As The India Story Attracts New Entities,
Brokerages Offer Sign-on Bonuses To Lure Talent
Mar 19, 2007
Ashish Rukhaiyar
MUMBAI
TILL ayear ago, it was almost de rigueur for analysts and research heads of a foreign brokerage house to join a rival entity in the initial months of the new calendar year. On the other hand, people from domestic entities were known to switch jobs in the months of May and June. The reason being, foreign brokerages paid bonuses in December, while domestic houses paid the same in March.
However, times have changed and more and more brokerages are luring talent with a sign-on bonus. One just has to sign on the dotted line, and the bonus is paid on the spot to the new recruit. Incidentally, this is just another sign of the acute dearth of skilled and experienced manpower in the Indian brokerage industry.
“The market won’t wait for anyone and the competition is immense. More often than not, brokerages are not in a position to wait to get the right talent and so go in for sign-on bonus conditions,” said an HR director of a domestic brokerage. The sign-on bonus clause also removes the risk of losing a person to any of the rivals, who might jump in the fray before the person actually joins the new place, he added.
Industry sources add that the manpower shortage has been further accentuated by the fact that the India growth story has been attracting many new entities into the country. Brokerages are losing their analysts to not just rival brokerages, but also to hedge funds and private equity players.
In the recent past, many domestic and foreign brokerages like ICICI Securities, Deutsche Securities, HSBC Securities and Religare Securities have lost some of their key people and research analysts to either new entrants or related industry players. The newly-found aggressiveness of entities like Goldman Sachs, which parted ways from Kotak in March 2006, Lehmann Brothers and CSFB have also led to a huge churn in the capital market industry.
“Generally, a foreign entity, when looking for people, tries to poach other foreign houses as the cultural roadblocks are automatically taken care of,” said the director of a foreign brokerage house. However, there have been a few exceptions. Recently, Dipankar Choudhary, who tracked the banking sector at ICICI Securities (i-SEC), moved to Deutsche Securities. The foreign house is also believed to have taken on board a capital goods analyst from HSBC Securities. Deutsche had recently lost its equity head to a private equity player.
On the other hand, i-SEC lost a couple of people to Centrum Stock Broking, which is being managed by Devesh Kumar, the former head of equities team at i-SEC. R Amarnath has joined Centrum Stock Broking as head (corporate finance) after leaving i-SEC, where he was the head of equity research. Meanwhile, i-SEC has hired A Murugappan in place of Mr Kumar. Mr Murugappan is coming back to i-SEC after a brief stint with private equity fund Deeva Partners.
Among other instances, Amitabh Chakraborty has moved from Brics Securities to Religare Securities, which recently hired Sangeeta Purushottam as head of institutional business.
Interestingly, some of the brokerage houses have also been going to management schools in Goa to recruit analysts.
Thursday, 1 November 2007
Sebi not keen on brokers running venture funds
Mar 13, 2007
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) is concerned over the interest expressed by stock brokerages to set up venture capital arms. Fearing a possible conflict of interest if stock brokers are allowed to run VC funds, the regulator may come out with a new policy to instill certain checks and balances.
“Around 4-5 brokerages have applied to get their VC arms registered with Sebi. Once registered, they will be able to get tax benefits, too. However, Sebi is concerned that there may not be Chinese walls between the brokerage and the venture capital units,” said a source. The brokerage may use its proprietary books to take position on stocks, which the VC may be buying.
While large financial services groups like ICICI, Kotak and UTI have VC arms, there are certain reservations on allowing brokers to set up VCs. Sebi has been sitting on the applications for almost 4 to 5 months. Sources said an expert committee has been formed to look into the issue. Sebi did not respond to query from ET. The committee will look at framing broader guidelines rather than considering specific applications.
According to Akil Hirani, managing partner, Majmudar & Co, “There are a couple of issues that need to be looked into in this subject. Obviously, co-mingling of the brokerage entity and the venture capital arm is a serious issue and a better option for the market regulator will be to make necessary amendments to the broker regulations, which every broker has to comply with. Further, the regulation needs to be enforced rigorously so that the systems are in place for Chinese walls. One can cite the example of an IPO where the brokerage arm releases a report while investment banking arm is the underwriter. There is always an inherent bias, which needs to be addressed.”
Ashish Rukhaiyar
MUMBAI
THE Securities and Exchange Board of India (Sebi) is concerned over the interest expressed by stock brokerages to set up venture capital arms. Fearing a possible conflict of interest if stock brokers are allowed to run VC funds, the regulator may come out with a new policy to instill certain checks and balances.
“Around 4-5 brokerages have applied to get their VC arms registered with Sebi. Once registered, they will be able to get tax benefits, too. However, Sebi is concerned that there may not be Chinese walls between the brokerage and the venture capital units,” said a source. The brokerage may use its proprietary books to take position on stocks, which the VC may be buying.
While large financial services groups like ICICI, Kotak and UTI have VC arms, there are certain reservations on allowing brokers to set up VCs. Sebi has been sitting on the applications for almost 4 to 5 months. Sources said an expert committee has been formed to look into the issue. Sebi did not respond to query from ET. The committee will look at framing broader guidelines rather than considering specific applications.
According to Akil Hirani, managing partner, Majmudar & Co, “There are a couple of issues that need to be looked into in this subject. Obviously, co-mingling of the brokerage entity and the venture capital arm is a serious issue and a better option for the market regulator will be to make necessary amendments to the broker regulations, which every broker has to comply with. Further, the regulation needs to be enforced rigorously so that the systems are in place for Chinese walls. One can cite the example of an IPO where the brokerage arm releases a report while investment banking arm is the underwriter. There is always an inherent bias, which needs to be addressed.”
India Inc takes demerger route to unlock value
Investors Too Gain As Prices Of
Demerged Entities See Major Jump
Mar 07, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as large Indian corporate houses were busy adding value to their businesses by acquiring global biggies, back home, many were trying to unlock value in their existing activity by demerging into different entities.
Over the past one year, many Indian companies have demerged into two or more different units, with each focusing on specific areas of business. And, if the stock prices of the demerged entities are anything to go by, the market has definitely given a thumbs-up to most demergers.
The classic case of an Indian demerger has been that of Reliance Industries (RIL) wherein four different entities were carved out of India’s largest private sector company in 2006.
Incidentally, investors who stayed with the company during the time of the demerger have been handsomely rewarded, with the stock prices of all the entities witnessing a splendid rise.
In last one year, companies like Zee, Great Eastern Shipping, Torrent Power, GTL Infrastructure, KEC International and Network 18 have been demerged and the stock prices of most of the demerged entities are still ruling at a considerable premium, as compared to the listing price.
Market participants also opine that a demerger helps in unlocking value and bringing more focus in the business. The separate entity is able to attract a premium due to the full enterprise value of the new entity.
Girish Nadkarni, COO (investment banking & institutional equity), IL&FS Investsmart, says, “Experience shows that investing in demerged entities has been good for investors. It is better for companies as it brings more focus.”
Wire & Wireless India was demerged from Zee Telefilms and was listed on the BSE on January 10, 2007. The list price was Rs 80 and it is currently trading at Rs 94.85 — premium of nearly 19%. On January 11, the stock had touched a high of Rs 139.90.
Similarly, KEC International, which was demerged to manage the power transmission business of KEC Infrastructure, closed at Rs 521. It was listed on October 3, 2006 at Rs 425. In February, the stock had touched a high of Rs 599.
Torrent Power, on the other hand, is trading at a premium of nearly 4% at Rs 62.30, after listing on November 28, 2006 at Rs 60. It touched a high of Rs 99.90 on November 30, 2006.
Network 18 Fincap has also gained ground after being listed on February 2, 2007. It is currently trading at Rs 341.45, as against its issue price of Rs 300. It has touched a high of Rs 446.50 on February 19.
Commenting on demergers, Ajay Padval, VP (PMS), Mehta Equities, is of the view that in India, when the different business activities are a part of the single main entity, market tends to discount its true value. Once demerged, the entity is able to attract a premium as the earlier discount is written off and the asset value and the enterprise value are fully priced.
In a nutshell, a demerged entity is priced at its real value and so the shareholders are more often that not, rewarded. However, at the same time, demerged entities like Zee News, Great Offshore and GTL Infrastructure have moved into negative territory after listing.
Demerged Entities See Major Jump
Mar 07, 2007
Ashish Rukhaiyar
MUMBAI
EVEN as large Indian corporate houses were busy adding value to their businesses by acquiring global biggies, back home, many were trying to unlock value in their existing activity by demerging into different entities.
Over the past one year, many Indian companies have demerged into two or more different units, with each focusing on specific areas of business. And, if the stock prices of the demerged entities are anything to go by, the market has definitely given a thumbs-up to most demergers.
The classic case of an Indian demerger has been that of Reliance Industries (RIL) wherein four different entities were carved out of India’s largest private sector company in 2006.
Incidentally, investors who stayed with the company during the time of the demerger have been handsomely rewarded, with the stock prices of all the entities witnessing a splendid rise.
In last one year, companies like Zee, Great Eastern Shipping, Torrent Power, GTL Infrastructure, KEC International and Network 18 have been demerged and the stock prices of most of the demerged entities are still ruling at a considerable premium, as compared to the listing price.
Market participants also opine that a demerger helps in unlocking value and bringing more focus in the business. The separate entity is able to attract a premium due to the full enterprise value of the new entity.
Girish Nadkarni, COO (investment banking & institutional equity), IL&FS Investsmart, says, “Experience shows that investing in demerged entities has been good for investors. It is better for companies as it brings more focus.”
Wire & Wireless India was demerged from Zee Telefilms and was listed on the BSE on January 10, 2007. The list price was Rs 80 and it is currently trading at Rs 94.85 — premium of nearly 19%. On January 11, the stock had touched a high of Rs 139.90.
Similarly, KEC International, which was demerged to manage the power transmission business of KEC Infrastructure, closed at Rs 521. It was listed on October 3, 2006 at Rs 425. In February, the stock had touched a high of Rs 599.
Torrent Power, on the other hand, is trading at a premium of nearly 4% at Rs 62.30, after listing on November 28, 2006 at Rs 60. It touched a high of Rs 99.90 on November 30, 2006.
Network 18 Fincap has also gained ground after being listed on February 2, 2007. It is currently trading at Rs 341.45, as against its issue price of Rs 300. It has touched a high of Rs 446.50 on February 19.
Commenting on demergers, Ajay Padval, VP (PMS), Mehta Equities, is of the view that in India, when the different business activities are a part of the single main entity, market tends to discount its true value. Once demerged, the entity is able to attract a premium as the earlier discount is written off and the asset value and the enterprise value are fully priced.
In a nutshell, a demerged entity is priced at its real value and so the shareholders are more often that not, rewarded. However, at the same time, demerged entities like Zee News, Great Offshore and GTL Infrastructure have moved into negative territory after listing.
Return gift: PSUs lead in dividend payments
Feb 28, 2007
Ashish Rukhaiyar
MUMBAI
PUBLIC sector undertakings (PSU) have been in the line of fire of the finance minister, who has slammed the entities for sitting on huge cash reserves and being stingy when it comes to paying dividend to the exchequer. However, the fact is, traditionally, PSUs have been paying higher dividend compared to the other listed entities.
In the last six fiscals (1999-2000 to 2005-06), on an average, PSUs have paid a dividend of 31.21% of their total net profit, which is higher than the overall average of 29.84%. In 2005-06, PSUs distributed nearly 34% of their net profit as dividends while for the rest of the companies, this was pegged at less than 29%.
Earlier, in 2003-04 and 2004-05, other listed companies paid dividends of 27.98% and 28.25% respectively of their net profit. PSUs, on the other hand, paid dividends amounting to 31.87% and 33.66% in 2003-04 and 2004-05, respectively.
The Navratna PSUs have been all the more liberal in paying dividends to their shareholders, including the government. The mighty entities, on an average, have paid dividends of nearly 32% of their net profit in the last six fiscals.
In 2005-06, their dividend payout stood at Rs 12,656.25 crore, or nearly 37% of their total net profit. On a more important note, their dividend pay-out has been on a steady rise since 1999-2000. Only in 2003-04, it witnessed a marginal dip when the payout stood at 30.39% of the net profit.
Interestingly, market participants opine that the government should act as a prudent shareholder and not demand more than necessary dividends from the PSUs, including the cash-rich ones.
They further add that a higher demand on the PSUs will lead to other investors moving away from such companies which will, in turn, affect the government itself as there will no quality takers when a further dilution is being planned.
“It is true that the market will attach a premium to such high dividend paymasters. However, it will also discount the government and management relations wherein the former forces the latter to pay a higher dividend. Take the case of oil companies. The government wants to make money by getting more dividends but, at the same time, does not allow the companies to hike prices. Although the government may be able to rein in fiscal deficit by extracting higher dividends from PSUs, the affected entities will be left bleeding,” said a research head at a domestic brokerage on condition of anonymity.
If the government wants more dividends, a higher level of autonomy should also be granted, he added. In a similar context, KRIS director Arun Kejriwal says, “Traditionally, PSUs have been good dividend paymasters. It is not proper on the government’s part to ask for more and more dividend from the entities just to meet its fiscal expenditure.”
Ashish Rukhaiyar
MUMBAI
PUBLIC sector undertakings (PSU) have been in the line of fire of the finance minister, who has slammed the entities for sitting on huge cash reserves and being stingy when it comes to paying dividend to the exchequer. However, the fact is, traditionally, PSUs have been paying higher dividend compared to the other listed entities.
In the last six fiscals (1999-2000 to 2005-06), on an average, PSUs have paid a dividend of 31.21% of their total net profit, which is higher than the overall average of 29.84%. In 2005-06, PSUs distributed nearly 34% of their net profit as dividends while for the rest of the companies, this was pegged at less than 29%.
Earlier, in 2003-04 and 2004-05, other listed companies paid dividends of 27.98% and 28.25% respectively of their net profit. PSUs, on the other hand, paid dividends amounting to 31.87% and 33.66% in 2003-04 and 2004-05, respectively.
The Navratna PSUs have been all the more liberal in paying dividends to their shareholders, including the government. The mighty entities, on an average, have paid dividends of nearly 32% of their net profit in the last six fiscals.
In 2005-06, their dividend payout stood at Rs 12,656.25 crore, or nearly 37% of their total net profit. On a more important note, their dividend pay-out has been on a steady rise since 1999-2000. Only in 2003-04, it witnessed a marginal dip when the payout stood at 30.39% of the net profit.
Interestingly, market participants opine that the government should act as a prudent shareholder and not demand more than necessary dividends from the PSUs, including the cash-rich ones.
They further add that a higher demand on the PSUs will lead to other investors moving away from such companies which will, in turn, affect the government itself as there will no quality takers when a further dilution is being planned.
“It is true that the market will attach a premium to such high dividend paymasters. However, it will also discount the government and management relations wherein the former forces the latter to pay a higher dividend. Take the case of oil companies. The government wants to make money by getting more dividends but, at the same time, does not allow the companies to hike prices. Although the government may be able to rein in fiscal deficit by extracting higher dividends from PSUs, the affected entities will be left bleeding,” said a research head at a domestic brokerage on condition of anonymity.
If the government wants more dividends, a higher level of autonomy should also be granted, he added. In a similar context, KRIS director Arun Kejriwal says, “Traditionally, PSUs have been good dividend paymasters. It is not proper on the government’s part to ask for more and more dividend from the entities just to meet its fiscal expenditure.”
Stock brokers not happy with cover policy, appeal to Sebi
Feb 27, 2007
Ashish Rukhaiyar
MUMBAI
THE stock broker’s indemnity policy is fast becoming a cornerstone for a heated debate with brokers, up in arms against insurance firms. Brokers allege that insurance companies have been behaving in a very high-handed manner and are not sharing important policy-related issues with them. Currently, New India Assurance and Oriental Insurance of India, are managing the insurance cover of brokers across the country.
In fact, brokers have appealed to Sebi to look into this matter. Brokers opine that an indemnity policy should not be mandatory. They believe what is required is an unbundling of policy clauses so as to include only the relevant parts once the policy is renewed. The issue has gained importance as insurance policies will come up for renewal over the next couple of months.
According to sources, while the premium has seen a threefold jump in the past couple of years, the claims, more often than not, result in being rejected by the insurance entities. Meanwhile, an email sent to the insurance firms remained unanswered.
A compliance officer at a domestic brokerage told ET on conditions of anonymity that the insurance companies include a lot of riders in the policy that are not really needed. They further, indirectly, penalise the brokers for putting forward a claim.
“First and foremost, the premium amount has witnessed a three-fold jump in the past couple of years. Secondly, the insurance companies have discontinued offering no-claim bonus that was done earlier. To make matters worse, the policy has a clause saying that if any claim has been filed, then, irrespective of it being accepted or not, the premium amount goes up by 75% when the policy comes up for renewal,” he says.
Many brokers also allege that the two insurance firms seem to have formed a consortium of sorts, as the policy papers have been exactly the same with no difference. “Earlier, there used to be some difference in the language of the policy papers given by the two companies. But the latest policy given out by both the companies are verbatim,” said a member of a brokers’ forum.
Ashish Rukhaiyar
MUMBAI
THE stock broker’s indemnity policy is fast becoming a cornerstone for a heated debate with brokers, up in arms against insurance firms. Brokers allege that insurance companies have been behaving in a very high-handed manner and are not sharing important policy-related issues with them. Currently, New India Assurance and Oriental Insurance of India, are managing the insurance cover of brokers across the country.
In fact, brokers have appealed to Sebi to look into this matter. Brokers opine that an indemnity policy should not be mandatory. They believe what is required is an unbundling of policy clauses so as to include only the relevant parts once the policy is renewed. The issue has gained importance as insurance policies will come up for renewal over the next couple of months.
According to sources, while the premium has seen a threefold jump in the past couple of years, the claims, more often than not, result in being rejected by the insurance entities. Meanwhile, an email sent to the insurance firms remained unanswered.
A compliance officer at a domestic brokerage told ET on conditions of anonymity that the insurance companies include a lot of riders in the policy that are not really needed. They further, indirectly, penalise the brokers for putting forward a claim.
“First and foremost, the premium amount has witnessed a three-fold jump in the past couple of years. Secondly, the insurance companies have discontinued offering no-claim bonus that was done earlier. To make matters worse, the policy has a clause saying that if any claim has been filed, then, irrespective of it being accepted or not, the premium amount goes up by 75% when the policy comes up for renewal,” he says.
Many brokers also allege that the two insurance firms seem to have formed a consortium of sorts, as the policy papers have been exactly the same with no difference. “Earlier, there used to be some difference in the language of the policy papers given by the two companies. But the latest policy given out by both the companies are verbatim,” said a member of a brokers’ forum.
IPO-bound cos warm up to agency grading
Rating Agencies Are Currently Working With
Stock Exchanges For Grading About 10 Issues
Feb 07, 2007
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
THE coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies. Last year, in the period between August and November, there were six IPOs that were graded by the rating agencies and since then, nearly 20 issues have hit the market and not a single one has opted for grading.
However, companies are slowly warming to the concept of going in for IPO grading, according to officials at rating agencies. “The rating agencies are working with the stock exchanges and there are quite a few issues in the pipeline. Although, the exact number of issues is not clearly known, it is expected to be less than 10. The issues are part of a pilot project of the stock exchanges that are also bearing the cost of the grading process. Last year saw six IPOs being graded, followed by a brief lull, but things are looking up once again,” said an official at a leading rating agency.
According to sources, the cost of grading each issue is approximately Rs 5 lakh and it takes around 3-4 weeks for one issue to be graded. A senior official at CARE testified to change in the attitude of companies towards IPO grading. The agency is said to have received quite a few enquiries in this regard.
“Issuers are approaching us for grading their public issues on compulsion from the exchanges. As the market evolves, we will see more companies opting for voluntary grading of their issues”, said L Shivakumar, head - Mumbai, Icra.
On the other hand, according to merchant bankers, graded public issues, preferably with a grading of more than two in a scale of five, help them market the IPO better. “With institutional buyers taking more interest in small-size issues, a satisfactorily graded one can easily attract chunk investors,” said a merchant banker on conditions of anonymity.
He further added that the grades, however, should not be assigned by plainly comparing the issuer with any other “established sample” (usually a listed company with a huge market presence). “Rating agencies should only focus on the company. It should be able to take a call without relatively assessing the issue to an inconsistent sample,” the merchant banker said.
Interestingly, among the six IPOs that were graded last year, only one — Shree Ashtavinayak Cine Vision —has actually got listed on the bourses and has followed it up with an impressive performance, too. The issue price was fixed at Rs 160 and the stock got listed on January 10. On Friday, February 2, the stock closed at Rs 311.35 — a gain of nearly 95%. The issue was given a grading of 2/5, which denotes ‘below average fundamentals’.
People involved in the grading process opine that since the grading is awarded on the basis of fundamentals, business prospects, management quality and corporate governance, among others, the stock performance cannot be directly linked to the grades. The sentiment prevailing in the secondary markets also play a crucial role, they added.
Stock Exchanges For Grading About 10 Issues
Feb 07, 2007
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
THE coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies. Last year, in the period between August and November, there were six IPOs that were graded by the rating agencies and since then, nearly 20 issues have hit the market and not a single one has opted for grading.
However, companies are slowly warming to the concept of going in for IPO grading, according to officials at rating agencies. “The rating agencies are working with the stock exchanges and there are quite a few issues in the pipeline. Although, the exact number of issues is not clearly known, it is expected to be less than 10. The issues are part of a pilot project of the stock exchanges that are also bearing the cost of the grading process. Last year saw six IPOs being graded, followed by a brief lull, but things are looking up once again,” said an official at a leading rating agency.
According to sources, the cost of grading each issue is approximately Rs 5 lakh and it takes around 3-4 weeks for one issue to be graded. A senior official at CARE testified to change in the attitude of companies towards IPO grading. The agency is said to have received quite a few enquiries in this regard.
“Issuers are approaching us for grading their public issues on compulsion from the exchanges. As the market evolves, we will see more companies opting for voluntary grading of their issues”, said L Shivakumar, head - Mumbai, Icra.
On the other hand, according to merchant bankers, graded public issues, preferably with a grading of more than two in a scale of five, help them market the IPO better. “With institutional buyers taking more interest in small-size issues, a satisfactorily graded one can easily attract chunk investors,” said a merchant banker on conditions of anonymity.
He further added that the grades, however, should not be assigned by plainly comparing the issuer with any other “established sample” (usually a listed company with a huge market presence). “Rating agencies should only focus on the company. It should be able to take a call without relatively assessing the issue to an inconsistent sample,” the merchant banker said.
Interestingly, among the six IPOs that were graded last year, only one — Shree Ashtavinayak Cine Vision —has actually got listed on the bourses and has followed it up with an impressive performance, too. The issue price was fixed at Rs 160 and the stock got listed on January 10. On Friday, February 2, the stock closed at Rs 311.35 — a gain of nearly 95%. The issue was given a grading of 2/5, which denotes ‘below average fundamentals’.
People involved in the grading process opine that since the grading is awarded on the basis of fundamentals, business prospects, management quality and corporate governance, among others, the stock performance cannot be directly linked to the grades. The sentiment prevailing in the secondary markets also play a crucial role, they added.
Investors rush for Z 'security'
Total Monthly Turnover Of Z Group Has
Gone Up By More Than 170% In 6 Months
Feb 03, 2007
Ashish Rukhaiyar
MUMBAI
ACCORDING to veteran traders, it is a cause for worry when mid-cap and small-cap shares start gaining faster than their large-cap counterparts. It should be even more worrying if investors start cosying up to stocks of companies that do not comply with listing norms.
According to available data, the Z group on the BSE has been witnessing a steady rise in traded turnover, even as the other groups are facing a decline. In the last six months, the total monthly turnover of the Z group has gone up by more than 170%. In the same period, the A group has witnessed a marginal decrease in its turnover. Interestingly, a similar kind of steady rise in the Z group turnover was witnessed last year when the markets had peaked in May.
Z group generally consists of companies that have not adhered to the listing requirements like submission of annual accounts or the shareholding pattern, implementation of corporate governance and redressal of investors complaints. Brokers opine that the trend can be attributed to the rise in the number of retail investors who flock to such dubious counters at a time when the markets have already peaked.
Manish Sonthalia, VP (equity strategy), Motilal Oswal Securities, says, “The recent rally has decreased the margin of safety in the frontlines and so investors are flocking to mid-caps and penny stocks. However, a rally in the Z group also signifies that the market has reached its top and has entered the blow-out phase. In other words, a spurt in Z group means we are in the last leg of the upswing rally.”
Echoing a similar view, Rakesh Choudhari, COO, Keynote Capitals, says that a typical bull run starts with a rise in the frontline stocks, then moves ahead to the mid-caps and nears an end when stocks of dubious companies catch investor fancy.
“When the sentiment is upbeat, some market players try to capitalise on it by luring ordinary investors into stocks with weak fundamentals. Investors think there is enough upside to the stock price and they will be able to make some money, which is not always the case. In a nutshell, one can say that the time has come when investors need to be cautious”, says Mr Choudhari.
In July 2006, the total monthly turnover of the Z group was pegged at Rs 23.28 crore. This has jumped to nearly Rs 63 crore in January 2007 - up more than 170%. Brokers, on conditions of anonymity, also add that circular trading occurs frequently in the stocks of lesser known companies.
A group of brokers form a syndicate and start trading among themselves, thereby creating huge volumes at the counter. High volumes are usually perceived as a sign of widespread interest in a stock by retail investors. Once retail investors start buying into these stocks, the syndicate begins offloading and move on to some other stock.
However, on a different note, investment consultant, S P Tulsian, says that the Z group also comprises many good companies, which are in the dubious group only because of minor issues like shares still lying in the physical form or dividend issues.
“Investors can always find value in the lessresearched stocks that form a part of the Z group. A rally in this group cannot always be linked to the end of the overall rally of the bourses”, he says.
Gone Up By More Than 170% In 6 Months
Feb 03, 2007
Ashish Rukhaiyar
MUMBAI
ACCORDING to veteran traders, it is a cause for worry when mid-cap and small-cap shares start gaining faster than their large-cap counterparts. It should be even more worrying if investors start cosying up to stocks of companies that do not comply with listing norms.
According to available data, the Z group on the BSE has been witnessing a steady rise in traded turnover, even as the other groups are facing a decline. In the last six months, the total monthly turnover of the Z group has gone up by more than 170%. In the same period, the A group has witnessed a marginal decrease in its turnover. Interestingly, a similar kind of steady rise in the Z group turnover was witnessed last year when the markets had peaked in May.
Z group generally consists of companies that have not adhered to the listing requirements like submission of annual accounts or the shareholding pattern, implementation of corporate governance and redressal of investors complaints. Brokers opine that the trend can be attributed to the rise in the number of retail investors who flock to such dubious counters at a time when the markets have already peaked.
Manish Sonthalia, VP (equity strategy), Motilal Oswal Securities, says, “The recent rally has decreased the margin of safety in the frontlines and so investors are flocking to mid-caps and penny stocks. However, a rally in the Z group also signifies that the market has reached its top and has entered the blow-out phase. In other words, a spurt in Z group means we are in the last leg of the upswing rally.”
Echoing a similar view, Rakesh Choudhari, COO, Keynote Capitals, says that a typical bull run starts with a rise in the frontline stocks, then moves ahead to the mid-caps and nears an end when stocks of dubious companies catch investor fancy.
“When the sentiment is upbeat, some market players try to capitalise on it by luring ordinary investors into stocks with weak fundamentals. Investors think there is enough upside to the stock price and they will be able to make some money, which is not always the case. In a nutshell, one can say that the time has come when investors need to be cautious”, says Mr Choudhari.
In July 2006, the total monthly turnover of the Z group was pegged at Rs 23.28 crore. This has jumped to nearly Rs 63 crore in January 2007 - up more than 170%. Brokers, on conditions of anonymity, also add that circular trading occurs frequently in the stocks of lesser known companies.
A group of brokers form a syndicate and start trading among themselves, thereby creating huge volumes at the counter. High volumes are usually perceived as a sign of widespread interest in a stock by retail investors. Once retail investors start buying into these stocks, the syndicate begins offloading and move on to some other stock.
However, on a different note, investment consultant, S P Tulsian, says that the Z group also comprises many good companies, which are in the dubious group only because of minor issues like shares still lying in the physical form or dividend issues.
“Investors can always find value in the lessresearched stocks that form a part of the Z group. A rally in this group cannot always be linked to the end of the overall rally of the bourses”, he says.
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