Markets recoil on war fears
Ketans united behind bars
Reliance mothballs mega plans
Higher premia on rash driving
Maruti set to drive Suzuki global plan
Bengal meet to take stock of gilts scam
No impact on bourses, says Bajpai
Thomas Cook foray into travel insurance
Brokers to be paid only on delivery
Foreign Exchange, Bullion, Stock Indices

 
 
MARKETS RECOIL ON WAR FEARS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, May 15: 

Rupee sinks, stocks slide

The markets swooned today as Prime Minister Atal Bihari Vajpayee bristled in Parliament over Tuesday’s outrage by Pakistan-aided terrorists.

Investors and operators turned skittish, swarming the counters on stock exchanges with sell orders. The Bombay Stock Exchange (BSE) slid 24.74 points to close at 3395.59, while a weakened rupee tested 49.06 on renewed fears of an outbreak of hostilities on the border.

The word that spooked the forex, bond and share markets was “retaliation” for the bloodbath in Jammu. The term floated in trading rings before the government clarified in Delhi that the Prime Minister only meant the terror strikes would have to be “countered”.

In the forex market, the nervousness was palpable when the rupee closed at a record low of 49.02/03 per dollar after sinking into an intra-day trough of 49.06 earlier.

Dealers attributed the fall to buying by companies. “There is a fear that tension between India and Pakistan will escalate and this will have an impact on the markets in the immediate term, unless there is a reassuring statement from the government,” an analyst said.

On bourses, the day started on a positive note, but turned grim when Vajpayee’s remarks stoked the war paranoia. The sensex plummeted to an intra-day low of 3382.11, down 1.12 per cent over its close on Tuesday. The fall was blamed on panic selling by funds and investors. In percentage terms, the 30-share benchmark index closed 0.72 per cent lower at 3395.59 points after rising 0.45 per cent in the early hours of a choppy session. There were 1,003 stocks that ended up losers against the 358 that gained. The traded volume was 9.58 crore shares, compared with Tuesday’s 9.02 crore.

Ramesh Damani, a prominent BSE broker, described the day’s development as a “knee-jerk reaction”. He pointed the markets were “tired” and looking to shed some of the gains in the mid-cap stocks.

Another worry in the markets is that the gilts scam, which has so far left the equity markets unscathed, is finding its way into the secondary segment.

Foreign funds had not reacted to the Prime Minister’s statement, choosing to stay away from the selloff. The share sales were largely confined to domestic players, and to a handful of stocks, dealers said.

The markets opened steady, buoyed by the good news of the government having decided to relinquish control of Maruti. This was a clear signal that the selloff programme was on track, even after mid-course hiccups. More good tidings on this front are expected in the coming days like the privatisation of IPCL, a market analyst said.

Incidentally, the top gainers today was Surat Electricity up 20 per cent, Laksmi Mills up 19.02 per cent and Binani Industries up 9.95 per cent. Telecom majors MTNL and VSNL were in the positive territory.

The Indian currency had earlier this week closed at 49.00/0200 to a dollar. Dealers said that while the rupee began steadily with most of the participants not expecting any major movements, the situation changed when panic-stricken corporates started building up long dollar positions after the statement made by Vajpayee. Soon banks, that were seen selling dollars earlier during the day, too turned buyers.

In the forward market too, premia on the greenback hardened with the one-month annualised forward premium closing higher at 6.26 per cent as against 5.83 per cent yesterday while the six-month premium was pegged at 6.06 per cent against 5.96 per cent on Tuesday.

In the government securities market, the benchmark 10 year 2012 11.03 per cent security closed at Rs 122 as against its previous finish of Rs 122.60.

   

 
 
KETANS UNITED BEHIND BARS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, May 15: 
If destiny wished, they could well have been twins. Born separately, Ketans — Parekh and Sheth — were united in their moment of reckoning.

Parekh, the elder and better known, showed just how easily stock markets could be turned into rogues’ gallery. Sheth, on the other hand, greased the palms of authorities at the Seamen’s Provident Fund to get cash he was supposed to invest in government securities. He never did so, and left his patrons poorer by Rs 100 crore.

Parekh, who earned the Big Bull moniker after nemesis caught up with Harshad Mehta, was arrested by the Mumbai police today in connection with a case filed by the Mauritius-based European Investment Company. He has been charged with duping the firm of Rs 71 crore, and remanded in police custody till May 22.

European Investment has given Parekh the money to invest in shares. He never did, and instead committed forgery by issuing bogus contract notes. R. M. Sarnaik, assistant commissioner in the economic offences wing of the Mumbai Police, said charges framed against the broker include cheating and forgery.

Around the same time, Sheth, promoter of Gilt Edge Securities and one of the kingpins in the government securities scam, was remanded in CBI custody till May 27 by a special court. He surrendered on Tuesday.

The decision followed a plea made by public prosecutor Gul Asnani, who said the agency needed more time to interrogate a man pressing for a shorter remand on the ground that he has not been keeping well. Sheth’s lawyer promised co-operation with the probe.

Meanwhile, Home Trade CEO Sanjay Agarwal, the prime accused in the multi-crore scam engulfing co-operative banks in Maharashtra, was brought to Mumbai this morning.

He was taken to New Mumbai, where CID sleuths were to open his sealed offices and 25 computers in his presence, police sources said here today.

   

 
 
RELIANCE MOTHBALLS MEGA PLANS 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, May 15: 
The Reliance group has shelved investment plans worth over Rs 14,000 crore that would have led to the setting up of three greenfield ventures. They are the Patalganga power project in Maharashtra, Jayamkondam power plant in Chennai and liquefied natural gas terminals at Jamnagar and Hazira.

Sources say the group was forced to take the step because of the harsh economic recession over the past few years. While it is the uncertainty of finding buyers that forced the two power projects on the backburner, the LNG terminals are unlikely to be set up in the near future because chances of procuring gas from Iran are remote.

The three projects had been in the pipeline for some time, with the group having donea lot of spade-work — getting land, technology and the necessary licences.

A Reliance official, speaking on the condition of anonymity, said his group has washed its hands of the 447-MW Patalganga project, while it dithers on the other two. Sources say Reliance is no longer interested in executing power projects through Reliance Power Ventures, its wholly owned subsidiary. Instead, it wants to do so through BSES, in which it has around 36 per cent.

The group signed power purchase pacts with state governments concerned for the two power projects, but lack of potential buyers forced it to hold back new investments.

The Patalganga project, originally conceived with a capacity of 410 MW, was awarded to Reliance in December 1994 after international competitive bidding. It received techno-economic clearance from the Central Electricity Authority on the condition that promoters reduce the project cost and raise capacity to 447 MW. The proposed investment was around Rs 3,900 crore.

The Maharashtra State Electricity Board, supposed to identify buyers, could not seal a power-purchase deal with Reliance at a time when Dabhol power project was unravelling. Also, the Maharashtra government rejected the Ambanis’ escrow cover proposal on the ground that such a security mechanism was not incorporated in the international competitive bid.

The Jayamkondam lignite power project, also in trouble now, was initially planned as a 1500 MW unit. The Reliance group entered the project in November 1998 through its subsidiary, Reliance Power Ventures. It decided to set up a 500 MW plant in the first phase with an investment of around Rs 6,000 crore. The two other phases would have followed later.

The LNG terminals were planned to import liquefied natural gas from Iran, where Reliance has signed an MoU with National Iranian Oil Company and British Petroleum to conduct a feasibility study at an investment of $ 10 million.

The objective was to develop an LNG project in southern Iran in a joint venture, and export the bulk of its output to India. The two mega terminals would have cost around Rs 4500 crore.

   

 
 
HIGHER PREMIA ON RASH DRIVING 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, May 15: 
Rash drivers beware: you could end up paying higher insurance on your car very soon.

The insurance industry is planning to introduce a rewards-penalty system under the new motor policy which is due to be revised by June 1 which will incorporate a bias in motor insurance premia.

“The new policy will help insurers make a clear distinction between a good risk and a bad one,” said N. Rangachary, chairman of the Insurance Regulatory Development Authority (IRDA).

Here’s how it works: a car driver who has made insurance claims because of accidents will now end up paying a higher premium than one who has not made a claim at all for the same sum assured.

The new motor insurance rates, which will come into effect from June 1, will be set by the tariff advisory committee.

Rangachary said the insurance watchdog will come out with its regulations within four weeks of the passing of the insurance amendment legislation. The Bill was passed into law on Wednesday.

Speaking on the sidelines of the inauguration of ‘My Cover’, official agents of Bajaj Allianz General Insurance Company, the private non-life insurer, Rangachary said, “The general insurance companies provide more products than life insurance companies.” To confirm the above, he cited the example of a ‘personal lines’ cover provided by Tata AIG General Insurance Company.

When the corporate agent for My Cover said that in future 50 per cent of premium income collected by the non-life companies would come from motor insurance policies, Rangachary interposed to say that motor insurance was a loss-making area in India. He also shared that worldwide the motor insurance premia collected are at an average rate of 6-1/2 per cent of the entire premia collection. However, in India, it is only 3 per cent.

Rangachary also said IRDA is thinking of restructuring the manner in which insurance agents are paid commissions so as to help reduce the rate of policy lapses. It will now probably come up with a structure under which the total commission of the agent will be divided by the total number of years for which the policy has been insured. The agents will then be paid their commissions accordingly.

Speaking about the pensions sector, Rangachgary said, “Insurance companies are already there in the vesting phase.” Pension phase has two phases—the collection phase and the vesting phase.

Rangachary signalled clearly that investments will continue to play a major role in the insurance sector, indicating that this sector will grow in future.

   

 
 
MARUTI SET TO DRIVE SUZUKI GLOBAL PLAN 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, May 15: 
Suzuki Motor Corporation (SMC) today formally signed a deal with the government preparatory to acquiring majority control of Maruti Udyog and indicated that it would turn the Indian carmaker into a global sourcing hub for select models.

Suzuki, obviosuly wants to take advantage of the low labour costs in India to turn out certain cars for the global marketplace.

SMC director Shinzo Nakanishi told newspersons after the deal was signed that Suzuki’s strategy for Maruti would involve “sourcing some of SMC’s models globally, assisting MUL to access new export markets, promoting it and its products in the global market, and aggressively strengthening MUL’s manufacturing and technical capabilities so as to make MUL’s products internationally competitive in terms of quality and cost.”

Nakanishi, Pradeep Kumar, joint secretary (heavy industry) and Jagdish Khattar, MUL’s managing director, signed the new memorandum of understanding (MoU) which will govern the manner in which Maruti is run in the future.

Till now, the government had four nominees on the Maruti board and had the right to appoint the managing director and chairman by rotation. Its rights will now be curtailed to appointing just two nominees to the Maruti board. The two partners will meet again on May 30 to discuss the nitty gritty of the management structure in the joint venture—like re-electing Jagadish Khattar as managing director and filling up important posts like director (finance).

Officials at the heavy industries ministry said, “This is the best possible deal that could have been signed between the two parties. Even though government will exit the joint venture in a couple of years, the ministry will continue to maintain a keen interest in the progress and growth of MUL as a dominant player in the auto sector. Following the deal, it depends largely on Maruti to establish India as a hub for small cars and lead the way for modernisation of the auto industry.”

Maruti will immediately get a cash injection of Rs 400 crore through the rights issue. While sources refused to spell out the company’s plans, analysts feel Maruti will restructure some of its long-term outstanding debt. Maruti has Rs 440 crore of long-term debt from Indian bankers which it took in 2000-01 for manufacturing the third line of production. At the time, it was taken for a period of five years taking the repayment time to 2005-06.

“The company will not repay all its debts as soon as it gets the fund, but will probably pay up a fraction of the loan. It will use the rest to introduce new vehicles. The company has clawed back from the red; so, FIs will have faith in it and re-negotiating debt will not be a problem,” analysts said.

   

 
 
BENGAL MEET TO TAKE STOCK OF GILTS SCAM 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, May 15: 
The Reserve Bank of India, along with the registrar of co-operative societies, has summoned the 52 urban co-operative banks (UCBs) in Bengal to a meeting on May 21 and asked them to submit their audit reports. The move follows indications of the involvement of some UCBs from the eastern region in the gilts scam.

When contacted in Mumbai, the official RBI spokesperson said, “Our people are currently gathering information whether any of the co-operative banks in Bengal has been duped by Home Trade or not. They will submit a report by the end of this week. The meeting is very important in that way. The audit report of these banks will be scrutinised in details and if we find serious loopholes then RBI will ask registrar of co-operative societies to appoint an auditor.”

The central bank has already directed the registrar of co-operative societies in Maharashtra and Gujarat to appoint auditors for the UCBs. The spokesperson said that names like the Bhatpara Naihati Co-operative Bank and Boral Union Co-operative Bank have surfaced for their involvement in the gilts scam. “We are collecting information from the market on these banks. Other banks too may be involved in the scam.”

When contacted, senior officials of the registrar of co-operative societies said, “There are some banks like the Contai Co-operative Bank, Baranagore Co-operative Bank, Durgapur Steel Peoples Bank and Rahuta Union Co-operative Bank, which may have fallen prey to Sanjay Agarwal, the promoter of Home Trade. We are trying to establish links between them.”

They said that the Boral Union Co-operative Bank has made some bad financing and the recovery rate is pretty low.

Both the RBI and registrar of co-operative societies said comprehensive and up-to-date information on UCBs was usually not available due to the delay and non-submission of returns within the stipulated time-frame.

In particular, PCBs are required to submit two types of returns—statutory returns and control returns—to the RBI which enable the central bank to supervise these banks.

“Unfortunately, there is often a serious delay or non-submission of these returns by individual banks, inspite of the stringent penal provisions in existence for non-submission of returns,” the RBI officials said.

UCB status of 2 banks cancelled

The Reserve Bank of India has taken away powers from two urban co-operative banks—GKW Bank and Ramkrishnapur Co-operative Bank—to function as banks. Henceforth, they will work as co-operative societies and cannot accept deposits or renew them like the banks. The RBI spokesperson however said that these banks were not linked to the gilt scam. “They were being badly managed, hence the RBI has taken away banking powers from them,” she said.

   

 
 
NO IMPACT ON BOURSES, SAYS BAJPAI 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, May 15: 
The multi-crore scam in government securities (or gilts) will not affect the bourses, Securities and Exchange Board of India (Sebi) chairman G. N. Bajpai asserted today.

“The Home Trade issue is outside the purview of the markets and will not affect them,” Bajpai told reporters on the sidelines of a seminar organised by Assocham here today to discuss the ‘Role of a regulatory body in improving corporate governance’.

The market regulator had banned the Sanjay Aggarwal-promoted Home Trade Ltd—which is at the heart of the scam—from dealing in securities till the completion of the investigations and action thereon or till one year, whichever is later.

Bajpai felt there was no need for a super-regulator for the financial markets, a concept now being tested in Germany and Britain. “I don’t see any need for a super-regulator to monitor sectoral regulators,” the Sebi chief said and added that the existing regulatory framework was strong enough to deal with such situations.

As the capital market regulator, Bajpai said his prime objective was to infuse greater confidence among investors. He said positive signs had already started emerging, and, as evident from the primary markets, Punjab National Bank’s initial public offer received an overwhelming response.

The Sebi chairman today asserted a three-pillar system to achieve success in corporate governance. These three pillars are ‘vridhi’ or expansion, ‘raksha’ or protection, and ‘yogakshema’ or welfare. Elaborating on this, he said a king ensures the prosperity of his kingdom, increases it day by day, protects his prosperity and equally shares it with the people, a concept that should also be adopted by companies.

Bajpai asserted that corporates must understand that “public good should be ahead of the private good”. He also said that it makes business sense for the corporates to have good corporate governance principles in place, as it would also reflect on the performance of the capital markets. The lack of proper governance would hurt the confidence of the investment community.

   

 
 
THOMAS COOK FORAY INTO TRAVEL INSURANCE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, May 15: 
Thomas Cook Insurance Services, a wholly owned subsidiary of Thomas Cook India Ltd today announced its entry into the travel insurance segment as the licensed corporate agent for Tata AIG General Insurance Company Ltd.

TravelCare, issued by Thomas Cook Insurance Services (I) Ltd will be underwritten by Tata AIG General Insurance. The company will provide exclusive products designed for the traveller, such as insurance cover for hijack, bail bond and a home burglary insurance plan.

With the launch of TravelCare, Thomas Cook a leading travel, foreign exchange and travel related service provider, becomes the first in the travel industry to enter the insurance segment and offer a co-branded product.

While Thomas Cook transports 20 million customers across the globe, AIG is the largest travel insurer in the world.

Speaking on the occasion, Ashwini Kakkar, chief executive officer and managing director, Thomas Cook (I) Ltd called the move a “synergistic opportunity”. “It is our constant endeavour to look ahead into the future and understand customer needs, and customise our products and services to meet their requirements,” he said.

“We have drawn on our experience and expertise of the travel space to design TravelCare. There is an immense growth in outbound travel, which will lead to increasing demand for personalised travel insurance plans,” he added.

Thomas Cook plans to launch two products initially, TravelCare and FamilyCare, and, at a later stage, introduce ScholarCare.

Dalip Verma, managing director, Tata AIG General Insurance said: “We have customised Travel Care keeping in mind the need for hassle-free risk coverage while travelling overseas.”

   

 
 
BROKERS TO BE PAID ONLY ON DELIVERY 
 
 
BY DEVADEEP PUROHIT
 
Calcutta, May 15: 
Rattled by the gilt scam, the Reserve Bank of India has asked co-operative banks to ensure that brokers are paid only on delivery of securities. The apex bank says in a recent circular, securities must be delivered on the same day as settlement of trade.

It has also reiterated that co-operative banks should employ only brokers registered with the OTCEI, National or Bombay stock exchanges, and ensure that the volume of transaction carried out by a single broker does not exceed five per cent of the total in a year.

Had the Reserve Bank enforced these regulations earlier, rogue brokers would not have managed to siphon Rs 300 crore out of co-operative banks in Maharashtra and Gujarat.

The banking regulator also wants to reduce the role of a broker to that of a mere facilitator in a deal. The circular says: “Co-operative banks should not undertake any purchase or sale transaction with brokers or other intermediaries on ‘principal-to-principal’ basis.” This implies that a broker cannot be the counter-party in any deal.

The Reserve Bank says co-operative banks should insist on dealing with scheduled commercial banks, primary dealers or financial institutions, and seek to transact directly with them.

It has also warned co-operative banks against issuing power of attorney to brokers or other intermediaries to deal on their behalf. A co-operative bank in Rajkot was recently found to have delegated powers to brokers to trade on its behalf. It was being virtually run by them.

These regulations apply to trading of government securities in the physical mode. Reserve Bank is also considering a complete ban on trading in the physical mode.

The banking regulator and the National Bank for Agriculture and Rural Development (Nabard) probed a number banks in the two western states, and identified about 10 banks as having been cheated by Home Trade and its associates.

The total loss of these banks is estimated to be a shade under Rs 300 crore, but recent revelations indicate a strong possibility of Home Trade having swindled banks in Orissa and West Bengal too.

PF inquiry

The audit of the 600 autonomous provident fund trusts in West Bengal will be completed this month. The auditors would primarily examine the last two years’ balance sheet of the trusts. Six assistant commissioners will lead 30 enforcement officers.

“Besides physical verification of the assets, the audit will also probe the trusts’ dealings with various brokers,” said a officials in the department.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 49.03	HK $1	Rs.  6.20*
UK £1	Rs. 71.00	SW Fr 1	Rs. 29.85*
Euro	Rs. 42.27	Sing $1	Rs. 26.75*
Yen 100	Rs. 38.30	Aus $1	Rs. 26.40*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5260	Gold Std(10 gm)	Rs. 5130
Gold 22 carat	Rs. 4965	Gold 22 carat	NA
Silver bar (Kg)	Rs. 8000	Silver (Kg)	Rs.8145
Silver portion	Rs. 8100	Silver portion	NA

Stock Indices

Sensex		3395.59		- 24.74
BSE-100		1697.87		- 14.82
S&P CNX Nifty	1107.80		-  7.30
Calcutta	 116.14		-  0.73
Skindia GDR	   NA		    -
   
 

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