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

India - SEBI urged to launch IRA scheme for households

Apex chamber Assocham has urged the Securities and Exchange Board of India (SEBI) to introduce individual retirement account (IRA) scheme for large households to enable investment in equity market through various mutual funds. 

In a representation to the market regulator, the chamber has underscored the need for promoting long-term inflows into equities by floating IRA schemes so that households make their investments through various mutual funds to reap the benefits of their long-term plans. 

The IRA scheme concept, prevalent in developed economies such as the U.S. and some countries in Europe, is broadly aimed at savings plans to create wealth over a period, which could then be available for the individual’s post-retirement period. 

To incentivise individuals to join the IRA schemes, the chamber has suggested tax concessions such as a deferred tax system under which each contributor to the proposed IRA could invest up to Rs 5 lakh in a year in a mutual fund scheme for investment in equity or in a combination of equity and debt, as per the investor’s choice. 

Lock-in period 


The lock-in period recommended for such investment is a minimum period of 10 years which can be withdrawn only after the investor attains the age of 58 or 10 years after investment, whichever is earlier. 

Assocham has suggested that while the amount invested in the IRA scheme should be tax deductible, dividend and capital appreciation should be exempted from taxes when the investor withdraws the amount, as is permitted under the EET (‘Exempt, exempt tax’) facility. 

According to the chamber, such a scheme will promote long-term investments in equity and debt and also ensure a reasonable post-retirement income when the individual investor would be on a relatively lower tax bracket. 

For the non-tax paying category also, the IRA scheme could be promoted by permitting mutual funds to offer such investment avenues.

The IRA scheme, the chamber said, would thus help individuals to build their retirement benefit schemes and, at the same time, channelise the savings of the community to the capital market. The diversion of savings of the household sector to the capital market would provide a steady flow of substantial amounts that would also act as a buffer against volatile inflows and outflows of foreign institutional investors (FIIs). 

Assocham also pointed out that though the Government has permitted provident funds (PFs) to invest 10 per cent of their corpus in equity-based mutual fund schemes, the guidelines have not been finalised as trustees of these funds are not permitting such investments. “It is time that the difficulties, if any, are removed and provident funds and gratuity funds are allowed to be invested in mutual funds also,” it said.

Source:http://spoonfeedin.blogspot.com/2009/01/india-sebi-urged-to-launch-ira-scheme.html

Mutual funds give up 2 yrs of gains in 2008 crash

Net values of Indian equity funds fell more than half in 2008, giving up the entire gain made in the previous two calendar years, as the main stock index plunged 52.4 percent to record its worst annual performance ever.

"The fall was stunning and one of the major losses that we would have suffered in any calendar year," said Aditya Agarwal, managing director and head of Indian markets for fund research firm Morningstar.

Indian shares recorded their first annual drop since 2001, surpassing the previous worst fall of 20.8 percent in 1995, slammed by foreign fund outflows and a sagging domestic economy. 

Seventeen stocks in the BSE index lost more than half their value during the year as foreign funds withdrew more than $13 billion after record inflows of $17.4 billion in 2007.

Net asset values of all stock funds fell in 2008, recording their worst annual fall of 54.7 percent during the year, according to data from global fund tracker Lipper.

Nearly half of the actively managed diversified stock funds also underperformed the benchmark index despite maintaining a double-digit cash levels almost through the year as their large mid and small-cap holdings plunged even more than the main index.

The funds' monthly allocation to mid-cap and small-cap shares ranged between 33.6 percent to 43.8 percent during the year, delivering a blow to their portfolios as the BSE Mid Cap and BSE Small Cap indices slumped close to 70 percent.

Their top bets in capital goods and financials were also hitby high interest rates and a slowing economy.

Funds had parked more than a fourth of their equity assets in the two sectors through 2008 on an average, data from fund tracker ICRA showed.


YEAR OF DEBT, GOLD FUNDS

India's gold exchange traded funds rose 25 percent in 2008, the highest by any category of funds, as the dollar weakened against the euro and crude oil rose to record high, improving the yellow metal's appeal as a hedge against inflation.

Gold prices on the Multi Commodity Exchange soared to a record 14,320 rupees per 10 grams on Oct. 10, up 35.1 percent from the close in 2007 and ended 2008 up about 29 percent.

Fixed income funds improved performance over previous year with those investing in government securities recording a stunning 19.77 percent rise in net values as yields saw their biggest yearly fall in seven years in 2008.

The 10-year benchmark bond yield ended the year down 254 basis points at 5.25 percent, plummeting from a seven-year peak of 9.55 percent hit in July as expectations for monetary easing continued to prompt investors to buy debt.

Source: http://in.reuters.com/article/businessNews/idINIndia-37259420090102?sp=true

Don't give up on the bulls

The year 2009, for the stock market, is expected to be a year with two distinct trends:
consolidation during the first half and then building on that consolidation, slow growth in the second half. Market participants feel 2009 will be a year markedly different from 2008, which saw value destruction of unimaginable proportions.
"The market has corrected dramatically this year (2008). So I don't expect any major correction next year,'' said UK Sinha, CMD, UTI Mutual Fund. "We are near the bottom now,'' Sinha added.
The first half of the year is expected to be the phase of adjustment. Once that is over, the stock market could start looking up from the second half.
"The market usually turns 6-9 months ahead of the actual economy. So we are expecting the markets to turn in the second half of 2009,'' said Naresh Kothari, president & co-head, institutional equities, Edelweiss Securities.
"From the third quarter, we would begin inching up, but a V-shaped recovery is ruled out,'' feels Aseem Dhru, MD, HDFC Securities.
One of the main reasons for the recovery is the impending Lok Sabha elections by April 2009. In India, general elections mean some amount of uncertainty with inherent downside risks and investors, including foreign fund managers do not like uncertainty. Brokers and fund managers expect recovery to start after the new government is in place.
The year would also see the Indian market in a different league than most of the other popular investment destinations. Officially a number of developed nations are already in recession. But in India, everyone is talking about the pace of growth coming down. "While the world has to battle negative growth (recession), India has to deal with a slowdown,'' said Dhru.
The marked difference between India and the West could be gauged from a conversation with the head of a UK agency. "You (India) are sorry that growth could be 5-6-7% next year. Come on. Give us that kind of growth and we will be on top of the world,'' said the official.