With effect from Jan 1st 2020, Sebi has asked Registered Investment Advisors to do proper risk profiling of clients and obtain their consent on the same before providing any advice. The regulator also restrained investment advisers from providing a free trial for any product and service.

From January 2020, as mandated by the Securities Exchange Board of India, retail investors will have to maintain deposit money with their stockbrokers to buy or sell shares. Institutional investors have been exempted from this rule.

The Securities and Exchange Board of India (SEBI) intends to make pre-trade allocations during an initial public offering (IPO) mandatory for all institutional investors. This would mean that the regulator wants to eliminate the arbitrage play that mutual fund (MF) houses deploy during an IPO to benefit one scheme over another. There has been reporting on some AMC’s giving preference to its flagship schemes which account for most of the investment inflows.

SEBI is expected to enhance the definition of large-cap stocks for mutual funds' investments from the top 100 companies in terms of market capitalisation to the top 150. Similarly, the mid-cap stocks list would now range from 151 to 300, and the remaining stocks would be classified as small-caps.

The RBI has increased the aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, to Rs.50 lakh. The lender investing more than Rs.10 lakh across P2P platforms will have to produce a certificate to P2P platforms from a practising Chartered Accountant certifying minimum net-worth of Rs.50 Lakh.

The government left rates on the Small Savings Scheme undisturbed for the fourth quarter of FY20 starting January 1 and ending on March 31. These schemes include National Saving Schemes (NSS), Public Provident Fund (PPF) and Kisan Vikas Patra (KVP) beside post office saving schemes. The latest move was contrary to widespread expectations of an interest rate cut as the RBI had also been urging the government to reduce interest rates on small savings schemes.

AROGYA SANJEEVANI POLICY

Insurance Regulator, IRDAI has issued guidelines on standard individual health insurance to be launched by general and health insurers that can take care of basic health needs of customers with a maximum sum insured of Rs.5 lakh and a minimum of Rs.1 lakh. The product will be named as Arogya Sanjeevani Policy, succeeded by the name of the insurance company. The standard product should have the basic mandatory covers, no add-ons or optional covers are allowed to be offered along with the standard product.

The mandatory covers under the standard health product include hospitalisation expenses, other expenses such as cataract subject to sub-limits, dental treatment and plastic surgery that have been necessitated due to disease or injury, all daycare treatments and expenses on road ambulance subject to a maximum of Rs.2,000 per hospitalisation.

It should also include expenses incurred on hospitalisation under AYUSH treatment, pre-hospitalisation expenses incurred for a period of 30 days prior to the date of hospitalisation, post-hospitalisation expenses for a period of 60 days from the date of discharge from hospital. 

With respect to cumulative bonus, Irdai said sum insured (excluding the bonus) should be increased by 5 per cent for each claim-free policy year, subject to the condition, the policy is renewed without a break subject to 50% of sum assured max. The standard product shall be offered on family floater basis also and it should not be combined with critical illness covers or benefit based covers. Irdai has fixed the minimum entry age as 18 and maximum as 65 years and said the policy is subject to lifelong renewability.

The standard product shall comply with portability provisions and the premium under this product shall be the same on a pan India basis. IRDAI said that all general and health insurers should start offering this product from April 1, 2020.

HEALTH INSURANCE FEATURES POST 2019

IRDAI has brought certain amendments to the provisions of the Health Regulations.

The Insurance Regulatory and Development Authority of India (IRDAI) has recently allowed policyholders to choose a TPA of their choice while buying or renewing health insurance coverage.

Changes in the definition of pre-existing diseases (PED) – Under the new regulations, insurer cannot reject a claim filed for a particular disease if the insured had merely shown signs or symptoms for that disease during the pre-existing disease waiting period and can only be rejected under the pre-existing clause on prior diagnosis or specific treatment.

Irdai has made it mandatory to include mental illnesses and several other health issues in all regular health insurance coverage. The regulator has also made it clear that insurers cannot deny coverage to policyholders who have previously used opioids or anti-depressants and have a history of clinical depression, personality or neurodegenerative disorders, sociopathy and psychopathy.

Age-related ailments like knee-cap replacements, cataract surgery, Alzheimer’s and Parkinson’s, etc., which were earlier excluded will now be covered by the insurance company.

The regulations have introduced the concept of an eight-year look-back period wherein if the policy is renewed until 8 years, a genuine medical claim cannot be rejected for any reason.

NATIONAL INFRASTRUCTURE PIPELINE

The Government laid out an ambitious, Rs.102-lakh crore 5-year infrastructure development plan across 22 sectors and 18 States & Union Territories — with the principal focus on roads, housing and urban development, railways, power and irrigation.

The Finance Minister has said that there will be “flexibility” in dropping a project and picking up a new one. Of the CAPEX to be undertaken for the infra sector, the Centre and the States will contribute an equal share of 39%, with the private sector adding the remaining 22%. The Centre expects the private sector’s share to go up to 30% by 2025. Under the National Infrastructure Pipeline, Rs 7.7 lakh crore would be allocated to irrigation projects and rural infrastructure projects each. Rs. 3.07 lakh crore will be spent on industrial infrastructure, with the rest allocated to agriculture and social infrastructures such as roads and railway projects.

RBI’S OPERATION TWIST

Operation Twist is the name given to a monetary policy tool that the US Federal Reserve had initiated to influence the prevailing interest rate in the markets. The tool essentially aims at changing the shape of the yield curve through simultaneous buying of long term bonds (reducing yield at the long end of the curve) and selling of short-term government bonds (increasing the yield at the short end.

The RBI’s version of Operation Twist will include buying Rs.10,000 crores worth of 10-year government bonds while selling four shorter-term government bonds adding up to the same value. The intent is to moderate high long-term interest rates in the market and bring them closer to the repo rate.

Despite a cumulative reduction of 135 basis points in India’s policy repo rate since January 2019, banks have effected a decline of just 40-47 basis points in their weighted average lending rates in the same period. With the rising fiscal deficit, higher inflation and the RBI decision to pause repo rates, the 10-year G-sec yield rallied almost 35 basis points to 6.8% after the RBI meet on December 5.

The high yields on long-term government borrowings had led to banks pricing their retail loans at high rates. RBI would have to do a series of Operation Twist’s so that not only retail credit picks up, the government infrastructure projects can also be properly priced and attracts demand from investors.

DOMESTIC ECONOMY

The government may not be able to complete the privatization of Air India Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Container Corp. of India Ltd (Concor) by end of the current financial year. As part of the disinvestment roadmap, the government plans to privatize Air India by selling its 100% ownership, divest its entire 53.29% stake in BPCL and a 30.8% stake in Concor out of its current 54.8% stake. The government had set a budget target of Rs.1.05 trillion for FY20, of which it has managed to garner only Rs.17,364 crores so far. The IMF has estimated that India may miss the fiscal deficit target by at least 50 basis points.

The Current Account Deficit (value of goods and services imported fewer goods and services exported) in Q2 FY20 (June – Sep’ 2019) came down to $6.3 billion from $19 billion a year ago and from $14.2 billion in April-June 2019 quarter. The trade deficit in the reporting quarter came down to $38.1 billion from $50 billion a year ago. Net services receipts increased by 0.9 per cent on a year-on-year (y-o-y) basis. Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $21.9 billion. The net foreign direct investment was $7.4 billion while Foreign portfolio investment recorded a net inflow of $2.5 billion while Net inflow on account of external commercial borrowings to India was $3.2 billion. 

The Goods and Services Tax (GST) collections went above the Rs.1 trillion marks for the second consecutive month in December. The Central and state governments together collected Rs.1.03 trillion in December, 9% more than what was collected in December 2018. 

As per data till 24th December, toll collection via FASTags reached 46% on an All India Level after all toll lanes were converted to FASTag lanes by December 15th. The government is expecting that by the middle of January 2020, FASTags should account for 75-80% of total transactions at toll plazas. The relaxation on allowing 25% cash lanes at any toll plaza will end on January 15. While one hybrid lane will be allowed at every toll plaza to facilitate and monitor over-sized vehicles where FASTag and other modes of payment will be accepted, it will eventually be phased out. According to the National Highways Fee (Determination of Rates and Collection) Rules, 2008, lanes at toll plazas will be reserved exclusively for FASTag users. Non-FASTag users will be charged double the normal toll if they pass through FASTag lanes, according to the rules.

India’s total forest and tree cover stood at 80.73 million hectares, which is 24.56% of the geographical area of the country as per the Minister of Environment and Forests (MoEF). In previous 2017 assessment, it was 21.54%. 

COMPANY NEWS 

India’s vehicle scrappage policy, which is awaiting its final clearance from the Union Cabinet is likely to revive the commercial vehicle industry. The policy upon approval would result in a significant increase in the renewal of registration fees of vehicles older than 15 years. This is being done to discourage the use of older polluting vehicles, including passenger vehicles.

The National Company Law Appellate Tribunal (NCLAT) termed Mistry’s removal in October 2016 by Tata Sons as illegal and reinstated him as executive chairman and held the appointment of Mr N. Chandrasekaran as successor, illegal. The former was removed as chairman of Tata Sons in a surprise move on 24 October 2016. He was later also ousted as a director from the holding company’s board, followed by his removal from several operating companies in the group.

The Reserve Bank of India has asked Banks to cut holdings in their subsidiary insurance company to 30%, as the regulator wants banks to insulate their lending business from risks arising out of their non-banking businesses and focus on their core lending business to boost credit growth in the economy. The holding limit will be 50% for non-banking financial companies such as Housing Development Finance Corp. that have insurance units. While Banks want 5 years time to reduce their stake gradually, the RBI is likely to provide a timeframe of 3 years. 

The Federation of Automobile Dealers Associations (FADA) has appealed to the Supreme Court to allow dealers to sell and register the BS-IV vehicles that will be left unsold across the country after 31st March 2020. The apex court previously directed that no BS-IV emission norms complying motor vehicle shall be sold or registered in the entire country with effect from 1st April 2020.

International markets 

After a historic vote by the US House of Representatives to impeach President Trump on the issue of pressuring Ukraine to investigate former Vice President Joe Biden (a potential rival in the 2020 presidential election), the president will now face trial in the Senate. Conviction and removal of a president would require a two-thirds majority and at present, the Senate has 53 Republicans, 45 Democrats and two independents. In the unlikely event of the Senate convicting Trump, Vice President Mike Pence would become president for the remainder of Trump’s term, which ends on Jan. 20, 2021.

The Phase 1 trade deal between the US and China was finalized in December and is expected to be signed by the US and Chinese President on January 15. Chinese officials have yet to publicly commit to constraints like increasing imports of U.S. goods and services by $200 billion over two years. The United States Trade Representative said the Phase 1 deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

As per the DIW economic institute, Germany which is Europe's largest economy had contracted by 0.1% in the October-December period. The economy narrowly avoided recession in the third quarter, growing by 0.1% in the third quarter after contracting by 0.2% in the April-June period.