Controversy over Ulips to hit stocks

A spat between two regulators on oversight of unit linked insurance products or Ulips will cast its shadow on the bourses today, 12 April 2010. A large chunk of funds raised through Ulips are invested in equities. On the macro front, the government will today announce the industrial output data for the month of March 2010.

The battle between the two regulators -- insurance regulator the Insurance Regulatory and Development Authority of India (Irda) and stock market regulator Securities and Exchange Board of India came out into the open late last week after Sebi barred 14 insurance firms from selling Ulip without its approval. The Sebi order was issued after trading hours on Friday, 9 April 2010.

But the next day the Irda told the insurance firms to continue selling Ulips. Ulips are products similar to mutual funds with an added life cover.

Media reports suggest that the government may be compelled to intervene to resolve the impasse considering that some insurers are considering approaching the court following the Sebi diktat and also taking into account the fact that the sovereign is the guarantor of every policy sold by the country's biggest insurer, the state-owned Life Insurance Corporation of India.

Asian stocks were mostly higher on Monday, boosted by news the European Union had agreed on Sunday to details of a rescue package if the Greek government needs one. The key benchmark indices in China, Hong Kong, Japan, Indonesia, Singapore and Taiwan rose by between 0.08% to 1.12%. But, South Korea's Kospi fell 0.49%.

The Bank of Korea raised its economic growth expectations Monday to a rise of 5.2% in 2010, compared to the central bank's anticipated 4.6% expansion tipped in December.

US stocks rose on Friday with the Dow surpassing 11,000 for the first time in a year-and-a-half after Chevron's upbeat outlook and wholesale inventories data reinforced bets on an improving economy. The Dow briefly surpassed the psychologically important 11,000 mark late in the session for the first time since September 2008, when Wall Street was reeling from the credit meltdown, though the index closed a shade below that milestone.

Data showed US wholesale inventories rose more than expected in February and sales at wholesalers reached their highest level in 16 months, brightening prospects for first-quarter economic and earnings growth. The Dow Jones industrial average gained 70.28 points, or 0.64%, to end at 10,997.35. The Standard & Poor's 500 Index rose 7.93 points, or 0.67%, to 1,194.37. The Nasdaq Composite Index added 17.24 points, or 0.71%, to 2,454.05.

Euro zone finance ministers approved a giant 30-billion-euro ($40.12 billion) emergency aid mechanism for debt-plagued Greece on Sunday but stressed Greece had not requested the plan be activated yet. Together with at least 10 billion euros expected from the International Monetary Fund in the first year, it could add up to the biggest multilateral financial rescue ever attempted.

Expectations of good fourth quarter result by India Inc and heavy foreign fund inflows boosted the domestic bourses in the past few weeks with the key benchmark indices surging to their highest level in more than 25 months on Wednesday, 7 April 2010.

The market is entering an important period of quarterly earnings, with IT bellwether Infosys kickstarting the reporting season on Tuesday, 13 April 2010. The Q4 March 2010 results and management commentary on outlook could result in revision in earnings estimates of India Inc by analysts for the year ending March 2011 (FY 2011).

The forecast for the southwest monsoon for 2010 is the next major trigger for the market. Good rains this year after last year's drought will boost farm output and rural incomes. But another monsoon failure will add to inflationary pressure which in turn may hamper the current strong economic rebound. The June-September monsoon season 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.

Tokyo-based Research Institute for Global Change has predicted normal monsoon rains in India for the current year. Agriculture secretary P K Basu said in a media interview on Monday, 5 April 2010, that early signs indicate normal monsoon rains this year. The Indian Meteorological Department (IMD) issues a monsoon forecast, usually in the second half of April after considering weather observations in different parts of the world and extrapolating statistical data.

A weakening El Nino is a positive sign for the monsoon, Ajit Tyagi, director general at the India Meteorological Department, said on 18 March 2010. The cyclical heating of the Pacific Ocean known as El Nino will continue to fade, US forecasters said last month. The weather event, which occurs every four to seven years, brings more rain to South America and less precipitation to Asia.

But abnormally hot weather and lower than expected rains are reportedly raising the spectre of India facing another water shortage in the coming kharif season, reports suggest. Rains were 66% lower than normal in March.

The key benchmark indices recouped most of the previous day's losses on Friday 9 April 2010 as world stocks rose on strong US retail sales data. The BSE 30-share Sensex rose 218.74 points or 1.23% to 17,933.14.

As per provisional figures on NSE, foreign funds bought shares worth Rs 233.09 crore and domestic funds sold shares worth Rs 66.46 crore on Friday.