Showing posts with label SEBI. Show all posts
Showing posts with label SEBI. Show all posts

Friday, October 12, 2012

Pledges we fear...

Companies need to be proactive with disclosure of pledging

When the regulator bares its teeth, which it has done post the embarrassment of Satyam, all are guilty till proven innocent. Market regulator Securities Exchange Board of India (SEBI) has enforced a directive to companies, which makes it mandatory for them to disclose the amount of equity that promoters have pledged over a certain period of time. Ever since the mandate came into being, numerous companies have come out in the open and disclosed details of their pledged equity. While Tata Group disclosed details of pledged shares of Tata Steel, TCS, Tata Power and Tata Teleservices (Maharashtra) Ltd.; Reliance ADA Group also divulged details of RCOM & R-Infra shares. Others like Kingfisher Airlines (43.8%), Shoppers Stop (33.10%), Unitech (49.48%), Parsvnath Developers (63.88%), et al, have also opened their accounts in public. So should investors be fearing more Satyam-like situations in the coming future?

In a bull run, excesses are not uncommon. But some of them do go over the top. The story of Tata’s excesses with Corus and JLR is well known. Habil Fakhruddin Khorakiwala, Promoter & Chairman, Wockhardt, is a stark example at the moment, who has pledged 43.11% stake of the company with IL&FS and IDBI. As slowdown looms and asset prices fall, the company is finding it difficult to service the debt (debt-equity ratio is currently 2.28:1) and they have kept their headquarters as a collateral and are also looking at selling some non-core assets. Wockhardt made some audacious acquisitions in the last two years and is now paying the price.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Friday, October 05, 2012

The Road to Perdition!

Heavy Inflows of FII Money, Falling Exports due to Rising Rupee, And Widening Current Account Deficit! India is now walking on the same lane that Once Brought in the Asian Financial Crisis in 1997.

In July 1997 the South East Asian stock markets, especially South Korea, Malaysia, Thailand and Philippines, which till then were on rampage, not only came to a screeching halt, but also entered into a prolonged phase of nightmare – better known as the Asian financial crisis. Foreign Institutional Investors (FIIs), which poured in a whopping $19.1 billion into the countries’ markets in 1996 and drove these markets to record highs, flew away overnight ruining the countries’ stock markets and economic stability. So much so that while the Thai stock market lost 75% of its value, the PSE Composite in Philippines fell by around 66%.

The scenario was more or less the same in January 2008, when the Indian benchmark index Sensex after scaling a historic high of 21,206 on January 10, dwindled down to 15,322 by January 22. This time the same FIIs, who from January 1 till January 16 had infused Rs.30.59 billion into the Indian stock markets, pulled out a nerve-wracking Rs.44.65 billion in just two days, January 17 and 18. And now, the Indian stock market has again become the purple cow for the FII group. As per the Securities and Exchange Board of India (SEBI), net investments made by FIIs in the country’s equity markets has already gone past a mind-boggling Rs.1 trillion ($22 billion), pushing the market to the 21,000 level. What is most noticeable here is the way the FIIs have got hold of the nerve of the Indian market since the beginning of September 2010. Since then, while they have infused $17.3 billion, the Sensex has soared 16.5%. While industry mouthpieces like C. B. Bhave, Chairman SEBI, might not be overly worried about the situation, what cannot be ignored is the fact that while in 1996-97, India was fairly insulated from the global economy and even FII hot money vagaries, the situation is quite different currently. While the reasons for the sudden fall in the stock markets might be quite clear to industry players, a majority of global investors would fail to undertake a deeper analysis and could arbitrarily decrease the sovereign ratings for the nation – resulting in much collateral damage, international loan interest rates inclusive.

In fact, due to the increasing inflow of external capital and surging demand for the rupee, value of the domestic currency has risen sharply in terms of real effective exchange rate hurting the country’s exports. As for records, the rupee, which was trading at 47.08 against the greenback on August 31, surged almost 6% to 44.26 (as on November 8) on the back of heavy buying by the FIIs. Moreover, the strengthening of the rupee has allowed imports to surge 35.7% y-o-y in the second quarter as against a 21.7% y-o-y decline last year, pushing India’s trade deficit to rise by 33.5% to $34.2 billion in Q2FY’10 from $25.6 billion in the same quarter last fiscal. Though the exporters are now lobbying with the central bank to put a check on the rate hikes to somehow protect their competitiveness (a drop in the interest rate can put a pause to the capital inflow by reducing the difference between the prevailing near zero interest rates of the developed countries and the high interest rate of India), the Reserve Bank itself is in a helpless situation in its fight against inflation.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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