MUTUAL FUND

Gold funds dazzle on price rise

COIMBATORE: The equity markets may be on a roll but gold has dazzled everyone bringing stellar returns to investors. Gold funds that invest in gold  mining companies and overseas equity funds that have an exposure to such companies, have outperformed every other asset category in the last one year.

AIG World Gold Fund topped the performance chart with a 51.7% return in one year (up to September 7). The other two gold funds — DSP BlackRock World Gold Fund (44.4%) and Birla Sun Life Global Precious Metal (17.7% in year-to-date) — also gave good returns. Sensex and nifty moved up 10.5% and 9.8% respectively during the period.

Gold funds beat the benchmark equity indices in the three-month and one-month periods as well. They have spurted 10.5% to 11.9% in the past week alone. Incidentally, these funds have outperformed even gold exchange traded funds (ETFs) that gained about 36% in the past year.

Gold ETFs, which invest only in the physical units of gold, get only the benefit of an upturn in the prices of the yellow metal. However, gold funds cash in on the improvement in fortunes of mining firms, which give higher returns than the yellow metal during a bull run, say industry observers. Gold funds also managed to beat ETFs in the short run when gold prices jumped in March this year.

Gold prices have spurted over the past few days on the back of renewed concerns about the sharp rally in equity markets and inflation fears due to excess liquidity in the system, say market observers. Spot prices of the yellow metal crossed the $1000-an-ounce mark on Tuesday, the highest since March 2008, according to Reuters data.
"Higher gold prices and improvement in profitability of mining companies have boosted sentiments," says Lakshmi Iyer, head (Fixed Income and Products) at Kotak Mahindra Mutual Fund.

http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Analysis/Gold-funds-dazzle-on-price-rise/articleshow/4988669.cms

Global ETFs catch mutual funds' fancy

Benchmark plans Hang Seng as underlying; Reliance looks at MSCI. Exchange Traded Funds (ETFs), the only mutual fund asset class that received fresh inflows last year, are catching up fast. A host of mutual fund houses are set to launch products with global indices as underlying. Sample this: Benchmark has filed for an ETF based on the Hang Seng Index of Hong Kong. Reliance Mutual Fund too will come up with an ETF with MSCI India Index as the underlying and is awaiting the regulator's clearance. The low-cost advantage is yet another reason for fund houses to look at ETFs as an attractive product for investors wherein they can trade real time. The cost of investing in ETFs stands at 0.5 per cent. With the no-entry load regime kicking in, fund houses want to concentrate on products which offer good returns with low-cost advantage.
With Hang Seng being one of the top traded markets in Asia, Indian investors can now look forward to investing there on real time basis. According to the investment objective of the scheme, it will offer returns that closely correspond to the total returns of securities in the Hang Seng Index. The units of the scheme will be listed on the National Stock Exchange and can be bought or sold like any other fund.
The Chinese market has slipped about 15-16 per cent from its August highs and there have been talks of it being overheated, raising concerns among a lot of FIIs and investors about investing in that market. However, Rajan Mehta, Executive Director, Benchmark Mutual Fund, said, "We feel it is better to enter that market after the meltdown. Chances of making money will be much higher if somebody enters now as stocks have corrected sharply".
Benchmark has also filed for an Infrastructure ETF which will track the CNX Infrastructure index. It had earlier filed for ETFs with silver and oil as the underlying, but could not get approvals due to regulatory issues.
Reliance Mutual Fund's MSCI India Index ETF plans to mirror the returns posted by the MSCI India Index. Some of the stocks, which form a part of the MSCI India Index, include heavyweight Reliance Industries, Infosys, ICICI Bank, L&T, ONGC, BHEL, Sterlite Industries and Wipro among others.
Sundeep Sikka, CEO, Reliance Mutual Fund said, " We already have a tieup with MSCI Barra for risk enterprise solutions. But, there is a lot of international money waiting to come to India and MSCI is the most acceptable benchmark for a lot of institutional investors. We see a lot of appetite going ahead for this product class and will be launching a bouquet of products in this category".
The total assets under management under ETFs in India was Rs 878 crore at the end of July compared to Rs 898 crore in June, according to AMFI.

http://www.business-standard.com/india/news/global-etfs-catch-mutual-funds/-fancy/369506/

Fund houses gear up to make the most of interest rate futures

A week after the National Stock Exchange (NSE) launched interest rate futures (IRF) on August 31, the domestic mutual fund industry is all set to make the most of this new instrument. The industry is planning to either come up with new schemes, or use IRF in their existing schemes.
In fact, factors like better liquidity, increase in fund managers’ execution power and ability to hedge risks are tempting fund houses to act swiftly and take advantage of the new instrument.
Sanjay Sinha, chief executive officer (CEO) of DBS Cholamandalam, said: “Though we are not launching separate schemes, we can use IRF in the existing ones by making some changes in their offer documents.”
Fund managers are betting big on IRF and are optimistic about its success. Since traditionally futures are more liquid, it would lead to the design of newer products accordingly, they said.
Since it will require some structural and IT compliances, fund houses expect to come up with the product at the earliest possible.
“We are thinking of amending the offer documents to use IRF in the existing schemes which will help us hedge the portfolios,” said RS Srinivas Jain, chief marketing officer of SBI Mutual Fund.
Industry experts said that liquidity was a basic necessity for Asset Management Companies (AMCs). Last year, the mutual fund industry faced liquidity problem due to a surge in redemptions.
A product linked to IRF would make the entire portfolio liquid and provide the fund house liquidity, which is essential for a fund’s structure as money could be pulled out by the investor, they added.
According to Sandeep Dasgupta, CEO of Bharti AXA Investment Managers, IRF is an additional tool which will enhance the existing portfolio and returns, and mitigate risks to some extent. “We look forward to start acting on this front after three-four months. We want to first assess our back-end processes and internal controls,” said Dasgupta.
Agreeing to this, Saurabh Nanavati, CEO of Religare Mutual Fund, said: “IRF is an excellent instrument and we are working on to get into this market. It has good potential and we will come up with new schemes. It will basically help us create new products and hedge risks.”
The stimulus packages from the government has provided enough liquidity in the system. However, fund managers are cautious. “So far this year, we haven’t had any liquidity issue, but we must not take it for granted,” said a fund manager.
Industry observers said that since IRF has been launched recently, fund houses would require to adjust their systems. Many of the fund houses might not have internal approvals to do that, they added.

http://www.business-standard.com/india/news/fund-houses-gearto-makemostinterest-rate-futures/369504/

Investment strategies that work the best

One of the most important questions that an investor should consider is “why invest?” We all invest for some reason, some objective, and some goal. As long as the reason or the objective is related to some financial goal in life, there is a quantifiable target. However, in many cases the goals are very vaguely defined. Consider these:
“I want to earn highest returns”
“I want maximum returns on my investments”
“Give me the best stocks or the best mutual funds”
These goals are so vague that they will eventually lead only to disappointment as finding the best investment avenue that will offer the maximum return is like finding the Yeti in the Himalayan mountains. Many have tried for years and many are trying, but nobody has found a real Yeti so far.
Answering the above question correctly is a very good starting point of investment planning.
Once the goals are properly defined, the second level of filter is to check if the goals are reasonable. There have always been three important questions:
• When to invest?
• Where to invest?
• How to invest?
Most of the time and energy are being spent on finding the answers to the first two questions.
Let us look at the first question: “When to invest?” The timing question is probably the most intriguing and tempting. However, years of efforts have ensured that most advisors have given up on this and most of them recommend SIP – the Systematic Investment Plan, which removes the element of timing.
The answer to the next question "Where to invest?" lies in finding the stars or the winners of the future. Well, it is another activity that many engage into. There are various methods adopted for the same. Often, many methods are devised after doing lots of back-testing and also running various simulations. The problem with such analysis is that it is entirely based on the past and often the things that coincide may not have any cause-effect relationship. Another problem with such analysis is quite unique to securities markets – the impact cost. While the number crunching suggests that certain strategy may prove to be profitable, the moment the investor attempts that the impact of the investor’s action moves the price such that the profitable opportunity disappears. In many cases, the opportunity on paper just does not exist in reality after taxes and transaction costs. Add to that the risk of being wrong.
That leaves us with the last question of “How to invest?” I think this is the single most important question that financial planners should focus on. The answer to this question actually answers the first two questions as well. The how of investing is nothing but asset allocation, which is derived from the financial goals and the risk profile of an investor. And then from there you also get the answers to when and where. Whenever the investor has money, it is the time to invest and where to invest is answered again by asset allocation – it tells you the allocation to individual asset classes.
Economists Brinson, Beebower and Hood in their classic 1986 study “Determinants of portfolio performance” (repeated in 1991) concluded that “Asset allocation helps explain over 93% of a portfolio’s performance.”
With this background, let us understand the role of an investment advisor. According to me, an investment advisor is supposed to understand the needs and goals of the client and recommend appropriate investment strategy. The focus here is on the need of the client and not on the movement of market prices or identification of future winners. If the advisors focus only on the needs of the client and arrive at appropriate asset allocation, the next step is to identify the components. Having identified the asset allocation, the most efficient strategy would be to use low cost index funds for the respective asset class (as long as these are available). While active fund management can generate extra returns, it is almost impossible to identify the winners well in advance and consistently over long periods of time.

http://www.moneycontrol.com/india/news/mf-experts/investment-strategies-that-work-best/412444

NAVs end with positive returns

Equity diversified NAVs ended higher with advance:decline ratio of 152:90, as the market maintained its uptrend for the third consecutive day and the Nifty closed above another milestone - 4800 for the first time since May 30, 2008. Heavyweights like Reliance Industries & SBI, which were underperformer for a long time, rallied on the back of institutional buying. Metal stocks surged on the back of upsurge in base metals.
The 50-share NSE Nifty went up 0.47% or 22.35 points, to settle at 4805.25 and the 30-share BSE Sensex shut shop at 16,123.67, up 107.35 points or 0.67%. These indices surged 4.6% and 4.7% in three days, respectively.
On the sectoral front, banking funds advanced while FMCG, pharma and technology funds declined. The BSE Bankex was up 0.46% while FMCG, IT and Healthcare indices were down by 1.15%, 0.72% and 0.52%, respectively.
Short term debt funds ended higher while long term debt funds closed with negative returns; their advance:decline ratio stood at 60:35 and 10:68, respectively.

http://www.moneycontrol.com/news/mf-news/navs-endpositive-returns_414701.html

MF buying falls after scrapping of commissions

The industry had said that this move would leave distributors with no incentive to service small investors

Mumbai: The mutual fund (MF) industry’s worst fears seem to be coming true: Distributors are not finding it worth their while to service small investors who, in turn, are either buying units online or directly at MF outlets.But volumes have suffered. Investors bought 40% fewer MF units in August, the first month after India’s capital markets regulator told asset management companies (AMCs) to stop taking out a slice of investor money to pay MF distributors rather than invest the full amount in shares and bonds.
The industry had said that this move would leave distributors with no incentive to service small investors.
The number of units sold dropped even as the overall assets managed by MF companies rose by about 4% to Rs7.5 trillion, according to two registrars, Karvy Computershare Pvt. Ltd and Deutsche Investor Services Pvt. Ltd. These two and Computer Age Management Services Ltd serve all AMCs except Templeton Asset Management (India) Pvt. Ltd, which has an in-house registrar. A registrar to an MF deals with investors and manages paper work.
“Over the last few weeks, we had been tracking the volume of inestments. For funds serviced by us (Karvy), we notice that there has been a dip in the transaction volumes by about 40%,” Karvy Computershare said last week in an industry analysis circulated among AMCs it serves.
According to the report, daily transaction volume of purchases has come down in August against average transaction volumes of the previous three months—May, June and July.
Samir S. Dhamankar, head (registrar services) at Deutsche Investor Services, too, said, “There is definitely a short-term impact on business, and more in the retail area.”
The Securities and Exchange Board of India had said in June that MFs cannot charge the investors any upfront commission from August. So far, investors were charged up to 2.25% of their investment in equity schemes in the form of “entry load” and this money was used to pay commissions to distributors.
With the abolition of commissions, distributors have stopped chasing investors. They are focusing more on high networth individuals (HNIs) whom they can charge fees for selling financial products and offering investment advice.
Small investors are increasingly investing in MFs directly through online channels or actually dropping investment applications at collection centres run by AMCs.
The number of direct applications as a percentage of total applications has gone up from an average of 10.58% between May and July to 16.54% in August. In terms of value, however, contribution of direct applications has gone down from 11.03% to 8.48%.
“It appears that small ticket investors are investing directly (as application count increased) and distributors are concentrating their business on big ticket investments (HNIs),” Karvy says.
Nilesh Shah, deputy managing director at ICICI Prudential Asset Management Co. Ltd, which manages Rs77,966 crore, said, “August numbers have been bad. But it’s too short a period. Already people have begun adjusting. Some distributors have started charging transaction fees from investors. We need another month-and-half to get a clearer picture of how things evolve.”
Rajan Ghotgalkar, MD at Principal PNB Asset Management Co. Pvt. Ltd, which manages Rs9,450 crore in assets, said, “There is certainly an impact of 35-40% on the inflows.” A large part of the inflows is through systematic investment plans (SIPs) in which an investor buys MF units for a certain amount at periodic intervals. The inflow of retail money would have been hit even more had there been no SIPs.
Industry body Association of Mutual Funds in India is yet to release inflow data for August.
Sunil Shetty, vice-president (mutual fund–advisory) at LKP Securities Ltd, a Mumbai-based brokerage, said some firms that had MF distribution as an ancillary business have closed down their offline sales model and moved fully online.
Arun Jethmalani, MD at ValueNotes Database Pvt. Ltd, a Pune-based research firm, said, “It was bound to happen. I would be surprised if it didn’t fall. A lot of distributors are trying to push products with loads and not sell no-load products. But they can’t do this for long. In the long run, growth has to come from volumes.”
Anil Rego, CEO at Right Horizons Financial Services Pvt. Ltd, a Bangalore-based wealth manager, said, “It’s unfortunate that when markets have begun to see new highs, the retail investor is not being serviced.”

http://www.livemint.com/2009/09/09000647/MF-buying-falls-after-scrappin.html

INSURANCE

Investors flock to Ulips as market gains momentum

NEW DELHI: Consumers continued to put in money in their existing unit-linked insurance plans (Ulips) expecting better returns from the stock market as the Indian economy recovers. Premium collection from renewal of Ulips jumped 44% during the first three months of the current fiscal over the year-ago period even as the insurance sector has been seeing a slowdown.

The industry collected Rs 12,698 crore as renewal premium for Ulips during the April-June period this fiscal, against Rs 8,793 crore in the corresponding period last year, as per estimates of the Life Insurance Council of India, the industry body of 22 life insurance companies in India. “It is commendable that renewal premium in terms of Ulips have witnessed a jump when the overall sector witnessed a slowdown in growth in terms of new premium collection,” said SB Mathur, secretary general of Life Insurance Council of India.

Ulips are long-term investment products that come with an insurance cover for the holder of the policy. The money collected as premium for Ulip is invested in the stock market and the value of the investment changes daily, based on the movement of stock prices of companies in which the investment has been made.

“Investors have not been impacted by the unprecedented stock market volatility in the last fiscal,” says Sanjay Kumar Jha, zonal manager for north and head of pension business at private life insurer Bajaj Allianz. “Ulips cover a variety of needs, and are flexible and transparent and people have continued to invest in them keeping the long-term returns in mind,” he added.

The high growth in renewal premium for Ulip has come about at a time when the overall insurance industry has seen a slowdown in growth in terms of new premium collection. Moreover, sale of new Ulip products has actually dipped by about 10% during the period. This implies even though new consumers are still wary of putting in money in Ulips fearing volatility in stock market, old Ulip customers are putting in more money.

Ulips are the biggest products for private insurers who derive 70-80% of their premium collection from sale of new Ulips. The country’s largest life insurer, the government-owned LIC derives a little more than half of its total new premium collection from Ulips.

http://economictimes.indiatimes.com/Personal-Finance/Insurance/Investors-flock-to-Ulips-as-market-gains-momentum/articleshow/4988442.cms

Reliance insurance bid for Air India unfair: NIACL

NEW DELHI: Public insurer New India Assurance has accused the troubled NACIL of flouting the tender norms for about Rs 45,000-crore insurance cover for Air India's fleet to favour a consortium led by an Anil Ambani group firm, which refuted the allegation.

While NACIL declined to comment on accusations contained in a letter sent to it by New India Assurance, Reliance General Insurance said it had supplied all the information and documents desired by the aviation company for the tender.

In its letter to National Aviation of Company of India of India Ltd (NACIL), New India Assurance Co said, "Tender norms laid down by NACIL have not been adhered to and have been relaxed to the disadvantage of two bidders."

NACIL is the holding company of Air India. Three bidders -- a consortium of four public sector insurers New India Assurance Co Ltd (NIACL); ICICI Lombard and another consortium of private players led by Reliance General -- were in the fray for the fleet insurance programme.

Air India which has a fleet of 153 aircraft is in deep financial crisis with losses of over Rs 7,000 crore and the government is working on a revival package for it.

New India Assurance accused NACIL of delaying the opening of bids, which were submitted on August 24, slated to be opened the same day, for 4 days without assigning any reason.

It also said certificates accompanying the bid for the consortium led by Reliance General were opened without a written assurance from its lead underwriter, which is required as per the norms.

http://economictimes.indiatimes.com/Personal-Finance/Insurance/Reliance-insurance-bid-for-Air-India-unfair-NIACL/articleshow/4987431.cms

BANK

Capital requirements of banks must be raised, says Greenspan

Former Federal Reserve Chairman Alan Greenspan said banks should be forced to hold more capital on their balance sheets, reinforcing a weekend push by finance chiefs from the Group of 20 nations.
Capital requirements even during non-crisis periods have to have a larger buffer,” the 83-year-old former policy maker said on Monday via teleconference to the Antique India Markets Conference in Mumbai. “We do need significant changes.”
Noting the world economy was emerging from of the financial crisis “fairly quickly,” Greenspan made his call for tighter capital requirements two days after a G-20 meeting in London proposed having banks increase the quantity and quality of assets they keep in reserve for when economies stumble. The drive to revamp regulation comes after excessive risk-taking by the world’s banks led to $1.61 trillion in losses and writedowns, taxpayer-funded bailouts and a global recession.
“Financial intermediaries allowed institutions to go into default by taking this kind of risk,” Greenspan said. “There’s no substitute for capital. Don’t think the crisis could have been prevented unless we can change human nature.”
Once regarded by some observers as the greatest central banker, Greenspan has seen his legacy criticized since the US subprime-mortgage market collapsed in 2007. Having run the Fed from 1987 to 2006, he said last in October that a “flaw” in the ideology of free-market risk management he had espoused contributed to the “once-in-a-century” credit crisis.
‘Euphoria’
Greenspan on Monday repeated how rare the turmoil was and blamed it on an under-pricing of risk or “building of euphoria” that emerged at the start of the century as interest rates and inflation ran into single-digits.
His hands-off approach to asset bubbles has been challenged by some Fed district-bank presidents, such as Janet Yellen. Former Fed Vice-Chairman Alan Blinder and Stanford University professor John Taylor are among the economists who say Greenspan also left interest rates too low for too long earlier this decade, encouraging the easy credit that fostered the housing bubble.
Speaking a week before the first anniversary of the collapse of Lehman Brothers Holdings Inc., he said that event had led to a “massive contraction” in trade financing and surge in inventories. He predicted some exotic financial instruments, such as collateralized debt obligations, won’t return even after the crisis passes.
He predicted that China will witness a “diffusion of power” and that global demand for oil won’t be “radically changed.” In the US, the phenomenon of mortgages exceeding the value of homes appears to be peaking, he said.

http://www.business-standard.com/india/news/capital-requirementsbanks-must-be-raised-says-greenspan/369383/

RBI frowns on sub-PLR loans, bankers resist

The Reserve Bank of India (RBI) is against lending by banks below their benchmark prime lending rates (BPLRs) — a stance that has met with stiff opposition from bankers.The central bank’s committee on BPLR review, which met last week, was of the view that the practice of lending below BPLR needed to be discouraged in order to make pricing of risk more transparent.
According to a banker who attended the meeting of the panel, which is headed by RBI Executive Director Deepak Mohanty, the central bank was of the view that core deposits of the banks should not be used for lending below the prime lending rate.
About three quarters of the bank lending happened at sub-BPL rates, while core deposits constituted around 80 per cent of banks’ total deposits. Deposits having tenure of more than one year are considered core deposits which gives stability to a bank’s liability portfolio.
Over the last few months, RBI has made known its concerns over lending below BPLR and had set up a committee to review the structure.
However, bankers have pointed out since BPLRs of banks were very high with some having it at around 16 per cent, it will be difficult for banks to disallow sub-PLR lending.
“If a bank has surplus liquidity, then instead of lending it to call market or parking in the reverse repo tender for 3.25 per cent, banks can deploy resources on short-term basis for 7 per cent,” a banker who attended the meeting said.
Another banker said that large companies might be unwilling to borrow for the short term at the prevailing BPLR.
On the issue of separate BPLR for retail and wholesale customers, there seemed to be disagreement among RBI officials, sources said. “Some RBI officials feel that separate benchmark is not a good idea as pricing should be done on the basis of risk perception of the borrower and not on whether it is corporate or retail,” sources said.
A section of the committee members suggested separate BPLRs for retail and corporate sectors with the former BPLR at a higher level than that for companies. Though most of the Indian banks presently have one BPLR, ICICI Bank has two benchmark rates for its retail and corporate clients. However, ICICI Bank’s retail BPLR is lower than its corporate benchmark.
The committee has already missed one deadline for submitting the report which was extended by a month to end September. IBA Chief Executive K Ramakrishnan had said that the report would come out by the end of the month.
After the last week’s meeting, RBI has referred back its suggestion in the form of a draft report to the Indian Banks’ Association which is seeking further feedback from banks.
Based on the IBA recommendations, the committee is once again scheduled to meet by the middle of this month.

http://www.business-standard.com/india/news/rbi-frownssub-plr-loans-bankers-resist/369488/

Reliance Cap plans Rs 100-cr ESOP for senior employees

MUMBAI: Reliance Capital, the financial services company of the Anil Ambani group, has decided to dole out stock options worth Rs 100 crore to senior employees, said a person privy to the development.

The Reliance Capital board approved the employee stock option plan on Tuesday. The plan would cover nearly 500 employees. “The employee stock option plan is viewed as an attractive retention strategy and also to be utilised to attract new talent to the company. It will also be an integral part of aggregate compensation for top management team,“ the same person said, requesting anonymity.

Reliance Capital will issue 12 lakh shares under the plan to employees working with parent company and all major businesses. Shares approved for ESOP in the first tranche will represent nearly 0.5% of the company’s equity. The shareholders of the company have recently approved a proposal to offer up to 5% of shares through ESOP over the next few years. The Reliance Capital stock closed flat Rs 911.85 on BSE.

http://economictimes.indiatimes.com/News/News-By-Industry/Banking/-Finance-/Reliance-Cap-plans-Rs-100-cr-ESOP-for-senior-employees/articleshow/4988705.cms

SEBI

Panel to review takeover code soon: Sebi

The Securities and Exchange Board of India (Sebi) plans to set up a committee to look into the entire takeover code soon. The panel would also see if the code needed any changes, Sebi chairman CB Bhave said here On Tuesday.
“The guidelines on takeover code keep evolving. So, we are looking at the entire takeover code. Whether it needs any changes or not will depend on the changes that have taken place since we last amended it,” he told reporters on the sidelines of an interactive session with businesses.
“For that purpose, we are considering setting up of a committee,” Bhave added. Asked how soon the committee would be set up, he said, “It should be fairly soon.”

http://www.business-standard.com/india/news/panel-to-review-takeover-code-soon-sebi/369505/

TAXATION

Tax-free transport allowance may rise to Rs 3k

NEW DELHI: The government is considering a proposal to raise the tax exemption limit on monthly transport allowance, a move that could enrich taxpayers by as much as Rs 9,000 a year, but at the same time put further pressure on its already-strained finances The proposal to increase the tax exemption limit for transport allowance to Rs 3,200 a month from Rs 800 follows a similar hike for government servants under the Sixth Pay Commission award. It is likely to find adoption in the private sector too, triggering greater spending across the economy and boosting the bottomlines of companies in a wide swath of sectors.

A decision on the proposal, following representations from some quarters in the government, is expected soon, a finance ministry official told ET, on condition of anonymity. The government, which is facing the worst economic growth prospects since 2003 due to credit crisis and drought, is leaving no stone unturned to boost consumer demand and revive economic growth to the record 9% seen before the 2008 crisis. It has cut taxes, raised spending on social and infrastructure projects and enabled lower interest rates for companies and individuals.

Private final consumption expenditure nearly halved to 27% of gross domestic product (GDP) in the last fiscal year from 53.8% a year earlier as consumers restricted spending fearing job losses amid slowing sales growth and reduced profits. The consumption fall was partly offset as government final consumption to GDP rose four-fold to 32.5% from 8%, according to Reserve Bank of India data.

The move is expected to lead to an yearly additional exemption of Rs 28,800, which would yield a tax saving of Rs 8,899 a year, including the cess, to those in the highest tax bracket. While this may boost demand, the government, which is already running a record deficit of 6.8% of GDP, could lose significant tax revenues and many assesses would also fall out of the tax net.

Collection of both direct and indirect taxes are under pressure following tax rate cuts and economic slowdown. Direct tax collections grew by a modest 4% in April-August period to Rs 87,888 crore. The Central Board of Direct Taxes, which has the power to formulate and change rules, is exploring the possibility of hiking the exemption through a notification.

Allowances such as transport are governed by the rule 2BB of the Section 10(14) of the Income Tax Act. The board is only required to place the new rule before Parliament whenever it has its next session.
http://economictimes.indiatimes.com/articleshow/4984371.cms

REAL ESTATE

Real estate revival story being scripted by investors: Analysts

NEW DELHI: The real estate revival story is being driven by the residential segment, but contrary to the claims made by a number of developers that end-users are their main buyers, the current trend is being driven by investors.

“These are investors who are taking an opportunistic view of the situation where prices have corrected considerably in many locations ,” says Sanjay Dutt, CEO business at Jones Lang LaSalle Meghraj (JLLM). He estimates that a good 40% of the stock sold in the last few months would have gone to investors. In Delhi-NCR , this figure might be higher at 50%.

“Investors are back in good numbers and before the curve goes up, they want to buy. Some who have bought are already hoping to book profits during this Diwali ,” he adds. This could be a precursor to further improvement in investor sentiments, since investors would take this as a sign to look towards a sustainable run in the future.

Investors took flight from the residential real estate market when the market crashed last year and many have been shy of venturing back. The last few months though have seen a number of affordable launches at price points, which have stimulated the market . Most developers have launched mid-income housing in the Rs 20-40 lakh range, which has created a movement.

While the short-term investor is there, interestingly, a good number of the investors are medium to long-term investors. “These investors are flocking to real estate because of the lack of other investment opportunities in the market at the moment,” says Ajit Krishnan , partner, real estate practice at audit firm Ernst and Young who feels the trigger for these investors was the drop in price points in the residential segment in the last eight months.
These investors are not purely speculative and are investing in real estate as a shelter against inflation , he says. Other investment opportunities today do not yield the same results.

Developers on their part are insisting that a majority of the buyers in their projects are end-users . As there is no set way to differentiate investors from end-users , Unitech looks at consumer behaviour to judge one from the other. “Investors usually are not too bothered about specification details , do not go for site visits too often . We have not seen such behaviour at our projects. It appears that a large majority are end-users ,” says R Nagaraju, general manager of corporate planning at Unitech.

Wherever prices have been brought down to attract customers , there have been investors but Aditi Vijayakar, executive director , residential services at Cushman & Wakefield says these investors are mostly long term. “These investors are using this decline in the market to buy another property which they can decide on selling after the project is delivered ,” she adds.

Alongside investors are endusers who are mainly interested in completed homes. “The question is of consumption. We are definitely seeing movement in completed properties which are being picked up end-users ,” explains Krishnan.

Prices in the residential market in NCR-Delhi and Mumbai have started to climb up in the last months or so and Vijayakar warns that it is a little too early to raise prices. “In the medium term, it will not be sustainable for developers,” she says. There is a concern that the few end-users who have started to show interest might be deterred from making purchases if the prices of homes keeps rising.

http://economictimes.indiatimes.com/Real-estate-revival-story-being-scripted-by-investors/articleshow/4984626.cms

ECONOMY

PMO moots cell banking for masses

The Prime Minister’s Office (PMO) has asked the department of telecommunications to find ways to expand mobile banking services to the remotest corners of the country. A pilot project to take financial services to the poorest of the rural poor through mobile banking is likely to be launched in 2012 to cover select villages, government officials said.

The move is part of the UPA regime’s initiative to ensure financial inclusion of the poor. The government is keen to make sure that poor with mobile phone connections can carry out financial transactions using their handsets, including receipt of wages and payments, even if they do not have bank accounts.

The DoT has been asked to set up a committee to study the authentication requirements necessary for expanding mobile banking services rapidly. The panel will also work on application of know-yourcustomer (KYC) norms to mobile banking customers in far-flung areas. The committee will also study mobile payment systems in other countries to adopt best practices to spruce up the Indian system, the officials said.

The move has major implications for telecom companies as well as banks since it will throw open opportunities for launching new financial services to suit the mobile banking medium and for customers who are not affluent. As of now, mobile banking is available only to customers who have a bank account. The government’s plan is to ensure that ownership of a mobile phone connection becomes the only requirement for carrying out financial transactions.

As of now, almost 41% of the country’s adult population does not have a bank account. This, the government feels, is a major roadblock in delivering financial services to the poor, especially in rural areas. In some cases, such as the National Rural Employment Guarantee Scheme, attempts are being made to provide wages through smart cards.

The prime minister feels that mobile phone services are growing rapidly in the country and this could be a good vehicle to take financial services to the masses. The number of mobile phone connections in India is estimated at about 440 million, reaching roughly 38% of the country’s population.

Prime Minister Manmohan Singh places a lot of emphasis on financial inclusion and mobile banking has now become a key focus of this aspect of UPA’s thinking, the officials said. In view of the political consequences, this social sector initiative is likely get the backing of the political leadership too. The government may treat expansion of mobile banking as a national priority, the officials said. Expanding banking footprint across remote areas will ensure the rural poor are not left at the mercy of moneylenders.
http://economictimes.indiatimes.com/Economy/PMO-moots-cell-banking-for-masses/articleshow/4984774.cms