ESCORTS MUTUAL FUND

MFs raise equity holdings, lower cash levels

COIMBATORE: Buoyed by the strong rise in markets and signs of sustained recovery, mutual funds (MFs) continue to buy equity. Equity holdings of MFs,  which  hit a low of 78.3% in February, have been increasing since the rally began in March and have breached the 90% mark for the first time in more than a year.

Consequently, the cash level of diversified equity MFs declined sharply to 8.56% in August, a 16-month low, data with HDFC Securities shows. Fund houses, which maintained cash levels of 18% to 21% between October and March to weather the market storm, started deploying money in the market in a big way in the post-election rally.

They have hiked equity holdings by nearly 10% since April. Exposure to equity topped 91.4% in August when net asset value of diversified equity funds stood at Rs 96104.8 crore, data shows.

Large fund houses including Reliance, HDFC, ICICI Prudential and UTI have witnessed an increase in the equity component of their assets under management. “There has been an improvement in confidence levels of companies. This has been reflected in the markets as well,” says A Balasubramanian, CEO, Birla Sun Life MF.

MFs have bought net equity worth Rs 7040 crore between March and August, data with Sebi shows. They have bought net equity to the tune of Rs 4680 crore so far this year with the bulk of the buying coming in May and July, Sebi data shows.

“We are (now) seeing fully invested portfolios,” says Balasubramanian. Fund managers chose to invest as the markets showed sustained signs of recovering from the lows, according to HDFC Securities analyst Tiju K Samuel.

Given the low interest rate scenario and sluggish growth in most developed countries, global investors are likely to increase exposure to emerging economies such as India, says Sivasubramanian KN, senior portfolio manager, equity, Franklin Templeton. “India is expected to remain one of the fastest growing economies and would enjoy a premium in terms of valuations,” he says.

http://economictimes.indiatimes.com/articleshow/5040255.cms

RIL continues to be top pick of MFs in Aug '09

Reliance Industries continued to be the top held stock by the mutual funds (MFs) in August, 2009. ONGC, ICICI Bank, TCS, HDFC and Sterlite Industries moved higher on the favourite stocks list, while SBI, HDFC Bank, NTPC, ITC, Tata Power, Jaiprakash Associates, Jindal Steel & Power slipped. Maruti Suzuki India, Cairn India and Punj Lloyd entered into the top 20 list but Axis Bank, Reliance Infrastructure and GAIL India moved out of this list.

Moneycontrol study of the equity portfolios of 34 mutual funds for the month of September, 2009 revealed that banks, capital goods, oil & gas, power, IT, auto, FMCG, metals and cement stocks were fund houses' favourites while buying interest in pharma and realty stocks was negligible.
 
Banking and Capital Goods stocks occupied MFs top held stocks list. In the banking space, ICICI Bank, HDFC moved up to the 3rd position and 10th postion from the 4th position and 12th position respectively. SBI and HDFC Bank slipped to fourth and 11th positions from second and 12th position respectively.
 
In the capital goods pack, L&T, BHEL and Crompton Greaves held same 6th, 7th and 14th positions respectively. However, Punj Llyod was newly entrant stock.
 
In the oil & gas segment, Reliance Industries continued to be the favourite stock. ONGC moved up one slot to occupy the 2nd position. Cairn India was new introduced in the top 20 list.
 
In the power pack, NTPC, Tata Power and Jindal Steel & Power slipped to the 12th, 16th and 19th positions from the 11th, 13th and 17th positions respectively.
 
The list of top 20 stocks showed buying in select IT, auto, FMCG, metals and cement stocks as MFs bought Infosys, TCS, Maruti Suzuki, ITC, Sterlite Ind and JP Associates.
Reliance Industries, RIL, was the top held stock by 17 out of the 33 MFs in August, 2009. The stock continued to be the favourite with all that 17 MFs over the month of July.
SBI and Bharti Airtel, the next top favourite stocks were held by three MFs each. Canbank, AIG and Templton top bought was Bharti Airtel and Benchmark, Reliance and DSP top bought stock was SBI.

INSURANCE

An SMS could end your vehicle's insurance-free ride

MUMBAI: Insurance regulator Insurance Regulatory and Development Authority (IRDA) is deploying technology which will enable a simple SMS query to ascertain whether a vehicle is insured or not. The move will help bring within the insurance net the lakhs of uninsured vehicles in India.

IRDA is working on a Vehicle Insurance Status SMS System (VISSS) project which envisages creation of a huge database created from motor policy information supplied by all insurance companies.

In a draft report, IRDA said the VISSS would provide an additional facility to police authorities to verify insurance status of the vehicle. At present, the only proof of insurance, which the policy can rely on, is the insurance certificate which has to be produced when demanded by a police officer. But despite the statutory requirement of third-party liability insurance, insurers estimate that a large percentage of registered vehicles in the country are uninsured. According to data released by the insurance industry, there are around five crore policies in force while the total number of vehicles are over eight crore.

A common searchable database has been discussed by the industry for several years. Besides identifying uninsured vehicles it would also enable companies to ascertain the claim histories of vehicle that seek to buy insurance from others when their rates are raised for poor claims track record. One reason why the database could not be completed was that the different level of computerisation of various companies. Speaking at a recent reinsurance summit, insurance regulator J Harinarayan had lamented at the lack of co-operation among industry participants to even share basic information on insured vehicles.

Vijay Kumar, who heads the motor insurance business at Bajaj Allianz General Insurance, said, “From production numbers, it is obvious that there are many uninsured vehicles. Each of the large manufacturers produce nearly two million two-wheelers every year, while the number of policies is less than 20 million,” he said. He added vehicles end up being underinsured usually, because the insurance premium from them is too low to make it economical for the company to do a persistent follow-up.

Motor insurance is one of the portfolio of the non-life insurance industry. In motor mainly two types of policies are issued, ‘Package’ policy and ‘Liability only’ policy. Package policy or comprehensive covers ‘Own Damage’ and ‘Third-Party Liability’ where as ‘Liability only’ policy covers the statutory ‘Third-party liability’ only. Under the provisions of Motor Vehicles Act all vehicles which ply in public places must be insured to cover third-party liability.

Under the new system, anyone who wants to know the insurance status of any vehicle plying in India has to SMS the registration number of the vehicle to a telephone number connected with the portal. The vehicle registration number will be searched in the system and insurance status of the vehicle with period of cover will be sent through SMS. In case of new vehicles, insured for the first time, instead of registration number, engine number or chassis number of the vehicle needs to be sent.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/An-SMS-could-end-your-vehicles-insurance-free-ride/articleshow/5040335.cms

Insurers cut rates as film makers rush for cover

As producers rush to insure their films from delays in launch due to unforeseen circumstances such as a strike or a natural calamity, insurers are offering covers at lower rates.
The premium for film insurance has fallen from 0.8 per cent of the sum assured to 0.4 per cent in the last two months.
United India Insurance has been into the film insurance business for long. Of late, the other three public sector players, Oriental India, National India and New India Assurance, have jumped into the fray to have a share of this business. A few large private sector insurers such as Bajaj Allianz are also present in this segment.
“After the two-month-long strike by multiplexes and delay in releases due to swine flu, the awareness about covering losses has gone up. With more players coming into the market, the rates have fallen. We are moving away from most of the recent movies as the rates are unviable,” said a senior executive at United India Insurance.
Movies such as Life Partner and Kaminey, which had a delayed launch as multiplexes and theatres closed due to the swine flu scare, didn't incur losses as they were insured. Though the insurer is yet to estimate the loss, the film makers will not suffer much, say industry sources.
While the policy covering production is the most popular, the cover against loss of profit in distribution is increasingly becoming popular.
The distribution loss for What’s your Rasheee?, which is releasing on October 2, has been insured by Oriental Insurance for Rs 20 crore.
The source added that there was a huge demand for annual cover by big production houses such as UTV, Sony and Yash Raj. This would insure any number of films made in a particular year.
The production policy insures lead actors, crew and film sets, while a distribution insurance covers losses suffered by the producer when the release of the film is stalled due to any reason.
The third most popular is the errors-and-omission insurance. Under this policy, legal matters are taken care of and the insurance company pays the court fee of the producer.

http://www.business-standard.com/india/news/insurers-cut-rates-as-film-makers-rush-for-cover/370832/

BANK

Pvt placement debuts in public sector banks

Punjab & Sind Bank plans to offer 5% each to top institutions
Public sector player Punjab & Sind Bank (PSB) is drawing up plans to privately place equity shares with institutional investors ahead of an initial public offer next year.
The Delhi-headquartered bank intends to offer around 5 per cent each to institutional players such as the Life Insurance Corporation of India, General Insurance Corporation, Small Industries Development Bank of India (Sidbi) and UTI Asset Management Company, a bank executive familiar with the plans told Business Standard.
This follows the Reserve Bank of India's rejection of the bank's proposal to sell a 30 per cent stake to Sidbi. Sources close to the development said RBI was not comfortable with the idea of an entity other than the government holding more than 10 per cent in a commercial bank.
 

PSB, which has turned around over recent years by restructuring and recovering bad debt, was aiming to raise Rs 600 crore to Rs 700 crore by selling the stake to Sidbi.
This is a first private placement of its kind in the public sector banking space. At the start of the decade, LIC had acquired a 26 per cent stake in Corporation Bank. But by then the bank was already listed.
The executive said the bank's IPO, planned for 2010-11, could provide an exit route for investors who will participate in the private placement. As a move towards an IPO, the government had also restructured the bank's capital by converting Rs 560 crore of equity capital into perpetual debt instrument and preference shares.
Asked about the development, PSB Chairman and Managing Director G S Vedi told Business Standard: “We can place the equity with a number of players who can see value in the bank. The IPO will also provide an exit route for that. In that process, I will be able to divest 20 to 25 per cent.”
Vedi also said the price at which institutional investors acquire stake could serve as the benchmark for the IPO.
PSB is one of the two unlisted banks of the country. The other player – Kolkata-based United Bank of India – is planning an initial public offer in the fourth quarter of the next financial year.
At the end of March 2009, Punjab & Sind Bank's capital adequacy ratio was estimated at 11.88 per cent, much above the regulatory requirement of 9 per cent. It intends to raise resources to fund its growth plans.
The bank sees 30 per cent year-on-year growth for at least two years and aims to reach a business figure (advances plus deposits) of Rs 100,000 crore by the end of 2010-11 against Rs 65,000 crore at present.

http://www.business-standard.com/india/news/pvt-placement-debuts-in-public-sector-banks/370859/

RBI deputy governor expects the economy to grow around 6% in 2009-10.

Reserve Bank of India (RBI) Deputy Governor Usha Thorat on Monday said India needed to build foreign exchange reserves when the going was good, so that it could use them as a buffer during crises.
“We have all learnt to build reserves when the going is good. The cost of sterilisation, indirect or direct, does not matter. But it will come in handy when really needed,” Thorat said addressing the 20th Annual Forex Assembly here.
India's foreign exchange reserves, which had topped $316 billion in May 2008, have come down to about $281 billion.
Thorat said countries such as India would have to manage and deal with volatile forex flows.
RBI's policy is to encourage genuine inflows and discourage flows aimed at reaping arbitrage opportunities.
She said foreign flows supplemented domestic savings and helped boost growth.
Thorat also said the Indian economy was likely to grow around 6 per cent in 2009-10 (April-March).
In 2008-09, India had grown 6.7 per cent, lower than around 9 per cent in the three previous years.
Thorat said portfolio inflows and short-term trade credit shot up in April-June.
However, she said, according to international credit agencies, trade flows and remittances, which had declined sharply following the global financial crisis, would take time to get back to normal.
She said reversal of capital flows could be destabilising for economies.
She declined to comment on increasing banks’ held-to-maturity cap for government securities.
At present, banks can keep a maximum of 25 per cent of their net demand and time liabilities in the segment. They have requested the central bank to increase this limit by 2-3 per cent.

http://www.business-standard.com/india/news/need-to-buildforex-reserves-as-buffer-against-crises-thorat/370838/

SEBI

Mixed response to Sebi's proposed audit rules

The proposed tightening of audit and disclosure norms, as mooted by a panel of the stock market regulator, Securities and Exchange Board of India (Sebi), has evoked a mixed response from companies and auditors.
In an attempt to avoid Satyam-like frauds, a Sebi panel has suggested rotation of audit partners signing the accounts and giving more teeth to the company’s audit committee (in clearing the selection of a CFO and ensuring the independence of the auditors), among other measures.
While some auditors say it provides a good framework to take governance seriously; others feel it is incremental and reactionary in nature, much like the US responded with the Sarbanes-Oxley Act after the collapse of Enron and Worldcom.
That’s fine, as a good legislation is about responding to a situation in a time-sensitive manner, feels Jamil Khatri, head of accounting services, KPMG. ‘‘It will bring much higher levels of vigilance, conscience around governance on how the audit committee or audit partners take their jobs. It provides a good framework for people to start behaving in a needed manner, to bring governance into focus,’’ said Khatri.
Take the proposal to make the audit committee responsible for the independence of the auditors. ‘‘If the audit committee is a rubber stamp, no amount of empowerment will help. But if you put more responsibility on the audit committee, they will become more vigilant,’’ said an auditor, who didn’t wish to be quoted on this aspect.
Typically, the big audit firms offer a range of services like tax audit and consultancy. An empowered audit committee may not allow non-audit services, both in terms of nature and volume of work. ‘‘It’s a good check to ensure that auditors remain independent and conflict-free, both in form and substance,’’ explained an auditor.
The proposal to rotate audit partners every five years will be a good check on auditors who may otherwise become complacent if they remain auditor for a company for life. In today’s environment, this will make the auditors more diligent. As companies have more complex operations, rotating partners is a better option than rotating audit firms.
But this could also restrict the growth of small audit firms, who have just two or three partners. They will be left with no option but to merge with other firms to acquire scale. Unless the proposal is implemented with prospective effect, which will give these firms time to organise, it could hurt their business. Many listed companies are still audited by small audit firms, though many bigger companies have moved to the big four.
But auditors feel it’s impractical to give the audit committee a say in the selection of the CFO. They feel this is not a constructive step, as the audit committee may end up being a rubber stamp. ‘‘They don’t have the competence to judge a CFO. It’s very judgemental, and they may not have the basis to doubt the competence of a CFO,’’ said a CFO.
Experts say nowhere else, not even in the US, does the audit committee appoint a CFO. ‘‘The CFO has to work with the CEO and others in the management. There’s no point in having a dysfunctional team. The audit committee cannot be the panacea for all ills. Then in the world nothing would have gone wrong,’’ said a Delhi-based auditor.
Rahul Roy, partner, Batliboi & Co, the audit arm of Ernst & Young, says that in many good companies the audit committee interacts with CFOs when he’s appointed. The audit committee has been made powerful, and vested with authority. “It’s like carrot-and-stick. If they don’t function, you can hold them responsible,’’ said Roy.
But auditors have welcomed the proposal whereby companies could early-adopt the IFRS, the new international accounting standards, before April 2011. KPMG’s Jamil Khatri believes this will provide momentum to the convergence, as many companies are likely to adopt it as early as by March 2010 or June 2010. The experience of the early-adopters could help others make the transition.
But many think the proposed changes in legislation are incremental and in response to the Satyam scandal. ‘‘It’s just a waste of time. Every time you have a scandal, the regulators jump in, and formulate laws. This is not the way to amend laws,’’ said a Delhi-based auditor, who didn’t wish to be quoted.
Auditors point out that some of the changes proposed by Sebi are already embodied in the Companies Act or other regulations. The Institute of Chartered Accountants in India, for instance, mandates rotation of audit partners every seven years. The Sebi panel has also suggested that listed firms must present audited balance sheets every six months against the current practice of doing it once a year.
‘‘A more frequent disclosure of the asset-liability position of companies would assist shareholders in assessing the financial health of the companies, thereby helping them in making informed investment decisions,’’ the panel said in a discussion paper on the Sebi website. ‘‘You have six-monthly audits, quarterly reviews, full-year audits and tax audits. We are getting into the situation of too many audits,’’ said an auditor.
The panel is also in favour of reducing the time available for companies to file their audited financial results from 60 days to 45 days for each of the first three quarters of a fiscal year. Auditors say a majority of the companies declare their quarterly results within a month and pushing the deadline by another 15 days won’t make a difference.
Seshagiri Rao, Joint MD & Group CFO, JSW Steel, feels the changes mooted won’t make a big difference to companies. ‘‘Some of them are compliance issues which you need to fulfil as per the listing agreement with the stock exchanges.’’ The scope of the audit committee is (already) very wide, and covers a wide range of area,” he said. “Even today, the appointment of the internal auditor is done by the audit committee.”
http://www.business-standard.com/india/news/mixed-response-to-sebis-proposed-audit-rules/370872/