Jhunjhunwala hikes stake in Lupin, McNally; cuts on Titan, A2Z
c New Delhi, April 24:
Ace investor Rakesh Jhunjhunwala has hiked his exposure in companies like Lupin, McNally and Anant Raj, while on the other hand pared stakes in Titan, Geometric and A2Z Maintenance in January—March quarter.
At the same time, the billionaire investor kept his stakes unchanged in companies such as Crisil, Rallis, Viceroy, Aptech (where he is one of the promoter group entities), and Autoline Industries.
Jhunjhunwala, who mostly invests through his firm Rare Enterprises, is one of the most famous investors in the country and his moves are closely watched in the markets.
In the March quarter, Jhunjhunwala brought down his stake in Titan to 6.77 per cent from 8.05 per cent in December quarter. Similarly, in Geometric his stake slipped to 17.86 per cent from 17.92 per cent according to BSE shareholding data.
Jhunjhunwala, also referred to as the 'Big Bull of Dalal Street' trimmed his holding in A2Z Maintenance & Engineering to 18.03 per cent from 19.92 per cent, while in Delta Corp the stake went down to 3.53 per cent from 3.55 per cent.
His shareholding in Sterling Holiday Resorts slipped from 3.75 per cent to 3.70 per cent.
In contrast, he upped his exposure in Lupin to 2.10 per cent from 1.94 per cent, while in McNally the holding rose to 1.61 per cent from 1.29 per cent.
Jhunjhunwala's stake in Anant Raj surged to 2.12 per cent from 1.36 per cent.
Besides, his holding remained unchanged in NCC, Praj Industries, Geojit BNP Paribas Financial Services and VIP Industries.
The latest quarter shareholding data are still awaited for companies like Ion Exchange, Adinath Exim Resources and Prime Focus Ltd where Jhunjhunwala held shares in December quarter.
How large chit funds cheat
Business Line The Saradha episode highlights the fact that rural areas are underbanked
Chit funds are fine as a kind of self-help group for those with modest means. Once they grow, like Saradha, they become dubious.
April 24, 2013:
Chit funds are a classic example of a self-help groups, if one were to go by their origin. The group typically included those in the neighbourhood, known to each other or those glued by some other common bond like workplace, kinship or vocation.
Let us say, five members join hands, and agree to subscribe Rs 1,000 each every month for five months with the understanding that each month the amount pooled of Rs 5,000 would be bid for, and the one offering the maximum discount would win the prize.
HOW THEY WORK
In the first month, let us say the first member bids Rs 4,500 and the fifth Rs 4,800 for Rs 5,000. The first in view of the offer of higher discount of Rs 500 vis-à-vis the discount offered of Rs 200 by the fifth, wins the prize.
The prize-winner now is debarred from bidding in the ensuing four remaining bids but remains committed to pay the remaining four instalments of Rs 1,000 each. This is how the game goes, with there being no explicit repayment of loan or explicit interest thereon.
The implicit interest is built into the discount which is variable, fluctuating each time depending on the aggressiveness of the bids. For the non-prize winners, the dividend received from out of discount received from the highest bidder is the reward.
The most passive of them gets the last tranche of chit amount sans offer of any discount and thus might be perceived as getting the maximum reward.
But that would be naïve because the one bidding aggressively is doing so with an eye on putting the money in a lucrative business deal.
Well, this in nutshell is how chit funds came to be described as saving-cum-borrowing schemes that came handy to meet exigencies like death or ill-health as well as joyous occasions like marriages and child-birth in the family.
HOW IT CHANGED
In course of time, chit funds came to be eyed by businessmen with covetous eyes. For them, the discount offered proved to be much less than the interest charged by commercial banks. The prize also was won without much ado, sans the stifling conditions normally put by banks.
Chits suit those businessmen who enjoy humungous profits and for whom the discount offered proved to be a piffling amount.
With profits beckoning, money lenders and non-banking financial institutions entered the chit fund business.
Weak regulation
The Centre stepped in and enacted the Chit Funds Act, 1982 that extends to the whole of India save Jammu and Kashmir.
Small wonder, the West Bengal Government has been heard saying that chit funds are the Centre's baby in the context of l'affaire Saradha chit funds. Be that as it may.
The law itself is no great shakes, though.
It should have laid down the maximum number of tickets per scheme. In its absence there can be thousands of subscribers, each holding as many tickets — subscription units — as they want.
Gullible investors hardly realise their money is not secure. The law permits conducting of bids with a laughably low quorum of just two.
It also normally permits schemes to run for five years, which can be extended to ten years with the special permission of the State government. Chit fund companies are allowed to collect aggregate subscriptions not exceeding ten times their net worth.
With such slack and liberal regulations, chit fund companies are having a field day. Business is conducted in closed rooms sans meaningful subscriber participation, because only those interested in bidding attend.
The vast majority views the schemes as essentially savings-oriented, little realising that the security offered by the 'foreman' as well as the prize winners is often woefully inadequate.
When the prize winners decamp after winning the bids, precious little therefore can be done and the gullible non-prize winning subscribers have to bear the cross.
It is common knowledge that the prize winners are those belonging to the charmed circle of the foreman, read the chit fund company.
Shut doors on businesses
The Centre should clamp down heavily on chit fund companies.
Initially, chit funds catered to small people with modest means, as a self-help group with minimal fuss and paperwork. Once the group is no longer small, the mutual trust is lost.
Businessmen should be made to seek the more transparent and better regulated bank finance or the costlier microfinance, if they want financiers at their doorsteps.
Chit funds, especially those catering to a large number of members, are opaque both in their operations and eliciting of bids.
Unlike in bank borrowings, the interest rates are not explicitly set out but have to be deduced from the discount offered and the number of instalments yet to be paid after winning the prize.
Chit funds thus should be allowed to operate only as household enterprises and not on a large scale. Schemes with more than 50 members should be declared illegal.
The size of each ticket should not be allowed to exceed, say, Rs 20,000. And the duration of a scheme should not be allowed to spill over beyond the third year.
That chit funds are essentially meant for small householders is reinforced by the Chit Fund Act itself — periodic contributions can be made in rupees or grain!
Incidentally, l'affaire Saradha has brought to fore once again the grim fact that the Indian rural landscape is thoroughly under-banked.
Rural folks gravitate towards chits and other unconventional banking or para-banking services.
(The author is a New Delhi-based chartered accountant.)
Defined pain or undefined gain?
The Hindu The core right for a worker should be the assurance of better financial security in his old age.
Any attempt at pension reform is met with cries of government "abdication" and "sacrifice" of workers' rights, despite international experience to the contrary.
April 24, 2013:
Even as one writes this, Finance Minister P. Chidambaram, of late, has been busy trying to stump up more investments into India, including its equity markets. After meeting representatives of major Canadian pension funds, as well as CEOs of Canadian corporations in Toronto and Ottawa, he has moved on to Boston (despite the terror blast and the security alert) and New York, where he is slated to meet as many as 100 top executives of US pension funds, sovereign wealth fund managers and other large fund endowments.
He is not only being brave, but is also doing a job which sorely needs doing, and one which he does well — selling India to overseas investors. To all of them, he is making the same pitch: Invest in the India growth story, in order to maximise the returns for — and, presumably, secure the future interests of — your investors.
Which is not just good, but great news? India is no stranger to foreign investors, or, indeed, foreign funds. The billions which have flown into our markets over the years bear testimony to this. However, it has not been as much of a magnet for very large, long-term investors like national or state pension funds and sovereign wealth funds.
Missing the point
Which is a pity, because such investments tend to be long term, stable and strategic. In other words, exactly the kind of foreign portfolio investment that our markets need to dampen volatility and reduce the 'flight risk' from the kind of hot money which usually lands in emerging markets in search of the next big pay-out, and often leaves just as quickly, at the first signs of a stumble in the bull run.
One just wishes that what is sauce for the goose is also sauce for the gander. The government clearly has no hesitation in asking workers of other nations to bet their future income security on India — after all, that is what asking a foreign pension fund to invest in India amounts to. But when it comes to its own workers — whether employed by itself in the government sector, or by others in the private sector, from doing exactly the same!
India's long stalled reforms of the pensions sector, and the acrimonious debate which has surrounded the issue, has failed to address one fundamental question — is the pension fund being run in a way that best secures future purchasing power?
Objections to changing the way the pension funds are managed in this country has centred on two issues. The first, and by far the strongest objection has been to switching from a defined benefit system — where the contribution by the employee, as well as the return are defined, to one where the returns are linked to the market's performance. The second has been allowing private managers to run the investments.
Both, of course, ignore the larger problem with the pension system in the country, which is the extremely low coverage. Estimates put the percentage of the workforce covered at around 10-12 per cent, which leaves a bulk of the workers, all of them in the unorganised sector — which in turn accounts for a majority of the employment – completely uncovered.
The second issue is the differential treatment of private sector and government employees, with the latter getting a far more generous cover and benefit than their private sector employees. In other words, there is discrimination against contributors on the basis of the nature of employment.
The third problem is that the existing pension schemes are under-funded in terms of the returns which have been assured. This means that contributions of newer workers entering the scheme are being used, at least in part, to meet pay-outs, which is simply unsustainable.
The government's answer, according to worker unions, has been to abdicate its responsibility, by switching the worker – and that includes all of us who have worked in any sort of position in the organised sector, and at least some of us in the unorganised sector – from a defined benefits to a defined contribution system, and leaving the market to deliver what return it can. This, given the very restricted investment ambit given to the fund managers, means that it would be extremely difficult to get returns which even beat inflation. This brings us back to the original question about the objective which a national pension fund should strive for – if a pension fund is not obligated to give a guaranteed return, then should it not be obligated at least to ensure the future purchasing power of the workers' current savings?
International experience
Perhaps, Chidambaram should spend some time listening to his pension fund audience, rather then just talking to them. Because what they are doing to manage the money – and how well they are doing it – may well answer many of the questions in people's minds about what is, or is not, happening to their pension money and future security.
Take the world's second largest pension fund, The Norwegian Government Fund. Its assets, at an excess of $720 billion, are roughly 140 per cent of the country's GDP. They are also managed by a division of the country's central bank, which serves to provide an extra measure of reassurance to the people that the money is in safe hands. Last year, the fund returned 13 per cent, the second best performance in its history – while actually reducing the cost of managing the fund from 2.5 billion kroner to 2.2 billion!
Yngve Slyngstad, the CEO of the fund, who was in India last week, told this writer that many of the issues which have dominated the debate over the pensions issue were debated in Norway as well. "People are not different," he says. The fund, for instance, updates its current asset value as many as 13 times a day on its website, so that "nobody gets anxious".
The difference is that once the overall objective was made clear, it was left to the professionals to decide how to get there.
"The objective is to protect the future purchasing power of the people," said Slyngstad. And over the years, the fund, though managed by a conservative central bank, took several far-reaching decisions. In 2009, the fund decided to invest as much 60 per cent of its corpus in equities. Last year, amidst the turmoil of the European crisis, it altered its global investment strategy.
The geographical allocation of the fund's equity investments is now based on total market value. Investments in government bonds are allocated by country according to the size of its overall output. At the same time, nine emerging market currencies were approved for fixed-income investments. "Our aim is to command a larger share of the global output," says Slyngstad.
The fund also uses a wide range of professional fund managers with specialist knowledge. It pays a standard 0.005 per cent as management fees (we pay 0.006 per cent, which many have argued is too low). What's more, it is an active investor, using its investments to focus on issues which the Norwegians consider important. It was, for example, one of the first to raise a red flag on Vedanta's mining operations in India. Just last week, it yanked more than $130 million in investments from palm oil producers, because unregulated palm oil cultivation was depleting rainforests. And so on.
Even the world's largest pension fund, the notoriously conservative Japan Government Pension Investment Fund, which has traditionally invested more than 60 per cent of its assets in bonds, has been actively diversifying its portfolio for the past few years, after a rapidly ageing population and a generation of slow growth had pushed the pay-in-pay-out mismatch to record levels.
STUBBORN APPROACH
Back home, however, we continue to live in a time warp. Even the suggestion to invest a bit more in higher yielding equities, or allowing professional fund managers to run investments, is met with cries of government "abdication" and "sacrifice" of workers' rights.
Isn't the worker's core right the assurance of better financial security in his old age?
Tinted glasses on vehicles? You may lose insurance
New Delhi, April 24:
Vehicle owners who have put tinted glasses beyond the permissible levels may lose their insurance policy, if a proposal in this regard were to go through.
The Highway Ministry has written to the Insurance Regulatory and Development Authority (IRDA) "to include use of tinted glasses and solar films as violation of conditions of warranty in insurance policies."
This was a part of the steps taken by the Ministry to prevent crimes against women in vehicles, most of which had tinted glasses.
The Ministry had also requested various State Governments to strictly enforce special drive to impose maximum penalty, or suspend registration of vehicles with tinted glasses.
In fact, Highway Minister C.P. Joshi said his Ministry had already written to IRDA on this issue. Incidentally, the Motor Vehicles Amendment Bill, 2012, which proposes stricter penalties for violation of vehicles' conditions, is pending approval in the Lok Sabha.
Air pockets ahead for Air India
Mumbai, April 24:
The Jet Airways-Etihad deal may have a negative impact on Air India's operations but that was to be expected of any such deal following the policy allowing foreign direct investment in Indian carriers, according to Thulasidas, former Chairman and Managing Director, Air India.
Reacting to the strategic investment by the Abu Dhabi-based airline in Jet, he said the Government cannot have a policy for a sector keeping in mind the interest of just one public sector undertaking.
At the same time, as the owner of Air India, it is the Government's responsibility to take care of its interest, he added. This deal will mean more intense competition not only for Air India but to all the other airlines operating out of India.
This is not the first time the Government's policy has affected Air India. In the past, the Government had followed liberal bilateral policy granting foreign countries the right to operate more services. That has impacted the national carrier's operations.
Thulasidas said the Government's policy was aimed at attracting foreign investment into airlines. From that point of view, it is a positive development. If this alliance is going to benefit Indian passengers, it would be good for the Indian aviation sector. As far as the Indian carriers are concerned, the impact may be different.
Asked if it will have a negative impact on Indian airports (as Jet can fly passengers directly from 23 cities in India to Abu Dhabi), Thulasidas said the impact could be both ways.
Jet can also bring passengers from other countries to India and fly them from here to other international destinations. This will help Indian airports.
Aviation hub
Unlike Dubai or Qatar, Abu Dhabi is yet to develop as a major aviation hub. But what India should do is to develop own hubs.
Delhi and Mumbai will develop gradually into such hubs, he said.
As for Jet Airways, going by the press statement, the deal would help in its expansion plans.
Since Etihad's stake is under 26 per cent, it cannot block any special resolution as Jet retains controlling majority.
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