Irda Allows Overseas Operations of Life Insurance Companies

But keeps hands cuffed from full fledged operations

Irda (Insurance Regulatory & Development Authority) has set new guidelines for opening up of overseas liaison offices by insurance companies. Only those companies, which will meet the guidelines such as solvency rate of 1.5, good financial condition and more, will be allowed to open such liaison offices.

But, Irda has laid many restrictions on insurance companies. Such companies are prohibited from contracting any liability overseas, no agent would be permitted for conducting business hence no such commission would be allowed. Further, such companies would be required to provide information pertaining to their liaison offices, details of complaints and any expenditure incurred, regularly on quarterly basis.

Though Irda has allowed Indian insurance companies to open offices overseas but it has not fulfilled the wishes of insurance companies which were more interested in increasing their presence globally and to raise funds for their companies.

Forex and debt market update for the week ended January 23, 2009

• The Indian rupee closed lower against US dollar as banks bought dollars noting slump in the domestic equity market amid persistent outflow of foreign funds.
• Further Dollar appreciation against global currencies put downward pressure on the Indian unit.
• However dollar sales by exporters capped further losses for the rupee.
• Meanwhile, India's forex reserves fell by $2.58 bn to $252.18 bn for the week ended January 16.
• Liquidity continued to remain comfortable during the week, with call rates ending little lower at 4.05-4.10% on January 23,, compared with 4.20-4.25% on January 16.
• The coming into effect on January 17 of the 50 bps cut in CRR announced by RBI also improved liquidity in the system, the CRR cut released about Rs.20000 cr into the banking system.
• In the gilt market, prices ended marginally lower during the week as uncertainty over the RBI’s interest rate decision at the third quarter review of monetary policy on January 27 prevailed during the week.
• The benchmark 10-year paper closed at 5.72% YTM on January 23, compared to at 5.60% YTM on January 16.
• Yields ended lower after rising earlier in the week as contradictory statements by PM's Economic Advisory Council cemented views on the interest rate cut decision by the RBI made investors confused.
• Inflation coming in higher at 5.60% for week ended January 10 compared with 5.24% in the week before bought in negative sentiments for gilts.
• Further renewed fears of extra borrowings by the government to supplement its expenditures affected market sentiments.
• Losses were further capped as RBI's big gilt buys under its open-market-operations lifted sentiment and prompted buying on the last day of the week.
• Meanwhile after market hours on January 23, RBI announced T-bill auction worth Rs.9000 cr on January 28.

Indian Equity Market update for week ended January 23, 2009

• Benchmark Indian equity indices ended more than 5% lower in the week ended January 16, led by flight of foreign funds and weak global sentiments
• Foreign institutional investors sold equities worth Rs 2309 cr (US$ 46 bn at current exchange rates) during the week till January 22; meanwhile mutual funds were marginal net sellers of equities worth Rs 116 cr (US$ 3 bn) during the week
• The benchmark BSE Sensex ended 6.96% lower for the week, while the broader S&P CNX Nifty ended 5.3% down.
• Weak Quarter 4 (October-December) results from some companies also led to selling in those stocks.
• All BSE sector indices analysed ended down, with BSE FMCG and Power being the least affected, while BSE Realty and BSE Metal being the worst affected.
• FMCG Index was the least affected down 2.2% for the week, as the sector is seen as a defensive bet in terms of turmoil.
• The second least decliner among sectoral indices was the power index, as sentiment improved after the Central Electricity Regulatory Commission hiked return on equity for power projects to 15.5% from 14% earlier.
• These new norms are especially going to benefit state-owned power companies such as Power Grid Corp which ended up 14% and was top Nifty gainer.Among other gainers, oil and gas shares such as Reliance and ONGC fared better during the week after the government has approved a three-year drilling holiday for deepwater exploration blocks.
• Among laggards, real estate shares were the worst hit on weak results forecast amid uncertain outlook; leading stock in the sector DLF slid more than 17,5% for the week.
• Metal shares fell on weak global cues; Steel Secretary’s statement that consumption of the commodity fell 13.5% YoY in Quarter, reversing a 10-12% growth trend in the past four years hit sentiment for steel companies.

US Presidential Inuaguration and Market Gains

There is high expectation on Mr. Obama to deliver. Markets are banking on his economic proposals to revive the Wall-Street. Not all presidents have succeeded in matching the market expectations. If we look at look at the presidential inauguration since 1980s majority of presidents have given markets a respectable gain a year after their inaugurals.

Bill Clinton is the president who gave markets’ their biggest gain a year after his first presidential inauguration. It was whopping 28.9%, highest for any president sine 1980. he is the only president to have given markets positive gains in both terms as US president. Ronald Regan and George W Bush, are other two presidents who have been president twice. They are also the presidents who gave negative returns to the markets a year after inauguration of their first term. But they succeeded in giving markets a good gain a year after inauguration of their second term.

George W Bush has been the worst performers amongst all presidents since 1980s. Markets have gained only 7.4% a year after his 2005 presidential inauguration. His father George H W Bush had performed better, markets gained over 16% a year after his presidential inauguration in Jan 20, 1989.

It would be interesting to watch how markets perform during these turbulent times.

Forex and debt market update for the week ended January 16, 2009

Û The Indian rupee slid against the US dollar during the week on dollar demand from oil companies and importers
Û FII selling from the local stock market also brought weakness in the Indian rupee
Û Even an unexpected jump in India's industrial production data was unable to revive the rupee, however losses were further capped by dollar sales from exporters
Û Further India’s forex reserves fell by $481 mn to $254.76 bn for the week ended January 9
Û Meanwhile in the call money market, liquidity situation remained adequate, which resulted in call money rate ending steady at around 4.25% for the week, same as in the previous week
Û This being the reporting week for banks for reserve requirements, demand was lower as the banks had borrowed enough in the first week itself,
Û Liquidity was buoyant throughout the week as seen from the huge subscriptions (over Rs 20000 cr daily) at RBI’s twin reverse repo tenders
Û In the government bond market, prices surged during the week on view that RBI would announce Market Stabilisation (MS) bonds in tandem with the scheduled Rs 10000 cr borrowing during the week
Û And as expected, while the RBI conducted auction of three dated securities worth Rs 10000 cr on January 16, it also repurchased Rs 3000 cr of gilt earlier issued under MSS on January 15.
Û Further RBI's choice of gilts sold in auctions on January 16 comforted market participants as all the scripts chosen are liquid and prompted big buying.
Û Inflation coming in at lower than expected figure of 5.24% (48 week low) for week ended January 30 also helped government bond prices
Û Talks of further interest rate cut also helped prices move upwards but comfort from the comments was short-lived as a senior finance ministry official dismissed the talk of more rate cuts.
Û Rise in bonds prices were also trimmed after November industrial production numbers came in unexpectedly stronger.
Û The benchmark 10-year 8.24%, 2018 paper ended at 5.60% yield on January 16, compared to 6.19% yield on January 9Further after market hours on January 16, the RBI announced 10-year state development loans for 8 state governments, worth Rs 6550 cr to be conducted on January 22, it also announced auction of T-bills worth Rs 9500 cr on January 21

Indian Equity Market update for week ended January 16, 2009

Û Benchmark Indian equity indices viz. the BSE Sensex and the S&P CNX Nifty ended marginally down 0.88% and 1.55% respectively in a volatile week ended January 16, 2009
Û The week continued to be marred by the Satyam Computer Fiasco, as foreign funds continued their selling spree on weak sentiment for Indian corporate
Û For the week till January 15, foreign institutional investors (FIIs) sold equities worth Rs 1558 cr (around US$ 32 bn at current currency rate) in the current week compared to net selling of Rs 183 cr (US $ 4 bn) in previous week
Û Local mutual funds too mirrored FIIs, selling Rs 1361 cr (US$ 28 bn) worth of equities in the secondary market for the week
Û Markets however recouped most losses on value buying and after November industrial production data showed a 2.4% growth
Û Midcap and smallcap shares suffered comparatively more than large caps amid the negative sentiment, falling 3% and 4% respectively
Û Among major sectoral indices analysed on the BSE, it’s Oil & Gas, IT and Auto index bucked the weak trend to end higher
Û BSE Oil and Gas (up 2.7%) was the biggest sectoral gainer led by index heavyweight RIL which rose 5.6% and figured among top Nifty gainers on reports that NTPC will have to buy gas at $4.20 per mn British thermal unit from the company
Û News of a reunion between the two Ambani brothers viz. Mukesh and Anil and rumors that the promoters of RIL have increased their stake to 49% in Oct-Dec also prepped the positive sentiment for the stocks of Reliance as well as R-ADAG stocks.
Û Easing crude oil prices in the international market also helped sentiments for oil retailers
Û Crude oil price fell to US$36.51 a barrel on January 16 compared with around US$$42 a barrel in the previous weej as investors bet economic weakness would curb demand, expecting corporate earnings season to be fraught with bad news
Û The second biggest sectoral index on the BSE was the IT index (up 2.5%), riding on positive sentiment due to a higher-than-expected earnings report from Infosys, as well as on a report that SEZs set up by IT companies like Infosys, Wipro and TCS will be exempt from taxes on profits for the first five years.
Û HCL TECH was the biggest NIFTY gainer (up 10.4%), while Infosys rose 5.3%
Û Hope of demand revival for vehicles on expectation of a further fuel price cut by the government led the Auto shares up
Û Among losers, real estate shares were the worst hit on profit-taking as well as on renewed fears over corporate governance
Û Unitech was the worst affected on Nifty (down 18%) after rating agency Fitch downgraded the company's debt rating due to its continued delay in raising fundsMeanwhile bank shares fell on worries of growing nonperforming assets (NPAs)

Taxing IT to Avoid Financial Trouble

Satyam fiasco has brought out a big question on how to check the business models and financial reporting of the Information Technology companies. Most of the technology companies in India have been enjoying tax exemptions over a decade and have also got exemption for a few years more.

As these companies are not taxed, their financial reporting can easily be fudged by anyone. Any IT company, which does not pay any tax on its revenues, can overstate it to mind boggling proportion without even being worried about the consequences. A simple and symbolic tax could be answer to all such malicious activity as ones these companies would be forced to pay tax on revenue and disclose their financial statement it would become tough for companies to continuously over state their revenues for more than a year.

There is also need to check on the business models of the companies, most of them are under tax exemptions and are now pulling themselves under SEZ status, it has become difficult to keep a tab on their functioning. Government needs to bring in regulation for disclosure of forex revenue generated from such units and the banks where they are parked. This measure will effectively keep a check on the financial activities of such IT firms and will also discourage many fly-by-night operators from posing as Information Technology firms to manipulate their IT SEZ status for retail purposes.

Government Announces Rs 1,000 Bn Investment in Infrastructure

After it announces generating profit from seaports

The government came out with two separate announcements relating to infrastructure industry. The government announced that it has made a profit of US$ 577.4 mn out of revenue through its 12 major ports across the country during 2007-2008. it achieved stupendous growth of 159.8% over the period of last three years.

After pronouncement of its own achievements in the infrastructure sector, government announced to invest Rs 1,000 Bn in infrastructure projects in next 100 days. The Union Minister of State for Industry, Dr Ashwani Kumar, declared the government’s intention to invest in infrastructure projects not only to boost the economy but also to indirectly safeguard the jobs in infrastructure and construction sector.