcing, the survey said.
Application consolidation and process/ workflow automation along with virtualization were the top cost reduction initiatives, the survey added. The information in this survey is based on data received from the top management and technology leaders of 15 leading banks in India.
The survey probed key trends in technology that enables banking processes and feedback received on factors such as cost, proposed technology initiatives and technology strategy, have also been collated.

http://www.business-standard.com/india/news/it-projects-to-cut-costs-for-banks-kpmg/369705/

SEBI

SEBI's transparency norms may change IPO game

NEW DELHI: The stock market regulator’s move to create a level-playing field between institutional and other investors by prohibiting companies doing initial public offers (IPOs) from sharing financial projections with research arms associated with the sale arrangers may change the way IPOs are sold to  investors investment bankers say.

Since analysts associated with investment bankers who are selling the issue cannot make financial projection, it would be difficult for the advisors to come up with price estimates even in pre-IPO road shows, said a leading investment banker on condition of anonymity.

The Securities and Exchange Board of India, or SEBI, came out with a new disclosure and investor protection guidelines on September 3, which state that the research report should be only based on the published information as contained in the offer documents which analysts at non-arranging brokerages and retail investors rely on. Before SEBI’s rule tweak, the market practice was for banks advising companies to share financial numbers with the analysts associated with their research department, which in turn prepare a report making their own future projection in comparison to the peer group. These reports are subsequently shared with institutional investors prior to filing the prospectus. They are not meant for the retail or ordinary investors.

But the new guidelines say that “no selective or additional information or information extraneous to the offer document shall be made available by the issuer or any member of the issue management team/ syndicate to any particular section of the investors or to any research analyst in any manner whatsoever including at road shows, presentations, in research or sales reports or at bidding centres”.

Research houses not associated with the issue and have no access to the company’s financial details can make their own projections based on publicly available information. In the recent NHPC share sale, for instance, CLSA, a unit of France’s Calyon, which was not advising on the issue, said the issue was overpriced in comparison to its peer group.

Some 30 companies, which were planning to file prospectus for public offers by September 30, including Sahara Prime City, Lodha Developers, Emaar MGF, and Godrej Properties, have to decide the prices at which they plan to sell their shares based on the new rules. These companies plan to raise between Rs 3,000 crore and Rs 5,000 crore.
http://economictimes.indiatimes.com/Market-Analysis/SEBIs-transparency-norms-may-change-IPO-game/articleshow/5020592.cms

Foreign investors pour in $9 bn this year

Overseas investors have poured Rs 43,837 crore ($9.05 billion) into the country’s stock markets so far this year.
At the close of trade today, overseas investors were gross buyers of shares worth Rs 4,17,121 crore and gross sellers of stocks valued at Rs 3,73,283 crore, resulting in a net flow of Rs 43,837 crore so far this year, according to the data with market regulator Securities and Exchange Board of India (Sebi).
The Bombay Stock Exchange Sensex has gained nearly 73 per cent so far this year. The National Stock Exchange barometer Nifty — composed of 50 shares — has also advanced fairly. It touched 5,000 today for the first time in more than a year.
Global fund houses have made net investment of Rs 3,564 crore in September so far, according to the data.
After pulling out a hefty Rs 52,986 crore ($11.9 billion) from the markets, overseas investors are now moving their money back to emerging economies like India.
However, in the debt market segment, overseas investors have not turned net investors so far.
According to the Sebi data, FIIs have been net sellers of debt instruments worth Rs 527 crore ($49 million) in 2009 so far.
http://www.business-standard.com/india/news/foreign-investors-pour-in-9-bn-this-year/370421/

Takeover panel seeks inputs, next meeting on October 10

The Securities and Exchange Board of India (Sebi)-appointed Takeover Regulations Advisory Committee has sought suggestions for framing the new takeover norms by October 31. The next meeting of the panel is scheduled on October 10.
With a number of members absent from the meeting, the committee did not discuss the demerits of the existing Substantial Acquisition of Shares and Takeovers Regulations and discussed how to approach the review.
A sources in Sebi told Business Standard, “The committee is not going to sit idle till the next meeting. We will start collecting information and start evaluating it.”
C Achuthan, former presiding officer of the Securities Appellate Tribunal, is the head of the committee.
The regulator had constituted the committee on September 4 to suggest amendments to the takeover regulations. Since the takeover code came into existence in 1997, it has been amended only once.
http://www.business-standard.com/india/news/takeover-panel-seeks-inputs-next-meetingoctober-10/370447/

SEBI invites suggestions on M&A code

Our Bureau
Mumbai, Sept. 17
Securities and Exchange Board of India-constituted Takeover Regulations Advisory Committee (TRAC) has invited suggestions from the public on any aspect of the Takeover Regualtions, about which they may believe that intervention in the form of a review is required, according to a SEBI release.
Suggestions
The TRAC has been constituted by SEBI to review the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations and to suggest suitable recommendations for amendments to the Takeover Regulations.
The Committee is headed by Mr C. Achuthan, former Presiding Officer of Securities Appellate Tribunal.
Suggestions and inputs in a given format have been invited from the public by October 31.
http://www.thehindubusinessline.com/2009/09/18/stories/2009091851901000.htm

Economy

Inflation turns positive as food stays pricey

NEW DELHI: The annual rate of inflation came in at 0.12% for the week ended September 5, ending the 13-week decline in the wholesale price index   (WPI) as prices of food articles showed no signs of abating.

Inflationary pressures are beginning to build up with retail inflation already in double digits. With the comfort of negative inflation for the most widely-watched WPI also gone, economists expect the Reserve Bank of India (RBI) to take steps to suck out excess liquidity from the system and even resort to selective credit control.

However, indications are that RBI is not likely to take any steps till there is more conviction about the economic recovery. At a conference in the Capital earlier this week, central bank governor Duvvuri Subbarao had said, “We will not exit from the expansionary monetary policy unless we are sure that recovery is secured... But soon after the recovery is secured, we have to unwind the accommodative monetary policy.” RBI has already factored in inflation touching 5% by the year-end.

The central bank has cut interest rates six times between October 2008 and April 2009 and pumped in liquidity to boost the economy reeling under the worst global recession since the Great Depression.

Reverse repo—the rate at which RBI sucks out liquidity and repo—the rate at which RBI injects liquidity—are currently at 3.25% and 4.75%, respectively. These rates were at 6% and 9% when RBI started easing policy in response to the global financial crisis. There is close to Rs 1.5 lakh crore in the system, internal calculations by treasury benches at various banks show.

The government, too, does not seem unduly worried about the overall inflation though it is worked up about the sharp rally in prices of food articles. Finance minister Pranab Mukherjee told the media in New Delhi that inflationary pressures in the economy are expected, and the inflation figures released for the week ended September 5 are in line with expectations.

The Union Cabinet on Thursday extended the control imposed under the Essential Commodities Act, which makes de-hoarding operations more effective, by another year to October 2010 to address food price inflation.

According to Abheek Barua, chief economist at HDFC bank, the spike in food price inflation is triggered by inflationary expectations rather than supply-demand concern. The annual inflation for food articles has touched a decade high of 15.42%. “There is too much liquidity in the system now and the central bank is expected to go easy on open market operations to bring down liquidity. We are also expecting certain sector-specific credit control measures,” Mr Barua added.

Cabinet secretary KM Chandrasekhar, who is closely monitoring the inflationary scenario in the country, told ET earlier this week that the selective credit control mechanism needs to be adopted to address inflationary pressures building up in certain segments of the market.

http://economictimes.indiatimes.com/Economy/Inflation-turns-positive-on-pricey-food/articleshow/5024593.cms

Inflation turns positive after three months

Primary articles, especially food items, pushed the headline inflation rate, as measured by the wholesale price index (WPI), into positive territory at 0.12 per cent for the week ended September 5, after staying in the negative for 13 weeks.
The inflation rate rose marginally from -0.12 per cent a week ago, and 12.42 per cent for the corresponding period in 2008.
Most analysts expected the inflation rate to turn positive when the base effect runs out of steam by the end of the current month.
“The primary articles category, especially the food items, are exerting incremental pressure. Weak monsoons have led to speculative activities especially in the perishable items like fruits, vegetables, eggs and milk, which have added to the pressure. Rise in prices of food grains is primarily due to supply side problems,” said Subhada Rao, chief economist with Yes Bank.
Economists, however say that even though the Reserve Bank of India is already concerned about the inflation rate, a neutral monetary policy will continue until there are stronger indications of economic recovery.
In its July policy review, the central bank left its key policy rate unchanged after cutting it by 425 basis points between October and April.
“I do not think that the RBI will react to inflation figures as of now. Other factors like demand and credit will have to be taken into consideration as far as monetary policy is concerned,” said DK Joshi, principal economist with Crisil, a research and ratings firm.
“The manufacturing index is not exerting any inflationary pressure. Therefore, the demand for manufactured products has not yet picked up. So, I expect some selective measures like increasing margins for lending against select commodities, but more or less it will be neutral,” Rao added. However, most analysts say that the point-on-point inflation rate will be much higher than RBI’s July estimate of 5 per cent by the end of this year.
http://www.business-standard.com/india/news/inflation-turns-positive-after-three-months/370504/