Indian Insurance Industry Update

01 March 2017

IndustryRole of a point of sale person in insurance

Life InsuranceLIC’s good show driven by spurt in November sales

In insurance, public sector will lose influence like in banks: Raamdeo Agrawal, MD & Co-Founder, MOFSL

LIC plans to buy 5% more in Larsen & Toubro

ICICI Prudential buys office space in Mumbai’s BKC for Rs147crore

General InsuranceHealth InsurancePensions/PF

Aadhaar not mandatory for withdrawals under EPS, says EPFO

SEBI Co-location issue: SEBI turns lens on OPG Sec

Finance ministry official Ajay Tyagi to take charge of Sebi on Wednesday

Sebi tightens settlement regulations for firms

After six years at Sebi, U K Sinha to hang up his boots tomorrow

Sebi’s new chairman Ajay Tyagi has to tackle challenges of the digital age

Sebi under U.K. Sinha sharpened focus on developing markets

Mutual Funds & AMCsTrading in F&O: MFs say no need for exit option for investors

Foreign investors rush in as mutual funds fear to tread

There's still a lot to go for the Indian economy: Hugh Young, MD of Aberdeen Asset

Equity mutual fund inflows: Make hay while the sun shines

MFs to give 15 days for exit option to REITs, InvITs investors

Equities, Pvt. Equity & Hedge FundsMotilal Oswal Private Equity invests Rs 100 crore in Updater Services

LIC books Rs 16,000 crore profit in April-Dec from equity sales

Govt. Securities & BondsBonds don’t pay, banks face dull March quarter

Bond yields flat, call rate rises

International NewsSwiss insurer Baloise strikes partnership to back tech startups

UK insurer Aviva to take $478 mln charge after discount rate cut

Economy & FinanceRupee gains 2 paise to end at 66.69 against dollar

Sensex ends down 69 points ahead of GDP data

Economy weathers note ban storm to grow at 7% in Q3

Core sector growth slows down to 3.4% in January

GDP grows by 7% in Q3

ClosingLast Financial Closing....

Top 5 Gainers & LosersGainers & Losers

Industry

Role of a point of sale person in insurance Deepti Bhaskaranmint

To increase insurance penetration in the country, the industry needs more distributors to travel the last mile. To achieve that goal,what’s needed is a simple certification process for these distributors. So, to get such distributors on board quickly, theInsurance Regulatory and Development Authority of India (Irdai), in 2015, allowed for a new type of distributor, called the point ofsale (PoS) person. Given that these individuals have a lower qualification and training threshold, compared to other insurancedistributors such as agents, brokers and corporate agents, Irdai has allowed these individuals to sell only basic insurance products,which don’t require a lot of underwriting.

Mandate of a point of sale personAs per the regulator, products such as motor insurance, travel insurance and personal accident insurance require very littleunderwriting as they are based on information provided by the prospect. Also, such insurance policies are automatically generatedby the system.

Therefore, the intervention required for such products is minimal and the training and exams for such persons could be of a lesserdegree than those for a full-fledged distributor.

In fact, last year in November, Irdai had allowed the life insurance industry to use point of sale persons to sell life insuranceproducts. For this, it identified products that are simple to understand, and in which the benefits are stated upfront and they are fixedand predefined.

Accordingly, Irdai identified pure-term insurance plans with and without return of premium, non-linked (non-participating)endowment plans that state the investment benefits upfront and immediate annuity as products that can be sold by the point of salepersons.

And this year, in order to ensure faster certification of point of sale persons, the regulator has relaxed the certification programme byallowing the insurers or intermediaries hiring them to train and examine these individuals in-house.

A new training programmePoint of sales persons can be engaged either directly by insurers or by intermediaries such as corporate agents and insurancebrokers. The minimum educational qualification of such persons is Class 10 and they should be 18 years of age at least. Earlier, asper the rules, Irdai had appointed the National Institute of Electronics and Information Technology (NIELIT) to conduct theexamination of certificate for point of sale persons. But in a notification dated 7 February, Irdai removed this condition for the lifeinsurance industry. Training and certification from NIELIT is no longer mandatory. As per an insurance official, this was done afterrepresentations were made to the regulator that this could hamper quick on-boarding of point of sales persons.

Accordingly, Irdai has allowed in-house training by the insurer or intermediary engaging the point of sale persons. They will have toconduct an in-house training of 15 hours and an examination thereafter. The insurer or the intermediary will then issue a certificateand maintain the records for at least 5 years. Irdai has, however, prescribed a model syllabus for training purposes. As per theinsurers we spoke to, the syllabus has been drafted by the Life Insurance Council and Irdai, and will be used by all the insurers.http://www.livemint.com/Money/5m5n0Amanb8eg1sawwtyaO/Role-of-a-point-of-sale-person-in-insurance.html

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Life Insurance

LIC’s good show driven by spurt in November sales Radhika MerwinThe Hindu Business Line

Life Insurance Corporation of India’s new business premium (first year premium) that grew a robust 40 per cent year-on-year(y-o-y) for the nine months ended December 2016 has been due to the sharp jump in its single premium policies during the currentfiscal.

In the month of November (post demonetisation) in particular, there was a 142 per cent jump in the insurer’s new businesspremium, with single premium (group and individual) trebling from the year-ago period.

The robust sales of LIC’s immediate annuity plan Jeevan Akshay was the key reason for the sharp jump in thecompany’s premium in November, according to sources in LIC.

Under the immediate annuity plans, one pays a lumpsum amount to the insurer upfront and the insurer, in turn, promises a regularincome stream for the rest of the policyholder’s life. With the company announcing reduction in yield in Jeevan Akshay fromDecember 1, customers queued up to buy the policy.

In January, new business premium growth slipped to 30 per cent over the previous year, with single premium growing 40 per centy-o-y.

Falling ratesWhile demonetisation and fall in rates triggered LIC’s November sales, the company’s growth until October was alsodriven by single premium policies.

As returns from annuity plans vary with market rates in the economy, investors appear to have locked into higher rates towards thebeginning of the fiscal.

For the half year ended September 2016, LIC’s new business premium grew 41 per cent y-o-y, with individual singlepremium doubling over the previous year. In October, too, there was robust growth in the insurer’s individual single premiumbusiness (almost trebling over the previous year). But sluggish performance in other products led to a 5 per cent decline in itsoverall new business premium.

Now, with rates having fallen sharply, sale of annuity policies may slow down, according to sources in the company. Growth in theoverall new business premium could in turn get impacted.

In December, individual single premium grew just 2.6 per cent y-o-y (after 616 per cent growth in November). January saw 18 percent jump in such premiums.

Catching upWhile LIC has a strong portfolio of traditional policies that has been driving its growth, few private sector players have gainedsignificant market share in the past year, driven by healthy demand for their unit-linked products (ULIPs).

SBI Life’s new business premium has grown a robust 55 per cent y-o-y until January 2017, above the industry growth of 35per cent, according to IRDA data.

The private insurer’s market share has gone up by nearly four percentage points over the past year. SBI Life has a balancedmix of traditional policies and ULIPs.

HDFC Life, too, saw a healthy growth of 38 per cent (until January) gaining over one percentage point in market share. HDFC Lifehas a higher proportion of ULIPs. But ICICI Pru Life, which also has a higher ULIP portfolio, lost close to two percentage pointsmarket share with its new business premium (first year premium) growing 13 per cent until January.http://www.thehindubusinessline.com/todays-paper/tp-money-banking/lics-good-show-driven-by-spurt-in-november-sales/article9564275.ece

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In insurance, public sector will lose influence like in banks: Raamdeo Agrawal, MD & Co-Founder, MOFSL The Economic Times

In an interview with ET Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, says there is a very strong case for having privatesector insurance companies in your portfolio though right now they look to be pretty expensive.

Edited excerpts

Warren Buffett has spoken a lot about the small global acquisitions that his teams are doing. He praised his two fund managers too.But he spoke extensively about his benchmark business which is insurance and said that while they have grown at adisproportionate rate, the growth is still to stay. Is insurance by and large a uniform business across the globe? Should the samemodel be replicated across the world? In India the sector is just starting to kind of take shape and form. Do you think what BerkshireHathaway did with its insurance business maybe not at the same rate but some of the Indian insurance companies could do that, isthe market large enough for that?

In insurance, you have two types one is life insurance and second is causality and property and all. Most of these are in publicsegment in India. There are some which are listed like Bajaj Allianz, But that part is very predictable and it is a simple business.

You take the premium today and you claim ratio is there, you invest and make money. So it is a very settled thing. It is a one year,two year, three year kind of situation. Whereas in life insurance, you buy it for 25, 30, 40 years. A 10-year-old takes it for 60 years.So all the profits are based on estimates. There are a lot of futuristic assumptions and all. So there what the management is sayingin terms of data and what has been their track record in terms of achieving that whatever position they did that is very important andscale is of utmost importance. So reputation and scale are important.

We have Max HDFC, ICICI Pru and SBI Life which are clearly in different leagues, different legs and in India one of the more addedadvantage is that there is a value migration from complete 100% PSU LIC to the private sector.

As we go along, like banks, the public sector will keep losing the edge and as prosperity increases, the acceptance of insurance willincrease. We are a grossly underinsured country. A lot of these forces, demographic profile, the rising income levels and the valuemigration where one of big player is vacating the space and within private sector also it is consolidating, will make for a very strongcase for having private sector insurance companies in your portfolio though right now they look to be pretty expensive.

The government is looking at making GICs of the world public so the sector is getting created. If you have to summarise yourAMC’s activity in a simple newsletter form, explaining that what you did last year, what you bought, what you have sold andwhere do you see growth for the next two or three years, how would do that?

We keep writing every quarter, we call it Buy Right Sit Tight Newsletter, BRST newsletter.

I do enjoy reading it. That is why I am asking you. If you were to write it for what you did last year and what you propose to do, youwould be doing for the next two or three years?

My thoughts are shaped by in investing in my own wealth creation studies. If you go through the formula, what really matters is tocreate an edge because you have to create advantage to beat the market, okay. One is that you have to beat the market and youhave to beat the peer set. To do that, you have to create edge in understanding the companies, because price is available toeverybody, there is not much of advantage in that.

There are two types of advantages you can create for yourself; one is the information advantage and second is analyticaladvantage. Now information advantage, thanks to internet is just closing down one by one. Yet, there is a lot of merit in meeting themanagement, meeting the ex-employees, meeting the dealerships and really looking at the product. Of course, the information tosome extent is going to help but that edge is clearly coming down. Earlier, insider trading was there, after one year or 15 months,you used to get the copy of a balance sheet, today you are getting electronic copies right there.

Information is available to all at the click of a button.

Some of these channels are doing a wonderful job of reaching out to the management, asking tough questions. So the informationside is done but analytical side still remains. The prowess of the people who have the frameworks, how to look at competition, howto look at terms of trade, how to look at demographics. So there are a whole lot of things how to look at quality, how to look at themanagement, what are the characteristics you should look for in the management and how to look at valuation, what is themathematics of compounding.

If you ask me one thing, one title they have not given to Warren Buffet is King of Compounding. He is the ultimate guy incompounding.

But a Buffet newsletter also talks about what he has bought and what he has sold. What will you say if you have to summarise thepart two of your newsletter?

We will not say, he is not a regulated guy.

I am just trying to understand the thought process, for example, you can give me a thought process of the construct of your portfoliofor next three years in terms of a weightage, you can give me a sense of where are the pockets you are looking at reducing yourownership. I am sure when you look at a portfolio it has to be combination of both buying and selling?

We will always have 20-21 stocks. If I add three more stocks, three have to be chucked out. So the portfolio is very static. If you lookat the portfolio six months back and today, you say Raamdeo you have done nothing and why have you charged me fee? Butactually, there is a lot of change. One or two names will change and allocations will change. Allocations are very dynamic, we cango from 3% to 9% and 9% to 3%. These things keep happening which is as much as selling. In IndiGo, we started with 9.5% on dayone, We were so bullish we bought literally everything and then the stock just flew. There are a lot of very interesting companieswhich are getting listed in the next 12 months. For the the first time, we will get to see a retail company going public.

You will get a lot of no-brainers. This is of course hyped up big time so you have to pay the price for the hype,. But theworld’s most promising stock exchange is coming up with a very large IPO, hopefully in this year and then many more littleless known companies but probably they will have franchises which are as powerful. We have to figure out where are the strongfranchises there and where is growth ahead because all the new banks and a lot of MFI banks, will also come up.

This is even more promising to me than anything where you have an edge in terms of understanding the business andunderstanding the management.

Business broadly everybody understands, but understanding the management and comfort with the management and what themanagement can do is very important. Ultimately, it is the entrepreneurs call’. What is Mukesh Bhai doing? He is buildingone of the world’s most promising telecom companies out of nowhere. If somebody is not committed to building something,how will one build it?http://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-in-insurance-public-sector-will-lose-influence-like-in-banks-raamdeo-agrawal/articleshow/57390229.cms

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LIC plans to buy 5% more in Larsen & Toubro Shilpy SinhaThe Economic Times

Mumbai: Life Insurance Corporation of India (LIC) plans to buy 5% more in India's biggest engineering company Larsen & Toubro(L&T) for Rs 6,500 crore at current market prices, said two people familiar with the proposal.

The insurer, which already owns 16% of the company, has got the regulator's approval to buy the additional stake recently.

The state-run insurer has not set a time frame in which it would buy the additional stake, but expects to persuade the government tosell a part of its Specified Undertaking of the Unit Trust of India, or SUUTI, stake like it did with ITC.LIC couldn't be reached for acomment immediately.

“We have taken approval from the regulator to buy an additional 5% stake in L&T from SUUTI,“ said an official fromLIC. “We have not decided on the timeline."

LIC owns substantial stakes in blue chip companies such as L&T, SBI and ITC. The Insurance Regulatory and Development

Authority of India (IRDAI) has capped the insurer's ownership in a single company at 15% to avoid build-up of risk. For anyincrease, LIC has to take an approval from its board and then from the regulator. It can own as much as 30% in some companiesunder a special dispensation from the government.

The state-run insurer, with shrinking options of good investment which could provide stable growth and returns, is keen on buyingthe SUUT stake.

On February 8, LIC bought 2% stake in ITC for Rs 6,700 crore from SUUTI. Now, SUUTI owns 9.1% stake in ITC, 6.69% in L&Tand 12.02% in Axis Bank.

LIC had recently made a proposal to the IRDAI to buy some additional stake in L&T , as it owns more than 16%. Post thetransaction, whenever it happens, LIC's stake will go up to 21% in the company.

Earlier, the regulator had asked LIC to get approval from its board to raise stake in both ITC and L&T besides approval from itsinvestment committee. This was done to ensure that the board takes responsibility for the risk of taking higher exposure to anycompany.

The government has been selling the holdings of SUUTI in various companies. It has stakes in 43 listed and unlisted companies.http://economictimes.indiatimes.com/markets/stocks/news/lic-plans-to-buy-5-more-in-larsen-toubro/articleshow/57388136.cms

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ICICI Prudential buys office space in Mumbai’s BKC for Rs147crore Bidya Sapammint

Mumbai: At a time when housing sales are yet to recover from a three-year slowdown, transactions in commercial real estatecontinue to see an uptick.

In yet another commercial office deal, ICICI Prudential Life Insurance Co. Ltd has acquired an entire floor of 35,000 sq. ft officespace at Crescenzo building at Mumbai’s financial district Bandra-Kurla Complex (BKC) for Rs147 crore, according to twopeople aware of the development.

The space has been bought by ICICI Prudential at the rate of Rs40,960 per sq. ft on carpet area basis. It is currently on lease byTata Communications at a rent of Rs177 per sq. ft per month, said the first person mentioned above.

Mumbai-based real estate firm Parinee Group, which developed the 20-storey Crescenzo building, confirmed the transaction.

“We have sold one entire floor comprising of approximately 35,000 sq. ft. of carpet area to ICICI Prudential Life InsuranceCompany for Rs147 Crore,” Vipul Shah, managing director, Parinee Group told Mint.

Shah said the deal has been concluded at an attractive rental yields of around 7.25%. “There is a very good demand uptickfor commercial real estate with lot of money flow chasing limited Grade A Office Spaces,” he said.

However, it is not clear if ICICI Prudential has bought it for investment purpose or plans to move in the building later. The companyhas not yet responded to the email sent seeking confirmation on the development.

According to Abhishek Tiwari, founder of CRE Matrix, a Mumbai-based real estate analytics firm, demand for quality officeproperties at BKC far exceeds the supply. Several funds and investors are eyeing to invest in preleased properties as they havelower risk and provides a stable cash flow.

“There is a greater interest towards commercial real estate as residential segment sees a slowdown in the last two-threeyears. Funds, ultra high net worth individuals (HNIs) and investors are interested in picking up preleased properties as they havelower risk,” Abhishek Tiwari, founder, CRE Matrix, a Mumbai-based real estate analytics firm.

In 2016, Indian realty market saw its biggest commercial real estate deal when Canada-based Brookfield Asset Management Inc.acquired office and retail assets of Hiranandani Developers Pvt. Ltd at Powai, a suburb in Mumbai for close to $1 billion.

Leasing transactions also continued to pick up momentum this year.

In January, New York-headquartered office rental firm WeWork signed of the biggest leasing deals by taking up an entire 16-storeyENAM Sambhav building at BKC for a monthly rental of Rs4.3 crore.http://www.livemint.com/Companies/qROq6osQ60cwwjZ1j0knNK/ICICI-Prudential-buys-office-space-in-Mumbais-BKC-for-Rs147.html

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General Insurance

Health Insurance

Pensions/PF

Aadhaar not mandatory for withdrawals under EPS, says EPFO The Hindu Business Line

New Delhi: Rolling back its earlier decision, retirement fund body EPFO said on Tuesday Aadhaar is no longer mandatory forwithdrawal claims under the Employees Pension Scheme (EPS).

“…It has been decided that obtaining of Aadhaar should be mandatory for the time being only for pension and not inwithdrawal cases,” said a circular issued to all zonal offices by the Employees Provident Fund Organisation (EPFO).

Form 10C is used for withdrawal benefits, employer share refunds and scheme certificates before completion of 10 years in service,while form 10D is for withdrawal of pension after superannuation, widow/orphan/disability pension.

In its January 4 notification, the Labour Ministry had made it mandatory for four crore PF subscribers and 50 lakh pensioners of theEPS to furnish proof of possession of Aadhaar number or undergo Aadhaar authentication, as per procedures laid down by EPFO,to avail of benefits under EPFO schemes.

Last week, the EPFO introduced a single-page form to submit claims with self-attestation and without employer attestation.http://www.thehindubusinessline.com/todays-paper/tp-news/aadhaar-not-mandatory-for-withdrawals-under-eps-says-epfo/article9564304.ece

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SEBI

Co-location issue: SEBI turns lens on OPG Sec LokesHwarri SKThe Hindu Business Line

As investigations into the NSE co-location (colo) case continues, the brokers who are alleged to have gained unfair access to theexchange’s colo facilities are now under the scanner. A team from the market regulator SEBI is reported to have visited theoffice of OPG Securities, the firm mentioned in the whistleblower’s letter that began this saga in 2015.

The NSE also issued a show cause notice to OPG Securities a few days back. There are reports that a few other brokerages, arealso under the scanner, but this has not yet been verified. The investigation by the independent agency which investigated thematter on behalf of SEBI had pointed out the misdoings of OPG Securities alone.

The statement issued after the SEBI Board meeting held in February had stated that the regulator was working with the exchange inaddressing this issue. By being zealous in going after the brokers, SEBI is perhaps trying to make amends for its initial negligence.

The Singapore-based hedge fund employee, who had initially blown the whistle on this matter in 2015, had written to both SEBI aswell as Moneylife. But it was only after media took up the matter strongly that the regulator began a serious investigation into thismatter. The letter has said certain brokers logged in to the NSE’s co-location facilities through servers that were switched onfirst. This allowed them to gain access to tick-by-tick (TBT) data, a few micro-seconds before others in the co-location facilities. Thisadvantage allowed the algo programmes run by these traders to profit since they could see the information and execute tradesbefore everyone else.

Access via back-up server

The letter had specifically alluded to Sanjay Gupta, CEO of OPG Securities, as the person who had colluded with certain officers atthe NSE to find out the loophole in the co-location facility first. Once others in the colo facility started following his lead, logging in toservers that switched on first, he began logging in through the back-up server, which gave him better access.

For the non-geeky reader, co-location facilities allow some brokers and institutional traders to buy rack space close to the exchangeservers. The proximity improves the latency (speed of execution of the order). Only a couple of hundred large and wealthy tradersuse these facilities. The episode of unfair access took place between 2012 and 2014; the exchange has since changed its system atthe colo facility after it got multiple complaints from other users of these facilities about some brokers gaming the system.

The NSE officials are of the view that the brokers who logged in early have not really profited from it. The regulator is perhaps nowtrying to establish the quantum of gains the brokers could have made through this early logging in. If it can be established that theyprofited, the penalty on the exchange could be decided.

If it is not proved that the brokers who exploited the system profited from logging early, then SEBI might have to stop short withensuring that similar lapses do not take place in the future.http://www.thehindubusinessline.com/todays-paper/tp-markets/colocation-issue-sebi-turns-lens-on-opg-sec/article9564300.ece

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Finance ministry official Ajay Tyagi to take charge of Sebi on Wednesday ReutersSee this story in: The Economic Times

Mumbai / New Delhi: Finance ministry official Ajay Tyagi takes over as Securities and Exchange Board of India (SEBI) Chairman onWednesday with two likely priorities - developing the country's commodity and corporate bond markets and shoring up corporategovernance.

Tyagi, 58, will also inherit from outgoing SEBI Chairman UK Sinha critical regulatory decisions, including whether to penalise India'slargest exchange, National Stock Exchange, over potential trading violations and whether to adopt tougher rules againsthigh-frequency traders.

Tyagi has already been closely involved with the capital markets regulator, having served as additional secretary at the financeministry's economic affairs department since 2014, the same unit that oversees SEBI.

He inherits an organisation that has become bigger much more muscular under Sinha, who served for six years, the second-longestterm by any SEBI Chairman.

To accomplish his objectives, Tyagi will now need to balance multiple constituencies such as traders, fund managers and theReserve Bank of India.

But those who work with him believe he brings the right skill and personality to the job. Importantly, he is widely respected within thefinance ministry, whose support he will need as SEBI Chairman.

"Tyagi is a very straight-forward and a balanced person who believes in finding solutions for a problem. You can't get anything outof him through flattery," said a senior finance ministry official who has been working with him.

Continuing to develop and shore up confidence in commodity derivatives will likely be among his top priorities after exchangeNational Spot Exchange Ltd (NSEL) was charged with fraud after taking in trades without providing adequate settlements orcollateral.

Tyagi was instrumental in merging then standalone regulator Forward Markets Commission with SEBI last year, and will overseethe new entity as India seeks to attract more institutional investors.

"That was his pet project," said the head of futures trading at a major foreign lender. "We are expecting that he will focus on thecommodity market and bring in a number of regulatory changes in that area."

Tyagi will also be expected to spearhead reforms of India's nascent corporate bond market. The new SEBI Chairman was part of apanel that announced a series of major initiatives last year, including pushing trading into electronics platforms rather thanover-the-counter.

Spearheading those reforms is critical for India given the need to provide financing for companies at a time when banks are unableto lend as they deal with $133 billion in stressed assets.

Shoring up corporate governance is also likely to be a priority after recent high-profile corporate tussles, including between the Tataconglomerate and its former chairman, have highlighted the need for better oversight and tighter regulation of company boards.

Other critical issues remain pending for Tyagi to address.

SEBI is yet to announce any action against the NSE, which has filed for India's biggest IPO in six years, and disclosed it hadpotentially provided unfair access to its servers to some high-frequency traders.

SEBI is also yet to announce regulations on algorithmic trading (HFT), after the regulator announced draft guidelines that were seenas overly tough by some market participants.http://economictimes.indiatimes.com/markets/stocks/policy/finance-ministry-official-ajay-tyagi-to-take-charge-of-sebi-on-wednesday/articleshow/57398432.cms

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Sebi tightens settlement regulations for firms PTISee this story in: The Economic Times

New Delhi: Excessive delays in filing applications to settle cases will attract higher charges, Sebi has said as part of makingsettlement regulations stricter.

Besides, settlement notice would be issued before issuance of a formal show cause notice, except those that are excluded fromsettlement.

The Securities and Exchange Board of India (Sebi) has made various amendments to existing norms for settlement ofadministrative and civil proceedings in order to streamline and strengthen the settlement process.

With the amendments, Sebi has power to charge interest in case of excessive delays in filing of applications or payment ofsettlement amount.

Among others, re-application of rejected or withdrawn applications in deserving cases, subject to payment of additional fees and

interest, has been permitted.

In a notification, Sebi said a panel of whole time members can consider a settlement application if it is satisfied that there wassufficient cause for not filing it within specified time period and it is accompanied with an application for condonation of delay andnon-refundable fees.

In case the application is filed after 60 days of expiry of specified time period, the settlement amount would be increased with a levyof 6 per cent interest per annum.

Currently, Sebi does not consider any settlement application if the alleged default was committed in 24 months from the date of thelast settlement order where the applicant was a party.

Now, Sebi said such application would be considered in exceptional circumstances, such as the lapse of time since the commissionof the alleged default and the weight of evidence against the applicant.

In case a Sebi panel has accepted the recommendation to pass a settlement order, the applicant will have to remit the settlementamount within 15 days from the date of receipt of the notice of demand, "which may be extended by the panel of whole timemembers for reasons to be recorded, by a period of 15 calendar days".

However, such remittance would not be accepted after 19th day from the date of the receipt of the notice of demand.

Further, Sebi said that if the settlement amount is remitted after 30 days from the date of receipt of the notice of demand on orbefore the 19th day from such receipt, the settlement amount will be increased with 6 per cent interest per annum and/or theapplicant will have to give it in writing to abide by other settlement terms within the time given.http://economictimes.indiatimes.com/markets/stocks/news/sebi-tightens-settlement-regulations-for-firms/articleshow/57394853.cms

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After six years at Sebi, U K Sinha to hang up his boots tomorrow PTISee this story in: The Economic Times

Mumbai: Regulator Sebi will see a change of guard tomorrow with senior IAS officer Ajay Tyagi taking over the chairmanship from UK Sinha, who is leaving with "good memories" after a six-year tenure marked with 'harsh' actions against defaulters and severalreforms in capital markets.

Sinha, who turns 65 next month, never minced words in his retort when he was criticised for being too tough in handling marketmanipulation, corporate governance lapses or other defaults and said those calling Sebi 'activist' and 'dragon' should actually fearactivism and powers of their investors.

While Sinha had to deal with a number of high-profile cases, including those involving large corporates, illicit fund-mobilisationschemes and even some exchanges, Tyagi will also have his plate full in taking forward the reform agenda and to bring toconclusion quite a few pending investigations.

Tyagi, a 1984 batch IAS officer of Himachal Pradesh cadre who has handled capital markets division in the Finance Ministry and isknown to keep a low profile, would take charge at a time when Sebi is working on ways to strengthen mechanism to prevent misuseof algo or high frequency trades and have robust norms with regard to social media.

When asked about becoming Sebi chief, Tyagi, earlier this month, said, "It is a big responsibility and I look forward to handling it".

During Sinha's six-year long tenure, which is the second longest after D R Mehta's seven-year term from 1995 to 2002, Sebi set theball rolling on a raft of reforms, bolstered safeguards for investors, clamped down on Sahara, Saradha and Rose Valley groups,forced many ponzi activities to close and cracked the whip on wilful defaulters, including Vijay Mallya.

Under his stewardship, the regulator has been fighting a prolonged battle with conglomerate Sahara over illegal money poolingactivities, a case that also saw Subrata Roy going behind the bars.

Another key event was the merger of Forward Market Commission (FMC) with the Securities Exchange Board of India (Sebi) thatcame into effect in late 2015, making it a composite regulator for the entire capital market space.

Sinha counts the absence of launch of even a single Real Estate or Infrastructure Investment Trusts during his tenure as asignificant regret.

Leading stock exchange BSE's Managing Director and CEO Ashishkumar Chauhan said steps taken by Sinha to clean up theprimary market have shown tremendous results.

"He has been credited for cleaning up the initial public offering market and reviving the mutual fund sector which have brought backthe retail investors in the stock market.

"Sebi has fast tracked IPO process and also reduced the time taken for a listing," Chauhan said.

He also noted the SME listing process and the initiatives in that regard were formalised under the guidance of Sinha.

Sinha, a 1976 batch IAS officer of Bihar cadre, took over the reins of Sebi on February 18, 2011, and was later given a two-year

extension. Days before his tenure was to come to an end, he received another extension in February 2016 and that stint is till March1, 2017.

In recent years, Sebi also saw most of the decisions by Securities Appellate Tribunal (SAT) on appeals filed against its order goingin favour of the regulator. This touched a record high of 94 per cent in 2015-16.

Tyagi has diverse experience at the Centre. He was Joint Secretary in Ministry of Environment, Forest and Climate Change beforejoining Finance Ministry in November 2014 as Additional Secretary. He has also worked in ministries of Petroleum and Natural Gas,Steel and Rural Development.

58-year-old Tyagi, who hails from Uttar Pradesh, is a Post Graduate in Economics. He did Master's in Public Administration fromHarvard and holds Master's degree in Technology (Computer Science), as per his official resume.

Sebi, besides regulating stock exchanges, also supervises various kinds of market entities including brokers, mutual funds, FIIs,rating agencies and investment bankers, as also thousands of listed companies.

While advocating the need for "uniform treatment", Sinha steered the regulator through various phases of reforms, including stricterregulatory requirements for corporate disclosures, mutual fund houses and investment advisors, among other market participants.

Unfazed by brick bats coming in the way of Sebi, Sinha took on critics on various occasions, including in his swan song press meeton Monday where he asserted that there is nothing to be shy about taking "harsh" actions against violators.

On Monday, Sinha said the regulator has worked hard on "cleansing of markets" and all potential instruments of manipulation,including defunct regional stock exchanges, have been closed down.

"One of my significant regrets is that I could not see a REIT or InvIT being launched during my time. I was hoping and hoping that Iwill be able to see it...," Sinha said during a press meet here.

"I am sure that in less than two months from now, the first InvIT will be launched. This is the feedback I am getting from theparticipants...," he had said.

Regulations for InvITs and REITs (Real Estate Investment Trusts), which are popular in some advanced markets, were notified backin 2014.

Meanwhile, Sebi is looking at imposing a bigger penalty for misuse of high-speed algo trades as also "following up" on fullimplementation of directions it issued in the case involving NSE.http://economictimes.indiatimes.com/markets/stocks/news/six-years-at-sebi-sinha-to-hang-his-boots-tomorrow/articleshow/57395517.cms

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Sebi’s new chairman Ajay Tyagi has to tackle challenges of the digital age Anirudh laskar & Jayshree P. Upadhyaymint

Mumbai: Ajay Tyagi, who takes charge as chairman of the Securities and Exchange Board of India (Sebi) on 2 March, has his platefull.

While some challenges he has to tackle have been around for long, like refunding the Sahara investors, some are of recent origin,like high-frequency trading.

Some issues pertain to the regulator itself.

We look at some of the key challenges for the new chairman:

High-frequency tradingSebi is trying to create a level-playing field for small investors and large, sophisticated ones using algorithms that can potentiallyexecute thousands of orders high-frequency trading or HFT in less than a second.

On 5 August, Sebi released a discussion paper stating it was examining ways to check concerns on HFT.

It has also discussed the matter with regulators in developed nations. In his last press conference, Sinha said the regulator hasappointed an external expert to recommend changes.

The share of HFT in order numbers and turnover have surged in the last five years.

HFT orders, which was 65% of overall orders in the cash equity segment in 2011-12, rose to 94% in 2015-16, while HFT turnover asa percentage of overall turnover rose from 25% to 42%.

In equity derivatives, HFT orders are up from 78% to 98%, and as a share of turnover, up from 22% to 56% in the same period.

CommoditiesIn September 2015, the erstwhile Forward Markets Commission was merged with Sebi, making the latter the regulator for bothequities and commodities. It was expected that new products such as commodity options would be launched and new investorssuch as foreign portfolio investors, banks, mutual funds and other financial institutions would come in. At its 11 February board

meeting, Sebi decided to allow new participants to trade and hedge in commodity derivatives in a phased manner. Last week, Sinhasaid mutual funds will be the first new category to enter commodity derivatives.

Order qualityIn the last year, the Securities Appellate Tribunal (SAT) referred many Sebi orders back to the regulator, raising questions over thequality of its orders. In 2016, nearly 30% of cases heard at SAT were remanded back to Sebi, against 20% and 9% in the previoustwo years. According to two people familiar with the regulator’s adjudication proceedings, including a Sebi official, officers atthe regulator find it difficult to ascertain the exact amount of illegitimate gains made by defaulters in collective investment schemes.

RefundsIn 2013, Sebi was asked to regulate collective investment schemes (CIS), and it has since banned at least 150 illegalmoney-pooling schemes. Sebi orders CIS firms to discontinue their schemes, repay investors in three months and file a winding-upreport.

However, not even one CIS company has filed a winding-up report so far; not even for PACL Ltd, which owes Rs49,100 crore to 58million investors.

Sebi usually has no clear way of identifying assets of these firms and recovering them. Often, promoters disappear once Sebi stepsin. There are also shell companies that don’t keep records with the Registrar of Companies. Sebi typically follows up byinitiating recovery proceedings by attaching the bank and demat accounts of promoters and related entities. But that is hardlysufficient.

“Sebi deals in the securities market, not land or plantations or animal farms (that are usually at the heart of mostCISs),” said Kumar L. Desai, advocate in the Bombay high court, who has almost four decades of experience in dealing withcases involving money-pooling. In this year’s budget, the government has talked about bringing a new law for regulatingmoney-pooling schemes.

Sahara sagaThree years after the Supreme Court empowered it to recover money from the Sahara Group to refund 30 million investors, Sebi isstruggling.

According to four people, including two Sebi officials, with knowledge of the refund process, Sebi has managed to refund merelyRs80 crore so far, since only 13,000 investors were found to be genuine.

In 2011, Sebi said two Sahara companies had collected around Rs25,000 crore through bonds illegally issued in 2008. On 31August, 2012, the Supreme Court directed Sebi to recover and refund money to investors with interest, which works out to bearound Rs40,000 crore. The value of deposits made by Sahara to Sebi so far is around Rs12,000 crore, according to a Sebi official.

Start-up listingWhile public listings of small and medium enterprises has seen some success, the same cannot be said of the start-up platformintroduced a year and a half back. There is much work to be done to help entrepreneurs raise money through stock exchangeseasily.

Internal mattersSebi employees are upset at not having a strong vigilance policy to protect them from what they feel is unfair interrogation byexternal agencies. In the past three years, around 80 Sebi officials have been examined by external agencies. On 20 September,CBI searched the homes of four Sebi officials, among others, in a case relating to the grant of recognition to the MCX StockExchange in 2008. In a 4 October letter sent to Sinha, the 700-strong Sebi Employees Association (SEA) said Sebi’s internalvigilance department should be the first point of contact with external agencies.

Employees also want such inquiries to be first handled by the in-house vigilance department, like in the Reserve Bank of India.Employees are also displeased about appointments at the executive director level, and have sought policy changes to ensurecareer growth.http://www.livemint.com/Money/5yLZmkbr9Noh8aKA8EhOLM/Sebis-new-chairman-Ajay-Tyagi-has-to-tackle-challenges-of-t.html

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Sebi under U.K. Sinha sharpened focus on developing markets Jayshree P Upadhyay & Anirudh Laskarmint

Mumbai: Under its eighth chairman, India’s stock market regulator was a beehive of activity.

In the six years that U.K. Sinha led it, the Securities and Exchange Board of India (Sebi) expanded its territory as a marketdeveloper, on top of its role as a market regulator.

The Sebi Act, in the past five years alone, saw more than 50 amendments, attesting to the dynamic nature of the regulator’swork.

Almost every regulation was reworked and re-examined.

“I would like the incoming chairman to set his own priorities,” Sinha said in his last interaction with the media, beforenew chairman Ajay Tyagi takes charge on 2 March.

India is no stranger to illegal money pooling schemes such as the ones floated by two Sahara firms (Rs25,780 crore), PACL Ltd

(Rs49,100 crore) and Saradha group (Rs30,000 crore). In order to check the menace, Sebi was empowered to regulate collectiveinvestment schemes (CIS) in 2013.

In 2013, Sebi was also given the power to search and seize, and obtain call data records. After the National Spot Exchange Ltdscam, the government merged the Forward Markets Commission, which regulated the commodity markets till then, with Sebi.

“Sebi is a regulator for all seasons. Whenever the government falls short of a regulator, it turns toward the credibility ofSebi,” said J.N. Gupta, a former executive director of Sebi. However, making refunds to investors has not been easy.“Powers is one thing; it is the implementation and the usage of the power vested in a body that counts,” said Gupta.

“On investigations and orders, Sebi procedures leave much to be desired. Punishments are often being imposed without thebasic process of an investigation and a hearing. The arbitrary power wielded in the executive and quasi-judicial functions at Sebi isinconsistent with our aspiration of becoming a mature liberal democracy,” said Ajay Shah, professor at National Institute ofPublic Finance Policy (NIPFP).

Sebi’s legal expenses rose 30% in 2016 as it defended its orders in the matters of CIS and interim orders on misuse of longterm capital gains (LTCG) at the Securities Appellate Tribunal (SAT) and higher courts.

Under Sinha, Sebi cut the time—from an IPO closure to listing—to six days from 12. It is likely to go down to just threedays. In 2015, 21 firms raised Rs13,614.08 crore through IPOs, Prime Database data showed. In 2016, 26 companies raisedRs26,493 crore.

“Under the leadership of Sinha, Sebi took steps to clean up the primary market and they have shown tremendous results. Hehas also revived the mutual fund sector, which has brought back retail investors in the stock market. Sebi has fast-tracked the IPOprocess and also reduced the time taken for a listing,” said Ashish Kumar Chauhan, CEO and managing director, BSE Ltd.

Sebi also opened the Institutional Trading Platform for listing small and medium enterprises (SMEs). “The SME listingprocess and the initiatives in that regard were also formalized under his guidance. The SME success story in India market reflectsthe regulatory support to encourage this market,” said Chauhan. According to Sinha, more than 200 firms have listed on theSME platform, who calls it “a proud moment for us.” However, Sebi’s bid to popularize its start-up platform hasnot had similar success.

In July 2012, Sebi launched the offer for sale (OFS) method, an exchange-based bidding platform for promoters of listed entities tosell shares in a cheaper, faster and more transparent way than other routes. OFS is now the preferred route for the government todivest its stake in listed public sector units (PSUs).

In the past six years, Sebi has allowed real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and municipalbonds, among others. Though no InvIT has been listed during Sinha’s tenure, there have been six filings so far. The firstInvIT is expected to be launched in two months.

Sebi has also carried out significant changes in insider trading and delisting rules, listing norms, the takeover code, and mutual fundregulations.

Mutual fund regulations were revamped in 2012, while the delisting process was automated.

According to Cyril Shroff, managing partner at law firm Cyril Amarchand Mangaldas, Sinha’s tenure has seen theintroduction of significant securities markets reforms which have bolstered investor confidence.

In particular, Shroff pointed to the implementation of the 25% minimum public shareholding, introduction of new listing regulations,overhaul of the Takeover Code and the Insider Trading Regulations, changes made to the delisting regime and expansion of thecapital markets framework to allow diverse listing platforms.

“As Sinha leaves the corner office at Sebi, he leaves behind a legacy of key reforms which have had and will haveconsequential impact on the Indian economy,” he added.

However, in some cases such as crowd funding, advisor regulations, start-up listing norms and algorithmic trading, experts said thenew regulations were not needed.

“Sebi’s faulty regulation-making process has given a series of mistakes in financial markets policy, and creates a riskyenvironment where firms are afraid that something silly will come out next,” said Shah.

“It is not the issue of regulations but the environment of the start-up space that has undergone a change,” Sinha saidin his media interaction.

On the issue of advisor regulations, “there was a loud noise from one section of the market on freedom of speech and we arerelooking at the regulations,” Sinha added.

Crowdfunding regulations have now been dropped by the regulator.

Rules on HFT are still in the works. Sebi has now appointed an external expert to study HFT and recommend ways to tackle anypotential issue arising out of such trades.

According to two people with knowledge of the matter, Ajay Kulkarni, a professor at IIT Bombay will conduct the study at a cost ofRs 20 lakh.

Sebi is yet to complete action on the long pending case of alleged violation of Sebi fraudulent and unfair trade practices (FUTP)

regulations at Reliance Industries Ltd. The unfair access issue at National Stock Exchange of India (NSE) co-location issues is alsounder examination.http://www.livemint.com/Money/QhhZn9gnLpcFh4wxjdSoJJ/Sebi-under-UK-Sinha-sharpened-focus-on-developing-markets.html

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Mutual Funds & AMCs

Trading in F&O: MFs say no need for exit option for investors K Raghavendra RaoThe Hindu Business Line

Mumbai: The recent SEBI decision of doing away with the requirement of obtaining positive consent from unitholders beforeparticipating in the derivatives market and offering all unitholders a choice to exit instead of the earlier rule where only dissentingunitholders were offered a choice was not at all required, according to industry experts.

Inherent contradictionThough the SEBI circular stated it had received representations that “for obtaining positive consent from majority ofunitholders as mandated above is challenging on account of the vast geographical spread of unitholders and hence the request fordoing away with such requirements,” some fund house CEOs think otherwise.

“Why would somebody not agree with a scheme investing in derivatives and yet choose to stay invested in thatscheme?” asked a fund house CEO requesting anonymity.

“The problem of obtaining positive consent from unitholders arises only for those schemes which have not spelt out theirintention to trade in derivatives (and would want to) besides having a large base of retail investors. Schemes with this combinationare few in number,” said another MF CEO.

Marketmen observed that the average mutual fund investor usually believes in the expertise of the fund manager and would not exitthe scheme even if the scheme decided to trade in derivatives. This was despite the move having the potential to introducevariability in the returns of systematic investment plans (SIP).

Chances of misuseSageraj Bariya, Vice-President, Institutional Sales, East India Securities, said, “Only discerning investors will press the exitbutton, but these are very few in number.”

Those in the trade observed that the move could increase speculation in the name of portfolio rebalancing.

Arun Kejriwal, Founder - KRIS Research, said “While SEBI has helped in the ease of doing business for mutual funds,returns from SIPs could now come under a question mark. Though fund houses have used derivatives for hedging (historically), thenew dispensation would allow them to use derivatives as a means of speculation. Returns from speculation could be detrimental tothe wealth and health of the SIP investor who usually looks for steady returns, thus eroding investor confidence.”http://www.thehindubusinessline.com/todays-paper/tp-markets/trading-in-fo-mfs-say-no-need-for-exit-option-for-investors/article9564302.ece

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Foreign investors rush in as mutual funds fear to tread Chandan Kishore Kant & Samie ModakBusiness Standard

Mumbai: Mutual funds shed equities after six long months, even as foreigners continued loading up on shares, their investmentsclimbing to a six-month high in February. Even as mutual funds dumped stocks worth Rs 78 crore in February, foreigners shoppedequities worth Rs 10,000 crore, pumping up indices four per cent this month, and 12 per cent from demonetisation lows inDecember.

In this equity about-face, mutual funds (MFs) cling to caution in the face of lofty valuations, even as foreigners raise their game amidweak price of dollar (relative to other currencies).

Ever since October 2016, MFs have invested Rs 43,875 crore, at a monthly average of Rs 7,312 crore. During the same period,foreign institutional investors or FIIs have pulled out Rs 12,150 crore (monthly average Rs 2,024 crore).

After a sharp 12 per cent rally since December 26, the benchmark Sensex now trades at 19 times its components' one-year forwardnet profits. Analysts say valuations loom near correction territory.

"These are precarious levels not in the interest of investors, given the poor net profit growth," said a chief investment officer,managing a little over Rs 20,000 crore of equity assets.

"It's all liquidity which is taking the markets higher. There are near-term uncertainties like state election results and revival ofcorporate profits. We are taking a defensive stance, and for investors, it would not be a bad idea to book partial profits," he added.

The sharp FII inflows come after heavy sell-off in November and December 2016. Foreign outflows were seen stemming in January

as a stronger rupee price spurred risk appetite. India-focused funds have been getting positive flows since January. Market playerssay FII inflows are subdued as a large portion of the buying in February was in HDFC Bank, after the Reserve Bank of India liftedinvestment ban on the stock.

Meanwhile, equity MFs had increased their cash holdings to multi-year high at five per cent of total equity assets.

"There has been quite a lot of volatility in stock markets. Generally at such times, fund managers tend to be more cautious, which isright to an extent," said Kaustubh Belapurkar, director, fund research, Morningstar India.

Investor flows into MFs continue to remain strong. Between April 2016 and January 2017, equity MFs got net inflow of more than Rs50,000 crore.

Gautam Chhaochharia, head of India research, UBS Securities, says MF inflows have tracked market returns.

"Investors should not look at a decrease in local inflows as a lead indicator for Indian markets - flows will follow returns rather thanthe other way round. This means the recent market strength may continue despite expected sharp profit declines ahead. Ourend-2017 Nifty target remains 8,800, though inflows could drive markets up further in near term to 9,700 as long as there are noglobal shocks, declines in global risk appetite, and immediate local negative catalysts (such as Uttar Pradesh election results orJanuary-March profit disappointment)," he said.http://www.business-standard.com/article/markets/mfs-apply-brakes-fiis-go-full-throttle-in-february-117022800848_1.html

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There's still a lot to go for the Indian economy: Hugh Young, MD of Aberdeen Asset The Economic Times

India remains one of the most overweight markets and while it may not be the cheapest market, it has high quality companies, saidHugh Young, managing director of Aberdeen Asset Management Asia, which manages $374 billion. In an interview with SanamMirchandani, Singapore-based Young said the outcome of the ongoing state elections could swing sentiments strongly.

Edited excerpts

US markets are riding high as Trump is expected to undertake measures to stimulate the US economy and cut taxes. Do you thinkthey will outperform EMs this year?

Trump will focus very much on the domestic market and protectionism favouring the US. From that point of view, one could expect abetter outlook for the US. But all things being equal, a lot of his policies are going to take time to implement. I am not sure that theUS markets will necessarily perform the best. One still has to be a bit cautious about that and also at some stage, one is also likelyto see weakness in the US dollar. If you look more broadly at global EMs, a lot of the positives remain pretty much unchanged.Thelongterm prospects for many of them are attractive.

What is your outlook for the Indian markets?

It is one of our most overweight markets. From an economic point of view there is still lots to go for India.We don't know whether thisyear is going to be a good year for India compared to other markets. For us, we are investing in Indian companies not necessarilythe economy and we see decent growth coming from those over the next five to 10 years. It is certainly not the cheapest ofemerging markets but it is one of the higher quality ones as far as individual stocks are concerned.

What will be the key triggers for Indian markets going ahead?

In India, a lot comes down to politics and reforms. Reforms have always been a slightly stop-go situation with India. Under Modi,things have got more dynamic. We have got some elections coming up which could certainly swing sentiments strongly. It doesn'tseem very clear from the polls as to which way it is going. It will be a clear test.

Do you think the worst of the demonetisation impact is over?

It certainly has had an impact on businesses and the economy but it is more like a hiccup than anything long-term or structural. Ithas caused the economy to be a little weaker than we were expecting.There will be very minor impact going ahead and the currentquarter should see the end of that.

Will GST be a big disruptive factor for the economy?

It will have consequences. We are not quite sure what they are going to be but again, it is one of those things that have a short-termhiccup effect on the administration. In the longer term, GST is a good thing.

You have exposure to Indian IT sector through Infosys and TCS. What is your expectation in terms of returns from this sector?

The actual business is highly competitive and now you got the Trump effect. To be fair, the business always has changed and theyare adapting.Given their balance sheets and net cash positions, increased dividends or share buybacks are sensible thing to bedoing. The industry has re-rated downwards and is looking ahead at far less dynamic growth than it was 10 years ago obviously.We expect lower returns than the past.

Your view on Infosys boardroom battle ...

The management was distracted and having to deal with things when ideally things should be running smoothly, so any such things

are a negative but we haven't sold our holding as a result of what's going on.It certainly makes you reflect more.For decades, TataGroup was a stunning example of good governance and as indeed was Infosys. Both companies have been models in many waysand it is always sad to see the model become all too human.

ITC has rallied as the Budget did not unveil any big cigarette excise duty hike. Your outlook on the stock?

In the short term, it has benefited from the sentiment and the reality of no hikes. We will watch closely how well they are developing,like their other businesses, some of which are relatively young businesses in the stable.

Are you sticking to your investments in Indian private banks or would you diversify to PSU banks, which are relatively cheaper?

It is impossible to argue that some of these private banks such as HDFC Bank are cheap from a ratings point of view. But again thequality compared to the cheaper state-run banks is quite way ahead. On balance, we will remain with the quality. We feel a lot morecomfortable with the business model and the professionalism of private banks. In the long-term, they are a good proxy on India'sgrowth.

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Equity mutual fund inflows: Make hay while the sun shines Mobis Philiposemint

Indian equity mutual funds (MFs) have received net inflows of a little over Rs2 trillion since May 2014. Monthly inflows stood ataround Rs6,100 crore during this period. In recent months, inflows from systematic investment plans (SIPs) alone have amounted toaround Rs4,000 crore per month.

Despite heavy selling by foreign institutional investors since the demonetisation announcement, Indian markets have done well,largely because of large purchases by domestic institutions.

As a result, some investors are enthused about domestic flows sustaining Indian equities going ahead as well. Analysts at UBSSecurities India Pvt. Ltd say in a note to clients, “In our discussions with investors, they saw inflows into local Indian equitymutual funds as a reason to be bullish, especially as these have offset selling by foreigners in late 2016, and there are hopes thatthis is a structural trend.”

Investors are all the more gung-ho since flows through SIPs are estimated to be sticky. Analysts at Deutsche Equities India Pvt. Ltdsaid in a recent note to clients, “We estimate that SIPs would have accounted for a healthy ~43% of total equity inflows overthe past six months. If this trend sustains into the future, as per industry experts, SIP-based monthly inflows have the potential toaverage ~US$1bn (~Rs6,800 crore) over the next few years.”

But note in the chart alongside how inflows into equity MFs are still closely related to the market’s short-term returns. Whenreturns of large-cap and mid-cap indices went into negative territory in early 2016, flows into equity funds tapered. Since the periodwhere one-year returns were negative was short-lived, the drop in outflows, too, was restricted to a short period.

As UBS’s analysts say, “Investors should not look at a decrease in local flows as a lead indicator for Indianmarkets—flows will follow returns rather than the other way round.” They add that apart from market returns, therelationship of flows with interest rate movements and returns on alternative asset classes suggests that flows to equity fundsshould find support in the near term.

As such, even if, as many expect, Indian companies disappoint in the March quarter, their stocks may find support from domesticinstitutions. But as pointed out earlier, it may be naive to expect this to continue forever. UBS points out that despite all thearguments that support the theory that the increase in domestic flows is structural, the fact remains that financial savings as a shareof household savings are now lower compared to levels in fiscal years 2006-2008. “In FY06-08, many market watchers alsoargued that local flows were ‘structural’,” they add in their note. We all know how that ended.http://www.livemint.com/Money/xO3ZZz6fEOMpn1loO7pJeP/Equity-mutual-fund-inflows-Make-hay-while-the-sun-shines.html

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MFs to give 15 days for exit option to REITs, InvITs investors Business Standard

Mutual fund schemes investing in REITs and infrastructure investment trusts (InvITs) will have to give 15-day time to unit-holders toexercise exit option, Sebi said today.

The Securities and Exchange Board of India (Sebi) earlier this month notified norms allowing mutual funds to invest in REITs andInvITs in order to attract more investors.

REITs and InvITs are expected to help garner billions of dollars for the country's real estate and infrastructure segments.

"For investment in units of REITs/InvITs by an existing Mutual Fund scheme, unit-holders of the scheme shall be given a time periodof at least 15 days for the purpose of exercising the exit option," Sebi said in a circular.

Any existing scheme intending to invest in units of REITs/InvITs will have to abide by Sebi's Mutual Funds norms.

This circular would come into force with immediate effect.

A mutual fund has been permitted to invest only up to 5 per cent of its net asset value in units of a single issuer of alternativesecurities.

The maximum allowed investment in alternative instruments by a single fund is capped at 10 per cent. The cap is not be applicablein the case of index fund or sector or industry- specific scheme.http://www.business-standard.com/article/pti-stories/mfs-to-give-15-days-for-exit-option-to-reits-invits-investors-117022800903_1.html

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Equities, Pvt. Equity & Hedge Funds

Motilal Oswal Private Equity invests Rs 100 crore in Updater Services Supraja SrinivasanThe Economic Times

Mumbai: Chennai-based Updater Services has raised Rs 100 cr from Motilal Oswal Private Equity Investment Advisors. Updaterwhich provides integrated business services to clients has raised the capital in exchange for a minority stake to MOPE which hascommitted the investment amount through its India Business Excellence Fund – II and India Business Excellence Fund– IIA.

This is the third round of private equity investment in the company, which has previously raised capital from New Vernon PrivateEquity and ICICI Ventures in 2004 and 2008, respectively.

Updater has operations across the country with a very strong presence in south India and caters to over 700 clients acrossindustries such as IT/ ITeS, BFSI, e-commerce, etc.

Through this round, Updater is looking to expand its presence geographically. "I strongly believe that as one of the premier privateequity fund managers in the country, MOPE will help us deepen client relationships and offer all integrated business services to ourclients. Their experience of managing companies across varied sectors will bring a lot of value to us as we endeavor to build a worldclass organization," said Raghunandana Tangirala, Managing Director of Updater Services.

"We are pleased to be part of what, according to us, is one of the best placed IFM (integrated facilities management) companies inthe country. As enterprises continue to emerge in the country, the trend of outsourcing of facilities management will increasinglybecome more accepted," said Vishal Tulsyan, Managing Director and CEO of MOPE.

Updater Services is one of India’s leading integrated business services (IBS) companies with significant presence acrossIFM, P&S (people and staffing) and PSS/IAM (production support services/industrial asset management) segments. The companywas established in 1985.http://economictimes.indiatimes.com/industry/banking/finance/motilal-oswal-private-equity-invests-rs-100-crore-in-updater-services/articleshow/57393601.cms

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LIC books Rs 16,000 crore profit in April-Dec from equity sales Shilpy SinhaThe Economic Times

Mumbai: Life Insurance Corp, the country’s biggest institutional investor locked in an impressive 68% jump in profits, aboutRs 16,000-crore, from equity sales in the first nine months of the financial year.

Last financial year, the corporation had earned a profit of Rs 9,500 crore from equities in the same period. Its equity investment wassubdued for the period as it has invested Rs 39,000 crore against Rs 64,000 crore in the same period last year.

“We have booked profits of Rs 16,000 crore in the year so far by selling about Rs 38,000 crore of equity,” said V KSharma chairman LIC. "We are a contrarian player and we have deliberately taken this decision given the way markets havemoved."

He said that equity is only 12% of their investible corpus. Sharma did not talk about individual stocks that LIC has invested in.“We are not a trader but long-term investor,” he said.

LIC invested around Rs 1.98 lakh crore in debt instruments, including Rs 1.83 lakh crore in government services and statedevelopment loans.

The corporation has investible surplus but its equity investments are subdued because of the current market conditions. LIC hadunsuccessfully bid for a sizable stake in BEL. “This shows that the market is deepening and more players are interested inbuying public sector companies.”

“We visualised that interest rate will fall and so we gave push to pension plan,” said Sharma. It has posted a growth of12.43% in total premium income at Rs 1,45,031 crore during the nine months ended December 2016. In the same period last year,

it had done total premium of Rs 1,29,001 crore.

New business income grew 40.11% in the nine-month ended December 31, 2016, boosted by fund flow into formal system duringdemonetisation. “We met our yearly target of Rs 31,000 crore new business income a month before the year end,”said Sharma.

LIC operates through 40,000 collection points, where collection dipped in the first 15 days after the ban on high currency notes ofRs 500 and Rs 1,000 on November 8. However, it improved over the next few days and now 75% of the collection happens throughdigital payment mode. For the insurer 6.5 crore transactions are happening through digital. It is in the process of integrating itssystem to BHIM and UPI.http://economictimes.indiatimes.com/markets/stocks/news/lic-books-rs-16000-crore-profit-in-april-dec-from-equity-sales/articleshow/57390230.cms

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Govt. Securities & Bonds

Bonds don’t pay, banks face dull March quarter Saloni Shukla & Pratik BhaktaThe Economic Times

Mumbai: Banks face a doublewhammy in the March quarter as they take a hit from bond holdings and fee income as digitaltransactions ease amid increasing cash condition. The last quarter of the fiscal may see them turning in their worst performancesince the Reserve Bank of India ordered Asset Quality Review.

Large treasury gains have helped most state-run banks post profits in the December quarter, but with yields rising nearly 40 basispoints, the treasury gains of banks are expected to be tepid which may keep them from reporting profits in this quarter.

“Q4 will be another challenging quarter as most of the treasury gains have been wiped out, also no improve ment is expectedon the credit offtake front; so I think banks may not post some great earnings in the last quarter,“said Siddharth Purohit,senior research analyst at Angel Broking. “Interest costs will also be up because banks are sitting with a lot of deposits and thave no place to deploy those funds. I also believe that some game plan should be expected from RBI on what next as most of thebad loan recognition has been done.“ G-sec yields have firmed up about 40 basis points following the Reserve Bank ofIndia's policy meet and 10-year Gsec, now at 6.9%, is at a higher level than on December 31, 2016. Given significant accumulationof government securities at low yields in the previous quarter, banks may have to take mark-to-market losses on those securities.

“As this magnitude of gains will not be available in 4Q post the recent 40-basis-point rise in yields and added operating profitpressure from marginal cost of funds based lending rate (MCLR) cut, and rise in pensions, many PSUs will be pushed back intolosses in 4Q,“ said Ashish Gupta, research analyst at Credit Suisse, in a report. Public sector banks, which have bookedtreasury gains of more than . 12,500 crore, have managed ` aggregate profits of only ` . 500 crore.

Loan growth for most banks during the third quarter of this fiscal also decelerated sharply , offsetting the benefit of large depositinflows in current accounts and savings accounts, and drop in funding costs. “Unless banks are able to recover money fromtroubled assets, Q4 is not looking any better and most of the treasury gains will not be available in this quarter,“ said KarthikSrinivasan, vice president, ICRA.http://economictimes.indiatimes.com/markets/stocks/news/bonds-dont-pay-banks-face-dull-march-quarter/

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Bond yields flat, call rate rises PTISee this story in: The Hindu Business Line

Mumbai: Government bonds (G-Secs) ended mixed on alternate bouts of buying and selling. The 6.97 per cent G-Sec maturing in2026 rose to Rs.100.69 from Rs.100.62 previously, while its yield edged down to 6.87 per cent from 6.88 per cent. The interbankcall money rate finished higher due to good demand from borrowing banks amid tight liquidity in the banking system. It ended at5.95 per cent from Monday’s level of 5.75 per cent. It resumed higher at 6.05 per cent and moved in the 5.95-6.25 per centrange.

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International News

Swiss insurer Baloise strikes partnership to back tech startups ReutersSee this story in: The Economic Times

New York: Swiss insurance group Baloise Holding has joined forces with digital financial services venture capital and advisory firm

Anthemis Group to invest in insurance and risk management technology startups, the latest sign of large, traditional insurersseeking to become more tech-savvy.

As part of the deal Baloise has committed 50 million Swiss francs ($49.57 million) to Anthemis Baloise Strategic Ventures, which willinvest in young companies in Europe and the United States, that may be able to help the insurer improve its technology.

Baloise, which has about 50 billion Swiss francs ($49.55 billion) in assets under management, provides a range of insurance andbanking services in Switzerland, and is also active in Belgium, Germany and Luxembourg.

The move makes it the latest established financial services company to set up a formal investing initiative for financial technology -known as fintech - as older and larger firms look to increase collaboration with innovative companies in the sector.

The most recent corporate venture launches in finance include global exchange operator Nasdaq Inc and Northwestern Mutual LifeInsurance Co.

The launch also underscores how insurance companies have turned their attention to becoming more digital-savvy, from usingadvanced data technology to calculate risk better to automating more of the claims management process.

At the same time, a growing number of young companies are looking to use newer technology to modernize the $4.7 trillion globalinsurance market, which has traditionally been less of a focus for startups than banking and capital markets.

London-based Anthemis also has investment partnerships with South African insurer and asset manager MMI Holdings Ltd andItalian banking group Unicredit.http://economictimes.indiatimes.com/small-biz/money/swiss-insurer-baloise-strikes-partnership-to-back-tech-startups/articleshow/57387871.cms

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UK insurer Aviva to take $478 mln charge after discount rate cut ReutersSee this story in: Daily News & Analysis

British insurer Aviva said it expects to take an exceptional charge of 385 million pounds ($478 million) to its 2016 profit after tax afterBritain changed the rate at which compensation payments are calculated in personal injury claims.

Some UK insurance stocks fell and analysts warned of higher insurance motor premiums after Britain's Ministry of Justice onMonday cut the discount rate used to calculate lump sum payouts to minus 0.75 percent from 2.5 percent.

The change will increase the size of lump sum pay outs, a threat to UK motor insurers' profitability.

"Aviva supports this review process and recognises the minus 0.75 percent rate announced by the Lord Chancellor may berevised," the insurer said in a statement on Tuesday.

Chief executives of 15 of Britain's biggest motor and commercial liability insurers were meeting finance minister Philip Hammond onTuesday to ask him to stop the "crazy" decision, the Association of British Insurers said.

The exceptional charge will not affect Aviva's 2016 operating profit or dividend, the insurer said. It is due to report its 2016 results onMarch 9.http://www.dnaindia.com/money/report-uk-insurer-aviva-to-take-478-mln-charge-after-discount-rate-cut-2338131

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Economy & Finance

Rupee gains 2 paise to end at 66.69 against dollar PTISee this story in: The Hindu Business Line

Mumbai: The rupee added two paise and finished at 66.69 against the US dollar at the Interbank Foreign Exchange today after theAmerican currency gained strength overseas.

The rupee opened at 66.77 and traded between 66.81 and 66.69 in intra-day deals.

Forex dealers said that month-end demand for the greenback from importers and gains against other currencies overseas asinvetors keenly await US President Donald Trump’s speech at a joint session of Congress today, put pressure on the rupee.

They said, however, a higher opening of the domestic equity market capped the rupee’s losses.

Yesterday, the rupee had strengthened to close at a fresh three-and-a-half month high of 66.71, appreciating by 11 paise on theback of sustained selling of the American dollar by exporters and banks.http://www.thehindubusinessline.com/markets/forex/rupee-live-update/article9563191.ece

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Sensex ends down 69 points ahead of GDP data AgenciesSee this story in: The Hindu Business Line

Mumbai: Indian shares ended lower on Tuesday after snapping a six-session winning streak in the previous session as investorstook a pause ahead of key economic growth and fiscal deficit data due later in the day.

The gross domestic product data due today will show if demand wilted in the final three months of last year following Prime MinisterNarendra Modi's surprise decision to ban high-value currency notes.

A Reuters poll of 30 economists taken over the past week showed economic growth slowed to 6.4 per cent annually in theOctober-December quarter.

“Only if growth falls below 5.5 per cent or rises above 6.5 per cent, would there be some need to re-assess India's growthtrajectory in the period ahead,” Deutsche Bank analysts wrote in a note.

Foreign capital outflows too affected the market sentiment. Foreign funds sold shares net of Rs 145.55 crore yesterday as per theprovisional data issued by stock exchanges.

The Sensex ended 69.56 points or 0.24 per cent lower at 28,743.32 while the NSE Nifty lost 17.10 points or 0.19 per cent at8,879.60.

Nifty gainersBHEL (+6.09%), Bharti Airtel (+3.61%), Asian Paints (+2.38%), YES Bank (+2.12%) and Hindalco (+1.96%).

Nifty losersGrasim (-3.36%), BPCL (-2.72%), Coal India (-2.47%), Tech Mahindra (-1.74%) and Bajaj Auto (-1.57%).

Shares of Bharti Airtel rose as much as 4.9 per cent in the day's trade after the telecom network operator said on Monday that itwould scrap national roaming charges from April 1.

“Overall, the domestic market has gained quite a bit in the last few sessions. With no major trigger due immediately, marketswill be rangebound in the next couple of days,” said Siddharth Purohit, a senior research analyst with Angel Broking.

Caution prevailsCaution is in the air as market players tracked the much—awaited US President Donald Trump’s address to theCongress later in the day, which can throw light on tax reforms and infrastructure spending.

Another record closing on the Wall Street on Friday and a firm trend in Asia kept mood positive.

Idea Cellular managed to close higher after falling nearly 6.5 per cent in early trade following reports that Providence EquityPartners is likely to exit the telecom firm by selling its 3.33 per cent stake.

However, some action was witnessed in broader markets, with the smallcap index rising by 0.59 per cent and mid—cap 0.14per cent.

Selling in auto stocksStocks of automobile companies such as Bajaj Auto, Hero MotoCorp, Maruti Suzuki and Tata Motors saw selling activity and lost upto 1.56 per cent ahead of monthly sales figures for February to be released on Wednesday.

Coal India, NTPC, TCS, ICICI Bank, ITC Ltd, ONGC, Axis Bank, PowerGrid and HDFC were other laggards.

However, buying in select stocks such as Bharti Airtel, Asian Paints, Adani Ports, M&M, Lupin, Sun Pharma, Tata Steel, SBI andInfosys capped the downside.

Foreign capital outflows also affected market sentiment.

Foreign funds net sold shares worth of Rs 145.55 crore yesterday, as per provisional data.

Other Asian markets ended mixed as key indices like Hong Kong and Singapore fell while Japan’s Nikkei and the Shanghaiindex moved up.

In Europe, London’ FTSE, Paris CAC 40 and Frankfurt lost in their early session.

In the domestic market, 20 scrips out of the 30—share Sensex ended lower.

Oil and gas fell 1.34 per cent, followed by PSU, FMCG, IT and auto. Realty, capital goods, metal and power went up by up to 1.44per cent.http://www.thehindubusinessline.com/markets/stock-markets/sensex-live-update/article9563231.ece

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Economy weathers note ban storm to grow at 7% in Q3 The Hindu Business Line

New Delhi: The first report-card of the economy post demonetisation has come as a surprise.

Though GDP growth slowed to 7 per cent in October-December 2016-17 the feeblest in over nine quarters it was still stronger thanexpected considering the impact of the government’s decision to withdraw high-value currency notes in the economy in thisquarter.

In the third quarter of 2015-16, the economy had expanded at 7.5 per cent. In terms of gross value addition, the growth was 6.6 percent in the third quarter of the fiscal against 7 per cent a year ago.

The Central Statistics Office, in its second advance estimate released on Tuesday, maintained its growth forecast for the fiscal at7.1 per cent. This is in line with its first advance estimate on January 6. For the second quarter of 2016-17, the CSO estimated GDPgrowth at 7.4 per cent .

The economy grew at 7.9 per cent in 2015-16 and at 7.2 per cent in 2014-15.

Noting that growth projections for sectors such as financial services and real estate, which are directly linked to consumption, havebeen lowered in the second advance estimate, Chief Statistician TCA Anant said it is difficult to ascertain the impact of the note banon the economy.

“We will keep evaluating the numbers. I would not like to draw any conclusions at this stage,” he told reporters.

Explaining the reasons for the sustained growth in GDP, Anant said some sectors such as agriculture, mining and manufacturinghad performed better than expected in the third quarter.

The Finance Ministry, which had said demonetisation would result in only a “temporary disruption”, welcomed thedata. “GDP numbers are on a high base and negate the negative speculation on demonetisation,” said EconomicAffairs Secretary Shaktikanta Das.

Though economists had warned that GDP could slow to 6.5 per cent and 7 per cent this fiscal, the Economic Survey had peggedGDP growth at about 7 per cent.

“The data indicate that the impact of demonetisation was not as severe as expected,” said DK Joshi, Chief Economist,CRISIL, adding that the agency expects GDP to expand by 7.4 per cent in 2017-18. Private and government final expenditure areestimated to rise in 2016-17. Gross fixed capital formation, an indicator of investments, is also expected to grow. Industry is nowhopeful of improved prospects in 2017-18.

“Growth is expected to recover in the next financial year,” said industry chamber FICCI.http://www.thehindubusinessline.com/todays-paper/economy-weathers-note-ban-storm-to-grow-at-7-in-q3/article9564295.ece

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Core sector growth slows down to 3.4% in January The Economic Times

New Delhi: Core sector growth slipped to a fivemonth low in January but remained comfortably in the positive zone. Contraction inthe output of refinery products, fertiliser and cement pulled down the index that tracks growth in eight infrastructure sectors.

Data on Tuesday showed the core sector slowed to 3.4% in the month compared with 5.7% in the year-ago period. The eightinfrastructure sectors of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity that make up the indexhave a 38% weight in the Index of Industrial Production (IIP).

“Core sector growth slipped in January 2017 relative to the previous month, as the spike in steel expansion eased to someextent. Additionally, cement, electricity and refinery products recorded some loss of momentum,” said Aditi Nayar, principaleconomist, ICRA Ltd.

The slower core sector is likely to dent industrial growth further. Industrial production contracted 0.4% in December. Data forJanuary will be released on March 10.

Core sector growth in January was the lowest since August 2016, when the segments had recorded a growth of 3.2%. It is alsolower than that of 5.6% seen in December 2016. The output of refinery products, fertiliser and cement contracted by 1.5%, 1.6%and 13.3%, respectively.

Coal and electricity output rose 4.8% each in January, against 7.9% and 11.6% expansion, respectively, in January last year. Crudeoil output grew 1.3% in January this year, against 4.7% contraction in the year-ago month. Natural gas and steel output rose 11.9%and 11.4%, respectively.http://economictimes.indiatimes.com/articleshow/57394202.cms

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GDP grows by 7% in Q3 The Tribune

New Delhi: Counter to the widespread belief of demonetisation having hurt economic activity, the GDP data for the third quarter offinancial year 2017 (October-December 2016) released today shows that the economy grew at 7%, much more robust than whatmany economy watchers had predicted.

The Central Statistics Office (CSO) has retained the growth projection for the current fiscal (FY17) at 7.1%, as estimated in the firstadvance estimate in January.

The CSO numbers prompted the government to claim that the speculation on the impact of the note ban has been belied.

“GDP numbers negate the “negative speculation” on demonetisation” said Economic Affairs SecretaryShaktikanta Das. He said the government had maintained that growth will be around 7%.

The RBI had lowered economic growth forecast to 6.9% for the current fiscal from 7.1% estimated earlier, but said the economy willbounce back to 7.4% next fiscal. It has marginally revised upwards the GDP estimates for the first and the second quarters, to 7.2%and 7.4%, respectively.

Analysts said the numbers are surprisingly robust. Aditi Nayar, Principal Economist, ICRA, said the first estimate of GVA growth of6.6% appears surprisingly robust in light of the substantial downward revision of 40 basis points each in growth for first quarter ofFY2017.

Ficci said with the second advance estimate for 2016-17 at 7.1%, the data belies the widespread expectation of sub-7% growth thisfiscal.

ICRA said the higher than expected GVA growth in Q3 FY2017 can be ascribed to agriculture as well as each of the sub-sectors ofindustry, whereas service sector growth is weaker than anticipated. It added that the biggest surprises in Q3 FY2017 were posed bythe 8.3% manufacturing growth and the 2.7% rise in construction activities, with the latter expected to have been adversely affectedby the cash crunch. The ratings agency said some other indicators offer surprising trends. For instance, rural wage inflationrecorded a marginal dip to 6% in December 2016 from 6.2% in October 2016, despite the expectation of loss of jobs in less-formalurban sectors pushing migrants to return to their villages.

“The process of remonetisation is complete and we see the economy getting back on track. The consumption activity isgradually picking up and according to Ficci’s latest surveys the effect of demonetisation is expected to wane off byJune”, said Didar Singh, secretary general, Ficci.http://www.tribuneindia.com/news/business/gdp-grows-by-7-in-q3/370703.html

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Closing

Last Financial Closing.... 

Sensex  28,743.32 (-69.56)NSE  8,879.60 (-17.10)US$ spot Rs.66.69US$ Y.113.1100US$ 6 months Rs.Yen Rs.59Euro spot Rs.70.66

Gold (10gm) Rs.29,595Silver (1kg) Rs.43,247.00

 

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Top 5 Gainers & Losers

Gainers & Losers GAINERS

BHEL Rs.162.45Bharti Airtel  Rs.365.15Asian Paints  Rs.1,024.20

Yes Bank  Rs.1,452.70Hindalco  Rs.184.35

LOSERS

BPCL Rs.670.05Grasim Rs.990.20Coal India Rs.321.90NTPC Rs.162.95Bajaj Auto Rs.2,755.90

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