Archive for July 2nd, 2009

Insurance Regulatory and Development Authority (IRDA) prohibits insurance cos. from investing in IDRs

Insurance regulator, Insurance Regulatory and Development Authority (IRDA) today prohibited insurance companies from investing in Indian depository receipts (IDRs), the instruments through which foreign companies raise funds from the Indian equity market.

SMC Capitals equity head Mr Jagannadham Thunuguntla

Insurers said the IRDA move would not affect them much, but stock analysts said the decision would diminish the attractiveness of the IDR market.

“On examination of the features of IDR, it is observed that an investment in an IDR by any insurer would amount to an indirect investment made outside the country and would not be in compliance with section 27 C of Insurance Act“, said IRDA. Section 27 C of the Act bars investment of insurance funds outside India.

“In view of the extant statutory restrictions on overseas investments, it would not be in order for insurers to invest in Indian depository receipts“, IRDA added.
Through IDR, foreign companies mobilize funds from the Indian markets by offering their equity shares, in the form of rupee denominated depository receipts.

IDRs are listed and traded on the Indian stock exchanges. These receipts are issued to the investors in India, against the underlying equity shares of the foreign issuing company.

“As we have many other avenues of investment, it won`t impact much“, said Malay Ghosh, director, Reliance Life Insurance.

However, SMC Capitals equity head Jagannadham Thunuguntla said the ability to raise IDRs will be reduced to certain extent and might affect their issue size.

A Letter by a Common Man to India’s PM :)

A Letter by a Common Man to India's PM :)

Dear Mr. Prime Minister


Soon after you swear in as the PM of India and your initial steps, post your appointment, had exactly fitted the requirements of the situation.

But there was a sad development too : Induction of few ministers in your team whose integrity was widely suspect and who, as per their own affidavits of election nominations, were going under investigations for criminal offenses.

You must be aware being a former top civil servant, that if superior of any government employee has expressed even the slightest doubt about his honesty and integrity in his performance appraisal record, then same Govt employee is barred from promotion and sensitive posts or even retired compulsorily from service before his time.

Ministers who wield power and authority over thousands of crores of rupees worth of public assets and whose decisions can make a whole lot of difference between progress and disaster, need to be, like Caesar’s wife, above suspicion. It is surprising how you overlooked this fact while constituting ministries in both your terms of office.

No Compromises !!

‘We, the People,’ the acknowledged sovereign masters in democracy, can only hope that your own vigilance and the idealism and acute sense of right and wrong of the young blood you have inducted into the ministry will help to contain and terminate any acts of malfeasance and misuse of power.

Occasionally, though, to our disappointment, you also take recourse to the age-old excuse of politics being the art of the possible. This has been serving as a cover for corrupt politicians to hide their many sins.

Ideals and principles are not incompatible with clean politics and good governance. In India itself, there have been leaders, alas, though few, who have proved that accountable and fair governance is possible.

Actually, there was, and is, no need for you to make the kind of compromises that are the bane of the country’s politics. You have received a thumping mandate as a prime minister this time and you could have acted as a tough PM in this regard.

Accursed black hole

The respect and trust for you among Indian masses have in fact contributed to the impressive victory for Congress party. The parties in the Opposition are in disarray, and are unlikely to pose any problem in the foreseeable future. You, therefore, are in an unchallengeable position to give a determined drive to the formulation and execution of policies that you judge as the best for the country.

You have got the task of to take the country forward in all directions that matter: Political, economic, social, scientific, technological, fiscal, monetary, budgetary. No doubt you would have received plenty of suggestions and ideas as India has never suffered from any dearth of bright ideas on what needs to be done.

But real issue is not about bright ideas but rather India’s policy maker’s shaky grip on the methods of getting them done within the proposed time frames and cost estimates.

The result is that all the promises held out to the people at large vanish into the accursed black hole of failure of implementation.:(

In nut shell, lack of attention to know-how makes a over indulgence of know-what purposeless.

All who go through India’s ills and cures enumerated in the President’s Address, for instance, will find themselves in full agreement with each one of them.

For the laudable intentions contained in the Address to turn a reality, and reach their benefits to the aam aadmi, it is must for you to inculcate in your ministers a work culture that encourage and adherence to prudence, propriety and probity within their spheres of action.:)

The observations that follow are to help you to that end.

Independent and Transparent committees to evaluate tenders

There is a persistent and growing belief among all sections of aam aadmis by whom your government and party swear that huge sum is demanded and given as bribes for allocation of contracts for purchases and sanction of projects. Any new project or purchase announced, an aam aadmi presumption runs like that purpose of project is just to facilitate high personages in authority to make money, not to serve project’s real interest.

Better make all financial transactions absolutely transparent and pass evaluation of tenders above, say, Rs 100 crores, to an independent committee of former officials of the Comptroller and Auditor General of India (CAG) nominated jointly by the CAG and the Chief Vigilance Commissioner, and go by its findings, besides giving them wide publicity in the Web sites of the respective ministries.

Relentless Monitoring

Effective leadership consists in relentless monitoring and follow-up of orders without remaining content with merely issuing them. It will be great if you can regularly devote little time to review pending matters with ministers.

If you can make your ministers as well as the chief ministers to adopt this practice, it will surely result in an immediate flow in the tempo of action leading to swift service delivery and timely completion of projects. It will also put babudom on notice that there will be zero tolerance for arrogant response towards the aam aadmi.

Accustom Minister to think of Nation not constituencies

Until about 40 or so years ago, Central ministers used to visit every part of India to gauge a personal idea of the prevailing situations and mingle with the aam aadmis to know of their grievances and gain profit from their suggestions.

Nowadays, whether it is the central or state minister, either because he lacks self-confidence or because he is uncomfortable with English or local language, he rarely, if ever, ventures into the rest of the country. His obsession is mostly with channeling funds and jobs to his constituency or his native state.

Accustoming ministers to think of the nation as a whole will help rid the narrow politics of regionalism.

Reviving orientation camps for ministers

Rajiv Gandhi conceived the brilliant idea of a retreat in which ministers, elected representatives, bureaucrats, officers of the police and defence forces and eminent achievers of the civil society would spend a couple of days engaged in informal and friendly exchanges of views, ideas and experiences.

This helped in their cultivating a better understanding of their field of action and built up a better connection in forging a collective front on issues and problems facing the country.

I would earnestly urge you to revive this practice for developing a synergistic approach which may lead to effective and expeditious implementation of projects and schemes.

Reviving Inter-State and Zonal Councils

Mechanisms like zonal councils and the inter-state council, envisaged by India’s far-sighted Constitution makers for mutual reinforcement of the Centre and the states and contingency planning, have remained unused and ad hoc responses to situations have become the rule.

It is high time they were made into potent instruments for building a common front, regardless of parties in power, against present and future challenges.

I shall continue to be in touch with you as and when necessary.

Yours sincerely:

A Common Man 🙂

Differential voting rights shares trading remains dull

Mumbai, July 1 The negligible trading seen so far in Tata Motors’ shares with differential voting rights (DVRs) can be blamed on the lack of awareness about the instrument in the Indian markets, said analysts.

These shares were issued in November last year. June was the first month to see trading in Tata Motors’ DVR shares on all days. Until June, these shares were not traded for more than 10 sessions in a month, with as little as one share traded in the day.

DVR investors acquire shares of a company at lower prices with the prospects of higher dividends in return for surrendering their voting rights.

DVR is still a new concept for the investor community here, said analysts. “Our markets here lack the maturity to understand DVRs at this point in time. It will take some time for investors here to appreciate an instrument like the DVR. In developed markets DVRs are common instruments,” said Mr Jagannadham Thunuguntla, Head Equity at SMC Capitals.

Tata Motors was the first company to issue shares with DVRs in India.

The Companies Act permits a company to issue DVR shares when, among other conditions, the company has distributable profits and has not defaulted in filing annual accounts and returns for at least three financial years. The issue of such shares cannot exceed 25 per cent of the total issued share capital of the company.

Tata Motors had issued 6.4 crore shares with DVRs in November 2008 as part of its Rs 4,145-crore rights issue to repay the loan taken for its acquisition of Jaguar-Land Rover. The ordinary rights issue was priced at Rs 340 a share, Rs 35 higher than the DVR shares. However for a 1 per cent dividend on ordinary shares, Tata Motors agreed to give 6 per cent dividend on DVR shares.

Pantaloon too issued shares with DVRs (along with their bonus issue) in February. These bonus issue shares were offered in the ratio of one bonus share with differential voting rights for every 10 equity shares held by shareholders on the record date.

Trading in this stock, though not substantial, has been better than that in the Tata Motors’ DVRs.

Pantaloon has seen 23.05 lakh shares with DVRs traded on the BSE in 2009, while Tata Motors has seen a dismal 5,427 shares with DVRs traded.

Another reason for the poor trading in Tata Motors’ shares with DVRs is that the promoter group holds the majority of the shares.

At the time of the issue, JM Financial was the underwriter. With the underwriter renegotiating its underwriting commitment, the promoters of Tata Motors ended up with more than 84 per cent of the shares. The next chunk of DVR shares went to IFCI – the sub-underwriter – said reports.

“With so much held by the promoters, not many people are able to trade in these shares. It is a very illiquid stock,” said Mr Thunuguntla.

Tata Motors’ shares with DVRs were issued at Rs 305. On Wednesday, the stock traded at Rs 280.10, down 2.40 per cent, on the BSE. Similar shares of Pantaloon were issued at Rs 150 and on Wednesday were trading at Rs 207, up 0.80 per cent.