The Sensex hit a fresh 32-week high and is expected to top 20,000 next week, fueled by abundant foreign fund inflows over the past six months. Foreign investors have been the primary drivers of the stock rally, buying Indian stocks for their growth potential compared to weaker growth in Western economies. However, some warn the market is moving too fast and propelled by foreign money, making it vulnerable to corrections if foreign flows disrupt. Meanwhile, private employee provident fund trusts are finding it difficult to match the 9.5% return announced by the government-run EPFO trust, as private trusts do not have the same windfall gains and will face shortfalls, requiring companies to contribute more.

1. FII rally may propel Sensex towards 20K MUMBAI: Indian stocks rose to a fresh 32-week high on Friday, fuelling expectations of the benchmark Sensex topping the 20,000 mark as early as next week on the back of abundant foreign fund inflows. The Sensex had last touched the 20,000 mark over 32 months ago in January 2008, well before the start of the worst financial crisis that year marked by the collapse of storied- investment bank Lehman Brothers. Over the last six months, foreign investors have been the primary drivers of the rally, buying at every given opportunity while local institutional investors, including mutual funds, have been offloading shares.

2. Cont……. Provisional data on the websites of stock exchanges show that foreign funds have bought shares worth close to Rs 1,500 crore on a net basis on Friday alone. Dealers at foreign broking houses say a sizeable chunk of the money is coming through exchange-traded funds, which some view as hot money. The 30-share Sensex hit a high of 19,639.18 intra-day, before settling at 19,594.75, up 177.26 points over Thursday’s close. The 50-share Nifty closed at 5,884.95, up 56.25 points, or 1%, over the previous close. Stock markets not just in India but also in other parts of Asia, including Sri Lanka and Pakistan, have been going up, taking a lead from Wall Street.

3. Cont……. Foreign funds have been buying into Indian stocks given the growth potential in an economy that is projected to grow at over 8.5% this fiscal, rather than investing in other major economies in the West where growth is faltering. “The fundamentals of the economy are strong, but the market is going a bit too fast, fuelled by foreign money,” said Nirmal Jain, chairman and managing director, IIFL. Mr Jain has a word of caution for those buying and selling shares. “Any event that could disrupt foreign fund flows could trigger a sharp correction and investors should brace for a choppy ride in the short term,” he warned.

4. Cont……. Investors, however, continue to place faith in second-line stocks, pushing up the BSE Midcap index by 1.4%. This despite the fact that many brokers have advised their clients to pare exposure to mid- and small-cap shares in a rapidly rising market, since these stocks take a steep hit when the market corrects. There is a feeling of euphoria when you look at the rise in the last three weeks. But on a calendar basis, the market is up 12-13%, which is not much,” said Rashesh Shah, CMD, Edelweiss Capital. Brokers say valuations are not exorbitant when compared to those at the peak of the bull run in early January 2008, when the Sensex was trading over 25 times one-year forward earnings. Yet the spate of share issuances by companies is a cause of worry, they say.

5. 9.5% on PF? Private trusts cry foul NEW DELHI: The private trusts, which manage employees provident fund (EPF) schemes, are finding it difficult to match 9.5% return that government-run trust has offered to give employees under its umbrella for 2010-11

6. Cont……. According to the EPF regulation, private trusts are bound to match the return offered by the government trust. The Employees Provident Fund Organisation (EPFO) on Wednesday announced a 9.5% return for 2010-11 on the back of discovery of a hidden surplus of Rs 1,731.52 crore. The organization was giving a return of 8.5% for the last five years. Such a huge surplus was accumulated over a long period of time due to some miscalculation in accounts. So, EPFO may not able to offer this kind of return in 2011-12. Most of the large companies manage their employees provident funds through their own trusts, instead of contributing to EPFO-managed fund pool.

7. Cont……. pool. These trusts are complaining that they do not have such windfall gain as it happened in case of the EPFO trust and they will face shortfalls in incomes to give 9.5% returns. Finance director of a private sector company said, it will have to contribute from its own resources to match 9.5% return. Kulin Patel, head of employees benefits practice of a global retirement benefit consultancy firm Towers Watson, India, said a number of companies have approached him to find out shortfalls in their books of trusts to give 9.5% return. Patel said almost 60% of the companies are facing shortfalls . So, they need to pay from their pockets to fill the gaps. Patel said reduction in the interest rates on government securities in the last 10 years has led to this shortfall. Earlier, the government securities used to offer a return of 12%. As EPF trusts are not allowed to trade in government securities, they kept these high-yield instruments.

8. Cont……. This kept their average returns high. Now most of those highyield securities are maturing and trusts are forced to invest in securities offering interest rates in the range of 7% to 8%. So, going forward, EPF trusts will find it difficult to give even 8.5% return on funds they are managing. It is learnt that most of the trusts are going to appeal to the finance ministry, which is yet to approve the EPFO’s proposal to give 9.5% return. However, it is unlikely that finance ministry will scrap such a popular decision, considering the fact that it does not have to contribute any money. An official said when government-appointed trust found that in the last around fifty years, it earned more than it had distributed, why the private trusts, which call them more efficient, do not have similar experiences.

9. Cont……. The private companies volunteered to run their own trusts, claiming that they would give higher returns compared to the government trust. “They started their operation with this premise only. They should keep it,” said the official. Taking A HitEPFO promised 9.5% return for 2010-11 on the back of discovery of a hidden surplus of Rs 1,731.52 crore. The organization was giving a return of 8.5% for the last five years Private

10. Cont……. trusts are complaining that they do not have such windfall gain as it happened in case of EPFO and they will face shortfalls in incomes to give 9.5% returns. Companies need to pay from their pockets to fill the gap