THE DAILY ECONOMIC UPDATE

21 June, 2010

Top stories
1. ULIPS TO BE REGULATED BY IRDA: president pratibha patil has signed an ordinance ending the Ulips turf war. The ordinance clearly states that IRDA would now be regulating Ulips nixing claims from the rival regulator sebi. This ordinance will necessitate amends to be made in the insurance act to include Ulips in life insurance business and securities contract (regulations) act making it clear that ‘securities ‘will not include Ulips. Ulips scheme will now be revamped with lock-in period to be increased from three to five years and also making it mandatory for the insurers to offer a life cover, health cover or an annuity plan along with life cover.
2. MFS CUT SHADY DEALS WITH BANKS TO CUT LOSSES: mutual funds are resorting to unauthorized dealing with banks to cut losses and finance redemption. A few fund houses have cut ready forward transactions where a security is sold and then bought back at a pre- decided price off the market rates with banks and a few finance companies (aka repo deals). This started soon after the mutual funds sensed a liquidity crunch after telecom companies started pulling out money from debt schemes to finance payments for 3g spectrum. Funds chose to meet redemptions via repo deals rather than selling securities and borrowing from banks in order to save the asset value of the schemes hoping that markets will recover.
3. MUKESH AMBANI IS THE MAN TO WATCH OUT FOR: the seeming end of the self defeating sibling rivalry between the ambani bros is now creating nervousness among the competitors with many of them rethinking their decision to enter businesses like power and telecom. After the tearing of the non- compete pacts, the elder brother quickly announced his plans to enter the power sector and has already bought infotel broadband wireless spectrum to mark the entry in the telecom sector. What bother the competitors most is, RIL‘s ability to sweep off the competition & the tweak the laws in its favor.
4. HIGHER TAX EXEMTION LIKELY FOR TRAXPAYERS UNDER Direct Tax Code: individual tax payers are sure to get some relief with the Direct Tax Code prescribing a higher exemption limit. The existing limit of rs. 160000 for individual would be upped by rs. 40000 saving taxes by up to rs.4120.
5. IDFC TO BRING GLOBAL PARTNER ABOARD FOR AMC: IDBI plans to rope in a global fund manager as strategic partner in its asset management company to bolster the business at the time of turmoil in the mutual fund industry. The management says that they will need the support to manage the fund or advise foreign flow funds into Indian equity markets. The management gives no further details on the issue.