Deutsche Asset Management today announced the launch of the DWS Global Agribusiness Offshore Fund (DGAOF). Sadly, the past performance of the underlying fund does not lend credence to its investment philosophy.
DWS has launched an open-ended overseas ‘Fund of Funds’ scheme. It will raise money from Indian investors and put it in DWS Invest Global Agribusiness Fund, managed by Deutsche Investment Management, Americas Inc. DGAOF will invest predominantly in units of this underlying fund, which is registered in Luxembourg.
However, the historical performance of the DWS Invest Global Agribusiness Fund is pathetic. Although it has beaten its benchmark index, the MSCI World Index, the actual returns are terrible in the context of exceptional returns that the Indian equity market has offered. Since inception in November 2006, the Fund has provided returns of just 4.18%. Over three years, the performance is even more skewed, with returns of 1.84%.
The Fund’s objective is to generate long-term capital growth by investing predominantly in units of overseas mutual funds, focusing on the anticipated growth in agriculture and would include affiliated and allied sectors.
The rationale behind the Fund’s objective is to capture the opportunity arising out of the pressure on food prices on account of a rising global population and incomes. The likely rise in global food consumption will benefit companies with a strong focus on agri-businesses.
Speaking at the launch, Suresh Soni, CEO, Deutsche Asset Management said, “The DWS Global Agribusiness Offshore Fund invests in that most basic human need: food. That is not novel but our idea to invest in all parts of the agribusiness chain is unique. Not only does this offer investors an opportunity to diversify their investments beyond the local market, but the global scope and the wide array of sectors that the Fund could invest in, will potentially help investors benefit from interesting opportunities around the globe.”
DWS Global Agribusiness intends to invest in the entire spectrum of businesses related to food production—from agricultural commodities to consumer products. The Fund intends to invest in companies in land and plantation, seeds and fertilisers, planting, harvesting, protecting and irrigation, food processing and manufacturing companies. — Moneylife Digital Team
source:-
http://www.suchetadalal.com/?id=864a1aa4-c703-1a92-4bbb540b2109&base=sections&f
Wednesday, April 7, 2010
Tuesday, April 6, 2010
Mutual fund redemptions continue unabated
The series of game-changing initiatives taken up by the Securities and Exchange Board of India (SEBI) in August last year to spruce up the mutual fund industry have largely blown up in the face of the beleaguered sector. Ever since SEBI changed the face of the industry last year, outflows have far outstripped inflows into various schemes of mutual fund houses.
According to data available with Moneylife from a leading registrar and transfer agent, redemptions in non-NFO (new fund offer), non-SIP (systematic investment plan) open-ended equity funds have shown a remarkable trend of steady haemorrhage of cash. Except for the month of February 2010, every month from August 2010 has seen outflows exceeding inflows into mutual funds.
In March 2010, redemptions touched a high of Rs4,200 crore, compared to around Rs1,700 crore in the month of February. Normally, the month of March witnesses huge inflows into equity-linked savings schemes (ELSS) due to the tax benefit offered by these products. However, the current upheavals in the industry have overshadowed this phenomenon to show a deviation from the normal.
Moneylife has previously written (http://www.moneylife.in/article/81/3115.html) about how fund companies have been struggling with massive redemptions despite a surge in equity markets. As mutual funds normally benefit from a rising market, this steady drain of funds is even more galling for the industry.
After the ban on entry loads that came into play from 1 August 2009, outflow of money from fund schemes accelerated since most financial advisors could not get incentive to sell and service funds. The ban has dried up the distributors’ revenues and they are now asking investors to consider unit-linked insurance plans (ULIPs) and company fixed deposits as the next best investment opportunity.
SEBI's move may have been well intentioned, but it tripped badly in failing to assess the ground realities and the consequences of its actions. It failed to visualise that sharply higher commissions paid by the insurance industry will suck money out of MFs. It also failed to ensure the availability of inexpensive alternative distribution channels.— Sanket
According to data available with Moneylife from a leading registrar and transfer agent, redemptions in non-NFO (new fund offer), non-SIP (systematic investment plan) open-ended equity funds have shown a remarkable trend of steady haemorrhage of cash. Except for the month of February 2010, every month from August 2010 has seen outflows exceeding inflows into mutual funds.
In March 2010, redemptions touched a high of Rs4,200 crore, compared to around Rs1,700 crore in the month of February. Normally, the month of March witnesses huge inflows into equity-linked savings schemes (ELSS) due to the tax benefit offered by these products. However, the current upheavals in the industry have overshadowed this phenomenon to show a deviation from the normal.
Moneylife has previously written (http://www.moneylife.in/article/81/3115.html) about how fund companies have been struggling with massive redemptions despite a surge in equity markets. As mutual funds normally benefit from a rising market, this steady drain of funds is even more galling for the industry.
After the ban on entry loads that came into play from 1 August 2009, outflow of money from fund schemes accelerated since most financial advisors could not get incentive to sell and service funds. The ban has dried up the distributors’ revenues and they are now asking investors to consider unit-linked insurance plans (ULIPs) and company fixed deposits as the next best investment opportunity.
SEBI's move may have been well intentioned, but it tripped badly in failing to assess the ground realities and the consequences of its actions. It failed to visualise that sharply higher commissions paid by the insurance industry will suck money out of MFs. It also failed to ensure the availability of inexpensive alternative distribution channels.— Sanket
ICICI, HDFC Bank to be treated as foreign banks
New Delhi: ICICI Bank and HDFC Bank, in overseas investors own more than 51 percent equity, is likely to be treated as foreign banks, as Indian government has decided not to make any further changes to its new policy on overseas investment.
The government's decision may impact future investment plans of these banks in subsidiaries or in sectors where there is a cap on foreign investment. The new rules categorize firms which are either predominantly foreign-owned or controlled as foreign companies. In the case of ICICI and HDFC Bank, foreign investment is over 51percent although management rests with Indians.
Talking to Economic Times on this issue, Union Commerce and Industry Minister Anand Sharma said that banks will not be excluded from the new norms. "I feel that this policy has done well. It was cleared by an empowered group of ministers. I don't think that is a large enough issue to reflect on the entire policy regime. I don't think there is any anxiety on this issue," said Minister.
The decision has been taken after discussions between the Reserve Bank of India, the Finance Ministry and the Industry Ministry which lasted over an year. According to the 2009 policy of the department of industrial policy and promotions, or Dipp, any company that is majority foreign-owned or foreign-controlled is deemed to be a foreign company. If such a company invests in other companies or sets up a subsidiary then its entire investment is treated as foreign investment without taking into account the holdings of Indian shareholders.
"We will not be changing our policy or providing exemptions to banks from the new FDI (foreign direct investment) norms issued. The matter has been communicated to the finance ministry which is also on board with our decision," said a Government official to Economic Times.
IDBI Bank to offer online payment gateway services
IDBI Bank announced that it has tied up with Venture Infotek, a transaction management firm, to unveil its internet payment gateway services. "We have over 100 web merchants to whom Venture Infotek is providing end-to-end services on their gateway. Venture Infotek will also help us in signing up many more net merchants," said IDBI Bank General Manager Murali Mohan.
Venture Infotek recently acquired Technonet Technologies, a payment gateway service provider, and has enhanced the technology platform of 'Eazy2Pay', its payment gateway to comply with all the latest Visa, MasterCard and RBI guidelines related to internet commerce. "With the acquisition of Technonet Technologies, we will be able to provide our customers with more choice in payment services and grow our merchant services business even more quickly," said Venture Infotek's Managing Director Piyush Khaitan.
Venture Infotek's 'Eazy2Pay' secures all transactions using Triple Data Encryption Standard (3DES) keys to encrypt cardholders' information and Merchant Plug-In (MPI) to facilitate 3D-secure verifications. "We are already seeing interesting volumes on our internet payment gateway platform, and these will increase as more and more card-holders register with issuers for the additional security requirement mandated by the RBI," Khaitan added.
Back Investing like PE firms
Individuals following this approach need to be more disciplined, optimistic and need some serious luck.
Many studies indicate that believers tend to live longer and be happier than atheists. This is because faith sustains optimism and optimists tend to outlive pessimists. In equity investing as in life, optimists tend to be bullish and being bullish pays.
Despite greater volatility, equity returns outscore other assets in the long run. Certainly this is true for India even though Indian bear markets often see over 50 per cent knocked off peak values. Since liberalisation (June 1991), there have been three major bear markets that have each knocked off over 50 per cent
However, the CAGR of the Nifty-Sensex is about 14.5 per cent across those 19 years. That comfortably outscores other assets and beats inflation, which ran at 7-8 per cent CAGR (consumer price index for urban non-manual employees).
Very few investors actually got close to 14.5 per cent because there was little scope for passive investment in the first 5-7 years. A small minority of investors made far more. The vast majority made much less.
The default vehicle of passive investors is the cheap, open-ended index fund. Until the monopolistic UTI started coming apart post-1998, Indian investors weren't offered that choice. They got closed-end, opaque schemes instead.
Over the past decade as markets have matured, passive investment vehicles have become available. Few Indian fund managers and individual investors have consistently beaten the indices and this gels with global experience. The 10-year CAGR of equity returns is lower, at 13 per cent (April 2000-April 2010). Inflation also dropped to about 6 per cent and nominal debt returns are lower as well.
Although it is against the odds and passive investing offers decent returns, many Indian investors prefer trying to actively beat the market. Their returns continue to vary wildly and bear little relationship with market indices.
If an individual investor decides to try and beat the index, there's logic to going the whole hog and chasing multi-baggers, rather than trying to eke out an extra 1-2 per cent. India is an emerging market with high growth rates and so, multi-baggers pop up often. Even one Infosys or Suzlon can turbo-charge a portfolio. The downside to chasing multi-baggers is low strike-rates (fewer winners) and big capital losses when investment decisions are wrong.
Venture Capitalists and Private Equity players accept low strike rates knowing that they will pick up an occasional big winner that over-compensates. But VCs and PEs have quality information, working closely with managements. They are also disciplined at managing money and always keep exit options in mind. Eventually, a VC or PE will exit, either through an IPO or via strategic stake sale.
Very few individual investors even consider exit options when they adopt a high-risk strategy. Fewer still accept they will be wrong at least as often as they are right and are therefore, psychologically ready to roll with losses. As a result, individual investors often fail to collect paper profits even when they pick the right stocks. They also end up losing far more capital than necessary, by refusing to exit when they've made wrong decisions.
A third common error is unevenly-weighted initial investment. The logic behind equally weighted investment can be simply illustrated with an exaggerated example. Suppose every fifth stock pick yields 1000 per cent return while the other four lose 100 per cent. If the investments are evenly weighted, the net return is 120 per cent. If the losers have higher initial weights, the winner may not generate enough to compensate.
An active investor looking for big killing must be careful about managing money and phlegmatic about potential losses. Keep initial investments at equal weights. Always keep a mental stop loss or exit option in mind, including cut-offs in terms of both time and money. If an investment doesn't yield returns within a given time frame, review it. If it loses more than a certain amount, review it.
Obviously levels must be decided on a case-by-case basis, considering variables like the specific business and the individual risk-appetite. The important thing is to think about it and be prepared for contingencies.
There's nothing wrong with adopting the VC-PE mode of "extreme active investing". But making it work for an individual requires the same disciplined approach that successful PEs-VCs adopt. It requires plenty of optimism, self-confidence, judgement and some luck. The injection of deliberately pessimistic scenario-building helps as well. Optimism must always be tempered with judgement in investing as in life.
Many studies indicate that believers tend to live longer and be happier than atheists. This is because faith sustains optimism and optimists tend to outlive pessimists. In equity investing as in life, optimists tend to be bullish and being bullish pays.
Despite greater volatility, equity returns outscore other assets in the long run. Certainly this is true for India even though Indian bear markets often see over 50 per cent knocked off peak values. Since liberalisation (June 1991), there have been three major bear markets that have each knocked off over 50 per cent
However, the CAGR of the Nifty-Sensex is about 14.5 per cent across those 19 years. That comfortably outscores other assets and beats inflation, which ran at 7-8 per cent CAGR (consumer price index for urban non-manual employees).
Very few investors actually got close to 14.5 per cent because there was little scope for passive investment in the first 5-7 years. A small minority of investors made far more. The vast majority made much less.
The default vehicle of passive investors is the cheap, open-ended index fund. Until the monopolistic UTI started coming apart post-1998, Indian investors weren't offered that choice. They got closed-end, opaque schemes instead.
Over the past decade as markets have matured, passive investment vehicles have become available. Few Indian fund managers and individual investors have consistently beaten the indices and this gels with global experience. The 10-year CAGR of equity returns is lower, at 13 per cent (April 2000-April 2010). Inflation also dropped to about 6 per cent and nominal debt returns are lower as well.
Although it is against the odds and passive investing offers decent returns, many Indian investors prefer trying to actively beat the market. Their returns continue to vary wildly and bear little relationship with market indices.
If an individual investor decides to try and beat the index, there's logic to going the whole hog and chasing multi-baggers, rather than trying to eke out an extra 1-2 per cent. India is an emerging market with high growth rates and so, multi-baggers pop up often. Even one Infosys or Suzlon can turbo-charge a portfolio. The downside to chasing multi-baggers is low strike-rates (fewer winners) and big capital losses when investment decisions are wrong.
Venture Capitalists and Private Equity players accept low strike rates knowing that they will pick up an occasional big winner that over-compensates. But VCs and PEs have quality information, working closely with managements. They are also disciplined at managing money and always keep exit options in mind. Eventually, a VC or PE will exit, either through an IPO or via strategic stake sale.
Very few individual investors even consider exit options when they adopt a high-risk strategy. Fewer still accept they will be wrong at least as often as they are right and are therefore, psychologically ready to roll with losses. As a result, individual investors often fail to collect paper profits even when they pick the right stocks. They also end up losing far more capital than necessary, by refusing to exit when they've made wrong decisions.
A third common error is unevenly-weighted initial investment. The logic behind equally weighted investment can be simply illustrated with an exaggerated example. Suppose every fifth stock pick yields 1000 per cent return while the other four lose 100 per cent. If the investments are evenly weighted, the net return is 120 per cent. If the losers have higher initial weights, the winner may not generate enough to compensate.
An active investor looking for big killing must be careful about managing money and phlegmatic about potential losses. Keep initial investments at equal weights. Always keep a mental stop loss or exit option in mind, including cut-offs in terms of both time and money. If an investment doesn't yield returns within a given time frame, review it. If it loses more than a certain amount, review it.
Obviously levels must be decided on a case-by-case basis, considering variables like the specific business and the individual risk-appetite. The important thing is to think about it and be prepared for contingencies.
There's nothing wrong with adopting the VC-PE mode of "extreme active investing". But making it work for an individual requires the same disciplined approach that successful PEs-VCs adopt. It requires plenty of optimism, self-confidence, judgement and some luck. The injection of deliberately pessimistic scenario-building helps as well. Optimism must always be tempered with judgement in investing as in life.
Monday, April 5, 2010
Are mutual fund investors ready to pay a fee to distributors?
Mutual fund (MF) distributors across India
However, this uniform fee model would not be relevant across India Ra
“I have kept my clients informed about what is happening in the industry. The 0.50% commission paid by the asset management company (AMC) will not continue for a long time. AMCs are bleeding. I charge 2% from my clients. We are able to charge only our existing customers who know our quality of services. It’s difficult to charge a new customer,” said Thiru Murugan, CEO, Wealth Creation & Management Services.
“I know a typical case where a person who went to deposit Rs10 lakh was sold ten different ULIPs (unit-linked insurance plans) for the entire family. Next year he received a notice that he has to pay Rs10 lakh as renewal. The Securities and Exchange Board of India (SEBI) says that it is protecting investors, but I don’t know who will regulate banks,” adds Mr Murugan.
But there are others who feel that if the fund does not perform well, then investors will rush to their office to demand a return of the fee.
“Customers only pay to banks and big institutions. Clients invest Rs5,000 initially after taking advice and then invest Rs1 lakh directly. If an MF doesn’t gives good returns then clients will come and ask me to pay back the fees,” said a certified financial planner (CFA).
A distributor gets Rs6 as commission for a client investing Rs500 per month in a systematic investment plan (SIP) for one year (a total investment of Rs6,000). Distributors are finding it unviable to continue providing service to such clients. There are talks among the IFA community of charging a uniform rate. IFAs are planning to come up with a rate card enumerating various charges.
Industry AUM dips in March
The assets under management (AUM) of the mutual fund industry dipped once again in March after having risen in February. The industry's total AUM stood at Rs 7,43,783.24 crore, a fall of 4.28 per cent compared to its end-February figure.
In January, the fund industry's AUM had dipped 4 per cent compared to its December AUM. However, in February it rose to 7,81,154.27 crore, up 2.65 per cent compared to the end-January figure.
Of the 37 (out of the total 38) fund houses whose AUMs were made available by the Association of Mutual Funds of India (Amfi), 22 witnessed a decline in their AUMs. In January, too, an equal number of fund houses had seen their AUMs decline, while in February the number had been only 14.
The fund house that saw the highest decline in AUM in March was JP Morgan: it lost 23.68 per cent of its AUM. The next biggest loser was AIG, whose AUM declined by 20.62 per cent. In addition, eight fund houses saw their AUMs decline by more than 10 per cent.
The larger fund houses too saw their AUMs erode. Reliance Mutual Fund's AUM stood at Rs 1,10,412.71 crore at the end of March, a decline of 4.61 per cent. Other large fund houses suffered similar losses. HDFC's AUM fell 6.69 per cent to Rs 88,779.84 crore while Birla Sun Life's assets fell 5.97 per cent to Rs 62,367.11 crore.
ICICI Prudential and UTI, however, managed to buck the trend of declining AUMs. Their AUMs grew 0.57 per cent and 1.14 per cent respectively during March.
In terms of percentage change, the latest entrant into the industry, Peerless Mutual Fund, witnessed the highest increase in AUM -- 149.88 per cent. In February its AUM stood at Rs 121.10 crore while in March it rose to Rs 302.60 crore.
In January, the fund industry's AUM had dipped 4 per cent compared to its December AUM. However, in February it rose to 7,81,154.27 crore, up 2.65 per cent compared to the end-January figure.
Of the 37 (out of the total 38) fund houses whose AUMs were made available by the Association of Mutual Funds of India (Amfi), 22 witnessed a decline in their AUMs. In January, too, an equal number of fund houses had seen their AUMs decline, while in February the number had been only 14.
The fund house that saw the highest decline in AUM in March was JP Morgan: it lost 23.68 per cent of its AUM. The next biggest loser was AIG, whose AUM declined by 20.62 per cent. In addition, eight fund houses saw their AUMs decline by more than 10 per cent.
The larger fund houses too saw their AUMs erode. Reliance Mutual Fund's AUM stood at Rs 1,10,412.71 crore at the end of March, a decline of 4.61 per cent. Other large fund houses suffered similar losses. HDFC's AUM fell 6.69 per cent to Rs 88,779.84 crore while Birla Sun Life's assets fell 5.97 per cent to Rs 62,367.11 crore.
ICICI Prudential and UTI, however, managed to buck the trend of declining AUMs. Their AUMs grew 0.57 per cent and 1.14 per cent respectively during March.
In terms of percentage change, the latest entrant into the industry, Peerless Mutual Fund, witnessed the highest increase in AUM -- 149.88 per cent. In February its AUM stood at Rs 121.10 crore while in March it rose to Rs 302.60 crore.
| Assets Under Management | |||||||
| Assets (Rs Cr) | |||||||
| Fund House | Mar-10 | Feb-10 | Change (%) | ||||
| Peerless Mutual Fund | 303 | 121 | 149.88 | ||||
| Edelweiss Mutual Fund | 149 | 114 | 30.43 | ||||
| DSP BlackRock Mutual Fund | 21,491 | 19,934 | 7.81 | ||||
| Quantum Mutual Fund | 93 | 88 | 5.61 | ||||
| ING Mutual Fund | 1,606 | 1,527 | 5.20 | ||||
| Morgan Stanley Mutual Fund | 2,257 | 2,176 | 3.73 | ||||
| SBI Mutual Fund | 37,417 | 36,072 | 3.73 | ||||
| Bharti AXA Mutual Fund | 549 | 537 | 2.23 | ||||
| Mirae Asset Mutual Fund | 251 | 246 | 2.01 | ||||
| Sahara Mutual Fund | 635 | 624 | 1.79 | ||||
| UTI Mutual Fund | 80,218 | 79,310 | 1.14 | ||||
| Sundaram BNP Paribas Mutual Fund | 13,878 | 13,733 | 1.06 | ||||
| ICICI Prudential Mutual Fund | 81,018 | 80,555 | 0.57 | ||||
| Escorts Mutual Fund | 203 | 203 | 0.20 | ||||
| Franklin Templeton Mutual Fund | 34,034 | 33,998 | 0.10 | ||||
| Fidelity Mutual Fund | 7,790 | 7,795 | -0.05 | ||||
| L&T Mutual Fund | 2,511 | 2,538 | -1.05 | ||||
| IDFC Mutual Fund | 25,775 | 26,568 | -2.99 | ||||
| Tata Mutual Fund | 21,935 | 22,621 | -3.03 | ||||
| Reliance Mutual Fund | 110,413 | 115,753 | -4.61 | ||||
| Taurus Mutual Fund | 2,307 | 2,429 | -5.00 | ||||
| HSBC Mutual Fund | 6,215 | 6,563 | -5.29 | ||||
| Axis Mutual Fund | 3,552 | 3,754 | -5.38 | ||||
| Birla Sun Life Mutual Fund | 62,367 | 66,330 | -5.97 | ||||
| HDFC Mutual Fund | 88,780 | 95,144 | -6.69 | ||||
| Canara Robeco Mutual Fund | 9,220 | 10,017 | -7.96 | ||||
| LIC Mutual Fund | 40,665 | 44,727 | -9.08 | ||||
| Religare Mutual Fund | 12,945 | 14,841 | -12.78 | ||||
| Fortis Mutual Fund | 7,904 | 9,138 | -13.50 | ||||
| Benchmark Mutual Fund | 1,999 | 2,312 | -13.54 | ||||
| Kotak Mahindra Mutual Fund | 34,787 | 40,466 | -14.03 | ||||
| Principal Mutual Fund | 6,997 | 8,273 | -15.43 | ||||
| JM Financial Mutual Fund | 7,997 | 9,507 | -15.87 | ||||
| Deutsche Mutual Fund | 10,477 | 12,525 | -16.35 | ||||
| Shinsei Mutual Fund | 367 | 459 | -19.93 | ||||
| AIG Global Inv Grp Mutual Fund | 1,138 | 1,433 | -20.62 | ||||
| JPMorgan Mutual Fund | 3,541 | 4,640 | -23.68 | ||||
| Grand Total | 743,783 | 781,154 | -4.28 | ||||
 | |||||||
| Source: AMFI | |||||||
Deutsche MF Unveils Global Agribusiness Offshore Fund
| The scheme offers regular plan with dividend and growth option. Further, the dividend option offers payout and reinvestment facility. The scheme would allocate 80% to 100% of assets in units / securities issued by overseas mutual funds or unit trusts with medium to high risk profile. Moreover, it would allocate upto 20% of assets in debt instruments that includes government securities as well as corporate debt, money market instruments (including cash and units of domestic money market mutual funds) with low to medium risk profile. The scheme shall initially invest predominantly in the units of DWS Invest Global Agribusiness Fund, domiciled in Luxembourg or similar mutual funds at the discretion of the Investment Manager. | ||
Tuesday, March 30, 2010
For Transparent Insurnace-Let insurers go public early.
Insurance companies going public should be transparent in disclosing their assets and liabilities to prospective investors. So should all companies raising money from the public, for which regulation already exists. For the insurance industry, the sector regulator, Insurance Regulatory and Development Authority, has identified the specific kind of disclosures needed.
These relate to the companies' assets and liabilities, intrinsic value of their present business, agreements with foreign promoters, product offerings and investment performance of unit-linked insurance plans and so on. Companies that do not comply with the regulator's norms should be debarred from going public.
The government should, in addition, ease the rule that mandates an insurance company to go public only after 10 years of operations. Insurance companies need a lot of capital to grow their business. A larger life insurance business will mean more people taking life covers.
This will improve insurance penetration in this sorely underinsured country. More money will also be available to finance construction of roads, ports, airports, towns and other infrastructure. Infrastructure needs long-term funds and a large chunk of the needs can be met only by insurers and pension funds, whose liabilities have a long maturity profile.
The money raised through public offers would give insurance companies the capital they need to grow their business. A growing insurance business would generate investible funds for long-gestation infrastructure projects. There would be positive spinoffs for domestic promoters of insurance joint ventures as well — they would not have to depend on their foreign joint venture partners to bring in funds.
It would also widen choice for retail investors. The capital market regulator also has to be a facilitator and allow insurance companies to raise money from the public, even if these companies make losses. The regulator allows other lossmaking companies to go public if they follow the compulsory book-building method for price discovery.
A similar facility can be accorded to the insurance industry as well. Discerning investors can be trusted to deal with the risk associated with such issues.
Retail investors also need to make sense of the disclosures. It would help if institutional investors and credit rating agencies analysing the financial strength of insurance companies make the analysis public.
These relate to the companies' assets and liabilities, intrinsic value of their present business, agreements with foreign promoters, product offerings and investment performance of unit-linked insurance plans and so on. Companies that do not comply with the regulator's norms should be debarred from going public.
The government should, in addition, ease the rule that mandates an insurance company to go public only after 10 years of operations. Insurance companies need a lot of capital to grow their business. A larger life insurance business will mean more people taking life covers.
This will improve insurance penetration in this sorely underinsured country. More money will also be available to finance construction of roads, ports, airports, towns and other infrastructure. Infrastructure needs long-term funds and a large chunk of the needs can be met only by insurers and pension funds, whose liabilities have a long maturity profile.
The money raised through public offers would give insurance companies the capital they need to grow their business. A growing insurance business would generate investible funds for long-gestation infrastructure projects. There would be positive spinoffs for domestic promoters of insurance joint ventures as well — they would not have to depend on their foreign joint venture partners to bring in funds.
It would also widen choice for retail investors. The capital market regulator also has to be a facilitator and allow insurance companies to raise money from the public, even if these companies make losses. The regulator allows other lossmaking companies to go public if they follow the compulsory book-building method for price discovery.
A similar facility can be accorded to the insurance industry as well. Discerning investors can be trusted to deal with the risk associated with such issues.
Retail investors also need to make sense of the disclosures. It would help if institutional investors and credit rating agencies analysing the financial strength of insurance companies make the analysis public.
Friday, March 26, 2010
Market looks beyond fourth quarter for leg up
Market looks beyond fourth quarter for leg up
Analysts and market watchers are already looking beyond corporate results for the fourth quarter even though it has a full week to go.
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