Equity funds add Rs 10k cr in Sep

Coimbatore: Though the average assets under management (AUM) of mutual funds (MFs) fell in September due to the pullout from fixed income schemes, equity-focused funds have come up with a decent show, adding Rs 10,000 crore in the month.
Diversified equity funds have seen their asset base increase by Rs 68,719 crore or 72.3% in the last six months with the total AUMs topping Rs 1,63,681 crore in September. AUMs of tax planning funds have shot up 75.4% during the period followed by speciality funds (70.5% jump) and index funds (39.3% growth).
Equity AUMs of large fund houses have doubled since March in line with the markets, which have rallied sharply, gaining more than 100% in the last six months. While diversified equity funds reported a 5% growth in assets in September, index funds made a 13% gain and tax planning funds posted a modest 7% increase. The AUMs of diversified equity funds alone moved up by Rs 8,000 crore on the back of the 9.3% gain made by markets in September.
Equity, speciality, index and tax planning MFs have added Rs 10,020 crore to their asset base in the month, data with MF tracker NAV India shows. The pullout from fixed income schemes by corporates and banks to meet advance tax obligations has brought down the AUM of bond and liquid schemes by over Rs 1.12 lakh crore in the month, data shows. ICICI Prudential’s equity holdings grew 11.1% in September followed by the country’s top fund house Reliance that reported a 9.4% increase in its equity asset base.
With markets slowly retracing earlier peaks, equity funds have started to churn their portfolios aggressively. They made fresh purchases in the private sector banking and pharmaceuticals space and made exits from telecom, shipping and finance stocks, data shows. Mid-cap funds also churned their portfolios to some extent as the markets sustained the momentum by moving up to fresh 52-week highs.

Don't bank blindly on MF plans: Analysts

MUMBAI: Mutual fund investors are dazzled by the outperformance of the banking sector schemes in the last one year. According to mutual fund advisors, many investors are tempted to bet on the sector.

However, it could be a mistake if investors blindly go for the sector without understanding the risk involved, say investment experts.

‘‘Most investors tend to look at historical returns and decide to invest in a particular sector on the basis of it. But this a big mistake,’’ says Mukesh Dedhia, director, Ghalla & Bhansali Securities, a wealth management firm. ‘‘They should understand that different sectors tend to outperform at different point of time. For example, now the banking sector is performing, but gold was the outperformer sometime back.
Even government securities outperformed for a while,’’ he adds.

According to Krishnan Sitaraman, Director, Crisil FundServices, ‘‘all sectoral indices analysed gave positive returns in September with the banking sector topping gains with an 18% percent monthly rise. The metal, auto and healthcare sectors followed with monthly gains of 14.5%, 13.4% and 13% respectively.’’ If an investor takes a look at the returns in the past one year, he would be even more impressed. According to Value Research, an independent mutual fund tracking firm, banking sector schemes have given an average return of 65% in the last one year. Other sectors like tax planning, pharma, FMCG among others have returned around 50-52% in the same period.

Dedhia says investors should understand why the sector is outperforming and what are its prospects before investing in it. ‘‘Banking is an integral part of the whole economy. At any point of time, it will do better if the economy is in a better shape,’’ he says. ‘‘For example, banks were the worst hit when the economy was doing badly. All banking stocks were hammered down and the they were going extremely cheap. Now that the economy gathered momentum these stocks have also bounced back. That explains the outperformance of the sector,’’ he adds.

As for the future prospects of the banking sector, analysts believe it may continue to do well. ‘‘We are again on the path of growth. If the economy is growing at a decent pace, it is inevitable that banks would do well,’’ says an analyst with a broking firm. Dedhia also share the view: ‘‘The sector would continue to do well, but it can be volatile as it is directly linked to the economy,’’ he says. That is why he believes that it is not the right time to recommend it to investors.

‘‘As a general rule, investors should have 80-90% of equity portfolio in diversified schemes. Rest they can invest in sectoral schemes, provided they really understand how the sector works,’’ says Dedhia. ‘‘Investors should remember that sectors tend to get into cycles and one can lose money if you don’t properly understand how it works,’’ he adds.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Dont-bank-blindly-on-MF-plans-Analysts/articleshow/5137927.cms

INSURANCE

Marine cargo premium income growth falls to 3%

Low economic activity and unwillingness by insurers to underwrite loss-making portfolios led to a fall in business for segments such as marine cargo and health.
According to the latest data by the Insurance Regulatory and Development Authority (Irda) premium income from marine and cargo fell around 3 per cent while income from health went up by 2.65 per cent during the first quarter of the current financial year.
The industry’s growth was dominated primarily by health and motor, with income from motor gaining 5.47 per cent during April-June. Motor accounted for 39 per cent of the overall collection. Motor Own Damage went up by 5 per cent and was 25 per cent of the total collection.
Income from health accounted for 21 per cent of the total premium collected by the industry during the period.
At the same time income from marine cargo fell due to a decline in the number of shipments as well as the value of consignments. Insurers attributed the fall to low export and domestic activities but are hopeful of an improvement in the portfolio.
Of late, insurance companies have been focusing on prudent underwriting practices. During the first quarter of 2009-10, income from fire went up by 7.65 per cent. This segment had recorded a 3 per cent drop during the last financial year. The discount on fire is still hovering around 80 per cent.
Income from aviation went up by 32 per cent mainly because of increase in premium on aviation.

http://www.business-standard.com/india/news/marine-cargo-premium-income-growth-falls-to-3/373807/

BANK

RBI moots new norms for pricing loans

The benchmark prime lending rate (BPLR) is set to give way to a new loan pricing regime. Called Base Rate by a committee of the Reserve Bank of India (RBI), it will represent the bare minimum rate below which it will not be viable for banks to lend.
The working group, which reviewed the system of lending rates, said in a report today that the Base Rate could serve as the benchmark for floating rate loans.
The change is not only in the name. The committee wants banks to bring more transparency in pricing products and to reflect changes in policy rates. In addition, the committee is aiming to abolish sub-BPLR lending. Currently more than 70 per cent loans are priced below the BPLR.
To make the new rate responsive to RBI’s policy rates, the group suggested that banks would have to announce their base rates quarterly. The Base Rate and the actual minimum and maximum rates will also have to be placed in public domain.
Taking 2008-09 data, the RBI panel has worked out the Base Rate at 8.55 per cent. A few bankers, however, felt that lending rates might come down only marginally if the new methodology was followed. In addition, a few private sector lenders, which have separate reference rates for retail and corporate lenders, will have to discontinue this practice.
At present, the BPLR of banks varies from 11 per cent to 16 per cent.
The committee, headed by Deepak Mohanty, executive director, RBI, suggested that the rate be calculated taking into account the one-year retail term deposit rate for less than Rs 15 lakh after adjusting for the cost of current and savings accounts, negative carry of the cash reserve ratio and the statutory liquidity ratio and overhead costs (which will comprise a minimum set of overhead cost elements and average return on net worth). At present, State Bank of India offers 6.25 per cent for deposits of one-two years.
“The actual lending rate will be the Base Rate plus borrower-specific charges, which will include product-specific operating costs as well as risk and tenor premiums,” said the working group.
The group suggested that the proposed system apply to new loans as well as to existing loans coming up for renewal.
The committee recognised that banks might have to lend below their base rates in certain situations. However, to ensure that sub-Base Rate loans do not “proliferate,” the group has stipulated that 15 per cent of the banks’ incremental lending in a year can be below the Base Rate. But such loans can have maturities of less than one year.
The group further said that the non-priority sub-Base Rate lending should not exceed 5 per cent of the banks’ incremental lending and that banks would be free to extend the entire sub-Base Rate lending of up to 15 per cent to the priority sector.
The committee also recommended deregulation of lending rates for small borrowers for loans up to Rs 2 lakh.
In order to incentivise exporters, the interest rate on rupee export credit should not exceed the Base Rate of individual banks, said the panel.
The group felt the need to continue with administered rates for educational loans and recommended that the rates on all education loans should not exceed the average Base Rate of five largest banks plus 200 basis points.

http://www.business-standard.com/india/news/rbi-moots-new-norms-for-pricing-loans/373812/

Tata Motors ties-up with Andhra Bank for vehicle financing

Mumbai: Tata group company, Tata Motors on Tuesday entered into an understanding with Andhra Bank for financing its range of commercial vehicles.
Andhra Bank will offer loans for Tata Motors commercial vehicles up to 90% of the on-road cost (including vehicle cost, road tax and insurance), for a tenure ranging up to 6 years, at a competitive rate of 12.5%, the company said in a statement here.
The tie-up would provide an added facility of finance to Tata Motors’ customers.
This facility would be available at all the 1,550 branches of Andhra Bank and commercial vehicle dealerships of Tata Motors.

http://www.livemint.com/2009/10/20133927/Tata-Motors-tiesup-with-Andhr.html

Credit card rates may dip

Mumbai, Oct. 20: There is a good news for the credit card holders who are wary about huge interest rates charged for revolving the balance amount. Currently, the card issuer charges an interest in the range of about 24 to 48 per cent per annum.
In the near future, interest rates on credit cards may
decline for the customers accepting to pay the annual charges. Taking lead, SBI Cards, India’s second largest credit card company, is thinking of reducing the rate of interest on balance payment — three per cent per month — for their 30 lakh subscribers.
However, to avail this, the subscribers would have to pay annual charges in the range of Rs 500 to Rs 1,500. For the new customers, SBI Cards has already started charging annual fees for credit cards.
A senior SBI Cards official, however, refused to give an exact timeline, but he said that the interest rate would be cut when enough number of subscribers opt to pay annual fees.
Mr Diwakar Gupta, the chief executive officer of SBI Cards, said: “We are in the process of changing the credit card model that would make the credit card a valuable proposition for both the customers and the provider company.”
“Traditionally, cards were allotted free and hefty interest was charged. In short, one set of customers was cross-subsidising the other set. Now we have started charging annual fees for the new customers, so credit cards won’t come for free,” he said adding that a lower interest rate would make credit cards affordable to the customers.
ICICI Bank, however, has stopped expanding its credit card portfolio since the last one year. According to the spokes-person of ICICI Bank, “The bank’s policy is to reduce the exposure towards the unsecured credit segment. Hence the bank is not looking to increase its subscriber base.”
Credit statistics
* Total number of credit cards: 1 crore
* ICICI Bank tops the credit card issuers with 33 lakh customers.
* SBI Card is second with 30 lakh credit card customer base.
* ICICI Bank has stopped adding new subscribers since past one year, while SBI has been adding customers in the past two years.
* SBI Cards is adding about 30,000 subscribers per month and would become number one player in the next one year.

http://www.deccanchronicle.com/business/credit-card-rates-may-dip-548#

SEBI

SEBI finds it difficult to crack down on insider trading

MUMBAI: US regulator SEC’s action against Raj Rajaratnam and his hedge fund Galleon for alleged insider trading has brought market practices in India under the spotlight. While the Indian capital markets regulator (Sebi) has been attempting to crack down on insider trading, it has met with limited success.

The perception that insider trading was widespread, prompted the Indian government to come out with rules to curb this practice in 1992. Interestingly, under Indian securities law, regulations prohibiting insider trading were among the first to be issued after Sebi was set up as an independent regulator under an act of Parliament.

A slew of measures including disclosure norms, Companies Act and listing agreement helped curtail insider trading activities in the primary market, that is buying or selling when a company is about to go in for a public issue. But the practice soon shifted to the secondary market.

Recently, Sebi tightened its insider-trading norms by broadening the definition of the term insider to include any person who is and was connected with a company and is the recipient of price-sensitive information. The norms prohibit trades by a designated insider for a period of six months of him/her acquiring the shares. The stricter regulations were aimed at curbing the misuse of price-sensitive information, especially by those working in senior positions in listed companies.

Says former Sebi executive director-legal affairs Sandeep Parekh: “Insider trading occurs in every jurisdiction in the world. A simple look at the stock chart of a company just before a major corporate announcement would reveal hectic buying activity starting a few days or even a few weeks in advance of the public news.

However, catching an insider trader who flies under the radar is nearly impossible. Insiders can go undetected, if purchases or sales are made in some friend’s name and are of a small number. This ensures merging with the rest of the crowd, which is acting on rumours of inside information.”

During 2007-08, of the 169 cases in which investigation were completed about 17% pertained to insider trading.
Under the new rules, there is also an absolute prohibition on such persons from taking positions in derivative transactions in the shares of the company at any time. In the case of subscription to initial public offers, a designated insider will have to hold their investments for a minimum period of one month. Says C Achuthan, former presiding officer of SAT: “It is very difficult to prove insider trading cases, because of the evidentiary requirements in such cases.”

In the Rajaratnam case, US SEC has taken into account the recorded conversations between various accused. Added Mr Parekh: “In an insider trading case, it must be shown that inside information actually went from the insider to the person who actually traded. Mere friendship of the two is not sufficient. Thus, the link must be proven using telephone records, etc which can be difficult to obtain.”

“The only cases where insider trading is easy to prove is where the number of shares bought or sold is very large and some level of communication and other circumstantial evidence can be shown indicating a preponderance of probabilities of trading arising out of such communication,” he said.

Legal experts opine that unlike Sebi, the SEC has a lot more resources at its disposal to go after such cases with a budget nearly 100 times that of Sebi. Also the SEC’s enforcement division has manpower that is more than twice that of Sebi.
http://economictimes.indiatimes.com/markets/analysis/SEBI-finds-it-difficult-to-crack-down-on-insider-trading/articleshow/5143683.cms

Galleon under Sebi watch

The Securities and Exchange Board of India (Sebi) said it is “closely watching” investments made by New York-based hedge fund Galleon, whose Sri Lankan founder Raj Rajaratnam was arrested for alleged insider trading on Friday.
Top Sebi sources said there was no concrete evidence so far of any insider trading in the Indian market by the hedge fund, but the regulator would not leave anything to chance.
Prima facie, the regulator does not see much damage, as the hedge fund has investments in only three listed companies in India – 7.04 per cent in Edelweiss Capital, 4.61 per cent in Shriram EPC and 0.22 per cent in Pipavav Shipyard, which listed recently. It also has investments in Reliance Telecom Infrastructure, but details are not known as the company is still unlisted.
Two of the stocks came under heavy selling in initial trade on the Bombay Stock Exchange today, but recovered towards the end of trading. For example, the Pipavav Shipyard stock plunged as much as 16.6 per cent, before recovering to trade down 1.2 per cent at Rs 56.45. The hedge fund bought Pipavav shares as a part of its pre-IPO placement. The shares have a one- year lock-in.
The Edelweiss stock fell 3 per cent to close at Rs 504 on concerns that the shares held by Galleon might come up for sale. But the stock recovered from the intra-day low of Rs 494.50 on reports that the Edelweiss management was in talks with the hedge fund to buy back the stake.
While Edelweiss declined to comment saying it was in the silent period ahead of its second-quarter results, sources close to the firm said it had over 60 foreign institutional investors and Galleon’s stake was the fourth largest. It has already received offers from 15 foreign institutional investors should Galleon want to sell.
The Shriram EPC stock, however, went up by 7.8 per cent to close at Rs 235.20.
The sources said most of the other investments by Galleon in India were in the form of participatory notes (P-notes), which are derivative instruments used by investors or hedge funds that are not registered with Sebi to invest in Indian securities, so it would be difficult to ascertain the amount of such investments. Since the fund is still active, the shares it holds via P-notes might come up for sale in the coming days.
http://www.business-standard.com/india/news/galleon-under-sebi-watch/373837/

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