Markets likely to jump

End of a row over the regulation of unit linked insurance plan or Ulips and firm Asian stock will market extend recent strong gains. The market sentiment remains firm on higher advance tax payment by most Indian firms and on sustained buying by foreign funds. Trading of S&P CNX Nifty on the Singapore stock exchange indicated that the Nifty could gain 58 points at the opening bell.



In a major decision, the government has ended the row over Ulip by promulgating an ordinance on Friday, 18 June 2010, stating that unit linked insurance policies with investment component are insurance products which will come under the regulatory jurisdiction of the Insurance Regulatory & Development Authority (Irda) and not the Securities & Exchange Board of India (Sebi). It amended four Acts to make it clear that Ulips are not securities and they did not form part of collective investment schemes or mutual funds.

These amendments nullify Sebi's April 9 ban on 14 insurance companies from issuing Ulips because they are made effective retrospectively from that date. While making it amply clear that Sebi has no regulatory jurisdiction over Ulips, the government has also ensured that Sebi or any other regulator will not step into the jurisdiction of other hybrid products.

Significantly, the ordinance has not only lifted the uncertainty that affected sale of Ulips but has also brought relief to thousands of unit holders who were worried about their investments ever since the turf war broke out between the regulators two months ago.

Asian stock markets powered higher Monday, 21 June 2010, after the People's Bank of China signaled over the weekend that it would end the yuan's de-facto peg to the US dollar. The Shanghai Composite index was up 0.57% and Hong Kong's Hang Seng was up 2.55%. The key benchmark indices in Japan, South Korea, Indonesia, Taiwan and Singapore were up by 1% to 1.7%.

Over the weekend, China's central bank announced plans to loosen the yuan's de-facto peg to the greenback. It also ruled out a one-time revaluation and said any strengthening of its currency would be gradual.

Energy shares led gains in US stocks on Friday, 18 June 2010, as crude oil ended above $77 a barrel. The Dow Jones industrial average gained 16.47 points, or 0.16%, to 10,450.64. The Standard & Poor's 500 rose 1.47 points, or 0.13%, to 1,117.51. The Nasdaq Composite Index added 2.64 points, or 0.11%, to 2,309.80. Equities fluctuated for much of the day's trading as the expiration of futures and options contracts on indexes and individual stocks added to price swings.

Back home, most Indian firms including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.

The progress of the monsoon will be keenly watched. Annual monsoon rains were 8% below normal in the week to 16 June 2010, the India Meteorological Department (IMD) said on 17 June 2010. The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The south-west monsoon usually covers the entire country by mid-July. The weather office late April 2010 said rainfall is likely to be 98% of the long-term average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Global rating agency Fitch recently raised India's local currency rating outlook to stable from negative as the rating agency forecast a decline in government debt to GDP ratio to 80% by March 2011 from 83% at the end of March 2010. It also upgraded India's growth forecast to 8.5% in the year to March 2011 from earlier forecast of 7% growth.

Reliance Industries may extend Friday's losses as Chairman Mukesh Ambani did not unveil specific plans of the company's diversification into power sector at the company's annual general meeting (AGM) in Mumbai on Friday, 18 June 2010. Shares of Anil Dhirubhai Ambani group (ADAG) may also extend Friday's losses as Mukesh Ambani's younger brother Anil failed to attend RIL's AGM, damping speculation the two brothers would put a public end to a five-year feud and signal cooperation.

It may be recalled that the two Ambani brothers -- Mukesh and Anil on 23 May 2010 had agreed to cancel all existing non-compete pacts, which the groups had signed in 2006. This allows them to enter areas of businesses hitherto barred for each other.

Reliance Industries and ADAG stocks led losses on bourses on Friday, 18 June 2010. The BSE 30-share Sensex was down 45.87 points or 0.26% to 17,570.82.

The market has staged a strong rebound recently on a successful Spanish bond auction, heavy buying by foreign funds and robust advance tax figures reported by top corporates for Q1 June 2010. The Sensex jumped 999.59 points or 6.01% in seven trading sessions to 17,616.69 on Thursday 17 June 2010 from 16,617.10 on 8 June 2010.

Foreign funds bought shares worth a net Rs 779.31 crore on Friday, 18 June 2010, as per the provisional data from the stock exchanges. Domestic funds offloaded shares worth a net Rs 499.76 crore.

Foreign funds bought equities worth a net Rs 4029.36 crore in seven trading sessions from 10 June 2010 to 18 June 2010, as per data from the stock exchanges. The net inflow totaled Rs 2940.67 crore in June 2010 so far (till 18 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 1451.67 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.

Emerging-market equity funds received the second-largest net inflows this year in the week to 16 June 2010, according to the latest data from global fund tracker EPFR Global. Emerging equities funds got $2.5 billion, while emerging bond funds received $659 million in the week ended 16 June 2010.