Sensex at 2½-year high with 103-point gain

Indian equity indices on Wednesday shrugged off weak global markets to end the day at their highest levels since February 2008. Domestic markets remained weak throughout the day; however, buying from the foreign funds during the last hour of of trading helped the market close with gains. Technology stocks led the 103-point gain for Sensex on the back of higher-than expected earnings of US-based Cognizant Technology Services, which boosted outlook for Indian IT companies focussed on these markets.

The 30-share Sensex of the Bombay Stock Exchange (BSE) added 102.61 points to end the day at 18,217.44. The broader S&P CNX Nifty of National Stock Exchange (NSE) gained 28.30 points to close the day at 5,467.85.

According to the provisional figures provided by the Bombay Stock Exchange (BSE), foreign institutional investors (FII) bought stocks worth over Rs 688 crore on Wednesday. In just three days of August, FIIs were net buyers to the tune of approximately Rs 2,000 crore. For the year till date, FIIs have bought over $11 billion worth of equities and received close to 46% of net inflows into Asian market outside Japan and China. Foreign fund inflows into Indian markets have climbed 40% this year, making Sensex the most expensive in Asia excluding Japan and BRIC markets.

Said Navneet Munot, CIO at SBI Mutual Fund: “Overall, the economy is in good shape and markets are also fairly valued at these levels. While investors are taking long positions in the market, one has to remain cautious of the global events.”

“The exploration of large-caps in India is done,” said Richard C Kang, who helps manages $120 million in equities at Emerging Global in New York. According to him, India’s smallest companies may deliver investors the best returns as foreign inflows have pushed the benchmark index’s valuation to the highest among BRIC nations. “As the bull market extends, investors are more willing to take on additional risks and explore midcaps and small caps,” he said.

Most Asian markets were down on Wednesday following weaker- than-estimated US home sales and factory orders, which renewed concerns about the strength of the global economy.

Source: http://www.financialexpress.com/news/Sensex-at-2--year-high-with-103-point-gain/656130/

Front Running: Is it insider trading or not?

Is it insider trading when a trader acts on prior information on a stock?

HDFC Mutual Fund recently came under the Security and Exchange Board of India’s (Sebi) scanner for front running. The dealer was banned from trading. Front running involves a trader in a securities firm acting on prior information that is almost equivalent to insider trading. Can this activity be curbed?

It spooks the investors

The biggest pension funds who want to invest into Indian markets worry about front running. Their prime concern is processes and how Indian AMCs (asset management companies) are keeping themselves clean. This is getting to be a reputation problem and it looks like this problem cannot be stopped, at least for now.

Scale of the crime

If there is a pipeline with a capacity of 10,000 litres that comes to your housing society colony and one person steals a litre or two from this pipeline, will the harm be substantial enough for the society? If a mutual fund wants to buy 1 lakh shares of company A and the dealer puts in his personal order ahead of the fund and makes profits, will this harm the investors in the mutual fund? The damage will be miniscule. There’s no point in spending too much efforts trying to catch this trader. And if this trader starts making a lot of money in a short span of time, he will get noticed. There is no way he can escape. It is like stealing 500 litres of water from the same pipeline. Someone will notice that theft.

Control

That totally depends on the processes. Front running is like day trading. So if the processes are strong and the dealer is tracked at all levels from the time he gets the information to the time he executes the trade, it will be easy to catch him if he is front running. Eg: If he knows a fund is going to buy one lakh shares of stock A, he will put his order minutes before the fund’s order goes through. If the dealer were to be made “incommunicado” then there is no way he can relay this information. Sebi has put up an investigative report on how the front running exactly took place inside HDFC MF on its Web site.

Anticipate Human Behaviour

Most funds say that the systems and processes are proper but one individual can beat these systems by being unethical. The argument is unacceptable. If systems are proper that means front running should not be possible. There will always be some individuals who will try to beat the system. Process have to be continuously upgraded to catch these people.

What the Law Says

Front running is not insider trading but comes close to it. It comes under the charge of prohibition and protection of fraudulent and unfair trade, Sebi Regulation 2003 (prohibition and prevention of fraudulent and unfair trade relating to securities market). Penalty for the crime will mean a ban from dealing in the market and a monetary penalty of Rs. 25 crore or three times the trade committed by the investor.

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FIIs turn attention to mid-, small-cap stocks

Foreign institutional investors are increasingly looking at mid-cap and small-cap ideas.

Mr Richard C. Kang, CIO of Emerging Global Shares, a company that constructs exchange traded funds on the Dow Jones, said: “Mid-cap and small-cap stocks that cater to India's domestic consumption are among the best bets going forward.”

Mid-cap stocks have seen an increase in foreign institutional investors' stakes in the first quarter of FY-11; 145 out of the 267 mid-cap stocks that are part of BSE Midcap index saw an increase in their holding, while 113 saw foreign investors exiting.

Favourites

Some of the counters that witnessed increase in FIIs holding include Dewan Housing, Kalpataru Power, Hindustan National Glass, Infotech Enterprises and Shree Renuka Sugars. Among others, GTL, Indiabulls Real Estate, India Infoline, Aban Offshore and Indiabulls Financial saw biggest drop.

In the BSE small-cap index, 184 stocks saw anincrease in FII holding and a similar number witnessed exit by FIIs.

The FII stakes in 142 small-cap companies remained unchanged.

Foreign fund inflows have reached Rs 50,276 crore or about $11 billion so far this year.

The BSE Sensex climbed 4.6 per cent this year while the BSE Midcap jumped 12 per cent and the BSE Small-cap soared 13.86 per cent. The BSE-500 index moved up by 7 per cent.

“We have invested in Amtek India, UCO Bank, Indian Bank, Patni Computers and Dish TV in our portfolio that caters to the India Small Cap ETF that was launched a fortnight ago on NYSE,” said Mr Richard C. Kang.

Amtek is a case of increasing capacity utilisation and has one of the best debt equity ratios of 0.48 in the auto components business, said an auto analyst with a leading mutual fund.

The auto components business is expected to see a capex of Rs 13,000 crore in FY-11and a growth of 15-16 per cent in FY-11 and 17-18 per cent in FY-12, according to a Crisil estimate.

UCO Bank

UCO Bank is expected to grow due to higher net interest margins, overall business growth and an attractive valuation at a price-to-adjusted-book value of 1.6, said Mr Alok B. Agarwal, Head of Research at Mata Securities.

Source: http://www.thehindubusinessline.com/2010/08/05/stories/2010080553081000.htm