SEBI ON THE AWARENESS SIDE FOR PLEDGING

With the debacle of Satyam Chairman SEBI had made useful amendments in the month of January. SEBI has provided for disclousre norms when the promoters of the listed company pledged there shares. The amendments mandates that the promoter should disclose to the company the details of the pledged shares.

The Disclosure shall be made to the stock exchange in any quarter if the total no. of shares pledged by the promoters exceeding 25000 shares or 1% of the company which ever is lower.

Steps taken by SEBI are commendable but these are some of the dark areas which could have been considered:

1.       The amendments do not made compulsory in the event of indirect pledging of shares of the listed company promoters.

2.       The mandated disclosure for share pledging are restricted to the promoters, it could be extended to others also.

3.        Negative pledging situation has been covered or not yet to be disclosed.

4.       The time frame of 14 days is longer than the time frame mandated for other disclosure under the take over.

 

SEBI did a commendable job with the disclosures after the Satyam Saga we hope to see SEBI being the one of the world’s best regulator in the future.

 

INFECTIOUS GREED

I am back on my blog after a long gap of 24 days . In fact I was very much in the Mumbai but some how couldn’t able to contiue with the writing . Well Infectious greed in a great book to read, the author of the book is Frank Partnoy who has also written FIASCO : Blood in the water on Wall Street.

Infectious greed consists of grear literature on the financial engennering, financial innovation focused on structural finance and ofcourse the misuse of the derivatives over the time by the street smart bankers. The Book insist on how the Financial market was polluted by the various exotic instruments, which where introduced with the hope of making market efficient. The concept of efficient market was also challenged in the 1990’s and even in the previous market disasters.

The Book is a great read focusing on the traders like Andy Krieger, legends like John Meriwether and Paul Mozer Krieger, high profile collpases such as Barings bank (Nick Leeson) and LTCM Long term Capital Management . The book documents how each level of financial risk, loss of control and complexity obscured the sickness of companies in question and pushed individuals to ever more ingenious deceptions.

Mr Partony did offers a clear vision of how the financial market reached at epidemic stage and how the control could be regained before furher damge is done. Unfortunately the book was published before the SUBPRIME MESS which has changed the whole scenario of the financial market and the risk management control of the financial institutions.

INDIA’S BIGGEST CORPORATE SCANDAL

 

In my last post of corporate governance and the Satyam Saga, my conventional view was that Mr. Ramalingam Raju should resign or Satyam shareholder would sack the management. And today it turned out to be a disaster all the newspapers from general to finance, the 24*7 media coverage rigorously carried the story of India’s biggest corporate fraud “THE SATYAM” which has tarnished India’s image.

Every body is pointing fingers towards Satyam management its stock price but what about the 53000 employees and quite a lot of them are fresher. Already the global turmoil has dented the world economy the job market is on the task the future seems to be uncertain.

Although Mr Raju created the company and brought at such a respected level winning the awards like entrepreneur of the year award and the corporate governance golden peacock award which was just taken back today. But how could he forget the simple words of the world that with great position there lays a great responsibility. The employee of the Satyam always saw Raju as there role model.

The corporate governance is all on the doll drum, as if now there is no clarification on the finance side by the Satyam board which briefed media today. The CFO has resigned from his designation but it’s not accepted yet. I still doubt was it planned or things are now going in a random way. This is one of the biggest corporate failures directing affecting the image of the corporate India. It was a blue chip Index and Nifty script where lot of investors Mutual Funds, Banks, Insurance involved and invested in it.

Already India does not have a good reputation for doing business, it stands way below to countries like Sri lanka and Pakistan and incidence like this will definitely hamper the economy. The Indian government and the regulator should set an example to other corporate by following the trial at fair, accurate and at a fast pace and prove the world that Indian regulators will not tolerate any kind of voilations and code of conduct.

FEASIBILITY OF THE STIMULUS PACKAGE

A lot of for and against the debate has been revolving round the recently announced stimulus package by the government of India to boost the economy. The SENSEX again breached the 10,000 mark again. A kind of positive news flow has been conflagrated in the economy, but the ground reality and the bond market depicts the different picture of the economy.

The bench mark 10 year bond has taken the all time hit which closed at 5.16% and dropped up to 4.86% in intraday trade. This was because of the government intervention in the functioning of the RBI, the recent decision of reducing rates by the RBI infused Rs 3, 20,000 crores in the system, which will result in falling of the term deposits immediately. The inflation has been eased to 6% level resulting in reducing the lending rates. The provident funds will find it difficult to meet there mandated rates. The guaranteed return plans will vanish from the market.

The stimulus package is more on the monetary side rather then focusing on the fiscal side. I still doubt on the functioning of RBI as independent body, continuous government intervention for the sake of their policy is not a good sign for the RBI functioning.

The elections round the corner current government is making the most of it by announcing such kind of packages and more in the pipe lines but the ground reality is that it is not making any difference exporters in India has already cut around 65,500 jobs, Broking firms are still on the cost cutting side as there balance sheet is red and most of the analysts see double digit decline in corporate earnings. MBA (Finance) graduates completing there course finding it difficult to get a job. There is tough time lying ahead quality of the skills will be tested upon.

THERE WAS NO DIFFERENCE BETWEEN BERNARD MEDOFF’S PONZI FINANCE SCAM & THE WALL STREET INVESTMENT BANKS

Was the greed limited to WALL STREET? No it was never limited there; the infecticious greed gripped the whole business community along with the Wall Street.

The Ponzi scheme which was running parallel to the Wall Street by the Bernard Madoff, a former Chairman of the Nasdaq Stock Market was arrested for allegedly running a $50 billion ponzi scheme. This was reportedly the biggest ever fraud case ever reported in America.

The scheme was running on the simple principle: The person who had invested in the first place will get the money on the basis of the person who had invested later; in this process the investors who invested in the last will never get any thing. So the concept it self was wrong.

Similarly the Wall Street investment banks took the speculative positions on the mortgages; it was more of a horse race they forget there underlying and overleveraged them, here again the concept was wrong and they knowingly bet on such huge positions resulting in the debacle and all of them failed or taken over.

The investigation for the Ponzi scheme is still on and Bernard Madoff had accepted that he has taken 10 million dollar from investors a week before his arrest.

SATYAM SEEMS TO BE IN DANGER ZONE

 

The story of Satyam computers limited has now taken a new turn and it has been hit hard this time. The WORLD BANK on November 23^rd barred Satyam from performing its business with them for a period of 8 years, one of the biggest punishments given by the World Bank after 2004. This is a direct question mark on the credibility of Satyam Computers Limited.

In the matter of 15 days Satyam computer again put on the task and the share prices has plunged down. Earlier the company was in the news because of the insane decision taken by the management to buy Maytas properties private limited and Maytas Infrastructure limited, both promoted by the Raju Son’s.

This was one of the unprecedented moves under the current circumstances where the real estate sector is toppling. The offer made by Satyam to buy these infrastructure companies was much more above the real estate sector giant Unitech, no chocolates for guessing the bid it was the personal interest of the management which came above the shareholders common interest.

The move was unethical and reverted back by the management, a software company diversifying into real estate is itself a question mark, because Software Company didn’t have a debt or very less debt into their balance sheet vice versa to a real-estate company.

In the process Mr Ramalingam Raju lost almost Rs 9630 crores value of the company, when the corporate governance is beginning to show its positive signs in India with quite good regulations the move has dampened the spirit and the shadow of India in the world.

Shouldn’t Mr Ramalingam Raju take the responsibility of what had happened and resign from his position, by showing his placidness. Other wise the institutional investor could exercise their rights.

IMPORTANCE OF MUTUAL FUND

Wealth creation over the years has changed its avenues and area of interest for the investors in India. The prototype investment where the post offices and typically the scheduled banks through savings and fixed deposits have changed and with the awareness of finance, Mutual fund has became an excellent route to create wealth for the public at large.
“Mutual fund is a pool of money is invested in accordance with the common objective stated before the investment to the investors.”
Here is the concept of mutual fund which is a suitable for the common man as it offers an opportunity to invest and diversified, professionally managed basket of securities comparatively at low cost. The investors pool there money to the fund manager and the fund manager invest the money in the securities and after generating returns passed back to the investors.
The mutual fund has a structure which is regulated by SEBI and the Association of mutual funds of India (AMFI) plays an advisory role for the mutual funds. There are lot of entities involved in between Unit Holders and SEBI which includes Sponsors, Trustees, Asset Management Company (AMC), mutual fund, Transfer agent and custodian.
Basically there are only two types of mutual fund in the industry:
• Open Ended
• Close Ended

Open ended funds are those where investors sell and repurchases units at all times, commonly known as Unit trusts in UK and mutual fund in USA.
Close ended funds are generally fixed as it makes a one-time sale of fixed no. of units, known as Investment trusts in UK and Investment Company in USA.
There on mutual funds have been divided into more subcategories Load and No-load funds, Tax –exempt and Non –tax- exempt, money market/liquid funds, Gilt funds, diversified debt funds, focused debt funds, High Yield debt funds, Assured return funds, fixed term plan series, equity funds and so on.
The diversification has been broadened with the revolution and mutual fund has become a major investment destination by yielding more returns. I would like to conclude the article with a note that mutual fund as a investment destination is gaining momentum and in future mutual fund must emerge as a strong capital appreciation tool for the purpose of financial planning.

FLASH BACK 18 MONTHS @ MASTERS OF FINANCIAL MARKET

CONGRATULATIONS TO ALL MY BATCHMATES! We all have completed our (PGP) Post Graduate Program “MASTERS IN FINANCIAL MARKET”, in the turbulent time. Things have gone pretty fast in 18 months, when we all joined the programme markets where evaporating at 18000 levels and gone beyond there fundamental valuations.
We are so fortunate that in a very short span of 18months we were able to see the complete market cycle in the month of JULY 2007 The Sensex crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.
The Sensex actually crossed the 20,000-mark on October 29, 2007 during intra-day trading but closed at 19,977.67 points. However, it was on December 11, 2007 that it finally closed at a figure above 20,000 points on the back of aggressive buying by funds. The 30-share index spurted 360.21 points to fly-past the crucial level and closed at 20,290.89. The NSE Nifty closed at a record high of 6,097.25 points, up 136.65.
Every body was Gung-ho from a Paanwala at the street to the corporate honcho of Investment banking firms and forecasted market to be at 50K level at the end of 2008. But the SUBPRIME failure fiasco has another story attached to it every thing has changed in-fact profiles like investment banking has completely eroded from the financial world for the time being.
The turmoil spread like a contagion and conflagrated the whole world, our economy has also taken the beating what has happened in the west.
Expectations has gone down few of our batch mates had taken up the job, some have compromised where as the rest of us are still thriving for it.

Here is my proposal how we can be the market beaters:-

1. We must never forget our core subject corporate finance, Debt market, Derivatives, Fundamentals, Financial Management.
2. We must be proactive and be with the market, never miss any economic event be it US automobile bailout or Prime Minister Manmohan singh offering package to the Indian financial sector.
3. Focus on our key areas our strengths where we can expertise.
4. We will try to match our self with the market and see what the market demands from us rather then we demanding from the corporate world.
5. Last but not the least, have patience and faith in the God. Every body will get his/her destiny what he deserves.

Concluding my thoughts by the famous saying TOUGH TIME NEVER LAST BUT TOUGH PEOPLE LIKE US DOO…and emerge as a winner. 

VIEWS FROM MY BATCH-MATES ARE MOST WELCOME..

WHERE MUMBAI HEADE AFTER 26/11

I have been analyzing the whole incidence from 26^th November 2008 views from the television and print media about the terrorist attack on two of the elite hotels of Mumbai  financial centre of India  THE TAJ & THE OBEROI. In the past couple of days the haphazard decisions were taken and many of the politicians have been dethrone from there posts. The Indian political scenario has changed after the marathon meeting of the Congress high level committee.

The 5 day analysis of the incidence I have came to conclusion that every body wants change the media, the common man, the journalists but haven’t been able to arrive at a solution. Even if we want change the analogy with all of us is that we only have two parties which are going to make the government next year with the coalition of the other parties BJP or Congress, both of them busy trying to make the most of the incidence as a motive for election.

We as a citizen of India has the tendency to shout and act after the incidence that too for a very short period of time, and when the time passes each one of us forget our responsibilities and go in to our comfort zone politicians, the police , the national agency all are a part of this syndrome. And we quietly wait for the next incidence to happen…..

Some of the eminent leaders promised to make Mumbai as a Shanghaii .I don’t think that dream converting into reality in the near future with the kind of governance and future vision. When the common man/ elite class is not safe how can be think about Sensex again breeching highest levels? How can we think about self as emerging economy?

The economic impact of the event has directly hit the hospitality sectors analyzing in the past 24hrs 40% of the foreign tourist has cancelled there tickets. This year tourism industry will take a beating, by simply marketing India’s incredible, “ Athethi dev bhaw” will not bring back tourism on track. Proper mechanism and confidence had to be brought in the tourists for visiting India.

The high level corporate meeting will be shifted to Singapore or Hong-Kong as the situation depicts. In order to regain confidence among people the government of India had to take bold steps and stop its trade with Pakistan as well as Burma, Indian cricket team should not play matches in Pakistan let there economy collapse; all the training camps on the other part of the border should be ruined. This is the correct time to hit the bulls’ eye.

 

LONG LIVE THE SPIRIT OF MUMBAI……

Some interesting facts from today’s ET (100th post)

Imagine if the CITI Bank could not able to open on the morning of Nov 24Th Monday. The prevailing conditions are not showing any positive signals best of the financial dailies reporting that Mr Vikram Pandit Citi’s Head are in talks with  JP Morgan/Goldman Sachs and even to the federal reserve. But what are its troubles? Depositors and derivatives clients are reportedly fleeing the bank. The cost of protecting Citi’s debt against default rose on Friday, but is still low enough to imply that investors are not worried about the bank making good on its obligations. Much more than what is wrong internally with it, it appears that the negative investor and stakeholder sentiment is what appears to be hurting it.

Guess what is the size of Citi……….The India’s GDP is about $800bn – $1 trillion in contrast Citi has an assets of over $2 trillion. So if Citi fails the contagious effects could collapse the finance sector which is already in mayhem. At this movement of time I am eagerly waiting for the Monday morning and hoping that the financial allocation must be coming their way from US govt. Already Citi has taken austerity measures and planned to cut down 52000 workforce globally .

 

JUST to remind you how big is this slowdown imagines the share price of Berkshire Hathaway? Its Class A share quoted a high of $1, 51,650 in December last. But now it is going for around $74,100.