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Baby And The Bathwater

SEBI's decision to put an end to badla may marginally affect market liquidity, but it will align India's stockmarkets with those of more developed countries. Or so we hope.

By Roshni Jayakar

Left Is Right

Pie In The Sky: Take Three

BankAm's Comeback Trail

Dalal Street is indignant. Its hopes that the Securities and Exchange Board of India (SEBI) would allow some kind of a modified badla-the home-grown carry forward system that allowed a trade to be carried forward up to 90 days-have been dashed. In one fell swoop, the stockmarket watchdog hasn't just kicked out badla, but also banned all other deferral products like the Automated Lending and Borrowing Mechanism (ALBM) of the National Stock Exchange, and the Borrowing and Lending Securities System (bless) of the Bombay Stock Exchange. The two facilities allowed brokers and investors to borrow and lend securities from the system to cover their positions.

That apart, permission has been given to exchanges to introduce index options as well as options on individual scrips from July 2. What the new measures mean is that beginning July 2, no deferred positions will be permitted, and 414 stocks, instead of the current 251, will be put on a compulsory rolling settlement. By January next year, all the stocks will be on mandatory rolling settlement. Says Siva Subramaniam, Fund Manager, Kothari Pioneer Mutual Fund: ''Badla had been living on borrowed time. In any case, derivatives is the best way forward.'' Adds L.C. Gupta, former SEBI board member and chairman of Derivatives Committee: ''Contrary to general perception, the markets will become stronger.''


1969 June 27: Government of India prohibits any contract for the sale or purchase ofn securities other than spot, cash, or hand delivery.
1983 January: Government permits Bombay, Calcutta, Delhi, and Ahmedabad stock exchanges to allow carry forward of specified shares for 14 days from the date of contract
1993 December 13: SEBI directs stock exchanges to ban carry forward system or badla.
1995 February 22: G.S. Patel Commitee is set up to review carry forward transactions in stock exchanges.
1995 March 20: G.S. Patel committee submits its report.
1997 January: BSE President writes to SEBI requesting changes in revised carry forward system to make it more practical and efficient.
1997 February: SEBI introduces Securities Lending Scheme to facilitate timely delivery of securities.
1997 March: SEBI reviews the entire sequence of developments relating to revised carry forward system (RCFS), and decides to review the system periodically.
1997 June: J.R.Varma Committee, set up to review the RCFS in its entirety, presents its report.
2000 June: Trading in futures commerces on NSE, BSE launches Sensex futures.
2001 January: BLESS introduced on BSE to enable purchase and sale of securities.
2001 February: ALBM is introduced on NSE
2001 May: SEBI announces ban on all deferral products. Permission for introduction of options on individual scrips from July 2, 2001.

The brokers, of course, are unhappy as hell. Their argument: this is knee-jerk reaction from SEBI, and will affect market functioning, including liquidity, volatility, and prices of those stocks with long outstanding positions. But the market Cassandras may be wrong. Consider: On the day SEBI was to announce its decision on badla, the Sensex did gyrate some 300 points, but it ended with a gain. Neither was there any sharp fall in the index after SEBI announced its ruling. As for liquidity, Gupta points out that in 1994, when there was a ban on badla, the markets peaked and volumes were higher than the previous year's. Besides, trading in non-specified stocks increased by 80 per cent.

In the short-term, however, liquidity may suffer. Simply because stock trading, by its very nature, involves speculation, and investors need some form of margin trading to enter and exit positions. But thanks to greater foreign institutional investor and mutual fund participation, the likely shortfall may get made up. Also, as SEBI argues, allowing options in individual stocks will serve the same function as carry forward. Says M.R. Mayya, former Executive Director, BSE: ''A wider approach would have been to offer options and futures along with the ban on badla and other deferral products, because we need instruments that not only enhance liquidity, but also act as an instrument of hedging.''

From SEBI's point of view, however, the need was to effect the transition with as little disruption as possible. So the exchanges have been asked to monitor positions of the members, announce plan for phased liquidation of positions between July 2 and September 3. After all, the market is just about recovering from the KP scandal, and SEBI Chairman D.R. Mehta has his own credibility at stake. In fact, the ban on badla could be seen as Mehta's most important achievement in the five years he has spent at SEBI, because in a way he is correcting the mistake he had made by reintroducing badla in 1996. In 1994, the then chairman of SEBI, G.V. Ramakrishna had banned badla.

Mehta can claim credit for a couple of other moves, too. For instance, the introduction of uniform settlement of stocks which are not under compulsory rolling on across all exchanges will discourage arbitrage. But the challenge before Mehta is to make the markets work in the absence of badla.

Left Is Right

It's a new Left Front coming back to power in West Bengal

There were three rather unusual visitors at the CPI-M secretariat, even as the ruling Left Front was starting to celebrate its sixth victory at the West Bengal hustings. The corporate personalities were Ambuja group's Harshvardhan Neotia, and IFGL's Shishir Bajoria and head of one of the local chambers of commerce. People one would have hardly expected to celebrate with the Left. But, then, by all indications this is a new Left with a chief minister willing to talk shop. ''Industrialisation and reviving the entrepreneurial culture is the top priority with the new government,'' chief minister Buddhadeb Bhattacharya told the media moments after his own election was confirmed.

Bhattacharya has already sought help from the likes of Neotia and Sanjiv Goenka in working out the roadmap for West Bengal's industrial revival. With his charisma and image clearly a deciding factor in this election, Bhattacharya needs to quickly seize the opportunity and ensure that the traditional hardliners in the party do not upset his more liberal plans. The quintessential party man that he is, Bhattacharya tends to credit his party with having a new outlook, but the industry leaders view it more a personal statement of intent from the man in the hot seat himself. ''The intent is loud and clear, but what remains to be seen is whether he can use the mandate to drive home the advantage,'' says Neotia. Over to you, Mr cm.

-Debojyoti Chatterjee

Pie In The Sky: Take Three

Seven years after deciding to put a satellite in the sky, Subhash Chandra is still trying. The beleagured entrepreneur may burn out, but he for sure won't fade away. At least, not anytime soon.

Zee's CHANDRA: Ambition sky-high

CIRCA 1994: Rice-exporter-turned-television- broadcaster Subhash Chandra decides to take a plunge into satellite telephony. He creates a company, Afro-Asian Satellite Communications, to offer mobile telephony services in Africa and Asia. He calls in Hughes Network to supply the satellite system for the $1.25-billion project. Some $40 million in investment later, Hughes walks out. Both the partners realise that things aren't progressing as planned.

1999: Chandra is still dreaming of his own satellite. This time, he's scaled down the project, and is focusing only on India. Hence the cost is now $755 million. Lockheed Martin will build the satellite and VSNL the gateways, and both have agreed to be equity partners in the venture. Around the same time, Iridium-another satellite telephony wannabe-files for Chapter 11 bankruptcy, and competitors ICO, Globalstar, and Orbcomm get hit, too. Chandra's company ASC Enterprises isn't spared. VSNL parts ways, as does Lockheed.

2001: You'd think Chandra would have called it quits by now. After all, his flagship Zee Telefilms' market cap is off 90 per cent the 1999-2000 peaks, and the Rs 220-crore alleged to have been lent to scam-tainted bull, Ketan Parekh, is virtually a write-off. But Chandra's response is, well, not entirely unpredictable. ''The (Agrani) project should take off in a couple of months; there are no more hurdles.''

Call it misplaced bravado, or a never-say-die spirit, what's for sure is that Chandra won't just fade away. Take a look at the twice-tweaked blueprint for the Agrani project. ''It's now evolved into a multi-venture project, with Agrani becoming a brand for multiple services in the satellite, telecom and retail segments,'' explains J.P. Singh, CEO of ASC Enterprises Ltd. (Ascel). The new project cost? Rs 1,150-crore, of which Rs 460-crore is equity and the rest debt.

Ascel these days has taken the shape of a holding company, which in turn has spawned three outfits: Agrani Convergence Ltd. (ACL), Agrani Satellite Services Ltd. (ASSL), and three public mobile radio trunking services (PMRTS) companies that have been acquired from the Bhilwara group. And don't forget that Chandra is also partnering Craig McCaw in the resurrection of ICO. Chandra, say Ascel officials, has already pumped $50 million into New ICO Global and McCaw's ICO Teledesic Global Ltd (ITGL). New ICO will provide voice and data services via satellite globally by 2003, and Chandra, as partner, will cover the Indian region.

So even as New ICO persists with its global mobile satellite system gameplan, Chandra's satellite ambitions back home have undergone a shift. ASSL hopes to provide C & ku band satellite capacities as well as 'bundled solutions' to telecom, satellite, and television service providers. Singh points out that there are some 126 satellite transponders in use over India, of which 65 are on Insat and 61 on foreign satellites. ''There are some 210 satellite channels over India, and there's a shortfall in c band capacity. We anticipate a growing requirement of Indian broadcasters for satellite-based TV distribution and for direct-to-home,'' he adds. What's more, with ISPs now allowed to set up international gateways, Singh expects plenty of demand for space on his satellite.

Analysts point out that the biggest competition for Chandra will be via optic fibre cables, which are ideal for point-to-point high-density trunking of voice, data, and Internet traffic. Singh, however, explains that the biggest advantage of satellite is direct access, by overcoming first and last mile bottlenecks. Last fortnight, Chandra got a shot in the arm when the London Court of International Arbitration ordered Hughes to pay $58 million to ASC for cancelling the 1994-contract.

Singh expects to achieve financial closure in a couple of months. Of course, he said this before Chandra's alleged nexus with Ketan Parekh came to light.

-Brian Carvalho

BankAm's Comeback Trail

Its retail business is long dead, but the bank's new country manager, and parent Nations Bank, want to tighten their hold on corporate banking.

AHUJA: focus on l-banking

In 1998, when Nations Bank acquired Bank of America, it seemed that it would be a matter of time before the latter's India operations slipped into low gear. Indeed, within months, the retail business in Asia was sold off to ABN Amro. But to those expecting the bank's corporate business to go the same way, the events of early May came as a surprise. Not only was a new country manager, Vishwavir Ahuja, appointed, but Nations Bank also chipped in with $50 million to set up a fully-owned securities firm. Explains Ahuja: ''Going forward, we will be more focussed on top-end corporate investment banking. We have strong relationships with premium corporate houses, which we will leverage against investment banking opportunities.''

World over the boundary between investment banking and banking has been getting blurred, with bankers putting their feet into the shoes of investment bankers and vice versa. Even consulting firms are getting in on the act (Arthur Andersen recently acquired Ind Global). But fact remains that India is an over investment-banked market, with little to talk in terms of business volume. As Munesh Khanna, head of Andersen's corporate finance practice puts it: ''In India, everyone with a cellphone and a laptop wants to get into investment banking.''

The scenario has been particularly bleak in the past five months, thanks to the stockmarket jitters and companies opting to wait for better valuations before striking a deal. The saving grace is that a lot of consolidation is happening within group companies. But the competition is getting stiffer. On one hand, there are pure-play investment bankers, such as JM Morgan Stanley, DSP Merrill Lynch, Kotak Mahindra, and the new boy in town, Salomon Smith Barney. On the other, there are banks such as Bank of America and Rabo Bank-who are leveraging their balancesheet strength-scrambling for a toehold. But if Dresdner Kleinwort Benson's recent exit is any indication, then wannabe I-bankers-BankAm included-had better buckle up.

-Seema Shukla

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