Day Update 21st June 2010

The Indian markets have opened positive today mainly on 2 events over the weekend.

1. Resolution of the ULIP dispute between SEBI and IRDA which went in favour of IRDA. Govt said it would categorize the hybrid product under regulatory aegis of IRDA. This move may attract greater interest in such schemes as this is a major source of inflows into equities.

SEBI had argued that since 99% of the ULIPs inflows go into investment and only 1% towards insurance it should fall under the regulatory radar of SEBI.

Insurance companies pay up to 40% of 1st premium as commission on a long term policy. However mutual funds can no more charge entry loads. This made SEBI issue a ban on ULIPs which were very similar to the mutual fund products. However ULIPs constituted 68% of the total premium (1.15 lac crore) collected the last year. So any adverse decision would have negatively affected the Inflows in the equity market and Govts. long drawn disinvestment plans with Insurance companies ( read LIC) providing a saving grace would have been crippled making the divestment process tepid. Compare this to the Equity mutual fund inflows the last year, which stood at 595 cr. ( highly minuscule in comparison to ULIPS). This is the reason why the verdict went in favor of IRDA.

2. The second news which reached the market was China announcing its scrapping the artificial peg of Yuan with Dollar. This has been received positively across the world. Indian markets have received it positively as it makes India's competitiveness improves in the world market vis-a-vis China. I believe this has been particularly done to appease US ahead of G20 meet as it had been pressurizing China to free it currency. I dont expect a major move as China still holds majority of its reserves in USD. Any appreciation would negatively impact its currencies. Also the local Industries may suffer largely as appreciation would compromise China's competitiveness in the World market and may lead to closure of Industries in China. But the announcement has however pacified the US and European nations by averting any proposal to call China as a "Currency Manipulator" and any legislative action against it by increasing the tariffs and trade barriers.

I expect the market seem to be following an uptrend however i would like to go cautious and book profits at levels. Stock specifically i would take exposure in Bharti, Tata Steel, Sterlite, Reliance and Power Grid. These stocks are currently trading at 266, 490, 180, 1065 and 102.90 respectively.