Bears blamed for stock slaughter
Markets on a hair trigger
Banks asked to brace for stiff prudential rules
Refco-Sify joint venture eyes index futures
Consumer durables for a steal
New faces likely on IOC board

New Delhi, April 15: 
The Securities and Exchange Board of India (Sebi) today submitted its first report on the meltdown in stock markets, blaming a Mumbai bear cartel for having rigged stock prices to make a killing at the expense of investors.

The report was handed over to finance minister Yashwant Sinha, who refused to reveal anything about its contents. “Whatever I have to say, I will say in Parliament.” The minister had promised the House that a report would be ready before it resumed business after a recess on April 16.

Sebi and North Block officials threw a blanket of secrecy over the findings, but sources said a Mumbai stock broking cartel has been indicted for rigging prices of key shares and triggering a market mudlslide.

The report says banks and financial institutions channelled short-term funds to brokers who manipulated the market. Though it does not take names, it raises questions about the manner and propriety of these funds being lent to operators. Many Bombay Stock Exchange officials have large transactions against their names raising suspicion that they could have done it to rig certain shares.

The sensex went into a freefall days after Sinha presented a widely acclaimed budget. Among the first heads to roll was that of BSE president Anand Rathi, who was alleged to have used his position to gain price-sensitive information.

Prime Minister Atal Bihari Vajpayee had blamed the market mayhem on bad management on the part of regulatory agencies.

Sources say the government is currently working on a legislation that seeks to give Sebi more teeth, including the authority to slap harsher penalties and the power to freeze bank accounts of those who are found guilty of stock market manipulation.

The Sebi report, likely to be placed in Parliament on Tuesday, puts much of the blame on the bear cartel of six top brokers who were raided by income tax authorities and barred from trading. It says short sales by this group, which included R. S. Damani and Nirmal Bang, set off the market meltdown and led to payments crises that drove the Calcutta Stock Exchange to the brink of closure.

The report has suggested that the regulatory grip on bourses be tightened and their corporatisation speeded up to avert similar problems. The market regulator has sought to take credit for having smelt a rat in the Global Trust Bank share ahead of its planned merger with UTI Bank. This, it says, led to revelations about Ketan Parekh’s dubious deals.

The report tries to trace the Big Bull’s sources of funding to prove its thesis that banks and financial institutions cannot be absolved of their culpability.

The Opposition is unlikely to be satisfied. It will insist on a Joint Parliamentary Committee probe into the market mess, something the BJP-led coalition had offered after the dirt spilled out. “JPC is a must and we stand by our demand for it,” CPM leader Nilotpal Basu said.


Mumbai, April 15: 
Lambs being herded into a slaughter house — that is how a day trader on Dalal Street describes the market mood.

Having lost their shirts in a slump that started early last month, investors and brokers are bracing for another avalanche when trading opens on Monday after an extended weekend gave them time to lick their wounds and to look for ways out of the funk.

“There are no triggers for an upturn. Equities may lose at least 10 per cent from their current levels,” says Nirav Sheth from SSKI Securities, a leading stock broking firm on the BSE. “Though a few stocks may look up, the overall trend is dismal. There are several issues which could weigh down stocks, such as the move to expand rolling settlement, the Sebi report on manipulations in the market and the Ketan Parekh effect,” he added.

Jignesh Shah, a strategist at ASK-Raymond James, has some of his optimism left in these manic moments, and predicts a modest rally. “Shares have fallen so dramatically. They can’t go any lower. It would be safe to say a minor recovery is imminent.”

His hopes of a relief rally are tempered with the grim knowledge that the sentiment remains fragile, and there are far too many issues to be sorted out. “It will be Sebi and the finance ministry which influence the market’s course this week.”

Those who expect a small rebound are counting on investors who fish for bargains in an oversold market to prop up indices and induce skittish operators to shake off their apprehensions. Reliance, for example, is expected to keep operators rivetted. The share is now quoting below Rs 300.

The Ambanis had said they could buy back stocks from investors if the price dips below Rs 303. “ If the company decides to do so, it would give the depressed market a much-needed boost,” broking circles said.

Parag Parikh, a prominent Dalal Street brokerage, sees no light at the end of the tunnel. Unable to find anything positive, it has told clients not to be surprised if the sensex slides to 2800-2900.

The hunt for cowboys in the market has deepened the sense of uncertainty. The freeze on accounts of prominent brokers and Sebi’s impending ban on firms connected to former BSE president Anand Rathi and Ketan Parekh have left investors in a quandary.

They will not like to take chances again. Not after having stared helplessly at the BSE surrendering 35 per cent of its shareholder wealth after a budget that was celebrated as the best thing to have happened to the economy during India’s reform decade.

The plunge in market capitalisation has been accompanied by a sharp decline in the traded turnover on bourses across the country.

One of the major mysteries confounding the market is the behaviour of the foreign investors, which have been holding on, even adding, to their pool of shares while mutual funds are rushing out. Whether they retain their confidence in the turbulent days ahead could determine the course of a market that does not seemed to have found its bottom.

“FIIs have not been prominent sellers in technology stocks so far. If they do so now, it could spark a selling frenzy,” an analyst at a prominent NSE broking outfit said.

Marketmen are also critical of Sebi’s move to shift over 400 shares to the rolling settlement. It is being considered as one of the major triggers for a selloff, apart from the ban on short sales.


Calcutta, April 15: 
The Reserve Bank of India has asked banks to gear up for tighter provisioning norms, matching international standards.

The central bank has asked all commercial banks to work out a model whereby the interest component is collected from clients on a monthly basis, instead of the present practice of interest collection on a quarterly basis.

Banking industry sources said the RBI has already conveyed the matter to the bank chairmen. Confirming the move, senior officials of Uco Bank said, “This has been conveyed to all the banks after finance minister Yashwant Sinha’s meeting on April 7.”

Besides this, the RBI has also told banks to be prepared to categorise an asset as sub-standard if the interest component is not serviced for three months. Currently, a loan is categorised as sub-standard if the interest is not paid for six months.

Both moves, the classification of assets on a quarterly basis and monthly interest collection, are in line with prudential accounting norms followed by banks worldwide. Among other things, these help banks in early detection of loans which may turn bad.

Effectively, with companies making monthly interest payments, banks will be better positioned to get early warnings if a company is in trouble, making it easier to restructure the loan during early stages.

Some bankers felt it will be difficult to collect the interest each month, especially in the rural areas. They said interest payment depends on the business cycle and monthly payments, in some cases like agriculture, will be inconvenient for clients. “We will discuss this aspect with the central bank.”

The central bank has also urged all nationalised banks to strengthen their balance-sheets by increased provisioning for bad debts. The non-performing asset coverage ratio among Indian banks is very low compared with that of the foreign banks. The RBI observed that the current provisioning norms are minimal and that banks should voluntarily provide more for NPAs, if their profitability permits.

“The RBI has hinted that banks should use their income for higher provisioning, rather than paying hefty dividends to the government,” banking sources said.

However, bankers feel the RBI will give them more time to prepare for the new norms, before they are made mandatory.


Mumbai, April 15: 
Refco-Sify Securities India, a joint venture between Refco Group LLC of USA and Satyam Infoway, is eyeing the nascent index futures trading in the country.

Trading in index futures provides investors with a hedging platform.

Refco-Sify Securities will offer internet trading facilities for online and offline equity and futures trading for retail customers as well as execution and clearing services for financial institutions.

“This is our core strength,” Vineet Bhatnagar, managing director of Refco-Sify Securities said. The joint venture plans to launch its online initiative early next month, he said.

Worldwide, Refco is a big name in futures broking. The Refco group ranks as the world’s largest non-bank futures commission merchant, with nearly $ 3.3 billion in global client equity and is the sixth largest futures firm, Bhatnagar said.

The Indian outfit has an authorised capital of $ 10 million.

The shenanigans of several leading market players has seen shareholder wealth more than halve, with practically every sector facing the music, and market capitalisation dip from the peak of over Rs 5,00,000 crore recorded last year, to a little less than Rs 2,40,000 crore now.

Significantly, while volumes have dried up in spot transactions as investors helplessly watch index heavyweights take a sharp plunge, volumes in the shallow index futures market have dried up as well.

Index futures can help many an investor to cut losses.

A futures contract is a standardised binding agreement to buy or sell a specified quantity of a specified grade of a commodity during a specified month. While it is freely transferable, futures can be traded only by public auction at designated exchanges.

The basic hedging strategy is take an equal and opposite position to the cash market in the futures market.

In other words, it means going short on the future contract if there is a long position in the regular markets and thus guard against a market decline.

And if you are a short seller in the spot markets, then to guard against an unexpected rally, index futures go long on the future contract.

While index futures trading can help hedge investments, unfortunately, it is still at a nascent stage in the country.

The drawback of index futures, however, lies in the fact that speculators without an underlying exposure can also take advantage of them. With naked short sales banned on spot transactions, a speculator could sell index futures to benefit from the prevailing market trend.


New Delhi, April 15: 
It’s the best time to go in for that no-frost refrigerator or air-conditioner you have long been fantasising about.

Makers of white goods, such as colour televisions, refrigerators, air-conditioners and water-coolers will be offering lower prices, lower interests on installment payments and a larger product range, to boost sales.

The low demand for consumer durables, coupled with the fear of cheaper imports, is forcing companies to adopt this strategy.

Suresh Khanna, secretary general, Consumer Electronics and TV Manufacturers Association (Cetma), said, “Durables have posted a growth only in the air-conditioner and microwave segments. Even in these, market penetration has been very low. Moreover, since there has been no major world sporting event after 1999, the colour television market too has been stagnant.”

Khanna said the microwave and air-conditioner segments have grown by about 20 per cent, adding that schemes to attract consumers are necessary to increase demand in other sectors.

Many durables are already being offered on installments without any interest being charged. Khanna said this was being done for low-end mass goods, to “attract consumers and increase the market base.”

Besides, dealers are willing to give discounts for cash purchases, Khanna said. “The aim is to concentrate on a bigger customer base and larger brand equity than on profits.”

According to V. Jakhar, marketing director of Carrier Aircon: “Schemes like zero per cent interest are available only for select goods within a definite budget, just to expand the market. An interest of 6 to 7 per cent has to be paid for other models. Where customers are ready to pay a large chunk of the price in cash in the first installment, the interest rate goes down to just 1.9 per cent.”

Moreover, interest rates being offered on many consumer durable purchases are far lower than bank loans to buy the same products. This, marketers point out, is a new trend, sustainable only because companies are willing to take a cut in the price realisations which they pass on to the financing company.

Jakhar noted that financing is not the only marketing strategy. Attracting the customer to the shop with a wide range of products is also important, which is why Carrier has launched 41 new air-conditioners, including high-wall split ACs in different colours, with remote facilities. Carrier plans to invest Rs 18 crore this year and is targeting a 30 per cent growth as against 25 per cent last year.

Rakesh Chauhan, Voltas spokesperson said: “We have added new features to our ACs and water coolers like bubble tub, bottle dispenser. Though we have a 20 per cent market share, we are trying to make the brand more trendy. The company will be investing around Rs 40 crore for a complete new revamp of the brand.”

Sunil Mehta, Videocon’s marketing head, said the company plans to launch 10 more models of washing machines and CTVs. Its marketing strategy will focus on trendiness and attraction, besides the normal financing schemes.

A Samsung executive said the company’s main strategy will be strong quality and a differentiated product line-up backed by superior after sales service.

Samsung has increased the number of dealer outlets and its product launches will target the rural market. It aims to capture 11 per cent of the CTV market.

All the value additions, easy finance schemes, wide product ranges and after-sales services will surely bring a smile on the customer’s face. And that, white goods makers pray, will also put the sector back on track.


New Delhi, April 15: 
Indian Oil Corporation (IOC), the only Indian company to figure among the Fortune 500, will have several new faces in its top management in the coming months.

With S. N. Jha, director (pipelines) retiring in August and O. N. Marwaha, director (marketing), in October, the Public Enterprises Selection Board (PESB) will select their successors on April 25. The front-runners are Arvind Uplenchwar, senior most executive director (ED), Arun Jyoti, ED (lubes), Praveen Aggarwal, ED (Oil Coordination Committee) K. P. Sahi, ED (Barauni Refinery) and P. S.Rao, ED (Gujarat Refinery).

Immediately after this, PESB will have to look for a successor to Subir Raha, director (personnel) who is shifting to ONGC to succeed its present chief, Bikas Chandra Bora. Sources say B. K. Mittal, ED (projects) in the marketing division is a strong contender for the post of director (personnel).

Next in line is IOC chairman Mohammad Asad Pathan, who will retire in March next year. Raha was perceived to be his successor. But his exit has brightened the prospects of P. Sugavanam, director (finance) and M. S. Ramachandran, director (business development and corporate planning). They will have to compete with S. N. Mathur, the IBP chief.

Sources say Uplenchwar is almost certain to be the next director (pipelines). The real fight will be for the post of director (marketing). Jyoti is rated as a thorough professional. P. Aggarwal has been with OCC for four years.


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