MUTUAL FUND

Longer trading hours likely to add to Mutual woes

MUMBAI: The prospect of extended stock market hours soon is giving mutual funds some nervous moments. The anxiety is over the additional pressure  that the extra trading hours will put on the mutual funds and custodians to meet the daily deadline to submit the net asset values (NAV) of equity schemes.

As per existing norms, the NAVs have to be uploaded on the Association of Mutual Funds of India (AMFI) website before 9 pm everyday. While custodians, who manage the back-office operations of mutual funds, just about manage to meet the deadline at the moment, mutual fund and custodian officials said the extension of trading hours will make it difficult for them to meet the deadline.

“Even when the markets closed at 3.30 pm, we just about managed to submit the NAVs before deadline. Now, at 5 pm, we do not know how will we meet it, especially with the quality checks that need to be followed,” said a top official with a leading private mutual fund.
Last week, capital market regulator Sebi, in a circular, permitted stock exchange to begin the day as early as 9 am and keep the market open for trading till 5 pm.

Mutual fund officials said the deadline to submit NAVs will need to be extended by at least an hour-and-a-half, if the stock market’s close is stretched to 5 pm.

A top Sebi official told ET that the matter will be considered once the new timings are implemented by exchanges, though he added that the industry is yet to approach the market regulator to extend this deadline.

One of the hindrances to uploading the NAVs on time is the delay by stock exchanges in releasing the final data on futures and options, which are a part of the portfolio of several equity schemes today. Currently, the final derivatives data arrives at around 6 pm.

Mutual funds are worried that setting up new systems, including more manpower, will result in escalation of costs, especially when business has been hit following the new fee structure for distributors in August.

Custodians said insurance companies also may be burdened with higher costs, as they need to adhere to similar deadlines to submit NAVs for the unit-linked Investment Plan (Ulips), which constitute a sizeable chunk of their assets.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Longer-trading-hours-likely-to-add-to-Mutual-woes/articleshow/5166513.cms

Mahindra Finance awaits nod for AMC to float MF business

MUMBAI: Mahindra Finance, part of the $6.3 bn Mahindra Group, plans to enter into mutual fund business through an asset management company, a top company official said here.

"We have lodged an application to launch an asset management company (AMC) to float a mutual fund and it is under process of review with the regulatory authority," Mahindra Finance's Managing Director, Ramesh G Iyer, told PTI on the sidelines of a press meet here today.

Once licence is issued, we would be able to float mutual fund business in the next 4-6 months period, Iyer said.

The company hopes to provide mutual fund products to vast untapped rural market customers, he said.

Mahindra Finance, one of India's leading non-banking finance company registered on a consolidated basis a growth of 10 per cent in its total income at Rs 368 crore for the second quarter ended September, 2009 as compared to Rs 334 crore during the same period last year.

During the 2nd quarter, the profit after tax (PAT) doubled to Rs 72 crore from Rs 36 crore in the corresponding quarter of the previous year.

During the first half of financial year 2010, the total income on consolidated basis increased by 10 per cent at Rs 704 crore as against Rs 638 crore in the same period of the previous year.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Mahindra-Finance-awaits-nod-for-AMC-to-float-MF-business/articleshow/5165399.cms

Mutual funds offload stocks worth over Rs 5000 crore this month
(MFs) sold shares worth a net Rs 308.90 crore on Friday, 23 October 2009, lower than Rs 558 crore on Thursday, 22 October 2009.
MFs' net sales of Rs 308.90 crore on 23 October 2009 was a result of gross purchases Rs 618 crore and gross sales Rs 926.90 crore. The BSE Sensex rose 21.07 points or 0.13% to 16810.81 on that day.
MFs sold shares worth a net Rs 5093.70 crore in October 2009 (till 23 October 2009). MFs had sold shares worth a net Rs 2334.60 crore in September 2009.

  endowment plans, money-back policies, pension plans and term policies) making a strong comeback.

A larger share of the traditional products helps insurance companies in commanding a better valuation before they start tapping the markets. Agents are also pushing these products as there is no cap on the commission for traditional products.

As of now, 70% of the new insurance sold in India is unit-linked where investments are mostly in equities while 30% is traditional products. In 2007-08, Ulips had an 80% share. The share of Ulips is expected to decline further to 60% in the current fiscal.

A shift in the industry towards protection products and traditional products in the coming years can be expected according to T R Ramachandran, CEO and MD of Aviva Life Insurance, one of the leading private life insurers who were aggressive in the ULIP segment.

Currently, less than 5% of Aviva’s business comes from traditional products. In the next few years they are expecting traditional products contributing to at least 10-15% of overall business.

“As the insurance companies are likely to be given a chance to tap the market with in 5 years from the date of starting the operations, the shareholders are beginning to ask some hard questions. So the companies will have to make the money sweat harder and focus on valuations and profitability of the business,” Mr Ramchandran added.

Shashwat Sharma, Director at KPMG pointed out that the reversal in trend is going to gather further momentum. ” While tapping the markets the valuation of the companies is going to be affected by the product mix that they have. More of traditional products, both in new business category and the existing business, will help the companies in gathering a better valuation. So with the companies in a position to tap the market after operating for 5 years it is logical to expect a shift to traditional products,” added Mr Sharma.

Embedded value is the basis for determining the long-term earnings of a company. For insurance companies, it is the valuation of future premiums for the present policies. The standardisation in valuation of insurance companies would facilitate comparison across different insurance companies easier.

A leading insurance provider in the country, Max Newyork Life made it clear that they will be focusing more on the traditional products segments. “Although the charge on ULIP is capped, we will be looking at ways in which individual agents will take the least hit. We will try to make some adjustment in overall product structure. At the same time, we will be focusing more on the traditional products,” said Prashanth Tripathy, Executive Vice President at Max Newyork Life.

In the four years to the financial year 2008, unit-linked products have been steadily gathering market share on the back of the booming stock market. With the sensex having a dream run from 6,000 levels to 21,000 in less than 4 years the ULIPs gathered an 80% market share on back of investors’ exuberance.

A buoyant stock market has helped ULIPs gain popularity over traditional life insurance plans by delivering higher returns, particularly in the growth option. Armed with the strong performance, insurers have been aggressively marketing ULIPs as an investment product that offers liquidity, flexibility and transparency just like any other investment option such as mutual funds.

"The long-term predictability of the premium inflow is a major factor that will affect the valuation of the company. This will have an impact on the profit of the companies as the fund management fees is calculated on the basis of this," an analyst pointed out.

Industry-wide data available from the Insurance Regulatory and Development Authority (IRDA) reveals that the retention ratio, which was at 95% in 2002-03, had declined to about 83 % in the year-ended March 2009. A decline in the retention ratio means a greater number of policies are being discontinued.

The rate of policy lapses in the country has increased more than three-fold in the last three years, the highest since the industry was opened to private players in 2000-01.

The IRDA was earlier considering a proposal to ask the insurance companies to ensure that a certain minimum percentage of incremental business came from selling the traditional insurance products instead of focusing on ULIPs. “There seems to be no need for a direction on these lines as the market forces itself is driving the industry that way,” said a senior IRDA official.

On an expansion drive in the state of Gujarat, Shriram Life Insurance Co. Ltd., a joint venture between the Shriram Group and Sanlam, a leading insurance company of South Africa, is expecting to earn around Rs 60 crore worth premium by September end 2012. As part of the expansion drive, the company plans to hire 640 field sales officers (FSOs) and 64 business managers in next two years.
"We are already operational with three branches in Ahmedabad and Gandhinagar. However, we are adding more numbers in terms of branches as well as FSOs in Gujarat. In the next three years, we expect to earn Rs 60 crore in terms of premium from the state. By the end of September 2010 itself, we are aiming at premium worth Rs 12 crore," said Laxman Balani, vice president - West, NEW Channel, Shriram Life.
The company plans to extend its presence to majorly all cities of Gujarat over the next 3-4 years.
Nationally, Shriram Life is expecting premium worth Rs 50 crore within next three years and around Rs 1,200 crore in medium term. "As part of expansion plans, we are planning to set up branches in selected tier I, II and III cities. We are aiming at 15 per cent of the premium from tier I cities, 55 per cent from tier II cities and 30 per cent from tier III cities across the country," said Gerhard Joubert, chief executive officer, NEW Channel, Shriram Life Insurance Co. Ltd.
In India, the company currently has around Rs 30,000 crore worth assets under management (AUM).

Life insurance biz grows 12.8%

The life insurance industry recorded 12.85 per cent growth in new business premium during the first half of the financial year even though private players saw a drop in sales of new policies.
This was despite a 1.75 per cent decline in premium from sale of new life insurance policies in September, when the industry mopped up Rs 8,006 crore first-premium income, according to data released by the Insurance Regulatory and Development Authority (Irda).
The growth was largely on account of a 35.21 per cent rose in Life Insurance Corporation’s (LIC’s) first-premium income, which rose to Rs 25,814 crore. For LIC, individual single-premium policies generated a premium income of Rs 7,879 crore, a third of the total first-premium income. In addition, group single-premium policies accounted for 40 per cent (Rs 9997.79 crore) of the premium collected from new policies. The remaining Rs 7,937 crore came from individual non-single premium policies such as unit-linked plans and term covers.
In contrast, private players, which did not sell single-premium policies, reported a 14.67 per cent drop in first-premium income (see table). Individual non-single premium policies accounted for 77 per cent, or Rs 10,285 crore, of the new business premium collected by private players in the first six months of the financial year.
“The rate of commission in the single-premium policy business may be less but since the ticket size is large, agents can make good money,” said IDBI Fortis Managing Director and Chief Executive Officer GV Nageswara Rao.
 

Also, the average ticket size of a single-premium product is three times that of a regular policy. Agents prefer to sell regular policies so that they can earn commission for the subsequent years until the policy is alive.
Private insurers do not promote single-premium policies partly as expenses in such policies are capped at 2 per cent of the premium.

“Banks have done a lousy job of financial inclusion. About 60 per cent of the population in the country does not have a bank account. Microfinance institutions have filled up that gap,” Kidwai said at the inaugural session of the Microfinance India Summit here.
At the end of March 2009, microfinance constituted 1.29 per cent of the gross credit of scheduled commercial banks, an increase of only 0.27 per cent over the previous year.
Microfinance institutions added 8.5 million customers and Rs 5,780 crore to outstanding loans in 2008-09. Princess Maxima of Netherlands, who is United Nation secretary-general’s special advocate on inclusive finance for development, said the microfinance sector has seen a good growth in India.
She hopes that microfinance institutions all over the world would keep the interest rates reasonable to take credit to the unbanked sector.

http://www.business-standard.com/india/news/banks-fare-poorly-in-micro-finance-kidwai/374364/

No change in key rates expected, CRR may be hiked: Banks

The Reserve Bank of India (RBI) may leave the policy rates untouched when it reviews the monetary policy on Tuesday, HSBC India CEO Naina Lal Kidwai said on Monday. TY Prabhu, chairman of the Oriental Bank of Commerce (OBC), seconded her views. The bankers, however, agreed there might be a small increase in the cash reserve ratio (CRR) as the system was flushed with funds.
"The RBI governor is clearly concerned about inflation, while he fully understands that having expansionist monetary policy has been important to provide the stimulus we need. I expect the rates to remain flat. A little bit change in CRR is fine," she told reporters on the sidelines of an industry event.
Prabhu declined to comment on the possible action by RBI, but agreed there was no immediate pressure (on the RBI to increase rates) due to adequate liquidity in the system. “We expect the present policy stance to continue. Interest rates would remain at the present level for the next three to six months.”
OBC executive director S C Sinha said a 25 basis points increase could be expected in CRR but overall interest rates would remain soft because of comfortable liquidity situation.
Kidwai added that the monetary policy was not just meant for tinkering with rates and the central bank could revise rates even outside the credit policy if needed.
She said the economy had started recovering and some action could be expected around December.
HSBC is expecting India to grow at 6.5 per cent this year and 8 per cent in 2010-11.
Asked whether RBI was expected to revise its credit growth target of 20 per cent for 2009-10, she said the central bank might stick to the target while asking banks to lend more.
“It may push banks into lending. This is the time to loosen purse strings.”

http://www.business-standard.com/india/news/no-change-in-key-rates-expected-crr-may-be-hiked-banks/374366/

Treasury, fee-based income save the day for govt banks

Net interest income growth still remains subdued.
The treasury and fee-based income drove the bottom lines of most of the public sector banks that announced their earnings for the quarter ended September 30 on Monday. This came as core income remained subdued for most of them.
Bangalore-based Canara Bank, which has reported a 72 per cent year-on-year growth in its profit at Rs 910 crore for the second quarter, has seen 163.6 per cent growth in its other income, while its net interest income (NII) growth has been a mere 14.3 per cent at Rs 1,314 crore.
Similarly, Union Bank of India, which has seen its NII growth dipping by 11.20 per cent, reported 40 per cent rise in profit due to a robust growth in core fee and treasury income. While the Mumbai-based lender’s core fee income rose by 39 per cent to Rs 217 crore, profit from sale of investment was Rs 218 crore as compared to a loss of Rs 36 crore in the same period of the previous year.
“NII was the lowest in June, but since then it has started moving up. With improvement in credit offtake in the remaining part of the financial year, NII will be boosted,” said MV Nair, chairman and managing director of Union Bank.
The bank also expects its net interest margin (NIM) to improve in the remaining two quarters. The bank’s NIM for the second quarter was at 2.28 per cent, improved by 6 basis points sequentially, and is expected to further increase to 2.6 per cent in the third quarter and to 2.8 per cent in the fourth quarter. For 2009-10, Union Bank expected its NIM to be 2.6 per cent on a conservative estimate, Nair said.
Delhi-based Oriental Bank of Commerce’s net profit growth of 14 per cent at Rs 271 crore was also mainly driven by a 46 per cent growth in other income at Rs 305 crore. The bank’s provisioning was lower in the quarter ended September at Rs 55 crore as against Rs 187 crore during the same period of the previous year.
Dena Bank’s net profit growth of 21 per cent at Rs 125 crore was mainly due to recovery of bad loans and 84 per cent growth in non-interest income. The bank’s profit on sale of investment was Rs 118 crore in the second quarter as against a loss of Rs 7 crore in the same period of the previous year. In addition, the bank has to make only Rs 1.44 crore provision during the quarter due to lower deterioration of bad assets and lower provisioning requirement for standard assets.
Another Mumbai-based lender, IDBI Bank, however, saw healthy NII growth of 267 per cent at Rs 472 crore, albeit on a lower base. IDBI’s fee income growth was 99 per cent at Rs 390 crore. Both core and non-core income helped the bank report 56 per cent increase in its net profit at Rs 254 crore.
Going ahead, most of the banks see credit growth to pick up, but may be less than the Reserve Bank of India’s growth projection of 20 per cent for 2009-10.
“Overall loan growth for the industry was earlier expected to be around 20 per cent but now, it seems, it may be 14-15 per cent. Similarly, we have revised downward our loan growth target to 18 per cent from 25 per cent envisaged earlier,” Union Bank’s Nair said.
Union Bank also fears bad loans to rise in the current financial year due to the huge restructuring exercise undertaken by the banking sector. It now projects 2 per cent gross NPA by the end of 2009-10, revised upward from 1.75 per cent. As on end-September, the bank’s gross NPA was 1.93 per cent.

http://www.business-standard.com/india/news/treasury-fee-based-income-saveday-for-govt-banks/374363/

SEBI

Singapore exchange may lose edge in Nifty futures

The share of SGX Nifty has risen from 2% in March to 5.9%.
The growth rate of India’s premium benchmark stock index, Nifty, on the Singapore Stock Exchange (SGX) will be appreciably less as a result of extension of trading hours in domestic markets.
The Securities and Exchange Board of India (Sebi) had last week permitted stock exchanges to begin the day as early as 9 am and keep the market open for trading till 5 pm.
However, traders believe the move is unlikely to spell an end to Nifty trading outside the country.
The volumes of SGX Nifty futures had recorded a whopping 762 per cent growth in 2008, while those for other Asian indices grew a mere 16-24 per cent. According to the SGX data, Nifty futures generated 20 per cent volume on the exchange out 62 million contracts of all major Asian indices traded on it last year.On an average, 12.43 million contracts of Nifty futures were traded in 2008 on SGX, compared to 1.44 million contracts in 2007. The Nifty index covers 23 sectors of the economy and over 60 per cent of the total market capitalisation of the underlying bourse, the National Stock Exchange (NSE).
Even in 2009, the market share of SGX Nifty has surged from 2 per cent in March to 5.9 per cent in October so far. The reason could be partly the gap in trade timings. SGX futures trading starts at 6.30 am and closes at 6 pm (IST).
These factors, sources said, could have forced NSE to advocate extension of trading hours in the domestic market.
“The swift rise in the volume of SGX Nifty was worrying NSE. In fact, the recent trend was such that while options trades were rising on NSE, the exchange was losing some Nifty futures’ share to SGX,” said a top official of a leading domestic stock exchange.
However, experts said while the pace at which the Nifty futures’ volume on SGX was growing would come down, the extended hours would not curb trading of Nifty on SGX unless NSE called off its agreement to list Nifty.
Nifty futures’ volumes picked up steam on SGX during late 2007, when investment in the country though participatory notes (PNs) were banned.
PNs, the off-shore derivative instruments, are mainly used by hedge funds or billionaires who want to park their funds discreetly in stock markets.
Therefore, when PNs were banned, hedge funds and punters started taking positions in the SGX Nifty. The ban, however, was lifted in October 2008 after markets touched historic lows and foreign funds dried up. Short-selling of Nifty futures on SGX was high in 2008 and traders decided the market trend there. Even now, Sebi has warned about lending of PNs overseas to short-sell Indian markets and traders are more comfortable in Singapore due to easier disclosure norms there.
“There is always a threat of sudden regulatory change in India and investments through PNs could again become a sensitive issue due to the swift rise in the value of the rupee against the dollar. Moreover, when an alternative is available now, those who do not want to bring their money into India will always prefer SGX over NSE to trade in Nifty,” said a Singapore-based hedge fund manager.
Further, most hedge funds do not want to bring their money to India as Singapore is a tax haven for foreign funds. Some top market operators from India who have already parked their funds overseas prefer to take a position in Singapore to avoid disclosing their incomes. The low rate of personal and corporate income tax, only 20 per cent in Singapore, is a further sweetener for unregulated entities to trade in Nifty there.
Transaction costs in the Indian markets also continue to be high side due to statutory fees like securities transaction tax and stamp duty. In Singapore, the transaction costs are only two-three basis points.

http://www.business-standard.com/india/news/singapore-exchange-may-lose-edge-in-nifty-futures/374355/

 Bharati Shipyard expects Sebi nod for open offer soon

On a takeover battle with ABG Shipyard for acquiring control of Great Offshore, Bharati Shipyard said that it was expecting the Sebi approval for the open offer soon.
"We have 23.17 per cent stake in Great Offshore. We are expecting Sebi approval soon," Bharati Shipyard's Managing Director P C Kapoor said.
Kapoor said that Bharati Shipyard had bought the Great Offshore shares at an average price of Rs 375 a share and the total investment of Rs 322 crore has gone into buying 23.71 per cent
stake in the company. "Sebi is seeking nominal clarifications...Nothing of serious nature," he said, adding that for acquiring 20 per cent stake through the open offer, Bharati might need to dole out Rs 438 crore at its current offer price of Rs 560 a share.
Asked whether Bharati would increase the price for buying shares from the open market, Kapoor said," I don't think so".
Bharati is shy of less than three per cent stake in Great Offshore which would allow it to have a say on the latter's affairs.
Bharati has Rs 1,000 crore debt and Rs 400 crore cash on its books, which includes fixed deposits and bank balances.
The debt-equity ratio of the company currently stands at 1:1.25.

http://www.business-standard.com/india/news/bharati-shipyard-expects-sebi-nod-for-open-offer-soon/76781/on

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