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TRENDS: LEADER The Inside Story A SEBI probe results in a 3,000-page report, a treatise on insider trading.
The irregularities listed range from promoters selling large quantities of their company's shares to entities controlled by Ketan Parekh in synchronised deals to buying significant quantities of shares just before announcing buy-back deals and then tendering them under the offer (See A Sampling of Irregularities). Price manipulation and insider trading-or at least accusation of the same-are not novelties on Indian bourses. What's worrying is the fact that it took so long for the regulator to initiate action; some of the cases highlighted in the report date as far back as 1999. SEBI Chairman D.R. Mehta has a stock response. ''Investigations take time...we have to follow procedures.'' Then, the 64-year-old-keeper of the bourses sanctity lapses into a long narrative about an unnamed company to which SEBI has written eight letters without receiving a single response.
Now, he says, the regulator can only file a criminal complaint and the judiciary could take years to act on it. You get the drift...; SEBI is more sinned against than it sins. The typical SEBI investigation runs into months. It took the board a little over 18 months to issue the final orders against BPL, Sterlite, Videocon, and Harshad Mehta for their alleged involvement in a 1998 mini-scam to rig up the stock prices of these companies. It was only in April 2001 that Mehta signed an order barring the three companies from tapping the capital market for two years. To be fair to SEBI, though, it is pretty difficult to prove allegations of price-fixing and insider trading. And the regulator does lack the resources. Less than 50 of SEBI's 340 employees work in the surveillance department; the US Securities and Exchange Commission boasts over 1,000 in its. And unlike the sec that has far-ranging powers that allow it strike fear in the hearts of would-be price-manipulators and inside-traders, SEBI has to recourse to Section 11B of the SEBI Act of 1992 that allows it to ''issue directions'' in the interest of investors. But companies can challenge these directions; today, the Mumbai High Court has 15 such cases. Thus, six months after the SEBI ban on Sterlite the Securities Appellate Tribunal has quashed the SEBI order on grounds of insufficient evidence. Ironically, while bestowing the regulator with more powers can certainly help it tackle such investigations better, it is SEBI's inherent passivity that seems to have encouraged the accused to go ahead and manipulate the market. That's as Catch-22 a situation as you can get. -Roshni Jayakar POLICY
First the good news. for a refreshing change, India has actually moved up in a global listing. The annual ranking of the most competitive economies by the World Economic Forum is just out and, surprise, surprise, India has actually moved up three positions, from 37 to 34, overtaking Malaysia and Jordan. But don't reach for the champagne just yet, Mr Finance Minister. The progress has come in the current competitiveness index (CCI), which identifies the factors behind current economic performance, focusing on microeconomic fundamentals like quality of business environment and the sophistication with which companies compete. This isn't anything to write home about, says D.H. Pai Panandikar, Adviser, RPG group. It's just that India and China were the only two countries to clock over 5 per cent growth last year, while most other economies-the US, the European Union, even the South East Asian countries-barely touched the 3.5 per cent mark. That alone, he says, can explain the upgrade. For not only has growth been slipping across sectors, but the business environment continues to be hostile. In the more important Growth Competitiveness Index (GCI), which measures factors contributing to the future growth of an economy (the level of technology in an economy, the quality of public institutions, and macro economic conditions) India has slipped-from 48 to 57. It's just ahead of El Salvador, Bulgaria, and Vietnam, but Philippines, Argentina and China have overtaken it. Finland tops both rankings, with the US snapping at its heels, but let's not talk about that. The report is also a slap in the face of all those who brag about India's superiority in the infotech sector. India ranks a lowly 68 on the information and communications technology index, below Indonesia, Guatemala, Paraguay, and Ecuador. It's the same story in the innovation index, which measures level of technological sophistication. India ranks 61, just above El Salvadaor, China, and Indonesia. Panandikar is not surprised. ''When even our banking system is not computerised, what technological advancement are we talking about?'' he asks. Clearly, India has a long way to go before it can even hope to catch up with advanced economies. The government can keep boasting about India being one of the five fastest growing economies in the world, but the fastest is obviously not fast enough. -Ashish Gupta CREDIT POLICY
A bit too little, a bit too late, and not exactly the recipe to resuscitate a recessionary economy - that could be an accurate summation of RBI Governor Bimal Jalan's mid-term credit policy announced in late October. True, bank rates, thanks to a 0.50 per cent cut, are now at their lowest since May 1973, but given that inflation has consistently been at sub-5 per cent levels, real interest rates of around 4 per cent or so are still pretty steep. Although the bank rate is 6.5 per cent it is unlikely that even the best companies can borrow at less than 9 per cent; for the record, the average cost of debt on most balance sheets today is around 12 per cent.
And while the reduction in the Cash Reserve Ratio (CRR) to be maintained by banks- 7.5 per cent to 5.5 per cent-is ostensibly a move to improve the liquidity in the system by freeing an additional sum of Rs 8,000 crore, it could end up helping only the Government. Banks will end up buying more G-secs (like they have been doing already). Till October 5, the investment by scheduled commercial banks in government securities amounted to Rs 43,664 crore, as compared to Rs 25,636 crore the previous year. Maybe RBI is helping GoI out with its borrowings. The governor mentioned that in view of certain structural characteristics of the financial system, the scope for a further softening in lending rates by banks and other financial intermediaries is limited. However, the policy has not attempted to deal with the rigidities that stand in the way of lowering rates. These include, the preference for fixed interest rates on term deposits, effectively reducing the flexibility of the banks in lowering lending rates in the short run. So, forget what you see in the papers about the governor declaring war and look beyond the hype. -Roshni Jayakar The Pinking Of The Red Citadel
IIt isn't just the palmtop Chittabrata Mazumdar can't seem to do without that's new at CITU (the Centre for Indian Trade Unions), it's the labour-organisation's entire attitude that is different. These days, the 70-year-old chief of the organisation sings a tune that is a far cry from the anti-industry anthem that was blowing in the wind in the 1960s. ''We need to improve the industrial climate and one of the things that can improve the image of the state is practical-minded labour.'' West Bengal Chief Minister Buddhadeb Bhattacharya's government echoes this sentiment. The result? In the last six months, the number of man-days lost due to labour unrest in the state has fallen 30 per cent, from 1,000 to 700. ''We are now seeing a much more understanding face of the union,'' exults Exide Industries Chairman S.B. Ganguly who doubles up as the president of the Bengal Chamber of Commerce and Industries. More than Ganguly's words it must be HLL's money that must be making Bhattacharya happy: the company committed to invest Rs 40 crore in a detergent plant in the state. Let's hope this bubble doesn't burst. -Debojyoti Chatterjee Q&A
Author, restaurant owner, and former champion speed-skier, Swiss-born HongKong-based investment banker Marc Faber, 54, runs his own investment firm, and publishes the famous ''Gloom, Boom, and Doom'' report, which highlights unusual investment opportunities in the region. What impact will the war (in Afghanistan) have on the Indian economy? I don't think the Indian economy will be impacted all that much-whether it is a short war or a long one-because India is largely a domestic economy. What will be adversely impacted will be the inflow of capital into the country, both portfolio investment, as well as foreign direct investment. If the war escalates then people would like to stash their capital in their 'home markets'.
What problems will a depreciating rupee pose for foreign investors? The foreign investor must realise that any currency depreciates by around 5 per cent a year-he has to make this up through capital gains in the domestic market. So if there is a steep fall, the foreign investor may find it difficult to make up the shortfall. Hence, the government needs to stabilise the rupee at some point by liberalising the economy by going in for capital account convertibility. What else can the government do in such a difficult situation? I think that the government should not interfere at all. Business functions best when it is left to market forces. And what do you think the small investor should do? If I were you and had some money, then I would rush to buy some stocks, but not necessarily hi-tech stocks. My belief is that we have been in a period of deflation since the 1980s-falling commodity prices and falling interest rates. But this will come to an end eventually and prices of assets of brick and mortar companies will have to be reprised on the higher side. If you had one million dollars to invest now where would you invest it and why? I would invest in Asian stocks. In fact, I believe that stocks in almost all Asian countries are reasonably priced-down by 80 per cent in dollar terms from the 1990 high. Because of their relatively low valuations now they are likely to bring good returns in the future. -Ashish Gupta
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In the third
week of October, 90,000 pages were transported from the headquarters of
the Securities and Exchange Board of India (SEBI) in Mumbai to Delhi. Each
of the 30 members of the Joint Parliamentary Committee (JPC) investigating
the securities scam received a copy of the 3,000-page report. This tome
was devoted to a status report on 200 companies the JPC had instructed
SEBI to investigate. Everything about the report spoke of scale and size.
A 3,000 page report; an impressive list of 200 companies; some shocking
allegations against blue-chips like Bajaj Auto, Ranbaxy, Carrier Aircon,
and Otis Elevators; and exoneration for some bluer chips like Hindustan
Lever Ltd, Wipro, Infosys, ITC, and Dr Reddy's Laboratories. It doesn't
get any more dramatic than this.
