Pensions get a regulator
The passage of the Pension Bill has granted the Pension Fund Regulatory and Development Authority (PFRDA) official status as the regulator of pensions for the country. That is good news for new government employees whose pension proceeds have been invested in the new pension scheme in recent years. It is also good news for private sector employees who have put faith in the New Pension Scheme. The PFRDA now has the requisite authority to issue rules and guidelines to regulate the fund managers who manage this money. With the passage of this Bill, fund managers can now offer an additional minimum assured returns scheme to their subscribers. Withdrawals will be permitted from the individual pension account subject to the conditions, such as purpose, frequency and limits, as may be specified by the regulations.
Households to benefit
In his introductory speech, the Governor announced slew of initiatives such as facilitating withdrawals from balances in prepaid cards, electronic and mobile bill payment facilities and setting up of mini ATMs by non-bank entities among others.
Allowing customers to withdraw money from the outstanding balances in their prepaid cards will help people living in remote areas meet their cash needs. The RBI will conduct a pilot enabling cash payments on such prepaid cards using Aadhaar for certification.
Under the electronic bill payment system, households can use bank accounts to pay school fees, utilities bills, medical bills and money transfers. This will enable public make payments anytime anywhere. Given the rising mobile phone penetration in India, the RBI is keen on getting banks and mobile service providers to roll out mobile based payment facilities. It intends to set up a technical committee to explore the feasibility of developing an application for encrypted SMS based payments that will run on any mobile handset.
New inflation hedge
To provide retail investors a real hedge against inflation, the RBI has proposed issue of inflation indexed certificates, linked to the CPI (consumer price index). The RBI, earlier in June, had issued inflation indexed bonds, linking returns to the WPI (wholesale price) index. However the gap between WPI and CPI continued to widen. This rendered WPI linked bonds unattractive for investors. This has now been addressed with the new CPI linked certificates. The first issue is expected to open by end November 2013.
Earnings downgrades continue
Even as markets recovered by over 3 per cent, foreign brokerages have downgraded expected earnings for companies making up the country’s bellwether index - Sensex. Weak rupee, lull in economic activity and high interest rates are expected to reduce growth over the next two years.
Morgan Stanley has reduced its Sensex profit growth estimates for the fiscal year 2014 and 2015 by over 6 percentage points. Their revised twelve-month target for the Sensex stands at 18,200, implying a 5.5 per cent fall from its current levels.
Bank of America Merrill Lynch also said that it expected Sensex earnings to remain at Rs 1260 in FY14, 4 per cent lower than their earlier estimate of Rs 1315. It also added that with five stocks – ONGC, HDFC Bank, ICICI Bank, SBI and Tata Steel, accounting for nearly half the profit growth, the concentration risk has increased now. Earlier in the month Goldman Sachs slashed its index targets for March 2014 citing growth challenges across sectors and upward pressure on interest rates.
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