Nov 06, 2007
Ashish Rukhaiyar
MUMBAI
WHEN the Bombay Stock Exchange (BSE) bought a 5% stake in Calcutta Stock Exchange recently, it was widely believed that the ailing regional exchange will get a new lease of life with Asia’s oldest bourse coming on board.
Sources now add that the time has come when CSE, in all probability, will finally resume trading with a muhurat session on Diwali day that will be linked to BSE’s token session scheduled on November 9. Technically, while the CSE is still operational, trading volumes are negligible.
While, CSE used to perform a token muhurat session every year on Diwali day, trading volume was measly as there were no takers for companies listed on the regional bourse. Interestingly, Calcutta Stock Exchange, at one point in time, was counted among the biggest stock exchanges of the country.
According to Sebi, CSE reported a turnover of more than Rs 27,000 crore in 2001-02, making it the third-largest exchange of India next to NSE and BSE. In 2006-07, CSE was one of the only two regional stock exchanges that reported at least some amount of trading turnover.
Meanwhile, sources add that this year there is a high probability of volumes on CSE picking up as member brokers will be able to access the common basket of BSE stocks. “Even if there are some last minute glitches, the stage is all set for a soft launch as the basic connectivity has been established between BSE and CSE,” said a source on condition of anonymity. The surveillance, trading and settlement systems have been taken care of and any CSE member can now trade on the BSE platform, he added.
Members of the Calcutta Stock Exchange further add that any member who is linked to the local area network (LAN) can now trade in any of the BSE listed entities. "While the LAN has been tested, broker members who are using leased lines may face some glitches. The frontend has already been provided and the exchange will see a muhurat session on November 9", said a source close to the development.
ET had earlier reported that BSE had been asked to revive the regional bourse. A couple of months ago, BSE bought a 5% stake in CSE for around Rs 6 crore thus valuing the regional exchange at Rs 123 crore.
Interestingly, CSE was one of the very few regional stock exchanges (RSEs) where there was a glimmer of hope that equity trading will once again see the light of the day. Most of the RSEs witnessed bids from entities that were more interested in using the assets, especially land bank, after acquiring a stake in the bourses.
Wednesday 7 November 2007
Sebi asks SEs to list cos not complying with Clause 40A
Oct 27, 2007
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) has asked stock exchanges to compile a list of companies that are yet to comply with the revised Clause 40A of the listing agreement as soon as possible and upload the same on their websites.
According to sources, BSE and NSE representatives were told to prepare this list in the latest surveillance meeting that was held on Monday. Exchange sources further add that the list is likely to be ready within the next two weeks.
Clause 40A of the listing agreement requires all listed companies, other than some exempted ones, to ensure minimum level of public shareholding at 25% of the total number of issued shares for the purpose of continuous listing. In other words, promoter and promoter-group combined have to bring down their stake to 75% of the total equity.
As far as the exchanges are concerned, it is believed that NSE might find the task comparatively easier as the exchange has less than 1,200 companies listed on it. On the other hand, BSE has nearly 7,700 companies listed, out of which around 2,600 companies are traded actively. Sources say that BSE has formed a team of 3-4 persons for the task of compiling the list.
While there are many listed companies where the promoter holding is more than 75% if the exempted ones are excluded, sources say that around 150 companies are likely to find themselves in the non-compliant list. Meanwhile, promoters have time till May next year to bring down their stakes to the stipulated level.
“The revised Clause 40A came into force on May 1, 2006, and companies were given a maximum of two years’ time to comply with the new law,” said a source close to the development, adding that since not much time is left for the deadline to expire, the regulator has once again reminded the exchanges to take the required steps.
“Processes take time and so need to be initiated now as only six months are left,” he added. He further said that some promoters have already started offloading stake in small tranches as the recent bull run provided an excellent selling opportunity.
According to an ETanalysis, Jai Corp, Marathon Nextgen Realty, Escorts Finance, Nagarjuna Agrichem, Bhoruka Steel, Honeywell Automation, Uttam Sugar and Hindusthan National are instances where the promoters have to further dilute their stake.
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) has asked stock exchanges to compile a list of companies that are yet to comply with the revised Clause 40A of the listing agreement as soon as possible and upload the same on their websites.
According to sources, BSE and NSE representatives were told to prepare this list in the latest surveillance meeting that was held on Monday. Exchange sources further add that the list is likely to be ready within the next two weeks.
Clause 40A of the listing agreement requires all listed companies, other than some exempted ones, to ensure minimum level of public shareholding at 25% of the total number of issued shares for the purpose of continuous listing. In other words, promoter and promoter-group combined have to bring down their stake to 75% of the total equity.
As far as the exchanges are concerned, it is believed that NSE might find the task comparatively easier as the exchange has less than 1,200 companies listed on it. On the other hand, BSE has nearly 7,700 companies listed, out of which around 2,600 companies are traded actively. Sources say that BSE has formed a team of 3-4 persons for the task of compiling the list.
While there are many listed companies where the promoter holding is more than 75% if the exempted ones are excluded, sources say that around 150 companies are likely to find themselves in the non-compliant list. Meanwhile, promoters have time till May next year to bring down their stakes to the stipulated level.
“The revised Clause 40A came into force on May 1, 2006, and companies were given a maximum of two years’ time to comply with the new law,” said a source close to the development, adding that since not much time is left for the deadline to expire, the regulator has once again reminded the exchanges to take the required steps.
“Processes take time and so need to be initiated now as only six months are left,” he added. He further said that some promoters have already started offloading stake in small tranches as the recent bull run provided an excellent selling opportunity.
According to an ETanalysis, Jai Corp, Marathon Nextgen Realty, Escorts Finance, Nagarjuna Agrichem, Bhoruka Steel, Honeywell Automation, Uttam Sugar and Hindusthan National are instances where the promoters have to further dilute their stake.
Bourses lure small cos with lucrative offers
BSE Teams Up With SBI To Ramp Up Indonext,
Seeks Sebi Nod To Make Platform Attractive
Sep 17, 2007
Ashish Rukhaiyar
MUMBAI
SMALL and medium enterprises (SMEs) may get a new breath of life with both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) vying for these companies. BSE is believed to have sought regulatory approval to make its Indonext platform attractive for SMEs. It has joined hands with the State Bank of India (SBI) in its latest initiative.
According to sources, BSE had already submitted its proposal to the Securities and Exchange Board of India (Sebi) and is ready to dole out lucrative incentives like lower listing fees, reduced exchange charges and dilution in listing guidelines, if allowed by the regulator.
There are a little over 500 companies trading on the Indonext platform. Indonext was launched in January 2005. BSE Indonext was the result of finance minister P Chidambaram’s proposal in his budget speech (on July 8, 2004) where he signalled the government’s interest in launching a trading platform that would enable SMEs to raise capital. However, Indonext failed to attract many companies and thus its share of turnover is a negligible 3-4% of the daily BSE volume.
“When financial institutions along with NSE are vying with each other to provide an SME platform, it is logical for BSE to do the same. There is a feeling in the industry that BSE has an advantage on account of Indonext. The technology along with trading, clearing and settlement mechanisms are already in place. The tie-up with SBI will give a fillip due to its mammoth size and reach,” he added.
Sources maintain that pending Sebi approval, the exchange is ready to earmark a portion of the transfer guarantee fund (TGF) and the investor protection fund (IPF) for the SME platform. It is also believed that BSE might form an independent governing, listing and surveillance board for the SME platform.
There is talk that the listing fee could be reduced or made zero for the first 3-4 years. Listing guidelines may be relaxed to some extent. For instance, numbers could be filed at a six-month interval rather than the current quarterly system.
Experts say that the system will be akin to that of the London Stock Exchange’s (LSE) Alternative Investment Market (AIM) that caters to small and growing companies. AIM offers the advantage of cost-effective trading and a regulatory environment, specially designed for SMEs.
The issue of SME exchange has once again gathered fire with Sidbi, NSE, IDBI and IL&FS all submitting their proposals to Sebi to form such an exchange.
Seeks Sebi Nod To Make Platform Attractive
Sep 17, 2007
Ashish Rukhaiyar
MUMBAI
SMALL and medium enterprises (SMEs) may get a new breath of life with both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) vying for these companies. BSE is believed to have sought regulatory approval to make its Indonext platform attractive for SMEs. It has joined hands with the State Bank of India (SBI) in its latest initiative.
According to sources, BSE had already submitted its proposal to the Securities and Exchange Board of India (Sebi) and is ready to dole out lucrative incentives like lower listing fees, reduced exchange charges and dilution in listing guidelines, if allowed by the regulator.
There are a little over 500 companies trading on the Indonext platform. Indonext was launched in January 2005. BSE Indonext was the result of finance minister P Chidambaram’s proposal in his budget speech (on July 8, 2004) where he signalled the government’s interest in launching a trading platform that would enable SMEs to raise capital. However, Indonext failed to attract many companies and thus its share of turnover is a negligible 3-4% of the daily BSE volume.
“When financial institutions along with NSE are vying with each other to provide an SME platform, it is logical for BSE to do the same. There is a feeling in the industry that BSE has an advantage on account of Indonext. The technology along with trading, clearing and settlement mechanisms are already in place. The tie-up with SBI will give a fillip due to its mammoth size and reach,” he added.
Sources maintain that pending Sebi approval, the exchange is ready to earmark a portion of the transfer guarantee fund (TGF) and the investor protection fund (IPF) for the SME platform. It is also believed that BSE might form an independent governing, listing and surveillance board for the SME platform.
There is talk that the listing fee could be reduced or made zero for the first 3-4 years. Listing guidelines may be relaxed to some extent. For instance, numbers could be filed at a six-month interval rather than the current quarterly system.
Experts say that the system will be akin to that of the London Stock Exchange’s (LSE) Alternative Investment Market (AIM) that caters to small and growing companies. AIM offers the advantage of cost-effective trading and a regulatory environment, specially designed for SMEs.
The issue of SME exchange has once again gathered fire with Sidbi, NSE, IDBI and IL&FS all submitting their proposals to Sebi to form such an exchange.
Navratnas may also join listing rule violators’ club
ONGC, SAIL, BPCL, MTNL Seen
Part Of The Non-Compliant Group
Sep 13, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as capital market regulator Sebi is gearing up to take action against five public sector undertakings (PSUs) for non-compliance with Clause 49, the near future may well see a few more companies join the list. Sources said that exchanges have sent a list of nearly 20 PSUs, which includes some of the Navratnas, to the regulator for not being Clause 49 compliant.
As per Sebi regulations, companies with equity of over Rs 3 crore are required to adhere to the Clause 49 provision, which entails the inclusion of independent directors on the board. Clause 49 has partly been inspired by the new corporate governance norms in the US, which were revised following a slew of scandals. However, the revised provision received poor response from several Indian companies, citing impracticality in implementing them.
In a surprise move, Sebi on Tuesday initiated, for the first time, adjudication proceedings against 20 companies including five PSUs. While the companies names were not disclosed, the action against the PSUs has been on account of non-compliance with provisions relating to board composition. The circular clearly mentioned that action had been taken on the basis of quarterly reports sent by stock exchanges.
According to sources, this has caught most exchange authorities by surprise as the quarterly report that they send to Sebi includes names of some of the biggest PSUs of the country.
“To the best of my knowledge, there are 18 PSUs in the Clause 49 non-compliant list, which includes seven Navratnas,” said a source. ONGC, SAIL, BPCL, MTNL, IOC, GAIL and NTPC are part of the 18 PSUs that figure in the list, added the source.
Meanwhile, the other prominent PSUs that are part of the exchange’s quarterly report include Mangalore Refinery & Petrochemicals (MRPL), Minerals & Metals Trading (MMTC), ITI, RCF, Nalco, Hindustan Copper, Hindustan Fluorocarbons, National Mineral Development, National Fertilizers and State Trading Corporation (STC), among others.
Interestingly, there are two theories doing the rounds in the exchanges, say sources. While some say that the first list of five PSUs might act as a warning to the other erring public sector entities, there are others who are of the opinion that more such circulars are in the offing.
Commenting on the methodology adopted for identifying the five non-compliant PSUs, officials said that it is possible that Sebi might have used some more filters to arrive at the five PSUs that are part of the circular.
Part Of The Non-Compliant Group
Sep 13, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as capital market regulator Sebi is gearing up to take action against five public sector undertakings (PSUs) for non-compliance with Clause 49, the near future may well see a few more companies join the list. Sources said that exchanges have sent a list of nearly 20 PSUs, which includes some of the Navratnas, to the regulator for not being Clause 49 compliant.
As per Sebi regulations, companies with equity of over Rs 3 crore are required to adhere to the Clause 49 provision, which entails the inclusion of independent directors on the board. Clause 49 has partly been inspired by the new corporate governance norms in the US, which were revised following a slew of scandals. However, the revised provision received poor response from several Indian companies, citing impracticality in implementing them.
In a surprise move, Sebi on Tuesday initiated, for the first time, adjudication proceedings against 20 companies including five PSUs. While the companies names were not disclosed, the action against the PSUs has been on account of non-compliance with provisions relating to board composition. The circular clearly mentioned that action had been taken on the basis of quarterly reports sent by stock exchanges.
According to sources, this has caught most exchange authorities by surprise as the quarterly report that they send to Sebi includes names of some of the biggest PSUs of the country.
“To the best of my knowledge, there are 18 PSUs in the Clause 49 non-compliant list, which includes seven Navratnas,” said a source. ONGC, SAIL, BPCL, MTNL, IOC, GAIL and NTPC are part of the 18 PSUs that figure in the list, added the source.
Meanwhile, the other prominent PSUs that are part of the exchange’s quarterly report include Mangalore Refinery & Petrochemicals (MRPL), Minerals & Metals Trading (MMTC), ITI, RCF, Nalco, Hindustan Copper, Hindustan Fluorocarbons, National Mineral Development, National Fertilizers and State Trading Corporation (STC), among others.
Interestingly, there are two theories doing the rounds in the exchanges, say sources. While some say that the first list of five PSUs might act as a warning to the other erring public sector entities, there are others who are of the opinion that more such circulars are in the offing.
Commenting on the methodology adopted for identifying the five non-compliant PSUs, officials said that it is possible that Sebi might have used some more filters to arrive at the five PSUs that are part of the circular.
IPCL-RIL merger offers arbitrage opportunity
Investors Lap Up Lower-Priced IPCL Stock
To Get Reliance Shares At A Cheaper Cost
To Get Reliance Shares At A Cheaper Cost
Sep 07, 2007
Ashish Rukhaiyar
MUMBAI
WITH the decks cleared for the merger of IPCL with Reliance Industries (RIL), market participants are rushing to take advantage of the arbitrage window. While both scrips have been on the rise recently, brokers do not rule out a gain of 2-3% in the short term if this arbitrage window is used effectively.
MUMBAI
WITH the decks cleared for the merger of IPCL with Reliance Industries (RIL), market participants are rushing to take advantage of the arbitrage window. While both scrips have been on the rise recently, brokers do not rule out a gain of 2-3% in the short term if this arbitrage window is used effectively.
With the Gujarat and Bombay High Courts approving the merger, a record date for the share swap will be announced shortly. As per the swap ratio, a holder of five IPCL shares will be entitled to one RIL share.
Quite a few investors, who are holding RIL shares, are said to be cashing out and buying IPCL shares instead. And some of the savvy investors looking for a fresh exposure to RIL, are taking the IPCL route. This is because, at current market price, the total cost of five IPCL shares is less than that of one RIL share. Hence, when RIL shares are allotted, the investors will get them at a lower price or in other words, a higher number of RIL shares.
On Thursday, IPCL scrip gained 0.62% to close at Rs 388.10, while RIL closed at Rs 1,983.30, up 1.32%. So, an investor buying 500 IPCL shares would have to shell out Rs 1.94 lakh, which, in effect, becomes the buying price for 100 shares of RIL. To buy 100 RIL shares directly from the market would cost an investor around Rs 1.98 lakh.
“If you are bullish on Reliance, then buy IPCL,” said KRIS director Arun Kejriwal. “This is a much cheaper way of buying Reliance as you are still making around 2-3% profit. Investors who want to lockin the profits without any risk can look at it,” he added.
Although at current levels, the gains are marginal, it does present an opportunity to make some amount of profit. Real gains could be a little over 2%, as one would have to factor in expenses like brokerage, securities transaction tax, stamp duty and service tax.
Another strategy for investors could be to trade in the derivatives segment by buying one lot of IPCL futures and selling one lot of RIL futures. While market participants are unanimous in pointing out this arbitrage opportunity, many funds are already availing this option.
"The arbitrage trading has been going on for quite some time now and so the quantum of real gains has narrowed down,” said a dealer who tracks institutional trades. The volumes in both the counters have witnessed a rise in the recent past as almost all the leading funds are trying to cash in, before the arbitrage window shuts, he added.
Incidentally, in the past two trading sessions, around 7-9 lakh IPCL shares have changed hands on each day. This is much higher than the two-week average of 3.10 lakh shares.
BSE may have to guide CSE’s second innings
With traded turnover of only Rs 694 crore in 2006-07,
revival plan for the Kolkata bourse is not going to be an
easy task even for Asia’s oldest stock exchange
Sep 06, 2007
Ashish Rukhaiyar
MUMBAI
THE Bombay Stock Exchange (BSE) may soon find itself with the responsibility of running a second exchange. The exchange, which recently bought a 5% stake in the beleaguered Calcutta Stock Exchange (CSE), has been asked to chalk out a revival plan for the regional bourse, said sources. BSE had shelled out around Rs 6 crore for its 5% stake in CSE, valuing the regional player at Rs 123 crore.
The market talk is that a BSE official may be parachuted in to take over as chief executive officer. “We believe that a BSE, CSE combination presents a good business opportunity for both BSE’s & CSE’s members,” said an announcement on the BSE website.
Infusing a fresh lease of life into the moribund CSE is going to be an uphill task for Asia’s oldest bourse. Traded turnover for the whole of 2006-07 on CSE stood at Rs 694 crore. In contrast, average daily traded turnover on BSE is around Rs 4,500 crore. Also, BSE is struggling to boost turnover in its comatose futures & options segment, without much success so far.
According to industry sources, the CSE board will be reconstituted shortly, with the Securities and Exchange Board of India (Sebi) nominating new members. Currently, Tushar Kanti Das, a retired IAS officer, is CSE’s administrator, after the exchange’s board was superseded some time ago.
“The new board might have a 25% representation from brokers, while the remaining 75% will be comprised Sebi-nominated members,” said a source involved with the process. “It is likely to be a 12-member board with nine Sebi-nominated members and three broker members. There is a strong chance that BSE might depute one of its senior officials to CSE to occupy the CEO’s chair,” the source added. Efforts are also on to upgrade the surveillance mechanism at CSE.
Here again, BSE is likely to depute some members from its surveillance team “CSE already has trading, clearing and settlement processes in place. The systems have to be tweaked up a bit,” a source said.
Interestingly, CSE is one of the few regional stock exchanges (RSEs) where there is a glimmer of hope that trading volumes may improve if right steps are taken. Most of the other RSEs have attracted bids from entities, more interested in the prime real estate the bourses control.
According to reports, around 25 investors have applied for a stake in CSE. The interested parties include Emami group and some KK Birla and BK Birla group entities. Till it was dealt an irreversible blow during the stock market crash of 2001, CSE was the third-most active stock exchange, in terms of traded turnover, after the National Stock Exchange and BSE. According to Sebi, CSE reported a turnover of more than Rs 27,000 crore in 2001-02.
revival plan for the Kolkata bourse is not going to be an
easy task even for Asia’s oldest stock exchange
Sep 06, 2007
Ashish Rukhaiyar
MUMBAI
THE Bombay Stock Exchange (BSE) may soon find itself with the responsibility of running a second exchange. The exchange, which recently bought a 5% stake in the beleaguered Calcutta Stock Exchange (CSE), has been asked to chalk out a revival plan for the regional bourse, said sources. BSE had shelled out around Rs 6 crore for its 5% stake in CSE, valuing the regional player at Rs 123 crore.
The market talk is that a BSE official may be parachuted in to take over as chief executive officer. “We believe that a BSE, CSE combination presents a good business opportunity for both BSE’s & CSE’s members,” said an announcement on the BSE website.
Infusing a fresh lease of life into the moribund CSE is going to be an uphill task for Asia’s oldest bourse. Traded turnover for the whole of 2006-07 on CSE stood at Rs 694 crore. In contrast, average daily traded turnover on BSE is around Rs 4,500 crore. Also, BSE is struggling to boost turnover in its comatose futures & options segment, without much success so far.
According to industry sources, the CSE board will be reconstituted shortly, with the Securities and Exchange Board of India (Sebi) nominating new members. Currently, Tushar Kanti Das, a retired IAS officer, is CSE’s administrator, after the exchange’s board was superseded some time ago.
“The new board might have a 25% representation from brokers, while the remaining 75% will be comprised Sebi-nominated members,” said a source involved with the process. “It is likely to be a 12-member board with nine Sebi-nominated members and three broker members. There is a strong chance that BSE might depute one of its senior officials to CSE to occupy the CEO’s chair,” the source added. Efforts are also on to upgrade the surveillance mechanism at CSE.
Here again, BSE is likely to depute some members from its surveillance team “CSE already has trading, clearing and settlement processes in place. The systems have to be tweaked up a bit,” a source said.
Interestingly, CSE is one of the few regional stock exchanges (RSEs) where there is a glimmer of hope that trading volumes may improve if right steps are taken. Most of the other RSEs have attracted bids from entities, more interested in the prime real estate the bourses control.
According to reports, around 25 investors have applied for a stake in CSE. The interested parties include Emami group and some KK Birla and BK Birla group entities. Till it was dealt an irreversible blow during the stock market crash of 2001, CSE was the third-most active stock exchange, in terms of traded turnover, after the National Stock Exchange and BSE. According to Sebi, CSE reported a turnover of more than Rs 27,000 crore in 2001-02.
Hindujas set to buy Networth Broking
D-Street’s buzzing with deals. Subprime woes may have dampened
trading activity, but some players continue to attract attention
Sep 05, 2007
Nishanth Vasudevan & Ashish Rukhaiyar
MUMBAI
Amas Bank, part of the Hinduja Group, is believed to be buying a majority stake in the Mumbaibased Networth Stock Broking, in a move that will likely pave the way for the group’s entry into India’s broking industry.
trading activity, but some players continue to attract attention
Sep 05, 2007
Nishanth Vasudevan & Ashish Rukhaiyar
MUMBAI
Amas Bank, part of the Hinduja Group, is believed to be buying a majority stake in the Mumbaibased Networth Stock Broking, in a move that will likely pave the way for the group’s entry into India’s broking industry.
The deal would involve a stake sale by the promoters and issue of fresh shares to the Geneva-headquartered bank at roughly Rs 120-125 per share, said a source familiar with the development.
On Tuesday, trading in Networth shares was frozen at the upper-end of the 5% intra-day circuit filter at Rs 90.55. Over the past one week, the stock has gained over 20%, accompanied by a rise in trading volumes.
Amas will make an open offer to the minority shareholders at the same price that has been offered to the promoter group, the source said. Top Networth officials could not be reached for comments. An e-mail query to the broking house also did not elicit a response till the time of going to press.
Promoters and groups affiliated to them held 48.22% in Networth as on June 30. Chairman and managing director Suresh Jain, one of the promoters, holds 43.21%. Mr Jain had hiked his stake to 43.40% in March from 40.87% earlier following the conversion of 3.50 lakh warrants.
Further, many of Networth’s top brass have also been exercising their stock options to increase their stake in the company. Foreign institutions hold 11.2% in the broking house.
The deal, which values Networth at roughly Rs 102 crore, would also involve infusion of debt by Amas, according to the source. The debt infusion will enable the mid-sized broking house expand operations across the country.
The brokerage, which has a 154-strong branch networth and offers retail broking, insurance and mutual fund distribution services, has a strong presence in South India.
Though the deal size comes nowhere close to the ones sealed in recent times, it indicates the interest of foreign financial companies to be a part of the fast-growing Indian financial services industry. BNP Paribas, which recently acquired 33% in Geojit Securities, valued the broking house at Rs 620 crore.
Amas, which is registered with the Swiss Federal Banking Commission, provides services including portfolio management, investment banking, structured and trade finance. The buyout of controlling stake in Networth will enable the Hinduja Group expand its financial services business in India. The Hinduja Group is a software-to-automobile-tobanking conglomerate and owns IndusInd Bank and companies like Ashok Leyland and Hinduja TMT.
Regional exchanges in a race for survival
Many investors said to be interested in these bourses, but real estate rather than trading seen as the main draw
Aug 28, 2007
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THOSE regional stock exchanges that do not have any business can be closed, because there is no economic model to take the business forward,” said Sebi chairman M Damodaran at a CII conference in Chennai recently.
For members of the 20-odd regional stock exchanges in the country, the statement has an ominous undertone. Shutting down would mean foregoing the benefits of owning a licence to run a trading platform and more importantly, claim over real estate in prime locations spread across the country.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THOSE regional stock exchanges that do not have any business can be closed, because there is no economic model to take the business forward,” said Sebi chairman M Damodaran at a CII conference in Chennai recently.
For members of the 20-odd regional stock exchanges in the country, the statement has an ominous undertone. Shutting down would mean foregoing the benefits of owning a licence to run a trading platform and more importantly, claim over real estate in prime locations spread across the country.
And with the deadline on demutualisation (getting new shareholders to hold 51% and end being a broker’s club) looming large for some of these exchanges (August 28); the question being asked is how long would these defunct entities carry on with the facade of being important for the country’s capital markets.
Out of the 20 exchanges, many have simply given up hope. And not having taken any step towards divestment of broker stakes, they are likely to be derecognised, and die a silent death.
However, there are those who haven’t. Delhi Stock Exchange, for instance, has already roped in five foreign institutions, who have bought 21% in the company. DSE has already announced plans to come out with an IPO in the next six to seven months. Calcutta, Pune, Hyderabad, Bangalore, Madras and Ahmedabad are the other exchanges, which have shortlisted several interested parties and have approached the regulator for approval.
"A single investor cannot acquire more than 5% stake. Why will an investor do all the legwork to acquire such a minuscule stake in a defunct exchange?,” asked an RSE official, who did not wish to be identified as he is still in the process of bringing in investors. “Effectively, this means every single regional stock exchange has to search for 10-11 unrelated different entities who are ready to acquire a 5% stake,” he added.
Federation of Indian Stock Exchanges, an umbrella body of regional exchanges, chairman V Ramu Sharma had earlier proposed that all the exchanges come together to find investors. However, his call did not find any takers.
“Regional stock exchanges have attracted investors apparently because they hold a trading licence and could possibly see some form of trade in the coming years,” said JR Varma, professor of finance at IIM-Ahmedabad, and once a whole-time Sebi member. “However, the real motive may be to grab valuable real estate and other assets,” he warns. In fact, there are signs of this. Many realtors are said to be in the fray to acquire stakes in many RSEs.
But how much control can a 5% stake have? “A 5% clause should be seen only as an entry point for investors. In case rules change, then a shareholder could hike his stake and have more meaningful say over matters,” he said.
While the demutualisation will result in a windfall for existing shareholders, the new owners might not necessarily be interested in running an already defunct stock exchange. The assets will play a crucial role, as the land bank can be leased out to different corporate houses.
“The only way our regional stock exchanges can survive is if they offer specialised and niche services or products,” said Mr Varma citing the example of Philadelphia exchange, which only trades in options.
Mr Sharma sums it up aptly. “Completing demutualisation is not the end of the road, but the beginning of a new process. All exchanges could consolidate and then seek the help from big brother NSE or BSE. They could come together to form an SME exchange or develop some other business model,” he said.
Check seen on broking cos’ IPO fund use
Aug 03, 2007
Ashish Rukhaiyar
MUMBAI
DOMESTIC broking houses looking to raise money through initial public offerings may have to be more forthcoming on what use the funds will be put to. Else, they may not find it easy to get the green light for their public issues.
With the four-year bull run continuing, despite some hiccups, broking houses are in the midst of a mad rush to expand operations. Obviously this requires funds. But, this is not the sole reason why these firms are looking to raise funds. Many brokerage houses have floated non-banking financial companies (NBFCs) to cater to the highly-lucrative margin funding business.
Some market watchers are worried that money raised through the IPOs may find its way into these NBFCs. Industry sources added that the market regulator, Sebi, might design some additional set of disclosures, or in other words, ask for more clarity as to how the proceeds would be used in order to stop them from flowing into the NBFC. However, nothing concrete has been done as yet, they said.
“Sebi has definite and genuine concerns about the misuse of the money,” said Prime Database managing director Prithvi Haldea. “Regulation is an ever-evolving process and going ahead, Sebi might think of additional disclosures for the brokerage sector, too, like they did for the real estate companies sometime ago,” he added. Meanwhile, an email query sent to Sebi remained unanswered.
Margin funding is a lucrative business for most broking houses that demands huge capital. While there are clear guidelines as to how a broking house can do margin funding business, there are many grey areas when it comes to an NBFC. Hence, it comes as no surprise that most broking houses have an NBFC arm, which takes care of the margin funding.
“Almost all broking houses do margin funding business through their respective NBFCs in a nontransparent manner,” said an investment banker. “A statement like ‘money will be used for expansion plans’ in the objects of the issue is quite ambiguous and allows a broking house to invest the money in a subsidiary that deals in margin funding business,” he added.
Another investment banker added that the industry’s infrastructure costs are not very high. “If a broking house says that it would be using Rs 100 crore for expansion purposes, then there is definitely something worth looking into. Only an NBFC requires such high capital,” he added.
Interestingly, the time is ripe for the market regulator to frame additional disclosures as quite a few broking houses have lined up their IPOs. While Motilal Oswal Securities is in the final stages of launching is public issue, according to Prime Database Anand Rathi Securities, Angel Broking, Religare Securities, Sharekhan and Ventura Securities are some of the other entities that are planning to tap the market.
UNDER SCANNER
* Almost all broking houses have an NBFC arm to cater to the margin funding business
* These NBFCs are capital intensive businesses
* Broking houses divert IPO proceeds to fund the NBFC arm, say sources
Ashish Rukhaiyar
MUMBAI
DOMESTIC broking houses looking to raise money through initial public offerings may have to be more forthcoming on what use the funds will be put to. Else, they may not find it easy to get the green light for their public issues.
With the four-year bull run continuing, despite some hiccups, broking houses are in the midst of a mad rush to expand operations. Obviously this requires funds. But, this is not the sole reason why these firms are looking to raise funds. Many brokerage houses have floated non-banking financial companies (NBFCs) to cater to the highly-lucrative margin funding business.
Some market watchers are worried that money raised through the IPOs may find its way into these NBFCs. Industry sources added that the market regulator, Sebi, might design some additional set of disclosures, or in other words, ask for more clarity as to how the proceeds would be used in order to stop them from flowing into the NBFC. However, nothing concrete has been done as yet, they said.
“Sebi has definite and genuine concerns about the misuse of the money,” said Prime Database managing director Prithvi Haldea. “Regulation is an ever-evolving process and going ahead, Sebi might think of additional disclosures for the brokerage sector, too, like they did for the real estate companies sometime ago,” he added. Meanwhile, an email query sent to Sebi remained unanswered.
Margin funding is a lucrative business for most broking houses that demands huge capital. While there are clear guidelines as to how a broking house can do margin funding business, there are many grey areas when it comes to an NBFC. Hence, it comes as no surprise that most broking houses have an NBFC arm, which takes care of the margin funding.
“Almost all broking houses do margin funding business through their respective NBFCs in a nontransparent manner,” said an investment banker. “A statement like ‘money will be used for expansion plans’ in the objects of the issue is quite ambiguous and allows a broking house to invest the money in a subsidiary that deals in margin funding business,” he added.
Another investment banker added that the industry’s infrastructure costs are not very high. “If a broking house says that it would be using Rs 100 crore for expansion purposes, then there is definitely something worth looking into. Only an NBFC requires such high capital,” he added.
Interestingly, the time is ripe for the market regulator to frame additional disclosures as quite a few broking houses have lined up their IPOs. While Motilal Oswal Securities is in the final stages of launching is public issue, according to Prime Database Anand Rathi Securities, Angel Broking, Religare Securities, Sharekhan and Ventura Securities are some of the other entities that are planning to tap the market.
UNDER SCANNER
* Almost all broking houses have an NBFC arm to cater to the margin funding business
* These NBFCs are capital intensive businesses
* Broking houses divert IPO proceeds to fund the NBFC arm, say sources
PE firms may pick up majority stake in JRG
Jul 26, 2007
Ashish Rukhaiyar
MUMBAI
PRIVATE equity appetite for Indian brokerage houses seems far from over. It’s not just big and strong players who manage to strike impressive deals, small and niche brokerage houses also elicit interest from PE players. They provide PE firms an easy access to the buoyant Indian capital market, and that too, at decent valuations.
According to sources, Kochi-based JRG Securities is in talks with a couple of PE players and if all goes well, there could be a deal in the offing. The promoters of JRG Securities are in discussion and on the lookout for strategic partners to help them scale up their operations, said a source close to the development.
It is believed that two PE entities — one each from the US and Europe — have evinced interest in acquiring a majority stake in the brokerage that has around 400 branches and caters to more than two lakh customers. Sources further added that the entities are looking at a stake of around 40% for about Rs 100 crore, which is at a huge premium over its current stock price.
“It is believed that the promoters are in no mood to dilute their holdings, and one might see fresh equity in the form of preferential allotment,” one of the sources added. Company officials, when contacted, refused to comment.
The market seems to have already got a hang of the undercurrent. The stock of JRG Securities has surged by nearly 40% during the past one month. On Wednesday, it closed at Rs 54, up nearly 2%, even as the benchmark Sensex lost nearly 100 points.
Apart from BSE and NSE, JRG is a member of National Multi Commodity Exchange of India (NMCEIL), National Commodities Derivatives Exchange (NCDEX), Multi Commodity Exchange of India (MCX) and India Pepper and Spice Trade Association (IPSTA). It is also one of south India’s leading insurance brokers.
Ashish Rukhaiyar
MUMBAI
PRIVATE equity appetite for Indian brokerage houses seems far from over. It’s not just big and strong players who manage to strike impressive deals, small and niche brokerage houses also elicit interest from PE players. They provide PE firms an easy access to the buoyant Indian capital market, and that too, at decent valuations.
According to sources, Kochi-based JRG Securities is in talks with a couple of PE players and if all goes well, there could be a deal in the offing. The promoters of JRG Securities are in discussion and on the lookout for strategic partners to help them scale up their operations, said a source close to the development.
It is believed that two PE entities — one each from the US and Europe — have evinced interest in acquiring a majority stake in the brokerage that has around 400 branches and caters to more than two lakh customers. Sources further added that the entities are looking at a stake of around 40% for about Rs 100 crore, which is at a huge premium over its current stock price.
“It is believed that the promoters are in no mood to dilute their holdings, and one might see fresh equity in the form of preferential allotment,” one of the sources added. Company officials, when contacted, refused to comment.
The market seems to have already got a hang of the undercurrent. The stock of JRG Securities has surged by nearly 40% during the past one month. On Wednesday, it closed at Rs 54, up nearly 2%, even as the benchmark Sensex lost nearly 100 points.
Apart from BSE and NSE, JRG is a member of National Multi Commodity Exchange of India (NMCEIL), National Commodities Derivatives Exchange (NCDEX), Multi Commodity Exchange of India (MCX) and India Pepper and Spice Trade Association (IPSTA). It is also one of south India’s leading insurance brokers.
Poonawalla’s Serum Institute may go public to raise Rs 500 crore
Jul 06, 2007
Noemie Bisserbe, Ashish Rukhaiyar & Gouri Athale
MUMBAI/PUNE
THE Dr Cyrus Poonawalla-owned Serum Institute of India (SII), the country’s largest exporter of vaccines and immuno-biologicals, and flagship of the Poonawalla Group of companies, may soon go public.
According to a source close to the development, the Pune-based company is expected to come up with a draft red herring prospectus by the beginning of next year. This could be one of the largest IPOs in the pharma sector, as the company is planning to raise around Rs 500 crore. According to a person close to the development, Enam Financial is advising the company on the issue.
Dr Cyrus Poonawalla, Serum Institute of India’s chairman and managing director, confirmed the development, but declined to give any time line for the issue. While it is still not clear how the company is planning to use the funds from the IPO, it could use it for financing the development of Serum Bio Pharma Park, India’s first biotech special economic zone (SEZ), recently set up in Pune.
While development work on the SEZ has already started and a few units have commenced production, the project is expected to be completed only by 2010.
Serum Institute of India’s investment in the project has been divided into separate phases. The company had announced at the time of the SEZ’s inauguration in February 2006, that the first phase of investment would be a minimum of Rs 500 crore and the total investment would build to at least Rs 1,200 crore.
The SEZ, which has been allocated 55 acres of notified land will be gradually expanded to 250 acres. Serum Institute will have five to six units in the SEZ. About a billion doses of various vaccines are expected to be produced on an annual basis from the SEZ. The new zone will make vaccines for pneumonia, rotovirus and combination vaccines for the entire range of meningitis, influenza and Hib.
Serum Institute of India exports its vaccines and anti-cancer products along with anti venom serums in over 145 countries across Asia, Africa, Europe and Central and South America. It also markets a small range of pharmaceutical products in India including seven of Swiss biotech major Merck Serono’s products.
The company is also gearing up to enter the US oncology market. In October 2004, Serum Institute of India had entered into an exclusive agreement with US-based Akorn to develop and market oncological drugs in the US.
Last year, the company also purchased one million Akorn shares at a price of $3.56 each. Akorn is expected to start filing products with the US Food and Drug Administration (FDA) sometime this year.
“There is still time for regulatory filings and it takes close to two years to receive approval to market a product in the US,” said a company official. The products for the US market will also be manufactured at the SEZ.
Serum Institute revenues jumped by 37% to Rs 951 crore in the year ended March 31st, 2007, from Rs 703 crore in last financial year. Revenues for the year ended March 31st, 2005 stood at Rs 505 crore.
Noemie Bisserbe, Ashish Rukhaiyar & Gouri Athale
MUMBAI/PUNE
THE Dr Cyrus Poonawalla-owned Serum Institute of India (SII), the country’s largest exporter of vaccines and immuno-biologicals, and flagship of the Poonawalla Group of companies, may soon go public.
According to a source close to the development, the Pune-based company is expected to come up with a draft red herring prospectus by the beginning of next year. This could be one of the largest IPOs in the pharma sector, as the company is planning to raise around Rs 500 crore. According to a person close to the development, Enam Financial is advising the company on the issue.
Dr Cyrus Poonawalla, Serum Institute of India’s chairman and managing director, confirmed the development, but declined to give any time line for the issue. While it is still not clear how the company is planning to use the funds from the IPO, it could use it for financing the development of Serum Bio Pharma Park, India’s first biotech special economic zone (SEZ), recently set up in Pune.
While development work on the SEZ has already started and a few units have commenced production, the project is expected to be completed only by 2010.
Serum Institute of India’s investment in the project has been divided into separate phases. The company had announced at the time of the SEZ’s inauguration in February 2006, that the first phase of investment would be a minimum of Rs 500 crore and the total investment would build to at least Rs 1,200 crore.
The SEZ, which has been allocated 55 acres of notified land will be gradually expanded to 250 acres. Serum Institute will have five to six units in the SEZ. About a billion doses of various vaccines are expected to be produced on an annual basis from the SEZ. The new zone will make vaccines for pneumonia, rotovirus and combination vaccines for the entire range of meningitis, influenza and Hib.
Serum Institute of India exports its vaccines and anti-cancer products along with anti venom serums in over 145 countries across Asia, Africa, Europe and Central and South America. It also markets a small range of pharmaceutical products in India including seven of Swiss biotech major Merck Serono’s products.
The company is also gearing up to enter the US oncology market. In October 2004, Serum Institute of India had entered into an exclusive agreement with US-based Akorn to develop and market oncological drugs in the US.
Last year, the company also purchased one million Akorn shares at a price of $3.56 each. Akorn is expected to start filing products with the US Food and Drug Administration (FDA) sometime this year.
“There is still time for regulatory filings and it takes close to two years to receive approval to market a product in the US,” said a company official. The products for the US market will also be manufactured at the SEZ.
Serum Institute revenues jumped by 37% to Rs 951 crore in the year ended March 31st, 2007, from Rs 703 crore in last financial year. Revenues for the year ended March 31st, 2005 stood at Rs 505 crore.
Higher open offer price talk gives Blue Dart stock a lift
Jun 19, 2007
Ashish Rukhaiyar
MUMBAI
SHARES of Blue Dart Express surged by nearly 10% on Monday on the BSE on talk that DHL has agreed to an offer price of Rs 950 per share to acquire the remaining stake in the company. The freight and logistics major had acquired a majority stake in Blue Dart in 2004 and has since then been trying hard to acquire the residual stake and delist the company.
DHL currently holds a little over 81% in Blue Dart through DHL Express Singapore, while institutional investors collectively hold 10.34%. Individual investors have a stake of less than 5%. The institutional investors include fund houses like SBI Mutual Fund and UTI Mutual Fund.
According to sources, talks had initially fallen through in November last year due to differences over the buyback price. DHL finally gave the goahead to a price arrived at by the reverse book building process in November last year.
Interestingly, DHL had earlier refused to accept this price of Rs 950 per share. The price is at a premium of nearly 44% over Monday’s closing price of Rs 649 on BSE. In the past one month, the stock has gained nearly 45% or Rs 196.30.
“There were some issues related to the offer price, which have been sorted out now,” says a source close to the development. “Earlier, DHL was insisting on a price of less than Rs 700 per share that was unacceptable to the shareholders. After much deliberations, the promoters decided to accept the discovered price of Rs 950. The process is likely to near completion over the next couple of months,” he added.
The delisting process is finally on track, nearly 10 months after DHL first sent an official notice to the board of Blue Dart, signalling its intention of getting the company delisted.
Meanwhile, Blue Dart officials, when contacted, refused to comment. “It is not the policy of the company to comment on any rumours,” said Tushar Gunderia, company secretary, Blue Dart Express.
Ashish Rukhaiyar
MUMBAI
SHARES of Blue Dart Express surged by nearly 10% on Monday on the BSE on talk that DHL has agreed to an offer price of Rs 950 per share to acquire the remaining stake in the company. The freight and logistics major had acquired a majority stake in Blue Dart in 2004 and has since then been trying hard to acquire the residual stake and delist the company.
DHL currently holds a little over 81% in Blue Dart through DHL Express Singapore, while institutional investors collectively hold 10.34%. Individual investors have a stake of less than 5%. The institutional investors include fund houses like SBI Mutual Fund and UTI Mutual Fund.
According to sources, talks had initially fallen through in November last year due to differences over the buyback price. DHL finally gave the goahead to a price arrived at by the reverse book building process in November last year.
Interestingly, DHL had earlier refused to accept this price of Rs 950 per share. The price is at a premium of nearly 44% over Monday’s closing price of Rs 649 on BSE. In the past one month, the stock has gained nearly 45% or Rs 196.30.
“There were some issues related to the offer price, which have been sorted out now,” says a source close to the development. “Earlier, DHL was insisting on a price of less than Rs 700 per share that was unacceptable to the shareholders. After much deliberations, the promoters decided to accept the discovered price of Rs 950. The process is likely to near completion over the next couple of months,” he added.
The delisting process is finally on track, nearly 10 months after DHL first sent an official notice to the board of Blue Dart, signalling its intention of getting the company delisted.
Meanwhile, Blue Dart officials, when contacted, refused to comment. “It is not the policy of the company to comment on any rumours,” said Tushar Gunderia, company secretary, Blue Dart Express.
M&M in talks to buy Italian gearbox maker for Rs 400 cr
Jun 08, 2007
Ashish Rukhaiyar
MUMBAI
MAHINDRA & Mahindra (M&M), India’s largest tractor and utility vehicle maker, is believed to be looking at acquiring a gearbox company in Italy in a deal valued between Rs 350-400 crore, people familiar with the situation said. Talks with an investor in the Italian company who wants to exit are in an advanced stage, they added.
The company that is being planned for acquisition is said to be more than 50 years old. It manufactures products such as fully assembled transmission shift rails. It also has a plant in Milan. M&M will acquire it in a phased manner and then turn it around.
“While it is not possible for me to discuss specific deals with you, it is true we keep looking at good companies for acquisition,” said Hemant Luthra, president of Mahindra Systems & Automotive Technologies. “We are looked upon as a credible acquirer and a creator of value, and companies do approach us from time to time,” Mr Luthra added. He declined to give details.
Responding to an e-mail questionnaire, a company spokesperson said she has nothing more to add beyond Mr Luthra’s comments.
People familiar with the deal said M&M wants to fully acquire the company and then merge it with Sar Auto, an M&M group company, and then list it on the domestic bourses. “The acquisition will be done through M&M,” the sources said.
M&M is on a consolidation drive. The board of Mahindra Forgings had recently approved the merger of Mahindra Stokes Holding Company, Mahindra Forgings Overseas and Mahindra Forgings Mauritius with the company as part of the plan.
Ashish Rukhaiyar
MUMBAI
MAHINDRA & Mahindra (M&M), India’s largest tractor and utility vehicle maker, is believed to be looking at acquiring a gearbox company in Italy in a deal valued between Rs 350-400 crore, people familiar with the situation said. Talks with an investor in the Italian company who wants to exit are in an advanced stage, they added.
The company that is being planned for acquisition is said to be more than 50 years old. It manufactures products such as fully assembled transmission shift rails. It also has a plant in Milan. M&M will acquire it in a phased manner and then turn it around.
“While it is not possible for me to discuss specific deals with you, it is true we keep looking at good companies for acquisition,” said Hemant Luthra, president of Mahindra Systems & Automotive Technologies. “We are looked upon as a credible acquirer and a creator of value, and companies do approach us from time to time,” Mr Luthra added. He declined to give details.
Responding to an e-mail questionnaire, a company spokesperson said she has nothing more to add beyond Mr Luthra’s comments.
People familiar with the deal said M&M wants to fully acquire the company and then merge it with Sar Auto, an M&M group company, and then list it on the domestic bourses. “The acquisition will be done through M&M,” the sources said.
M&M is on a consolidation drive. The board of Mahindra Forgings had recently approved the merger of Mahindra Stokes Holding Company, Mahindra Forgings Overseas and Mahindra Forgings Mauritius with the company as part of the plan.
Two key i-Sec execs on way out
Jun 06, 2007
Ashish Rukhaiyar
MUMBAI
TWO key officials of ICICI Securities (i-Sec), Amrish Baliga and Mehul Savla, who control a major chunk of the investment banking business, have expressed their desire to exit the organisation. It is believed the two officials of the VP rank have already put in their papers. However, i-SEC officials said that talks and negotiations are on with the i-bankers to retain them.
While there is talk Amrish Baliga and Mehul Savla are toying with options of moving to a foreign investment banking entity, another key official, Anuj Bhargava is also moving albeit to parent company, ICICI Bank. The latter’s move has been categorised as an inter-group transfer as prior to joining i-Sec, Mr Bhargava was with ICICI Bank.
Mr Baliga has been with the i-bank for 5 years, while Mr Savla has spent 8 years in i-Sec. Mr Baliga has been in charge of the private equity business, while Mr Savla looks after the equity capital markets business. Mr Savla has the distinction of having earlier worked with Sebi for 3 years covering equity derivatives and secondary markets. Anuj Bhargava heads the business restructuring advisory group at i-Sec.
“Talks and discussions are on and I believe at least one of them will stay back,” said a senior official with the ibanking entity. Mr Savla and Mr Baliga could not be reached for their comments.
Sources also add i-Sec will indeed try hard to retain least one of them, as they control a major chunk (50 60%) of the business. While Mr Baliga is looked upon as the backbone of the private equity business of i-Sec, Mr Savla has been more than active on the execution side.
It is believed that if negotiations fail, then two of them might just leave before the end of this month. Amongst the sops being extended to retain them, there is talk of inclusion on the board, said a source.
An exit would place i-Sec in a quandary given that the investment banking entity is occupied with the DLF and Bharat Earth Movers issue. ICICI Bank, is also slated to raise Rs 10,000 crore in the domestic market. The other notable deal includes that of Omaxe.
Earlier, Devesh Kumar, head equities at i-Sec had moved out to Centrum Broking, taking 2 key people from within the research and trading team— R Amarnath and Om Prakash Periwal.
Ashish Rukhaiyar
MUMBAI
TWO key officials of ICICI Securities (i-Sec), Amrish Baliga and Mehul Savla, who control a major chunk of the investment banking business, have expressed their desire to exit the organisation. It is believed the two officials of the VP rank have already put in their papers. However, i-SEC officials said that talks and negotiations are on with the i-bankers to retain them.
While there is talk Amrish Baliga and Mehul Savla are toying with options of moving to a foreign investment banking entity, another key official, Anuj Bhargava is also moving albeit to parent company, ICICI Bank. The latter’s move has been categorised as an inter-group transfer as prior to joining i-Sec, Mr Bhargava was with ICICI Bank.
Mr Baliga has been with the i-bank for 5 years, while Mr Savla has spent 8 years in i-Sec. Mr Baliga has been in charge of the private equity business, while Mr Savla looks after the equity capital markets business. Mr Savla has the distinction of having earlier worked with Sebi for 3 years covering equity derivatives and secondary markets. Anuj Bhargava heads the business restructuring advisory group at i-Sec.
“Talks and discussions are on and I believe at least one of them will stay back,” said a senior official with the ibanking entity. Mr Savla and Mr Baliga could not be reached for their comments.
Sources also add i-Sec will indeed try hard to retain least one of them, as they control a major chunk (50 60%) of the business. While Mr Baliga is looked upon as the backbone of the private equity business of i-Sec, Mr Savla has been more than active on the execution side.
It is believed that if negotiations fail, then two of them might just leave before the end of this month. Amongst the sops being extended to retain them, there is talk of inclusion on the board, said a source.
An exit would place i-Sec in a quandary given that the investment banking entity is occupied with the DLF and Bharat Earth Movers issue. ICICI Bank, is also slated to raise Rs 10,000 crore in the domestic market. The other notable deal includes that of Omaxe.
Earlier, Devesh Kumar, head equities at i-Sec had moved out to Centrum Broking, taking 2 key people from within the research and trading team— R Amarnath and Om Prakash Periwal.
Saturday 3 November 2007
Reliance Money caught in e-trap
Investors Blame System Snags For
Wrong Ledger Balance, Financial Losses
May 26, 2007
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
EVEN as it looks to replicate the telecom success story in its retail stock broking business, Anil Dhirubhai Ambani Group’s (ADAG) recently launched Reliance Money is facing some teething problems.
A few investors told ET about having suffered losses in their trading accounts due to glitches in Reliance Money’s trading software. The complaints range from wrong ledger balance to incorrect order details to deletion of trade history. They have further alleged that repeated calls to the franchisees and customer care department have not yielded any results.
“The allegations are completely false, baseless and very clearly made up. Our system is robust,” said Sudip Bandyopadhyay, director & CEO, Reliance Money, in a response to an email query.
Formally launched last month, Reliance Money was the first to introduce the concept of pre-paid cards in the retail broking industry. Instead of a percentage-based fee structure, the client can trade up to a certain value of turnover for a flat fee.
A customer, who is still in the process of recovering his money, said that recently he sold 10,000 shares of Reliance Natural Resources (RNRL) at a profit and still his ledger balance was showing a debit.
“I sold shares of RNRL at around Rs 32.15, which is quite close to its 52-week high price. I had bought it for around Rs 31.95. Still my ledger is showing that I have made a loss,” says Bharat Mishra who has his account with a suburb-based franchisee. Further, the trade book now has no records related to that particular transaction, he added.
In another instance, Manish Modi, an investor based in Vile Parle, told ET of how he had put in a limit order for buying shares of a company. At the end of the day the software had no record of any such transaction. However, the next day the call centre executives from the company informed him that the order has already been executed at some price.
Later in the day, the stock price fell below the previous day’s levels. So the investor asked the executives to square off the transaction. But instead of executing the sell order immediately, it was squared off at the closing price causing further losses to the investor.
Since then Mr Modi has written a number of letters to R Money about the unintended and wrongly-timed transactions, copies of which are available with ET.
“It was after much hassle that I finally convinced them that they should refund me all the money,” an irate Mr Modi said. A common complaint has been that the executives at the call centre were uncooperative. Some of the franchisees have also confirmed that there have been indeed such complaints and not many customers have been lucky to recover the losses.
“Recovery of the losses depends more on our muscle power. If we remain adamant, then the company makes good the losses,” says a franchise who sells the product and hence requested anonymity.
Another franchisee based in south Mumbai said, “Although the software does not pose any problems when it comes to selling of IPOs and mutual funds, we have had instances of problems when it comes to dealing in stocks.”
Wrong Ledger Balance, Financial Losses
May 26, 2007
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
EVEN as it looks to replicate the telecom success story in its retail stock broking business, Anil Dhirubhai Ambani Group’s (ADAG) recently launched Reliance Money is facing some teething problems.
A few investors told ET about having suffered losses in their trading accounts due to glitches in Reliance Money’s trading software. The complaints range from wrong ledger balance to incorrect order details to deletion of trade history. They have further alleged that repeated calls to the franchisees and customer care department have not yielded any results.
“The allegations are completely false, baseless and very clearly made up. Our system is robust,” said Sudip Bandyopadhyay, director & CEO, Reliance Money, in a response to an email query.
Formally launched last month, Reliance Money was the first to introduce the concept of pre-paid cards in the retail broking industry. Instead of a percentage-based fee structure, the client can trade up to a certain value of turnover for a flat fee.
A customer, who is still in the process of recovering his money, said that recently he sold 10,000 shares of Reliance Natural Resources (RNRL) at a profit and still his ledger balance was showing a debit.
“I sold shares of RNRL at around Rs 32.15, which is quite close to its 52-week high price. I had bought it for around Rs 31.95. Still my ledger is showing that I have made a loss,” says Bharat Mishra who has his account with a suburb-based franchisee. Further, the trade book now has no records related to that particular transaction, he added.
In another instance, Manish Modi, an investor based in Vile Parle, told ET of how he had put in a limit order for buying shares of a company. At the end of the day the software had no record of any such transaction. However, the next day the call centre executives from the company informed him that the order has already been executed at some price.
Later in the day, the stock price fell below the previous day’s levels. So the investor asked the executives to square off the transaction. But instead of executing the sell order immediately, it was squared off at the closing price causing further losses to the investor.
Since then Mr Modi has written a number of letters to R Money about the unintended and wrongly-timed transactions, copies of which are available with ET.
“It was after much hassle that I finally convinced them that they should refund me all the money,” an irate Mr Modi said. A common complaint has been that the executives at the call centre were uncooperative. Some of the franchisees have also confirmed that there have been indeed such complaints and not many customers have been lucky to recover the losses.
“Recovery of the losses depends more on our muscle power. If we remain adamant, then the company makes good the losses,” says a franchise who sells the product and hence requested anonymity.
Another franchisee based in south Mumbai said, “Although the software does not pose any problems when it comes to selling of IPOs and mutual funds, we have had instances of problems when it comes to dealing in stocks.”
TFL to fish out Rs 120 cr for HLL marine biz
May 24, 2007
Ashish Rukhaiyar & Benny Antony
MUMBAI
MUMBAI-BASED Temptation Foods (TFL), a frozen food marketer, is understood to be inking a deal with HLL to acquire its marine product business division for around Rs 100-120 crore. The deal would also include transfer of the people managing the marine business in HLL to TFL. HLL’s marine division exports products like crabsticks, shrimps and fish fillets among others. The company had earlier short-listed four bidders for the sale.
When contacted, an HLL spokesperson said, “As a policy, we do not comment on market speculation. We have no comments to offer.” While the deal has already been sealed, TFL is believed to be raising fresh funds either through a qualified institutional placement or by any other equity-related instrument.
Reports of HLL looking to sell its marine product business have been in the air for quite some time now. Apart from TFL, it is believed that a private equity player was also in the fray for acquiring the business that generated a turnover of nearly Rs 250 crore for the FMCG behemoth.
HLL got into several non-core businesses at a time when the Indian government encouraged private sector participation to push the sectors and forex earnings. One of the biggest seafood exporter, HLL earlier operated mainly as a merchant exporter in the seafood market and scaled up as an active value-add player after it took over the seafood processing plants of the Kochi-based Amalgam group.
However, with growing competition, the business was seen as non-core and the FMCG company sold its seafood processing plant in Andhra Pradesh and shut down its operations in Gujarat.
Marine exports from India stand at $2.5 billion and the government expects to double it in the coming years. The organised processed foods segment currently amounts to around $3.5 billion and it has been growing at the rate of over 10% per annum.
TFL is looking at aggressively pushing the products in the domestic market where the business margins are quite high. An email query sent to TFL remained unanswered. TFL currently offers frozen products like peas, drumsticks, chillies, capsicum and beans among other vegetables. The firm also deals in frozen fruits like apple, guava, pineapple, mango and strawberry.
On BSE, the stock of TFL gained 3% on Wednesday to end the day at Rs 115. The stock has gained more than 12% in the last one week.
Last month, HLL sold its retail operations Sangam Direct to Wadhawan Food Retail, a part of Delhi-based housing finance company, Dewan Housing Finance Ltd (DHFL). The stock of HLL gained a little over 2% to close at Rs 198.45.
TFL had recently bought a 26% stake in Karen’s Gourmet Kitchen for an undisclosed sum. It had also recently announced its entry into the private label business through the launch of its own brand, Delica. The company has a production capacity of 10,000 tonnes per annum and has posted a topline and bottomline of Rs 38.90 crore and Rs 5.82 crore respectively for the fiscal ended March 2007.
MAIN COURSE
* TFL plans to push products in the domestic market where the business margins are high
* Deal would also include transfer of people managing the marine business in HLL to TFL
* TFL raising fresh funds via institutional placement or equity-related instrument
Ashish Rukhaiyar & Benny Antony
MUMBAI
MUMBAI-BASED Temptation Foods (TFL), a frozen food marketer, is understood to be inking a deal with HLL to acquire its marine product business division for around Rs 100-120 crore. The deal would also include transfer of the people managing the marine business in HLL to TFL. HLL’s marine division exports products like crabsticks, shrimps and fish fillets among others. The company had earlier short-listed four bidders for the sale.
When contacted, an HLL spokesperson said, “As a policy, we do not comment on market speculation. We have no comments to offer.” While the deal has already been sealed, TFL is believed to be raising fresh funds either through a qualified institutional placement or by any other equity-related instrument.
Reports of HLL looking to sell its marine product business have been in the air for quite some time now. Apart from TFL, it is believed that a private equity player was also in the fray for acquiring the business that generated a turnover of nearly Rs 250 crore for the FMCG behemoth.
HLL got into several non-core businesses at a time when the Indian government encouraged private sector participation to push the sectors and forex earnings. One of the biggest seafood exporter, HLL earlier operated mainly as a merchant exporter in the seafood market and scaled up as an active value-add player after it took over the seafood processing plants of the Kochi-based Amalgam group.
However, with growing competition, the business was seen as non-core and the FMCG company sold its seafood processing plant in Andhra Pradesh and shut down its operations in Gujarat.
Marine exports from India stand at $2.5 billion and the government expects to double it in the coming years. The organised processed foods segment currently amounts to around $3.5 billion and it has been growing at the rate of over 10% per annum.
TFL is looking at aggressively pushing the products in the domestic market where the business margins are quite high. An email query sent to TFL remained unanswered. TFL currently offers frozen products like peas, drumsticks, chillies, capsicum and beans among other vegetables. The firm also deals in frozen fruits like apple, guava, pineapple, mango and strawberry.
On BSE, the stock of TFL gained 3% on Wednesday to end the day at Rs 115. The stock has gained more than 12% in the last one week.
Last month, HLL sold its retail operations Sangam Direct to Wadhawan Food Retail, a part of Delhi-based housing finance company, Dewan Housing Finance Ltd (DHFL). The stock of HLL gained a little over 2% to close at Rs 198.45.
TFL had recently bought a 26% stake in Karen’s Gourmet Kitchen for an undisclosed sum. It had also recently announced its entry into the private label business through the launch of its own brand, Delica. The company has a production capacity of 10,000 tonnes per annum and has posted a topline and bottomline of Rs 38.90 crore and Rs 5.82 crore respectively for the fiscal ended March 2007.
MAIN COURSE
* TFL plans to push products in the domestic market where the business margins are high
* Deal would also include transfer of people managing the marine business in HLL to TFL
* TFL raising fresh funds via institutional placement or equity-related instrument
New IPO rules just made the process a lot more listless
May 18, 2007
Ashish Rukhaiyar
MUMBAI
INSTANCES of companies having to wait for months to get draft prospectus of their public issues cleared by the market regulator are not rare. It has been a subject of debate that the initial public offering (IPO) system in India is very slow and the Securities and Exchange Board of India (Sebi) needs to amend it. However, the recent amendments in the disclosure guidelines appear to have done just the opposite.
Sebi now has the luxury of a whole month to issue observations on draft offer documents, with an added timeframe of another 15 days, within which to respond to clarifications from bankers. Earlier, there were no firm guidelines as to when Sebi had to respond to bankers’ feedback. Furthermore, Sebi will now issue observations only after the company receives an in-principle approval from the concerned stock exchanges.
On April 30, the market regulator announced a set of amendments to Sebi (Disclosure and Investor Protection) Guidelines, 2000, which includes a clause giving Sebi 30 days to issue the first set of observations on a draft prospectus. Earlier, the regulator had 21 days to send their queries to the merchant bankers.
Although prima facie it is just a difference of nine days, experts are of the view that the amendments, when viewed in totality, are bound to dampen the pace of prospectus clearing process. This is how it works. Once the bankers file their draft prospectus, the regulator gets 30 days to issue its first observation.
After the bankers reply to the queries, Sebi gets 15 days to respond and ask for further clarifications, if any. So every new observation can lead to a maximum delay of 45 days. Interestingly, according to industry sources, the earlier stipulated 21-day period was also not sacrosanct and there have been many instances where Sebi issued observations after the expiry of the 21-day period.
Further, the regulator will not issue any observations till the company gets an in-principle approval from the stock exchanges.
Ashish Rukhaiyar
MUMBAI
INSTANCES of companies having to wait for months to get draft prospectus of their public issues cleared by the market regulator are not rare. It has been a subject of debate that the initial public offering (IPO) system in India is very slow and the Securities and Exchange Board of India (Sebi) needs to amend it. However, the recent amendments in the disclosure guidelines appear to have done just the opposite.
Sebi now has the luxury of a whole month to issue observations on draft offer documents, with an added timeframe of another 15 days, within which to respond to clarifications from bankers. Earlier, there were no firm guidelines as to when Sebi had to respond to bankers’ feedback. Furthermore, Sebi will now issue observations only after the company receives an in-principle approval from the concerned stock exchanges.
On April 30, the market regulator announced a set of amendments to Sebi (Disclosure and Investor Protection) Guidelines, 2000, which includes a clause giving Sebi 30 days to issue the first set of observations on a draft prospectus. Earlier, the regulator had 21 days to send their queries to the merchant bankers.
Although prima facie it is just a difference of nine days, experts are of the view that the amendments, when viewed in totality, are bound to dampen the pace of prospectus clearing process. This is how it works. Once the bankers file their draft prospectus, the regulator gets 30 days to issue its first observation.
After the bankers reply to the queries, Sebi gets 15 days to respond and ask for further clarifications, if any. So every new observation can lead to a maximum delay of 45 days. Interestingly, according to industry sources, the earlier stipulated 21-day period was also not sacrosanct and there have been many instances where Sebi issued observations after the expiry of the 21-day period.
Further, the regulator will not issue any observations till the company gets an in-principle approval from the stock exchanges.
With markets on song, i-bankers make a killing
For Most Investment Bankers,
Bonuses Range From 100-300%
May 09, 2007
Ashish Rukhaiyar
MUMBAI
INVESTMENT bankers never had it so good. With an increase in overseas players making a mark in the country, their bonuses have gone through the roof. A host of factors like rise in volumes in the stock market, increase in mergers and acquisitions and the consequent rise in financing and a talent shortage in the industry have fuelled such a sharp rise. Bonuses this time have been in the range of 100% to 300% in most of the well-known investment banks.
With volumes in the stock market increasing, brokerage houses have seen one of the sharpest rise in bonuses. They have also seen some of the largest payouts. If sources are to be believed, head of a foreign brokerage house has received one of the largest bonus payouts of over $3 million. The research head of the firm is also said to have received a similar amount.
The differences between bonuses among the Indian players and overseas players have also risen this year. According to bankers, bonuses in some of the bigger overseas players have ranged anywhere from 175% to 300%, while those for the bigger Indian outfits have been between 125% and 175%. In fact, some of the bigger Indian players, like Kotak Mahindra, are yet to announce their bonuses for last year.
Foreign I-banks use fat bonuses to attract talent
OF late, companies have become vary of giving out names due to the fear of extortion threats to their key employees. Incidentally, though there has been a rise in the number of people who got bonuses of over $1 million, the sharpest rise has been in the $0.5- $1 million slab. The number of bankers who received bonuses in this range is said to have more than doubled.
Sources say that some of the new foreign players have even paid bonuses of two years upfront to attract talent. This include the bonus that one would have got in his previous employment.
Some of the bigger brokerage houses have seen volumes increase of over 50%. The secondary market have witnessed an impressive growth in the trading volumes. On the Bombay Stock Exchange (BSE), the total volume rose by nearly 18% in FY07 compared to that of FY06. On the National Stock Exchange (NSE), the turnover increased by nearly 24%.
"The bonuses of merchant bankers are directly related to the stock market performance and even though the recent past has been volatile, the past couple of years have seen both the primary and the secondary markets on a roll and this has led to a hefty rise in the bonus payouts,” says a banker with a domestic investment bank. “The volume of transaction has also been on the rise,” he adds.
As far as domestic issues are concerned, merchant bankers are able to charge a higher percentage for smaller issues, which, at times, can be in the range of 1.5% to 3%. However, for bigger issues, it comes down to around 1% as the bankers are more interested in being associated with the issue.
Some of the biggest paymasters are CLSA, Deutsche Bank, Barclays, Merril Lynch, Citi and UBS. Sources add that while Deutsche has given a bonus in the range of 250% to 300%, for Merrill Lynch it has been in the range of 150% to 250%. JP Morgan has also rewarded most of its bankers with 200% bonuses. ICICI Securities bonus payout has been in the range of 100% to 175%.
Compared to previous years in the treasury side forex, derivative dealers and bankers who were involved in financing got bigger bonuses, but they were much smaller than those received on brokerage and reset side.
Interestingly, the quantum of bonus also depends on a designation change. “At times, a banker is not given a promotion, but is rewarded with a higher bonus. On the other hand, a promotion is packed with a lower bonus payout. For example, if a banker is promoted from a vicepresident level to a president’s level, he will be given a 100% bonus, while another vice-president will get a 140% bonus with no promotion,” say sources.
Bonuses Range From 100-300%
May 09, 2007
Ashish Rukhaiyar
MUMBAI
INVESTMENT bankers never had it so good. With an increase in overseas players making a mark in the country, their bonuses have gone through the roof. A host of factors like rise in volumes in the stock market, increase in mergers and acquisitions and the consequent rise in financing and a talent shortage in the industry have fuelled such a sharp rise. Bonuses this time have been in the range of 100% to 300% in most of the well-known investment banks.
With volumes in the stock market increasing, brokerage houses have seen one of the sharpest rise in bonuses. They have also seen some of the largest payouts. If sources are to be believed, head of a foreign brokerage house has received one of the largest bonus payouts of over $3 million. The research head of the firm is also said to have received a similar amount.
The differences between bonuses among the Indian players and overseas players have also risen this year. According to bankers, bonuses in some of the bigger overseas players have ranged anywhere from 175% to 300%, while those for the bigger Indian outfits have been between 125% and 175%. In fact, some of the bigger Indian players, like Kotak Mahindra, are yet to announce their bonuses for last year.
Foreign I-banks use fat bonuses to attract talent
OF late, companies have become vary of giving out names due to the fear of extortion threats to their key employees. Incidentally, though there has been a rise in the number of people who got bonuses of over $1 million, the sharpest rise has been in the $0.5- $1 million slab. The number of bankers who received bonuses in this range is said to have more than doubled.
Sources say that some of the new foreign players have even paid bonuses of two years upfront to attract talent. This include the bonus that one would have got in his previous employment.
Some of the bigger brokerage houses have seen volumes increase of over 50%. The secondary market have witnessed an impressive growth in the trading volumes. On the Bombay Stock Exchange (BSE), the total volume rose by nearly 18% in FY07 compared to that of FY06. On the National Stock Exchange (NSE), the turnover increased by nearly 24%.
"The bonuses of merchant bankers are directly related to the stock market performance and even though the recent past has been volatile, the past couple of years have seen both the primary and the secondary markets on a roll and this has led to a hefty rise in the bonus payouts,” says a banker with a domestic investment bank. “The volume of transaction has also been on the rise,” he adds.
As far as domestic issues are concerned, merchant bankers are able to charge a higher percentage for smaller issues, which, at times, can be in the range of 1.5% to 3%. However, for bigger issues, it comes down to around 1% as the bankers are more interested in being associated with the issue.
Some of the biggest paymasters are CLSA, Deutsche Bank, Barclays, Merril Lynch, Citi and UBS. Sources add that while Deutsche has given a bonus in the range of 250% to 300%, for Merrill Lynch it has been in the range of 150% to 250%. JP Morgan has also rewarded most of its bankers with 200% bonuses. ICICI Securities bonus payout has been in the range of 100% to 175%.
Compared to previous years in the treasury side forex, derivative dealers and bankers who were involved in financing got bigger bonuses, but they were much smaller than those received on brokerage and reset side.
Interestingly, the quantum of bonus also depends on a designation change. “At times, a banker is not given a promotion, but is rewarded with a higher bonus. On the other hand, a promotion is packed with a lower bonus payout. For example, if a banker is promoted from a vicepresident level to a president’s level, he will be given a 100% bonus, while another vice-president will get a 140% bonus with no promotion,” say sources.
Binani Cem IPO clears hurdle, price seen at Rs 80-95
Apr 26, 2007
Ashish Rukhaiyar
MUMBAI
THE imbroglio over valuations resolved, the public issue of Binani Cements (BCL), is finally slated to hit the capital market in the first half of May. According to sources, the price band for the forthcoming issue has been fixed in the range of Rs 80 to Rs 95.
The issue had been in dispute on account of valuation differences between the lead manager (ICICI Securities) and JP Morgan Special Situations Asia Corporation. The JP Morgan entity was reportedly asking for a higher price to offload a part of its stake in the cement company.
ET had reported on April 11 that JP Morgan Special Situations Asia Corporation, which is a wholly-owned subsidiary of JP Morgan Chase, was keen on a price of around Rs 125 per share that was not acceptable to the merchant bankers. It was rumoured that merchant bankers were zooming in on a price less than Rs 100 per share, keeping in the mind the market sentiment, especially towards cement companies.
JP Morgan Special Situations Asia Corporation is offloading 2.05 crore shares, or 10.09% stake, in the company, through IPO. The entity, through its subsidiary JP Morgan Special Situations (Mauritius), holds a 25% stake in the company.
Further, at a price of Rs 95 per share, JP Morgan will be able to net nearly Rs 195 crore for their 10.09% stake. Interestingly, this would also mean a profit of Rs 71 per share for JP Morgan, which had acquired a 25% stake in the company in September 2005 by purchasing equity from Binani Industries at a price of Rs 24 per share.
The draft offer document for the issue was filed in November last year and the market regulator has already issued some observations. In fact, this is the second time that the document has been filed with Sebi.
Meanwhile, as per a stock exchange announcement by Binani Industries, which holds 65% stake in the cement company, BCL has declared a dividend of 20% subject to requisite approvals and that Binani Industries will receive an amount of Rs 26.40 crore.
An email query sent to the company regarding the price band remained unanswered till the time of going to press.
Valuation row holds up Binani IPO
Ashish Rukhaiyar
MUMBAI
THE imbroglio over valuations resolved, the public issue of Binani Cements (BCL), is finally slated to hit the capital market in the first half of May. According to sources, the price band for the forthcoming issue has been fixed in the range of Rs 80 to Rs 95.
The issue had been in dispute on account of valuation differences between the lead manager (ICICI Securities) and JP Morgan Special Situations Asia Corporation. The JP Morgan entity was reportedly asking for a higher price to offload a part of its stake in the cement company.
ET had reported on April 11 that JP Morgan Special Situations Asia Corporation, which is a wholly-owned subsidiary of JP Morgan Chase, was keen on a price of around Rs 125 per share that was not acceptable to the merchant bankers. It was rumoured that merchant bankers were zooming in on a price less than Rs 100 per share, keeping in the mind the market sentiment, especially towards cement companies.
JP Morgan Special Situations Asia Corporation is offloading 2.05 crore shares, or 10.09% stake, in the company, through IPO. The entity, through its subsidiary JP Morgan Special Situations (Mauritius), holds a 25% stake in the company.
Further, at a price of Rs 95 per share, JP Morgan will be able to net nearly Rs 195 crore for their 10.09% stake. Interestingly, this would also mean a profit of Rs 71 per share for JP Morgan, which had acquired a 25% stake in the company in September 2005 by purchasing equity from Binani Industries at a price of Rs 24 per share.
The draft offer document for the issue was filed in November last year and the market regulator has already issued some observations. In fact, this is the second time that the document has been filed with Sebi.
Meanwhile, as per a stock exchange announcement by Binani Industries, which holds 65% stake in the cement company, BCL has declared a dividend of 20% subject to requisite approvals and that Binani Industries will receive an amount of Rs 26.40 crore.
An email query sent to the company regarding the price band remained unanswered till the time of going to press.
Valuation row holds up Binani IPO
Pritish Nandy Comm may offer stake to PE firms
Apr 18, 2007
Ashish Rukhaiyar & Sonali Krishna
MUMBAI
PRITISH Nandy Communications (PNC) may offer a small stake in the company to private equity (PE) funds, people close to the transaction said. Navis Capital Partners is among the firms that has approached Mr Nandy, they added. KPMG is handling the valuation and the due diligence process that is likely to get over in the next 3-4 weeks.
“We are in talks with several players at the moment, and will partner somebody with whom it will make strategic sense that will give us a larger platform, and not just a funding partner,” Mr Nandy said.
PNC is looking to release a slate of six movies this year, and is hoping to ramp up its production to about 10 movies annually in the next couple of years. The company is also eyeing the new media space, to look at alternate revenue streams via internet, mobile phones and cable television.
Earlier this year, PNC got its brand valued by Brand Finance (India), which gave the company a business value of Rs 265.3 crore. For the purposes of valuation it was assumed the definition of brand includes trademark together with intangible assets and intellectual property rights that help produce its associated goodwill.
Navis Capital is a Malaysia-based PE player founded in 1998 to make investments in buyouts, recapitalisations and financial restructuring in Asia. The firm focuses on enterprises in Asia, particularly South and Southeast Asia. Its website says the firm manages approximately $ 1.5 billion in capital commitments.
Through its subsidiary, Navis Investment Partners (Asia), the firm manages several PE funds, whose limited partners include a number of well-known US, European, Middle Eastern and Asian commercial and investment banks, pension funds, insurance firms, corporations, as well as a number of high net worth individuals and family offices.
Meanwhile, PNC has just finished a qualified institutional placement (QIP) that saw the promoter’s stake falling from 41% to 30%.
Ashish Rukhaiyar & Sonali Krishna
MUMBAI
PRITISH Nandy Communications (PNC) may offer a small stake in the company to private equity (PE) funds, people close to the transaction said. Navis Capital Partners is among the firms that has approached Mr Nandy, they added. KPMG is handling the valuation and the due diligence process that is likely to get over in the next 3-4 weeks.
“We are in talks with several players at the moment, and will partner somebody with whom it will make strategic sense that will give us a larger platform, and not just a funding partner,” Mr Nandy said.
PNC is looking to release a slate of six movies this year, and is hoping to ramp up its production to about 10 movies annually in the next couple of years. The company is also eyeing the new media space, to look at alternate revenue streams via internet, mobile phones and cable television.
Earlier this year, PNC got its brand valued by Brand Finance (India), which gave the company a business value of Rs 265.3 crore. For the purposes of valuation it was assumed the definition of brand includes trademark together with intangible assets and intellectual property rights that help produce its associated goodwill.
Navis Capital is a Malaysia-based PE player founded in 1998 to make investments in buyouts, recapitalisations and financial restructuring in Asia. The firm focuses on enterprises in Asia, particularly South and Southeast Asia. Its website says the firm manages approximately $ 1.5 billion in capital commitments.
Through its subsidiary, Navis Investment Partners (Asia), the firm manages several PE funds, whose limited partners include a number of well-known US, European, Middle Eastern and Asian commercial and investment banks, pension funds, insurance firms, corporations, as well as a number of high net worth individuals and family offices.
Meanwhile, PNC has just finished a qualified institutional placement (QIP) that saw the promoter’s stake falling from 41% to 30%.
Valuation row holds up Binani IPO
Apr 11, 2007
Ashish Rukhaiyar
MUMBAI
THE initial public offering (IPO) of Binani Cements is hanging fire over valuation differences between the lead manager (ICICI Securities) and JP Morgan Special Situations Asia Corporation, which is offloading a part of its holding in the cement company through an offer for sale.
According to sources close to the development, JP Morgan Special Situations, a wholly-owned subsidiary of JP Morgan Chase, is keen on a price of around Rs 125 per share, which is not acceptable to the lead managers, I Sec. The JP Morgan arm is offloading 2.05 crore shares, or 10.09% stake, in the company, through the IPO. The entity, through its subsidiary JP Morgan Special Situations (Mauritius), holds a 25% stake in the company.
Sources say that the merchant bankers are not comfortable with a price of Rs 125 per share due to a change in market sentiment and investor outlook. However, the bankers declined any such differences over pricing. “There are no differences regarding the pricing of the issue,” said an official with ICICI Securities. There is uncertainty in the market, especially in the cement sector, but, hopefully, the issue will open in the next few weeks, he added.
The draft offer document for the issue was filed in November last year, and the market regulator has already issued some observations. In fact, this is the second time that the document has been filed with the Securities and Exchange Board of India (Sebi).
Since the observations have been issued by Sebi, the merchant bankers now have less than three months to open the issue. Merchant bankers, however, refused to comment about the observations made by the regulator.
Sources say that since this is the second time that the document has been filed, the bankers may fix a price band of Rs 100 to Rs 110 per share and go ahead with the issue. At a price of Rs 120 per share, JP Morgan will be able to net Rs 246 crore, and still hold nearly 15% in the company.
JP Morgan had acquired the 25% stake in the company in September 2005 by purchasing equity from Binani Industries at Rs 24 per share. JP Morgan officials refused to comment on the issue.
Meanwhile, the company has formed a committee of directors to decide on the price band and the timing of the forthcoming issue. An e-mail query sent to the company remained unanswered till the time of going to press.
Incidentally, JP Morgan is not the only foreign equity holder in the cement company. In July 2006, Ganesha Prime Holdings (Mauritius) acquired a stake in the company by purchasing its existing equity from BIL for Rs 150 crore.
Ashish Rukhaiyar
MUMBAI
THE initial public offering (IPO) of Binani Cements is hanging fire over valuation differences between the lead manager (ICICI Securities) and JP Morgan Special Situations Asia Corporation, which is offloading a part of its holding in the cement company through an offer for sale.
According to sources close to the development, JP Morgan Special Situations, a wholly-owned subsidiary of JP Morgan Chase, is keen on a price of around Rs 125 per share, which is not acceptable to the lead managers, I Sec. The JP Morgan arm is offloading 2.05 crore shares, or 10.09% stake, in the company, through the IPO. The entity, through its subsidiary JP Morgan Special Situations (Mauritius), holds a 25% stake in the company.
Sources say that the merchant bankers are not comfortable with a price of Rs 125 per share due to a change in market sentiment and investor outlook. However, the bankers declined any such differences over pricing. “There are no differences regarding the pricing of the issue,” said an official with ICICI Securities. There is uncertainty in the market, especially in the cement sector, but, hopefully, the issue will open in the next few weeks, he added.
The draft offer document for the issue was filed in November last year, and the market regulator has already issued some observations. In fact, this is the second time that the document has been filed with the Securities and Exchange Board of India (Sebi).
Since the observations have been issued by Sebi, the merchant bankers now have less than three months to open the issue. Merchant bankers, however, refused to comment about the observations made by the regulator.
Sources say that since this is the second time that the document has been filed, the bankers may fix a price band of Rs 100 to Rs 110 per share and go ahead with the issue. At a price of Rs 120 per share, JP Morgan will be able to net Rs 246 crore, and still hold nearly 15% in the company.
JP Morgan had acquired the 25% stake in the company in September 2005 by purchasing equity from Binani Industries at Rs 24 per share. JP Morgan officials refused to comment on the issue.
Meanwhile, the company has formed a committee of directors to decide on the price band and the timing of the forthcoming issue. An e-mail query sent to the company remained unanswered till the time of going to press.
Incidentally, JP Morgan is not the only foreign equity holder in the cement company. In July 2006, Ganesha Prime Holdings (Mauritius) acquired a stake in the company by purchasing its existing equity from BIL for Rs 150 crore.
Plethico Pharma may acquire minority stake in CIS co
Apr 05, 2007
Ashish Rukhaiyar and Noemie Bisserbe
MUMBAI
HERBAL drugs domestic company Plethico Pharma is close to acquiring a minority equity stake in a leading retail pharmacy entity in the CIS region. According to sources close to the development, the entity has already been identified and Singhi & Associates have started the due diligence. The acquisition, which is expected to cost around Rs 70 crore, should be completed within the next four to five months.
Plethico Pharmaceuticals is also in the process of pruning its equity holding in six subsidiary companies in CIS countries. It will divest 30% of the paid up capital in TOO Rezlov Ltd, Kazakhstan, ICS Rezlov-Mo SRL, Moldova, and OOO Rezlov, Kyrghyzstan, and 6% of the paid up capital in CJSC Rezlov, Russia, SC Rezlov, Ukraine, and Rezlov LLS, Azerbeijan, and this at a 40% premium.
“The company will offload a minor part of its holding in the six subsidiaries that will accrue around Rs 60 crore”, said a source. “Around Rs 10 crore from internal accruals will also be utilised for the overseas acquisition,” he added. Plethico may dilute its share in favour of Azedar Global.
According to sources, the main reason behind the proposed deal is that retail pharmacy is a more lucrative business than branded generic drugs marketing in the CIS region. “While the company already has a presence in the CIS countries, it is only through its marketing and distribution subsidiaries.” Company officials declined comment. A few days ago, the board of directors of Plethico also approved to use about Rs 35 crore out of the Rs 110 crore IPO proceeds to finance acquisitions.
Plethico is also looking at manufacturing facilities and retail chains in US and Europe. It is believed to be close to acquiring a nutraceutical manufacturing company in Germany for around Rs 150 crore. Herbals and nutraceuticals already represent over 50% of Plethico’s revenues, while allopathic disposables and contract manufacturing account for the remaining 21% and 29%, respectively.
Plethico is also in the process of establishing a presence in the retail pharmacy sector in the US that will require a total investment of Rs 400 crore. Plethico will use the remaining portion (Rs 35 crore) of the IPO proceeds for the same.
Plethico Pharma has a strong thrust on exports, representing 68.1% of its turnover. It exports products to 45 countries across Africa, South East Asia, the Confederate Independent States, the Gulf Corporation Council, Latin America and CIS countries. Herbal and nutraceutical products represent 69% of the company’s exports while allopathic drugs and disposables such as gloves, syringes and condoms account for 31% of exports revenues.
Ashish Rukhaiyar and Noemie Bisserbe
MUMBAI
HERBAL drugs domestic company Plethico Pharma is close to acquiring a minority equity stake in a leading retail pharmacy entity in the CIS region. According to sources close to the development, the entity has already been identified and Singhi & Associates have started the due diligence. The acquisition, which is expected to cost around Rs 70 crore, should be completed within the next four to five months.
Plethico Pharmaceuticals is also in the process of pruning its equity holding in six subsidiary companies in CIS countries. It will divest 30% of the paid up capital in TOO Rezlov Ltd, Kazakhstan, ICS Rezlov-Mo SRL, Moldova, and OOO Rezlov, Kyrghyzstan, and 6% of the paid up capital in CJSC Rezlov, Russia, SC Rezlov, Ukraine, and Rezlov LLS, Azerbeijan, and this at a 40% premium.
“The company will offload a minor part of its holding in the six subsidiaries that will accrue around Rs 60 crore”, said a source. “Around Rs 10 crore from internal accruals will also be utilised for the overseas acquisition,” he added. Plethico may dilute its share in favour of Azedar Global.
According to sources, the main reason behind the proposed deal is that retail pharmacy is a more lucrative business than branded generic drugs marketing in the CIS region. “While the company already has a presence in the CIS countries, it is only through its marketing and distribution subsidiaries.” Company officials declined comment. A few days ago, the board of directors of Plethico also approved to use about Rs 35 crore out of the Rs 110 crore IPO proceeds to finance acquisitions.
Plethico is also looking at manufacturing facilities and retail chains in US and Europe. It is believed to be close to acquiring a nutraceutical manufacturing company in Germany for around Rs 150 crore. Herbals and nutraceuticals already represent over 50% of Plethico’s revenues, while allopathic disposables and contract manufacturing account for the remaining 21% and 29%, respectively.
Plethico is also in the process of establishing a presence in the retail pharmacy sector in the US that will require a total investment of Rs 400 crore. Plethico will use the remaining portion (Rs 35 crore) of the IPO proceeds for the same.
Plethico Pharma has a strong thrust on exports, representing 68.1% of its turnover. It exports products to 45 countries across Africa, South East Asia, the Confederate Independent States, the Gulf Corporation Council, Latin America and CIS countries. Herbal and nutraceutical products represent 69% of the company’s exports while allopathic drugs and disposables such as gloves, syringes and condoms account for 31% of exports revenues.
Open offers give harried investors a way out
Prices Of Most Stocks With Open Offer Are At
A Discount Providing Arbitrage Opportunity
Mar 27, 2007
Ashish Rukhaiyar
MUMBAI
IT IS a well-known fact that the equity market is trading with a downward bias, with most of the stock prices down by more than 20-25%. The prevailing uncertainty has infused an element of scepticism about the future, with investors selling at current levels. However, for a group of investors, open offers have come to the rescue, as the offer price is at a significant premium to the current market price.
There are nearly 35 open offers in the pipeline, with most of them providing a decent premium to the shareholders. Moreover, these offers also provide a good arbitrage opportunity where investors can buy shares from the secondary market and tender them in the open offer.
According to Prime Database, open offers of companies like Punjab Tractors, Adani Enterprises, Rane Holdings, Swaraj Engines, Dunlop India and Vinay Cements, among others are either ongoing or will be opening within a month’s time. In most of these cases, a premium in the range of 10% to 50% is available, if the open offer price and the current market price is compared.
Experts say that tendering shares in the open offer is a safe way to book reasonable profits, especially in a falling market. “Most of the times, open offers fail to get the intended number of shares as they are triggered primarily due to regulations. As such, acquirers fail to get the prescribed 20% or more shares in the open offer,” said a merchant banker.
But, this does not mean that the offer has failed, as the acquirer has to accept the shares that have been tendered. This gives investors an easy opportunity to book small but decent amount of profits, he added.
Take for instance Punjab Tractors, where Mahindra & Mahindra has made an open offer at Rs 360 per share. On Monday, the stock of Punjab Tractors closed at 302.40. Similarly, Adani Enterprises is currently trading at Rs 206. Adani Infrastructure Services Pvt Ltd has made an offer at Rs 233 per share. (The offer will open on April 5 and close on April 24.)
Incidentally, there are two types of open offers. One, where the acquirer intends to acquire a minimum 20% shares and second, where the offer is for more than 20% of the paid-up equity capital.
However, investors who tender their shares in the open offer have to factor in the tax component, too. “The tax component has to be factored in and so the offer price is at a premium to the spot,” said Vineet Suchanti, MD, Keynote Corporate Services. “An investor who holds shares for more than one year and then sells it in the secondary market has no tax liability. However, if the same shares are tendered in the open offer, then long-term capital gains tax is applicable.”
EXIT MODE
* Tendering shares in the open offer is a safe way to book reasonable profits, especially in a falling market
* There are close to 35 open offers on the anvil and most of them provide a 10-50% premium to the shareholders
* These offers also provide a good arbitrage opportunity for investors where investors buy shares from the secondary markets and tender them in open offer
* But investors will also have to factor in the tax component
A Discount Providing Arbitrage Opportunity
Mar 27, 2007
Ashish Rukhaiyar
MUMBAI
IT IS a well-known fact that the equity market is trading with a downward bias, with most of the stock prices down by more than 20-25%. The prevailing uncertainty has infused an element of scepticism about the future, with investors selling at current levels. However, for a group of investors, open offers have come to the rescue, as the offer price is at a significant premium to the current market price.
There are nearly 35 open offers in the pipeline, with most of them providing a decent premium to the shareholders. Moreover, these offers also provide a good arbitrage opportunity where investors can buy shares from the secondary market and tender them in the open offer.
According to Prime Database, open offers of companies like Punjab Tractors, Adani Enterprises, Rane Holdings, Swaraj Engines, Dunlop India and Vinay Cements, among others are either ongoing or will be opening within a month’s time. In most of these cases, a premium in the range of 10% to 50% is available, if the open offer price and the current market price is compared.
Experts say that tendering shares in the open offer is a safe way to book reasonable profits, especially in a falling market. “Most of the times, open offers fail to get the intended number of shares as they are triggered primarily due to regulations. As such, acquirers fail to get the prescribed 20% or more shares in the open offer,” said a merchant banker.
But, this does not mean that the offer has failed, as the acquirer has to accept the shares that have been tendered. This gives investors an easy opportunity to book small but decent amount of profits, he added.
Take for instance Punjab Tractors, where Mahindra & Mahindra has made an open offer at Rs 360 per share. On Monday, the stock of Punjab Tractors closed at 302.40. Similarly, Adani Enterprises is currently trading at Rs 206. Adani Infrastructure Services Pvt Ltd has made an offer at Rs 233 per share. (The offer will open on April 5 and close on April 24.)
Incidentally, there are two types of open offers. One, where the acquirer intends to acquire a minimum 20% shares and second, where the offer is for more than 20% of the paid-up equity capital.
However, investors who tender their shares in the open offer have to factor in the tax component, too. “The tax component has to be factored in and so the offer price is at a premium to the spot,” said Vineet Suchanti, MD, Keynote Corporate Services. “An investor who holds shares for more than one year and then sells it in the secondary market has no tax liability. However, if the same shares are tendered in the open offer, then long-term capital gains tax is applicable.”
EXIT MODE
* Tendering shares in the open offer is a safe way to book reasonable profits, especially in a falling market
* There are close to 35 open offers on the anvil and most of them provide a 10-50% premium to the shareholders
* These offers also provide a good arbitrage opportunity for investors where investors buy shares from the secondary markets and tender them in open offer
* But investors will also have to factor in the tax component
NRIs buy India story, pump in Rs 100 cr in just 2 months
Mar 26, 2007
Ashish Rukhaiyar
MUMBAI
WHILE the retail investor in India is increasingly becoming sceptical about investing in the volatile equity market at current levels, NRIs are taking a contrarian view on the same.
The NRI community, which till a few months ago was pulling out money, appears to have undergone a change in mindset. NRIs have invested nearly Rs 100 crore, in less than two months of the current calendar year (CY07). Albeit a small sum, but one needs to note that in the previous calendar year, NRIs were net buyers at less than Rs 8 crore.
Experts feel that corrections witnessed in the recent past have made NRIs more bullish on the Indian market and as such are looking to reinvest.
“The data clearly shows that NRIs have been pulling out money earlier, which was due to reasons like high rupee-dollar rate and valuation concerns. In the past couple of months, the Indian market has corrected, forcing them to rethink,” said the head of a brokerage with a sizeable overseas presence.
He added that even though the rupee has appreciated over the past 2-3 months, the corrections witnessed in the equity market has led to NRIs increasing the quantum of their investment.
"This was not the case earlier, when the rupee was also appreciating and the equity market was also at an all-time high.” As per the BSE data, NRIs were net buyers at Rs 28.68 crore and Rs 70.30 crore in February and March, respectively. In January, they were sellers at Rs 2.16 crore.
“Real estate is one sector that NRIs have developed a liking for,” said a research analyst with a domestic brokerage. “Most NRIs from the Gulf region seem to be eternally bullish on the infrastructure sector and ready to invest in any of the real estate companies. In addition, many of the first-time investors also prefer technology stocks,” he added.
Interestingly, the increase in inflows may well be the reason for many of the brokerages new-found partiality for the Gulf region. Although, more than a couple of Indian brokerages already have a presence in the Gulf, there are many more in the pipeline.
While Motilal Oswal Securities has opened a representative office in Dubai around 3-4 months back, JRG Securities received the provisional licence to form a JV in Saudi Arabia just last week. Even India Infoline and Angel Broking have chalked out expansion plans for the Gulf region.
Ashish Rukhaiyar
MUMBAI
WHILE the retail investor in India is increasingly becoming sceptical about investing in the volatile equity market at current levels, NRIs are taking a contrarian view on the same.
The NRI community, which till a few months ago was pulling out money, appears to have undergone a change in mindset. NRIs have invested nearly Rs 100 crore, in less than two months of the current calendar year (CY07). Albeit a small sum, but one needs to note that in the previous calendar year, NRIs were net buyers at less than Rs 8 crore.
Experts feel that corrections witnessed in the recent past have made NRIs more bullish on the Indian market and as such are looking to reinvest.
“The data clearly shows that NRIs have been pulling out money earlier, which was due to reasons like high rupee-dollar rate and valuation concerns. In the past couple of months, the Indian market has corrected, forcing them to rethink,” said the head of a brokerage with a sizeable overseas presence.
He added that even though the rupee has appreciated over the past 2-3 months, the corrections witnessed in the equity market has led to NRIs increasing the quantum of their investment.
"This was not the case earlier, when the rupee was also appreciating and the equity market was also at an all-time high.” As per the BSE data, NRIs were net buyers at Rs 28.68 crore and Rs 70.30 crore in February and March, respectively. In January, they were sellers at Rs 2.16 crore.
“Real estate is one sector that NRIs have developed a liking for,” said a research analyst with a domestic brokerage. “Most NRIs from the Gulf region seem to be eternally bullish on the infrastructure sector and ready to invest in any of the real estate companies. In addition, many of the first-time investors also prefer technology stocks,” he added.
Interestingly, the increase in inflows may well be the reason for many of the brokerages new-found partiality for the Gulf region. Although, more than a couple of Indian brokerages already have a presence in the Gulf, there are many more in the pipeline.
While Motilal Oswal Securities has opened a representative office in Dubai around 3-4 months back, JRG Securities received the provisional licence to form a JV in Saudi Arabia just last week. Even India Infoline and Angel Broking have chalked out expansion plans for the Gulf region.
Thursday 1 November 2007
You're hired; here's your bonus
As The India Story Attracts New Entities,
Brokerages Offer Sign-on Bonuses To Lure Talent
Mar 19, 2007
Ashish Rukhaiyar
MUMBAI
TILL ayear ago, it was almost de rigueur for analysts and research heads of a foreign brokerage house to join a rival entity in the initial months of the new calendar year. On the other hand, people from domestic entities were known to switch jobs in the months of May and June. The reason being, foreign brokerages paid bonuses in December, while domestic houses paid the same in March.
However, times have changed and more and more brokerages are luring talent with a sign-on bonus. One just has to sign on the dotted line, and the bonus is paid on the spot to the new recruit. Incidentally, this is just another sign of the acute dearth of skilled and experienced manpower in the Indian brokerage industry.
“The market won’t wait for anyone and the competition is immense. More often than not, brokerages are not in a position to wait to get the right talent and so go in for sign-on bonus conditions,” said an HR director of a domestic brokerage. The sign-on bonus clause also removes the risk of losing a person to any of the rivals, who might jump in the fray before the person actually joins the new place, he added.
Industry sources add that the manpower shortage has been further accentuated by the fact that the India growth story has been attracting many new entities into the country. Brokerages are losing their analysts to not just rival brokerages, but also to hedge funds and private equity players.
In the recent past, many domestic and foreign brokerages like ICICI Securities, Deutsche Securities, HSBC Securities and Religare Securities have lost some of their key people and research analysts to either new entrants or related industry players. The newly-found aggressiveness of entities like Goldman Sachs, which parted ways from Kotak in March 2006, Lehmann Brothers and CSFB have also led to a huge churn in the capital market industry.
“Generally, a foreign entity, when looking for people, tries to poach other foreign houses as the cultural roadblocks are automatically taken care of,” said the director of a foreign brokerage house. However, there have been a few exceptions. Recently, Dipankar Choudhary, who tracked the banking sector at ICICI Securities (i-SEC), moved to Deutsche Securities. The foreign house is also believed to have taken on board a capital goods analyst from HSBC Securities. Deutsche had recently lost its equity head to a private equity player.
On the other hand, i-SEC lost a couple of people to Centrum Stock Broking, which is being managed by Devesh Kumar, the former head of equities team at i-SEC. R Amarnath has joined Centrum Stock Broking as head (corporate finance) after leaving i-SEC, where he was the head of equity research. Meanwhile, i-SEC has hired A Murugappan in place of Mr Kumar. Mr Murugappan is coming back to i-SEC after a brief stint with private equity fund Deeva Partners.
Among other instances, Amitabh Chakraborty has moved from Brics Securities to Religare Securities, which recently hired Sangeeta Purushottam as head of institutional business.
Interestingly, some of the brokerage houses have also been going to management schools in Goa to recruit analysts.
Brokerages Offer Sign-on Bonuses To Lure Talent
Mar 19, 2007
Ashish Rukhaiyar
MUMBAI
TILL ayear ago, it was almost de rigueur for analysts and research heads of a foreign brokerage house to join a rival entity in the initial months of the new calendar year. On the other hand, people from domestic entities were known to switch jobs in the months of May and June. The reason being, foreign brokerages paid bonuses in December, while domestic houses paid the same in March.
However, times have changed and more and more brokerages are luring talent with a sign-on bonus. One just has to sign on the dotted line, and the bonus is paid on the spot to the new recruit. Incidentally, this is just another sign of the acute dearth of skilled and experienced manpower in the Indian brokerage industry.
“The market won’t wait for anyone and the competition is immense. More often than not, brokerages are not in a position to wait to get the right talent and so go in for sign-on bonus conditions,” said an HR director of a domestic brokerage. The sign-on bonus clause also removes the risk of losing a person to any of the rivals, who might jump in the fray before the person actually joins the new place, he added.
Industry sources add that the manpower shortage has been further accentuated by the fact that the India growth story has been attracting many new entities into the country. Brokerages are losing their analysts to not just rival brokerages, but also to hedge funds and private equity players.
In the recent past, many domestic and foreign brokerages like ICICI Securities, Deutsche Securities, HSBC Securities and Religare Securities have lost some of their key people and research analysts to either new entrants or related industry players. The newly-found aggressiveness of entities like Goldman Sachs, which parted ways from Kotak in March 2006, Lehmann Brothers and CSFB have also led to a huge churn in the capital market industry.
“Generally, a foreign entity, when looking for people, tries to poach other foreign houses as the cultural roadblocks are automatically taken care of,” said the director of a foreign brokerage house. However, there have been a few exceptions. Recently, Dipankar Choudhary, who tracked the banking sector at ICICI Securities (i-SEC), moved to Deutsche Securities. The foreign house is also believed to have taken on board a capital goods analyst from HSBC Securities. Deutsche had recently lost its equity head to a private equity player.
On the other hand, i-SEC lost a couple of people to Centrum Stock Broking, which is being managed by Devesh Kumar, the former head of equities team at i-SEC. R Amarnath has joined Centrum Stock Broking as head (corporate finance) after leaving i-SEC, where he was the head of equity research. Meanwhile, i-SEC has hired A Murugappan in place of Mr Kumar. Mr Murugappan is coming back to i-SEC after a brief stint with private equity fund Deeva Partners.
Among other instances, Amitabh Chakraborty has moved from Brics Securities to Religare Securities, which recently hired Sangeeta Purushottam as head of institutional business.
Interestingly, some of the brokerage houses have also been going to management schools in Goa to recruit analysts.
Sebi not keen on brokers running venture funds
Mar 13, 2007
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) is concerned over the interest expressed by stock brokerages to set up venture capital arms. Fearing a possible conflict of interest if stock brokers are allowed to run VC funds, the regulator may come out with a new policy to instill certain checks and balances.
“Around 4-5 brokerages have applied to get their VC arms registered with Sebi. Once registered, they will be able to get tax benefits, too. However, Sebi is concerned that there may not be Chinese walls between the brokerage and the venture capital units,” said a source. The brokerage may use its proprietary books to take position on stocks, which the VC may be buying.
While large financial services groups like ICICI, Kotak and UTI have VC arms, there are certain reservations on allowing brokers to set up VCs. Sebi has been sitting on the applications for almost 4 to 5 months. Sources said an expert committee has been formed to look into the issue. Sebi did not respond to query from ET. The committee will look at framing broader guidelines rather than considering specific applications.
According to Akil Hirani, managing partner, Majmudar & Co, “There are a couple of issues that need to be looked into in this subject. Obviously, co-mingling of the brokerage entity and the venture capital arm is a serious issue and a better option for the market regulator will be to make necessary amendments to the broker regulations, which every broker has to comply with. Further, the regulation needs to be enforced rigorously so that the systems are in place for Chinese walls. One can cite the example of an IPO where the brokerage arm releases a report while investment banking arm is the underwriter. There is always an inherent bias, which needs to be addressed.”
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) is concerned over the interest expressed by stock brokerages to set up venture capital arms. Fearing a possible conflict of interest if stock brokers are allowed to run VC funds, the regulator may come out with a new policy to instill certain checks and balances.
“Around 4-5 brokerages have applied to get their VC arms registered with Sebi. Once registered, they will be able to get tax benefits, too. However, Sebi is concerned that there may not be Chinese walls between the brokerage and the venture capital units,” said a source. The brokerage may use its proprietary books to take position on stocks, which the VC may be buying.
While large financial services groups like ICICI, Kotak and UTI have VC arms, there are certain reservations on allowing brokers to set up VCs. Sebi has been sitting on the applications for almost 4 to 5 months. Sources said an expert committee has been formed to look into the issue. Sebi did not respond to query from ET. The committee will look at framing broader guidelines rather than considering specific applications.
According to Akil Hirani, managing partner, Majmudar & Co, “There are a couple of issues that need to be looked into in this subject. Obviously, co-mingling of the brokerage entity and the venture capital arm is a serious issue and a better option for the market regulator will be to make necessary amendments to the broker regulations, which every broker has to comply with. Further, the regulation needs to be enforced rigorously so that the systems are in place for Chinese walls. One can cite the example of an IPO where the brokerage arm releases a report while investment banking arm is the underwriter. There is always an inherent bias, which needs to be addressed.”
India Inc takes demerger route to unlock value
Investors Too Gain As Prices Of
Demerged Entities See Major Jump
Mar 07, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as large Indian corporate houses were busy adding value to their businesses by acquiring global biggies, back home, many were trying to unlock value in their existing activity by demerging into different entities.
Over the past one year, many Indian companies have demerged into two or more different units, with each focusing on specific areas of business. And, if the stock prices of the demerged entities are anything to go by, the market has definitely given a thumbs-up to most demergers.
The classic case of an Indian demerger has been that of Reliance Industries (RIL) wherein four different entities were carved out of India’s largest private sector company in 2006.
Incidentally, investors who stayed with the company during the time of the demerger have been handsomely rewarded, with the stock prices of all the entities witnessing a splendid rise.
In last one year, companies like Zee, Great Eastern Shipping, Torrent Power, GTL Infrastructure, KEC International and Network 18 have been demerged and the stock prices of most of the demerged entities are still ruling at a considerable premium, as compared to the listing price.
Market participants also opine that a demerger helps in unlocking value and bringing more focus in the business. The separate entity is able to attract a premium due to the full enterprise value of the new entity.
Girish Nadkarni, COO (investment banking & institutional equity), IL&FS Investsmart, says, “Experience shows that investing in demerged entities has been good for investors. It is better for companies as it brings more focus.”
Wire & Wireless India was demerged from Zee Telefilms and was listed on the BSE on January 10, 2007. The list price was Rs 80 and it is currently trading at Rs 94.85 — premium of nearly 19%. On January 11, the stock had touched a high of Rs 139.90.
Similarly, KEC International, which was demerged to manage the power transmission business of KEC Infrastructure, closed at Rs 521. It was listed on October 3, 2006 at Rs 425. In February, the stock had touched a high of Rs 599.
Torrent Power, on the other hand, is trading at a premium of nearly 4% at Rs 62.30, after listing on November 28, 2006 at Rs 60. It touched a high of Rs 99.90 on November 30, 2006.
Network 18 Fincap has also gained ground after being listed on February 2, 2007. It is currently trading at Rs 341.45, as against its issue price of Rs 300. It has touched a high of Rs 446.50 on February 19.
Commenting on demergers, Ajay Padval, VP (PMS), Mehta Equities, is of the view that in India, when the different business activities are a part of the single main entity, market tends to discount its true value. Once demerged, the entity is able to attract a premium as the earlier discount is written off and the asset value and the enterprise value are fully priced.
In a nutshell, a demerged entity is priced at its real value and so the shareholders are more often that not, rewarded. However, at the same time, demerged entities like Zee News, Great Offshore and GTL Infrastructure have moved into negative territory after listing.
Demerged Entities See Major Jump
Mar 07, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as large Indian corporate houses were busy adding value to their businesses by acquiring global biggies, back home, many were trying to unlock value in their existing activity by demerging into different entities.
Over the past one year, many Indian companies have demerged into two or more different units, with each focusing on specific areas of business. And, if the stock prices of the demerged entities are anything to go by, the market has definitely given a thumbs-up to most demergers.
The classic case of an Indian demerger has been that of Reliance Industries (RIL) wherein four different entities were carved out of India’s largest private sector company in 2006.
Incidentally, investors who stayed with the company during the time of the demerger have been handsomely rewarded, with the stock prices of all the entities witnessing a splendid rise.
In last one year, companies like Zee, Great Eastern Shipping, Torrent Power, GTL Infrastructure, KEC International and Network 18 have been demerged and the stock prices of most of the demerged entities are still ruling at a considerable premium, as compared to the listing price.
Market participants also opine that a demerger helps in unlocking value and bringing more focus in the business. The separate entity is able to attract a premium due to the full enterprise value of the new entity.
Girish Nadkarni, COO (investment banking & institutional equity), IL&FS Investsmart, says, “Experience shows that investing in demerged entities has been good for investors. It is better for companies as it brings more focus.”
Wire & Wireless India was demerged from Zee Telefilms and was listed on the BSE on January 10, 2007. The list price was Rs 80 and it is currently trading at Rs 94.85 — premium of nearly 19%. On January 11, the stock had touched a high of Rs 139.90.
Similarly, KEC International, which was demerged to manage the power transmission business of KEC Infrastructure, closed at Rs 521. It was listed on October 3, 2006 at Rs 425. In February, the stock had touched a high of Rs 599.
Torrent Power, on the other hand, is trading at a premium of nearly 4% at Rs 62.30, after listing on November 28, 2006 at Rs 60. It touched a high of Rs 99.90 on November 30, 2006.
Network 18 Fincap has also gained ground after being listed on February 2, 2007. It is currently trading at Rs 341.45, as against its issue price of Rs 300. It has touched a high of Rs 446.50 on February 19.
Commenting on demergers, Ajay Padval, VP (PMS), Mehta Equities, is of the view that in India, when the different business activities are a part of the single main entity, market tends to discount its true value. Once demerged, the entity is able to attract a premium as the earlier discount is written off and the asset value and the enterprise value are fully priced.
In a nutshell, a demerged entity is priced at its real value and so the shareholders are more often that not, rewarded. However, at the same time, demerged entities like Zee News, Great Offshore and GTL Infrastructure have moved into negative territory after listing.
Return gift: PSUs lead in dividend payments
Feb 28, 2007
Ashish Rukhaiyar
MUMBAI
PUBLIC sector undertakings (PSU) have been in the line of fire of the finance minister, who has slammed the entities for sitting on huge cash reserves and being stingy when it comes to paying dividend to the exchequer. However, the fact is, traditionally, PSUs have been paying higher dividend compared to the other listed entities.
In the last six fiscals (1999-2000 to 2005-06), on an average, PSUs have paid a dividend of 31.21% of their total net profit, which is higher than the overall average of 29.84%. In 2005-06, PSUs distributed nearly 34% of their net profit as dividends while for the rest of the companies, this was pegged at less than 29%.
Earlier, in 2003-04 and 2004-05, other listed companies paid dividends of 27.98% and 28.25% respectively of their net profit. PSUs, on the other hand, paid dividends amounting to 31.87% and 33.66% in 2003-04 and 2004-05, respectively.
The Navratna PSUs have been all the more liberal in paying dividends to their shareholders, including the government. The mighty entities, on an average, have paid dividends of nearly 32% of their net profit in the last six fiscals.
In 2005-06, their dividend payout stood at Rs 12,656.25 crore, or nearly 37% of their total net profit. On a more important note, their dividend pay-out has been on a steady rise since 1999-2000. Only in 2003-04, it witnessed a marginal dip when the payout stood at 30.39% of the net profit.
Interestingly, market participants opine that the government should act as a prudent shareholder and not demand more than necessary dividends from the PSUs, including the cash-rich ones.
They further add that a higher demand on the PSUs will lead to other investors moving away from such companies which will, in turn, affect the government itself as there will no quality takers when a further dilution is being planned.
“It is true that the market will attach a premium to such high dividend paymasters. However, it will also discount the government and management relations wherein the former forces the latter to pay a higher dividend. Take the case of oil companies. The government wants to make money by getting more dividends but, at the same time, does not allow the companies to hike prices. Although the government may be able to rein in fiscal deficit by extracting higher dividends from PSUs, the affected entities will be left bleeding,” said a research head at a domestic brokerage on condition of anonymity.
If the government wants more dividends, a higher level of autonomy should also be granted, he added. In a similar context, KRIS director Arun Kejriwal says, “Traditionally, PSUs have been good dividend paymasters. It is not proper on the government’s part to ask for more and more dividend from the entities just to meet its fiscal expenditure.”
Ashish Rukhaiyar
MUMBAI
PUBLIC sector undertakings (PSU) have been in the line of fire of the finance minister, who has slammed the entities for sitting on huge cash reserves and being stingy when it comes to paying dividend to the exchequer. However, the fact is, traditionally, PSUs have been paying higher dividend compared to the other listed entities.
In the last six fiscals (1999-2000 to 2005-06), on an average, PSUs have paid a dividend of 31.21% of their total net profit, which is higher than the overall average of 29.84%. In 2005-06, PSUs distributed nearly 34% of their net profit as dividends while for the rest of the companies, this was pegged at less than 29%.
Earlier, in 2003-04 and 2004-05, other listed companies paid dividends of 27.98% and 28.25% respectively of their net profit. PSUs, on the other hand, paid dividends amounting to 31.87% and 33.66% in 2003-04 and 2004-05, respectively.
The Navratna PSUs have been all the more liberal in paying dividends to their shareholders, including the government. The mighty entities, on an average, have paid dividends of nearly 32% of their net profit in the last six fiscals.
In 2005-06, their dividend payout stood at Rs 12,656.25 crore, or nearly 37% of their total net profit. On a more important note, their dividend pay-out has been on a steady rise since 1999-2000. Only in 2003-04, it witnessed a marginal dip when the payout stood at 30.39% of the net profit.
Interestingly, market participants opine that the government should act as a prudent shareholder and not demand more than necessary dividends from the PSUs, including the cash-rich ones.
They further add that a higher demand on the PSUs will lead to other investors moving away from such companies which will, in turn, affect the government itself as there will no quality takers when a further dilution is being planned.
“It is true that the market will attach a premium to such high dividend paymasters. However, it will also discount the government and management relations wherein the former forces the latter to pay a higher dividend. Take the case of oil companies. The government wants to make money by getting more dividends but, at the same time, does not allow the companies to hike prices. Although the government may be able to rein in fiscal deficit by extracting higher dividends from PSUs, the affected entities will be left bleeding,” said a research head at a domestic brokerage on condition of anonymity.
If the government wants more dividends, a higher level of autonomy should also be granted, he added. In a similar context, KRIS director Arun Kejriwal says, “Traditionally, PSUs have been good dividend paymasters. It is not proper on the government’s part to ask for more and more dividend from the entities just to meet its fiscal expenditure.”
Stock brokers not happy with cover policy, appeal to Sebi
Feb 27, 2007
Ashish Rukhaiyar
MUMBAI
THE stock broker’s indemnity policy is fast becoming a cornerstone for a heated debate with brokers, up in arms against insurance firms. Brokers allege that insurance companies have been behaving in a very high-handed manner and are not sharing important policy-related issues with them. Currently, New India Assurance and Oriental Insurance of India, are managing the insurance cover of brokers across the country.
In fact, brokers have appealed to Sebi to look into this matter. Brokers opine that an indemnity policy should not be mandatory. They believe what is required is an unbundling of policy clauses so as to include only the relevant parts once the policy is renewed. The issue has gained importance as insurance policies will come up for renewal over the next couple of months.
According to sources, while the premium has seen a threefold jump in the past couple of years, the claims, more often than not, result in being rejected by the insurance entities. Meanwhile, an email sent to the insurance firms remained unanswered.
A compliance officer at a domestic brokerage told ET on conditions of anonymity that the insurance companies include a lot of riders in the policy that are not really needed. They further, indirectly, penalise the brokers for putting forward a claim.
“First and foremost, the premium amount has witnessed a three-fold jump in the past couple of years. Secondly, the insurance companies have discontinued offering no-claim bonus that was done earlier. To make matters worse, the policy has a clause saying that if any claim has been filed, then, irrespective of it being accepted or not, the premium amount goes up by 75% when the policy comes up for renewal,” he says.
Many brokers also allege that the two insurance firms seem to have formed a consortium of sorts, as the policy papers have been exactly the same with no difference. “Earlier, there used to be some difference in the language of the policy papers given by the two companies. But the latest policy given out by both the companies are verbatim,” said a member of a brokers’ forum.
Ashish Rukhaiyar
MUMBAI
THE stock broker’s indemnity policy is fast becoming a cornerstone for a heated debate with brokers, up in arms against insurance firms. Brokers allege that insurance companies have been behaving in a very high-handed manner and are not sharing important policy-related issues with them. Currently, New India Assurance and Oriental Insurance of India, are managing the insurance cover of brokers across the country.
In fact, brokers have appealed to Sebi to look into this matter. Brokers opine that an indemnity policy should not be mandatory. They believe what is required is an unbundling of policy clauses so as to include only the relevant parts once the policy is renewed. The issue has gained importance as insurance policies will come up for renewal over the next couple of months.
According to sources, while the premium has seen a threefold jump in the past couple of years, the claims, more often than not, result in being rejected by the insurance entities. Meanwhile, an email sent to the insurance firms remained unanswered.
A compliance officer at a domestic brokerage told ET on conditions of anonymity that the insurance companies include a lot of riders in the policy that are not really needed. They further, indirectly, penalise the brokers for putting forward a claim.
“First and foremost, the premium amount has witnessed a three-fold jump in the past couple of years. Secondly, the insurance companies have discontinued offering no-claim bonus that was done earlier. To make matters worse, the policy has a clause saying that if any claim has been filed, then, irrespective of it being accepted or not, the premium amount goes up by 75% when the policy comes up for renewal,” he says.
Many brokers also allege that the two insurance firms seem to have formed a consortium of sorts, as the policy papers have been exactly the same with no difference. “Earlier, there used to be some difference in the language of the policy papers given by the two companies. But the latest policy given out by both the companies are verbatim,” said a member of a brokers’ forum.
IPO-bound cos warm up to agency grading
Rating Agencies Are Currently Working With
Stock Exchanges For Grading About 10 Issues
Feb 07, 2007
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
THE coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies. Last year, in the period between August and November, there were six IPOs that were graded by the rating agencies and since then, nearly 20 issues have hit the market and not a single one has opted for grading.
However, companies are slowly warming to the concept of going in for IPO grading, according to officials at rating agencies. “The rating agencies are working with the stock exchanges and there are quite a few issues in the pipeline. Although, the exact number of issues is not clearly known, it is expected to be less than 10. The issues are part of a pilot project of the stock exchanges that are also bearing the cost of the grading process. Last year saw six IPOs being graded, followed by a brief lull, but things are looking up once again,” said an official at a leading rating agency.
According to sources, the cost of grading each issue is approximately Rs 5 lakh and it takes around 3-4 weeks for one issue to be graded. A senior official at CARE testified to change in the attitude of companies towards IPO grading. The agency is said to have received quite a few enquiries in this regard.
“Issuers are approaching us for grading their public issues on compulsion from the exchanges. As the market evolves, we will see more companies opting for voluntary grading of their issues”, said L Shivakumar, head - Mumbai, Icra.
On the other hand, according to merchant bankers, graded public issues, preferably with a grading of more than two in a scale of five, help them market the IPO better. “With institutional buyers taking more interest in small-size issues, a satisfactorily graded one can easily attract chunk investors,” said a merchant banker on conditions of anonymity.
He further added that the grades, however, should not be assigned by plainly comparing the issuer with any other “established sample” (usually a listed company with a huge market presence). “Rating agencies should only focus on the company. It should be able to take a call without relatively assessing the issue to an inconsistent sample,” the merchant banker said.
Interestingly, among the six IPOs that were graded last year, only one — Shree Ashtavinayak Cine Vision —has actually got listed on the bourses and has followed it up with an impressive performance, too. The issue price was fixed at Rs 160 and the stock got listed on January 10. On Friday, February 2, the stock closed at Rs 311.35 — a gain of nearly 95%. The issue was given a grading of 2/5, which denotes ‘below average fundamentals’.
People involved in the grading process opine that since the grading is awarded on the basis of fundamentals, business prospects, management quality and corporate governance, among others, the stock performance cannot be directly linked to the grades. The sentiment prevailing in the secondary markets also play a crucial role, they added.
Stock Exchanges For Grading About 10 Issues
Feb 07, 2007
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
THE coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies. Last year, in the period between August and November, there were six IPOs that were graded by the rating agencies and since then, nearly 20 issues have hit the market and not a single one has opted for grading.
However, companies are slowly warming to the concept of going in for IPO grading, according to officials at rating agencies. “The rating agencies are working with the stock exchanges and there are quite a few issues in the pipeline. Although, the exact number of issues is not clearly known, it is expected to be less than 10. The issues are part of a pilot project of the stock exchanges that are also bearing the cost of the grading process. Last year saw six IPOs being graded, followed by a brief lull, but things are looking up once again,” said an official at a leading rating agency.
According to sources, the cost of grading each issue is approximately Rs 5 lakh and it takes around 3-4 weeks for one issue to be graded. A senior official at CARE testified to change in the attitude of companies towards IPO grading. The agency is said to have received quite a few enquiries in this regard.
“Issuers are approaching us for grading their public issues on compulsion from the exchanges. As the market evolves, we will see more companies opting for voluntary grading of their issues”, said L Shivakumar, head - Mumbai, Icra.
On the other hand, according to merchant bankers, graded public issues, preferably with a grading of more than two in a scale of five, help them market the IPO better. “With institutional buyers taking more interest in small-size issues, a satisfactorily graded one can easily attract chunk investors,” said a merchant banker on conditions of anonymity.
He further added that the grades, however, should not be assigned by plainly comparing the issuer with any other “established sample” (usually a listed company with a huge market presence). “Rating agencies should only focus on the company. It should be able to take a call without relatively assessing the issue to an inconsistent sample,” the merchant banker said.
Interestingly, among the six IPOs that were graded last year, only one — Shree Ashtavinayak Cine Vision —has actually got listed on the bourses and has followed it up with an impressive performance, too. The issue price was fixed at Rs 160 and the stock got listed on January 10. On Friday, February 2, the stock closed at Rs 311.35 — a gain of nearly 95%. The issue was given a grading of 2/5, which denotes ‘below average fundamentals’.
People involved in the grading process opine that since the grading is awarded on the basis of fundamentals, business prospects, management quality and corporate governance, among others, the stock performance cannot be directly linked to the grades. The sentiment prevailing in the secondary markets also play a crucial role, they added.
Investors rush for Z 'security'
Total Monthly Turnover Of Z Group Has
Gone Up By More Than 170% In 6 Months
Feb 03, 2007
Ashish Rukhaiyar
MUMBAI
ACCORDING to veteran traders, it is a cause for worry when mid-cap and small-cap shares start gaining faster than their large-cap counterparts. It should be even more worrying if investors start cosying up to stocks of companies that do not comply with listing norms.
According to available data, the Z group on the BSE has been witnessing a steady rise in traded turnover, even as the other groups are facing a decline. In the last six months, the total monthly turnover of the Z group has gone up by more than 170%. In the same period, the A group has witnessed a marginal decrease in its turnover. Interestingly, a similar kind of steady rise in the Z group turnover was witnessed last year when the markets had peaked in May.
Z group generally consists of companies that have not adhered to the listing requirements like submission of annual accounts or the shareholding pattern, implementation of corporate governance and redressal of investors complaints. Brokers opine that the trend can be attributed to the rise in the number of retail investors who flock to such dubious counters at a time when the markets have already peaked.
Manish Sonthalia, VP (equity strategy), Motilal Oswal Securities, says, “The recent rally has decreased the margin of safety in the frontlines and so investors are flocking to mid-caps and penny stocks. However, a rally in the Z group also signifies that the market has reached its top and has entered the blow-out phase. In other words, a spurt in Z group means we are in the last leg of the upswing rally.”
Echoing a similar view, Rakesh Choudhari, COO, Keynote Capitals, says that a typical bull run starts with a rise in the frontline stocks, then moves ahead to the mid-caps and nears an end when stocks of dubious companies catch investor fancy.
“When the sentiment is upbeat, some market players try to capitalise on it by luring ordinary investors into stocks with weak fundamentals. Investors think there is enough upside to the stock price and they will be able to make some money, which is not always the case. In a nutshell, one can say that the time has come when investors need to be cautious”, says Mr Choudhari.
In July 2006, the total monthly turnover of the Z group was pegged at Rs 23.28 crore. This has jumped to nearly Rs 63 crore in January 2007 - up more than 170%. Brokers, on conditions of anonymity, also add that circular trading occurs frequently in the stocks of lesser known companies.
A group of brokers form a syndicate and start trading among themselves, thereby creating huge volumes at the counter. High volumes are usually perceived as a sign of widespread interest in a stock by retail investors. Once retail investors start buying into these stocks, the syndicate begins offloading and move on to some other stock.
However, on a different note, investment consultant, S P Tulsian, says that the Z group also comprises many good companies, which are in the dubious group only because of minor issues like shares still lying in the physical form or dividend issues.
“Investors can always find value in the lessresearched stocks that form a part of the Z group. A rally in this group cannot always be linked to the end of the overall rally of the bourses”, he says.
Gone Up By More Than 170% In 6 Months
Feb 03, 2007
Ashish Rukhaiyar
MUMBAI
ACCORDING to veteran traders, it is a cause for worry when mid-cap and small-cap shares start gaining faster than their large-cap counterparts. It should be even more worrying if investors start cosying up to stocks of companies that do not comply with listing norms.
According to available data, the Z group on the BSE has been witnessing a steady rise in traded turnover, even as the other groups are facing a decline. In the last six months, the total monthly turnover of the Z group has gone up by more than 170%. In the same period, the A group has witnessed a marginal decrease in its turnover. Interestingly, a similar kind of steady rise in the Z group turnover was witnessed last year when the markets had peaked in May.
Z group generally consists of companies that have not adhered to the listing requirements like submission of annual accounts or the shareholding pattern, implementation of corporate governance and redressal of investors complaints. Brokers opine that the trend can be attributed to the rise in the number of retail investors who flock to such dubious counters at a time when the markets have already peaked.
Manish Sonthalia, VP (equity strategy), Motilal Oswal Securities, says, “The recent rally has decreased the margin of safety in the frontlines and so investors are flocking to mid-caps and penny stocks. However, a rally in the Z group also signifies that the market has reached its top and has entered the blow-out phase. In other words, a spurt in Z group means we are in the last leg of the upswing rally.”
Echoing a similar view, Rakesh Choudhari, COO, Keynote Capitals, says that a typical bull run starts with a rise in the frontline stocks, then moves ahead to the mid-caps and nears an end when stocks of dubious companies catch investor fancy.
“When the sentiment is upbeat, some market players try to capitalise on it by luring ordinary investors into stocks with weak fundamentals. Investors think there is enough upside to the stock price and they will be able to make some money, which is not always the case. In a nutshell, one can say that the time has come when investors need to be cautious”, says Mr Choudhari.
In July 2006, the total monthly turnover of the Z group was pegged at Rs 23.28 crore. This has jumped to nearly Rs 63 crore in January 2007 - up more than 170%. Brokers, on conditions of anonymity, also add that circular trading occurs frequently in the stocks of lesser known companies.
A group of brokers form a syndicate and start trading among themselves, thereby creating huge volumes at the counter. High volumes are usually perceived as a sign of widespread interest in a stock by retail investors. Once retail investors start buying into these stocks, the syndicate begins offloading and move on to some other stock.
However, on a different note, investment consultant, S P Tulsian, says that the Z group also comprises many good companies, which are in the dubious group only because of minor issues like shares still lying in the physical form or dividend issues.
“Investors can always find value in the lessresearched stocks that form a part of the Z group. A rally in this group cannot always be linked to the end of the overall rally of the bourses”, he says.
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