Here are the key highlights of the much awaited union budget 09:
• Govt committed to tax reforms
• Hike in IT exemption to Rs 2,40,000 for senior citizens
• Commodities Transaction Tax to be scrapped
• Fringe Benefit Tax to be scrapped
• Service tax to be levied on law firms
• 10 pc surcharge on personal income tax scrapped
• Excise duty on petrol-driven small trucks down to 10%
• Exemption of duty on goods made at construction sites restored
• Drugs for heart diseases to become cheaper
• Banking network to be expanded
• Customs duty on gold and silver import increased
• Mobile phone accessories to become cheaper
• Pranab's Budget brings little cheer for the market
• Branded jewellery for women to become cheaper
• Customs Tax holiday extended for textile units
• Small businesses exempt from advance tax
• Custom duty on LCD panels halved
• Set-top boxes to cost more
• Anonymous funds to charitable bodies to get some tax relief
• MAT hiked to 15% of book profit
• Hike in IT exemption for women to Rs 1,90,000
• General Sales Tax model will have a Central GST and State GST
• duty on bio-diesel reduced
• Share of direct taxes has increased to 56 per cent in 2008-09
• GST to come into effect from April 01, 2010
• Corporate tax unchanged
• New tax code to be set up in 45 days
• Goods and Services Tax to be introduced from April 1, 2010
• Total budget expenditure for 2009-10 will Rs 10,28,032 cr
• Plan expenditure, for both Centre and States, to go up by Rs 61,000 cr
• Fiscal deficit in 2009-10 is proposed at 6.8 per cent of GDP
• Higher public investment in infrastructure
• Defence outlay remains unchanged
• Rs 1,000 cr for Aila rehabilitation to West Bengal
• Rs 25 cr each for AMU campuses in Murshidabad and Mallapuram
• Rs 2,113 cr for IITs and NITs
• Funds for GSI to enhance exploration of minerals
• New pension benefits for 12 lakh jawans and JCOs
• Pension of non-commissioned officers to be hiked
• Allocation for rehab of Lankan Tamils
• One lakh dwelling units for paramilitary forces to be built
• Commonwealth allocation hiked to Rs 3472 crore
• Allocation of Rs 50 cr to Chandigarh University
• Govt to hike allocation to National Ganga Project to Rs 562 cr
• One rank, one pension for ex-servicemen from July 1
• Allowances to para-military forces at par with defence forces
• Unique Identification ID project to roll out in 12-18 months
• Unique Identification ID project to tap private talent
• Allocation for NRHM to be raised by Rs 257 cr
• National action plan on climate change
• Full interest subsidy for students in approved institutions
• Modernisation of national employment exchanges
• 50% cent of rural women in self-help groups
• Rural mega clusters in Bengal and Rajasthan
• Interest subsidy for home loans up to Rs 1 lakh
• Interest subsidy on education loans
• Rashtriya Mahila Kosh corpus to be raised to Rs 500 crore
• Rs 2,000 cr for rural housing fund under National Housing Bank
• National Mission for female literacy
• NREGA allocation up 144%
• Work on National Food Security scheme for subsidised food
• Rs 100 cr one-time grant to expand banks in unbanking areas
• Indira Awaas Yojna hiked by 63% to Rs 8,883 cr Allocation for PM Gram Sadak Yojna up by 59 per cent
• Rs 39,100 crore allocation for NREGA
• NREGA gave employment opportunities to more than 4.47 cr households
• Aam Aadmi is the focus of all UPA's schemes
• Govt to shift to nutrient based fertiliser subsidy regime
• One banking centre in every bloc
• Banks, insurance to stay with Govt
• Raise threshold for non-promoter public listed companies
• FM recalls Indira Gandhi's bank nationalisation
• Move towards energy security via Integrated Energy Act
• Saral-II forms to simplify taxation process
• An expert panel will look into petroleum product pricing
• Domestic oil prices must be in sync with global prices
• Fertiliser subsidy to go directly to farmers
• Export Credit Guarantee scheme extended till March 2010
• Pranab Mukherjee quotes Kautilya in Budget speech
• Incentives in interest rates to farmers to pay back
• Print media stimulus package extended by six months
• Target for agriculture credit raised to Rs 3,25,000 cr in 2009-10
• FIIs have returned to India in last few months
• Storm-water drainage project fund hiked to Rs 500 cr
• Blueprint for national gas grid
• Additional budget allocation to farmers
• Allocation of Rashtriya Krishi Vikas Yojna stepped up by 30%
• Total fiscal stimulus during '08-09 is Rs 1,86,000 cr
• Hike in allocation for Mumbai flood management
• Housing allocation hiked under Rajiv Awaas Yojana
• Fund allocation for urban poor accommodation is 3,973,000 cr
• JNNURM allocation hiked by 87 per cent
• NHAI allocation up by 23 per cent
• Hike infrastructure investment to over 9% of GDP by 2014
• IIFCL will refinance 60% of commercial bank loans in PPP
• IIFCL will look at new projects
• IIFCL will also look at incremental lending by banks
• New company IIFCL to look at infrastructure needs
• Two worst quarters since September slowdown behind us
• Signs of revival in the domestic industry
• Fiscal stimulus gave economy a boost
• Govt took 3 stimulus packages to fight slowdown
• Integration of Indian economy with rest of the world
• Significant hike in foreign capital
• Trade in goods and services doubled in 2008
• Challenge before UPA to return to 9% growth
• Re-energise government and reinstitutionalise development
• One Budget can't solve all issues
• Improve rule of law for all citizens
• Mandate for inclusive growth
• Strengthen the delivery mechanism for healthcare
• Increase investment in infrastructure
But what has been the over all response to the bugdet?
Look out for our next post on the over opinions pouring in! We would also love to hear your comments on the budget....
Source for the budget:cnn ibn
Thursday, July 9, 2009
Wednesday, April 15, 2009
Results of the G20
For your benefit, we have also inserted a summary of the results of the G20 as posted in the New York Times.
Tuesday, April 14, 2009
And the process has begun…!
In our last post, we spoke about the G20 and what it entails. Whilst there were no earth-shattering world-altering overnight solutions to the global meltdown, to come out of the London summit, but yes the process to unweave ourselves out of this very tangled web that we have woven has begun. So now let’s take a macro look at what went down at Bretton Woods II (with reference ofcourse, to the Bretton Woods Conference of 1944 which was held to lay down the base rules for managing the worlds monetary system). Déjà vu…did I hear you say?
To begin with, we’d like to say that the summit itself could prove to be an historic moment in a critical year for the twin crises of climate change and economic meltdown. It could very well mark a global shift of power towards the large developing countries such as China, India and Brazil, and the partial eclipse of the old G8 club. However, the decisions and declarations were, as with any such event, a mixed bag.
THE MACRO PICTURE
Struggling to bridge deep divides over how to revive a paralyzed global economy, the leaders of the world’s largest economies agreed Thursday to bail out developing countries, stimulate world trade and regulate financial firms more stringently.
Towards this effect, (as we all know too well), the summit announced a whopping $1.1 trillion boost for the world economy, a sizeable fiscal stimulus in its own right.
FYI this is made up of:
• trebling the resources of the IMF to $750 billion, through a combination of immediate financing from member governments. Some of this was already pledged beforehand – by Japan ($100 billion) and Europe ($100 billion), but China also promised $40 billion, totaling $250 billion and subsequently to be expanded through the New Arrangements to Borrow method to $500 billion. There will also be a general SDR (Special Drawing Rights) allocation, which will inject a further $250 billion into the world economy.
Note: This is truly the only real big thing that happened at the summit; the support shown by the G20 for the IMF. The most concrete step (see above) was a $ 500 billion reinforcement of the resources of the monetary fund, which has emerged from years of waning relevance to become the first responder in this crisis, lending billions of dollars in emergency roles to dozens of countries
• Atleast an additional $100 billion in lending by the Multilateral Development Banks was agreed, with a commitment over the next three years for this to rise to $300 billion. This will go to all developing countries (low and middle income).
• $250 billion for trade finance was announced, which is to be provided over two years for all countries, of which Germany has committed $60 billion. As part of the $250 billion, there will be a World Bank Global Trade Liquidity Pool that should provide $50 billion over the next three years. However, reports indicate that at present there is only $5 billion in this fund, made up of IFC $1 billion put in by the IFC itself and a further $3-4 billion in voluntary bilateral contributions made at the G20. This is a worrying sign of creative accounting, with $5 billion apparently being magically transformed into $50 billion.
Very importantly, the G20 has recognised and responded to the rising evidence that this crisis is hurting poor people and countries:
Quoting from the communiqué issued, ‘We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.’
Adding up the numbers, the communiqué could potentially provide a total of $240 billion for developing countries (low and middle income countries). This is a tremendous amount and, whilst most of it will come in the form of loans, it will be much needed as other forms of finance for developing countries have effectively dried up. However, it is vital this funding is new money, is disbursed quickly, is highly concessional and comes with no harmful conditions attached.
To conclude, while those present may have breathed a sigh of relief that the summit achieved more than the low initial expectations, the truth is that real results are likely to fall far short of the hopes of transformational change that were widespread at the end of 2008. The test of the London Summit lies in what happens next, particularly in the crucial rounds of global diplomacy during the rest of 2009.
Sources: Text of the communiqué of the G20 Summit, Oxfam report on G20, nytimes.com
To begin with, we’d like to say that the summit itself could prove to be an historic moment in a critical year for the twin crises of climate change and economic meltdown. It could very well mark a global shift of power towards the large developing countries such as China, India and Brazil, and the partial eclipse of the old G8 club. However, the decisions and declarations were, as with any such event, a mixed bag.
THE MACRO PICTURE
Struggling to bridge deep divides over how to revive a paralyzed global economy, the leaders of the world’s largest economies agreed Thursday to bail out developing countries, stimulate world trade and regulate financial firms more stringently.
Towards this effect, (as we all know too well), the summit announced a whopping $1.1 trillion boost for the world economy, a sizeable fiscal stimulus in its own right.
FYI this is made up of:
• trebling the resources of the IMF to $750 billion, through a combination of immediate financing from member governments. Some of this was already pledged beforehand – by Japan ($100 billion) and Europe ($100 billion), but China also promised $40 billion, totaling $250 billion and subsequently to be expanded through the New Arrangements to Borrow method to $500 billion. There will also be a general SDR (Special Drawing Rights) allocation, which will inject a further $250 billion into the world economy.
Note: This is truly the only real big thing that happened at the summit; the support shown by the G20 for the IMF. The most concrete step (see above) was a $ 500 billion reinforcement of the resources of the monetary fund, which has emerged from years of waning relevance to become the first responder in this crisis, lending billions of dollars in emergency roles to dozens of countries
• Atleast an additional $100 billion in lending by the Multilateral Development Banks was agreed, with a commitment over the next three years for this to rise to $300 billion. This will go to all developing countries (low and middle income).
• $250 billion for trade finance was announced, which is to be provided over two years for all countries, of which Germany has committed $60 billion. As part of the $250 billion, there will be a World Bank Global Trade Liquidity Pool that should provide $50 billion over the next three years. However, reports indicate that at present there is only $5 billion in this fund, made up of IFC $1 billion put in by the IFC itself and a further $3-4 billion in voluntary bilateral contributions made at the G20. This is a worrying sign of creative accounting, with $5 billion apparently being magically transformed into $50 billion.
Very importantly, the G20 has recognised and responded to the rising evidence that this crisis is hurting poor people and countries:
Quoting from the communiqué issued, ‘We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.’
Adding up the numbers, the communiqué could potentially provide a total of $240 billion for developing countries (low and middle income countries). This is a tremendous amount and, whilst most of it will come in the form of loans, it will be much needed as other forms of finance for developing countries have effectively dried up. However, it is vital this funding is new money, is disbursed quickly, is highly concessional and comes with no harmful conditions attached.
To conclude, while those present may have breathed a sigh of relief that the summit achieved more than the low initial expectations, the truth is that real results are likely to fall far short of the hopes of transformational change that were widespread at the end of 2008. The test of the London Summit lies in what happens next, particularly in the crucial rounds of global diplomacy during the rest of 2009.
Sources: Text of the communiqué of the G20 Summit, Oxfam report on G20, nytimes.com
The G20: What is the G20? How does it work? Who are its members?
I’m sure most of you reading this blog would know the answers to the above questions or well to most of them atleast, considering this is all that we have been hearing about or reading about in the past few days. However, since there was so much hype around the G20 meeting which took place on April 2nd in London at the Excel Exhibition Centre, we thought that we would answer all of the above at one go and in the process try and figure out what the din was and is all about. Is the meet going to lead to some concrete answers to our very genuine financial crisis or will it end up being just another talking shop? Well to begin with:The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in on December 1516, 1999,and was hosted by German and Canadian finance ministers. The G-20 was created as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance.Unlike international institutions such as the IMF or World Bank, the G-20 (like the G-7) has no permanent staff of its own. The G-20 chair rotates between members, and is selected from a different regional grouping of countries each year.In 2009 the G-20 chair is the United Kingdom, and in 2010 it will be South Korea. The chair is part of a revolving three-member management Troika of past, present and future chairs. The incumbent chair establishes a temporary secretariat for the duration of its term, which coordinates the group's work and organizes its meetings.
As for its membership, the G-20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union who is represented by the rotating Council presidency and the European Central Bank. To ensure global economic fora and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an ex-officio basis. The G-20 thus brings together important industrial and emerging-market countries from all regions of the world.Interestingly, together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population.Now that the facts are clear lets analyze the fiction part of it in the upcoming posts... and we would love to hear your take on this too.....
As for its membership, the G-20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union who is represented by the rotating Council presidency and the European Central Bank. To ensure global economic fora and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an ex-officio basis. The G-20 thus brings together important industrial and emerging-market countries from all regions of the world.Interestingly, together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population.Now that the facts are clear lets analyze the fiction part of it in the upcoming posts... and we would love to hear your take on this too.....
Monday, February 23, 2009
Crisil: Half of IPO graded firms weak in corporate governance
Out of the 29 Initial Public Offerings (IPOs) graded by Crisil since May 2007, close to 50 per cent of the issuer companies were found to be weak in corporate governance structures, according to a Crisil Research study.
The study said only about 10 per cent of these 29 companies had robust corporate governance structures, while 15 per cent had above average and 25 per cent average structures. Specifically, the quality of the company board and its independence and propensity for related party transactions emerged as key differentiators between well-governed and weakly-governed companies.
The aspects analysed by Crisil Research for this purpose were shareholding structure, board composition, typical board processes, disclosure standards and related party transactions. Even qualifications by regulators or auditors also served as useful inputs.
Crisil Research observed that in contrast to well-governed companies, weakly-governed IPO graded companies displayed limited independence of the board, limited understanding of its independent directors of the business of the company and a higher propensity for related party transactions.
In over 45 per cent companies with relatively weak governance scores, independent directors exhibited less than expected awareness about the company’s businesses or other businesses of the promoter group.
Moreover, in 15 per cent cases, independence of the company board was an area of concern as it could impact the extent of balance and quality of oversight that independent directors were expected to bring in. In about 55 per cent of the companies assessed to have governance issues, related party transactions emerged as a key issue.
The study said only about 10 per cent of these 29 companies had robust corporate governance structures, while 15 per cent had above average and 25 per cent average structures. Specifically, the quality of the company board and its independence and propensity for related party transactions emerged as key differentiators between well-governed and weakly-governed companies.
The aspects analysed by Crisil Research for this purpose were shareholding structure, board composition, typical board processes, disclosure standards and related party transactions. Even qualifications by regulators or auditors also served as useful inputs.
Crisil Research observed that in contrast to well-governed companies, weakly-governed IPO graded companies displayed limited independence of the board, limited understanding of its independent directors of the business of the company and a higher propensity for related party transactions.
In over 45 per cent companies with relatively weak governance scores, independent directors exhibited less than expected awareness about the company’s businesses or other businesses of the promoter group.
Moreover, in 15 per cent cases, independence of the company board was an area of concern as it could impact the extent of balance and quality of oversight that independent directors were expected to bring in. In about 55 per cent of the companies assessed to have governance issues, related party transactions emerged as a key issue.
CORPORATE RAIDERS: Who is their next victim?
The Recession has come to hit us hard and has reawakened the animal instinct of those who can be aptly referred to as Terminator Corporations. These times of economic downturn are best times for large shark like corporations to prey on smaller albeit valuable companies(David v/s Goliath situation) that suit their ambitious plans/allow them to foray into a new/high growth sector. A glimpse into the past will reveal that most of these covert operations follow a typical pattern involving precise steps that make these corporate raids akin to surgeries conducted with clinical precision. Indian Corporate history is fully of examples wherein corporate raiders have bared their fangs in an attempt to take down rival corporations and their reputation. Among easy targets are first generation companies with a successful track record, innovative business model and bright growth prospects. Typically these new age companies are politically naive and have risen on pure merit.
"In the recent times we have witnessed increased enquiries by companies regarding information security as well as seeking services for safeguarding their corporate reputation as they believe that they are being made targets of a malicious campaign by vested interests" said Mr. Ajay Trehan, CEO Authbridge Research Services (A background screening & risk management advisory).
In recent times the example of Educomp comes to mind: A successful and unique business model in the booming education sector, it was started by a first generation entrepreneur. The company recently came under attack. Series of 18 damaging articles on the company have appeared in the last 3 weeks in an English newspaper, albeit with no business focus, which created a flutter in post satyam jittery market. Reacting to this unfounded media reportage a probe was ordered by the Ministry of Corporate Affairs which was then followed by a question being raised on the company in the Parliament by an MP from South India with no track record in education. This is reminiscent of some earlier corporate attacks like the one on Reliance Telecom IPO, ICICI Bank etc. Seeing the definitive pattern the question is- are we staring in the face of another victimization story?
"In the recent times we have witnessed increased enquiries by companies regarding information security as well as seeking services for safeguarding their corporate reputation as they believe that they are being made targets of a malicious campaign by vested interests" said Mr. Ajay Trehan, CEO Authbridge Research Services (A background screening & risk management advisory).
In recent times the example of Educomp comes to mind: A successful and unique business model in the booming education sector, it was started by a first generation entrepreneur. The company recently came under attack. Series of 18 damaging articles on the company have appeared in the last 3 weeks in an English newspaper, albeit with no business focus, which created a flutter in post satyam jittery market. Reacting to this unfounded media reportage a probe was ordered by the Ministry of Corporate Affairs which was then followed by a question being raised on the company in the Parliament by an MP from South India with no track record in education. This is reminiscent of some earlier corporate attacks like the one on Reliance Telecom IPO, ICICI Bank etc. Seeing the definitive pattern the question is- are we staring in the face of another victimization story?
Tuesday, February 17, 2009
STEER CLEAR OF THE BEAR
This write-up is directed at viewing recent cases of bear cartel targets and explaining the thought process of a bear-cartel. To start with, a bear-cartel employs a ‘choose and shoot’ policy taking down the investments of the retail investor in the company and the reputation and market capitalization of the company.
Recent times have witnessed a heightened activity by the bear-cartel. Stark examples of victims of this cartel are ICICI, Rolta, Ruchi Soya, Unitech and Educomp. While the bear cartel carefully picked targets in the past and had to plot extensively in order to manipulate stock prices, such is not the case in current times.
After the Satyam Computer Services Ltd. scam by its promoter who had an impeccable image - Mr. Raju, the cartel has discovered for itself an environment, where it can easily plant doubts in the minds of investors and manipulate stock prices. The retail investors, after the Satyam debacle, have begun to doubt the security of their investments. In this scenario, any well- planted negative rumour can catalyze panic in the investors, hurting both the company and the retail investor.
The cartel co-ordinates its efforts so that it is able to drastically bring down the price of a particular stock. It starts selling or shorting mass quantities of a company’s stock thus driving the price down by significant numbers. The work of a bear cartel(s) can be likened to the methods of a mafia. A target is chosen and a hit is placed on it. The cartels then shoot down the stock price to make profits. The modus operandi is simple – plant doubts through effective tools in a favourable environment for such rumours.
The doubts could vary from - promoters having pledged their holding in the company, unknown subsidiaries having been floated by the company, funds being parked somewhere instead of being beneficially used for company growth, etc. The tools of communication can be anonymous letters to media and analysts, sms viral, fake websites posing as investment counselors, etc. The target companies usually are the ones with high EBIDTA margins in relation to their competitors or their valuation is considered slightly ‘excessive’.
The method of these market operators is to short sell the companies’ stock in the futures segment in National Stock Exchange and Bombay Stock Exchange, with advance knowledge of certain media reports and public announcements. These media reports and announcements are aimed to create a panic like situation and drive down the stock price of the company and thereby profiting from the ensuing panic selling. This enables the short sellers to cover their positions at a much lower price and therefore make huge profits. The sum total of this nexus is manipulative in nature and inherently illegal.
In the case of Rolta, shares fell 60% in a single day on speculation that stocks pledged by promoters have been sold by financiers. Rolta wrote to Sebi on January 14. “We have asked the regulator to look into the unusual trading pattern in our stock. We have reasons to believe that a group of people is trying to hammer our stock.”
The same cartel is being suspected for spreading the rumour about ICICI being highly exposed to Lehman Brothers, soon after it went bust. Only the intervention of the central government stopped the panic selling.
On October 24th 2008, Unitech’s stock fell by over 50% in a single day and has not recovered since. Unitech share price plunged following reports that the firm defaulted on payments to Greater Noida Development Authority for a land deal struck in 2006. There was no default whatsoever and even Noida Authority had given a clarification.
In the latest case, shares of Educomp were hammered on market talks that its accounting practices were questionable. The company refuted these allegations and also filed a complaint with the economic offences wing of the Crime Branch, saying that some vested interests were trying to beat down the stock price by spreading false information.
A damaging article published in an English daily, “After Satyam, Educomp under scanner for fudging accounts”, on its front page on 20th January. Educomp falls by 6.7% on that day and a further 22.7% on the next day.
Analysis of trading patterns on the 19th of January (a day before the article was published) reveals the following:
A) Volumes of Educomp futures surged 67% (compared to a 27% decline in F&O volumes in the market), B) Open Interest surged 17.6% (compared to 4% for NIFTY futures), C) Difference between spot and future price surged to an abnormally high, Rs. 219 or 10.4% of the spot price, and, D) Educomp cash volumes also surged 29% (compared to a 20% decline in the market volumes for this day).
This shows that there was massive short selling in the market, a day in advance, of the actual news report, which points to the fact that there were market operators which had advance information of the media report and points towards a cartel.
An official source from the Ministry of corporate affairs was quoted in the Television Media as saying that “Educomp’s books of accounts will be inspected under section 209A”on Monday, 2nd February. Educomp’s stock price fell by 18% in the following two days.
An analysis of market data on the 30th January and 2nd February (exactly two trading sessions and a trading session before the announcement respectively) reveals the following:
A) Volumes of Educomp futures surged 28% on January 30th and 30% on Feburary 2nd (compared to a 35% and 1% decline in F&O volumes for the market on those two days respectively), B) Open Interest surged 229.7% on January 30th and a further 27% on February 2nd (compared to a decline in NIFTY futures volumes of 29% and 4% respectively), C) Difference between spot and future price surged to an abnormally high, Rs. 309 or 18.1% of the spot price, and, D) Educomp cash volumes also surged 54% (compared to a 12% decline in the market volumes for this day).
This, again, establishes that there were short sellers in the market that had prior information that a certain announcement was going to be made in the evening of February 2nd and establishes a nexus between the announcement and the short selling behaviour.
An interesting point to note is that all of the above companies have proactively approached the SEBI to investigate. A SEBI probe is being welcomed by these companies, instead of shying away from it. Most of the companies have also approached the Economics Offence Wing of the Crime Branch to investigate the origin of the rumours.
Educomp has appointed Grant Thornton as an auditor to investigate its books – a proactive move to allay the fears of investors.
To conclude, while the relevant authorities are closing in on the bear cartel, we, as retail investors must understand that giving way to panic is not the solution. The method to be adopted in these times is to understand the account keeping and business of the company and listen to information which has its origin in a reliable source and is not speculative in nature.
[Look out in this space for a point by point analysis of each of the above companies. Also, I invite requests in case you need analysis on any company.]
Recent times have witnessed a heightened activity by the bear-cartel. Stark examples of victims of this cartel are ICICI, Rolta, Ruchi Soya, Unitech and Educomp. While the bear cartel carefully picked targets in the past and had to plot extensively in order to manipulate stock prices, such is not the case in current times.
After the Satyam Computer Services Ltd. scam by its promoter who had an impeccable image - Mr. Raju, the cartel has discovered for itself an environment, where it can easily plant doubts in the minds of investors and manipulate stock prices. The retail investors, after the Satyam debacle, have begun to doubt the security of their investments. In this scenario, any well- planted negative rumour can catalyze panic in the investors, hurting both the company and the retail investor.
The cartel co-ordinates its efforts so that it is able to drastically bring down the price of a particular stock. It starts selling or shorting mass quantities of a company’s stock thus driving the price down by significant numbers. The work of a bear cartel(s) can be likened to the methods of a mafia. A target is chosen and a hit is placed on it. The cartels then shoot down the stock price to make profits. The modus operandi is simple – plant doubts through effective tools in a favourable environment for such rumours.
The doubts could vary from - promoters having pledged their holding in the company, unknown subsidiaries having been floated by the company, funds being parked somewhere instead of being beneficially used for company growth, etc. The tools of communication can be anonymous letters to media and analysts, sms viral, fake websites posing as investment counselors, etc. The target companies usually are the ones with high EBIDTA margins in relation to their competitors or their valuation is considered slightly ‘excessive’.
The method of these market operators is to short sell the companies’ stock in the futures segment in National Stock Exchange and Bombay Stock Exchange, with advance knowledge of certain media reports and public announcements. These media reports and announcements are aimed to create a panic like situation and drive down the stock price of the company and thereby profiting from the ensuing panic selling. This enables the short sellers to cover their positions at a much lower price and therefore make huge profits. The sum total of this nexus is manipulative in nature and inherently illegal.
In the case of Rolta, shares fell 60% in a single day on speculation that stocks pledged by promoters have been sold by financiers. Rolta wrote to Sebi on January 14. “We have asked the regulator to look into the unusual trading pattern in our stock. We have reasons to believe that a group of people is trying to hammer our stock.”
The same cartel is being suspected for spreading the rumour about ICICI being highly exposed to Lehman Brothers, soon after it went bust. Only the intervention of the central government stopped the panic selling.
On October 24th 2008, Unitech’s stock fell by over 50% in a single day and has not recovered since. Unitech share price plunged following reports that the firm defaulted on payments to Greater Noida Development Authority for a land deal struck in 2006. There was no default whatsoever and even Noida Authority had given a clarification.
In the latest case, shares of Educomp were hammered on market talks that its accounting practices were questionable. The company refuted these allegations and also filed a complaint with the economic offences wing of the Crime Branch, saying that some vested interests were trying to beat down the stock price by spreading false information.
A damaging article published in an English daily, “After Satyam, Educomp under scanner for fudging accounts”, on its front page on 20th January. Educomp falls by 6.7% on that day and a further 22.7% on the next day.
Analysis of trading patterns on the 19th of January (a day before the article was published) reveals the following:
A) Volumes of Educomp futures surged 67% (compared to a 27% decline in F&O volumes in the market), B) Open Interest surged 17.6% (compared to 4% for NIFTY futures), C) Difference between spot and future price surged to an abnormally high, Rs. 219 or 10.4% of the spot price, and, D) Educomp cash volumes also surged 29% (compared to a 20% decline in the market volumes for this day).
This shows that there was massive short selling in the market, a day in advance, of the actual news report, which points to the fact that there were market operators which had advance information of the media report and points towards a cartel.
An official source from the Ministry of corporate affairs was quoted in the Television Media as saying that “Educomp’s books of accounts will be inspected under section 209A”on Monday, 2nd February. Educomp’s stock price fell by 18% in the following two days.
An analysis of market data on the 30th January and 2nd February (exactly two trading sessions and a trading session before the announcement respectively) reveals the following:
A) Volumes of Educomp futures surged 28% on January 30th and 30% on Feburary 2nd (compared to a 35% and 1% decline in F&O volumes for the market on those two days respectively), B) Open Interest surged 229.7% on January 30th and a further 27% on February 2nd (compared to a decline in NIFTY futures volumes of 29% and 4% respectively), C) Difference between spot and future price surged to an abnormally high, Rs. 309 or 18.1% of the spot price, and, D) Educomp cash volumes also surged 54% (compared to a 12% decline in the market volumes for this day).
This, again, establishes that there were short sellers in the market that had prior information that a certain announcement was going to be made in the evening of February 2nd and establishes a nexus between the announcement and the short selling behaviour.
An interesting point to note is that all of the above companies have proactively approached the SEBI to investigate. A SEBI probe is being welcomed by these companies, instead of shying away from it. Most of the companies have also approached the Economics Offence Wing of the Crime Branch to investigate the origin of the rumours.
Educomp has appointed Grant Thornton as an auditor to investigate its books – a proactive move to allay the fears of investors.
To conclude, while the relevant authorities are closing in on the bear cartel, we, as retail investors must understand that giving way to panic is not the solution. The method to be adopted in these times is to understand the account keeping and business of the company and listen to information which has its origin in a reliable source and is not speculative in nature.
[Look out in this space for a point by point analysis of each of the above companies. Also, I invite requests in case you need analysis on any company.]
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