Foreign brokerages edge out locals

Foreign brokerages are swarming into India sending several local entities to the wall as the white heat of competition crimps margins that have already been mauled by the sharp fall in trading volumes. Many Indian outfits have shut down shop; others are scaling down their business or taking a hard look at their business model. Several big boys of global finance have beefed up their trading desks in India over the past few months, including Barclays and Jefferies, a US-based full-service securities and investment-banking firm. A slew of boutique brokerages from countries as diverse as Portugal and Korea have also waded into the Indian market. Market sources say the newbies who are keen to expand their role in the sub-continent include Portugal’s Esprito Santo and South Korea’s Samsung Securities and Mirae Securities. The upshot of this is that several local brokerages such as Mangal Keshav Securities and Alchemy Share and Stock Brokers have had to shut down their arms catering to the institutional business. Unconfirmed reports indicate that many other homegrown outfits that had sprouted in the past decade have started to trim their head count as they wilt in the heat of the competition. Faced with cutthroat competition and the slump in trading volumes, local entities are under pressure to raise compensation packages, including bonuses for the talent that operates their trading desks. The tough plight of the domestic brokerage houses was evident in the first quarter of this fiscal when most of the listed financial service entities reported lower income from the broking business. The slide has been triggered by the 14 per cent decline in the average daily market turnover on a sequential quarter basis. The turnover is down both in the cash market and the futures and options (F&) segment. Brokerages are worried because the turnover in the cash segment —, which has always been more profitable and remunerative — has fallen sharply.  Even as the share of the cash segment has declined, options now constitute a major share (over 65 per cent) of the market volumes. This segment gives very low yields to brokerage firms. The presence of a number of players in the segment has also affected brokerage rates, which are at abysmal levels. The margins in the brokerage business are as bad as the telecom sector where market leaders have to fend off an extremely aggressive bunch of new players. However, industry experts aver that brokerage houses are not in a position to raise rates like the telecom sector, where tariffs were increased recently.

Bet on equity, by picking the right ones

Equities are in the doghouse right now — and it is the best time to go stock picking. Nevertheless, investors need to make the right bets when they go bottom fishing. one has to  focus on specific companies rather than sectors even though several verticals have looked very attractive in the current meltdown in the markets. The current market is safe for investing. However, the real pay-off will come from your ability to pick the right bunch of mispriced bets. Even though several sectors look interesting, it’s all about picking the stocks of the right companies. The retail investor must bring his own competency to figure out how much a company will make in the next five or seven years and whether he is paying a price higher than that or significantly lower than that. Since the start of this calendar year, the BSE Sensex has plummeted nearly 18 per cent from 20500 levels. One outcome of this fall and the recent volatility is that the character of market and investing has changed with investors now more focused on index movements even as they have withdrawn from the equity markets. Earlier, it was more of an investing market where investors did not bother much about index movements. Now the whole talk is about where global markets or local markets are headed. Investing is not about markets, but finding businesses or companies who can make a lot of money and buying a small piece of it. To me, Indian equities will remain one of the best-performing asset classes over the next decade, and the arguments are far more compelling now that the markets have corrected sharply from their highs. The lower the market goes the better for investors. This comes even as price-wise the markets have entered an “under-valuation zone”. The price to earnings ratio (P/E) for the Sensex has eased from a multiple of 26 to 27 to a multiple of under 14 at present. The long-term average PE (for Sensex) has been 14.5. Therefore, we have now entered a historical under-valuation zone and we have breached the average PE multiple.  However, are we close to the bottom? I cannot say that. However, if it tumbles to a PE multiple 10, we will have reached an absolute bottom. Investors have been spooked by the slump and are clinging to the sidelines, waiting for the storm to blow over. They are afraid to make a mistake and suffer big losses. In investing, you have to learn to pardon yourself for committing mistakes. Please do commit mistakes; an individual who commits more mistakes eventually becomes a sane investor.

A brief review of monetary policy of RBI

RBI announced its mid-quarter review of monetary policy today. The central bank has increased the repo rate by 25bps to 8.25% with immediate effect. With this increase, the operating policy rate is higher by 500 bps since the beginning of RBI’s current rate hike cycle.

Stance of Monetary Policy:

RBI has re-iterated its anti-inflationary stance. RBI stated that it is imperative to persevere with the current anti- inflationary stance since a premature change in policy stance could risk hardening inflationary expectations.

The tone of the monetary policy commentary however, appears much less hawkish compared to the previous policy. 

On the growth front, GDP decelerated to 7.7% in Q1FY12 from 7.8% in Q4FY11 and 8.8% in Q1FY10. IIP too posted a severe slowdown to 3.3% in July from 8.8% year ago. 

Monsoon so far has been normal.

The first advance estimates for 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline. In the next quarterly review, RBI is likely to revise its FY12 GDP forecast of 8% downwards to 7.7%-7.8% levels.

RBI remains concerned on potentially adverse global macroeconomic developments.

Inflationary pressures on account of persistent food inflation and some elements of fuel inflation will continue to keep headline inflation higher. 

However, going forward, demand-side inflationary pressures are seen moderating on account of several factors such as cumulative impact of past policy actions, improved monetary transmission levels and moderating growth momentum.

Given that non-food manufacturing inflation (which is closely tracked by RBI as a measure of core inflation) has a higher weightage in WPI as well as limited ability of monetary policy to address structural food demand-supply imbalances, the repo rate appears to be close to peak levels. 

While RBI may keep some buffer for possibly another hike in case demand impulses do not act as per expectations in the latter part of this fiscal, it is also widely expected that, in case of any potential external shocks, RBI would move swiftly and choose to focus on financial stability versus inflation.

Outlook: 

RBI stance of monetary action will continue to be based on the inflation trajectory going ahead as well as the trends in global macro-economic scenario.

 We expect an average WPI inflation of ~8.5% during FY12 and FY12 GDP at ~7.75%. Another 25 bps hike is not ruled out during FY12. The steady pace of monetary tightening last year has resulted in moderating capex and investment demand.

A sustained continuation of previous, current and future monetary transmission into higher lending rates could affect both consumption and investment demand, with lagged impact of the same spilling over into FY13 as well.

Duplicate PAN

There are two solutions to it. Either you can get a reprint of your original PAN card that you had lost or you can apply for one online.

To get a reprint, you shall have to go the nearest office of NSDL or UTITSL and ask for the application form for “Request for New PAN Card or/and Changes or Correction in PAN data”.

 Fill it up and you will be asked to pay a fee of Rs 94. They will deliver you a reprint of the PAN card within a month or two. You can also apply for a reprint of the PAN card online through https://tin.tin.nsdl.com/pan/ correction.html.

 At the bottom of the page, you will find a file for selecting whether you want PAN for individual or firm or others. Select individual and click the select button. It will take you to an online form, and then fill it up but do not select any box on the left hand side of the form page.

 Pay the fees of Rs 94 through bank transfer or credit card. Take a printout of the receipt acknowledgement that appears on the screen next. Note down the acknowledgement number for future reference.

Paste a recent passport size photo on the acknowledgement printout and mail it to National Securities Depository Ltd, 3rd floor, Sapphire Chambers, Near Baner Telephone Exchange, Baner, Pune - 411045. Mention your acknowledgement number on the envelope.

NSDL will deliver the reprint of your original PAN card.

NRI loan

The Reserve Bank has allowed resident individuals to repay housing loans in rupee on behalf of their close relatives, who are non-resident Indians (NRIs) or People of Indian origin (PIO).

Television buying tips

As I bought my first LED television I am just sharing my experience and research. Hope this information will be your cup of tea. Read on to get a basic overview on things to keep in mind when looking around. HOW DO LCD TV WORK LCD monitors work by blocking light. By sandwiching a solution of TN (twisted nomadic) liquid crystals between two perpendicularly aligned panes of polarized glass, it becomes possible to manipulate the intensity of light as it passes through this crystalline matrix and out the glass panel at the other end.  Depending on the voltage of the electrical charge running through them, liquid crystals will untwist so that the intensity of light able to pass through the second polarized pane is affected. These displays can switch between light states (where the liquid crystals are fully twisted) and dark states (where the liquid crystals are fully untwisted), or somewhere along the gray scale in between.  SCREEN SIZE As a buyer, screen size is the first thing you need to decide on. Users generally fancy large size LCDs. The general view is the bigger the LCD, the better. However, ideally one must decide the screen size depending upon the space and distance available. For a proper viewing experience, one must maintain the right distance between viewing area and television screen. This is important as a larger display when viewed from closer distance shows grainy or pixilated images. It also causes eyestrain. The accepted distance for LCD displays is two to five feet for 20-27-inch displays, six to eight feet for 32-37-inch displays, 10-14 feet for 42-46-inch displays and 16 feet for 50-inch display and above. In addition, LCD scores over CRT models in physical depth. Most are less than 3 inch in depth. Along with size, it is important to check viewing angle. LCD TVs have a good side-to-side view angle, with wide angle ranging from 160 degrees to 80 degrees from the center viewing spot. RESOLUTION Resolution or picture detail defines how finer or sharper the picture quality would be. Better the resolution, sharper the picture quality. Average LCD TVs offer a minimum pixel resolution of 1280x720. This should be treated as the minimum pixel count one should go for. Some large screen LCD TVs have as high pixel resolution as 1920x1080, accompanied by obviously a high price tag. As if LG’s popular, Scarlet range which comes in 47 inch to 42 inch range has 1,920 x 1,080 pixel resolution while the 37 inch and 32 inch models offer 1,366 x 768 pixel resolution. CONTRAST RATIO Another factor to note is the contrast ratio. It determines the degree of variation of the whitest and darkest parts of the image.

If LCD TV has a low contrast ratio, dark images will look grey and while light images looks washed or blurred. An average contrast ratio to have in an LCD TV is 10,000:1 for 32-inch.

Toshiba's new range of LCD TVs offer Higher Dynamic Contrast ratio (maximum 30,000:1 in 37-inch LCD). Samsung's latest LCD LA46A650 has a Dynamic Contrast Ratio of 50,000:1 in 46-inch.

LG's Scarlet series also has a Dynamic Ratio of 50,000:1 in all models.

MOTION RESPONSE TIME

In case you are a sports lover or action movie buff, Motion Response Time is a must check. Motion Response Time is the ability of an LCD TV to display fast moving objects.

This is important as otherwise fast moving scenes like say a speeding car or in a tennis match scene, you may see notice a blur. It is described as fast motion blur.

So, before you buy, check the specifications for Motion Response Time (ms = milliseconds). On an average, an LCD TV should have a Response Time of either 6 ms, 8ms or 12ms.

CONNECTORS

Check for the connectors offered. If you have a home entertainment equipment, make sure that the LCD TV has all the connections necessary to hook up to your home entertainment systems.

In addition, your LCD TVs can work as a computer screen. So, check for connections for composite, S-video, component video and RGB SCART inputs.

You may also want to connect your TV to gaming console, HD DVD or Blue-ray player.

ADVANTAGES OF LCD TV

• Easier to watch as LCD TVs are significantly brighter and feature higher contrasts than traditional CRT sets
• Improved LED backlighting system enables better black levels and a brighter more energy efficient TV performance
• Direct-view models are only a few inches deep.
• Saves space
• Good picture quality
• Environmentally friendly
• 15" flat panel gives same viewable screen as a 17" CRT monitor

DISADVANTAGES OF LCD TV

• LCD has the problems producing true blacks. Some light always passes through when the liquid crystals untwist, so the best black on most LCD panels is a very dark gray.
• Because of the way light passes through an LCD cell, direct-view LCDs usually have a narrower viewing angle than plasma TVs.
• Low-resolution LCDs exhibit distinct pixelation and screen-door effects when blown up to big screen sizes. For front projection, using a model with XGA (1,024 x 768) or higher resolution will reduce screen-door effects

LCD TV and LED TV

LED or Light Emitting Diode TVs are part of the LCD TV family. The display screen on a LED is a liquid crystal display the same as it is on any other LCD TV.

The main difference between the two lies with different backlighting techniques, which may change the picture quality characteristics dramatically.

LED TVs are better than LCD TVs though are more expensive currently.

LCD TV vs. Plasma TV

LCD TV and Plasma TV have their own benefits and disadvantages.LCD TV price depends on the size and features you are looking for. As the features and size go high, so does the price. In some cases, it may depend on the brand. LCD range starts from Rs 20, 000 and can go up to Rs 5,00000. 

Sony's Bravia series (W,V,S) is priced between Rs 24,990 to 299,900. Sony's new Bravia series BX, EX and NX are priced between Rs. 16,900 to Rs. 3,49,000.

Panasonic’s recently launched LCD TV line-up is priced between Rs 45,000 to Rs 75,000.

LG's Scarlet series is priced between Rs 57,000 to Rs 1,60,000 depending upon the model variant. Sansui Kyuuten LCD 324H is available for Rs 39,990.

Axis clears Enam deal

The board of Axis Bank today approved the merger of the financial services business of Enam Securities Pvt Ltd (Enam) with itself but with some changes to the original proposal. The deal announced in November had envisaged an all-stock transaction worth Rs 2,067 crore. Enam shareholders were to receive 5.7 shares of Axis Bank for every 1 equity share of Enam. Though the share-swap ratio remains the same, the deal now involves a cash payout to the bank. In the first step, Enam’s financial services business will be merged with Axis Bank under a scheme of arrangement whereby Enam shareholders will be issued over 1.37 crore shares on the basis of the agreed swap ratio. After the merger, the bank will sell the Enam business to its wholly owned subsidiary, Axis Securities and Sales Ltd (ASSL). ASSL shall then pay the bank a cash consideration of around Rs 274 crore, which represents the book value of the Enam unit. The bank said the proposed scheme of arrangement was formulated in compliance with the conditions prescribed by the RBI and approved by its board. Though the deal was announced last year, its approval got delayed as the central bank wanted a few changes in the deal. When the deal was announced, Axis Bank had said it would induct Vallabh Bhansali, the co-founder and chairman of Enam, as an independent director on its board, subject to approval from its shareholders and the RBI. However, the RBI stipulated that no shareholder of Enam having shares of the bank because of the deal would be eligible for being a director on the board.

Loan cost to rise but not right now

Bankers will probably raise interest rates on home and car loans next month after they have the time to study the impact that today’s 25-basis-point hike in the repo rate to 8.25 per cent will have on their borrowing costs.

The RBI has raised the repo rate by 3.50 percentage points since March last year to combat inflation. The repo is the rate at which the central bank lends funds to banks.

Commercial banks have raised their lending and deposit rates in tandem with the RBI’s policy action.

The State Bank of India —the country’s biggest commercial bank — has raised its lending rates six times this calendar year.

Its benchmark prime lending rate (BPLR) is now pegged at 14.75 per cent, rising 225 basis points since January.

Its base rate — the minimum lending rate below which the bank cannot lend except in very special cases — is at 10 per cent compared with 8 per cent at the start of the year.

In its note issued after its mid-quarter policy review, the RBI said, “Forty five scheduled commercial banks raised their base rates by 25 to 100 basis points after the July review. Consequently, the modal base rate of banks rose to 10.75 per cent in August from 10.25 per cent in July.”

There would not be an immediate transmission of rates by banks to customers, as any further increase would have an adverse impact on credit growth and asset quality.

The hike in the repo rate coupled with moderating demand for credit could further impact banks’ net interest margins this fiscal, the report added.

 “Even as the RBI justifies this rate hike as a move to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective,” Ficci secretary-general Rajiv Kumar said.

Assocham agreed with Ficci that successive rate hikes by the RBI have not been able to control rising inflation.

The CII said urgent action was required to step up the growth momentum, especially in the manufacturing sector. Industry associations are also worried about an increase in home loan rates and other sectors that would slow down consumption, further hitting growth.

Referring to economic slowdown in the US and European economies, Ficci said the RBI had made a reference to the worsening global growth, but surprisingly went ahead with a rate hike citing a jump in the August inflation rate to 9.8 per cent, from 9.2 per cent in July.

Global economic uncertainties and high interest rate environment is likely to put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum, Assocham Secretary General D S Rawat said.

Growth in industrial production slipped to a 21-month low of 3.3 per cent in July. The country's economic growth also moderated to 7.7 per cent during the April-June quarter this fiscal, the slowest growth in six quarters.

Bandhan planning for banking

Leading micro-finance institutions (MFIs) are targeting banking licences.

SKS Microfinance, the country’s only listed MFI, had revealed its plan for banking. Today, Bandhan Financial Services Pvt Ltd, a MFI, announced that it would approach the Reserve Bank of India once the latter came out with the final guidelines for non-banking finance companies.

Bandhan has brought in International Finance Corporation (IFC), the investment arm of the World Bank, as an equity investor.

The investment comes at a time the micro-finance industry is still facing rough weather and the valuations of most of the companies have taken a beating.

IFC has invested $30 million (around Rs 135 crore) in Bandhan Financial Services Company by picking up nearly an 11 per cent stake even when banks in the country are not comfortable in extending loans to MFIs.

Bandhan is also in talks with other institutional investors such as KfW of Germany.

Bandhan Financial Services Company has a share capital of Rs 86.33 crore at the end of March 2011. It means IFC had paid a hefty premium for an 11 per cent stake. Its net worth, including the IFC fund, stands at around Rs 600 crore.

Bandhan’s loan portfolio has grown manifold in the last four years. The loan book is now valued Rs 2,500 crore.

HDFC offers dual rate loans

HDFC Ltd today offered a fixed-rate option of three and five years on its home loans, sparking what promises to be another gripping battle in the highly-competitive housing finance business just when the real estate markets show signs of stirring to life. The fixed-rate option of three and five years appears to be targeted at ICICI Bank which caught the industry by surprise last month when it gave borrowers the choice of opting for a fixed rate for either one or two years. The dual rate home loans reignited memories of the teaser rate home loans that were pioneered by the State Bank of India in February 2009, which had offered a lowball rate of just 8 per cent in the first year before flaring to a market rate in the subsequent years. The SBI has indicated that it does not have any immediate plans to revive the dual rate home loans. Neither HDFC nor ICICI Bank is trying to entice the home loan borrower with a ridiculously depressed rate in the initial years. HDFC is offering a rate of 10.75 per cent on loans up to Rs 30 lakh under the three-year fixed-rate option and 11.25 per cent under the five-year option. It is also offering 11.25 per cent under the three-year option for loans between Rs 30.01 lakh and Rs 75 lakh, which goes up to 11.50 per cent under the five-year option. Loans above Rs 75 lakh will carry a uniform fixed rate of 11.75 per cent under both the options. After the initial period, the loans will switch automatically to HDFC’s adjustable rate home loan product that is linked to the mortgage financier’s retail prime lending rate. “This option is for customers seeking to lock in their home loan interest rates and not take a risk on interest rates moving up in the initial years,” HDFC said in a statement. Customers will have to apply on or before October 31 this year to be eligible for the special offer. The first loan disbursement must take place on or before November 30 — giving a small window of opportunity for home loan seekers. The HDFC offer appears to be an improvement on the overture made by ICICI Bank, which is offering a rate of 10.75 per cent on loans up to Rs 25 lakh under its two-year fixed rate option. HDFC also scores over the country’s second-largest bank by offering 11.25 per cent for loans of Rs 30.01 to Rs 75 lakh for three years against ICICI’s two years for loans between Rs 25 lakh and Rs 75 lakh. However, ICICI is offering 10.5 per cent for a one-year fixed rate home loan of up to Rs 25 lakh. It is also offering 11 per cent under the same tenure window for loans between Rs 25 lakh and Rs 75 lakh, and 11.50 per cent for amounts above Rs 75 lakh. Under the three-year option, HDFC says the fixed rate will be available up to November 30, 2014. Under the five-year option, the fixed rate will be available up to November 30, 2016.

Reliance Capital & Nippon to explore more deals

Anil Ambani-controlled Reliance Capital has signed a deal with Tokyo-based Nippon Life to consider selling a stake in its asset management arm and other businesses to the Japanese company. On Thursday, the two companies entered into a memorandum of understanding (MoU) under which Nippon Life “will evaluate collaboration opportunities including strategic partnerships” in all of Reliance Capital’s financial businesses. A joint statement by the two companies singled out asset management as a potential area. Commenting on the deal, Reliance Capital’s Anil Ambani said, “Nippon Life has already agreed to be our partner in the life insurance business, and we see great potential to work together across our other financial services businesses.” Earlier this year, Nippon Life decided to buy a 26 per cent stake in Reliance Life for Rs 3,062 crore, or $680 million, valuing the Anil Ambani group’s life insurance business at $2.6 billion. The transaction is awaiting regulatory clearances at present. Reliance Capital Asset Management, the AMC in which Nippon is likely to collaborate in, manages funds of $23 billion in mutual funds, pension funds, managed accounts and hedge funds and has over 7 million investors. Nippon Life Insurance, a $80-billion company, posted a profit of $3 billion in the last fiscal. The world’s seventh largest player in life insurance and the biggest in Asia and Japan, Nippon Life manage assets worth over $600 billion. Besides, asset management and life insurance, Reliance Capital’s other businesses include general insurance, broking, consumer and commercial finance. The MoU includes these businesses as well.

A Great news for LIC policyholders

LIC’s ambitious digitisation programme will ensure that from November, policyholders can avail themselves of the insurer’s facilities — such as policy redemption, loans against policies and premium renewals — from any branch in the country and not only from the one where the policy has been issued.

“The process of digitization of policyholders’ documents is expected to be completed next month as Given the pace of work, the remaining 4 per cent will be completed hopefully before the deadline of October 31 and after that we’ll be able to service customers from any location,” said S.K. Roy, zonal manager (east), the Life Insurance Corporation of India.

Hewlett-Packard is implementing the Rs 600-crore project, and 96 per cent of the works have been completed.

The digitization project, which is similar to core banking solutions, will also help the LIC reduce frauds, loss or damage of documents and dispose claims faster.

The enterprise data management project, involving 28 crore policies, will allow policyholders to carry their policies to any city they get transferred to within the country.

After September last year, life insurers in the country have been reporting declining policy sales every month. This is because the sales of unit-linked plans, from which insurers were making money hand over fist, have gone down steeply for every insurer under the new regulations implemented from September last year.

Insurance looking for safety

Insurers cannot have an exposure of more than 5 per cent of their investment in promoter group companies under the new investment norms announced by the insurance regulator. Insurance companies earlier were allowed to invest a maximum of 5 per cent of their funds from non-unit linked life, pension and annuity policies, while they could invest a maximum of 12.5 per cent of their earnings from unit-linked policies. Under the new norms, the higher exposure limit in promoter group companies for Ulip funds has been brought on a par with traditional policies at 5 per cent. Besides, the regulator (IRDA) has also clarified that insurance companies cannot make any investment in-group companies either through private placement of equities or in unlisted debt papers of such entities. This is truly one of the most important changes that the insurance regulator has sought to bring in its new investment norms for insurers. The insurance regulator had brought this change to ensure more transparency and safety for policyholders. The other changes are however, mostly clarifications of ambiguities in some words that lead to different interpretations to some clauses. The existing investment regulations require insurers to invest a minimum of 25 per cent of the funds under their non-unit linked business in government securities. As it was not clearly spelt out whether it would be central government or state government securities, a number of insurers misinterpreted the term government securities to mean state government securities as well. They invested a large part of their funds in higher yielding state government securities and in the process brought down their investment in low-yielding central government securities below the 25-per-cent-mark. Now the regulator has made it clear that insurers must invest at least 25 per cent of their total funds in central government securities. Moreover, at least 75 per cent of an insurer’s investment in debt instruments, including central government securities, must have a sovereign rating or a long-term credit rating of AAA or equivalent or a short-term credit rating of P1+ for short-term. Interestingly, the new investment norm has done away with the 10 per cent sectoral cap pertaining to investment in the infrastructure sector by insurance companies. Insurers were asked to give their feedback to the regulator on the new norms by Friday. The new investment norms assume significance as life insurers are struggling hard after the change in regulations for unit-linked life insurance policies last September. Since then, insurers are increasingly leaning to traditional products to rev up their policy sales.