2017

Volume 1

THIS MONTH

Season’s Greetings to all our readers!

In this edition, we have Ms. R M Vishakha, Managing Director and CEO, IndiaFirst Life Insurance

Company, presenting her thoughts on Insurance industry in India focusing on Life insurance. Her

article elaborates on subjects like regulatory reforms, digitization, distribution channels, data

analytics and impact of wallets and e-transactions app on industry. We thank Ms. R M Vishakha

for her contribution to the APAS monthly.

For this month, APAS column has focused on Insurance Industry in India – Growth and Trends.

The article details the trends in Life, General and Health insurance in India. This edition also covers

the key highlights from budget 2017 in respect to the financial sector.

The economic indicators showed mixed performance. Manufacturing PMI fell to 49.6 in December

from 52.3 in November. India's core sector jumped by 5.6 % in December, 2016 as compared to

December, 2015. India's Index of Industrial Production (IIP) increased by 5.7% in November. PMI

services and composite PMI were respectively at 46.8 and 47.6 in December from 46.7 and 49.1

in the previous month. Inflation fell to 3.41% in December from 3.63% in November. WPI

inflation increased to 3.39% in December as compared to 3.15% in the previous month.

India Post Payments Bank has received license from the RBI to start operations. Also, the

government has amended Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 which was

announced in December.

APAS

MONTHLY

Insurance Regulatory and Development Authority of India (IRDAI) issued a notification on

distribution of other financial products by Insurance marketing firm. Also, IRDAI has released

report on Implementation of Ind AS in insurance sector.

On the infrastructure front we have, the approval from the Cabinet for the Memorandum of

Understanding (MoU) between India and United Arab Emirates (UAE) on institutional

cooperation in Maritime transport and on bilateral cooperation in the road transport and highways

sector.

This APAS Monthly also covers the amendment issued by SEBI for to the Portfolio managers

regulations, 1993, issues discussed in the 7th meeting of International advisory board of SEBI and

decisions made in SEBI board meeting.

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts, and

encourage you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Ms. R M Vishakha

Managing Director and CEO, IndiaFirst Life Insurance

Life Insurance in India – A Futuristic Road Ahead

APAS COLUMN

Indian Insurance Industry Economy Outlook

Budget 2017

ECONOMY

Index of Industrial Production – November

Inflation update – December

PMI update – December

Core Sector update – December

BANKING

India Post Payments Bank Received License for Operations

Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS),

2016 - Amendment

INSURANCE

Distribution of Other Financial Products by insurance

Marketing Firm

IRDAI (Implementation of Ind AS in Insurance Sector) (Report)

INFRASTRUCTURE

Approval of MoU between India and UAE on Institutional

Cooperation in Maritime Transport

Approval of MoU between India and UAE on Bilateral

Cooperation in the Road Transport and Highways Sector

CAPITAL MARKETS

Amendments to the SEBI (Portfolio Managers) Regulations,

1993

Seventh Meeting of the International Advisory Board of SEBI

SEBI Board Meeting

CAPITAL MARKET SNAPSHOT

ECONOMIC DATA SNAPSHOT

The Indian Insurance industry is on an upward trajectory. As per data released by the Insurance Regulatory

and Development Authority of India (IRDAI), the life insurance industry collected weighted new business

premium of INR 76,236.16 crore over the first two quarters of FY2016-17. A comparison of this

performance with the same period in FY2015-16 reflects a growth of over 35%.

Since privatization, the number of private insurers has grown manifolds, and the penetration of life

insurance alone is set to increase to 5% by 2020, from 1.5% in year 2000, when it all began.

The above influences paint a promising picture of potential for this domain in India. However, the typical

Indian consumer mind-set is that insurance is still sold, not bought.

An example, when PMJJBY was launched, it was hugely successful as it was monitored and pushed. In the

second year of the renewals were terrific, touching almost 90%, but there was no new business. These

instances drive home the blunt realities of fairly low volumes of people queuing up to buy insurance on

their own.

On the upside, the government is taking giant leaps towards a Digital-India to enable a more connected

rural & urban India. A steadily growing rate of mobile data users i.e., 71% users from Indian metropolises

and 29% rural users (as on March 2016) will uphold insurers’ endeavors of smartly building direct bridges

with the end-consumer. Add to this, a more aware Generation Y, set to make ours the world’s youngest

nation by 2021*.

These efforts complement the necessity to improve awareness levels and to make insurance products

easily available to deeper pockets and wider customer segments via cross-platform digital channels.

The year gone by

There were some historical breakthroughs in the industry in the year 2016, including merger of two large

insurance players, fall-out of joint ventures and the first ever IPO in the insurance space.

With the changes in industry regulations, in some cases shareholder agreements also appear to have

gotten challenged. Over the years, from product construct to the way a company is organized, lots has

changed, but the capital and solvency requirements continue to be the same, which should have been to

be upgraded.

Life Insurance in India: A

Futuristic Road Ahead

R M Vishakha, Managing Director & CEO, IndiaFirst

Life Insurance Company

The industry is yet to see the benefits of the FDI increase from 26% to 49%. While this move may have

provided huge opportunity to the Indian insurance industry, it may have resulted in different results, for

some players. Since, the regulation has had different impact on players in the industry across private

business houses & companies promoted by banks, each entity is going to respond to it, differently.

Forward-looking regulations

The regulator has additionally initiated several changes for the life insurance sector with exposure drafts

on expense management, remuneration to insurance agent and intermediaries, corporate governance,

and convergence to the Indian Accounting Standards being the key highlights of the reporting period. The

combined impact of these multiple regulatory influences on the insurance industry is tremendous.

Perhaps these regulations will need some more clarity for insurers to implement more agreeably.

Further, regulatory enablement to open architecture for bancassurance, POS product and e-Insurance

regulations for tab-based applications to issue policy via electronic modes, have opened a floodgate of

limitless digital opportunities.

Digitalization and widening distribution channels as huge enablers:

There lies a great potential to use the regulatory developments in achieving higher productivity, improved

cost-efficiency, facilitate for increase in distribution, which will be enabled by end-to-end process

digitalization. The swelling volumes of rural banking customers in the recent times (with many unbanked

or underbanked individuals now entering the formal banking channels), mobile revolution, the evolving

distribution channels (example, bancassurance contributing more to sales versus agents) and the rise of

big data will figure greatly as drivers of this makeover.

We will see technology permeate across various levels within insurance companies. More insurers will

tailor their digitalization strategies to include every step of the Insurance value chain - from customer

identification to finally processing claims - to cater to an ever-rising segment of customers used to services

in the here-and-now. In the age of cloud-based apps, even the national insurance repositories might see

merit in launching apps to ensure cross-platform access to policies.

Usage of Virtual Reality (VR) could just be the next big thing in the Indian insurance landscape, given the

rising emphasis on the well-facilitated sales function as well as the customer. VR is being explored by

insurers as an effective channel to simulate experiences and scenarios to enable learning, to educate and

share experiences. Tablet-based apps with underwriting plug-ins built in can be designed to enable

customer-facing sales representatives to customize insurance products, within shorter issuance

turnaround times. These trends can progressively drive the next-gen experience being pushed by insurers.

Intelligent segmentation through data analytics for optimized customer value:

Early adopters in the business analytics revolution such as IndiaFirst Life, already rely on predictive

modelling techniques to facilitate expert business decisions and identify meaningful relationships

(especially to maintain its persistency ratio). This method aids assessment of prospects to offer them

need-based products closely aligned to their profiles.

Impact of wallets and various e-transaction apps:

Mobile and electronic wallets as alternate payment methods are the most progressive outcomes of

demonetization. I can tell these payment choices have greatly simplified fund transfer with flexibility of

use and importantly, safety. For insurers, this presents a pathbreaker to better expense management by

doing away the need for traditional bricks-and-mortar branch operations.

An ongoing challenge in a country of our size is to actually regularize self-service that is technology-based

among rural mobile internet customers. In 2017, insurers will hopefully contribute to smoothening this

transition for the rural segment, which will help in real-time fulfilment of customer requests and thereby,

totally transform their overall experience in conducting transactions.

In conclusion

Interestingly, while ‘disruption’ is the buzzword for optimizing customer value in FinTech for banking,

InsurTech still has a long way to go and has a great scope for speedy transformation to inventively bridge

gaps in insurance service levels offered to the netizens of India (urban users) and Bharat (rural

users). Demographic factors such as growing middle class, young insurable population and growing

awareness of the need for protection and retirement planning will support the growth of life insurance in

India.

As with other domains, Digital is set to be a ubiquitous unifier in the Insurance sector as well. We are not

just talking of changes in the way customers engage with Insurance companies. Possibilities for insurers

to enhance customer value also open through capabilities such as:

A 360-degree view of customers to fulfil their requirements on a real-time basis reducing time

lags and improving turnaround times

Efficiently managed contact center operations by chatbots simulating accurate responses

End-to-end automation of business processes (more specifically the information-heavy ones)

facilitating cost efficiencies by up to 90 percent and manifolds improvement in turnaround times

Well-informed salesforce due to upgraded knowledge management systems

Intuitiveness and inclusivity will be the two factors that will define the tech-based, end-to-end insurance

experience to engage customers, in the not-so-distant future.

*According to the 2013-14 Economic Survey

- R M Vishakha

The insurance industry in India is undergoing major transformation and various reforms by the regulators

and the government are aiding the expansion of the industry. This article explains growth and trends in

General, Life and Health insurance in India.

General insurance:

Despite the FDI limit hike for general insurance companies, the general insurers in India continue to

remain capital starved. Industry is taking up active efforts to increase capital infusion. Most general

insurers are vying for consolidation and thereby ease in listing as consolidated entity, in view of relaxation

in norms for going public.

In contrast to life insurance sector, public sector general insurers do not fare as well as private sector

counterparts. As a measure to infuse capital in four public-sector general insurers, Government has

cleared way for listing of these companies and hence decided to offload its stake in these companies from

100% to 75%.

Entry of foreign reinsurers also acts as a cushion for insurance players, by way of transferring the risk of

losses to international reinsurers. Reinsurance is a primary mechanism through which insurers reduce

their underwriting risk across classes of business or catastrophe exposure, enabling insurers to reduce

capital costs and volatility. It also contributes to development of economy through loss absorbing

capacity, developing world-class products, importing technical skills and sharing expertise.

Capital burn-out for insurers happens mainly because of maintaining distribution channels and ensuring

validity of claims and their processing. Embracing innovative ways of distribution channel such as web-

aggregators has significantly diverted the industry from traditional channels of distribution.

Expansion in avenues like crop insurance being done at a steady rate; tremendous opportunity exists since

22% of population dependent on farming and less than 20% make use of crop insurance which is highly

reinsured. Government has introduced programs such as PMFBY to increase the penetration of crop

insurance. The government has increased its corpus of funds to INR 13,240 crore, which the industry

believes will help bring more farmers under the insurance cover.

Insurance Industry

in India – growth

and Trends

Despite all the difficulties, India remains one of the fastest growing insurance markets. Lower penetration

of insurance (0.7% for general insurance), favorable regulations, faster growing economy, disposable

income, etc. present favorable opportunities for insurance industry to create a stronghold in the country.

Life Insurance:

The Life insurance industry in India has about 24 players, with LIC as its sole public sector company, is

considered the biggest market in the world with over 360 million policies sold. The number policies

growing at a rate of 12-15% (CAGR) over the next 5 years and target penetration levels of over 5% by

2020, the potential in this industry is enormous. During FY2016, the life insurance industry recorded a

premium income of USD 20.54 billion indicating a growth rate of 22.5%.

The market witnessed the first ever initial public offering of ICICI Prudential on bourses, despite opening

lower than its IPO price has bounced back with a strong performance and has gained more than 20% since

1st November 2016.

The market is witnessing more such possible transactions, SBI life insurance, which is a joint venture

between State bank of India and BNP Paribas Cardiff, is planning on an IPO and may offer 10% during the

process. Earlier, in December in 2016 SBI sold 3.9% of its stake to KKR and Temasek Holdings for INR 1,794

Cr million valuing the insurer at INR 46,000 Cr. Another such deal, the proposed merger of Max life and

HDFC life which was announced in June 2016, would create India’s largest private life insurer.

The industry is set to grow with such deals which may lead to increase in penetration, product innovation,

multiple distribution channels, digitalization and regulatory trends.

Health insurance:

Health insurance business can be classified into government sponsored health insurance, group health

insurance (other than government sponsored) and individual health insurance. Among these three classes

of business, individual health insurance business has reported noticeable increase in its share in total

health insurance premium over the past five years, increasing from 37% in 2011-12 to 42% in 2015-16. On

the other hand, the share of government sponsored health insurance business in total health insurance

premium has come down from 17% in 2011-12 to 10% in 2015-16. During the same period, the share of

group health insurance business (other than government business) remained stable at around 46%.

In terms of actual amount of premium collected from government business, there is no significant increase

over the past 5 years. However, the amount of premium collected from both individual and group business

has more than doubled during the same period.

Currently, there are 24 general insurers and 5 standalone health insurers. The standalone health insurers

registered a growth rate of 41.12% against 31.07% growth rate during the previous year.

The gross health insurance premium collected by general and health insurance companies was at INR

24,448 crore during 2015-16 and the same was INR 20,096 crore during the previous financial year. During

2015-16, the health insurance segment has achieved a growth rate of 21.7% in gross premium, which is

the highest reported during the past 5 years.

Standalone health insurers have contributed 16% of total health insurance premium during 2015-16,

registering an increase of 2% over the previous year. Over the past 5 years, the share of standalone health

insurers has moved up from 12% to 16%.

During 2015-16, the general and health insurance companies have issued around 1.18 crore health

insurance policies covering 35.90 crore persons, up from 28.8 crore persons in 2014-15 and registered a

growth of 24.65% in the number of persons covered over the previous year. In terms of number of persons

covered under health insurance, 3/4th of the persons were covered under government sponsored health

insurance schemes and the balance 1/4th were covered by group and individual policies issued by general

and health insurers.

As per the latest National Sample Survey (NSS) released in 2016, over 80% of India’s population is not

covered under any health insurance scheme and is dependent on private sector for treatment. The data

reveals that despite over 7 years of the Centre-run Rashtriya Swasthya Bima Yojana (RSBY), only 12% of

the urban and 13% of the rural population had access to insurance cover. Around 86% of the rural

population and 82% of the urban population was not covered under any scheme of health expenditure

support. It was also found that coverage is correlated with living standards, as in urban areas, over 90%

of the poorest residents are not covered, while 66% of the richest residents are not covered. The poorer

households appear unaware or are beyond the reach of such coverage, both in rural and urban areas. This

has been evident for a while and suggests that RSBY has become more of a showcase tool than reaching

people in any large numbers.

Considering above developments and reforms, insurance sector in the country has a very promising

future.

-APAS

This section provides the highlights of the Budget 2017 in respect to the financial sector.

Foreign investment promotion board to be abolished in 2017-18 and further liberalization of FDI

policy is under consideration.

An expert committee will be constituted to study and promote creation of an operational and

legal framework to integrate spot and derivatives market in the agricultural sector for

commodities trading, e NAM to be an integral part of the framework.

Bill relating to curtail the menace of illicit deposit schemes will be introduced. A bill relating to

resolution of financial firms will be introduced in the current budget session of parliament. This

will contribute to stability and resilience of our financial system.

A mechanism to streamline institutional arrangements for resolution of disputes in infrastructure

related construction contracts, PPP and public utility contracts will be introduced as an

amendment to the arbitration and conciliation act, 1996.

A computer emergency response team for our financial sector will be established.

Government will put in place a revised mechanism and procedure to ensure time bound listing of

identified CPSEs on stock exchanges.

A new ETF with diversified CPSE stocks and other government holdings will be launched in 2017-

18.

In line with the ‘Indradanush’ road map, INR 10000 Cr for recapitalization of banks provided in

2017-18.

Lending target under Pradhan Mantri Mudra Yojana to set at INR 2.44 lakh Cr.

Aadhar pay, a merchant version of Aadhar Enabled Payment System (AEPS) will be launched

shortly.

Banks have targeted to introduce additional ten lakhs new PoS terminals by March 2017.

Proposed to create a payments regulatory board in the RBI by replacing existing board for

regulation and supervision of payment and settlement systems.

Listing of security receipts in SEBI regulated stock exchanges by ARCs to be allowed.

Budget 2017

IIP (Index of Industrial Production) – November

Industrial production increased by 5.7% in November contrary to expectations mainly due to growth in

Mining, Manufacturing and Electricity sectors coupled with larger offtake of capital goods.

The factory output for the April-November period of the current financial year remained almost flat at 0.4%

compared to 3.8% growth in the year-ago period.

The manufacturing sector, which constitutes over 75% of the IIP index, increased by 5.5% in November

compared to contraction of (-)2.4% in October and (-)4.6% a year ago. Mining output also increased by 3.9%,

contributing to the growth in industrial production. Electricity generation rose at quicker pace of 8.9% in

November 2016.

As per the use-based classification, the basic

goods output improved 4.7% in November 2016

over a year ago, while the output of

intermediate goods moved up 2.7%. The growth

in consumer goods output was 5.6%, while that

of capital goods of 15% in November 2016.

Within consumer goods, the production of

consumer durables rose 9.8%, while that of

consumer non-durables rose 2.9% in November

2016.

The IIP growth in October 2016 has been revised marginally upwards to (-)1.8% in the first revision

compared with (-)1.9% reported provisionally. Meanwhile, the growth in August 2016 has been revised

marginally downwards to (-) 0.74% at the final revision from first revision of (-) 0.7%.

In terms of industries, sixteen out of the twenty-two industry groups in the manufacturing sector have

shown growth during the month of November 2016 as compared to the corresponding month of the

previous year. The industry group 'Radio, TV and Communication equipment & apparatus' has shown the

highest growth of 32.2% followed by 23.2% in 'Electrical machinery & apparatus n.e.c.’ as well as in 'Motor

vehicles, trailers and semi-trailers’.

ECONOMY

-2.4-0.7

0.7

-1.9

5.7

Jul-16 Aug-16 Sep-16 Oct-16 Nov-16

IIP (%YoY)

On the other hand, 'Furniture; manufacturing n.e.c.' has shown the highest negative growth of (-)16.5%

followed by (-)5.2% in 'Office, accounting and computing machinery' and (-)3.2% in 'Tobacco products'.

Quarterly Evaluation

3.53

4.73

1.80

0.200.83

-0.80

Q1 15-16 Q2 15-16 Q3 15-16 Q4 15-16 Q1 16-17 Q2 16-17

IIP

%

Quarter

IIP Trend

During April - June 2015, the growth in IIP decelerated mainly because of a sluggish performance in

capital goods, electricity and food products.

IIP has experienced a downfall from 3.83% in Q1 to 0.43% in Q3 (2014-15) respectively. Further IIP

rose to the highest level of 4.73% in Q2 (2015-16). However, it fell to a low of 0.2% in Q4 (2015-16)

and slightly rose to 0.83% in Q1 (2016-17). Followed by this, IIP once again fell to -0.80% in Q2 (2016-

17). For Q2, IIP was in negative zone for the first two months and then it rose back to 0.7% in the third

month. However, the growth was minimal. This was due to poor performance by manufacturing and

mining sectors during that quarter.

CPI (Consumer Price Index) – December

The Consumer Price Index (CPI)-based inflation fell to 3.41% in December — a record low in the new series

— from 3.63% in November. The main reason for contraction in demand was demonetization.

In December, 2015, the number was quite high — 5.61%, a record then. The higher the number in the

previous year, the lower the inflation looks in the current year. Technically, it is called the base effect.

According to the CPI-based inflation number released, inflation in food items — which account for over 45%

in CPI — was down to 1.98%, from 2.11% in November. The inflation in discretionary items, such as paan,

tobacco and intoxicants, increased to 6.39% from 6.29% in November. Vegetables continued to witness

deflation. Pulses, saw inflation falling to (-)1.57% in December from 0.23% in November. Housing inflation

grew by 4.98% in December as compared to 5.04% in November.

According to the analysts, the inflation is likely to improve in the next quarter (January to March).

5.05

4.31 4.2

3.633.41

0

1

2

3

4

5

6

Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

CPI

Quarterly Evaluation

3.95

5.34 5.265.64

5.14

3.75

Q2 15-16 Q3 15-16 Q4 15-16 Q1 16-17 Q2 16-17 Q3 16-17

CP

I %

Quarter

CPI Trend

For Q2 of 2015-16, CPI inflation lowered to 3.95%. Thereafter it increased to 5.34% for Q3 of 2015-

16. Post that CPI inflation slightly decreased to 5.26% in Q4. It continued to be relatively high and

“sticky” till Q1 of 2016-17, despite the sharp fall in commodity prices globally, especially crude oil.

Even after a sharp rise in food inflation, CPI has fallen from 5.34% in the Q3 of 2015-16 to 5.26% in

Q4 of 2015-16 due to ease in rural and urban inflation respectively.

CPI rose to 5.64% during Q1 of 2016-17 mainly due to a steep rise in food prices, thereafter CPI fell

to 5.14%, once again, fall in food prices being the main cause. It reduced to 3.75% in Q3 of 2016-17

on account of demonetization and decrease in prices of vegetables and pulses.

WPI (Wholesale Price Index) – December

Wholesale inflation increased to 3.39% after easing for the consecutive three months and was 3.15% in

November after subdued demand due to demonetization led to softening of prices of vegetables and other

kitchen staples.

The wholesale price index-based inflation, reflecting the annual rate of price rise, in November stood at

3.15%. In December 2015, the print was (-)1.06%.

WPI inflation for ‘Food articles’ declined by 2.2% from the previous month. This was helped by a substantial

price fall in onions, which stood at (-)37.20% and Vegetables, (-)33.11%. Potato inflation increased to 26.42%

in December, according to commerce ministry data.

Pulses continued to rose and stood at 18.12% for December. Inflation in Milk rose to 4.11% during the

month. Overall, the food inflation basket declined to (-)0.70% in December as against 1.54% in November.

The reading for manufactured articles was 3.67% compared with 3.20% in the previous month. The

corresponding figure for sugar came in at 28.04% and that of petrol 8.52%.

The WPI inflation for October has been revised upwards at 3.79% against the provisional estimate of 3.39%.

3.74

3.57

3.39

3.15

3.39

2.80

2.90

3.00

3.10

3.20

3.30

3.40

3.50

3.60

3.70

3.80

Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

WPI

Quarterly Evaluation

-4.51

-2.18 -0.88

0.92

3.64 3.31

Q2 15-16 Q3 15-16 Q4 15-16 Q1 16-17 Q2 16-17 Q3 16-17WP

I %

Quarter

WPI Trend

The WPI inflation breached the psychological level of 0% in November, 2014 and January, 2015. The

decline was majorly caused by lower food and fuel prices.

However, in 2015-16, WPI has been in negative zone for all the quarters. The main cause for this was

a steep fall in fuel and power. However, the graph has been in the positive region for FY2017. It

increased to 0.92% in the first quarter of 2016-17 due to dearer food items.

Further, there was a steep rise in food price once again, for the first two months of Q2 (2016-17).

However, on an overall basis WPI inflation showed a rise which went up till 3.64%. It fell to 3.31% in

Q3 of 2016-17 due to fall in inflation in ‘Food article’, mainly vegetables and onions.

Manufacturing PMI – December

Demonetization impacted the manufacturing growth in December. December data pointed to the first

contraction since December 2015 due to fall in output, new orders, and export orders amidst cash shortage

in economy. Meanwhile, input costs increased at a quicker rate than the output.

Manufacturing Purchasing Managers’ Index registered 49.6, below the crucial 50.0 threshold, down from

November’s 52.3. Softer expansion in new business inflows contributed to the downward movement in the

PMI. Cash shortage in the economy resulted in lower level of orders received. Businesses also highlighted

challenging conditions in global markets with the fall in new business from abroad, ending a six-month

continuous growth. Yet, the average over October-December quarter (52.1) was broadly in line with that

seen in the July-September period (52.2).

Four of the five sub-components of the PMI edged below 50.0, while the average delivery times lengthened

further. It was found that, at the sector level operating conditions deteriorated in both the consumer and

intermediate goods categories. Cash shortages and lower workplace activities led to job shedding and

reduced buying levels however, payroll numbers decreased only marginally. Similar trend was seen in

quantities of purchases.

Higher prices paid for a range of raw materials resulted in a further overall increase in input costs for the

fifteenth straight month with the rate of inflation picking up since November. Contrary, output charges rose

at the slowest pace since August. As the data shows only a mild decline in the manufacturing production

numbers, due to the withdrawal of bank notes and keeping in mind the average of for October-December

quarter being on the positive side, January data would be good indicator of the sector’s performance.

Quarterly Evaluation

Manufacturing PMI in India averaged 51.93 from 2012 until 2016, reaching an all-time high of 55 in June

of 2012 and a record low of 48.50 in August of 2013. Because of rising purchasing activity, preproduction

inventories expanded.

The rate of accumulation was slight overall and in line with those seen throughout the current four-month

sequence of growth.

Manufacturing PMI kept fluctuating for the first two quarters of 2015-16. Further it slowed down in the

third quarter ended December 2015. The average being 50.03 for that quarter. However, the average for

the fourth quarter ended March 2016 rose to 51.53. The reason for this rise was expansion of output at

an accelerated rate. New orders were also welcomed. There was an improved demand from both

domestic and external clients.

Until the beginning of the Q2 (2016-17), the rate of accumulation was only marginal. The manufacturing

PMI data showed that the positive momentum has been carried over into Q2 of 2016-17, with the rise in

expansion rates and buying levels. But after reaching a high in October, it fell in the next two consecutive

months falling to 49.6 in December.

Service PMI – December

The performance of India’s service sector weakened in December as a result of cash shortage. New business

declined for the second consecutive month in December, leading to a solid reduction in activity.

Service business activity index changed a little from 46.7 to 46.8 in December registering in contraction

territory further and pointed to the sharpest reduction in output for almost three years. Anecdotal evidence

highlighted a lack of cash in the economy. Under the sub -sectors, Hotels and firms are the worst performers.

The data reflected a steeper reduction in incoming new work and the backlogs continued to rise, while

employment decreased fractionally. Meanwhile, input costs rose further, but efforts to boost demand led

some firms to lower their charges. The slide in the economic conditions were linked to the rupee

demonetization, and there have been concerns on strong linkage of recovery in the sector on market

sentiment.

With factory production also falling, activity across the private sector economy as a whole dipped to the

greatest extent in over three years. This was highlighted by the seasonally adjusted Nikkei India Composite

PMI Output Index recording 47.6 in December, from 49.1 in November.

Data implied that services activity fell in response to a solid and precipitous drop in new business during

December. The rate of contraction in new work quickened to the fastest since September 2013 and order

books at manufacturers decreased for the first time in 2016, even though marginally.

Cash flow issues reportedly caused another increase in outstanding business among private sector firms,

with backlogs rising for the seventh straight month (although only moderately).

Quarterly Evaluation

The average of Service PMI was seen rising from third quarter ended December 2015 to fourth quarter

ended March 2016 (52.13 to 53.33). The main reason being sharper increase in new business spurring

activity growth in service sectors.

In Q1 of 2016-17 the average of Service PMI was 51.7 due to softer expansion in business activities

such as new business, employment and increase in input costs. Contrast to this, average of Service

PMI in Q2 of 2016-17 rose to 52.9 on account of new business and lowering in output charge.

Q3 of 2016-17 started with good upswing with the increase in new businesses but saw contraction in

last two months due to cash shortage in the economy. The average of Service PMI for Q3 is 49.3.

Core Sector Data – December

Core sector year on year growth improved to 5.6% in December as compared to the 4.9% in the previous

month majorly due to growth in Steel sector and Refinery products.

The growth rate of eight infrastructure sectors -- coal, crude oil, natural gas, refinery products, fertilizers,

steel, cement and electricity was 2.9% in December 2015. It was 4.9% in November 2016.

The core sectors, which contribute 38% to the total industrial production, expanded by 5.0% in April-

December compared to 2.6% growth in the similar period of last financial year.

Steel production increased by 14.9% in December against contraction of 3.1% in the year-ago period. The

output of refinery products increased by 6.4% in December. Cement output and fertilizers fell by 8.7%

and 4.7% respectively in December 2016 as against expansion by 4.1% and 13.5% in December

2015. Growth in electricity generation was at 6% in December 2016, against 8.8% in December 2015.

Coal production increased by 4.4% in December as against a growth of 5.3% in the year-ago period.

Natural gas and crude oil output during December fell by 0.01% and 0.8%, respectively.

From December 2015, core sector output has

grown from 0.9% to 8.5% in April 2016. This

growth was due to increase in output of

electricity, cement, fertilizers and refinery

products. Also, coal output was seen to

increase in December 2015 and January 2016

which led to an overall growth.

From February 2016, core sector output

increased up till April 2016, taking it to the

high of 8.5%. However, the output fell to

2.8% in May 2016. Starting from May 2016

till August 2016, core sector has been

experiencing fluctuating trends stabilizing at

3.2% in August 2016. The rise in October

2016 core sector output was mainly due to a

sustained growth in the steel sector and an

increase in refinery production. The core

sector growth slowed in the month of

November to 4.9% but increased in

December to 5.6%, mainly due to growth in

steel sector.

0.9

2.9

5.76.4

8.5

2.8

5.2

3.0 3.2

5.0

6.6

4.95.6

Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

India Post Payments Bank Receives License to Start Operations:

The Reserve Bank of India has given India Post Payments Bank the final nod to start operations. It is the

third entity after Airtel and Paytm to get the central banks approval. AP Singh has been appointed as the

interim managing director and CEO of the bank. Operations are expected to start before March 31 and

eventually rolled to 650 districts leveraging the network of 1.54 lakh post offices.

Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016 - Amended:

The Government of India, in consultation with the Reserve Bank of India, had notified Pradhan Mantri

Garib Kalyan Deposit Scheme (PMGKDS), 2016 - Amendment. This Scheme is applicable to every declarant under the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016. The deposits under this scheme can be made between 17th day of December, 2016 till 31st day of March, 2017, by any person who declared undisclosed income and such deposits shall not be less than twenty-five per cent of the undisclosed income declared and shall bear no interest. In this amendment, it is clarified that Co-operative Banks are not authorized banks to accept deposits under PMGKDS, 2016. Para 7 (1) of the notification stands amended as under:

“Authorized banks. — (1) Application for the deposit in the form of Bonds Ledger Account shall be received by any banking company, other than Co-operative Banks, to which the Banking Regulation Act, 1949 (10 of 1949) applies.”

BANKING

Distribution of other financial products by Insurance Marketing Firm

Under the powers vested with IRDAI under section 14(2) of IRDAI act, 1999 read with regulation 3 (c) (vi)

and 28 of IMF regulations it has been decided that, Insurance Marketing Firm (IMF), registered under

IRDAI IMF Regulations, 2015, can distribute other financial products such as Mutual funds regulated by

SEBI, pension products regulated by PFRDA, banking/financial products of banks regulated by RBI, non-

insurance products offered by Department of Posts, etc.

Authority can permit IMFs to distribute any other financial product or undertake any activity from time to

time.

Insurance Regulatory and Development Authority of India (Implementation of Ind AS in

Insurance Sector) (Report)

The Implementation Group on Ind AS constituted and its first meeting held on 17th November 2015, has

submitted the report called “Report of the Implementation Group on Ind AS in Insurance Sector in India”

on 29th December, 2016.

This report details the recommendation of the group constituted to examine the implications of

implementing Ind AS, address the implementation issues, facilitate formulation of operational guidelines

to converge with Ind AS in the Indian insurance sector.

The report includes recommendations on Ind AS 40 (Investment property) and Ind AS 7 (Cash flow

statements). Also, it recommends that the products where the death benefit cannot be less than 105% of

the premiums paid are recommended to be considered to have the significant risk cover.

Other suggestions in the report states that cost may be mandated as the basis for the accounting for

investments in subsidiaries, associates and joint ventures in the separate financial statements, trade date

accounting may be prescribed as the uniform basis of initial recognition of securities by all insurers,

statement of changes in equity to be included as a part of the balance sheet even though under Ind AS 1,

it is prescribed as a separate financial statement, etc.

INSURANCE

Cabinet approves MoU between India and the United Arab Emirates on Institutional

Cooperation in Maritime Transport

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the Memorandum of Understanding (MoU) between India and the United Arab Emirates on Institutional Cooperation in Maritime Transport.

The MoU will pave way for facilitation and promotion of maritime transport, simplification of customs and other formalities, wherever possible, and facilitation of the use of existing installations for the disposal of waste. Also, it will enable Shipping Companies in both countries to enter into bilateral and multi-lateral arrangements for sustainable trading activities.

Cabinet approves MoU between India and the United Arab Emirates on Bilateral Cooperation

in the Road Transport and Highways sector

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the Memorandum of Understanding (MoU) between India and the United Arab Emirates on Bilateral Cooperation in the Road Transport and Highways Sector.

The MoU envisages increased cooperation, exchange and collaboration between India and the UAE, and will contribute to increased investment in infrastructure development and enhance logistics efficiency. This will help in promoting safe, economical, efficient and environmentally sound road transport in the country and will further help both the countries in creating an institutional mechanism for cooperation in the field. Salient features of the MoU are:

a. Exchange and sharing of knowledge and cooperation in the area of transportation technologies and transport policies, for passenger and freight movement by roads;

b. Planning, administration and management of road infrastructure, technology and standards for

roads/highways construction and maintenance;

INFRASTRUCTURE

c. Sharing of information and best practices for developing road safety plans and road safety intervention strategies, and outreach activities aimed at reducing deaths and injuries resulting from road accidents;

d. Sharing of knowledge and best practices in user-free (toll)-related issues; including modern systems, technologies and methods of levying of user-free and collection including Electronic Toll Collection System;

e. Sharing of information areas of improved technologies and materials in road and bridge construction, including joint research; and

Sharing of information and cooperation for mobilizing investments for setting up of Logistics Parks, freight

logistics, transportation warehousing and value added services (VAS) as an enabler and as a catalyst of

economic growth and seamless freight movement.

Amendments to the SEBI (Portfolio Managers) Regulations, 1993

SEBI (Portfolio Managers) Regulations, 1993 have been amended to provide an enabling framework for

registration of fund managers desirous of providing their services to overseas funds. These amendments

provide a separate Chapter II-A for ‘Eligible Fund Managers’ and permit existing portfolio managers as

well as new applicants, compliant with requirements specified under section 9A of Income Tax Act, 1961,

to act as ‘Eligible Fund Managers’.

Further, Chapter II-A defines the responsibilities and obligations of such fund managers. SEBI has also

identified some provisions of the PMS regulations which would not be applicable to Eligible Fund

Managers pertaining to their activities as fund manager to Eligible Investment Funds. Some of the

provisions are: High Water Mark Principle regarding calculation of fees, disclosure of fees, Obligation to

act in a fiduciary capacity, Audit of overseas fund, Entering into agreement between the portfolio manager

and overseas fund, Minimum investment requirement (INR 25 Lakhs), etc.

Seventh meeting of the International Advisory Board of SEBI

The seventh meeting of the International Advisory Board (IAB) of the Securities and Exchange Board of

India (SEBI) was held on January 13 & 14, 2017. The following major issues were inter alia discussed during

the meeting:

a. Issues and developments in the Corporate governance: The IAB made various observations such

as matrix of expertise may be introduced to make the board diverse, balanced and in tune with

the requirements for the effective functioning of the company, transparency in board

appointments and removal process, process of evaluation of the performance of the board, etc.

b. Migration from Commission based to Fee based advisory model: The IAB took note of the extant

framework for investment advisory business in India including role of mutual fund distributors

and regulatory arbitrage between the investment advisor and mutual fund distributor providing

advice and various observations were made.

CAPITAL MARKETS

c. New practices to strengthen Indian fund industry – Passporting of funds: The IAB deliberated on

how the framework of passporting of investment funds works, their benefits to the investors,

industry and economy. In this context, the IAB referred to the global practices regarding

passporting of funds and made some observations like relative size of the country and that of the

markets matter in the passporting, SEBI may also explore some alternative framework and India

may focus on manufacturing and managing cross-country financial assets locally with the help of

overseas advice and passporting of such funds all over the world.

d. Internationalization of Indian securities market: The IAB deliberated on the pros and cons of

internationalization of securities market as also certain aspects like framework for product

innovation and risk management etc. and whether the current stage of development and maturity

of the Indian markets support internationalization of domestic securities market. The IAB has

made some suggestions like International Financial Centre (IFC) needs to specialize itself in a

particular area for its success due to highly competitive market for IFC and creation of IFC and

internationalization of domestic market need to progress in tandem so as to ensure a calibrated

development of both.

e. Crowd funding Framework: The IAB took note of international regulatory developments on

crowd-funding with regard to investors, issuers and crowd-funding platforms and deliberated

whether India is ready to initiate securities based Crowd funding also keeping in view the recent

developments in the Indian FinTech space (UPI, UID, Payment banks etc.) and other aspects

relating to operations and regulations of crowd-funding in India.

f. Open-house session on Challenges facing Securities markets: In this session, there was exchange

of ideas among IAB members on various important challenges faced by various securities markets

jurisdictions. Some of the important issues highlighted during this discussion included

cybersecurity issues, cross-border as well as internal competitiveness among market

infrastructure institutions, shrinking of public markets, emergence of dark pools, non-bank

transfer of money, growing importance of social media, etc.

SEBI Board meeting

Following decisions were made in the SEBI board meeting which took place on 14th January, 2017:

The Board decided to reduce the fees payable by broker by 25%, i.e. from Rs.20/- per crore of turnover to

Rs.15/- per crore of turnover, taking into consideration the projected income and expenditure of SEBI for

next three financial years. This will result in reduction of overall cost of transactions and will benefit the

investors and promote the development of securities market.

SEBI Board deliberated the proposals relating to review of existing advertisement guidelines for Mutual

Funds. It considered that the existing guidelines on publishing performance of schemes in advertisements

issued by Mutual Funds should be reviewed, so that performance related information may be disclosed

in a simpler and effective manner, while providing precise & latest information to investors. Further, the

Board considered that for the purpose of increasing awareness of Mutual Funds as a financial product

category, celebrity endorsements of Mutual Funds may be allowed at an industry level.

SEBI board noted that units of REITs/InvITs are hybrid instruments. However, the features are more like

equity securities and the concentration and liquidity risks require to be addressed. In light of these, the

board has decided some restrictions on investment in units of REITs/InvITs.

SEBI board has approved the proposals to revise and streamline the regulatory framework governing

schemes of arrangement for Mergers and Demergers.

In order to facilitate issuance of debt securities under SEBI (Issue and listing of debt securities by

Municipalities) Regulations, 2015, by entities other than Corporate Municipal entity (CME), the board

agreed that the Municipalities making public issue of debt securities shall have surplus as per its Income

and Expenditure statement, in any of the three immediately preceding financial years or any other

financial criteria as specified by SEBI time to time.

Also, the Board approved the proposal to amend various Regulations to enable the market participants to make payments to SEBI through digital mode (such as NEFT/RTGS) as well.

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange Source: Bombay Stock Exchange

Sources: APAS Business Research Team

The rupee rose in the month to close at a 67.52,

strengthening by 63 Paise on selling of dollars by

banks and inflows by foreign institutional

investors.

January began with 26,595 levels of Sensex. The

month ended at 27,656 much higher than the

opening levels.

The month saw an improvement in the markets in

January after drastic fall in December on account

of demonetization and volatile global markets.

Sources: APAS Business Research Team

2-J

an-1

7

4-J

an-1

7

6-J

an-1

7

8-J

an-1

7

10

-Jan

-17

12

-Jan

-17

14

-Jan

-17

16

-Jan

-17

18

-Jan

-17

20

-Jan

-17

22

-Jan

-17

24

-Jan

-17

26

-Jan

-17

28

-Jan

-17

30

-Jan

-17

CNX Nifty (Jan-2017)

2-J

an-1

7

4-J

an-1

7

6-J

an-1

7

8-J

an-1

7

10

-Jan

-17

12

-Jan

-17

14

-Jan

-17

16

-Jan

-17

18

-Jan

-17

20

-Jan

-17

22

-Jan

-17

24

-Jan

-17

26

-Jan

-17

28

-Jan

-17

30

-Jan

-17

BSE Sensex (Jan-2017)

15.8315.48

14.38

15.3915.91 16.01

16.67

10

12

14

16

18

20

Indian VIX (Jan-2017)

6.445

6.365

6.3986.439

6.476 6.4526.405

6

6.1

6.2

6.3

6.4

6.5

6.62

-Jan

-17

4-J

an-1

7

6-J

an-1

7

8-J

an-1

7

10

-Jan

-17

12

-Jan

-17

14

-Jan

-17

16

-Jan

-17

18

-Jan

-17

20

-Jan

-17

22

-Jan

-17

24

-Jan

-17

26

-Jan

-17

28

-Jan

-17

30

-Jan

-17

GIND10Y (Jan-2017)

68.26

67.743

68.115

68.327

67.862

68.22 68.176

67.829

67.515

67

67.2

67.4

67.6

67.8

68

68.2

68.4

2-J

an-1

7

4-J

an-1

7

6-J

an-1

7

8-J

an-1

7

10

-Jan

-17

12

-Jan

-17

14

-Jan

-17

16

-Jan

-17

18

-Jan

-17

20

-Jan

-17

22

-Jan

-17

24

-Jan

-17

26

-Jan

-17

28

-Jan

-17

30

-Jan

-17

$/₹ (Jan-2017)

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year

Countries GDP CPI Current Account Balance

Budget Balance

Interest Rates

Latest 2016* 2017* Latest 2016* % of GDP,

2016* % of GDP,

2016* (10YGov),

Latest

Brazil -2.9Q3 -3.4 0.9 6.3 Dec 8.4 -1.2 -6.3 10.0

Russia -0.4Q3 -0.5 1.3 5.4 Dec 7.0 2.3 -3.7 8.28

India 7.3 Q3 7.0 7.4 3.4 Dec 4.9 -0.6 -3.8 6.40

China 6.8 Q4 6.7 6.4 2.1 Dec 2.0 2.3 -3.8 3.04^

S Africa 0.7 Q3 0.5 1.3 6.8 Dec 6.3 -3.9 -3.4 8.87

USA 1.9 Q4 1.6 2.3 2.1 Dec 1.4 -2.6 -3.2 2.50

Canada 1.3 Q3 1.2 1.8 1.5 Dec 1.5 -3.5 -2.5 1.78

Mexico 2.0 Q3 2.1 1.7 3.4 Dec 2.9 -2.8 -3.0 7.56

Euro Area 1.8 Q3 1.6 1.4 1.1 Dec 0.3 3.3 -1.8 0.46

Germany 1.7 Q3 1.8 1.5 1.9 Jan 0.4 8.8 1.0 0.46

Britain 2.2 Q4 2.0 1.2 1.6 Dec 0.7 -5.6 -3.7 1.55

Australia 1.8 Q3 2.4 2.6 1.5 Q4 1.3 -3.2 -2.1 2.78

Indonesia 5.0 Q3 5.0 5.1 3.0 Dec 3.5 -2.1 -2.3 7.54

Malaysia 4.3 Q3 4.3 4.6 1.8 Dec 2.1 1.7 -3.4 4.17

Singapore 1.1 Q3 1.8 2.0 0.2 Dec -0.5 22.5 0.7 2.38

S Korea 2.3 Q4 2.7 2.5 1.3 Dec 1.0 7.2 -1.3 2.19

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