Indian Indices Trade Positively

Wed, 21 Sep 11:30 am

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After opening the day marginally higher, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the telecom and consumer durables sectors leading the gains.

The BSE Sensex is trading up 139 points (up 0.5%) and the NSE Nifty is trading up 45 points (up 0.5%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up 0.8%. The rupee is trading at 67.06 to the US$.

The Bank of Japan (BoJ), in its monetary policy, kept its policy balance rate unchanged at minus 0.1%. However, the it issued a plethora of changes to its policy approach. The bank said it would introduce quantitative and qualitative monetary easing (QQE). These measures under the new policy framework will be done with a newly introduced tool to control the yield curve.

The bank further announced it would expand monetary base until inflation gets stable above 2%. The BOJ eliminated the maturity range for its Japan government bond purchases and it abandoned its target to increase the monetary base by 800 billion yen a year. However, the central bank said it currently plans to keep buying bonds so that the balance of its holdings increase by that amount.

BoJ Governor Haruhiko Kuroda said the bank would start fixed rate purchase operations worth 800 billion yen. The bank will buy Japanese government bonds (JGBs) so that 10-year yields remain around the current level. The bank has scrapped average maturity target of JGB holdings. It will buy 2.7 trillion yen of ETFs that track Topix. The maximum amount of each ETF buys will be in line with their total market value.

It has also promised a comprehensive assessment of its QQE and negative interest rate policies. Last month BOJ governor Haruhiko Kuroda said the central bank will not rule out deepening the negative rates it introduced in February. In other words, the BOJ's negative rate policy has not reached its limit. He further stated that the BOJ would consider changing its massive 80-trillion yen per year asset-purchase plan once the comprehensive assessment of its monetary policies is out in September.

The BOJ first introduced negative interest rates early this year. It stunned markets in January when it set a minus 0.1% rate on some deposits that banks place at the central bank. The move was introduced on hopes that it would encourage banks to lend more and thereby spur spending and inflation. However, there has been no sign of this working yet.

Along with the BoJ, the monetary policies and low interest rates by other central banks have flooded the world with helicopter money - the newly created money by central banks of the developed world. And this isn't something new. The central banks have been at it since the global financial crisis of 2008. The concern is that global financial markets are now highly dependent on central bank behavior.

What one should understand is that in most cases these monetary stimulus programmes are doomed to fail. To really stimulate growth in the economy, what is needed is an actual increase in productivity rather than artificial boost through monetary policy measures.

This begs an important question: How can one avoid this volatility and profit despite such measures of central banks?

Asad Dossani, editor of Daily Profit Hunter, says Don't Fight Easy Money. He has written on how one can successfully trade such events and build a trading business.

If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book Hormegeddon (only pay Rs 199 for shipping and handling).

Moving on to the news from the IPO space in the domestic markets... The mega IPO of ICICI Prudential Life Insurance attracted bids for 68.7 million shares on the second day of the bidding process. As per a leading financial daily, data compiled from the BSE and the NSE showed 51.48% of the issue size of 132.4 million shares was subscribed to by 5 pm on Tuesday. Retail investors bid for 3.72 crore shares, which was 65.29% of the quota limit of 57.1 million shares. The quota for non-institutional investors was subscribed by upto 14.8%, while that of qualified institutional buyers (QIBs) was subscribed by upto 59.6%.

The IPO is the biggest IPOs since Coal India's stake sale in October 2010. It is also the first pure play insurance company in India. ICICI Bank will be raising Rs 60 billion by selling a stake in its subsidiary ICICI Prudential Life Insurance Company. The bank has valued the insurer at Rs 480 billion.

Here's Tanushree Banerjee, Equitymaster Co-Head of Research, writing about the IPO in a recent edition of the Research Digest (subscription required):

• The IPO of ICICI Life Insurance not only has the lure if being a billion-dollar issue. But it will also be the first pure-play insurance company to be listed in India.
  
  Now, if you've seen the financial statements of banks and non-banking financial institutions, beware that insurance is a different animal altogether. What constitutes impressive financials and a strong balance sheet for insurance companies differs quite a bit from other financial entities.
  
  Valuing insurance businesses is going to be a novel experience indeed.

The insurer's parent ICICI Bank will be selling a 12.36% stake with this IPO. The issue will remain open until Wednesday. To know our view on the IPO, you can visit our IPO Buzz section (subscription required).

Recently, there is a flood of Initial Public Offer's (IPO) hitting the market. Confused as to which ones to apply and which ones to avoid?

Last week we promised you a special handbook on IPO investing. The wait is finally over. Without further ado, we would like to present Equitymaster's Handbook of IPO Investing (with special focus on never before Insurance IPOs). Click here to get your free copy right away...

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