MFs face corporate redemptions: Bhave

Sebi chief says no systemic risks, rules out ban on short-selling.

Mutual funds are facing heavy redemptions as companies have been withdrawing money in recent months.

Confirming this, Securities and Exchange Board of India (Sebi) Chairman C B Bhave told Business Standard, “we have received information about redemptions by companies and are collecting the data. We will study the problem in details.”

Bhave, however, said the Reserve Bank of India’s decision to release Rs 60,000 crore into the system by reducing CRR should provide some relief.

Commenting on the current market situation, Bhave said the stock exchanges have told the regulator that settlements went through smoothly and there is no payment crisis. He said the system is working quite well.

Bhave said there are no systemic risks and settlements have been completed smoothly. There are no problems related to margin payments from brokers as well.

“The integrity of the system is intact and we are keeping a close watch on that,” he said. According to official information available from NSE, it has more than Rs 40, 000 crore as trade guarantee fund (Rs 4,767.60 crore in the cash segment) and (Rs 36,972.70 crore) as on March 31, 2008.

The Sebi chairman said there is no proposal to ban short selling in the Indian market. Banning shorts in derivative means closing derivatives trade, he said.

Short selling means selling shares without possessing them. Internationally, investors were borrowing shares from other investors to sell them. This was disallowed by some of the countries to support steeply falling markets.

In India, short selling was allowed a few months ago but the mechanism has not been used in the market because the norms for such short selling are not considered market-friendly. Investors, especially individual investors, can do intra-day short selling, that is first selling and covering them before the close of the market on the same day.

When asked if the permission to issue P-notes for derivative transactions may be used for short selling in the F&O segment, he said even when FIIs were not allowed issue of P-notes in derivatives, they were selling the Nifty index on the Singapore Exchange platform.

Is India’s strong enough to weather the storm in the world financial market

The global economic crisis has come to India. Share markets are down; industrial production is down and the mood among businesses and investors is down.

The Prime Minister, Finance Minister and the RBI Governor have repeated said India’s economy strong enough to weather the storm in the world financial market and it’s banks have enough money.“The fundamentals of the Indian economy have been strong and continue to be strong. The Indian banking system is sound, well capitalised and well regulated,” said RBI Governor D Subbarao yet again on Friday night.

Is India’s strong enough to weather the storm in the world financial market? Is your money safe? A CNN-IBN show hosted by Karma Paljor discussed this on Friday with CNBC-TV18’s Banking Editor Latha Venkatesh, leading market expert S P Tulsian, who is the CEO of www.sptulsian.com, and Rajiv Bajaj, MD of Bajaj Capital.

If a bank goes bust

Delhi resident Deven Mehta wanted to know what would happen to his money in savings account if his bank were declared bankrupt? “Is it true that the amount of Rs 1,00,000 is insured in the savings account of any bank?” he asked.

“Yes, an amount of Rs 1,00,000 is insured for every depositor. The rules of Indian commercial banks are such that they render depositors safe,” said Venkatesh.

“For every Rs 100 a bank collects as deposit, Rs 25 will have to be kept with the government as bonds. Governments cannot default, so Rs 25 is anyway safe. Another 8.5 per cent cash should be kept with the RBI, so that is safe again. Besides these there are other safeguards in the banking system.”

“Lehman Brothers lent 40 times its capital as loans and Goldman Sachs lent 27 times it capital but India is nowhere near that kind of cowboy lending,” said Venkatesh.

Safest bank?

As Indians feared for their deposits, the talk on the street was that public sector banks were safer. Is this true?

“Every institution should not be seen in the same light anymore. One should rate the credit-worthiness of an institution and even banks are subject to credit ratings. One should see the credit-worthiness of a bank and not whether it is public or private. I would keep my money in a Triple-A rated institution,” said Bajaj.

Should Indians withdraw their money from British banks? Is it the Indian government which guarantees savings in foreign banks?

Venkatesh’s advice was not to be scared, as the British government was doing its utmost to help its banks. “The British government has gone all out to reassure its banks in a big way. I assume that that assurance applies to branches in India. I think a scare (about British banks) is uncalled for. British banks is an umbrella term, one would have to refer to individual banks,” she said.

Staying invested

Bangalore resident Rakesh Kumar invested in the markets when the Sensex was at 20,000. “I can afford to remain invested for the next three years. Is my money safe or should I sell bearing a huge loss?” he asked.

Tulsian’s advice was: if you are an investor you must hold and if you are a trader you must sell. Now is a good time for people who have funds and are waiting to invest in shares.

Stocks of PSU banks, sugar stocks, pharmaceutical and FMCG companies look good for investment, he said.

It always the right time to invest—investors right now have to decide whether they want to preserve their money or use it to buy stocks which are normally unaffordable, said Bajaj.

“If I want to play safe I would probably put my money in gold mutual funds, which is a very good instrument to invest in this uncertain period,” said Bajaj.

Invest in equity funds and choose a large fund management house, which has lots off assets under management and a track record of at least 5-10 years. “Choose a large-cap and diversified fund. Whenever the market recovers, large and frontline companies will go up first, so invest in a large-cap fund,” said Bajaj.

Wait, watch and invest cautiously was the advice of the experts.

Source: http://www.chiragmehta.info/chirag/2008/10/11/is-india’s-strong-enough-to-weather-the-storm-in-the-world-financial-market/

Warren Buffett's Reassuring Words On the Future

As the stock market's wild moves downward have average investor worried about their financial futures & looking for leadership, it's important to keep Warren Buffett's reassuring words about the long-run in mind. Here's what he said live on CNBC just a few weeks ago:

"You know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary (stock market) buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well."

Just don't borrow money to buy your piece.

Warren Buffett's Three Rules for Investing In a Crisis

1. "Cash combined with courage in a crisis is priceless"
 
2. "Dont invest in things you don't understand"
 
3. "Don't try to catch a falling knife until you have a handle on the risk"