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L E A D S T O R Y Den Of Thieves
Of all white-collar crimes, insider trading probably is the most pervasive and acquiesced with. Lax regulations and the ease with which a manager can access sensitive information to profitably manipulate stock prices are, of course, what drive this nefarious practice. And particularly in India, insider trading is as brazen as it gets. Consider: in 1996, a large Fast Moving Consumer Goods (FMCG) company bought nearly 10 lakh shares in a sister concern a few days ahead of their merger. In 1998, the promoter-chairman of a large infotech company picked up a few thousand shares of his own company just before it declared a one-for-one bonus issue. In 1999, the promoter and managing director of a plastic raw material company mopped up nearly one lakh shares of his loss-making company days ahead of its merger with a German chemical giant. It is common knowledge that more than half the trades in shares is based on inside information-be it right or wrong. Yet, the stockmarket watchdog, the Securities and Exchange Board of India (SEBI) is able to do little. Sure, since 1992, it has had laws to curb insider trading. But the regulations have so many loopholes that it is virtually impossible to prosecute, even in cases where it is reasonably apparent that privileged information has been used to trade. But why is insider trading such a dirty word? Simply because it subverts the fair functioning of the market system. For investors to retain faith in stockmarkets, it is important that information that materially affects a corporation is shared with the world at large. Yet, partly inevitably, managers and their associates such as bankers, stockbrokers, institutional lenders, and investment advisers are the first to get sensitive corporate information. Last month, SEBI introduced a fresh set of preliminary guidelines to be adopted by companies, market intermediaries (like merchant bankers and brokers), financial institutions, mutual funds, banks, credit rating agencies, and professional firms. Taking a cue from other developed markets, the draft has suggested measures that may have far-reaching implications. It has suggested, for example, that corporates should not meet equity analysts or researchers every now and then. Besides, they should not be given any price-sensitive information. If, by mistake, any such information is given, it should be made public immediately. Says Ravi Ramu, 41, Chief Financial Officer of I-Vega Corporation, and formerly a kpmg consultant: ''It was an absolute necessity. Institutions, brokers, and funds should not have privileged treatment as opposed to other shareholders.'' The guidelines want corporates to quickly issue clarifications and denials against any unconfirmed media reports or market rumours that can significantly affect their stock prices. To prevent the misuse of confidential information, intermediaries must adopt a 'Chinese Wall' policy to separate departments (called 'insider areas') that routinely have access to confidential information from those that deal with sale, marketing, or investment advice. Employees in the insider area are barred from communicating any confidential information to anyone in the public area, or from using unpublished information to buy or sell securities of any sort, whether on their own or on somebody else's behalf. It also has been suggested that the security of a listed company should be put on the restricted list if the firm is handling any assignment for the listed company. Like all laws, the draft's intention is to make trading as transparent as possible. But the real problem lies in implementation. Will the new guidelines prove any more effective? Your guess is as good as ours. -Dilip Maitra MONEY MARKETS One of the classic trade-offs involved in any investment decision is risk versus returns. The higher the risk, the more the return. Government securities are considered to be zero-risk because, well, governments don't go bust. The catch, however, is that they pay you a pittance. Besides, government debt issues run into several thousands of crores, and small investors simply don't have that kind of financial muscle. But now it looks as if small investors may get a piece of the action. The National Stock Exchange (NSE) has started trading in G-Secs (Government Securities), and PNB Gilts-one of the primary dealers-has tied up with the National Securities Depository Ltd. (NSDL) for holding dematerialised (demat) shares of G-Secs. With this, investors would be able to purchase gilts from PNB Gilts and make settlements at NSDL. And once the payment is made to the primary dealer, the shares would be automatically transferred to the investor's demat account at the NSDL. What makes G-Secs more attractive today for retail investors is the interest hike-led crash in gilt prices. Moreover, ever since 1991, yields on G-Secs are no longer administratively controlled, but have been left to market forces. That's raised yields considerably. ''G-Secs are ideal for those investors who are risk-averse,'' says Arun Kaul, 44, Managing Director, PNB Gilts. There are tax benefits, too. Both G-Secs and Treasury Bills (T-bills)-another government paper-attract no tax deduction at source, and there is an additional rebate of Rs 3, 000 per annum under Section 80L of the Income Tax Act. Liquidity is not a problem, since both the instruments can be bought or sold before their maturity date. While G-Secs have maturity periods ranging from one year to 30 years and the interest is paid once in six months, T-bills have shorter maturity dates of 14, 91, 182, and 364 days. What primary dealers like Kaul are looking at is the Rs 1,10,000 crore piled up in current accounts with banks. This money hardly earns any interest income. Looking at the huge potential, PNB Gilts has started servicing clients with amounts as small as Rs 25,000. The bottomline: If you are the sort who'd rather be safe than sorry, then G-Secs are just for you. In GoI you can trust. -Ashish Gupta LIQUOR INDUSTRY When it comes to drinking, the world is divided into two: the hangover haves and the hangover have-nots. Longer and harder work hours, and shorter but more intense windows of partying, seem to be tilting the scales in favour of the have-nots-people are increasingly refusing to walk into workplace the day after feeling all groggy. Sure, you still can't refuse a drink or two at your boss's party. But you won't lose a promotion or a deal for giving hard liquor the go by. Says Albert Elgrissy, 50, Chairman and Managing Director, Pernod Ricard: ''These days drinking has acquired a certain social status and hard liquors are never preferred on these occasions.'' Numbers bear Elgrissy out. The traditional market for hard liquors like scotch and whiskey is growing slower than that of the new light drink category comprising vodka, vermouth, liqueurs, tequila, and wine. Between 1993 and 1998, the rum market's compounded growth rate was 46 per cent; that of medium (priced) gin 20 per cent, and vodka's 50 per cent. By April 2000, the share of white spirit had grown to 3.5 per cent, and rum's was up to 19.8 per cent. The growth in these categories is in sync with the industry's 8 per cent figure. Even the wine market, historically small, has almost doubled in size in the last three years. The boom in new categories is prompting hard liquor makers like Shaw Wallace to shift focus towards wine. Says H.R. Ahuja, 48, Vice-President, Chateau Indage: ''Drinking has increased, but consumers seem to prefer mild drinks. Companies will need to launch more products here.'' The growth may be coming from relatively sober liquor, but the industry is all heady about it. -Jaya Basu INTERNATIONAL
TRADE It's a situation the government hates having to deal with. Soaring crude prices threaten to more than double the deficit in the oil pool account-which is maintained to provide uniform and stable prices by balancing input costs-to Rs 13,000 crore. To prevent that, fuel prices must be increased. But given the political sensitivity of the product, any hike in prices would mean massive public displeasure. The Indian Oil Corporation (IOC), which imports nearly 40 million tonnes of crude oil every year on behalf of other state-owned oil majors, is already beginning to feel the pinch. Says P. Sugavanam, 53, Director (Finance), IOC: ''If the oil pool deficit goes up to Rs 13,000 crore, IOC's share will increase to Rs 7,500 crore, which is unbearable.'' Already, IOC's outstandings are in the region of Rs 4,000 crore. In the past year, crude oil prices have increased from nearly $20 per barrel to $32.50 per barrel. With winter round the corner in the US and Europe, crude prices are likely to remain high. That leaves Union Petroleum Minister Ram Naik with little choice but to increase prices and risk fuelling inflation. The problem is compounded by the poor offtake of petroleum products in the first five months of this fiscal. But unlike IOC, Bharat Petroleum and Hindustan Petroleum don't face any major cash-flow problem, since ex-refinery prices have enjoyed import parity for the last three years. But more than the revision of petro-product prices, what oil majors are looking for is a revision of the marketing margins on controlled products like petrol, diesel, kerosene, LPG, and aviation turbine fuel. Points out Ashok Sinha, 46, Director (Finance), Bharat Petroleum: ''We are squeezed on marketing margins, which are fixed by the government.'' The marketing margins on controlled products have not been revised since 1996; under the Administered Price Mechanism, oil majors get a 12 per cent return on their net assets. Adds Sugavanam: ''The investments we have made need to be compensated. '' Domestic oil production, currently at 31 million tonnes per annum, has been falling due to poor recovery from key sites such as Bombay offshore. As a result, India imports nearly 70 per cent of its oil requirement. Late last month oil companies were allowed to make futures deals to hedge against price volatility. But revision of retail prices is a painful move the government may have to make sooner than later. -Ranju Sarkar BROADCASTING After hanging fire for nearly 10 years, Direct-To-Home (DTH) broadcasting may soon turn into a reality. At last month's conference of state infotech ministers, the biggest hurdle in the way of DTH-the use of KU band-was removed, although initially the band will be available only to broadcasters of educational and medical programmes. Industry analysts expect DTH to soon receive the nod to use KU band. Notes Dewang Mehta, 39, President, NASSCOM: ''There is unlikely to be much fuss over DTH.'' BT learns that the Information and Broadcasting (I&B) ministry has almost finalised DTH guidelines. People in the know say that the new policy will likely restrict foreign equity to 20 per cent, while treating investment from Non-Resident Indians (NRIs) as Indian equity. A licence fee-ranging from Rs 10 lakh to Rs 1 crore-is also planned, and a pre-condition to its issue could be 50 per cent local sourcing of content. As in other countries, local uplinking may be made mandatory. The fact that eight IntelSat transponders have recently been leased by Videsh Sanchar Nigam Ltd. (VSNL) should make uplinking from India easy for DTH wannabes like Rupert Murdoch's star TV, Hughes Direct TV, Kerry Packer's Consolidated Press Holding, and Ecostar Corporation's Dish Television. Subscriber tariff is to be regulated, besides which the DTH operator would be required to follow common broadcast and advertising code. Says R.K. Singh, 49, CEO, Zee Telefilms: "Of course, DTH broadcasters should have a universal advertising code, since every country has its own ethical standards.'' People familiar with the matter say that public broadcaster Doordarshan's demand for a five-year exclusive right to DTH has been shot down. Instead, it will be asked to compete with the other players. DTH, however, is unlikely to be a big market. The technology, which circumvents the cable operator, entails the subscriber having to install an expensive set-top box to receive and unscramble signals. Estimates put the potential DTH market in India at three million households. And whether or not the DTH contenders find it worth their while to make investments will depend on the final shape the policy takes. -Ashish Gupta |
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