MFs say they exited early from company

The Satyam fiasco is going to leave many mutual fund houses red-faced . A host of mutual fund houses such as Franklin, HDFC, HSBC, Fidelity among others have holdings in the defamed information technology company.
However, unlike many hapless investors they have already been selling stock for some time now. Most fund houses maintained that they have been selling the stock since the trouble started or even before that and their holding is significantly lower or nill in some cases as on December.
Some also claimed that since they place emphasis on diversification, they never went overboard on one company.
“We started selling Satyam stocks ever since the Maytas deal was announced. Today, our holding is substantially lower, it would be less than 1%,” says U K Sinha, chairman, UTI. “This is a wake-up call for the authorities. The time has come for co-ordinated and concerted efforts to make sure these kind of things shouldn’t happen anymore,” he adds.
“As a long-term fund manager, we have strong risk management controls which ensure that there is adequate diversification in the portfolio with negligible concentration risk at any point in time. With assets under management of around Rs 28,000 crore, our exposure to Satyam as a percentage of our portfolio is insignificant as of now,” says a senior official at ICICI Prudential Life Insurance Company .
“This certainly is an unprecedented event. It is paramount for us to protect the interests of our stakeholders, and we are evaluating all possible options along with other institutional shareholders to maximise the value for our stakeholders,” he added.
“Wherever we have a substantial stake, we are mostly on board of those firms. So, we are aware of what is happening and also we ensure that the independent directors are auditors of top quality,” says a senior LIC official. nancial services sector. One can make a mistake but two audit firms can’t make it.” PWC, it is been reliably learnt, has been Satyam’s auditor for almost nine years.
A partner at a domestic chartered accountancy firm said that the underline problem is the basic relationship between auditors and management, where they trust the management too much and take things on face value. The satyam issue highlights that the auditor has not followed even the routine procedures and standards. Like the inflated cash balance on Satyam’s books, if the auditor had physically verified the same, matters wouldn’t have reached this extent.
“This is major eye opener and would bring into renewed and critical focus role of auditors in Satyam” said Suresh Surana, founder of RSM Astute Consulting group. TNN
MUMBAI/BANGALORE: The Satyam fiasco has put the spotlight on the role of external auditors in a company. Industry experts say that the governing body of chartered accountants, Institute of Chartered Accountants of India, should review the guidelines for audit firms.
Said a council member of ICAI, “There should be a rotation of auditors once in three years as this would restrict the association of a particular audit firm with a company for a long time.” Another independent chartered accountant said, “Like in France and Denmark, in India too it should become mandatory for a joint audit, especially in listed companies, where the onus would be both the auditors rather than one like in the case of PricewaterhouseCoopers in Satyam.

Source: http://economictimes.indiatimes.com/Infotech/Software/MFs_say_they_exited_early_from_company/articleshow/3950781.cms

MFs get extra-cautious after Satyam fracas

The crisis over Satyam has left the mutual fund industry in the wilderness as to what extra precautionary measures can be taken to judge the quality of a management while investing. Anticipating similar like fiasco in the future too, MFs plan to be more vigilant in scrutinising balance sheets.
Terming the incident as ‘detrimental to Indian Inc’ industry players are keeping close watch on all Satyam related developments, especially with respect to auditors and bankers of the company. “Auditor’s role is very crucial in this entire saga. We would like to hear from PwC as well as from all the bankers of the company. Their views will put more light into it. Based on that, we shall strengthen our efforts in judging corporate governance of a company,” said Waqar Naqvi, chief executive, Taurus Asset Management.
The balance sheet of Satyam carries inflated cash and bank balances of Rs. 5,361 crore as against Rs.5,040 crore and accrued interest of Rs.376 crore which is non-existent. Industry players express their helplessness over it. Said N K Garg, CEO, Sahara Mutual Fund, “It is not feasible for industry players to cross-check with every banker of a company about the cash in hand or any other item like accrued interest.”
However, Garg added, “it is not enough for MF investors to check only two pages of a balance sheet to draw a conclusion about a company. One will have to go through the schedules and notes of accounts mentioned with the balance sheet. Corporate governance gets 52% of the total scores in asset management in our house.”
As on 31 December, 2008, HDFC Growth and HDFC Equity had Satyam investment of 1.95% and 2.64% to their NAVs. Birla Sun Life Equity had 2.75%. Three schemes of UTI AMC and two schemes of Franklin Templeton had also holdings between 1.75% and 8%. As on November, 2008; Reliance Advantage fund and Reliance RSF had 1.19% and 2.83% respectively.
However, all those stakes have been brought down substantially in view of recent developments in Satyam. Most of the MFs offloaded their stake booking the loss to minimum possible extent when the scrip was traded at 3 digit figures on Wednesday in a losing streak. Fund houses refuse to be quoted on Satyam exposure.
Mentioned Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management, “for investments, there is no ready formula to counter such situation. In determining the quality of management we do every needful exercise. Going ahead, there could see many such cases of deliberate frauds.”
In a probable solution to mitigate the risk of investment in such unprecedented fraud case, Anoop Bhaskar, head – equity, UTI Asset Management, presents a case. He said, “It is great learning experience for all of us as it is the first Indian company involved in a fraud of this magnitude. We need to concentrate more on diversification of portfolios. If fund managers restrict a particular company investment to the tune of 2-3 per cent investment, the loss gets limited.”
Going through the annals of ENRON and Worldcom, fund managers are not surprised over Satyam but are scouting for ways to put more focus on corporate governance.

Source:http://economictimes.indiatimes.com/articleshow/3952116.cms?from_et_daily_newsltr=1

BNP Paribas exits Satyam

Fund house raised its holding in the embattled software firm tenfold in December 2008 to more than 5 mn shares, but sold the entire stake in the last week, said Satish Ramanathan, head of equities, BNP Paribas

The mutual fund venture of BNP Paribas has sold its entire holding in Satyam Computer Services, a top executive said on Wednesday.The fund house raised its holding in the embattled software firm tenfold in December 2008 to more than 5 million shares, but sold the entire stake in the last week, Satish Ramanathan, head of equities, Sundaram BNP Paribas Asset Management said..“In January, we have sold... before this event,” he said, referring to a free fall in Satyam’s shares after its chief said earlier on Wednesday that the firm’s profits had been inflated.Sundaram held more than five million shares worth about Rs880 million in Satyam at end-December 2008, ten times its exposure at end-November2008, data from fund tracker ICRA Online showed. Ramalinga Raju, chairman of Satyam, India’s 4th-biggest software services exporter, resigned on Wednesday, saying the company’s profits had been inflated over recent years, sending Satyam shares plunging as much as 80%.

Source: http://www.livemint.com/2009/01/07153424/BNP-Paribas-exits-Satyam.html

SEBI horrified by Satyam revelations; studying actions

Raju has written to the board giving details of the balance sheet that he says has inflated cash balances of Rs5,040 crore

The chairman of embattled Satyam Computer Services resigned on Wednesday and said the company’s profits had been inflated over the last several years, sending the stock down 80%.The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.

“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.

Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index falling 3.9%.

Raju has written: “It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: The Balance Sheet carries as of 30 September, 2008, a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books); b) An accrued interest of Rs 376 crore, which is non-existent.Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on 10 January to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.

“I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,” said Jigar Shah, senior vice-president at Kim Eng Securities.“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected,” he said.Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.“I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation,” B Ramalinga Raju said in a notice sent to the stock exchanges.“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju said. He will continue in the position till the company’s board is expanded, according to a statement sent to BSE. Meanwhile, Ram Myanpati will act as interim CEO.Also while Raju recommended DSP Merrill Lynch be entrusted the task of “quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam

Source: http://www.livemint.com/2009/01/07111949/Satyam-chief-Raju-resigns-say.html?h=A1

See Sensex touching 11K in current rally: Nilesh Shah

Nilesh Shah, MD and CEO, Envision Capital, said there are good chances of the markets going above 10,200 and touching the 11,000 mark, given the current rally. “So 2009 is likely to be significantly better than 2008. We see 7,000-12,500 as the likely trading range for the Sensex in 2009. However, a retest of 2008 lows is not to be ruled out.”

According to Shah, a combination of rate sensitives and infrastructure stocks would be right way to play this market. “I am positive on infrastructure, public sector banks, realty, cement, and auto stocks.”

Indian markets, he feels, are significantly linked to global cues. “In the short-term, the upside in markets will be directed by global sentiments. However, Q3 corporate earnings will be weak. The advance tax numbers and drop in volumes of auto and cement industry indicate the likely sluggishness in toplines.” Continue

Fidelity increases Entry Load on Equity Funds from 2.25% to 3.00%

Fidelity Fund Management increased the entry load for all its equity funds effective January 1, 2009. The entry load has been hiked to 3% from 2.25%. The load will be applicable only to investment below Rs 5 crore for its five equity funds -- Fidelity Equity, Fidelity India Growth, Fidelity India Special Situations, Fidelity International Opportunities and Fidelity Tax Advantage. This will come into effect from January 01, 2009.

The entry-load charged to investors primarily goes towards cost of selling the fund i.e. paid as commission to the agents. This load increases your purchase price of a unit. For example, if the entry load is 3%, and the current NAV is Rs 100, then the purchase price will be Rs 103. An increase in the entry load (or any other charge) means that your fund manager needs to work harder in order to provide you with the same return on your investment.

In January 2008, SEBI mandated change that investors who invest directly with a fund will be exempt from load.

MFs assets jump 4% in December 08

Total assets under management of the country’s 34 mutual fund houses have soared to Rs418,334.65 cr

After a gap of three months, the mutual fund industry witnessed an increase in assets under management by over Rs16,000 crore in December on moderate recovery in the stock markets.
The total assets under management of the country’s 34 mutual fund houses have soared to Rs418,334.65 crore following an increase of Rs16,307 crore at the end of December 2008, according to the data of the Association of Mutual Funds in India.
The total assets under management (AUM) were Rs4.02 lakh crore in December 2008.
“With the stock markets recovering 10-15% in a month, mutual funds assets increased in the terms of mark to market valuation,” Taurus Mutual Fund Managing director RK Gupta said.
Reliance mutual fund retained its position as the country’s top fund house with an AUM of Rs70,208 crore. The AUM rose by over Rs2,392.24 crore in December 2008.
HDFC mutual fund maintained its second position with an AUM of Rs46,757.45 crore in December, an increase of Rs2,495.45 crore from November 2008.
“Some fund houses also saw fresh inflows, which were coupled with positive market sentiments,” Gupta added.
Meanwhile, UTI mutual fund added Rs4,190.03 crore at Rs42,548.17 crore in December to retain its third position.
Meanwhile, the AUM of ICICI Prudential mutual fund rose the most by Rs4,821.84 crore to Rs41,877.52 crore.

Source: http://www.livemint.com/2009/01/02163500/MFs-assets-jump-4-in-December.html

Crisis to continue, but Indian economy to grow by 7pc: Montek

Warning that the global economic crisis would continue through this year, Planning Commission Deputy Chairman Montek Singh Ahluwalia said India would still manage 7 per cent growth in FY'09 which should be a "good performance." 

Announcing the second stimulus package to reverse the economic slowdown in the country, he said the focus was on public investment, particularly in the infrastructure sector, which according to him should be a big booster. 

The package, the second in a month albeit last for the fiscal, would take the total revenue loss to about Rs 40,000 crore for the exchequer by way of various concessions and sops given to various sectors of the economy, Finance Secretary Arun Ramanathan said. 

"Expansion of infrastructure investments in PPP area is a very important part of the effort to mark the contra-cyclical thrusts at a point when there is a bit of global slowdown," he said, while commenting on additional facility for IIFCL to issue tax free bonds worth Rs 30,000 crore. 

It is something that will not only stimulate demand in the short term, but lay the foundation for broader investment revival and for broader growth. 

Ahluwalia said while the current economic crisis has not seen its end, this year could be a difficult one but expressed the hope that the economy would still achieve 7 per cent growth. 

"A growth of seven per cent should be a good performance," he said.

Source:http://www.hindu.com/thehindu/holnus/002200901022023.htm