Q&A: Sanjay Sakhuja, CEO, Ambit Corporate Finance
Ashish Rukhaiyar & Abhineet Kumar / Mumbai May 3, 2010
Ambit Corporate Finance has not been much in the news after the Sesa Goa-Dempo deal, but CEO, is not worried. He says there are several merger and acquisition deals in the pipeline and the coming months would see his firm featuring more prominently in the Initial Public Offering (IPO) arena. Also, he tells Ashish Rukhaiyar and Abhineet Kumar, the company has decided against getting into the stressed asset business. Edited excerpts:
There has been action in the market but Ambit, it seems, has remained silent after the Sesa Goa-Dempo deal of 2009. What kept you out?
Deals get stuck for various reasons. Sometimes it is valuation, sometimes it is the intent of the buyer or the seller.
Also, what tends to happen is that each house has its client relationships and industry expertise in niches. While the first quarter of this year has seen some big volumes, they have all been in the telecom space. That is not Ambit's speciality; we are not large players in telecom. But, we have some very interesting deals at a very advanced stage of negotiations and we expect things to materialise over the next several weeks.
Which are the sectors where Ambit has a strong foothold?
Our strength is banking and financial services, media, logistics. We do some FMCG (fast moving consumer goods), pharma and IT (information technology) also. We have been increasingly looking at chemicals and aviation. These are our areas of expertise. We have several deals in the pipeline in these sectors.
The recent past saw some significant outbound deals. Is it safe to say these are back?
We can expect outbound deals to happen for a number of reasons. The market movement is more stable and so, people are more confident about taking long-term decisions. A lot of Indian corporates have both raised capital to leverage their balance sheet and are sitting on cash. But, more important, due to the run up in the stock markets, they have the ability to issue more capital and therefore have the currency for acquisition. And, the debt markets have become very benign again.
So, acquisition financing is once again available. So, all the enabling factors for Indian corporates to look overseas are back in place. At the same time, the global market seems to be in a state of flux and so, global assets are selectively available at attractive prices.
Would domestic consolidation take a back seat as the market stablises? As in, would corporates do more of looking overseas?
By and large, Indian businesses are on a high-growth trajectory. So, you will find more buyers than sellers. For somebody to agree to sell or want to sell, he has to get a super-attractive price.
Indian buyers do not tend to pay a 'too-high' price for acquisition. So, if somebody is looking at a cross-border entry strategy into India, he is willing to pay a more attractive price than an Indian buyer who has already got the distribution reach and the business flow.
Ambit has been completely absent in the IPO space. The last one was Cinemax in 2007. What made you sit out, even though the recent past saw a lot of fresh paper pouring in?
Historically, we haven't done much on the capital market (IPO) side. But, in the next 12 months, we expect to be back in business. We have been building our distribution capabilities. We hired a team from Merrill Lynch a year ago. We have been building our institutional equity team and have put a sales team in place. Over the next 12 months, you will see our name in a few IPOs and QIPs. We will focus on issues in the range of Rs 100 crore to Rs 400 crore.
In 2008, Ambit was planning to get into asset reconstruction. Any development?
We spent a lot of time examining it but then decided against it. So, at this stage, it is not part of our thinking. We were very seriously looking at it. We were looking at both asset reconstruction and debt restructuring. Also, what happened was that the last cycle was a very short distress cycle.
The economy moved quite sharply and it made no point looking at stressed assets. In the past 6-9 months, people have raised so much capital and de-leveraged their balance sheet and the stress is not there anymore. So, we decided against it.
Ambit has no presence in the retail segment. Any plans?
The only element where we will be in retail will be in a possible asset management business. So, we may get into a JV for asset management. There is a discussion at an advanced stage for launching (a mutual fund business).
Monday 3 May 2010
Sebi to get strict with FII sub-accounts
Ashish Rukhaiyar & Vandana / Mumbai April 30, 2010
The Securities and Exchange Board of India (Sebi) plans to tighten the rules for transfer of sub-accounts by foreign institutional investors (FIIs).
Sebi defines sub-accounts as entities that include foreign companies, foreign individuals and institutions, funds or portfolios established or incorporated outside India, on whose behalf FIIs propose to make investments in India.
The market regulator is keen to completely re-work the Know Your Client (KYC) norms along with the application for a sub-account transfer.
"There have been instances where investors have preferred seeking fresh registrations than applying for transfers, merely to avoid the transfer-related hassles," said Nirav Merchant, Associate Partner, Majmudar & Co.
Until now, transfer of a sub-account to another FII required an application to the regulator, accompanied by a declaration from the proposed FII that it was authorised to invest on behalf of the sub-account.
Further, the transferor FII was required to submit a no objection certificate (NOC).
Lawyers said transfer of registrations is a cumbersome process because it requires periodic follow-ups and submission of voluminous documents to Sebi officials. With the new set of declarations by Sebi, many sub-accounts may not be very keen to invest time in the transfer process.
"Sebi would basically look for more information at all levels going ahead and that includes sub-account transfers as well. Prima facie, they will not reject any application, but yes the whole process will take more time now," said Siddharth Shah, Managing Partner at Nishith Desai Associates.
Earlier on April 15, Sebi had asked FIIs to stop using complex structures of protected cell companies and segregated portfolio companies. It had also mandated that the investor base be broadbased in case of multi-class share vehicles.
These moves were aimed to check potential round tripping through FIIs and also increase transparency.
According to the new guidelines, all FIIs, whether registered or not, would have to undertake that they do not follow a protected cell company or segregated portfolio company structure.
Protected cell companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, a cellular capital, dividends and accounts. Each cell functions as an independent unit within the overall set up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
"Any step-up by Sebi regarding FII and sub-accounts will invariably be welcomed with reluctance. Increased surveillance and diligence will not be appreciated by FIIs and sub-accounts that have been investing in India under relaxed norms. In our view, stringent declarations and disclosure requirements will reduce the flexibility that foreign investors enjoyed in constituting offshore entities," added Merchant.
The Securities and Exchange Board of India (Sebi) plans to tighten the rules for transfer of sub-accounts by foreign institutional investors (FIIs).
Sebi defines sub-accounts as entities that include foreign companies, foreign individuals and institutions, funds or portfolios established or incorporated outside India, on whose behalf FIIs propose to make investments in India.
The market regulator is keen to completely re-work the Know Your Client (KYC) norms along with the application for a sub-account transfer.
"There have been instances where investors have preferred seeking fresh registrations than applying for transfers, merely to avoid the transfer-related hassles," said Nirav Merchant, Associate Partner, Majmudar & Co.
Until now, transfer of a sub-account to another FII required an application to the regulator, accompanied by a declaration from the proposed FII that it was authorised to invest on behalf of the sub-account.
Further, the transferor FII was required to submit a no objection certificate (NOC).
Lawyers said transfer of registrations is a cumbersome process because it requires periodic follow-ups and submission of voluminous documents to Sebi officials. With the new set of declarations by Sebi, many sub-accounts may not be very keen to invest time in the transfer process.
"Sebi would basically look for more information at all levels going ahead and that includes sub-account transfers as well. Prima facie, they will not reject any application, but yes the whole process will take more time now," said Siddharth Shah, Managing Partner at Nishith Desai Associates.
Earlier on April 15, Sebi had asked FIIs to stop using complex structures of protected cell companies and segregated portfolio companies. It had also mandated that the investor base be broadbased in case of multi-class share vehicles.
These moves were aimed to check potential round tripping through FIIs and also increase transparency.
According to the new guidelines, all FIIs, whether registered or not, would have to undertake that they do not follow a protected cell company or segregated portfolio company structure.
Protected cell companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, a cellular capital, dividends and accounts. Each cell functions as an independent unit within the overall set up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
"Any step-up by Sebi regarding FII and sub-accounts will invariably be welcomed with reluctance. Increased surveillance and diligence will not be appreciated by FIIs and sub-accounts that have been investing in India under relaxed norms. In our view, stringent declarations and disclosure requirements will reduce the flexibility that foreign investors enjoyed in constituting offshore entities," added Merchant.
Another turf war, this time with FMC
Palak Shah & Ashish Rukhaiyar / Mumbai April 29, 2010
The Securities and Exchange Board of India (Sebi) may be heading for a fresh battle, this time with the Forward Markets Commission.
On Monday, the National Stock Exchange issued a circular, with Sebi's approval, on the futures and options trading in gold-based exchange traded funds (ETFs). This has prompted the FMC, which is the commodities futures regulator, to take up the issue with the Union government.
“Anything that has to do with commodities falls under (the purview of) Forward Contracts Regulation Act and should be regulated by us,” FMC Chairman B C Khatua said.
He refused to comment on approaching the government over the NSE circular.
Options trading in commodities is banned under the law. If options trading in ETFs is allowed, market players may circumvent the rules, sources said. They also pointed out that the law ministry was against the move.
“When FMC did not object to ETFs based on gold, it should not have any problems with derivatives based on it,” a Sebi official said.
However, the sources said that Sebi’s approval came as a surprise as FMC had taken up the issue of fund houses launching ETFs based on oil and silver. Following this, the proposed ETFs were not launched.
The Securities and Exchange Board of India (Sebi) may be heading for a fresh battle, this time with the Forward Markets Commission.
On Monday, the National Stock Exchange issued a circular, with Sebi's approval, on the futures and options trading in gold-based exchange traded funds (ETFs). This has prompted the FMC, which is the commodities futures regulator, to take up the issue with the Union government.
“Anything that has to do with commodities falls under (the purview of) Forward Contracts Regulation Act and should be regulated by us,” FMC Chairman B C Khatua said.
He refused to comment on approaching the government over the NSE circular.
Options trading in commodities is banned under the law. If options trading in ETFs is allowed, market players may circumvent the rules, sources said. They also pointed out that the law ministry was against the move.
“When FMC did not object to ETFs based on gold, it should not have any problems with derivatives based on it,” a Sebi official said.
However, the sources said that Sebi’s approval came as a surprise as FMC had taken up the issue of fund houses launching ETFs based on oil and silver. Following this, the proposed ETFs were not launched.
I-bankers upbeat on new selection norms for PSU divestment
Importance of bid fees far less; stress on technical record and expertise.
Ashish Rukhaiyar & Vandana / Mumbai April 28, 2010
The change in lead manager norms for divestment of public sector has enthused investment bankers. A majority of them say this will avoid the ‘mad competition’ among merchant bankers to bid for PSU offers.
Earlier, more weightage was given to the fees quoted by bankers. Hence, investment banks used to bid at zero fees to bag disinvestment mandates, which also impacted the quantum of efforts put in by them. It had turned out to be a non-revenue exercise for bankers, as most of them would bid only for the sake of competition.
But, according to the new norms, nearly 70 per cent weight will be given to technicals and only 30 per cent to financials. The technical aspect looks at the background of lead managers and the kind of issues they had managed in the past.
Bank of America Merrill Lynch (BofA ML), which has so far stayed away from the government divestment programme, may bid for the coming issues. “We discussed it internally but decided against bidding. But, now that fee is not the only criteria, and technical issues will be given weight, we will consider bidding,” said Saurabh Agrawal, Managing Director and Head (ECM), BofA ML.
Under the new norms, merchant bankers would be evaluated on the number of applications and the amount procured by them for various issues handled for the Department of Disinvestment. The new norms also stress on the marketing strategy and post-issue support, with specific reference to Indian issues managed in the past.
One of the important parameters set out by the Department of Disinvestment is the need for merchant bankers to have local presence and strength in attracting retail investors. This assumes significance in the light of recent initial public offers and follow-on offers where retail response was muted. The ministry has clearly asked bankers to indicate distribution network strength to elicit maximum retail participation.
“We will definitely be bidding for all the divestment issues,” said Sunit Joshi, executive vice-president at SBI Capital Markets. “The norms for selecting lead managers for Coal India, which would be the largest divestment, would be different as higher weight would be given to technicals.”
Earlier, in an interview with Business Standard, Sunil Sanghai, managing director and co-head of Investment Banking, Goldman Sachs, had said, “The government is an important constituent and government-owned companies are large and globally important. It is well known that revenues from government transactions are lower than that from the private sector.”
The government plans to mop up Rs 40,000 crore from disinvestment of state-owned companies in 2010-11. “Engineers India would open in June, followed by Coal India in July,” said S Pradhan, joint secretary, Department of Disinvestment. “These issues would be followed by Hindustan Copper, SAIL, Power Grid Corporation and IOC at the end of the year,” explained Pradhan. While Engineers India would be around Rs 1,125 crore in size, Coal India would be the largest-ever divestment in the history of India, he added.
Ashish Rukhaiyar & Vandana / Mumbai April 28, 2010
The change in lead manager norms for divestment of public sector has enthused investment bankers. A majority of them say this will avoid the ‘mad competition’ among merchant bankers to bid for PSU offers.
Earlier, more weightage was given to the fees quoted by bankers. Hence, investment banks used to bid at zero fees to bag disinvestment mandates, which also impacted the quantum of efforts put in by them. It had turned out to be a non-revenue exercise for bankers, as most of them would bid only for the sake of competition.
But, according to the new norms, nearly 70 per cent weight will be given to technicals and only 30 per cent to financials. The technical aspect looks at the background of lead managers and the kind of issues they had managed in the past.
Bank of America Merrill Lynch (BofA ML), which has so far stayed away from the government divestment programme, may bid for the coming issues. “We discussed it internally but decided against bidding. But, now that fee is not the only criteria, and technical issues will be given weight, we will consider bidding,” said Saurabh Agrawal, Managing Director and Head (ECM), BofA ML.
Under the new norms, merchant bankers would be evaluated on the number of applications and the amount procured by them for various issues handled for the Department of Disinvestment. The new norms also stress on the marketing strategy and post-issue support, with specific reference to Indian issues managed in the past.
One of the important parameters set out by the Department of Disinvestment is the need for merchant bankers to have local presence and strength in attracting retail investors. This assumes significance in the light of recent initial public offers and follow-on offers where retail response was muted. The ministry has clearly asked bankers to indicate distribution network strength to elicit maximum retail participation.
“We will definitely be bidding for all the divestment issues,” said Sunit Joshi, executive vice-president at SBI Capital Markets. “The norms for selecting lead managers for Coal India, which would be the largest divestment, would be different as higher weight would be given to technicals.”
Earlier, in an interview with Business Standard, Sunil Sanghai, managing director and co-head of Investment Banking, Goldman Sachs, had said, “The government is an important constituent and government-owned companies are large and globally important. It is well known that revenues from government transactions are lower than that from the private sector.”
The government plans to mop up Rs 40,000 crore from disinvestment of state-owned companies in 2010-11. “Engineers India would open in June, followed by Coal India in July,” said S Pradhan, joint secretary, Department of Disinvestment. “These issues would be followed by Hindustan Copper, SAIL, Power Grid Corporation and IOC at the end of the year,” explained Pradhan. While Engineers India would be around Rs 1,125 crore in size, Coal India would be the largest-ever divestment in the history of India, he added.
Insurers may face criminal charge for new Ulip launch
Palak Shah & Ashish Rukhaiyar / Mumbai April 28, 2010
Insurance companies planning to go ahead with the launch of new Unit Linked Insurance Plans (Ulips) may have to face criminal prosecution from the Securities and Exchange Board of India (Sebi), say experts.
This assumes significance as insurance companies have said that they will approach only the Insurance Regulatory and Development Authority (Irda) and not Sebi before launching new Ulips. Insurance companies have confirmed to Business Standard that they are working on new Ulips and may even launch these before the current impasse between Sebi and Irda over regulating these products is resolved. This is because the product constitutes a bulk of fund inflows.
Sebi had said on April 13 that insurers would have to register new products with it. Replying to Sebi's move, Irda, which has been regulating Ulips for the four years since the product was first launched, asked insurers to ignore the capital market regulator and continue as usual.
“The Sebi order or the latest clarification issued on April 13 still stands valid. Insurance firms planing to issue fresh Ulips without Sebi nod may be liable for criminal prosecution," said Siddharth Shah, managing partner with Mumbai-based law firm Nishit Desai & Associates.
While Sebi declined comment, legal experts said the former’s order could not be set aside by Irda. “Only the Securities Appellate Tribunal, high courts and the Supreme Court have the authority to set aside a Sebi order,” said former Sebi executive director Sandeep Parekh.
Both Parekh and Shah are of the view that Sebi can file for criminal prosecution against those violating its rules under Section 24 of the Sebi Act, 1992. By Section 24, prosecution proceedings can be initiated against a person for contravention of any of the provisions of the Sebi Act, rules or regulations. Violation of this Section becomes a cognizable offence if, prima facie, there is evidence to file a complaint at a magistrate’s court or police. The penalty is imprisonment for one year.
Replying an to email query from Business Standard, Irda said Ulips were insurance contracts to which the Insurance Act, 1938, the Irda Act, 1992, and Irda regulations apply.
“Insurance companies who sell Ulips are registered under the said enactments. The insurance companies are therefore acting in accordance with the statutory directions of Irda to conduct their insurance business according to the said enactments. Consequently, Irda is unable to understand as to how any criminal prosecution by any party can be maintained against sale of Ulips by insurance companies,” said an Irda official.
Insurance companies planning to go ahead with the launch of new Unit Linked Insurance Plans (Ulips) may have to face criminal prosecution from the Securities and Exchange Board of India (Sebi), say experts.
This assumes significance as insurance companies have said that they will approach only the Insurance Regulatory and Development Authority (Irda) and not Sebi before launching new Ulips. Insurance companies have confirmed to Business Standard that they are working on new Ulips and may even launch these before the current impasse between Sebi and Irda over regulating these products is resolved. This is because the product constitutes a bulk of fund inflows.
Sebi had said on April 13 that insurers would have to register new products with it. Replying to Sebi's move, Irda, which has been regulating Ulips for the four years since the product was first launched, asked insurers to ignore the capital market regulator and continue as usual.
“The Sebi order or the latest clarification issued on April 13 still stands valid. Insurance firms planing to issue fresh Ulips without Sebi nod may be liable for criminal prosecution," said Siddharth Shah, managing partner with Mumbai-based law firm Nishit Desai & Associates.
While Sebi declined comment, legal experts said the former’s order could not be set aside by Irda. “Only the Securities Appellate Tribunal, high courts and the Supreme Court have the authority to set aside a Sebi order,” said former Sebi executive director Sandeep Parekh.
Both Parekh and Shah are of the view that Sebi can file for criminal prosecution against those violating its rules under Section 24 of the Sebi Act, 1992. By Section 24, prosecution proceedings can be initiated against a person for contravention of any of the provisions of the Sebi Act, rules or regulations. Violation of this Section becomes a cognizable offence if, prima facie, there is evidence to file a complaint at a magistrate’s court or police. The penalty is imprisonment for one year.
Replying an to email query from Business Standard, Irda said Ulips were insurance contracts to which the Insurance Act, 1938, the Irda Act, 1992, and Irda regulations apply.
“Insurance companies who sell Ulips are registered under the said enactments. The insurance companies are therefore acting in accordance with the statutory directions of Irda to conduct their insurance business according to the said enactments. Consequently, Irda is unable to understand as to how any criminal prosecution by any party can be maintained against sale of Ulips by insurance companies,” said an Irda official.
'Indian firms will be very selective in M&As'
Q&A: Sunil Sanghai,, Head (Investment Banking) Goldman Sachs
Ashish Rukhaiyar & Vandana / Mumbai April 28, 2010
Regulatory action in the US may have put Goldman Sachs on the back foot but the Indian arm of the financial major is still focused on serving its important clients. Ashish Rukhaiyar and Vandana talk to Sunil Sanghai, the head of the investment banking team, on Goldman Sachs’ India plans, mergers and acquisitions, and the regulatory arena. Excerpts:
Goldman Sachs has been at the centre of regulatory action in the US and also in some places in Europe. What will be the impact on the Indian arm?
As the firm has stated clearly, Goldman Sachs will never condone its employees misleading anyone. Were there ever to emerge credible evidence that such behaviour occurred, we would be the first to condemn it and take appropriate action. In the meantime, we are very focused on continuing to serve our important Indian clients and help them achieve their goals and ambitions. We have added a significant number of senior people in Mumbai and Bangalore. Many of them have chosen to join us from our leading competitors. We currently have a headcount of more than 3,100 professionals in India and that number will continue to increase. Goldman Sachs is also arguably one of the significant investors in India, if not the largest, in the aftermath of the financial crisis. Thus far, we have put more than $2 billion to work.
Do you think big-bang M&A deals are back?
Talking about outbound M&A transactions, we will continue to see activity, although, given the global environment, Indian companies will be very strategic and selective — meaning most deals will be moderate relative to the size of the acquirer. In case of inbound transactions, we do continue to see substantial interest across the spectrum of industry sectors. As regards domestic consolidation, it is a medium- to long-term strategy, and is very real. In short, it is not a question of “will this come?” It is a question of “when will this come?”. Although, given the growth expectations, the volume of transactions will be restricted.
Will outbound deals remain moderate?
They will take place, but fundamentally, the transactions will remain moderate relative to the size of the acquirer. The reason being that first, leveraged buy-outs have become much more rational; second, cross culture integration has its own challenges; and finally, the global economic downturn has made companies more risk averse.
Is the regulatory framework conducive to domestic M&As?
The regulatory framework is not a challenge, minus some sector-specific restrictions, which are for various social and foreign ownership reasons and are by design. Our regulatory framework for domestic M&A has all the required pillars. One area where I feel we could do better is minority squeeze-out and taking companies private. This will enable ownership consolidation by delisting of companies.
The appetite for public sector issues has not been great. How do you see the current financial year, when the government intends to raise a large amount of money?
Traditionally, retail participation in initial public offers has been higher due to expected appreciation at the time of listing. However, FPOs (follow-on public offers) in general have not been very popular with retail investors — one, because investors have the option to buy from the market; and second, due to the perceived limited appreciation opportunity. Most recent government disinvestments were by way of FPOs, which are generally targeted towards the institutional investors, unless regulations require otherwise.
Are there any globally accepted best practices in the book-building process which are currently missing in India?
Given significant expected participation by retail in Indian primary issuances, I believe the book-building process in India is fairly mature. However, from the primary market perspective, the question is where should we aim to be. Clearly, the long-term objective should be to shift primary market distribution to a secondary market model — that is, the prospectus should be uploaded by the issuer on its website, investors should be able to call their brokers and place orders for subscription, and allotted shares should be credited to them in the electronic form.
Compared to some of your other foreign counterparts, Goldman Sachs has not been that active on the IPO front.
That is an incorrect perception in that you will note that Goldman Sachs has been involved in the largest FPO, many large QIPs (qualified institutional placements), the largest bond issue and significant M&As in the Indian corporate landscape. In addition, our IPO pipeline remains robust and exciting.
'We will explore listing more Indian products'
Q&A: Magnus Bocker, CEO, Singapore Stock Exchange
Ashish Rukhaiyar / Mumbai April 27, 2010
Magnus Bocker joined the Singapore Stock Exchange (SGX) as chief executive in December. Since then, SGX has enhanced its relationship with the National Stock Exchange (NSE). With nearly 25 years of experience in the exchange industry that includes a stint with Nasdaq OMX, Bocker tells Ashish Rukhaiyar that he is exploring listing of more India-linked products. Excerpts:
SGX intends to become a global gateway for trading Asian equities, commodities and financial derivatives on a variety of platforms. What does this mean for the investor community?
SGX is constantly seeking opportunities with like-minded partners to give its global customers greater access to our market and more product choices in line with the growing interest and appetite for more asset classes such as equity derivatives and commodities.
As one of the 10 largest exchange operators in the world and the second-largest in Asia, SGX is well-placed to expand its offerings to become a global gateway for trading Asia equities, commodities and financial derivatives. A part of our efforts to enhance accessibility was extension of trading hours for our derivatives market to 1 am (Singapore time). With this, our derivatives markets will trade past the close of the London market. This will allow customers to better manage their risk arising from news and market movements during European and US trading hours.
Nifty options will soon be available on SGX. How do you intend to expand your relations with Indian exchanges?
We recently announced a collaboration with NSE, offering Nifty options and related products. With this, we can expect to offer our global customers options on the S&P CNX Nifty Index in 2010 and derivatives on other Nifty-related indices thereafter.
We will continue to work with partners to give customers greater access to these opportunities in India, as well as explore listing of more India-linked products. For investors in both countries, a seamless linkage, if and when it materialises, will offer more direct and cost-efficient trading, hedging and risk management opportunities.
Nifty futures will soon be traded on the Chicago Mercantile Exchange (CME), too. Do you think this will impact investor interest in Nifty futures available on SGX?
CME’s plans to offer the Nifty futures contract will generate additional global interest in the contract and create arbitrage opportunities between the two contracts to the benefit of all investors, both onshore and offshore, and potentially create increased liquidity in the underlying contract. It is also worth noting that SGX and CME have enjoyed a 25-year relationship involving similar contracts — an example being the mutual offset agreement for the Nikkei 225 index futures.
There have been reports that SGX is planning to introduce trading in ADRs (American depository reeipts).
Today, we have a comprehensive suite of securities and derivatives products for our international investors. More choices can be expected in due course, as we explore other asset classes such as Asian equity derivatives and fixed income. We have seen increasing customer interest in ADRs. There will be an official announcement on ADRs as and when they are rolled out.
Commodities have become a thrust area for exchanges globally. How does SGX plan to position itself in the commodity space?
Sicom, a subsidiary of SGX, was acquired in July 2008. It brings to the marketplace a strong foundation as a commodity exchange with strong growth potential. Positioned as a multi-product commodity exchange, Sicom plans to introduce new products in agriculture, precious and base metals. Its vision is to be the price discovery centre for commodities produced, consumed and traded in Asia. This will drive costs down; it will also position Singapore as a commodity trading hub. If you look at the market statistics ending March 2010, trading in Sicom rose 54 per cent to 36,701 contracts year-on-year, signaling the increasing interest in commodities.
In the commodity space, SGX has an alliance with India’s National Commodity & Derivatives Exchange (NCDEX). How is it beneficial for the two exchanges?
In May 2009, Sicom collaborated with NCDEX to boost commodities markets in Singapore and India. The collaboration will enable designated products to be traded and cleared in both exchanges. In addition, NCDEX will make available its agricultural commodity index to Sicom to create derivative products. This will make Sicom the first exchange outside India to trade NCDEX’s products and NCDEX the first exchange outside Singapore to trade Sicom’s products. The exchanges will designate new products to the co-operation in response to market demand and jointly market and promote these products. By doing so, Sicom and NCDEX provide participants convenient trading access to both exchanges. Interestingly, Sicom will start trading its Robusta Coffee contract on April 22, 2010.
Ashish Rukhaiyar / Mumbai April 27, 2010
Magnus Bocker joined the Singapore Stock Exchange (SGX) as chief executive in December. Since then, SGX has enhanced its relationship with the National Stock Exchange (NSE). With nearly 25 years of experience in the exchange industry that includes a stint with Nasdaq OMX, Bocker tells Ashish Rukhaiyar that he is exploring listing of more India-linked products. Excerpts:
SGX intends to become a global gateway for trading Asian equities, commodities and financial derivatives on a variety of platforms. What does this mean for the investor community?
SGX is constantly seeking opportunities with like-minded partners to give its global customers greater access to our market and more product choices in line with the growing interest and appetite for more asset classes such as equity derivatives and commodities.
As one of the 10 largest exchange operators in the world and the second-largest in Asia, SGX is well-placed to expand its offerings to become a global gateway for trading Asia equities, commodities and financial derivatives. A part of our efforts to enhance accessibility was extension of trading hours for our derivatives market to 1 am (Singapore time). With this, our derivatives markets will trade past the close of the London market. This will allow customers to better manage their risk arising from news and market movements during European and US trading hours.
Nifty options will soon be available on SGX. How do you intend to expand your relations with Indian exchanges?
We recently announced a collaboration with NSE, offering Nifty options and related products. With this, we can expect to offer our global customers options on the S&P CNX Nifty Index in 2010 and derivatives on other Nifty-related indices thereafter.
We will continue to work with partners to give customers greater access to these opportunities in India, as well as explore listing of more India-linked products. For investors in both countries, a seamless linkage, if and when it materialises, will offer more direct and cost-efficient trading, hedging and risk management opportunities.
Nifty futures will soon be traded on the Chicago Mercantile Exchange (CME), too. Do you think this will impact investor interest in Nifty futures available on SGX?
CME’s plans to offer the Nifty futures contract will generate additional global interest in the contract and create arbitrage opportunities between the two contracts to the benefit of all investors, both onshore and offshore, and potentially create increased liquidity in the underlying contract. It is also worth noting that SGX and CME have enjoyed a 25-year relationship involving similar contracts — an example being the mutual offset agreement for the Nikkei 225 index futures.
There have been reports that SGX is planning to introduce trading in ADRs (American depository reeipts).
Today, we have a comprehensive suite of securities and derivatives products for our international investors. More choices can be expected in due course, as we explore other asset classes such as Asian equity derivatives and fixed income. We have seen increasing customer interest in ADRs. There will be an official announcement on ADRs as and when they are rolled out.
Commodities have become a thrust area for exchanges globally. How does SGX plan to position itself in the commodity space?
Sicom, a subsidiary of SGX, was acquired in July 2008. It brings to the marketplace a strong foundation as a commodity exchange with strong growth potential. Positioned as a multi-product commodity exchange, Sicom plans to introduce new products in agriculture, precious and base metals. Its vision is to be the price discovery centre for commodities produced, consumed and traded in Asia. This will drive costs down; it will also position Singapore as a commodity trading hub. If you look at the market statistics ending March 2010, trading in Sicom rose 54 per cent to 36,701 contracts year-on-year, signaling the increasing interest in commodities.
In the commodity space, SGX has an alliance with India’s National Commodity & Derivatives Exchange (NCDEX). How is it beneficial for the two exchanges?
In May 2009, Sicom collaborated with NCDEX to boost commodities markets in Singapore and India. The collaboration will enable designated products to be traded and cleared in both exchanges. In addition, NCDEX will make available its agricultural commodity index to Sicom to create derivative products. This will make Sicom the first exchange outside India to trade NCDEX’s products and NCDEX the first exchange outside Singapore to trade Sicom’s products. The exchanges will designate new products to the co-operation in response to market demand and jointly market and promote these products. By doing so, Sicom and NCDEX provide participants convenient trading access to both exchanges. Interestingly, Sicom will start trading its Robusta Coffee contract on April 22, 2010.
Sceptical of fate after new norms, companies rush to launch IPOs
Ashish Rukhaiyar / Mumbai April 26, 2010
With only few days left before the new norms for public offerings kick in, there seems to be an unusual rush by companies to launch their initial public offerings (IPOs). Concerns related to bunching of issues and a probable downturn in investor sentiment on account of global macro-economic factors seem to have suddenly gone off-radar for investment bankers.
This week would see five different companies, including a government-owned one, trying to collectively raise more than Rs 4,000 crore. Investment bankers say companies are wary of becoming the first to test the waters in May, when institutional investors would be required to pay 100 per cent up-front margin and with a reduced time line.
Companies hitting the market this week include Jaypee Infratech, SJVN, Mandhana Industries and Tarapur Transformers. Nitesh Estates opened on Friday last week and would close on Tuesday. The two biggest of the lot, SJVN and Jaypee Infratech, would both open on the same day, April 29.
According to the new norms, qualified institutional investors — that includes foreign institutional investors, mutual funds, insurance companies and other domestic financial entities — will have to pay 100 per cent up-front margin while applying for shares in an IPO. Currently, institutional investors are required to pay only 25 per cent at the time of application and the balance when the shares are allotted.
Issues that open in May would also be subject to a reduced time line. Earlier this month, the regulator said shares had to be listed on the stock exchange within 12 working days from the date of issue closure. Till now, the stipulated time forv completing the listing of shares from the date of closing was 22 days.
Market players, while hailing the Securities and Exchange Board of India’s (Sebi’s) primary market reforms, say there is scepticism ahead of the debut of the new norms. “Though Sebi has taken positive steps for a vibrant IPO market by creating a level playing field among all participants, it seems market intermediaries and issuers are sceptical about its impact on the IPO market in the near term and hence are rushing to open the issues before May,” says Uday Patil, director (investment banking), Keynote Capital.
Many of the investment bankers that Business Standard spoke to did not wish to come on record while saying they did not want their issues to be among the first ones under the new norms. “The investor confidence level is nowhere compared to historic highs. And, with the norms becoming more stringent, it is risky to become the first issue to test the waters,” said the head of a domestic investment banking unit. The days of huge oversubscription would soon be a thing of the past, he added.
The same set of investment bankers had actually argued against the concept of bunching of issues that tended to impact subscription numbers. While there have been instances earlier when quite a few issues opened almost on the same day or at short intervals, the issue size had been relatively smaller.
The 1990s, especially, saw massive numbers of issuances hitting the market almost every month. For instance, February 1995 saw 183 IPOs opening for subscription. The amount mobilised, however, was only Rs 1,916 crore, according to Prime Database.
“Bunching has never been a concern. Timing of the issue is a factor of market condition,” says Mehul Savla, CEO, Ripplewave Equity, a mid-sized investment advisory firm. “While the reduced time line (from May onwards) would be a key driver to this trend, there are other factors also, like the timing of the Sebi card and financial numbers disclosed in the prospectus, among others,” he added.
With only few days left before the new norms for public offerings kick in, there seems to be an unusual rush by companies to launch their initial public offerings (IPOs). Concerns related to bunching of issues and a probable downturn in investor sentiment on account of global macro-economic factors seem to have suddenly gone off-radar for investment bankers.
This week would see five different companies, including a government-owned one, trying to collectively raise more than Rs 4,000 crore. Investment bankers say companies are wary of becoming the first to test the waters in May, when institutional investors would be required to pay 100 per cent up-front margin and with a reduced time line.
Companies hitting the market this week include Jaypee Infratech, SJVN, Mandhana Industries and Tarapur Transformers. Nitesh Estates opened on Friday last week and would close on Tuesday. The two biggest of the lot, SJVN and Jaypee Infratech, would both open on the same day, April 29.
According to the new norms, qualified institutional investors — that includes foreign institutional investors, mutual funds, insurance companies and other domestic financial entities — will have to pay 100 per cent up-front margin while applying for shares in an IPO. Currently, institutional investors are required to pay only 25 per cent at the time of application and the balance when the shares are allotted.
Issues that open in May would also be subject to a reduced time line. Earlier this month, the regulator said shares had to be listed on the stock exchange within 12 working days from the date of issue closure. Till now, the stipulated time forv completing the listing of shares from the date of closing was 22 days.
Market players, while hailing the Securities and Exchange Board of India’s (Sebi’s) primary market reforms, say there is scepticism ahead of the debut of the new norms. “Though Sebi has taken positive steps for a vibrant IPO market by creating a level playing field among all participants, it seems market intermediaries and issuers are sceptical about its impact on the IPO market in the near term and hence are rushing to open the issues before May,” says Uday Patil, director (investment banking), Keynote Capital.
Many of the investment bankers that Business Standard spoke to did not wish to come on record while saying they did not want their issues to be among the first ones under the new norms. “The investor confidence level is nowhere compared to historic highs. And, with the norms becoming more stringent, it is risky to become the first issue to test the waters,” said the head of a domestic investment banking unit. The days of huge oversubscription would soon be a thing of the past, he added.
The same set of investment bankers had actually argued against the concept of bunching of issues that tended to impact subscription numbers. While there have been instances earlier when quite a few issues opened almost on the same day or at short intervals, the issue size had been relatively smaller.
The 1990s, especially, saw massive numbers of issuances hitting the market almost every month. For instance, February 1995 saw 183 IPOs opening for subscription. The amount mobilised, however, was only Rs 1,916 crore, according to Prime Database.
“Bunching has never been a concern. Timing of the issue is a factor of market condition,” says Mehul Savla, CEO, Ripplewave Equity, a mid-sized investment advisory firm. “While the reduced time line (from May onwards) would be a key driver to this trend, there are other factors also, like the timing of the Sebi card and financial numbers disclosed in the prospectus, among others,” he added.
Goldman fraud probe comes to haunt Indian markets
Ashish Rukhaiyar / Mumbai April 20, 2010
Shares of companies in which it holds stake fall more than the benchmark.
Shares of Indian companies in which Goldman Sachs has a sizeable stake came under heavy selling pressure today as more regulators joined the ongoing probe against the financial powerhouse. There are more than 25 listed Indian companies in which Goldman Sachs owns more than 1 per cent. The shares of almost all these companies fell more than the benchmark indices. Interestingly, an email with names of these companies was being widely circulated in institutional trading circles.
Some companies in which Goldman Sachs — a registered foreign institutional investor — has a sizeable stake are NDTV, Tamil Nadu Newsprint, Mastek, Aftek, CESC, ICSA (India), United Phosphorus, Spicejet, Country Club (India), Cox & Kings, Lanco Infratech, Hindustan Construction (HCC), Indiabulls Securities, Nucleus Software Exports and Rain Commodities.
While the Sensex shed a little over 1 per cent today, the shares of companies in which Goldman Sachs has a sizeable stake lost more than 2 per cent. These included Nucleus Software (down 6.36 per cent), Spicejet (4.17 per cent), ICSA (4.68 per cent), Rohit Ferro Tech (4.07 per cent), Rain Commodities (4.16 per cent) and Cox & Kings (3.33 per cent).
“There will obviously be a set of cautious investors who will be withdrawing from Goldman Sachs in the backdrop of the recent probe,” said the head of an institutional trading desk of a domestic brokerage. “Hedge funds would be the most concerned and some unwinding could happen in India to transfer funds to such investors. Such a probe against a global financial powerhouse does impact sentiments,” he said.
The New-York headquartered financial major found itself in the dock after the US market regulator, the Securities and Exchange Commission (SEC), filed a suit against it and an employees for defrauding investors of $1 billion through a subprime-related financial product. According to SEC, in early 2007, Goldman Sachs created and sold a CDO (collateralised debt obligations)-linked to subprime mortgages without disclosing that hedge fund Paulson & Co helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1.
The SEC probe has been followed by the UK, where Prime Minister Gordon Brown has asked the Financial Services Authority (FSA) to probe the UK operations of Goldman Sachs. Brown has been quoted as saying that “this is one of the worst cases of moral bankruptcy that he had seen”.
Incidentally, on Friday, shares of Goldman Sachs lost nearly 13 per cent to close at $160.70 on the New York Stock Exchange.
Meanwhile, back in India, an institutional trader not allowed to be quoted in the media said Goldman Sachs funds had been selling in the last couple of days. “They have an in-house hedge fund that will obviously come under some pressure in the days to come if the probe takes an unhealthy turn for the financial major,” he said. An email sent to Goldman Sachs India on whether the probe against the firm in the UK and the US would impact the Indian arm did not elicit any response till the time of going to press.
The European Union is also probing Goldman Sachs’s role in arranging swaps for Greece that may have helped in hiding the country’s budget deficit. Reports further suggest that Germany’s financial regulator has also asked the SEC for details on the suit.
Shares of companies in which it holds stake fall more than the benchmark.
Shares of Indian companies in which Goldman Sachs has a sizeable stake came under heavy selling pressure today as more regulators joined the ongoing probe against the financial powerhouse. There are more than 25 listed Indian companies in which Goldman Sachs owns more than 1 per cent. The shares of almost all these companies fell more than the benchmark indices. Interestingly, an email with names of these companies was being widely circulated in institutional trading circles.
Some companies in which Goldman Sachs — a registered foreign institutional investor — has a sizeable stake are NDTV, Tamil Nadu Newsprint, Mastek, Aftek, CESC, ICSA (India), United Phosphorus, Spicejet, Country Club (India), Cox & Kings, Lanco Infratech, Hindustan Construction (HCC), Indiabulls Securities, Nucleus Software Exports and Rain Commodities.
While the Sensex shed a little over 1 per cent today, the shares of companies in which Goldman Sachs has a sizeable stake lost more than 2 per cent. These included Nucleus Software (down 6.36 per cent), Spicejet (4.17 per cent), ICSA (4.68 per cent), Rohit Ferro Tech (4.07 per cent), Rain Commodities (4.16 per cent) and Cox & Kings (3.33 per cent).
“There will obviously be a set of cautious investors who will be withdrawing from Goldman Sachs in the backdrop of the recent probe,” said the head of an institutional trading desk of a domestic brokerage. “Hedge funds would be the most concerned and some unwinding could happen in India to transfer funds to such investors. Such a probe against a global financial powerhouse does impact sentiments,” he said.
The New-York headquartered financial major found itself in the dock after the US market regulator, the Securities and Exchange Commission (SEC), filed a suit against it and an employees for defrauding investors of $1 billion through a subprime-related financial product. According to SEC, in early 2007, Goldman Sachs created and sold a CDO (collateralised debt obligations)-linked to subprime mortgages without disclosing that hedge fund Paulson & Co helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1.
The SEC probe has been followed by the UK, where Prime Minister Gordon Brown has asked the Financial Services Authority (FSA) to probe the UK operations of Goldman Sachs. Brown has been quoted as saying that “this is one of the worst cases of moral bankruptcy that he had seen”.
Incidentally, on Friday, shares of Goldman Sachs lost nearly 13 per cent to close at $160.70 on the New York Stock Exchange.
Meanwhile, back in India, an institutional trader not allowed to be quoted in the media said Goldman Sachs funds had been selling in the last couple of days. “They have an in-house hedge fund that will obviously come under some pressure in the days to come if the probe takes an unhealthy turn for the financial major,” he said. An email sent to Goldman Sachs India on whether the probe against the firm in the UK and the US would impact the Indian arm did not elicit any response till the time of going to press.
The European Union is also probing Goldman Sachs’s role in arranging swaps for Greece that may have helped in hiding the country’s budget deficit. Reports further suggest that Germany’s financial regulator has also asked the SEC for details on the suit.
Lehman 'blocks' on Dalal Street
Ashish Rukhaiyar / Mumbai April 16, 2010
Institutional desks of many brokerages in India are in the process of selling about Rs 2,000 crore worth of equity holding of bankrupt US investment bank Lehman Brothers Inc in some Indian companies.
These 'Lehman blocks' emerged after the convertibles that the bank had bought during its heydays resulted in equity holdings.
Once among the world's leading investment banks, Lehman Brothers had filed for bankruptcy on September 15, 2008. Its demise triggered a global financial crisis, from which the western world has only just begun to emerge.
Dealers said large blocks of Lehman shares in companies such as Sarda Energy, Moser Baer, KPIT Cummins and Emkay Financial were recently sold and that they are scouting for buyers for quite a few other blocks.
“Lehman's stake in Sarda (Energy) has been sold only a couple of weeks back,” said a person who was part of the sale process. “It was bought by two London-based foreign institutional investors,” he said requesting anonymity. “The block was sold at Rs 172.4, while the shares (of Sarda Energy) on that day closed at Rs 212.35 (on the Bombay Stock Exchange).”
Another institutional trader, who is familiar with the development, said Lehman's stake in KPIT Cummins was bought by that company's employees trust while the work was on to secure buyers for its stake in Anant Raj Industries.
There are at least 15 listed entities in India where Lehman Brothers held sizeable stakes as on December 31, 2009, according to data collated by the Business Standard Research Bureau.
While the latest shareholding pattern is not available for most of these companies, two entities — Emkay Global Financial Services and Moser Baer — have filed their March quarter shareholding pattern that clearly shows that Lehman has exited the counters completely. In other words, the shares were sold between January and March. As on December 31, 2009, Lehman held 3.75 per cent stake in Emkay and 1.42 per cent stake in Moser Baer. In addition, Lehman's stake in Sarda Energy has also been sold off completely.
Incidentally, Lehman's position in the derivatives segment in India had expired at the end of September 2008, the month in which the bank filed for bankruptcy. Most of its cash positions were also squared off but there were still a lot of positions taken through convertible bonds. According to market players, most of the bonds have now been converted into equity and a liquidator is trying to get those shares off the books.
Some of the companies where Lehman held a sizeable stake as on December 31, 2009 include: KSK Energy Ventures (21.52 per cent), West Coast Paper (3.98 per cent), Orchid Chemicals & Pharma (2.93 per cent), Spice Mobiles (2.91 per cent) and Tulip Telecom (2.97 per cent).
Most of its cash positions were also squared off but there were still a lot of positions taken through convertible bonds. According to market players, most of the bonds have now been converted into equity and a liquidator is trying to get those shares off the books.
Some of the companies where Lehman held a sizeable stake as on December 31, 2009 include: KSK Energy Ventures (21.52 per cent), West Coast Paper (3.98 per cent), Orchid Chemicals & Pharma (2.93 per cent), Spice Mobiles (2.91 per cent) and Tulip Telecom (2.97 per cent).
Apart from these, Lehman held around two per cent in companies like Cox & Kings, Edelweiss Capital, Anant Raj Industries and Pioneer Embroideries. It held 7.73 per cent in Sarda Energy.
Some institutional traders tracking Lehman blocks said a US-based liquidator is handling the process of squaring off Lehman’s positions wherever they are still existing.
“Most of the postions have been created as Lehman bought convertible bonds in quite a few companies. After a period of time, these bonds get converted into shares, which are being sold now,” said an institutional trader requesting anonymity as he is not authorised to speak with media. “The sale proceeds are credited to the custodian who is in touch with the liquidator.”
Institutional desks of many brokerages in India are in the process of selling about Rs 2,000 crore worth of equity holding of bankrupt US investment bank Lehman Brothers Inc in some Indian companies.
These 'Lehman blocks' emerged after the convertibles that the bank had bought during its heydays resulted in equity holdings.
Once among the world's leading investment banks, Lehman Brothers had filed for bankruptcy on September 15, 2008. Its demise triggered a global financial crisis, from which the western world has only just begun to emerge.
Dealers said large blocks of Lehman shares in companies such as Sarda Energy, Moser Baer, KPIT Cummins and Emkay Financial were recently sold and that they are scouting for buyers for quite a few other blocks.
“Lehman's stake in Sarda (Energy) has been sold only a couple of weeks back,” said a person who was part of the sale process. “It was bought by two London-based foreign institutional investors,” he said requesting anonymity. “The block was sold at Rs 172.4, while the shares (of Sarda Energy) on that day closed at Rs 212.35 (on the Bombay Stock Exchange).”
Another institutional trader, who is familiar with the development, said Lehman's stake in KPIT Cummins was bought by that company's employees trust while the work was on to secure buyers for its stake in Anant Raj Industries.
There are at least 15 listed entities in India where Lehman Brothers held sizeable stakes as on December 31, 2009, according to data collated by the Business Standard Research Bureau.
While the latest shareholding pattern is not available for most of these companies, two entities — Emkay Global Financial Services and Moser Baer — have filed their March quarter shareholding pattern that clearly shows that Lehman has exited the counters completely. In other words, the shares were sold between January and March. As on December 31, 2009, Lehman held 3.75 per cent stake in Emkay and 1.42 per cent stake in Moser Baer. In addition, Lehman's stake in Sarda Energy has also been sold off completely.
Incidentally, Lehman's position in the derivatives segment in India had expired at the end of September 2008, the month in which the bank filed for bankruptcy. Most of its cash positions were also squared off but there were still a lot of positions taken through convertible bonds. According to market players, most of the bonds have now been converted into equity and a liquidator is trying to get those shares off the books.
Some of the companies where Lehman held a sizeable stake as on December 31, 2009 include: KSK Energy Ventures (21.52 per cent), West Coast Paper (3.98 per cent), Orchid Chemicals & Pharma (2.93 per cent), Spice Mobiles (2.91 per cent) and Tulip Telecom (2.97 per cent).
Most of its cash positions were also squared off but there were still a lot of positions taken through convertible bonds. According to market players, most of the bonds have now been converted into equity and a liquidator is trying to get those shares off the books.
Some of the companies where Lehman held a sizeable stake as on December 31, 2009 include: KSK Energy Ventures (21.52 per cent), West Coast Paper (3.98 per cent), Orchid Chemicals & Pharma (2.93 per cent), Spice Mobiles (2.91 per cent) and Tulip Telecom (2.97 per cent).
Apart from these, Lehman held around two per cent in companies like Cox & Kings, Edelweiss Capital, Anant Raj Industries and Pioneer Embroideries. It held 7.73 per cent in Sarda Energy.
Some institutional traders tracking Lehman blocks said a US-based liquidator is handling the process of squaring off Lehman’s positions wherever they are still existing.
“Most of the postions have been created as Lehman bought convertible bonds in quite a few companies. After a period of time, these bonds get converted into shares, which are being sold now,” said an institutional trader requesting anonymity as he is not authorised to speak with media. “The sale proceeds are credited to the custodian who is in touch with the liquidator.”
Shorter IPO timeline to squeeze funding margins
Ashish Rukhaiyar / Mumbai April 14, 2010
By reducing the time between an issue’s closure and listing, the Securities and Exchange Board of India (Sebi) has killed two birds with one stone.
Besides ensuring faster primary market issues, the move will tame the initial public offer-funding business, which has been attracting a lot of criticism. Market players say that while the business is already in the doldrums due to some recent lacklustre listings, the Sebi order has further squeezed margins, even though money can be churned much faster now.
IPO funding is a practice of investing in public issues with borrowed money. It is a lucrative avenue for brokers, especially those that have a non-banking financial company (NBFC). Typically, it is high net worth individuals who take short-term credit from NBFCs. The interest costs, over 15 per cent in 2008, are already down to under 10 per cent.
Now, with the IPO timeline down to 12 days from May 1, income in absolute terms will fall further. “With QIBs (qualified institutional buyers) having to pay 100 per cent money with the application from May 1 and Asba (application supported by blocked money) facility extended to all categories, it appears the rules of leveraged application will undergo a sea change,” said Arun Kejriwal of KRIS. “Interest rates have to fall drastically for them to be affordable in the new regime. The first few issues will be keenly watched,” said Kejriwal.
IPO funding has been facing criticism from many quarters, including the market regulator. During the IPO boom years of 2005-2007, when the activity was at its peak, there were a number of complaints against NBFCs and brokerages. The most common issue related to the power of attorney (PoA) vested with the lender. In case the investor defaulted on payment, the PoA gave the broker the right to sell the shares. Such instances were common, especially when shares listed below the issue price or listing gains were minuscule.
Sebi’s first salvo against the practice came in the form of ASBA, wherein the money remains in the bidder’s account till the shares are allotted. Self-certified syndicate banks were appointed to enhance the reach and popularity of Asba, which leaves no room for brokers to fund IPO applications. According to Sebi’s analysis, applications through this facility accounted for around 12 per cent of the total in some of the issues that hit the market last year.
Interestingly, some market players have taken a contrarian stand on IPO funding. They say since the cost of funds will come down, more investors will now look at this avenue. “The new norms will widen the positive spread for investors and so the demand for money will go up,” said Nandip Vaidya, president (retail broking), India Infoline. “Brokerages need not worry as even though margins will shrink, higher volumes will negate any probable drop in income. I feel the credit offtake will definitely go up,” said Vaidya.
By reducing the time between an issue’s closure and listing, the Securities and Exchange Board of India (Sebi) has killed two birds with one stone.
Besides ensuring faster primary market issues, the move will tame the initial public offer-funding business, which has been attracting a lot of criticism. Market players say that while the business is already in the doldrums due to some recent lacklustre listings, the Sebi order has further squeezed margins, even though money can be churned much faster now.
IPO funding is a practice of investing in public issues with borrowed money. It is a lucrative avenue for brokers, especially those that have a non-banking financial company (NBFC). Typically, it is high net worth individuals who take short-term credit from NBFCs. The interest costs, over 15 per cent in 2008, are already down to under 10 per cent.
Now, with the IPO timeline down to 12 days from May 1, income in absolute terms will fall further. “With QIBs (qualified institutional buyers) having to pay 100 per cent money with the application from May 1 and Asba (application supported by blocked money) facility extended to all categories, it appears the rules of leveraged application will undergo a sea change,” said Arun Kejriwal of KRIS. “Interest rates have to fall drastically for them to be affordable in the new regime. The first few issues will be keenly watched,” said Kejriwal.
IPO funding has been facing criticism from many quarters, including the market regulator. During the IPO boom years of 2005-2007, when the activity was at its peak, there were a number of complaints against NBFCs and brokerages. The most common issue related to the power of attorney (PoA) vested with the lender. In case the investor defaulted on payment, the PoA gave the broker the right to sell the shares. Such instances were common, especially when shares listed below the issue price or listing gains were minuscule.
Sebi’s first salvo against the practice came in the form of ASBA, wherein the money remains in the bidder’s account till the shares are allotted. Self-certified syndicate banks were appointed to enhance the reach and popularity of Asba, which leaves no room for brokers to fund IPO applications. According to Sebi’s analysis, applications through this facility accounted for around 12 per cent of the total in some of the issues that hit the market last year.
Interestingly, some market players have taken a contrarian stand on IPO funding. They say since the cost of funds will come down, more investors will now look at this avenue. “The new norms will widen the positive spread for investors and so the demand for money will go up,” said Nandip Vaidya, president (retail broking), India Infoline. “Brokerages need not worry as even though margins will shrink, higher volumes will negate any probable drop in income. I feel the credit offtake will definitely go up,” said Vaidya.
StanChart bankers seek clarity on QIB margin in IDR
Ashish Rukhaiyar & Vandana / Mumbai April 9, 2010
Investment bankers managing the Standard Chartered IDR (Indian Depository Receipts) issue have sought clarity from the market regulator on the amount of margin payment by institutional investors.
While institutions investing in any issue opening on or after May 1 would have to pay 100 per cent money upfront, sources said the bankers wanted clarity on whether these norms would also apply to an issue of depository receipts. It is believed that the bankers have written to the Securities and Exchange Board of India (Sebi).
“We have written to Sebi for more clarity,” said a banker associated with the deal who did not wish to be named. “Since this is the first-ever IDR issue, there are some grey areas, one of which is related to the upfront payment by QIBs (qualified institutional buyers).”
London-based Standard Chartered PLC became the first entity to opt for an IDR issue when it filed its prospectus last week. These IDRs would have Standard Chartered’s shares listed on the London Stock Exchange as the underlying. According to the prospectus, half the issue has been reserved for QIBs, which need to pay “an amount representing at least 10 per cent of the bid amount... at the time of submission of their bids”.
“The prospectus was prepared before the new guidelines were announced and you need to ask Sebi what its stand is on this (QIB margin payment) issue,” said another banker associated with the deal. “In any case, the new norms have not been notified yet,” he added.
Sebi’s IDR guidelines detail the kind of companies that can list their depository receipts.
They touch on issues related to profitability, market capitalisation and dividend payment, but leave the structure of the issue and payment requirements to the Issue of Capital and Disclosure Requirements Regulations (ICDR).
“IDRs are governed by ICDR and do not enjoy any waiver,” said a Sebi official. He, however, refused to comment on whether bankers representing Standard Chartered had applied for any waiver or clarification on institutional bidders’ margin requirements. “Logically, the guidelines for local issuances should apply to IDRs too,” said Prithvi Haldea of Prime Database. “Therefore, institutions will have to pay 100 per cent upfront margin at the time of applying if the issue opens on or after May 1,” he said. The structure of an IDR issue is siimilar to that of a domestic initial public offer and both have reservations for QIBs, non-institutional bidders and retail investors.
In a circular in June last year, the regulator clearly said the “model listing agreement shall be read in conjunction with the Companies (Issue of Indian Depository Receipts) Rules, 2004, and Chapter VIA of the Sebi (Disclosure & Investor Protection) Guidelines, 2000, or any statutory modification or re-enactment thereof.” The DIP guidelines were rescinded last year while the ICDR ones were being notified.
Investment bankers managing the Standard Chartered IDR (Indian Depository Receipts) issue have sought clarity from the market regulator on the amount of margin payment by institutional investors.
While institutions investing in any issue opening on or after May 1 would have to pay 100 per cent money upfront, sources said the bankers wanted clarity on whether these norms would also apply to an issue of depository receipts. It is believed that the bankers have written to the Securities and Exchange Board of India (Sebi).
“We have written to Sebi for more clarity,” said a banker associated with the deal who did not wish to be named. “Since this is the first-ever IDR issue, there are some grey areas, one of which is related to the upfront payment by QIBs (qualified institutional buyers).”
London-based Standard Chartered PLC became the first entity to opt for an IDR issue when it filed its prospectus last week. These IDRs would have Standard Chartered’s shares listed on the London Stock Exchange as the underlying. According to the prospectus, half the issue has been reserved for QIBs, which need to pay “an amount representing at least 10 per cent of the bid amount... at the time of submission of their bids”.
“The prospectus was prepared before the new guidelines were announced and you need to ask Sebi what its stand is on this (QIB margin payment) issue,” said another banker associated with the deal. “In any case, the new norms have not been notified yet,” he added.
Sebi’s IDR guidelines detail the kind of companies that can list their depository receipts.
They touch on issues related to profitability, market capitalisation and dividend payment, but leave the structure of the issue and payment requirements to the Issue of Capital and Disclosure Requirements Regulations (ICDR).
“IDRs are governed by ICDR and do not enjoy any waiver,” said a Sebi official. He, however, refused to comment on whether bankers representing Standard Chartered had applied for any waiver or clarification on institutional bidders’ margin requirements. “Logically, the guidelines for local issuances should apply to IDRs too,” said Prithvi Haldea of Prime Database. “Therefore, institutions will have to pay 100 per cent upfront margin at the time of applying if the issue opens on or after May 1,” he said. The structure of an IDR issue is siimilar to that of a domestic initial public offer and both have reservations for QIBs, non-institutional bidders and retail investors.
In a circular in June last year, the regulator clearly said the “model listing agreement shall be read in conjunction with the Companies (Issue of Indian Depository Receipts) Rules, 2004, and Chapter VIA of the Sebi (Disclosure & Investor Protection) Guidelines, 2000, or any statutory modification or re-enactment thereof.” The DIP guidelines were rescinded last year while the ICDR ones were being notified.
Sebi starts search for two EDs
Ashish Rukhaiyar / Mumbai April 2, 2010
The Securities and Exchange Board of India (Sebi) has started the process of identifying new executive directors (EDs).
“Interviews have been going on for the last two days. There are 19 candidates in the fray,” said two persons familiar with the development. While all chief general managers (CGMs) of Sebi are being interviewed, a few finance ministry officials and capital market participants are also in the list of probables.
The market regulator, in December 2009, had invited applications for vacancies at the ED level. While the careers section on Sebi’s website states there are two vacancies, it clarifies that Sebi reserves the right to “fill more posts or to not fill a post at all”. The last date for applying was January 15.
At present, Sebi has five EDs. The last time it inducted EDs was in June 2009, when JN Gupta and KN Vaidyanathan joined it. The other EDs are PK Nagpal, J Ranganayakulu and Usha Narayanan.
“There are 10 internal and 19 external candidates among the shortlisted probables,” said a person familiar with the development. “All CGMs have been called. The list of external candidates includes a few director-level officers from the finance ministry,” he added. The last time Sebi had invited applications, there were 64 applicants, of which 25 were shortlisted. The selection committee comprises chairman and two board members.
Another person privy to the development said there was a “lot of excitement within Sebi circles” as one or both EDs could be “selected from within the organisation”.
“The other CGMs will report to the selected ones,” said this person who did not want to be named.
The industry has been abuzz with names of various people believed to have been interviewed by the selection committee. Among the finance ministry officials, names of Anand Mohan Bajaj and CKG Nair have been doing the rounds. Both Bajaj and Nair are directors in the finance ministry’s capital markets division. While Bajaj handles external markets, Nair looks after the primary market and regulatory establishments. An email query sent to both went unanswered.
Apart from ministry officials, the name of R Sundararaman of the National Stock Exchange (NSE) is also doing the rounds. Sundararaman is a senior vice-president at National Securities Clearing Corporation Ltd. While an NSE spokesperson had earlier denied such a move, repeated attempts to contact him on Thursday proved futile.
Sundararaman is not the only NSE official among the probables. TS Jagadharini is also believed to be in the fray, although she had resigned from the exchange recently. In her last assignment, she was a vice-president at NSE handling various verticals, including currency derivatives and equity F&O.
Jagadharini said such reports were “totally baseless”. “I resigned after working with NSE for 16 years. I have only taken a sabbatical,” she added.
People working with some leading brokerages are believed to have made it to the final list. Current EDs Gupta and Vaidyanathan were both hired from the industry, although the list included government officials ready to come to Sebi on deputation. While Vaidyanathan was the CEO of Alchemy Capital Management, Gupta was Group CFO, Kazstroyservice Group of Companies.
The Securities and Exchange Board of India (Sebi) has started the process of identifying new executive directors (EDs).
“Interviews have been going on for the last two days. There are 19 candidates in the fray,” said two persons familiar with the development. While all chief general managers (CGMs) of Sebi are being interviewed, a few finance ministry officials and capital market participants are also in the list of probables.
The market regulator, in December 2009, had invited applications for vacancies at the ED level. While the careers section on Sebi’s website states there are two vacancies, it clarifies that Sebi reserves the right to “fill more posts or to not fill a post at all”. The last date for applying was January 15.
At present, Sebi has five EDs. The last time it inducted EDs was in June 2009, when JN Gupta and KN Vaidyanathan joined it. The other EDs are PK Nagpal, J Ranganayakulu and Usha Narayanan.
“There are 10 internal and 19 external candidates among the shortlisted probables,” said a person familiar with the development. “All CGMs have been called. The list of external candidates includes a few director-level officers from the finance ministry,” he added. The last time Sebi had invited applications, there were 64 applicants, of which 25 were shortlisted. The selection committee comprises chairman and two board members.
Another person privy to the development said there was a “lot of excitement within Sebi circles” as one or both EDs could be “selected from within the organisation”.
“The other CGMs will report to the selected ones,” said this person who did not want to be named.
The industry has been abuzz with names of various people believed to have been interviewed by the selection committee. Among the finance ministry officials, names of Anand Mohan Bajaj and CKG Nair have been doing the rounds. Both Bajaj and Nair are directors in the finance ministry’s capital markets division. While Bajaj handles external markets, Nair looks after the primary market and regulatory establishments. An email query sent to both went unanswered.
Apart from ministry officials, the name of R Sundararaman of the National Stock Exchange (NSE) is also doing the rounds. Sundararaman is a senior vice-president at National Securities Clearing Corporation Ltd. While an NSE spokesperson had earlier denied such a move, repeated attempts to contact him on Thursday proved futile.
Sundararaman is not the only NSE official among the probables. TS Jagadharini is also believed to be in the fray, although she had resigned from the exchange recently. In her last assignment, she was a vice-president at NSE handling various verticals, including currency derivatives and equity F&O.
Jagadharini said such reports were “totally baseless”. “I resigned after working with NSE for 16 years. I have only taken a sabbatical,” she added.
People working with some leading brokerages are believed to have made it to the final list. Current EDs Gupta and Vaidyanathan were both hired from the industry, although the list included government officials ready to come to Sebi on deputation. While Vaidyanathan was the CEO of Alchemy Capital Management, Gupta was Group CFO, Kazstroyservice Group of Companies.
Rise in options turnover fails to enthuse brokers
Ashish Rukhaiyar / Mumbai March 31, 2010
Trading in options in the equity market has gained steady ground in recent months, with total turnover in the segment now much more than in the futures segment.
But, this has not resulted in a significant rise in business income of stock brokers. For, broking firms operate on wafer-thin margins in the options segment, with many charging a flat fee on a per-lot basis.
“In options, brokerage is a very significant portion and clients are very sensitive about it. With more and more investors looking at options, the margins have become quite competitive,” said Nandip Vaidya, president (retail broking), India Infoline. Many market intermediaries were ready to negotiate the brokerage on options from large clients, he added.
Options have attracted investor attention since the market entered into a volatile phase. In an options contract, a buyer has to only pay a premium at the time of entering into the contract. If at the time of maturity, the buyer decides against exercising the option, all he loses is the premium. So, the downside is limited to the premium amount. According to the latest monthly report of the National Stock Exchange (NSE), the volume in the index options segment has jumped nearly 40 per cent in the past six months.
“In terms of brokerage, the yield on options is not that significant. Due to the growing competition, many brokerages charge 0.5-1 per cent on the premium amount,” says Vinay Agrawal, executive director (equities broking), Angel Broking.
Interestingly, while options are becoming more and more popular by virtue of its design, brokers are not witnessing a corresponding rise in income from the segment. “According to exchange rules, one can charge brokerage only on the premium amount, that, at times, can be very low,” said Girish Dev, CEO, Networth Stock Broking. “So, most brokers have moved to a flat fee structure, charging between Rs 15 and Rs 75 per lot,” said Dev. The brokerage in options is capped at 2.5 per cent of the premium amount.
Retail investors have been steadily increasing their share in the derivatives arena. According to the NSE monthly report, their share in the total derivatives turnover was 57 per cent in February. In September 2009, this share was pegged at 54.7 per cent. This has made the market more competitive, as small investors are believed to be more sensitive to transaction costs.
The low initial cost has made options attractive. According to BS Research Bureau, the quantum of options trading has surpassed that of the futures segment in every month since November. In the current month (till 23rd), the total options turnover is pegged at Rs 683,679.2 crore, higher than that of futures (Rs 505,620.4 crore).
Trading in options in the equity market has gained steady ground in recent months, with total turnover in the segment now much more than in the futures segment.
But, this has not resulted in a significant rise in business income of stock brokers. For, broking firms operate on wafer-thin margins in the options segment, with many charging a flat fee on a per-lot basis.
“In options, brokerage is a very significant portion and clients are very sensitive about it. With more and more investors looking at options, the margins have become quite competitive,” said Nandip Vaidya, president (retail broking), India Infoline. Many market intermediaries were ready to negotiate the brokerage on options from large clients, he added.
Options have attracted investor attention since the market entered into a volatile phase. In an options contract, a buyer has to only pay a premium at the time of entering into the contract. If at the time of maturity, the buyer decides against exercising the option, all he loses is the premium. So, the downside is limited to the premium amount. According to the latest monthly report of the National Stock Exchange (NSE), the volume in the index options segment has jumped nearly 40 per cent in the past six months.
“In terms of brokerage, the yield on options is not that significant. Due to the growing competition, many brokerages charge 0.5-1 per cent on the premium amount,” says Vinay Agrawal, executive director (equities broking), Angel Broking.
Interestingly, while options are becoming more and more popular by virtue of its design, brokers are not witnessing a corresponding rise in income from the segment. “According to exchange rules, one can charge brokerage only on the premium amount, that, at times, can be very low,” said Girish Dev, CEO, Networth Stock Broking. “So, most brokers have moved to a flat fee structure, charging between Rs 15 and Rs 75 per lot,” said Dev. The brokerage in options is capped at 2.5 per cent of the premium amount.
Retail investors have been steadily increasing their share in the derivatives arena. According to the NSE monthly report, their share in the total derivatives turnover was 57 per cent in February. In September 2009, this share was pegged at 54.7 per cent. This has made the market more competitive, as small investors are believed to be more sensitive to transaction costs.
The low initial cost has made options attractive. According to BS Research Bureau, the quantum of options trading has surpassed that of the futures segment in every month since November. In the current month (till 23rd), the total options turnover is pegged at Rs 683,679.2 crore, higher than that of futures (Rs 505,620.4 crore).
Firms take the demerger route
Ashish Rukhaiyar / Mumbai March 23
India Inc has been bitten by a demerger bug. A large number of listed companies have announced plans to hive off a part of their business to unlock value, attract investors and take tax benefits ahead of proposed changes in taxation rules.
According to stock exchange data, companies that have announced demerger plans since the beginning of this year include Transport Corporation of India, Triveni Engineering & Industries, Dalmia Cement Bharat, Texmaco, Bilpower, Harrisons Malayalam, ETC Networks and Rain Commodities.
Demergers are a form of corporate restructuring in which a business segment within the group is hived off and made into a separate legal entity. It is often opted for by diversified business conglomerates that would like to have each business operate as a separate legal entity. Companies opting for this avenue cite reasons such as increased management focus, flexibility in fund-raising and creating value for shareholders that want to bet on individual businesses of the group.
Pankaj Kapoor, managing director, Harrisons Malayalam, said demerged units gave investors an option to invest in operational companies rather than purely holding ones. “Many old listed entities are only holding companies created to ensure the promoter holding remains at comfortable levels. Investors of such companies are dependant on dividend income. Demergers help companies create operational entities wherein potential investors can invest,” said Kapoor. Harrisons Malayalam plans to demerge its investment undertaking into Sentinel Tea and Exports.
Another reason for a surge in such instances is the proposed changes to Section 56 of the Income Tax Act which, once implemented, will make the consideration received in kind by a company from its parent or a subsidiary taxable as income from other sources. One view held by tax experts is that this may cover demergers, although this is debatable. Market participants are quick to point out the advantages of demergers from a tax perspective and also from an investor point of view.
“Demerger is a very tax-efficient manner of separating business,” said Girish Nadkarni, executive director, Avendus Capital. “If you sell or transfer your business, the capital gains tax comes into play. Demergers also help expand independent businesses of the group,” said Nadkarni.
Also, “demergers typically happen when investors are interested in investing in a business unit of a company, but not in the company as a whole”, said Akil Hirani, managing partner, Majmudar & Co.
“The demerged entity becomes the subsidiary of the company, and a demerger, if it complies with the provisions of income tax laws, will be tax-neutral. The investor then buys the shares of the demerged subsidiary from the company. Subject to compliance of income tax provisions, the demerged entity may be eligible to carry forward losses from previous years,’ said Hirani. Triveni Engineering says demerger of Triveni Turbine will lead to “focused management orientation, opportunities for strategic partnerships, flexibility for fund-raising, capability for future growth and expansion.” Rain Commodities said hiving off the cement business would enable “possible induction of joint venture partners in the future and to pursue value-accretive acquisitions”.
India Inc has been bitten by a demerger bug. A large number of listed companies have announced plans to hive off a part of their business to unlock value, attract investors and take tax benefits ahead of proposed changes in taxation rules.
According to stock exchange data, companies that have announced demerger plans since the beginning of this year include Transport Corporation of India, Triveni Engineering & Industries, Dalmia Cement Bharat, Texmaco, Bilpower, Harrisons Malayalam, ETC Networks and Rain Commodities.
Demergers are a form of corporate restructuring in which a business segment within the group is hived off and made into a separate legal entity. It is often opted for by diversified business conglomerates that would like to have each business operate as a separate legal entity. Companies opting for this avenue cite reasons such as increased management focus, flexibility in fund-raising and creating value for shareholders that want to bet on individual businesses of the group.
Pankaj Kapoor, managing director, Harrisons Malayalam, said demerged units gave investors an option to invest in operational companies rather than purely holding ones. “Many old listed entities are only holding companies created to ensure the promoter holding remains at comfortable levels. Investors of such companies are dependant on dividend income. Demergers help companies create operational entities wherein potential investors can invest,” said Kapoor. Harrisons Malayalam plans to demerge its investment undertaking into Sentinel Tea and Exports.
Another reason for a surge in such instances is the proposed changes to Section 56 of the Income Tax Act which, once implemented, will make the consideration received in kind by a company from its parent or a subsidiary taxable as income from other sources. One view held by tax experts is that this may cover demergers, although this is debatable. Market participants are quick to point out the advantages of demergers from a tax perspective and also from an investor point of view.
“Demerger is a very tax-efficient manner of separating business,” said Girish Nadkarni, executive director, Avendus Capital. “If you sell or transfer your business, the capital gains tax comes into play. Demergers also help expand independent businesses of the group,” said Nadkarni.
Also, “demergers typically happen when investors are interested in investing in a business unit of a company, but not in the company as a whole”, said Akil Hirani, managing partner, Majmudar & Co.
“The demerged entity becomes the subsidiary of the company, and a demerger, if it complies with the provisions of income tax laws, will be tax-neutral. The investor then buys the shares of the demerged subsidiary from the company. Subject to compliance of income tax provisions, the demerged entity may be eligible to carry forward losses from previous years,’ said Hirani. Triveni Engineering says demerger of Triveni Turbine will lead to “focused management orientation, opportunities for strategic partnerships, flexibility for fund-raising, capability for future growth and expansion.” Rain Commodities said hiving off the cement business would enable “possible induction of joint venture partners in the future and to pursue value-accretive acquisitions”.
Mid-sized I-banks reap rich haul in busy IPO season
Ashish Rukhaiyar / Mumbai March 20, 2010
Mid-sized investment bankers (i-bankers) are having a good time with the revival of the initial public offering (IPO) market, as small companies make a beeline to list on bourses. Industry players say most of the mid-sized investment banking entities are having their hands full, with some of them getting mandates from five-six firms.
Investment banking entities active in this arena include Anand Rathi Financial Services, PL Capital Markets, Saffron Capital Advisors, Collins Stewart Inga, Avendus Capital and Fortune Financial Services. According to these bankers, while the fee in absolute terms for such issuances are relatively low, a well-managed issue results in getting them more such mandates.
“The amount raised in such IPOs is small, so an investment banker also makes only a small amount,” says G S Ganesh, president, Collins Stewart Inga. “But, institutional investors do come in if they find the story interesting. Small and mid-sized issues cannot be a run-off-the-mill stuff,” he adds.
Collins Stewart, which is one of the lead managers of Intrasoft Technologies (which owns the website, 123greetings.com), has around six issues in the pipeline, all in the small- to mid-cap bracket.
Experts say the primary market will see a huge rush in the mid- and small-cap arena in coming months. Prime Database has listed at least seven companies planning an IPO of less than Rs 100 crore.
Apart from these, there are five issues in the range of Rs 100-200 crore. Industry players, however, say the number of such companies would grow exponentially if one takes into account the entities that have only filed their draft document with the market regulator and are yet to get the clearance.
Some of the smaller issues slated to hit the market in coming months, according to Prime Database, include Usher Echo Power (Rs 52.50 crore), Trinity India (Rs 60 crore), Sea TV Networks (Rs 50.20 crore), PSI (Rs 60 crore), Midvalley Entertainment (Rs 50 crore), Kabirdass Motor (Rs 61.28 crore) and Anita Knit Wear (Rs 25 crore). Issues in the range of Rs 100-150 crore include Argali Infrapower, AMR Constructions, Radiant Info Systems, PC Infratech and Manana Industries.
Bankers serving in this space feel investors find such issuances attractive, as these offers are priced in an attractive manner and also have a huge growth potential after their listing.
“Investors find these companies attractive, as they tend to price and trade at a discount to large-cap issues,” says Roy Rodrigues, head (investment banking), Anand Rathi Financial Services. Anand Rathi Financial Services has around 10 transactions in the kitty, including six IPOs.
“We have been quite active in the capital market this year. These companies tend to have higher growth characteristics, more focused management teams and simpler business models,” he explains.
Mid-sized investment bankers (i-bankers) are having a good time with the revival of the initial public offering (IPO) market, as small companies make a beeline to list on bourses. Industry players say most of the mid-sized investment banking entities are having their hands full, with some of them getting mandates from five-six firms.
Investment banking entities active in this arena include Anand Rathi Financial Services, PL Capital Markets, Saffron Capital Advisors, Collins Stewart Inga, Avendus Capital and Fortune Financial Services. According to these bankers, while the fee in absolute terms for such issuances are relatively low, a well-managed issue results in getting them more such mandates.
“The amount raised in such IPOs is small, so an investment banker also makes only a small amount,” says G S Ganesh, president, Collins Stewart Inga. “But, institutional investors do come in if they find the story interesting. Small and mid-sized issues cannot be a run-off-the-mill stuff,” he adds.
Collins Stewart, which is one of the lead managers of Intrasoft Technologies (which owns the website, 123greetings.com), has around six issues in the pipeline, all in the small- to mid-cap bracket.
Experts say the primary market will see a huge rush in the mid- and small-cap arena in coming months. Prime Database has listed at least seven companies planning an IPO of less than Rs 100 crore.
Apart from these, there are five issues in the range of Rs 100-200 crore. Industry players, however, say the number of such companies would grow exponentially if one takes into account the entities that have only filed their draft document with the market regulator and are yet to get the clearance.
Some of the smaller issues slated to hit the market in coming months, according to Prime Database, include Usher Echo Power (Rs 52.50 crore), Trinity India (Rs 60 crore), Sea TV Networks (Rs 50.20 crore), PSI (Rs 60 crore), Midvalley Entertainment (Rs 50 crore), Kabirdass Motor (Rs 61.28 crore) and Anita Knit Wear (Rs 25 crore). Issues in the range of Rs 100-150 crore include Argali Infrapower, AMR Constructions, Radiant Info Systems, PC Infratech and Manana Industries.
Bankers serving in this space feel investors find such issuances attractive, as these offers are priced in an attractive manner and also have a huge growth potential after their listing.
“Investors find these companies attractive, as they tend to price and trade at a discount to large-cap issues,” says Roy Rodrigues, head (investment banking), Anand Rathi Financial Services. Anand Rathi Financial Services has around 10 transactions in the kitty, including six IPOs.
“We have been quite active in the capital market this year. These companies tend to have higher growth characteristics, more focused management teams and simpler business models,” he explains.
Nifty turns global hot property
Ashish Rukhaiyar / Mumbai March 19, 2010
Nifty-based ETFs already available on eight exchanges; CME alliance to push volumes exponentially.
The Nifty has gained popularity across time zones, with exchange-traded funds (ETFs) based on it being traded on eight stock exchanges across the globe. This even as the futures and options of the National Stock Exchange’s benchmark index are set to be traded on the Chicago Mercantile Exchange (CME).
ETFs based on Nifty, owned by NSE’s subsidiary India Index Services, are available on Nasdaq, Swiss Exchange, Borsa Italiana, NYSE Euronext Paris, London Stock Exchange, Singapore Stock Exchange (SGX), Tokyo Stock Exchange and Deutsche Borse. Further, futures based on the Nifty are available on SGX. According to Bloomberg, the market value of Nifty-based ETFs is in excess of $2 billion.
Index licensing, in which owners allow introduction of products based on their indices on other stock exchanges, is a big business globally.
According to Standard & Poor’s (S&P), it “maintains more than 550 licence agreements with major financial institutions around the world by offering global licences that encompass all Standard & Poor’s index offerings by an institution, as well as licences for single transactions”.
Experts say ETFs are the best way to play the Indian market. “ETFs are one of the most efficient ways to take exposure to India, particularly as the country controls foreign investments so heavily,” said Tom Lydon, president, Global Trends & ETF Trends, a US-based research group dedicated to ETFs. “The average retail investor will not be able to get this kind of an exposure to India otherwise,” said Lydon.
The view is shared by entities that have been involved in management of ETFs globally. “Nifty-based ETFs are one of the most convenient and cost-effective products to bet on India. Several institutions can use Nifty futures to hedge the ETFs they provide,” said Pankaj Vaish, managing director and head of equities, Nomura Financial Advisory & Securities (India). Nomura Asset Management manages the Nifty ETF in Japan.
The recent addition to globally available Nifty-based ETFs is Next Funds S&P CNX Nifty Linked ETF that made its debut on the Tokyo Stock Exchange in November last year. The current market value of the fund, according to Bloomberg, is $40.43 million. iShares S&P CNX India Nifty 50 Fund made its debut in November 2009 on Nasdaq. The fund, managed by Blackrock Fund Advisors, is trading near its all-time high and has a market value of $39.81 million.
ETFs, which can be traded just like shares and give the benefits of mirroring an index, have gained immense popularity globally. This is corroborated by the fact that the world's most popular ETF, Spider, which tracks the S&P500, has a market capitalisation of nearly $75 billion. It was launched in December 1993.
Lydon, however, says that one should start looking at sector-based ETFs “that play to India’s strengths as an economy”.
“We’re hitting the point where there are a lot of broad India ETFs and it may be time to begin drilling down into sector ETFs,” he said. India is very much a developing market and so funds that focus on the country's small-cap companies may be of interest to investors, he adds.
Nifty-based ETFs already available on eight exchanges; CME alliance to push volumes exponentially.
The Nifty has gained popularity across time zones, with exchange-traded funds (ETFs) based on it being traded on eight stock exchanges across the globe. This even as the futures and options of the National Stock Exchange’s benchmark index are set to be traded on the Chicago Mercantile Exchange (CME).
ETFs based on Nifty, owned by NSE’s subsidiary India Index Services, are available on Nasdaq, Swiss Exchange, Borsa Italiana, NYSE Euronext Paris, London Stock Exchange, Singapore Stock Exchange (SGX), Tokyo Stock Exchange and Deutsche Borse. Further, futures based on the Nifty are available on SGX. According to Bloomberg, the market value of Nifty-based ETFs is in excess of $2 billion.
Index licensing, in which owners allow introduction of products based on their indices on other stock exchanges, is a big business globally.
According to Standard & Poor’s (S&P), it “maintains more than 550 licence agreements with major financial institutions around the world by offering global licences that encompass all Standard & Poor’s index offerings by an institution, as well as licences for single transactions”.
Experts say ETFs are the best way to play the Indian market. “ETFs are one of the most efficient ways to take exposure to India, particularly as the country controls foreign investments so heavily,” said Tom Lydon, president, Global Trends & ETF Trends, a US-based research group dedicated to ETFs. “The average retail investor will not be able to get this kind of an exposure to India otherwise,” said Lydon.
The view is shared by entities that have been involved in management of ETFs globally. “Nifty-based ETFs are one of the most convenient and cost-effective products to bet on India. Several institutions can use Nifty futures to hedge the ETFs they provide,” said Pankaj Vaish, managing director and head of equities, Nomura Financial Advisory & Securities (India). Nomura Asset Management manages the Nifty ETF in Japan.
The recent addition to globally available Nifty-based ETFs is Next Funds S&P CNX Nifty Linked ETF that made its debut on the Tokyo Stock Exchange in November last year. The current market value of the fund, according to Bloomberg, is $40.43 million. iShares S&P CNX India Nifty 50 Fund made its debut in November 2009 on Nasdaq. The fund, managed by Blackrock Fund Advisors, is trading near its all-time high and has a market value of $39.81 million.
ETFs, which can be traded just like shares and give the benefits of mirroring an index, have gained immense popularity globally. This is corroborated by the fact that the world's most popular ETF, Spider, which tracks the S&P500, has a market capitalisation of nearly $75 billion. It was launched in December 1993.
Lydon, however, says that one should start looking at sector-based ETFs “that play to India’s strengths as an economy”.
“We’re hitting the point where there are a lot of broad India ETFs and it may be time to begin drilling down into sector ETFs,” he said. India is very much a developing market and so funds that focus on the country's small-cap companies may be of interest to investors, he adds.
Current quarter sees record fund-raising through IPOs/FPOs
Ashish Rukhaiyar / Mumbai March 16, 2010
The current quarter is set to do down in the history of India’s capital markets for the highest ever amount of over Rs 26,000 crore being raised through initial and follow-on public offers. The government’s thrust on disinvestment, along with quite a few mid- and small-sized issues, saw the quarterly number breaching the earlier record that was set in the second quarter of calendar year 2007.
According to data from Prime Database, the first two months of the current calendar year saw Rs 15,751.22 crore being raised through initial public offers (IPOs) and follow-on public offers (FPOs). Incidentally, this does not include the mega FPO of NMDC and IPOs of IL&FS Transportation Networks, DQ Entertainment and Pradip Overseas. Collectively, these issues will raise nearly Rs 11,000 crore, pegging the quarterly mobilisation in excess of Rs 26,000 crore. This is significantly higher than the Rs 23,654 crore raised in the three months between April and June 2007.
According to the investment banking community, the record mobilisation can be attributed to the fact that companies initiated the process in the middle of last year and started hitting the market at quick intervals in the current quarter.
“The market started showing signs of recovery in mid-2009 and that is when many companies that were sitting on the sidelines initiated their IPO plans,” said Anil Ladha, head (capital markets), ICICI Securities. “All such companies are now opening their issues for subscription, leading to huge mobilisation,” he added.
While Ladha acknowledges that such a number would not have been possible without the three mega government offerings — NMDC, NTPC and REC — that collectively raised approximately Rs 22,000 crore, he is quite bullish on the private sector too. “We believe the private sector will raise around Rs 40,000 crore in the next financial year,” said Ladha.
Interestingly, Ladha is not alone in being bullish on private sector companies. Others also expect a number of mid-size offerings in the coming months on the back of impressive subscription numbers of some of the smaller IPOs. “You should expect to see several mid-market companies coming to the market this year,” said Roy Rodrigues, director (investment banking), Anand Rathi Financial Services. “Investors find these companies attractive as they tend to be priced and trade at a discount to the large caps. Additionally, these companies tend to have higher growth characteristics, more focused managements and simpler business models,” he said.
The current quarter is set to do down in the history of India’s capital markets for the highest ever amount of over Rs 26,000 crore being raised through initial and follow-on public offers. The government’s thrust on disinvestment, along with quite a few mid- and small-sized issues, saw the quarterly number breaching the earlier record that was set in the second quarter of calendar year 2007.
According to data from Prime Database, the first two months of the current calendar year saw Rs 15,751.22 crore being raised through initial public offers (IPOs) and follow-on public offers (FPOs). Incidentally, this does not include the mega FPO of NMDC and IPOs of IL&FS Transportation Networks, DQ Entertainment and Pradip Overseas. Collectively, these issues will raise nearly Rs 11,000 crore, pegging the quarterly mobilisation in excess of Rs 26,000 crore. This is significantly higher than the Rs 23,654 crore raised in the three months between April and June 2007.
According to the investment banking community, the record mobilisation can be attributed to the fact that companies initiated the process in the middle of last year and started hitting the market at quick intervals in the current quarter.
“The market started showing signs of recovery in mid-2009 and that is when many companies that were sitting on the sidelines initiated their IPO plans,” said Anil Ladha, head (capital markets), ICICI Securities. “All such companies are now opening their issues for subscription, leading to huge mobilisation,” he added.
While Ladha acknowledges that such a number would not have been possible without the three mega government offerings — NMDC, NTPC and REC — that collectively raised approximately Rs 22,000 crore, he is quite bullish on the private sector too. “We believe the private sector will raise around Rs 40,000 crore in the next financial year,” said Ladha.
Interestingly, Ladha is not alone in being bullish on private sector companies. Others also expect a number of mid-size offerings in the coming months on the back of impressive subscription numbers of some of the smaller IPOs. “You should expect to see several mid-market companies coming to the market this year,” said Roy Rodrigues, director (investment banking), Anand Rathi Financial Services. “Investors find these companies attractive as they tend to be priced and trade at a discount to the large caps. Additionally, these companies tend to have higher growth characteristics, more focused managements and simpler business models,” he said.
Market expects flurry of internet IPOs
Ashish Rukhaiyar / Mumbai March 12, 2010
When Info Edge, which runs job portal naukri.com, came out with its initial public offer (IPO) in 2006, investors lapped up the issue as there were no close competitors whose core revenues came from the internet. However, the coming months may see many internet entities look at the next level of expansion after getting listed.
Intrasoft Technologies, which owns 123greetings.com, has filed an offer document with the Securities and Exchange Board of India (Sebi). Industry players say that in the last few years, India, where internet penetration is still low, has seen emergence of portals offering travel, shopping and matrimonial services. A number of such entities will tap the capital market in the next 12-18 months.
Some leading travel portals in India are Cleartrip, Makemytrip, Yatra and IXIGO. The matrimonial arena is dominated by Bharatmatrimony and Shaadi. Travel and martimonial websites are a huge hit.
Alexa, a web traffic monitoring company, says these are among the country’s top websites. Naukri, for example, is the 21st most visited website in India.
Not surprisingly, the investment banking community is looking at this space for business. Roy Rodrigues, head (investment banking), Anand Rathi Financial Services, expects to see several internet companies from India go public over the next 18 months. “These have taken their time to attain critical mass. Indian consumers also took a while to overcome fears about entering credit card information and other personal details online. We can expect to see some travel and social networking/matrimonial websites raise capital shortly,” he said.
People who manage these websites share his views. While the time-frame is not clear, the companies agree that they will have to go public some time.
“Many internet companies will make it to the listed space in the next 12-18 months,” said Yatra Online Chief Executive Dhruv Shringi. “At present, we are adequately capitalised, but we may start exploring this avenue if we have to raise more capital,” he said.
Shringi’s views are shared by his competitor Sandeep Murthy, the chief executive officer of Cleartrip. “The internet industry is maturing and online travel portals are getting a lot of attention in India,” he said. “We are not in a hurry to raise capital but will definitely evaluate the option when the timing is right,” he said.
The online travel industry has been growing at a healthy pace for the last few years. According to industry estimates, online transactions have risen nearly ten times between 2006 and 2010. While last year was considered a subdued one due to global economic factors, online portals saw a 40 per cent rise in business.
“Our annual gross turnover is around Rs 1,500 crore,” said Shringi of Yatra. The turnover of most other leading travel portals is close to this number, with a deviation of a couple of hundred crores.
“In all, these travel portals see around 25,000 bookings every day,” said Shringi.
Another trigger is that internet companies bank on private equity (PE) investors and venture capital (VC) entities for seed funding. These investors, according to industry players, want the company to go public so that they get an attractive exit opportunity. “PE investors and VC funds generally look at an exit opportunity after four-five years,” said Shringi.
“Institutional investors are showing a lot of interest in such companies,” said Nikhil Khattau, managing director, Mayfield Advisors. “Internet companies typically have a high return on capital employed and are rewarded by good market valuations once they attain a certain size and scale. Some of the internet companies in India are making good money,” he said.
When Info Edge, which runs job portal naukri.com, came out with its initial public offer (IPO) in 2006, investors lapped up the issue as there were no close competitors whose core revenues came from the internet. However, the coming months may see many internet entities look at the next level of expansion after getting listed.
Intrasoft Technologies, which owns 123greetings.com, has filed an offer document with the Securities and Exchange Board of India (Sebi). Industry players say that in the last few years, India, where internet penetration is still low, has seen emergence of portals offering travel, shopping and matrimonial services. A number of such entities will tap the capital market in the next 12-18 months.
Some leading travel portals in India are Cleartrip, Makemytrip, Yatra and IXIGO. The matrimonial arena is dominated by Bharatmatrimony and Shaadi. Travel and martimonial websites are a huge hit.
Alexa, a web traffic monitoring company, says these are among the country’s top websites. Naukri, for example, is the 21st most visited website in India.
Not surprisingly, the investment banking community is looking at this space for business. Roy Rodrigues, head (investment banking), Anand Rathi Financial Services, expects to see several internet companies from India go public over the next 18 months. “These have taken their time to attain critical mass. Indian consumers also took a while to overcome fears about entering credit card information and other personal details online. We can expect to see some travel and social networking/matrimonial websites raise capital shortly,” he said.
People who manage these websites share his views. While the time-frame is not clear, the companies agree that they will have to go public some time.
“Many internet companies will make it to the listed space in the next 12-18 months,” said Yatra Online Chief Executive Dhruv Shringi. “At present, we are adequately capitalised, but we may start exploring this avenue if we have to raise more capital,” he said.
Shringi’s views are shared by his competitor Sandeep Murthy, the chief executive officer of Cleartrip. “The internet industry is maturing and online travel portals are getting a lot of attention in India,” he said. “We are not in a hurry to raise capital but will definitely evaluate the option when the timing is right,” he said.
The online travel industry has been growing at a healthy pace for the last few years. According to industry estimates, online transactions have risen nearly ten times between 2006 and 2010. While last year was considered a subdued one due to global economic factors, online portals saw a 40 per cent rise in business.
“Our annual gross turnover is around Rs 1,500 crore,” said Shringi of Yatra. The turnover of most other leading travel portals is close to this number, with a deviation of a couple of hundred crores.
“In all, these travel portals see around 25,000 bookings every day,” said Shringi.
Another trigger is that internet companies bank on private equity (PE) investors and venture capital (VC) entities for seed funding. These investors, according to industry players, want the company to go public so that they get an attractive exit opportunity. “PE investors and VC funds generally look at an exit opportunity after four-five years,” said Shringi.
“Institutional investors are showing a lot of interest in such companies,” said Nikhil Khattau, managing director, Mayfield Advisors. “Internet companies typically have a high return on capital employed and are rewarded by good market valuations once they attain a certain size and scale. Some of the internet companies in India are making good money,” he said.
Sebi to notify SME listing guidelines shortly
Ashish Rukhaiyar / Mumbai March 12, 2010
Some change to November draft, based on feedback; no vetting of offer documents
The Securities and Exchange Board of India (Sebi) will soon announce guidelines for listing small and medium enterprises (SMEs). The move is expected to set the ball rolling for a separate exchange or a platform for SMEs.
More than four months have passed since Sebi first announced draft guidelines for a separate exchange or a platform for SMEs.
“We are in the process of amending the guidelines and will notify these shortly,” said Sebi Chairman CB Bhave.
Those familiar with the development said the final guidelines would be somewhat different from the draft norms as they would incorporate feedback from various market participants.
“The guidelines have been finalised internally. While the basic structure will be what was announced last year, there will be some tinkering based on feedback from industry. There were quite a few meetings with industry participants, including stock exchanges, investment bankers and investor associations,” said a person familiar with the development.
The draft, released last November, said merchant bankers should perform market-making activities (prepared to both buy and sell shares or any other security whether or not there are customer orders) for three years. This was also one of the main concerns raised by the investment banking community. It was argued that small bankers did not have access to sufficient funds to do market-making for three years. Industry sources say this norm will be slightly modified in the final guidelines. “It was clarified in the discussions that it need not be a merchant banker. A banker can appoint a broker or a group of brokers on its behalf,” a source said on condition of anonymity. A merchant banker, rather than blocking his own money, could appoint someone for a fee, he added. There are, however, concerns related to liquidity, as many wonder if there will be enough floating stock for people trade on such a platform.
Sebi would also do away with the process of vetting offer documents for listing on the SME segment. In other words, an investment banker has to do the due diligence itself and file the prospectus with the market regulator and the exchange. Sebi will not issue any observation. The company can hit the market any time after filing the offer document. “Smaller entities that want to time the market will come through this route as vetting the document has been done away with,” said the head of a mid-sized investment banking firm who did not wish to be named.
A limit of Rs 25 crore of paid-up capital would be fixed for a company intending to list on the segment. Companies listed on the segment would be compulsorily shifted to the main board of the exchange after exceeding the Rs 25 crore post-issue paid-up capital limit. SMEs would be required to present financial numbers on a half-yearly basis, instead of quarterly. The minimum initial public offer size has been pegged at Rs 1 lakh.
Some change to November draft, based on feedback; no vetting of offer documents
The Securities and Exchange Board of India (Sebi) will soon announce guidelines for listing small and medium enterprises (SMEs). The move is expected to set the ball rolling for a separate exchange or a platform for SMEs.
More than four months have passed since Sebi first announced draft guidelines for a separate exchange or a platform for SMEs.
“We are in the process of amending the guidelines and will notify these shortly,” said Sebi Chairman CB Bhave.
Those familiar with the development said the final guidelines would be somewhat different from the draft norms as they would incorporate feedback from various market participants.
“The guidelines have been finalised internally. While the basic structure will be what was announced last year, there will be some tinkering based on feedback from industry. There were quite a few meetings with industry participants, including stock exchanges, investment bankers and investor associations,” said a person familiar with the development.
The draft, released last November, said merchant bankers should perform market-making activities (prepared to both buy and sell shares or any other security whether or not there are customer orders) for three years. This was also one of the main concerns raised by the investment banking community. It was argued that small bankers did not have access to sufficient funds to do market-making for three years. Industry sources say this norm will be slightly modified in the final guidelines. “It was clarified in the discussions that it need not be a merchant banker. A banker can appoint a broker or a group of brokers on its behalf,” a source said on condition of anonymity. A merchant banker, rather than blocking his own money, could appoint someone for a fee, he added. There are, however, concerns related to liquidity, as many wonder if there will be enough floating stock for people trade on such a platform.
Sebi would also do away with the process of vetting offer documents for listing on the SME segment. In other words, an investment banker has to do the due diligence itself and file the prospectus with the market regulator and the exchange. Sebi will not issue any observation. The company can hit the market any time after filing the offer document. “Smaller entities that want to time the market will come through this route as vetting the document has been done away with,” said the head of a mid-sized investment banking firm who did not wish to be named.
A limit of Rs 25 crore of paid-up capital would be fixed for a company intending to list on the segment. Companies listed on the segment would be compulsorily shifted to the main board of the exchange after exceeding the Rs 25 crore post-issue paid-up capital limit. SMEs would be required to present financial numbers on a half-yearly basis, instead of quarterly. The minimum initial public offer size has been pegged at Rs 1 lakh.
Physical F&O settlement may be optional
Ashish Rukhaiyar / Mumbai March 09, 2010
Stock exchanges are likely to make physical settlement in equity derivatives optional after the green signal from the market regulator on allowing this mode to be introduced.
Instead, it seems that they will allow investors to choose between physical settlement and the present system of settlement in cash.
Last week, the Securities and Exchange Board of India (Sebi) gave in-principle approval to physical settlement. Sebi was acting on a Bombay Stock Exchange proposal that had been pending since 2002, when stock futures and options (F&O) were started.
According to sources, the exchanges are working on a system that will require investors to mention their choice of settlement at the time of entering into a contract. Since the F&O segment has grown exponentially over the years, it is believed the exchanges do not wish to move away completely from cash settlement, to ensure that growth continues.
“The board decided that we would discuss with the stock exchanges and institute a proper mechanism for physical delivery in the derivatives markets,” said Sebi Chairman CB Bhave last week. “(Option or compulsory) will be decided during discussions with the stock exchanges,” he added.
“The exchange would leave it to market forces,” said a source. “So, for instance, while one set of futures and options in X company would be cash-settled, another set of contracts would be available for settlement with the underlying shares,” he said. “Obviously you cannot tweak the index F&O market.”
Another person privy to the developments said the contracts to be physically settled would be an “entirely different instrument with distinct codes and a separate set of risk containment measures”.
“The exchanges will study global best practices and then make modifications to make them relevant in the Indian context,” he added.
Under physical settlement, the contract has to be settled with underlying shares instead of cash equal to the price of these shares. In India, the debate between physical and cash settlement in the derivatives arena has been going on since these instruments were launched.
It is said introducing physical settlement is easier now due to the existence of a stock lending and borrowing mechanism. Incidentally, the failure of this market to take off has been attributed by many to absence of physical settlement in single-stock futures and options.
According to industry players, another factor that will make introduction of physical settlement easier is the facility of cross-margining, wherein margin requirements in the derivatives segment are reduced if one holds shares in the cash market.
Stock exchanges are likely to make physical settlement in equity derivatives optional after the green signal from the market regulator on allowing this mode to be introduced.
Instead, it seems that they will allow investors to choose between physical settlement and the present system of settlement in cash.
Last week, the Securities and Exchange Board of India (Sebi) gave in-principle approval to physical settlement. Sebi was acting on a Bombay Stock Exchange proposal that had been pending since 2002, when stock futures and options (F&O) were started.
According to sources, the exchanges are working on a system that will require investors to mention their choice of settlement at the time of entering into a contract. Since the F&O segment has grown exponentially over the years, it is believed the exchanges do not wish to move away completely from cash settlement, to ensure that growth continues.
“The board decided that we would discuss with the stock exchanges and institute a proper mechanism for physical delivery in the derivatives markets,” said Sebi Chairman CB Bhave last week. “(Option or compulsory) will be decided during discussions with the stock exchanges,” he added.
“The exchange would leave it to market forces,” said a source. “So, for instance, while one set of futures and options in X company would be cash-settled, another set of contracts would be available for settlement with the underlying shares,” he said. “Obviously you cannot tweak the index F&O market.”
Another person privy to the developments said the contracts to be physically settled would be an “entirely different instrument with distinct codes and a separate set of risk containment measures”.
“The exchanges will study global best practices and then make modifications to make them relevant in the Indian context,” he added.
Under physical settlement, the contract has to be settled with underlying shares instead of cash equal to the price of these shares. In India, the debate between physical and cash settlement in the derivatives arena has been going on since these instruments were launched.
It is said introducing physical settlement is easier now due to the existence of a stock lending and borrowing mechanism. Incidentally, the failure of this market to take off has been attributed by many to absence of physical settlement in single-stock futures and options.
According to industry players, another factor that will make introduction of physical settlement easier is the facility of cross-margining, wherein margin requirements in the derivatives segment are reduced if one holds shares in the cash market.
Small IPOs have a smooth sail
Virendra Verma & Ashish Rukhaiyar / Mumbai February 24, 2010
Small size, better pricing behind huge investor interest in such issues.
At a time when follow-on public offers (FPOs) of Rural Electrification Corporation and NTPC sailed through with difficulty, some of the smaller issues received good response from investors.
Investment bankers and primary market experts said the main reason for such a huge response to these issues was their small size. Also, these were not follow-on issues. “In an initial public offer (IPO), there is hope of listing gains,” said Prithvi Haldea, managing director, Prime Database. He said in an FPO, investors had the market price for reference.
Another reason is that shares in these issues were not sold though the French auction system and had a price band. In a French auction, the highest bidder gets the desired number of shares, while in a price band system, the bids have to be within the band.
However, ICICI Securities Managing Director and CEO Madhabi Puri Buch had defended the French auction at the time of announcing REC’s FPO. She said questions were raised as the system was tested when the market was volatile. “There are two things that happened simultaneously... What should be rightly attributed to the market shouldn't be attributed to the process,” she said. But Haldea said oversubscription was not the only indicator of a good listing price. “Some IPOs have not done well even after huge subscription levels,” he said.
IPOs of NHPC, Adani Power and Pipav Shipyard had recorded huge subscriptions but failed to list at a premium. Some of these are still trading below their issue prices.
However, some investment bankers associated with small IPOs said these companies left something for investors on the table (in the form of listing gains). Some of the companies are also unique or have good business models.
Small size, better pricing behind huge investor interest in such issues.
At a time when follow-on public offers (FPOs) of Rural Electrification Corporation and NTPC sailed through with difficulty, some of the smaller issues received good response from investors.
Investment bankers and primary market experts said the main reason for such a huge response to these issues was their small size. Also, these were not follow-on issues. “In an initial public offer (IPO), there is hope of listing gains,” said Prithvi Haldea, managing director, Prime Database. He said in an FPO, investors had the market price for reference.
Another reason is that shares in these issues were not sold though the French auction system and had a price band. In a French auction, the highest bidder gets the desired number of shares, while in a price band system, the bids have to be within the band.
However, ICICI Securities Managing Director and CEO Madhabi Puri Buch had defended the French auction at the time of announcing REC’s FPO. She said questions were raised as the system was tested when the market was volatile. “There are two things that happened simultaneously... What should be rightly attributed to the market shouldn't be attributed to the process,” she said. But Haldea said oversubscription was not the only indicator of a good listing price. “Some IPOs have not done well even after huge subscription levels,” he said.
IPOs of NHPC, Adani Power and Pipav Shipyard had recorded huge subscriptions but failed to list at a premium. Some of these are still trading below their issue prices.
However, some investment bankers associated with small IPOs said these companies left something for investors on the table (in the form of listing gains). Some of the companies are also unique or have good business models.
Competitive bids gain momentum in India Inc
Virendra Verma & Ashish Rukhaiyar / Mumbai February 22, 2010
When multiplex operator INOX Leisure recently acquired a majority stake in its rival, Fame India, it looked like just another takeover. It wasn’t.
Reliance Capital Partners, a part of the Anil Dhirubhai Ambani Group, created a stir the next day when it accused the Fame promoters of ignoring its higher offer price and settling for INOX. After accusing Fame of various things, including lack of transparency and acting against shareholder interests, the ADAG company acquired 11.5 per cent stake in Fame through open market operations.
The ADAG firm's fresh salvo today, saying that it would also make an offer for Fame, shows this might be a long-drawn one affair. Reliance MediaWorks, part of the ADA Group, had earlier asked Fame’s promoter, Shravan Shroff, to explain why he sold his family’s 50.5 per cent in Fame India to INOX Leisure, when Reliance had made a “firm offer” to buy it for Rs 80 a share.
No one knows why Reliance wants to buy more stake in a company in which Inox already has 51 per cent stake, but Fame is clearly in the midst of a furious corporate battle. INOX’s open offer, as mandated by the market regulator, is slated to open in April, but the company may have to revise its offer price of Rs 51. Reliance is obviously making the deal more expensive for INOX, as Fame’s share price touched Rs 75 last week.
“We can call it hostility,” says Sanjay Sakhuja, CEO and Managing Director of Ambit Corporate Finance. He says hostility comes when a bidder believes the assets are undervalued.
Competitive bidding like the one witnessed in this case has gained momentum of late. Consider for example, the price war seen in Great Offshore by the two interested bidders, Bharati Shipyard and ABG Shipyard.
Other than Great Offshore, there were three bids for acquiring Orissa Sponge Iron & Steel from Bhushan Steel, Bhushan Energy and Monnet Ispat & Energy last year. Such competitive bidding was first seen in 2000, when Delhi-based Abhishek Dalmia bid to acquire Gesco Corporation (now Mahindra Lifespace), but had to give up when the Mahindra group made a counter-bid.
“Companies after achieving a certain scale look at buying other entities for synergies. They have realised that scale matters and also that if they don't buy, there are others who are ready to bid,” says Roy Rodrigues, CEO, Investment Banking, Anand Rathi Financial Services. He says such competitive bids are especially by companies whose core business has become stable and who then look at strengthening the periphery business.
Other than the stable business, companies are also looking to have forward or backward integration. “Such acquisitions are done to have synergies and (also) cut the time frame,” says Ajay Parmar, Head of Research, Emkay Global Financial Services. For instance, ABG Shipyard and Bharati Shipyard wanted to acquire Great Offshore as it was forward integration for them, to be able to sell their ships and offshore support vessels. In the case of Orissa Sponge, the three steel makers were looking at the huge reserves of iron ore, a key raw material for making steel. In the case of Fame India, INOX and Reliance Mediaworks get access to multiplex screens, which would have taken years if they did it on their own.
Experts believe such trends would be seen on companies whose assets are undervalued compared to the market price. “Such undervaluation can be sometimes due to poor corporate governance, lack of disclosure or because the management is not proactive with shareholders,” says Donald D Souza, President, Investment Banking, India Infoline.
But, Sukhija of Ambit says hostile bids in India are difficult, similar to the western world. “In most listed companies in India, there is usually one big shareholder (promoters) who controls a large stake and so, it is very difficult to make a hostile bid,” he says. Even in case of low promoter holding, hostile bids are difficult, as in such companies there are financial institutions who prefer to go with the current managements.
But, such competitive bids benefitted the shareholders of target companies, as the stock price rose sharply after such competitive bids. Fame India’s stock price almost doubled after the deal with INOX. Parmar of Emkay suggests investors should exit just before the open offer begins, as all the shares would not be accepted in the offer and one can buy after the offer’s close, if one consider the new management good.
When multiplex operator INOX Leisure recently acquired a majority stake in its rival, Fame India, it looked like just another takeover. It wasn’t.
Reliance Capital Partners, a part of the Anil Dhirubhai Ambani Group, created a stir the next day when it accused the Fame promoters of ignoring its higher offer price and settling for INOX. After accusing Fame of various things, including lack of transparency and acting against shareholder interests, the ADAG company acquired 11.5 per cent stake in Fame through open market operations.
The ADAG firm's fresh salvo today, saying that it would also make an offer for Fame, shows this might be a long-drawn one affair. Reliance MediaWorks, part of the ADA Group, had earlier asked Fame’s promoter, Shravan Shroff, to explain why he sold his family’s 50.5 per cent in Fame India to INOX Leisure, when Reliance had made a “firm offer” to buy it for Rs 80 a share.
No one knows why Reliance wants to buy more stake in a company in which Inox already has 51 per cent stake, but Fame is clearly in the midst of a furious corporate battle. INOX’s open offer, as mandated by the market regulator, is slated to open in April, but the company may have to revise its offer price of Rs 51. Reliance is obviously making the deal more expensive for INOX, as Fame’s share price touched Rs 75 last week.
“We can call it hostility,” says Sanjay Sakhuja, CEO and Managing Director of Ambit Corporate Finance. He says hostility comes when a bidder believes the assets are undervalued.
Competitive bidding like the one witnessed in this case has gained momentum of late. Consider for example, the price war seen in Great Offshore by the two interested bidders, Bharati Shipyard and ABG Shipyard.
Other than Great Offshore, there were three bids for acquiring Orissa Sponge Iron & Steel from Bhushan Steel, Bhushan Energy and Monnet Ispat & Energy last year. Such competitive bidding was first seen in 2000, when Delhi-based Abhishek Dalmia bid to acquire Gesco Corporation (now Mahindra Lifespace), but had to give up when the Mahindra group made a counter-bid.
“Companies after achieving a certain scale look at buying other entities for synergies. They have realised that scale matters and also that if they don't buy, there are others who are ready to bid,” says Roy Rodrigues, CEO, Investment Banking, Anand Rathi Financial Services. He says such competitive bids are especially by companies whose core business has become stable and who then look at strengthening the periphery business.
Other than the stable business, companies are also looking to have forward or backward integration. “Such acquisitions are done to have synergies and (also) cut the time frame,” says Ajay Parmar, Head of Research, Emkay Global Financial Services. For instance, ABG Shipyard and Bharati Shipyard wanted to acquire Great Offshore as it was forward integration for them, to be able to sell their ships and offshore support vessels. In the case of Orissa Sponge, the three steel makers were looking at the huge reserves of iron ore, a key raw material for making steel. In the case of Fame India, INOX and Reliance Mediaworks get access to multiplex screens, which would have taken years if they did it on their own.
Experts believe such trends would be seen on companies whose assets are undervalued compared to the market price. “Such undervaluation can be sometimes due to poor corporate governance, lack of disclosure or because the management is not proactive with shareholders,” says Donald D Souza, President, Investment Banking, India Infoline.
But, Sukhija of Ambit says hostile bids in India are difficult, similar to the western world. “In most listed companies in India, there is usually one big shareholder (promoters) who controls a large stake and so, it is very difficult to make a hostile bid,” he says. Even in case of low promoter holding, hostile bids are difficult, as in such companies there are financial institutions who prefer to go with the current managements.
But, such competitive bids benefitted the shareholders of target companies, as the stock price rose sharply after such competitive bids. Fame India’s stock price almost doubled after the deal with INOX. Parmar of Emkay suggests investors should exit just before the open offer begins, as all the shares would not be accepted in the offer and one can buy after the offer’s close, if one consider the new management good.
Mumbai pedals for green cause
Ashish Rukhaiyar / Mumbai February 22, 2010
It’s not about the bike. Lance Armstrong said it and Mumbaikars from all walks of life came out on the streets to prove it on a pleasant Sunday morning. All of Mumbai’s movers and shakers also came together in the city’s very first BSA Hercules India Cyclothon.
The dabbawallas on their desi ‘Atlas Goldline Super’ not only raced but beat the Firefoxes and the Raleighs. The famous Mumbai spirit prevailed. Despite a few teething problems, everyone had a good time.
Some participants at the first, 12-km, event waited at traffic signals to let private vehicles pass. Others were taken aback by the sheer rashness of the dabbawallas, who have aced the art of overtaking with pride. In just about half an hour, the first biker crossed the finish line, while a dabbawalla with clinking wheels dashed to second position.
The enthusiasm seemed to break at the seams for the kids’ two-km race. While several young and not-so-young ladies made a proud display of their pink Ladybirds, the little men drove with vigour, occasionally turning back to look at a proud parent break into a smile. From here on, the smiles and cheers only widened. The differently-abled in wheelchairs also enthusiastically participated.
Just as the sun peaked and ‘children lost and found’ announcements filled the holding area, the 24-km event took off, that had the added attraction of cycling on Mumbai’s very own Sea Link. More and more eager cyclists took on the stage. A unique sight came in the form of elderly V S Iyer and his three-wheeler propaganda to help the planet. ‘Why are you cycling at your age?’ asked an onlooker and pat came the reply: ‘Cycling rakhta hai pair garam, peth naram, dimag to thanda aur bimaari ko danda.’
At the end, some put their cycles on a pollution-spewing taxi and drove home. Others decided to cycle back home into the far suburbs; some took the pick-up-and-drop facility provided by the sponsors.
“It is only today that I can cycle on the highways,” said Tejinder Singh of Goregaon. While he runs his software consultancy business from his office in Andheri, he cannot think of cycling on any of the weekdays. “I don’t think I will survive for more than a couple of days, given the traffic scenario,” he adds.
It’s not about the bike. Lance Armstrong said it and Mumbaikars from all walks of life came out on the streets to prove it on a pleasant Sunday morning. All of Mumbai’s movers and shakers also came together in the city’s very first BSA Hercules India Cyclothon.
The dabbawallas on their desi ‘Atlas Goldline Super’ not only raced but beat the Firefoxes and the Raleighs. The famous Mumbai spirit prevailed. Despite a few teething problems, everyone had a good time.
Some participants at the first, 12-km, event waited at traffic signals to let private vehicles pass. Others were taken aback by the sheer rashness of the dabbawallas, who have aced the art of overtaking with pride. In just about half an hour, the first biker crossed the finish line, while a dabbawalla with clinking wheels dashed to second position.
The enthusiasm seemed to break at the seams for the kids’ two-km race. While several young and not-so-young ladies made a proud display of their pink Ladybirds, the little men drove with vigour, occasionally turning back to look at a proud parent break into a smile. From here on, the smiles and cheers only widened. The differently-abled in wheelchairs also enthusiastically participated.
Just as the sun peaked and ‘children lost and found’ announcements filled the holding area, the 24-km event took off, that had the added attraction of cycling on Mumbai’s very own Sea Link. More and more eager cyclists took on the stage. A unique sight came in the form of elderly V S Iyer and his three-wheeler propaganda to help the planet. ‘Why are you cycling at your age?’ asked an onlooker and pat came the reply: ‘Cycling rakhta hai pair garam, peth naram, dimag to thanda aur bimaari ko danda.’
At the end, some put their cycles on a pollution-spewing taxi and drove home. Others decided to cycle back home into the far suburbs; some took the pick-up-and-drop facility provided by the sponsors.
“It is only today that I can cycle on the highways,” said Tejinder Singh of Goregaon. While he runs his software consultancy business from his office in Andheri, he cannot think of cycling on any of the weekdays. “I don’t think I will survive for more than a couple of days, given the traffic scenario,” he adds.
'Never before in India have we seen such resilient domestic consumption'
Ashish Rukhaiyar / Mumbai February 18, 2010, 0:25 IST
Q&A: Abhay Laijawala, Head of research, Deutsche Equities India
Not many on the Street are talking about an year-end target of 22,000 for the Sensex. But, Abhay Laijawala, who heads research at Deutsche Equities India, is bullish. In a chat with Ashish Rukhaiyar, he says the number is achievable as GDP growth has returned to the 8-9 per cent trajectory and global economic growth is seeing a paradigm shift. Edited excerpts:
Deutsche Equities has an year-end target of 22,000 for Sensex. What is the rationale for this, especially when most people on the Street are sounding quite bearish?
Our 2010 India outlook is premised around two broad themes — shifting paradigm in composition of global economic growth and, more important, restoration of Indian GDP growth to the 8-9 per cent trajectory. While consensus is still cautious on restoration of the growth trend, we remain confident that the economy is on course to do so. We believe earnings expectations are not factoring this is.
Hence, as confidence builds on the return of the above-trend growth, we expect upward momentum in Sensex earnings’ forecasts. The consensus earnings for FY11 are factoring in year-on-year (y-o-y) growth of 22-24 per cent. At Deutsche, we are looking at 24 per cent y-o-y growth in earnings for FY11.
Our confidence in anticipating the return to robust economic growth is based on domestic consumption, which is not only resilient but also far more inclusive than we have seen before in India. The enabling drivers of domestic consumption are gaining additional strength, leading us to believe a new structural consumption cycle has begun in India which could surprise all of us.
One part of your premise is based on global growth. Of late, there have not been much positive news globally. How will that impact India?
That is exactly our point. The fact that the western world is unlikely to move back to the ‘old normal’ in the interim term will only make countries like India attractive investment destinations. We are going to see a shift in paradigm in terms of the composition of global economic growth. I think 2010 is going to be the year which will amply underscore the belief that the developed world is not going to go back to growth rates of the past few years. Primarily, because developed economies are staring at very high debt to GDP ratios, in the range of 84-90 per cent, and periods of high unemployment.
In addition, the consumer there has also been impacted, which leads us to believe that trend GDP growth rates in developed markets will be lower than in the past. However, global GDP growth will be driven incrementally by emerging markets, which are more populous and material-intensive. The share of emerging markets in global GDP growth is set to rise meaningfully. India has a unique mercantile model and its economic growth is largely driven by domestic factors, unlike some of its other emerging market peers.
However, India could be impacted by weakening capital inflows as the private sector is reliant on foreign inflows. During such periods, there could be a risk of large government borrowings crowding out private sector investment.
Your target is based entirely on fundamentals. What happens if there are negative surprises related to liquidity?
Liquidity will be determined by global macro factors and, hence, is a generic risk for all equity markets, including India. However, we strongly believe that we are going to see a shift in the pool of money from developed to developing markets. At this point in time, emerging markets account for barely 10-15 per cent of the portfolio of global investment funds. With the developed world staring at a multi-year period of slow growth and high fiscal deficits, and with a disproportionate share of money invested in its markets, we are going to see money shifting over time from developed to emerging markets.
Country fundamentals will, hence, become paramount in determining the relative attractiveness of emerging markets. Countries such as India, with a large insulated domestic market, its youthful demography and high savings rate will turn out to be among the most attractive investment destinations.
So, once the quantum of money directed towards emerging markets increases, do you think India will be able to attract a significant share of the incremental flows?
Emerging markets will have to compete for investor flows. And, this is where country fundamentals will come into play. So, India stands out at this point in time in terms of country fundamentals. Never before in India have we seen such resilient domestic consumption. And, this primarily stems from what the government has done over the last four to five years (rural job scheme, farm loan waivers, record procurement prices, fiscal stimulus, etc), which have enriched rural India. We are seeing inclusive growth for the first time in India. The Indian economic growth story is an inclusive growth story.
In addition, we are seeing an across-the-board rise in wages. We are convinced that strengthening domestic consumption and accelerating momentum in employment generation across swathes of rural and urban India is leading to steady return of business confidence. We expect that these factors will lead to an accelerated return of the investment cycle, which should drive the next round of GDP upgrades, earnings forecasts and rising conviction in restoration of the 8-9 per cent GDP growth trajectory.
How do you see the increase in the cash reserve ratio (CRR) impacting the market?
The CRR hike has primarily focused on taking liquidity out of the system without impacting policy rates. A very good move because it was the right medicine for the right illness. A rate hike at this point in time would not have been able to control inflation, because what we are witnessing currently is non-manufacturing inflation.
What are the negatives that could hamper reaching your target?
One would be the return of manufacturing inflation. We are worried about rising global oil prices, because that could lead to significant pressure on the deficit. And, of course, there are generic geo-political risks such as the India-Pakistan tension, worries over India and China on the eastern border and rising Naxalism in central and eastern India.
Divestment issuances might suck out a huge amount of liquidity from the secondary markets.
Why just divestment? We should be talking about total issuances, both government and private. So, to some extent, the deluge of paper supply is a risk. However, we have factored that in while arriving at our target.
What is your advice to investors at this point in time?
We like three key investment themes in India — domestic consumption and consumption beneficiaries (autos, metals, paints, private sector banks), infrastructure and software. In our model portfolio, we are overweight on metals, industrials, IT services and automotives. So, the bias is in favour of consumption. We are neutral on cement and utilities. We are massively overweight on private sector banks. We are underweight in pharmaceuticals and FMCG (fast moving consumer goods).
How do you see rising commodity prices impacting India?
Global commodity prices are important as they essentially feed into manufacturing inflation. Indian commodity prices are also benchmarked to global commodity prices and, hence, rising commodity prices globally put pressure on domestic prices. So, there is a concern, but what will probably help is the appreciation of the rupee. We are confident that 2010 could see record FII (foreign institutional investment) as well as FDI (foreign direct investment) inflows. It is very likely that the Reserve Bank of India will, in the interest of managing inflation, allow the rupee to appreciate. So, a part of the global commodity pricing strength could be offset by a sharper-than-anticipated appreciation of the rupee.
Regulators seek bourses' view on currency options
Ashish Rukhaiyar / Mumbai February 12, 2010
The exchange-traded currency derivatives market in India is on a roll, with the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) asking stock exchanges for feedback on introduction of currency options.
According to people familiar with the development, the joint technical committee, which comprises officials from RBI and Sebi, met a couple of weeks ago to deliberate on currency options. “The committee has already started discussing the launch of (currency) options and stock exchanges have been asked to submit their views on the product,” said a person privy to the development. At present, the National Stock Exchange and the MCX-Stock Exchange offer currency trading facilities.
Globally, options is a popular among both hedgers and speculators as its downside is limited. One can enter into an options contract by only paying the premium. The buyer is under no obligation to exercise the contract on the due date. In other words, only the premium amount is lost if the market goes against the bet.
This is different from futures contracts, where entities have to pay margins. According to rough estimates, options account for nearly 20 per cent of the global foreign exchange trade. The foreign exchange options market is considered the largest and the most liquid market for options in the world.
Madhusuman Somani, director (financial markets), YES Bank, said, “Options will help entities hedge against currency volatility while limiting the downside.”
“Say, for instance, someone is bidding for a project that has an exposure to foreign currency. He will be better off using options to hedge, as even if he fails to get the project, his downside will be limited to the premium,” said Somani, who also feels that “options per se will not increase volatility in the Indian currency”.
However, even while ground is being prepared for options, there is a belief that the central bank is sceptical about the product. It is said that RBI is of the view that currency options will lead to a significant rise in volatility of the Indian currency.
Incidentally, foreign institutional investors (FIIs) have still not been allowed to participate in the exchange-traded segment. The exchange-traded currency derivatives market in India made its debut only in August 2008 with rupee-dollar futures.
At present, regulators allow only futures contracts to be traded on exchanges. Recently, rupee-yen, rupee-euro and rupee-pound sterling contracts were given the go-ahead. The size of the market has been growing exponentially. From a modest beginning of a few hundred crore rupees, the daily turnover now crosses $7-8 billion almost on a daily basis.
The exchange-traded currency derivatives market in India is on a roll, with the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) asking stock exchanges for feedback on introduction of currency options.
According to people familiar with the development, the joint technical committee, which comprises officials from RBI and Sebi, met a couple of weeks ago to deliberate on currency options. “The committee has already started discussing the launch of (currency) options and stock exchanges have been asked to submit their views on the product,” said a person privy to the development. At present, the National Stock Exchange and the MCX-Stock Exchange offer currency trading facilities.
Globally, options is a popular among both hedgers and speculators as its downside is limited. One can enter into an options contract by only paying the premium. The buyer is under no obligation to exercise the contract on the due date. In other words, only the premium amount is lost if the market goes against the bet.
This is different from futures contracts, where entities have to pay margins. According to rough estimates, options account for nearly 20 per cent of the global foreign exchange trade. The foreign exchange options market is considered the largest and the most liquid market for options in the world.
Madhusuman Somani, director (financial markets), YES Bank, said, “Options will help entities hedge against currency volatility while limiting the downside.”
“Say, for instance, someone is bidding for a project that has an exposure to foreign currency. He will be better off using options to hedge, as even if he fails to get the project, his downside will be limited to the premium,” said Somani, who also feels that “options per se will not increase volatility in the Indian currency”.
However, even while ground is being prepared for options, there is a belief that the central bank is sceptical about the product. It is said that RBI is of the view that currency options will lead to a significant rise in volatility of the Indian currency.
Incidentally, foreign institutional investors (FIIs) have still not been allowed to participate in the exchange-traded segment. The exchange-traded currency derivatives market in India made its debut only in August 2008 with rupee-dollar futures.
At present, regulators allow only futures contracts to be traded on exchanges. Recently, rupee-yen, rupee-euro and rupee-pound sterling contracts were given the go-ahead. The size of the market has been growing exponentially. From a modest beginning of a few hundred crore rupees, the daily turnover now crosses $7-8 billion almost on a daily basis.
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