Reserve Bank of India's Annual Policy Statement for the Year 2009-2010

IRBI12300

Publish at Scribd or explore others: Other leadership curriculum

Allianz, Bajaj Fin in India asset management venture

Germany's Allianz will take a 51 percent stake in an Indian asset management joint venture with financial services firm Bajaj Finserv as it extends its operations in Asia's third-largest economy
The German insurer's planned entry comes after a fiscal year when assets under management in India's 35-member mutual fund industry fell as a slowing economy and turbulent financial markets hit investment valuations and detered retail investors.
Allianz joins the likes of South Korea's Mirae Asset and France's Axa who have entered the industry in the last two years. Goldman Sachs has deferred plans to start mutual fund operations in India, and many more are going slow.
"We are delighted to extend our partnership to the mutual fund business, which may take about a year to commence operations," Rahul Bajaj, chairman of Bajaj Finserv said in a statement.
Allianz has minority stakes in two Indian insurance ventures, Bajaj Allianz Life Insurance Co Ltd and Bajaj Allianz General Insurance Co Ltd, and had told Reuters last August it was in talks with the Bajaj Group for an asset management venture.
India's mutual funds industry managed about $83 billion at the end of 2008/09 fiscal year in March, down from more than $100 billion a year earlier, data from the Association of Mutual Funds in India showed.

Source: http://in.reuters.com/article/domesticNews/idINBOM43454120090420

‘Stock prices reflected extreme pessimism’

In early March, there was a unipolar view that stocks would rally only after the elections. To us, that raised the risk of carrying high cash levels. We took a contrarian view that the markets could rally before the elections or maybe correct after it and deployed much of our cash. - SANJAY SINHA, CEO, DBS CHOLA MUTUAL FUND

Stock prices are reverting back to mean from a phase of extreme pessimism. But sectors which have bounced back in this rally may not be the ones which revive first, says Mr Sanjay Sinha, CEO of DBS Chola Mutual Fund, in an interview with Business Line. Mr Sinha also believes that with order flows from government projects likely to revive post-elections, this may not be the right time to hold a very defensive portfolio.
Excerpts from an interesting conversation:
There has been a view, based on economic data from the US, that the worst of this economic crisis is behind us. That is underpinning this stock market rally. What is your view on this?
There are three major pockets of economic activity in the world- the US is one and Europe and Japan are the other two. Data emerging from the US may be suggesting that it is now gearing up on a path of recovery. That cannot be said for UK and Japan as yet. Therefore, we cannot say with absolute confidence that the entire global economy is in a recovery mode. But the US does seem to be responding to stimulus measures and other steps taken by the government.
Is the current mood of optimism leading to the market ignoring negative news? The bad unemployment numbers from the US, for instance.
I believe the unemployment numbers would be a lag indicator of the economy rather than a lead indicator. Industries would first downsize in order to adjust to lower output; that is what reflects in unemployment data.
Once there is a productivity improvement, that reflects in better output and finally in the unemployment numbers. Going by that, there could even be further addition to the unemployment numbers. But an economic revival may well precede that.
The other part that you said, that the market is choosing to ignore data and is focusing on positive news alone; I do concede. But then, the markets tend to be more sensitive to the future than to the present or the past.
Therefore, if there is a sense of the macro economic conditions recovering, markets may begin to rally ahead of that. We have been in an extended period of pessimism. When one sees some vibrancy come into the market, then more optimism will come into the system. Factors such as the wealth effect leading to better spending and a better economy will follow.
But sometimes, these rallies are also false rallies. If you want to be absolutely certain of the outlook, then one would need to wait for the economic numbers to be consistently good for a period of time.
In India, the market has been buoyant though the earnings season is just round the corner. Do you think stock prices have discounted the worst case scenario on earnings?
If you see the way different sectors have corrected over the last year, prices do seem to have captured the differential impact (of the slowdown) on earnings of sectors. That is why some sectors such as real estate have corrected far more than others like, say — FMCGs.
But if you are talking of the recent rally, and asking if the stocks which have bounced back are going to see recovery ahead of others, that may not be the correct assessment. Investors are probably responding to just a low price, rather than to the sectoral outlook at this stage.
Is the market focusing too much on the near term? Cement and auto stocks have been marked up on the back of despatch and sales numbers over the last quarter.
I think cement and auto stocks had corrected significantly in anticipation that we will be in an extended downturn. But recent numbers seem to be negating that point of view. Stock prices are thus reverting back to their median levels.
If I have to extrapolate this to a broader market view, the overall market had given in to extreme pessimism, which was not warranted. India does have relative insulation from what is happening globally. That distinction needs to be made and is being made now. We do have elections coming up and that has put policy announcements on the back burner. That gives me optimism that policy imperatives will be pursued once the new government is in.
Regardless of what form that government will take, there are policy initiatives that will have to be taken. If you see the targets for the Twelfth Five Year Plan, we may now have to push through pending projects to keep to the timetable. You may see higher news flow after the elections on the order books of infrastructure and capital goods companies. That will have a cascading impact to connected sectors such as steel, cement and so on.
FIIs have been net buyers over the past month in Indian stocks. Is it correct to extrapolate this data and say risk appetite has revived?
Risk appetite has been restored globally, to some extent. Funds are flowing into the emerging markets and into India too. But to multiply a fortnight’s numbers and say that FII flows will be strong for year will not be realistic. The IMF and World Bank have both come out with the outlook that global GDP will be in positive territory for 2010, compared to 2009. If that is correct, the optimism will have to build up in the second half of 2009 itself. That could lead to better FII flows. India does continue to stand out as a great destination based on its macro outlook. I would not be surprised if 2008-09 ends with a positive FII flow as compared to 2008.
What stance have domestic institutions taken amid this rally?
The mutual fund (inflow) numbers have turned positive since the second half of March. There was also a fair amount of cash with mutual funds which is now getting deployed into stocks.
As far as insurance companies are concerned, there are two sets of strategies. The private sector insurance companies usually see a seasonal bunching up of inflows in the January-March quarter. That has largely been deployed in recent weeks.
On the other hand, public sector insurance companies have already deployed their funds and are playing a contrarian role in the markets, by being sellers. That’s why the ‘domestic institution’ action which you see in aggregate numbers show such fluctuation.
Many equity funds have not matched the benchmarks in this rally; but some of DBS Chola’s funds have. Why is this?
In the early part of March we saw that there was an unipolar view in the markets that stocks would rally only after the elections. To us, that raised the risk of carrying high cash levels. Therefore, we took a contrarian view that the markets could rally before the elections or maybe correct after it. Now, both these legs may play out.
The markets may rally in the run up to the elections on the back of global cues. We may come to a threshold level by the time election results are out. If the fear of an unstable coalition government at the Centre is not well-founded, then the markets may well gain momentum.
Basically, we took the call that timing the market to perfection may not be possible. Therefore, we almost completely deployed cash levels in our large cap funds. That paid off, because in the last rally, our funds have moved into the top quartile.
Are you sticking to a defensive position on your portfolios? What are your key sector bets now?
We had not created a very defensive position in our portfolio and therefore suffered in the meltdown. But the view we have to take now has to be prospective and not retrospective.
I believe that stocks or sectors that were battered for low order flows and so on would come back in a more stable scenario. We have created a portfolio around that. In alphabetical order, that would be auto, cement, construction, oil and gas and pharmaceuticals.

Source:http://www.thehindubusinessline.com/iw/2009/04/19/stories/2009041950300700.htm

Share of foreign mutual funds’ asset base falls sharply

The share of mutual fund assets under management (AUM) by foreign and predominantly foreign companies in India has declined drastically over the last fiscal, ended March 2009.
Assets managed by foreign and dominantly foreign asset management companies (AMCs) have fallen to 11.5 per cent of the total AUM of the industry, from 20.6 per cent in March 2008.
In other words, foreign mutual funds which managed more than one-fifth of the total AUM of the industry last year now manage a little over one-tenth of it.
The Indian AMCs accounted for 79.39 per cent of the total asset base of the industry as on March, 2008, while this has come up to 88.5 per cent as on March, 2009.
The classification of AUMs as foreign/Indian or predominantly foreign/Indian is according to the segmentation observed by the Association of Mutual Funds in India (the fund houses which have been classified as predominantly Indian has been taken as Indian AMCs).
“We classify mutual fund houses as Indian or foreign based on the ownership pattern in the AMC’s, said Mr A P Kurian, Chairman, AMFI. “While we cannot make a generalisation as to why foreign AMC-assets have fallen drastically, this could be because these fund house could be having more redemptions and less inflows”, said Mr Kurian.
Also, some of them have a different business plan and focus more on big ticket, high networth individuals, said Mr Kurian.
Fund managers also observed that there was a shift in ownership of some AMCs, from foreign to Indian.
Standard Chartered Plc sold its asset management business to the Indian, Infrastructure Development Finance Company (IDFC) in March last year.
Similarly in November, Delhi-based Religare Enterprises Ltd (REL) acquired Lotus India Asset Management Company, a predominantly foreign joint venture.
Another reason, according to Mr Rajan Krishnan, CEO of Baroda Pioneer AMC is that “the visible growth has happened in the top five-six AMCs during the past one year, which are Indian or majority Indian-owned.”
The global troubles faced by companies such as AIG impacted sentiment towards global fund houses operating in India, said the Chief Executive Officer of a fund house.
In some cases these AMCs had parked their investments in a single instrument or put huge money in real estate which then back-fired when the real estate sector suffered, said another fund manager.

The dominant foreign players have been lying low or losing money, said Mr Dhirendra Kumar, CEO of Value Research. One reason for their fall in assets was that that they were heavy on equity schemes which suffered as a result of the market fall during the year, said Mr Kumar. Domestic players do not have such an intense presence in equity.
Foreign firms have lately come under cloud, added Mr Kumar. The market in India has become far less receptive to global fund houses or brands, he said.

JM Auto Sector Funds announces changes in fundamental attributes

JM Financials Mutual Fund has approved the change in fundamental attributes of the scheme and its conversion from an Open ended sector scheme to an open ended equity scheme vided their resolution dated 7 April 2009 and 15 April 2009 respectively. The change in fundamental attributes include change in name, investment objective, investment strategy, benchmark index, asset allocation and other related matters of JM Auto Sector Fund. Accordingly the following changes are proposed in JM Auto Sector Fund with effect from 23 May 2009.
Details about the changes:
1. Change of name of the scheme to: JM Mid Cap Fund
2.Change of investment objective of the scheme: The investment objective of the scheme will be to generate long term capital growth at a controlled level of risk b predominantly investing in Mid Cap companies. Consequent to the above changes in the investment objective of the scheme, the scheme will undergo a change from an open ended sector scheme to an open ended equity scheme.
3. Change of asset allocation pattern of the scheme: Under normal circumstances the asset allocation of the scheme would invest upto 65%-100% in equity and equity related instruments with high risk profile and invest upto 35% in money market instruments / debt securities.
4. Investment Strategy: JM Mid Cap fund, as the name suggests will be a purely mid cap fund. It is an open ended growth scheme which focuses on investing in the midcap segment of the market with a disciplined investment approach. Being a growth oriented scheme, the scheme seeks to invest a substantial portion of its portfolio in equity and equity related instruments. Under normal circumstances, around 65% of the corpus shall be deployed in such securities and the balance in debt/money market instruments. However, whenever the valuations of securities rise in a sharp manner, the scheme will take advantage of trading opportunities presented and in such a scenario, the scheme will have a high turnover rate. The scheme will endeavor to use a mix of top down and a bottom up approach.
The strategy will be to identify stocks that can demonstrate strong growth over 3 year's horizon on the back of scalable business. The scheme seeks to achieve long-term growth of capital at controlled level of risk by primarily investing in midcap stocks. The midcap segment comprises mostly of companies that have been able to sustain themselves in the initial phases of growth. Since may companies out of this segment would show higher growth in future and move towards the large variety of business to choose from. Further, this segment is relatively under researched and hence offers an excellent opportunity for bottom-up focus thus enabling the spotting of winners ahead of the market.
5. Benchmark: The benchmark of the scheme would be – CNX Mid Cap Index
6. Fund Manager: The scheme would be managed by Mr. Sanjay Chhabaria

Investing in 'Grandfather instruments'

Generation, following the footsteps of their elders? There may be a few in a hundred, who would do so.
This holds good for financial planning too, and even going about choosing the type of financial instruments.
Youngsters normally prefer to invest in equities with greed to earn higher returns, as against investors belonging to the older generation, who look for stable and regular returns from investment instruments.
Young greedy investors, who had been fascinated by the dazzling skyward rally of the equity markets in early 2008, have witnessed their portfolio value virtually halving.
With their portfolio worth reducing, investors have been forced to look for avenues outside D-Street. “Which avenue to choose in this scenario?” is the question perplexing the investors, hit by the global meltdown and volatility of the markets.
Have we ever tried to consider and review investing into instruments used by our grandparents and people of the older generation? Most of us might have never thought of investing into instruments like Post Office Money back scheme, National Saving Certificate and the like.
We normally hear about them from our grandfathers, and senior citizens, particularly in the context of retirement planning. Lets thus call such instruments, as `grandfather` instruments, within the realm of our discussion on considering them as a prospective investment option, and try to review them as under : -
Public Provident Fund (PPF) scheme was introduced by the government in 1968. This `grandfather` instrument, can be opened by any individual assessee, while a guardian can open the account on behalf of minor.
A PPF account can be opened by any individual assessee. (Guardian can open the account on behalf of minor). Along with the exempt (Income Tax) interest of 8% per annum, calculated on the minimum balance from the fifth day till the end of the month, the investment tool also can be used for tax planning purpose, u/s 80C of the I.T. Act.
One can build a decent corpus by investing the principal amount over a period of 15 years. The minimum lock-in period is 7 years. On expiry of the 15 year duration, the PPF account can be prolonged for duration of 5 years at a time.
During the period, the minimum amount one can invest is Rs 500 and then in multiples of Rs 5. The maximum amount in a financial year can be Rs 70,000, in lump sum or installments.
PPF can also help you acquire a loan of up to a maximum 25% of the balance from the third financial year to the sixth financial year. However, the loan option is not available once you start withdrawing, that is sixth year after opening of account.
Post Office Monthly Income Scheme (MIS) is mostly opted by Voluntary Retirement Scheme (VRS) takers and retired people looking for fixed monthly income.
While PPF limits the account to one person, here, one can open multiple MIS accounts and each account can be converted into a joint account and vice versa.
MIS requires a minimum investment of Rs 1,500 or in multiples thereof. The upper limit for a single account is Rs 450,000 while that for a joint one is Rs 900,000. Alongside one can also claim a bonus of 5% on maturity. (Revised on Dec. 8, 2007)
However, unlike the case in PPF where interest is tax free, the interest income of 8% in this case is taxable. It is however not subjected to TDS (tax deducted at source) deduction. Also, the balance is exempt from tax. Alongside, one can claim a bonus of 5% on maturity of the instrument which is 6 years. (Earlier, it was 10%; the same has been revised to 5% with effect from Dec.8, 2007.)
National Savings Certificates (NSCs), are certificates issued by government of India that can be availed in the denominations of Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 at all post offices across India. This ‘grandfather’ instrument carries an interest of 8% which is compounded half yearly and has a maturity period of 6 years.
Though the interest of 8% is subjected to tax, a full amount of Rs 100,000 can be deployed towards tax planning exercise, eligible for deduction u/s 80C of the I.T. Act.
Kisan Vikas Patra (KVP) works in a similar way to NSCs and can be availed in same denominations across post offices in India.
They attach an annual interest rate of 8.25% and maturity period of 8 years and 7 month. They have been propagated as a safe route for investors who wish to double their investment. That is if one procures KVP certificate of Rs 100, one will earn up to Rs 200 on maturity.
While these instruments may be low on their returns aspect as compared to equities and mutual funds, they beyond all doubts, are backed by government, and hence are comparatively safer.
So `grandfather` instruments like these would prove to be safer and prudent to park your funds into, and improve the worth of your portfolio, particularly when the stock markets are highly volatile, as is the case in the current scenario.
Moreover, by investing in these instruments, you can follow the footsteps of your parents or grandparents and also build your retirement corpus.

Source: http://in.reuters.com/article/personalFinance/idINIndia-39013520090413?mlt_click=IFR+Asia_21_Stories+2-8_sec1-priCon-m5-NONE_News&sp=true

Investment Mantras for Women

There are some myths about women when it comes to investment. Some of them are…
Women are not as active as men when it comes to investing money; they generally keep themselves away from taking investment decisions; they are well known for spending money or keeping it idle rather than investing it for earning more; even, non-working women are mostly dependant on their spouses for meeting their day to day expenses…
Though, to some extend its true that women are dependant on their spouses for finance, they should also think about their future. Problems don’t come giving prior notice. What if they face the situations of being divorced or widow?
In such cases the main problem for a woman is the regular flow of income to take care of their needs, provided they are not buck-earners. However, in the current scenario of layoffs, lack of job security and slowdown, even earning women can also face these problems.
As per the latest International Labor Organization (ILO) report, the deepening economic and job crisis across the globe is expected to increase the number of unemployed women by up to 22 million in the year 2009.
The global employment trends (GET) report by ILO indicated that, of the 3 billion people employed around the world in 2008, 1.2 billion were women (40.4%). It said that, in 2009, the global unemployment rate for women could reach 7.4%, compared to 7% for men.
Women should start thinking and understanding the importance of money and its investment aspect to avoid critical situations at any stage of their lives. They need to develop skills to plan for their financial needs.
Generally, women tend to keep cash idle rather than investing it. They tend to think that this `idle cash` can be easily used for contingencies and to spend on their personal care like beauty parlors and jewellery etc.
However, as an exception, few women do invest into risk-averse avenues such as bank deposits and post offices` schemes. They generally avoid risky options such as equities, as they think that it takes a rocket science to understand equity markets` trends, patterns and volatile nature.
Instead of worrying about the `complexity` of equity markets, they should equip themselves with the basic knowledge about investing to make fruitful investments.
Financial independence is a very crucial thing for women in today’s world. Women from different age groups should start investing from the early stages of their lives to secure the future and for better lifestyle.
Below are the various investment options for women from different age groups.
Age group 20 - 30 years
You can call this stage as `Young Unmarried Stage`. Women from this age group can plan their future very well as there are various investment options available suiting their needs at this stage. Investing in equities is perhaps the best option for the women at this stage.
Equities are well known for growth and good returns, provided the markets are doing well. The dividend income from equities can also help them to earn regular income. They can follow intraday trading and buy today sell tomorrow (BTST) strategies. Other investment options for this group are derivatives, F&O and equity linked mutual funds.
Age group 30 - 40 years
This stage is called `Young Married With Children Stage`. In this stage women have to think about their children also. To secure the future of their children they should opt for the investments options which suit them. There are different categories of mutual funds and insurance policies like educational plans. Women between this age group should go for such plans.
Age group 40 – 50 years
This is `Married with Older Children Stage`. As children become old, parents have to keep funds ready for their higher education and marriage. This is a very crucial stage for any parent as their children’s career depends on their education and parents have to arrange funds for their education.
Accordingly women should opt for the investment options like insurance plans for the marriage and education purposes.
Age group 50 – 60+ years
This stage is called `Retirement Stage`. At this stage, women can invest into less risky and safer investment options such as PPF, NSC, Post Office Saving Schemes and debt instruments for the steady flow of income at the later stages of lives.
A word of advice
Before making any investment, women need to do the cost benefit analysis of their investment options. They should analyze the risk associated with it, its liquidity and safety aspects. They just need to understand the basics of investing and opt for the right kind of avenues which will suit them. If they follow the basics, no doubt, a woman can also be as good investor as a man!

Source: http://in.reuters.com/article/personalFinance/idINIndia-39055220090415?mlt_click=IFR+Asia_21_Stories+2-8_sec1-priCon-m5-NONE_News&sp=true

India well placed to benefit from improving int'l mkt: Fidelity

Fidelity International said attractive share valuations indicate the bearish phase in global markets may be over and India is well placed to benefit from the improving global environment.
"My belief that the market is bottoming out is underlined by attractive valuations, market sentiment and by looking at current market conditions in relation to the historical bear and bull market cycles," Fidelity International President Investments Anthony Bolton told reporters.
About India Bolton said the country's economy was largely domestic consumption-led, which meant that it has been less affected by the deceleration in global growth.
"As an economy that has continued to grow in spite of unprecedented turmoil in the global economy, I think India is well placed to benefit from an improving global environment," he added.
Fidelity International has a presence in India through Fidelity Mutual Fund, which launched its first fund in 2005.
Talking about the company's growth over the last four years, Ashu Suyash, Managing Director and Country Head India, Fidelity International, said, "as one of the fastest growing among the new asset management companies, we are delighted with the progress we have made over a short span of time.

Source: http://economictimes.indiatimes.com/India-well-placed-to-benefit-from-improving-intl-mkt-Fidelity-/articleshow/4411365.cms