SEBI allows mutual funds to invest in IDRs

Market regulator SEBI on Tuesday allowed mutual funds to invest in Indian
Depository Receipts - instruments through which investors here can invest in foreign company's equity.
"It is hereby clarified that mutual funds can invest in Indian Depository Receipts (IDRs)," Securities and Exchange Board Of India (SEBI) today said in a statement here.
As per the SEBI regulations, mutual funds are allowed to invest in securities issued by the domestic entities and with this clarification by the market regulator, fund houses would now also be able to invest in IDRs.
IDRs are Indian counter parts of ADRs or GDRs through which several Indian companies have raised funds from the overseas investors.
Through IDRs it may be possible for the foreign firms to raise funds from Indian investors and it would be possible for the Indian investors to invest in equity shares of foreign companies.
The shares issued by the overseas company would be held by an overseas custodian bank and on the basis of these underlying shares the Indian depository bank would issue IDRs to the Indian investors.

Source: http://economictimes.indiatimes.com/Market-News/SEBI-allows-MFs-to-invest-in-IDRs/articleshow/4636795.cms

Stocks surge nudges investors back to equity funds

Indian fund investors are flocking back to stocks on hopes market-friendly reforms by the new government would help sustain the stunning 85 percent surge in the benchmark index since early March.
Net inflows into domestic equity funds rose to 19.3 billion rupees in May, the highest in 14 months, and more than twice the amount in the first four months of 2009, according to data from the Association of Mutual Funds in India.
It includes more than 8 billion rupees collected by a fund from ICICI Prudential Asset Management -- more than what 18 stock funds collected in the last eleven months, marking a significant shift in investors risk appetite.
"There is certainly a revival in sentiment and interest from investors," said Anthony Heredia, chief executive of Morgan Stanley Investment Management.
The revival comes in the backdrop of a tough 2008/09 for the Indian mutual fund industry, which saw assets shrink by nearly a fifth to 4.2 trillion rupees in the year to March. More ominously, profitable equity assets shrunk by more than a third.
"The current surge in investor interest and also markets are firstly because of the way the election result has turned out to give us a majority government for the next five years," Heredia said.
A return of risk appetite globally, sending billions of dollars into stocks of emerging markets, and hope the worst might be over for India's corporate earnings was also fuelling a revival in flows into domestic stock funds, he added.
Indian shares surged 28.3 percent in May, the highest in 17 years, after the Congress-led coalition won an unexpectedly strong mandate in the polls.
Hopes are also high on a revival in stalled reforms such as higher foreign investment limits in retail, airlines and banks, pension, land and agriculture reforms and a fresh lease of investments in infrastructure.
However, data also indicate investors pulling out more money from stock funds to take advantage of rising share valuations.
Redemptions at 38.22 billion rupees in May was about 80 percent more than the previous month and highest in 13 months.
However, investors allocated 57.5 billion rupees, nearly three times they invested in April, boosting prospects of better flows into the 6.6 trillion rupees Indian mutual funds industry.

Source: http://in.reuters.com/article/businessNews/idINIndia-40184420090609?pageNumber=2&virtualBrandChannel=11557&sp=true

R-Life to raise Rs 2,000 cr via IPO

Reliance Life Insurance, an Anil Dhirubhai Ambani Group (ADAG) company, has decided to enter the capital market to mop up Rs 1,500-2,000 crore through an initial public offer (IPO). This will be the first instance of listing by a life insurance company on any Indian bourse.

According to sources, the company is planning to issue fresh shares amounting to 15-20 per cent of its expanded equity, which would value the company between Rs 12,000 crore and Rs 15,000 crore.
Some leading investment bankers such as Deutsche Bank and Enam Financial had already been informally appointed, sources said, adding that some more bankers would be roped in soon.
Reliance Capital Chief Executive Officer Sam Ghosh said, “We are evaluating various options, including listing on stock exchanges or even a strategic sale of a minority stake.”
According to sources, the company planned to file the draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) by the end of this month or early next month.
However, much depends on the clarification for disclosures and other issues from the Insurance Regulatory and Development Authority (Irda). “Since this is the first IPO by an insurance company, the regulator needs to clarify certain issues, particularly on disclosure norms. The company is in the process of getting some clarification from Irda,” sources said.
Last year, ICICI Bank made an attempt to list its insurance business by creating a holding company structure. However, the Reserve Bank of India (RBI) gave it a thumbs down.
Under the current norms, it would be difficult for other Indian insurance players to list on exchanges as in most of the cases, the limit of 26 per cent foreign investment has been exhausted. Barring Reliance Life Insurance, Sahara Life Insurance and Life Insurance Corporation of India, foreign strategic investors have 26 per cent stake in almost all insurance companies in the country.
As a result, foreign institutional investors would not be allowed to participate if these companies went public, said a leading banker.
However, once the pending Insurance Bill is passed and the limit for foreign investment is increased to 49 per cent from the current level of 26 per cent, many joint ventures would explore the possibility of entering the capital market.
Reliance Life Insurance is a wholly-owned subsidiary of Reliance Capital. With 10.3 per cent market share among the private insurance players, Reliance Life is ranked fourth in terms of total premium and third in terms of weighted premium. The top three private players in terms of total premium are ICICI Pru Life, SBI Life and Bajaj Allianz.

Source: http://www.business-standard.com/india/news/r-life-to-raise-rs-2000-cr-via-ipo/02/42/360214/

Sebi for phased reduction of securities transaction tax

Members of the Securities and Exchange Board of India (Sebi) have suggested a phased reduction of the securities transaction tax (STT), as part of a package of measures to develop the capital markets that was discussed with Finance Minister Pranab Mukherjee last week.

Removing STT is considered necessary to improve retail participation in the capital markets by reducing transaction costs, sources close to the development said.
“This is a good time to reduce the STT since the market holds good prospects for investment by retail investors," a source privy to the proposal said.

Stock market brokers have been seeking the removal of STT ever since it was introduced in the 2004-05 Union Budget. It is a tax imposed on the sale and purchase of securities, which can be shares, derivatives or units of mutual funds traded on a recognised stock exchange. At present, the STT rate is 0.125 per cent of the total volume of the transaction.
Officials said a reduction or phase-out of the tax might not affect the government’s revenue collections significantly because it already levies short-term and long-term capital gains tax on almost all transactions.
They also said the regulator had proposed that the losses incurred in currency derivatives be treated as business losses and not speculative losses, as is the case of equity derivatives.
If the move goes through, any investor could either write off such losses against business profit, which may or may not accrue from market dealings, or amortise it over time during the normal course of business. Alternatively, the investor can take advantage of tax rebates. At present, currency derivative losses are treated as speculative loss and can be used to set off only speculative gains.
Sebi has also suggested that the investments by retail and institutional investors in real estate mutual funds should be given tax benefits for the development of the sector and the fund. A real estate mutual fund (REMF) scheme is a mutual fund investing directly or indirectly in property.
Similarly, for the development of the mutual funds as an investment category, it was suggested that provident funds and pension funds be given tax benefits to invest in mutual fund units.
The move has been suggested because pension funds and provident funds have large corpuses and tax benefits would encourage funds to flow into mutual funds.

Source: http://www.business-standard.com/india/news/sebi-for-phased-reductionsecurities-transaction-tax/360372/

Mistakes to avoid in the next stock market rally

Recent stock market activity, especially the reaction post-elections, might suggest that the worst is behind us. So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….

1. Don’t be unrealistically optimistic:

Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.

2. Understand your risk

You cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.

3. There is no substitute for quality:

Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.

4. Don’t invest blindly

Invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.

5. You cannot successfully time the market:

If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.

Source: http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?mlt_click=IFR+Asia_21_Story+1_sec1-priCon-m0-NONE_News&sp=true

Bank funds only equity schemes to beat indices

While equity diversified funds have given an average return of 76 per cent in the three-month period since March 9 — the day when the present market rally started — banking sector funds were the only ones that managed to outperform the broader market indices during theperiod.While banking sector funds have, on an average, managed to give a healthy 92.78 per cent return since March 9, the Sensex and Nifty posted 84.24 per cent and 78.01 per cent gains, respectively, during the same period.Among the banking sector funds, Sundaram BNP Paribus Financial Services Fund has managed to give the highest return at 103.35 per cent. The lowest return in this category came from JM Financial Services Sector Fund, which clocked 73.03 per cent. Among equity funds, all other categories — including equity diversified, tax planning, technology, pharma and FMCG funds —under-performed the Sensex.Equity diversified funds gave a return of 76.75 per cent while tax planning, technology, pharmaceuticals and FMCG funds posted 73.57 per cent, 65.37 per cent, 51.58 per cent and 28.45 per cent gains, respectively, in the past 3 months.Among the sector-specific funds, however, technology and FMCG schemes have outperformed the respective sectoral indices on BSE. For instance, while the average return on the technology funds in the three months since March 9 stood at 65.37 per cent, BSE IT rose just 54.50 per cent during the period.Similarly, FMCG funds outperformed the BSE FMCG Index. While, FMCG funds gave a return of 28.45 per cent, the BSE FMCG Index rose only 19.98 per cent.In sharp contrast, the best performing banking funds failed to match the gain posted by the BSE Bankex, which saw a whopping 114 per cent rise since March 9.“The weightage of some banking stocks in the banking index is far more than some of their peers. Since none of the banking dedicated funds could afford to hold stocks of more than one or two banks, historically banking funds have under-performed the BSE Bankex,” says Dhirendra Kumar, chief executive officer of mutual fund research firm Value Research.RK Gupta, MD of Taurus Mutual Fund, echoed Dhirendra Kumar’s views. “Many small and mid-cap banking stocks are not part of BSE Bankex and most banking sector-dedicated funds also invest in these stocks. This caused such huge difference in return given by the Bankex and the banking sector funds,” he pointed out.

Source: http://www.mydigitalfc.com/mutual-funds/bank-funds-only-equity-schemes-beat-indices-164