Phantom firms under watch
S&P revises India’s rating outlook to positive
M&M weighs option to divest infotech stake
LG plans to invest $ 185 million
Rush at Salt Lake software park
Satyam stock split into five
Foreign Exchange, Bullion, Stock Indices

 
 
PHANTOM FIRMS UNDER WATCH 
 
 
FROM NITHYA SUBRAMANIAN
 
New Delhi, March 21 
The finance ministry will soon constitute a group to identify the legal loopholes that enable rogue — or vanishing — companies to dupe investors. This will be part of a larger study aimed at suggesting ways to improve the investor-protection mechanism in the country.

Sources in the capital markets division of the finance ministry said a preliminary meeting has already been held between senior ministry officials, the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi) and the Department of Company Affairs (DCA).

“It was felt that a comprehensive study is necessary to identify the areas which require legal changes so that unscrupulous promoters can be brought to book. The exercise is part of the government’s efforts to beef up investor protection,” officials said.

At present, supervision of vanishing firms is weak, crippled largely by myriad agencies which handle different areas, and the lack of a common authority to protect the interests of investors. For example, cases of frauds by non banking finance companies (NBFCs) fall under the purview of RBI, while Sebi and DCA look into corporate rip-offs.

The group will also study various investor protection laws framed by state governments. “Tamil Nadu and Maharashtra are among the ones which have framed such laws. These would also be examined in detail,” sources said.

Once these laws have been studied, changes will be made to prevent promoters from disappearing with small investors’ savings, sources said.

Analysts say this is a good initiative on the part of the government to check fraud in the capital markets. Finance minister Yashwant Sinha had also said in his budget speech last month that it was necessary to protect small investors by asking stock exchanges to set up investor-protection funds.

With the securities scam of the early nineties still haunting them, these experts say a repeat of that would be disastrous. The nineties was the time when the massive success of leading NBFCs had spawned a whole genre of fly-by-night operators in the primary market, many of whom disappeared and helped trigger the dramatic stock market crash.

Analysts read similar signs of danger in the current infotech boom.

“There are several unscrupulous promoters who are exploiting the buoyant market conditions,” a research analyst said. Several companies, mainly NBFCs, have changed their names to suggest that they are engaged in the software business.

Regulators will have to come down heavily against firms masquerading as software engines, analysts said.    


 
 
S&P REVISES INDIA’S RATING OUTLOOK TO POSITIVE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 21 
Standard & Poor’s (S&P) today revised its outlook on foreign currency ratings of India to positive from stable, though it maintained both the local currency sovereign credit rating, at BBB/A-3, and foreign currency sovereign credit rating at BB/B.

The international rating agency cited the high fiscal deficit — the combined fiscal deficit of the central and state governments now stand at around nine per cent of GDP — behind its decision not to upgrade the ratings, adding that an upward revision would depend upon a reduction of the fiscal gap.

“In contrast to other areas, economic reforms have failed to correct the structural flaws in the country’s public finances. A credible strategy to achieve a fiscal primary surplus would strengthen prospects for a ratings upgrade,’’ the agency said. S&P pointed out that India’s ratings was constrained by its high fiscal debt burden, its “pervasive and largely unreformed public sector” and the “inefficient use of much of the country’s resources” which it said, would continue to constrain growth and development prospects.

S&P said the revision of outlook on foreign currency sovereign ratings reflected positive trends in external flexibility and better prospects for an accelerated pace of economic reforms in the near term. It estimated that external debt is likely to decline to around 150 per cent of exports this year compared with over 180 per cent in 1996.    


 
 
M&M WEIGHS OPTION TO DIVEST INFOTECH STAKE 
 
 
FROM SATISH JOHN
 
Mumbai, March 21 
Auto major Mahindra & Mahindra (M&M) which has a clutch of infotech companies, is exploring ways to unlock the wealth entrapped within the confines of their limitedly-held shareholding structure.

Ulhas Yargop, who heads M&M’s infotech businesses, is initiating the review. M&M’s infotech businesses are housed under the holding company Mahindra Information Technology Services (MITS), which is a 100 per cent subsidiary of M&M.

“It’s purely an internal review ... we are looking at several options,” M&M officials said.

Among the options being considered is a proposal to offload part of M&M’s stake in Mahindra-British Telecom through an initial public offer, either on the Nasdaq or on the domestic markets.

Another plan is to sell part of M&M’s stake in MITS.

Sources said the urgency on M&M’s part is because the company is keen to retain its employees through employee stock options (ESOPs).

Industry watchers said employees can ascertain the value of M&M only if the company divests part of its stake in the infotech businesses.

However with a market capitalisation of just around Rs 3,600 crore, the M&M scrip is poorly discounted on the bourses despite the number of infotech companies under its belt.

Industry watchers said M&M stands to gain given the uptrend in the value of infotech shares.

After touching a 52-week high of Rs 665 on the BSE, the M&M stock fell sharply after the budget. However, the scrip opened at Rs 319 today, from last week’s close of Rs 312, with price filters getting activated when it touched Rs 337.05 on the BSE.

In addition to Mahindra-British Telecom, the other infotech subsidiaries in the M&M fold are: Mahindra Network Services Limited (MNSL) and Mahindra Applied Systems Technology Limited (MAST).

M&M is also making a big foray into the internet business. It has launched automartindia.com a portal for the auto industry providing information on used cars.

The company has also launched officemartindia.com. The portal specialises in dispensing products for office needs. The company plans to launch several such vertical portals catering to every segment of the industry.    


 
 
LG PLANS TO INVEST $ 185 MILLION 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, March 21 
LG Electronics, the Korean electronics major, has ruled out setting up a holding company here but promised to invest $ 185 million in its Indian subsidiaries in the next five years.

The company has decided to pump in $ 35 million into LG Software India, $ 50 million in setting up LG Information & Communications India (LGCI) and $ 100 million in LG Electronics India Ltd (LGEIL).

The Korean electronics major plans to set up a manufacturing facility in Noida under the aegis of LGCI, to develop the CDMA and wireless-in-local-loop (WLL) market, said John Koo, vice chairman and CEO of LG Electronics Inc. The company will also export these products to the neighbouring states of Bangladesh and Nepal.

The company recently bagged a contract for supplying WLL equipment from the department of telecommunications (DoT) for Uttar Pradesh and is expecting orders from other states as well. Besides, it is talking to basic operators like Shyam Telecom and Himachal Futuristic.

The company also plans to give a thrust to software development and make India one of its global bases. LG Software will have four subsidiaries, including an e-commerce service provider that will provide both B2B and B2C services. Another subsidiary will deal with voice over and wireless applications. LG Software, currently valued at about $ 100 million, will also receive a $ 10 million venture funding.

Of the $ 100 million earmarked for LGEIL, it will set up a refrigerator plant and double its manufacturing capacity. It will also invest $ 10 million on its PC monitor business and a similar amount on digital-related product development.

On the holding company, Koo said “If the need arises in the long run, this aspect could be looked into. However, at present we are not giving it a serious thought,” Koo told mediapersons here.

LG has a holding company in China because of the “specific rules and requirements” in that country, he said.

The group has specific subsidiaries for each segment in India. While LGEIL looks after the consumer electronics division, LG Software India Ltd is its software subsidiary.    


 
 
RUSH AT SALT LAKE SOFTWARE PARK 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, March 21 
With the March 31 deadline for tax sops for software export oriented units drawing near, about 30 investors, including Tata Consultancy Services (TCS), are making a beeline for the Salt Lake software technology park. While TCS is already present in West Bengal, the others are new entrants.

This year’s Union budget had announced a 10-year tax holiday for 100 per cent software export oriented units registered with software technology parks (STP) within March 31.

While the STP units are allowed duty-free imports, they have to meet certain export obligations to be eligible for the 10 year tax holiday. The units have to export an amount which is five times the cost insurance and freight (CIF) value of the imports or $ 25 million over a period of five years. These units are also required to submit a monthly performance report to the state government.

S. K. Mitra, managing director of West Bengal Electronics Industry Development Corporation Ltd (Webel) said, “The state’s information technology turnover has grown approximately at the rate of 100 per cent over the last two years and is about Rs 500 crore in the current year.”

“Even with a modest growth rate of 60 per cent per annum, the state can achieve a target of Rs 5,000 crore in next five years,” he said.

“To create a hospitable environment for investors in Saltlec (Salt Lake electronics complex) we have launched a drive to beautify the complex. This is an on-going programme and we will achieve this both by our own efforts and through the efforts of our valued customers who conduct their businesses from this area. To improve our customer focus, we have recently launched a customer care cell whose sole purpose would be to meet the industries which operate out of our complex, achieve a first-hand understanding of issues that may be bothering them and then addressing these issues in a focused manner,” Mitra added.

He said TCS which currently employs 950 people would increase its staff strength to 1200 this year. Cognizant Technology Solutions, which started with an area of 2000 square feet, had been given two acres of land and the company would increase its workforce from 600 to 1,500 within two years.

The state’s second STP, covering an area of 50,000 square feet, is under construction and with its completion by December this year it is expected to rope in a considerable number of reputed infotech firms.

A senior Webel official said, “We have already received a good number of applications from companies who are interested to take up space in STP-II.”

Webel will be renting out space in the STP to interested parties at the rate of Rs 30 per square feet per month.    


 
 
SATYAM STOCK SPLIT INTO FIVE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 21 
Satyam Computer Services has split the face value of its Rs 10 share into five shares of Rs 2 each.

The board of the Hyderabad-based infotech major today recommended the split and decided to seek the approval of the shareholders at the next annual general meeting (AGM) of the company.

The stock split will enhance the liquidity of the scrip and attract small investors into the company’s fold. Satyam had already offered stock options to its employees.

The stock market, however, was not much impressed with the stock split — the bourses were expecting this to happen any time — with the Satyam scrip closing at Rs 4838, down Rs 360.05 or 6.9 per cent from Thursday’s close of Rs 5198.05.

The scrip opened at Rs 5108.90 and touched an intra-day high of Rs 5394 on the news of the stock split but fell to an intra-day low of Rs 4831, on profit-booking, before closing at Rs 4838.

There were contrasting views from analysts of infotech stocks regarding the future movement of the scrip. Speaking to The Telegraph, K Ramachandran of Birla Sun Life Securities said the stock split “was not a major thing as the stock was widely traded even at the value of Rs 10 per share”.

The stock split has been discounted by the market and the counter would need “some significant announcement” to move up, he added.

A broker of Khandwala Securities, Gurunath Mudlapur, said the medium term potential of the scrip looked good despite the profit booking.

Other infotech majors to have announced stock splits include Infosys Technologies, Wipro Ltd and Polaris Software Lab.

While Polaris and Infosys have split their Rs 10 share into two equity shares of Rs 5 each, Wipro has split its Rs 10 share into five equity shares of Rs 2 per share.

Satyam specialises in consulting, system integration, application development, E-commerce and internet-related activities.

Infotech analysts estimate the company to post a growth of around 80 per cent in the current fiscal. For the subsequent year, it is expected to record a 70 to 75 per cent growth rate.    


 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 
Foreign Exchange
US $1	Rs 43.57	HK $1	Rs. 5.50*
UK £1	Rs 68.38	SW Fr 1	Rs. 25.95
Euro	Rs 42.36	Sing $1	Rs. 25.00
Yen 100	Rs 40.91	Aus $1	Rs. 26.15*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta		Bombay
Gold Std (10gm)	Closed	Gold Std (10 gm)	Rs 4530
Gold 22 carat	Closed	Gold 22 carat	Rs 4190
Silver bar (Kg)	Closed	Silver (Kg)	Rs 8000
Silver portion	Closed	Silver portion	Rs 8005

Stock Indices

Sensex	5133.24	+30.83
BSE-100	2844.82	-30.59
S&P CNX Nifty	1556.60	-5.60
Calcutta	124.57	-0.20
Skindia GDR	1375.86	+19.67
   
 

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