Short sales ban to go in July
Move to set up national clearing corporation
Court quashes Rathi petition
Ministry spikes Indian Oil-RPL venture proposal
GTB in search of tech-savvy ally
Siemens, GE Ship weigh buyback
CII drive to clean up functioning of bourses
Rice exports to clear surplus stock
Govt scurries to end trade tiffs
Foreign Exchange, Bullion, Stock Indices

Mumbai, May 2: 
The Securities and Exchange Board of India (Sebi) has decided to lift the ban it imposed on short sales from July 2, the day all ‘A’ group stocks will go into rolling settlement mode.

Short sales were forbidden on March 7 in an attempt to stop the freefall in the markets triggered by a bear rampage.

The capital market watchdog has also allowed a short seller to borrow shares under the stock lending scheme, Sebi chairman D.R. Mehta told reporters after a meeting of the group on risk management systems for the equity market here today.

The stock lending arrangement, that helps short sellers borrow shares and deliver them in the trading ring, lies at the heart of short sales. The market regulator had clamped a ban on it on March 15 as a follow-up to the ban imposed on short sales to arrest the dramatic slump in share prices.

Explaining why the regulator had climbed down from the stance it adopted earlier, Mehta said, “Even when we slapped a ban on short sales, it was deemed a temporary measure.”

Sebi board member Jayanth R. Varma said the relaxation has been prompted by signs of stability in the market.

However, the market regulator failed to reach a consensus on whether it should withdraw the additional volatility and concentration margins, besides gross exposure restrictions on stock brokers.

“The issue was raised, but could not be discussed at length for want of time,” Mehta said. He said the issue of exposure restrictions on stock brokers was hardly relevant at a time when volumes across bourses have plummeted to new lows after the post-budget shake-up.

Meanwhile, Sebi has directed stock exchanges to create unique client IDs at the brokers’ end as part of a larger plan to improve surveillance of intermediaries and check circular trading.

“The matter was discussed further today and it was decided that all investors should have a unique ID,” Varma said.

The identity numbers will be made mandatory for all clients who trade in shares worth Rs 1 lakh or more from August 1. The three-month time has been given in order to enable exchanges and brokers to install the software needed for it.

Once all investors have been represented by a unique client ID, the capital market watchdog will make it compulsory for brokers to collect and maintain in their back-offices the permanent account numbers (PAN) allotted by the income tax department to clients and those of their sub-brokers.

In cases where a client does not possess a PAN number, the regulator says they will be required to furnish passport numbers, the place and date of issue.

If a client does not have a PAN number or a passport, brokers will be asked to secure the driving licence number, its place and date of issue. If none of these are available, voter ID numbers will do.

BSE board meet

The 10-member governing board of the Bombay Stock Exchange (BSE) headed by executive director A N Joshi will meet on Thursday to discuss the sacking of former surveillance head, A A Tirodkar, and objections raised by the members against former president M G Damani.


Mumbai, May 2: 
With compulsory rolling settlement knocking at the door, Sebi is planning to set up a national clearing corporation (NCC) that will act as a common clearing house for all the stock exchanges of the country.

Once the NCC is set up, the existing system of having a dedicated clearing corporation for each stock exchange will become redundant.

While trading will continue to take place on the respective stock exchanges, Sebi has proposed that for settlement, the bourses will route their funds and securities through the national clearing members.

Though the idea is still at a nascent stage, sources in Sebi say the proposed clearing corporation shall have limited high net worth members. The traders on different stock exchanges will register themselves with NCC through any of the national clearing members.

The proposal aims at reducing the work load of clearing corporations, depositories and banks by distributing the major chunk of settlement of funds at the level of clearing members.

The move comes after Sebi decided to introduce rolling settlement on all stock bourses. The settlement cycle will now be uniform across stock exchanges.

In the proposed system the pay-in obligations and pay-out receivables of a trader shall be netted across his dealings on different bourses. Later it will be consolidated and netted across the trading members who are registered through him with the NCC.


Mumbai, May 2: 
In a much-awaited ruling, the Mumbai high court today held that Securities and Exchange Board of India (Sebi) was empowered to debar brokers from trading if they violated guidelines and dismissed the plea of former president of Bombay Stock Exchange Anand Rathi who challenged the regulatory body’s ban on trading by him and his firms on the bourse.

Rathi’s petition was dismissed by justices Ajit Shah and S.H. Vajifdar after Sebi counsel Goolam Vahanvati made a statement that the regulator would conduct within three months a detailed probe into allegations of “insider trading” by Rathi and his firms.

The ban on Rathi and his firms would continue until the Sebi probe was conducted. Sebi has assured that it would complete the inquiry as early as possible.

This verdict is considered significant in legal circles because it was for the first time that such an order of Sebi has been challenged.

The bench ruled that Sebi was a regulatory body and it had powers under section 11 (b) of the Sebi Act to issue such ban orders in emergent situations. It also opined that Sebi was not required to give any pre-decision hearing to the aggrieved broker who was sought to be banned from trading on the bourse.

The judges were of the view that Sebi was a specially constituted regulatory body under the Sebi Act and was empowered to take corrective steps in emergent situations.

Sebi had barred Rathi and his firms from trading on the ground that he “misused” his position as BSE president to obtain “inside” information of select scrips from the surveillance department on March 2.

Rathi argued that Sebi’s order was passed without following the principles of natural justice. He also contended that the post-decision hearing was given to him after 10 days, thereby making it a nullity. If he was not allowed to trade, his business would be badly affected, Rathi contended.

However, Sebi argued there was no question of following the principles of natural justice, because Rathi’s alleged actions had badly shaken investor confidence.

After a preliminary hearing, the high court on ordered Sebi on March 19, to hear Rathi afresh and pass a reasoned order on the question of allowing him to trade on the bourse.

However, on April 24, Sebi informed the court it would conduct an independent probe into the allegations of “insider trading” against Rathi and his firms and said it had decided to continue its earlier order of debarring them from trading on the bourse.

Vahanvati informed the high court that it would institute a detailed probe against Rathi and his firms by appointing an independent inquiry officer.


New Delhi, May 2: 
After sitting on it for nearly a year, the ministry of petroleum and natural gas has finally rejected the proposal of Indian Oil Corporation and Reliance Petroleum Ltd (RPL) to form a joint venture to market petroleum products.

The reason cited for the rejection is that the joint venture has not invested the stipulated Rs 2000 crore either in a refinery or in petroleum infrastructure.

The government had made it mandatory for petroleum companies to invest Rs 2000 crore either in refinery or infrastructure to ensure that private players do not enter purely for trading activities.

The petroleum ministry’s formal rejection of the application has paved the way for Reliance Petroleum to enter retail marketing.

The setting up of the marketing joint venture was an essential part of the marketing agreement between Indian Oil and Reliance Petroleum. Indian Oil had agreed to market 52 per cent of RPL’s controlled products for 10 years, extendable by another 10 years. The joint venture was to market the remaining 48 per cent of the controlled and the entire decontrolled products.

It is not known why the ministry took such a long time to decide on the application.

Soon after this application was submitted, Reliance Petroleum applied for marketing rights for itself. Indian Oil was told that it would pass on the marketing rights to the joint venture. This had not happened. On the other hand, Reliance Petroleum is going ahead with its own plan to enter retail marketing.

The reason cited for the rejection does not seem to be convincing either. The two partners of the proposed joint venture—Indian Oil and Reliance Petroleum—are big players.

Indian Oil is the largest marketing and refining company whose investment in the petroleum sector is several times higher than the mandatory Rs 2000 crore.

Reliance Petroleum, on the other hand, has invested more than Rs 10,000 crore in the refinery and other facilities. If the trend continues, Reliance Petroleum whose present capacity is to the tune of 35 million tonnes (crude throughput capacity plus the capacity which could be obtained through debottlenecking) could raise it to 50 million tonnes by 2004. RPL will start with 48 per cent of the products outside the agreement with Indian Oil and once the necessary infrastructure is completed, it may be almost on par with IOC.

With the government deciding to retain 51 per cent of the equity in public sector oil companies, Indian Oil cannot pursue an aggressive growth path. Reliance Petroleum is totally free from government control.

It may be an unequal fight in which Indian Oil is bound to be the loser, say industry circles.


Mumbai, May 2: 
The beleaguered Global Trust Bank (GTB) plans to resume its hunt for a foreign partner with a strong technological focus. The bank may also offer an equity stake to the strategic partner.

GTB executive director, Sridhar Subasri told The Telegraph that the bank will start scouting for a partner after three months, by which time its consolidation process begins to take firm shape. However, he was not willing to divulge the exact equity stake that will be offered.

“The process will be revived after three months. The stake which could be offered to the partner will depend on various factors, including the price at which they are willing to pick up the stake among others,” Subasri added.

The private sector bank had already announced its intention to rope in a foreign strategic partner with a strong technological edge, to whom it was willing to offer around 15 per cent of its equity. Though this idea was put in cold storage following the merger proposition with UTI Bank, which later got aborted, GTB had then mandated the role of identifying the partner to the International Finance Corporation (IFC), Washington, which incidentally holds a 10.38 per cent equity stake in the bank.

Banking circles, however, are sceptical of the move. They say in the present circumstances, where concerns have emerged about its loan portfolio, GTB is likely to find it difficult to locate a strategic partner.

“The bank should first clean its balance sheet and put up a good performance, only then will it succeed in inducting a new partner,” sources said.

GTB recently announced poor fourth quarter results, with the bank posting a loss of Rs 22.71 crore due to huge provisions, against a profit of Rs 35.33 crore in the previous corresponding period. Net NPAs of the bank also shot up to Rs 153.82 crore (Rs 27.86 crore) for the fiscal and the ratio of net NPAs to net advances was high at 3.75 per cent against 0.87 per cent. GTB has, however, maintained that the loss was largely due to its conservative provisioning policy.

However, the bank has now announced around 12 initiatives to consolidate assets and for aggressive expansion of its retail base. These include paring down the exposure to the stock markets to less than 5 per cent from present levels of 7 per cent, lending more to well-rated companies, introducing retail asset products such as education loans, home improvement loans apart from automobile loans, housing finance and credit cards.


Mumbai, May 2: 
The buyback fever is fast turning into a full-blown epidemic as promoters get increasingly wary of leaving their flanks vulnerable to raids by stealthy operators.

Today it was the turn of Siemens India Ltd and Great Eastern Shipping Company Ltd, which announced their boards will meet tomorrow to consider their respective buyback proposals.

While Siemens AG is choosing such a route for the first time, the Sheths, wisened by the raid on Gesco, are adopting the buyback mode for the second time.

The buy-back process in GE Shipping, initiated in December last year and completed recently, saw the promoters’ stake in the company rise to 19.5 per cent from 14.44 per cent.

The company had initially proposed a buy-back scheme for an amount not exceeding Rs 42 per share. The board of directors had proposed to buy back equity to the extent of Rs 150 crore. The buy-back was funded from the company’s internal accruals.

Market circles observe that the instrument has been popular with several companies, particularly those with foreign parentage, considering that equity prices in most cases are way off their highs. Prominent companies that have announced buy-back schemes include Philips India, Cabot India, Sandvik Asia, MICO and Madura Coats.

Recently, Indian Rayon fixed an upper limit of Rs 95 per share for its second buy-back programme that seeks to mop up around 15 per cent of its equity capital.

Yet another company that played it safe was Finolex Industries, which has fixed a maximum price of Rs 40 per share for its buy-back programme. Reliance Industries too has extended its plans to buy-back shares at the original price of Rs 303 per share.


Calcutta, May 2: 
The Confederation of Indian Industry (CII) plans to set up a task force to study the functioning of the Indian capital markets. The move comes in wake of the crises that have erupted time and again on the stock markets over the last few years.

Addressing a press conference here today, CII president Sanjiv Goenka said the apex chamber will invite the chief executive officer of the New York Stock Exchange (NYSE) for a conference on the functioning of exchanges across the world, to be held at New Delhi in October.

The task force will review “problems and prospects” for the markets and suggest reforms to usher in transparency and bring back investor confidence.

The CII chief, who took over last week, said the early-March payment crisis on the Calcutta Stock Exchange, which triggered off a nation-wide crash in share prices, prompted the chamber to set up a task force on capital markets. The task force will submit its report in two months’ time.

“The purpose is to bring the functioning of Indian stock markets in line with international bourses,” Goenka said.

Terming the NYSE as one of the best stock exchanges in the world, Goenka said CII will consult it on ways to run Indian bourses better.

Emphasising the need for the development of financial infrastructure, he said the overall growth of the economy depended on this aspect. Further, he observed that in a globally competitive world, the role of the stock markets is very important so far as mobilisation of resources is concerned.

Goenka also stressed on the need for reforms in the banking sector, which, he said, should be at par with global standards.

Commenting on the overall performance of the Indian economy, Goenka said although the desired level of GDP growth should be more than 7 per cent, a target of 6.5 per cent will be satisfactory for the current year.

CII also plans to set up a task force on West Bengal to make recommendations to the state government for better industrial growth.


New Delhi, May 2: 
The Union Cabinet today cleared a proposal to export 30 lakh tonnes of rice immediately to offload surplus stock held by Food Corporation of India (FCI).

The export prices would be fixed by a high-level inter-ministerial committee taking into consideration various factors, including international prices.

The government has, however, instructed that the export price, “under no circumstances, would be less than the central issue price for below-poverty-line (BPL) families.”

Announcing the decisions taken by the Cabinet today, parliamentary affairs minister Pramod Mahajan said “the government would further review the decision in August to export more rice after assessing the monsoon, current stock and domestic requirements for the next year. The decision would help the domestic market as well as farmers to offload excess rice.”

The exports would be carried out by the state owned trading agencies—State Trading Corporation (STC) and Minerals and Metals Trading Corporation (MMTC)—and other private parties through tendering process.

India has 232 lakh tonnes of rice in the godowns all over the country. The current buffer stock stipulation is 118 lakh tonnes, leaving a surplus of 114.24 lakh tonnes of foodgrain.

The government also allowed Food Corporation of India (FCI) to borrow funds proportionate to their stock holding instead of the current ceiling of 10 times of the paid-up capital and reserve funds.

An amendment to this effect was approved by the Cabinet, Mahajan said.

According to the current ceiling, FCI was permitted to borrow up to a maximum of Rs 22,945 crore at a paid-up capital of Rs 2,294.5 crore, Mahajan said, adding that this amount was not sufficient to meet the FCI’s requirement of procurements.

“As procurement levels are on the increase, the working capital requirement need to be enhanced,” the minister said.

This amendment would also dispense with the need to approach the government whenever a problem of liquidity arose.

The Union Cabinet today allowed Central Warehousing Corporation (CWC) to build warehouses outside India and also to enter into joint ventures, establish subsidiaries and alliances.

The government also empowered state governments to appoint and remove managing director and chairman of state warehousing corporations (SWCs) under intimation to CWC, Mahajan said after the Cabinet meeting which approved the Warehousing Corporations (Amendment) Bill 2001.

Under Section 11 of the Warehousing Corporations Act 1962, the CWC can acquire and build godowns and warehouses within the territory of India only, Mahajan said, adding that the amendment would enable CWC to expand its activities abroad.

CWC has also been empowered to appoint its own officials as directors on the boards of SWCs, the minister added.


New Delhi, May 2: 
The government is scrambling to limit damages from a rash of rows with key trading partners like the US and European Union (EU) as part of a larger goal to keep its bargaining chips intact for the next round of World Trade Organisation (WTO) talks.

Jolted into action by a US threat to impose dumping levies on steel exported by Indian firms, it has agreed to show US trade officials classified Cabinet papers on a Rs 4,703-crore restructuring plan for the state-owned company almost two years after it was implemented.

The US team feels the package was laced with concessional loans from the Steel Development Fund and generous credit write-offs that have helped the company produce and sell steel cheap.

Commerce ministry officials hope the gesture will help remove the chill in trading ties, which increased after the Bush administration put India on a watch list of 10 countries it accuses of being unfair to US exports.

But, the trade tiff goes beyond steel. Liquor, auto imports and patent rights are also irritants the BJP-led government wants to weed out. As part of the exercise, finance minister Yashwant Sinha has asked revenue secretary S. Narayan to call a meeting of excise commissioners next week to persuade them to scrap, or prune duties on liquor imports.

The EU is miffed with the steep import duties India imposes on bottled liquor, which are compounded by high excise levies. They have called the policy discriminatory, saying the government can either impose import or excise duties, not both.

The Centre has retained the double taxation to placate a vociferous Swadeshi lobby, which says easy liquor imports not only trip local companies but encourage Indians to drink more — still a moral hazard among in a country where many seek solace at the bottom of a glass. The powerful pressure group, which includes hawkish BJP MPs, has even asked the government to quit the WTO if it cannot protect industry from foreign onslaught.

Faced with a belligerent lobby, the government can hardly afford to roll back its decision. In a compromise measure, the finance ministry has said it will try to persuade states to get them to lift excise duties on foreign liquor. However, analysts feel this would be tougher than a rollback of central import duties.

However, there is one issue on which the government has made up its mind. It will allow car-makers to bring in new models without making it mandatory for them to indigenise up to 70 per cent — something they were required to do under an earlier policy — in a decision that could spell trouble for the country’s balance of payments and for workers in the local industry.

It is also going to scrap rules which force auto-makers to balance imports of car kits and components with matching exports. These rules were made to force foreign car companies setting up shop here to bring in technology and set up a proper manufacturing base instead of just assembly line operations.



Foreign Exchange

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