Ashish Rukhaiyar
Mumbai, May 19, 2010
Denied promotion after CBI probe, officer moves court; HC ruling may impact appointment of ED.
The legal battle between the Securities and Exchange Board of India (Sebi) and one of its chief general managers (CGMs) can potentially impact the appointment of two new executive directors (EDs). People familiar with the development say Nagender Parakh, the CGM concerned, was promoted to the post of an ED in 2008.
But his appointment was kept in a ‘sealed cover’, pending a Central Bureau of Investigation (CBI) probe related to a disproportionate assets case. Parakh has challenged the Sebi decision in the Mumbai High Court.
Parakh, the seniormost CGM, filed a writ petition against Sebi in the Mumbai High Court for denial of promotion on three occasions —in 2006, 2007 and 2008. The petition also challenges Sebi’s decision to use the ‘sealed cover’ procedure while promoting him in December 2008.
According to people familiar with the development, the ‘sealed cover’ was used as Parakh, who worked in the Department of Economic and Policy Analysis, was allegedly found to own assets disproportionate to his income after CBI initiated a probe against him in 2004.
“Parakh got embroiled in a CBI probe related to disproportionate assets in 2004 and, since then, has been denied promotion,” said a person who did not wish to be named. “The CBI, however, is yet to file a chargesheet or serve summons in the matter. Sebi, on its part, has also not initiated any departmental inquiry,” he added.
And this is what is being contested in the high court petition. According to lawyers, the Supreme Court has clearly ruled that the ‘sealed cover’ procedure can be used only if a chargesheet has been filed or if any disciplinary action has been initiated against the employee in question.
Meanwhile, according to another theory, Sebi does not want to attract criticism, in any manner, by promoting a person who is being probed by the central investigation authority.
While it is believed that the regulator, in 2009, did sanction CBI’s prosecution of Parakh, this could not be independently confirmed from Sebi. A CBI prosecution of any employee belonging to a government or a quasi-government body requires the permission of the organisational head.
An email sent to the Sebi spokesperson did not elicit any response. Another email sent on Monday to whole-time member M S Sahoo, who is in charge of the legal affairs department, also remained unanswered. Parakh also could not be reached for comment.
If the court rules against the regulator, it will have an impact on selection of EDs, as reports suggest that Dr Pradnya Saravade, an officer on special duty handling investigations & vigilance, and S Ravindran, a CGM in the mutual fund division, have already been short-listed for the post. Sebi will have to promote Parakh if he wins the court battle.
Sebi invited applications for the post in December 2009 and zeroed in on the two officers after interviewing around 19 candidates.
Friday, 31 December 2010
Senior official sues Sebi for denial of promotion
Ashish Rukhaiyar
Mumbai, May 17, 2010
The Securities and Exchange Board of India (Sebi) has been dragged to the court by one of its employees for the first time in its history.
Nagendar Parakh, the senior-most chief general manager (CGM) of Sebi, filed a petition in the Mumbai High Court on May 3 challenging Sebi’s decision of denying him a promotion as an executive director (ED) even while junior officers were being elevated.
This assumes significance as Sebi recently interviewed many officials, including Parakh and all other CGMs, for the post of executive directors. While the names of the selected candidates have not been announced, there have been reports suggesting that Pradnya Saravade and S Ravindran – both junior to Parakh - have already been selected and a formal announcement is likely to be made after a board meet, scheduled later this week.
Saravade joined Sebi in 2008 and handled the investigations into the Pyramid Saimira matter in 2009.
Ravindran, on the other hand, was a deputy GM when Parakh was already a CGM. He returned to Sebi only in March this year after spending three years with the Bahrain stock market regulator.
While the High Court bench comprising acting chief justice J N Patel and S C Dharmadhikari refused to pass any interim order, they did mention that they would hear the matter as early as possible and that any decision taken (within Sebi) would be subject to the order passed in the petition.
“We are not inclined to pass any interim order and make it clear that any decision in the matter will be subject to the further and final orders to be passed in this writ petition,” said the bench.
Parakh, a chartered accountant and company secretary, joined Sebi in 1994 after having worked with NTPC and was elevated to CGM’s post in 2004.
Since then he has been denied a promotion even as his batch mates including Usha Narayanan, J N Gupta and P K Nagpal have all been made EDs.
According to people familiar with the development, Parakh who is part of the department of economic and policy analysis got embroiled in a CBI probe related to disproportionate assets in 2004 and since then has been denied a promotion.
The Central Bureau of Investigation, however, is yet to file a charge sheet or serve any summons in the matter. Sebi, on its part, has also not initiated any departmental enquiry in the matter.
While it is believed that the regulator, in 2009, did sanction the CBI prosecution against Parakh, this could not be independently confirmed from Sebi. A CBI prosecution of any employee belonging to a government or a quasi-government body requires the permission of the organisational head.
An email sent to the Sebi spokesperson generated an auto-reply, saying that he is “unable” to read the message and that he “will be back in office on May 24.”. Attempts to contact him on his mobile phone also proved futile. Parakh also could not be reached for his comments.
Mumbai, May 17, 2010
The Securities and Exchange Board of India (Sebi) has been dragged to the court by one of its employees for the first time in its history.
Nagendar Parakh, the senior-most chief general manager (CGM) of Sebi, filed a petition in the Mumbai High Court on May 3 challenging Sebi’s decision of denying him a promotion as an executive director (ED) even while junior officers were being elevated.
This assumes significance as Sebi recently interviewed many officials, including Parakh and all other CGMs, for the post of executive directors. While the names of the selected candidates have not been announced, there have been reports suggesting that Pradnya Saravade and S Ravindran – both junior to Parakh - have already been selected and a formal announcement is likely to be made after a board meet, scheduled later this week.
Saravade joined Sebi in 2008 and handled the investigations into the Pyramid Saimira matter in 2009.
Ravindran, on the other hand, was a deputy GM when Parakh was already a CGM. He returned to Sebi only in March this year after spending three years with the Bahrain stock market regulator.
While the High Court bench comprising acting chief justice J N Patel and S C Dharmadhikari refused to pass any interim order, they did mention that they would hear the matter as early as possible and that any decision taken (within Sebi) would be subject to the order passed in the petition.
“We are not inclined to pass any interim order and make it clear that any decision in the matter will be subject to the further and final orders to be passed in this writ petition,” said the bench.
Parakh, a chartered accountant and company secretary, joined Sebi in 1994 after having worked with NTPC and was elevated to CGM’s post in 2004.
Since then he has been denied a promotion even as his batch mates including Usha Narayanan, J N Gupta and P K Nagpal have all been made EDs.
According to people familiar with the development, Parakh who is part of the department of economic and policy analysis got embroiled in a CBI probe related to disproportionate assets in 2004 and since then has been denied a promotion.
The Central Bureau of Investigation, however, is yet to file a charge sheet or serve any summons in the matter. Sebi, on its part, has also not initiated any departmental enquiry in the matter.
While it is believed that the regulator, in 2009, did sanction the CBI prosecution against Parakh, this could not be independently confirmed from Sebi. A CBI prosecution of any employee belonging to a government or a quasi-government body requires the permission of the organisational head.
An email sent to the Sebi spokesperson generated an auto-reply, saying that he is “unable” to read the message and that he “will be back in office on May 24.”. Attempts to contact him on his mobile phone also proved futile. Parakh also could not be reached for his comments.
Real estate issues face uphill task
Ashish Rukhaiyar & Vandana
Mumbai, May 12, 2010
Realtors plan to raise Rs 12,000 crore in coming months.
Real estate companies appear to be the worst hit by the ongoing global uncertainties, coupled with the new norms for primary market issuances.
At a time when confidence is yet to fully return to the market, experts feel this rate-sensitive sector will see only subdued response from investors. This could come as a blow to the companies, which plan to raise Rs 12,000 crore in the coming months.
According to Prime Database, nearly 10 real estate public offerings have got the final go-ahead from the Securities and Exchange Board of India. Some high-profile names are Emaar MGF Land, Lodha Developers, Oberoi Realty, Ambience and Neptune Developers. Since the Sebi approval is valid for a year, the coming months will see these companies roll out their issues.
The current calendar year has seen three initial public offerings (IPOs) from the real estate sector — Jaypee Infratech, D B Realty and Nitesh Estates. While Jaypee Infratech and Nitesh Estates issues were subscribed a little over one time, D B Realty was better subscribed at nearly three times.
Many analysts view the sector with scepticism due to factors like land valuations, project delays and politics.
“The sentiment has not improved for the sector,” said Amit Goenka, national director, capital transactions, Knight Frank. “Most of these companies are looking for anchor investors, but there is hardly any appetite. The valuations are high. Some of the companies planning to tap the markets are eyeing a multiple of 85-90 times, which is quite high. There is also a huge debt overhang. Clearly, there is no value left for investors.”
Market experts say the current volatility in the secondary market has made most investors risk-averse and this impacts sectors that suffer from inherent risks.
“In a volatile market, investors with less risk appetite will not come forward to participate,” says Ashvin Parekh, partner & national leader, Global Financial Services, Ernst & Young.
“They will particularly shy away from sectors where there are substantial price and delivery risks. Going forward, we may find that domestic retail investors will continue to participate only in low- to medium-risk offerings,” he said.
“FIIs (foreign institutional investors) will also look at small maturity/short-term investments. Liquidity, or lack of it, will also weigh on the minds of investors,” he added.
But, not everyone agrees. “The quality of issuers and pricing are more important determinants of the success of an issue rather than the sector,” says Sanjay Sakhuja, CEO, Ambit Corporate Finance. He, however, acknowledges that “some sectors are always more in favour than others.”
Some other challenges the sector faces include the government’s divestment programme, which aims to raise Rs 40,000 crore in the current financial year, and the new IPO norms that call for 100 per cent upfront margin from institutional investors.
“The biggest challenge to these IPOs is the huge disinvestment line-up. All large domestic institutions, especially government-sponsored ones, want to invest in a PSU rather than a private company. FIIs have become very cautious,” says Goenka.
Mumbai, May 12, 2010
Realtors plan to raise Rs 12,000 crore in coming months.
Real estate companies appear to be the worst hit by the ongoing global uncertainties, coupled with the new norms for primary market issuances.
At a time when confidence is yet to fully return to the market, experts feel this rate-sensitive sector will see only subdued response from investors. This could come as a blow to the companies, which plan to raise Rs 12,000 crore in the coming months.
According to Prime Database, nearly 10 real estate public offerings have got the final go-ahead from the Securities and Exchange Board of India. Some high-profile names are Emaar MGF Land, Lodha Developers, Oberoi Realty, Ambience and Neptune Developers. Since the Sebi approval is valid for a year, the coming months will see these companies roll out their issues.
The current calendar year has seen three initial public offerings (IPOs) from the real estate sector — Jaypee Infratech, D B Realty and Nitesh Estates. While Jaypee Infratech and Nitesh Estates issues were subscribed a little over one time, D B Realty was better subscribed at nearly three times.
Many analysts view the sector with scepticism due to factors like land valuations, project delays and politics.
“The sentiment has not improved for the sector,” said Amit Goenka, national director, capital transactions, Knight Frank. “Most of these companies are looking for anchor investors, but there is hardly any appetite. The valuations are high. Some of the companies planning to tap the markets are eyeing a multiple of 85-90 times, which is quite high. There is also a huge debt overhang. Clearly, there is no value left for investors.”
Market experts say the current volatility in the secondary market has made most investors risk-averse and this impacts sectors that suffer from inherent risks.
“In a volatile market, investors with less risk appetite will not come forward to participate,” says Ashvin Parekh, partner & national leader, Global Financial Services, Ernst & Young.
“They will particularly shy away from sectors where there are substantial price and delivery risks. Going forward, we may find that domestic retail investors will continue to participate only in low- to medium-risk offerings,” he said.
“FIIs (foreign institutional investors) will also look at small maturity/short-term investments. Liquidity, or lack of it, will also weigh on the minds of investors,” he added.
But, not everyone agrees. “The quality of issuers and pricing are more important determinants of the success of an issue rather than the sector,” says Sanjay Sakhuja, CEO, Ambit Corporate Finance. He, however, acknowledges that “some sectors are always more in favour than others.”
Some other challenges the sector faces include the government’s divestment programme, which aims to raise Rs 40,000 crore in the current financial year, and the new IPO norms that call for 100 per cent upfront margin from institutional investors.
“The biggest challenge to these IPOs is the huge disinvestment line-up. All large domestic institutions, especially government-sponsored ones, want to invest in a PSU rather than a private company. FIIs have become very cautious,” says Goenka.
'Fee structure makes PSU divestment business unviable'
Q&A: Tarun Kataria,MD and head, Global Banking & Markets, HSBC India
Ashish Rukhaiyar
Mumbai, May 12, 2010
The disinvestment public sector companies may turn out to be be a big pie, but the fee and expense structure makes it unviable for investment bankers, says Tarun Kataria, managing director and head of global banking & markets, HSBC India. In an interview with Ashish Rukhaiyar, he says the bank’s equity capital markets (ECM) pipeline is strong and the merger and acquisition volume in India this year will be exponentially higher than last year. Excerpts:
How is the capital market pipeline of HSBC? You were not part of any recent initial public offers (IPOs) to hit the market
Our ECM pipeline is the strongest ever. We have a number of IPOs and qualified institutional placements that are set to hit the market in the coming months. For HSBC, it is not about the number of deals but the quality of the issuer and whether he is a client of the firm. In the last three months, we have turned down many opportunities we believed were not appropriate for us as a franchise. In addition, it is about distribution and after-market performance. Our life insurance IPO pipeline is also robust, but closure is a function of what the industry is allowed to do in the context of equity fund-raising, given ownership restrictions.
What was the reason behind HSBC staying away from divestment issues?
As a firm, we made a decision to stay away from these offerings because the fee and expense structure made them non-viable as an ongoing business. Book-runners were being asked to bear all expenses of the issue, which we were not comfortable with. And frankly, this is sub-optimal for the issuer also. Our view has been validated by the distribution performance of the underwriters in the last couple of IPOs. We will pitch for transactions, but based on a fee and expense structure that at least allows us to break even and demonstrate our powerful global institutional and India retail distribution.
But isn’t it a fact that margins in government issues are quite less globally as well?
No doubt, there is a prestige associated with government issues. But, doing these transactions as currently structured is sub-optimal for all, including the issuer, because the transaction does not get the attention it warrants. I don’t agree that global government issues are “no fee, all expenses borne” deals. This is, unfortunately, an Indian phenomenon.
The Securities and Exchange Board of India has made it mandatory for institutions to pay 100 per cent upfront margin. How do you see this affecting subscription numbers?
This is a good development for the long-term maturity of Indian equity markets. It avoids the froth that we often see in markets. This also helps separate the ‘real investor’ (who puts 100 per cent down) from the ‘lets go with the momentum’ investor. As a result, one will not see the massive over-subscriptions witnessed over the past few years.
Deal-makers have been talking about higher merger and acquisition (M&A) volumes this year. But, global factors are not in the best of shapes.
Deal volume will be materially higher this year than last year. Our M&A volume this year will be five to 10 times higher on a year-on-year basis. That partially reflects the improved sentiment. That said, some have suggested that global turmoil will remain a damper. Quite the contrary, I believe. India Inc should and will take advantage of global uncertainty. There are a number of reasons for this. Valuations in the G3 world are lower than in India. So, chances are that deals will be immediately accretive. The rupee continues to strengthen (the past few days notwithstanding), while G3 currencies are weakening. Further, financing is abundantly available to Indian borrowers, whether through domestic loan and bond markets, external commercial borrowings or equity markets. And perhaps, above all, we Indians make good business managers.
How do you see these global factors affecting the secondary markets?
India is globally integrated and hence will be affected. The question is to what degree and for how long. What’s happening in Europe is serious. Defaults, or debt restructurings, are a distinct possibility. What does that mean for the European banking system? You have to weigh the ‘Lehman effect’ against the PR associated with another ‘private sector bailout’. It’s complicated. So, secondary markets will be impacted. The good news, however, is that the India story remains good fundamentally and FIIs (foreign institutional investors) can see that. I expect flows in the near term to be negatively impacted, but this should reverse in the weeks ahead.
Ashish Rukhaiyar
Mumbai, May 12, 2010
The disinvestment public sector companies may turn out to be be a big pie, but the fee and expense structure makes it unviable for investment bankers, says Tarun Kataria, managing director and head of global banking & markets, HSBC India. In an interview with Ashish Rukhaiyar, he says the bank’s equity capital markets (ECM) pipeline is strong and the merger and acquisition volume in India this year will be exponentially higher than last year. Excerpts:
How is the capital market pipeline of HSBC? You were not part of any recent initial public offers (IPOs) to hit the market
Our ECM pipeline is the strongest ever. We have a number of IPOs and qualified institutional placements that are set to hit the market in the coming months. For HSBC, it is not about the number of deals but the quality of the issuer and whether he is a client of the firm. In the last three months, we have turned down many opportunities we believed were not appropriate for us as a franchise. In addition, it is about distribution and after-market performance. Our life insurance IPO pipeline is also robust, but closure is a function of what the industry is allowed to do in the context of equity fund-raising, given ownership restrictions.
What was the reason behind HSBC staying away from divestment issues?
As a firm, we made a decision to stay away from these offerings because the fee and expense structure made them non-viable as an ongoing business. Book-runners were being asked to bear all expenses of the issue, which we were not comfortable with. And frankly, this is sub-optimal for the issuer also. Our view has been validated by the distribution performance of the underwriters in the last couple of IPOs. We will pitch for transactions, but based on a fee and expense structure that at least allows us to break even and demonstrate our powerful global institutional and India retail distribution.
But isn’t it a fact that margins in government issues are quite less globally as well?
No doubt, there is a prestige associated with government issues. But, doing these transactions as currently structured is sub-optimal for all, including the issuer, because the transaction does not get the attention it warrants. I don’t agree that global government issues are “no fee, all expenses borne” deals. This is, unfortunately, an Indian phenomenon.
The Securities and Exchange Board of India has made it mandatory for institutions to pay 100 per cent upfront margin. How do you see this affecting subscription numbers?
This is a good development for the long-term maturity of Indian equity markets. It avoids the froth that we often see in markets. This also helps separate the ‘real investor’ (who puts 100 per cent down) from the ‘lets go with the momentum’ investor. As a result, one will not see the massive over-subscriptions witnessed over the past few years.
Deal-makers have been talking about higher merger and acquisition (M&A) volumes this year. But, global factors are not in the best of shapes.
Deal volume will be materially higher this year than last year. Our M&A volume this year will be five to 10 times higher on a year-on-year basis. That partially reflects the improved sentiment. That said, some have suggested that global turmoil will remain a damper. Quite the contrary, I believe. India Inc should and will take advantage of global uncertainty. There are a number of reasons for this. Valuations in the G3 world are lower than in India. So, chances are that deals will be immediately accretive. The rupee continues to strengthen (the past few days notwithstanding), while G3 currencies are weakening. Further, financing is abundantly available to Indian borrowers, whether through domestic loan and bond markets, external commercial borrowings or equity markets. And perhaps, above all, we Indians make good business managers.
How do you see these global factors affecting the secondary markets?
India is globally integrated and hence will be affected. The question is to what degree and for how long. What’s happening in Europe is serious. Defaults, or debt restructurings, are a distinct possibility. What does that mean for the European banking system? You have to weigh the ‘Lehman effect’ against the PR associated with another ‘private sector bailout’. It’s complicated. So, secondary markets will be impacted. The good news, however, is that the India story remains good fundamentally and FIIs (foreign institutional investors) can see that. I expect flows in the near term to be negatively impacted, but this should reverse in the weeks ahead.
Sebi paper soon on physical settlement in equity derivatives
Ashish Rukhaiyar
Mumbai, May 10, 2010
The Securities and Exchange Board of India (Sebi) will soon come out with a discussion paper on the issue of introducing physical settlement in the equity derivatives segment. The idea was approved by the market regulator two months ago.
According to a source, the regulator drafted a discussion paper based on the feedback it received from representatives of the stock exchanges and would soon make it public to get feedback. Thereafter, the details of the mechanisms would be worked out before the final approval.
“There was a lot of buzz about the issue of physical settlement and that it is on the back burner. It is not true,” said a source, who did not wish to be named as the discussions have not yet been made public. “The discussions took a bit long, but now the initial paper is ready and would be out soon.”
Last month, Sebi chairman C B Bhave, on the sidelines of a capital market meeting, said they were in discussion with the stock exchanges on the issue of physical settlement. “We are still in the process of talking to the stock exchanges. Whenever there is some decision taken, we will certainly make it public...we want the market to absorb that decision and then only implement it,” he had said.
Under physical settlement, the derivative contract has to be settled with the underlying shares, instead of cash equal to the price of the underlying shares. Globally, there are many exchanges where single-stock futures and options are designed for physical settlement. Most of the newer contracts on the Chicago Mercantile Exchange, the world’s largest derivative exchange, are introduced on a physical settlement basis.
The issue of physical settlement generated a lot of interest after Sebi gave its in-principle approval in a board meeting on March 6. The approval came after the Derivative Market Review Committee, in a memorandum to the Sebi board, listed some ways in which physical settlement could be introduced in the Indian market.
“The options being considered are: creating a separate alternate window for physically settled derivatives, limiting physical settlement to derivatives on select securities, providing the choice of physical delivery to the sellers, etc. In consultation with stock exchanges, the facility of physical settlement would be extended at an appropriate time,” said the committee in its memorandum.
Mumbai, May 10, 2010
The Securities and Exchange Board of India (Sebi) will soon come out with a discussion paper on the issue of introducing physical settlement in the equity derivatives segment. The idea was approved by the market regulator two months ago.
According to a source, the regulator drafted a discussion paper based on the feedback it received from representatives of the stock exchanges and would soon make it public to get feedback. Thereafter, the details of the mechanisms would be worked out before the final approval.
“There was a lot of buzz about the issue of physical settlement and that it is on the back burner. It is not true,” said a source, who did not wish to be named as the discussions have not yet been made public. “The discussions took a bit long, but now the initial paper is ready and would be out soon.”
Last month, Sebi chairman C B Bhave, on the sidelines of a capital market meeting, said they were in discussion with the stock exchanges on the issue of physical settlement. “We are still in the process of talking to the stock exchanges. Whenever there is some decision taken, we will certainly make it public...we want the market to absorb that decision and then only implement it,” he had said.
Under physical settlement, the derivative contract has to be settled with the underlying shares, instead of cash equal to the price of the underlying shares. Globally, there are many exchanges where single-stock futures and options are designed for physical settlement. Most of the newer contracts on the Chicago Mercantile Exchange, the world’s largest derivative exchange, are introduced on a physical settlement basis.
The issue of physical settlement generated a lot of interest after Sebi gave its in-principle approval in a board meeting on March 6. The approval came after the Derivative Market Review Committee, in a memorandum to the Sebi board, listed some ways in which physical settlement could be introduced in the Indian market.
“The options being considered are: creating a separate alternate window for physically settled derivatives, limiting physical settlement to derivatives on select securities, providing the choice of physical delivery to the sellers, etc. In consultation with stock exchanges, the facility of physical settlement would be extended at an appropriate time,” said the committee in its memorandum.
India volatility index up 23% after downgrade
Ashish Rukhaiyar
Mumbai May 07, 2010
Global uncertainty has pushed volatility levels across the globe. India is no exception. Ever since Greece’s credit rating downgrade, India VIX, the Volatility Index , has risen more than 23 per cent, after staying in a narrow range for a couple of months. Market participants, however, feel the index is still away from “alarming levels” and will stay in the current range due to a combination of domestic and global factors.
On Thursday, VIX ended the day at 24.36 points, up 2.83 per cent over its previous day close. On April 27, when Standard & Poor's downgraded Greece’s debt to “junk”, India's VIX closed at 19.82. The day after (April 28), VIX rose nearly 15 per cent to close at 22.73 points, reflecting the spurt in uncertainty and panic.
A volatility index, in simple terms, is a measure of the market’s expectation of movement — upside or downside — over the near term. The index signifies the amount by which the underlying basis is expected to fluctuate in the near term. According to the National Stock Exchange (NSE), India VIX is a volatility index based on Nifty option prices. From the best bid-ask prices of Nifty 50 options contracts, a volatility figure (per cent) is calculated, which indicates the expected market volatility over the next 30 calendar days, explains NSE.
Local factors restrained
Market participants who track VIX on a daily basis say while the index is rising on the back of sudden panic created in the market due to global macro-economic factors, it is still within the comfort zone as far as Indian markets are concerned.
“Historically, India VIX has never remained at the abnormally low levels of 14-17 that was the case till some time back,” said TS Harihar, co-head (derivatives), ICICI Securities. “The recent rise has been more because of the sudden crash in the market. I think it is highly unlikely that VIX will cross the alarming levels of around 29 or 30. It will stay in the range of 22 and 25,” said Harihar.
Similarly, Jitendra Panda, senior vice-president, Motilal Oswal Financial Services, says, “The spurt (in VIX) has been quite fast, reflecting the change in the risk perception”.
“There is hardly any stability in the market. Credit is also absent. Add to it the international factors and we see the volatility rising,” says Panda. VIX would sustain at current levels or move up slightly higher, he said.
A rise in volatility assumes significance because it is a key element in pricing options, which have been gaining steady popularity among all investor classed. In some recent months, the turnover in options was much higher than that of futures. Traders generally prefer options when they expect a sharp movement on either side, as the downside for the buyer in an option contract is limited to the premium.
“A rise in VIX impacts various asset classes and traders have to resort to protective measures,” said Panda. “We are indeed seeing a lot of changes in strategies to factor in the increased volatility.”
Mumbai May 07, 2010
Global uncertainty has pushed volatility levels across the globe. India is no exception. Ever since Greece’s credit rating downgrade, India VIX, the Volatility Index , has risen more than 23 per cent, after staying in a narrow range for a couple of months. Market participants, however, feel the index is still away from “alarming levels” and will stay in the current range due to a combination of domestic and global factors.
On Thursday, VIX ended the day at 24.36 points, up 2.83 per cent over its previous day close. On April 27, when Standard & Poor's downgraded Greece’s debt to “junk”, India's VIX closed at 19.82. The day after (April 28), VIX rose nearly 15 per cent to close at 22.73 points, reflecting the spurt in uncertainty and panic.
A volatility index, in simple terms, is a measure of the market’s expectation of movement — upside or downside — over the near term. The index signifies the amount by which the underlying basis is expected to fluctuate in the near term. According to the National Stock Exchange (NSE), India VIX is a volatility index based on Nifty option prices. From the best bid-ask prices of Nifty 50 options contracts, a volatility figure (per cent) is calculated, which indicates the expected market volatility over the next 30 calendar days, explains NSE.
Local factors restrained
Market participants who track VIX on a daily basis say while the index is rising on the back of sudden panic created in the market due to global macro-economic factors, it is still within the comfort zone as far as Indian markets are concerned.
“Historically, India VIX has never remained at the abnormally low levels of 14-17 that was the case till some time back,” said TS Harihar, co-head (derivatives), ICICI Securities. “The recent rise has been more because of the sudden crash in the market. I think it is highly unlikely that VIX will cross the alarming levels of around 29 or 30. It will stay in the range of 22 and 25,” said Harihar.
Similarly, Jitendra Panda, senior vice-president, Motilal Oswal Financial Services, says, “The spurt (in VIX) has been quite fast, reflecting the change in the risk perception”.
“There is hardly any stability in the market. Credit is also absent. Add to it the international factors and we see the volatility rising,” says Panda. VIX would sustain at current levels or move up slightly higher, he said.
A rise in volatility assumes significance because it is a key element in pricing options, which have been gaining steady popularity among all investor classed. In some recent months, the turnover in options was much higher than that of futures. Traders generally prefer options when they expect a sharp movement on either side, as the downside for the buyer in an option contract is limited to the premium.
“A rise in VIX impacts various asset classes and traders have to resort to protective measures,” said Panda. “We are indeed seeing a lot of changes in strategies to factor in the increased volatility.”
Investment bankers see Greek crisis as window of opportunity
Ashish Rukhaiyar & Abhineet Kumar
Mumbai May 05, 2010
The European economic crisis could be an opportunity for Indian corporate houses. Leading investment bankers say assets, globally, are available at attractive valuations and the rise in domestic stock prices has added more strength to balance sheets of Indian companies.
According to investment advisors, the recent turmoil in Greece and Portugal will keep the interest rate regime benign in the euro region, leading to flow of liquidity towards emerging economies that have impressive growth rates. The fact that the rupee is also gaining strength against most leading currencies of the world makes overseas acquisitions more attractive, they say.
“I think outbound will be more than inbound, since (domestic) valuations are going up,” says Saurabh Agarwal, managing director and head of investment banking at Bank of America Merrill Lynch. “Overseas valuations are still very decent. If you have a currency (stock) where you can raise money at good valuations and you can go and buy assets which are cheaper, then why not?” says Agarwal.
Interestingly, the past few months have seen a few big-ticket outbound deals by Indian companies. Leading Indian telecom major Bharti has been involved in a deal valued at over $10 billion. State-owned NMDC acquired the Brazilian operations of Ferrous Resources for $2.5 billion.
“The stars are aligned for Indians to take advantage,” says Tarun Kataria, managing director & head (corporate, investment banking and markets), HSBC. “The turmoil is good for India Inc and it should take advantage of it. Valuations in Europe are coming down. Even from the currency standpoint, it makes sense as the dollar, the euro and the sterling are all going down. We have got financing, we have got stronger currency and we have got the managerial bandwidth.”
Currency plays an important role in determining the timing of an overseas acquisition. A small rise/fall in the exchange rate can alter the deal value by a few million dollars. The downgrade of Greece and Portugal has put a lot of pressure on the euro, currently trading close to its lowest level against the dollar in the past year. Reports suggest even the pound sterling is headed towards further lows. Meanwhile, the rupee has gained nearly five per cent in the current calendar year.
Sanjay Sakhuja, CEO of Ambit Corporate Finance, says a “lot of Indian corporates have raised capital to leverage their balance sheets and are sitting on cash” that can be deployed for acquisitions.
“All the enabling factors for Indian corporates to look overseas are 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.”
Meanwhile, according to Venture Intelligence, the first three months of 2010 saw 134 merger and acquisition (M&As) deals involving Indian companies, 76 per cent more than the corresponding period last year.
More important, over 50 per cent of the deals were outbound acquisitions, compared to only 25 per cent in the same period last year.
Mumbai May 05, 2010
The European economic crisis could be an opportunity for Indian corporate houses. Leading investment bankers say assets, globally, are available at attractive valuations and the rise in domestic stock prices has added more strength to balance sheets of Indian companies.
According to investment advisors, the recent turmoil in Greece and Portugal will keep the interest rate regime benign in the euro region, leading to flow of liquidity towards emerging economies that have impressive growth rates. The fact that the rupee is also gaining strength against most leading currencies of the world makes overseas acquisitions more attractive, they say.
“I think outbound will be more than inbound, since (domestic) valuations are going up,” says Saurabh Agarwal, managing director and head of investment banking at Bank of America Merrill Lynch. “Overseas valuations are still very decent. If you have a currency (stock) where you can raise money at good valuations and you can go and buy assets which are cheaper, then why not?” says Agarwal.
Interestingly, the past few months have seen a few big-ticket outbound deals by Indian companies. Leading Indian telecom major Bharti has been involved in a deal valued at over $10 billion. State-owned NMDC acquired the Brazilian operations of Ferrous Resources for $2.5 billion.
“The stars are aligned for Indians to take advantage,” says Tarun Kataria, managing director & head (corporate, investment banking and markets), HSBC. “The turmoil is good for India Inc and it should take advantage of it. Valuations in Europe are coming down. Even from the currency standpoint, it makes sense as the dollar, the euro and the sterling are all going down. We have got financing, we have got stronger currency and we have got the managerial bandwidth.”
Currency plays an important role in determining the timing of an overseas acquisition. A small rise/fall in the exchange rate can alter the deal value by a few million dollars. The downgrade of Greece and Portugal has put a lot of pressure on the euro, currently trading close to its lowest level against the dollar in the past year. Reports suggest even the pound sterling is headed towards further lows. Meanwhile, the rupee has gained nearly five per cent in the current calendar year.
Sanjay Sakhuja, CEO of Ambit Corporate Finance, says a “lot of Indian corporates have raised capital to leverage their balance sheets and are sitting on cash” that can be deployed for acquisitions.
“All the enabling factors for Indian corporates to look overseas are 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.”
Meanwhile, according to Venture Intelligence, the first three months of 2010 saw 134 merger and acquisition (M&As) deals involving Indian companies, 76 per cent more than the corresponding period last year.
More important, over 50 per cent of the deals were outbound acquisitions, compared to only 25 per cent in the same period last year.
Subscribe to:
Comments (Atom)