Brokerage firm Aditya Birla Money’s fancy scheme for the rich incurred heavy losses amid wrong bets. It has required intervention from the very top to set things right
In the high stakes game of wealth management, where revenue generation usually takes precedence over client welfare, all it takes is a few overzealous people to run a portfolio to the ground. Aditya Birla Money, a financial services firm, discovered this the hard way recently, when a fancy scheme tailored for individuals with deep pockets ran into heavy losses apparently due to wrong and slipshod bets. However, Moneylife learns through informed sources that Kumar Mangalam Birla personally intervened to ensure there were no losses to the investors.
The scheme, Options Maxima, involved trading in equity options where fund managers either short sold Nifty and bought options or did it the other way, a person familiar with the development told Moneylife. The scheme promised returns of around 1%-1.5% every month based on the arbitrage opportunities through this activity, which ensured what was considered a very fair 12%-15% return annually. The managers, however, made wrong calls on the movement of the index and stocks.
Narrating this incident, our source told us, "They (Aditya Birla Money) used to run something called Options Maxima involving covered calls where one short sells Nifty and buys options or the other way around, whereby there is a small arbitrage opportunity. Every month it offered 1%-1.5%, translating into annual returns of 12%-15%. It was aggressively marketed as a risk-free investment in various presentations. Suddenly in September when the market went up this manager based out of Chennai short sold Nifty and bought options, resulting in a huge loss."
The resulting losses supposedly amounting to a sizeable sum of nearly Rs100 crore caused panic in the company. Sources say that Kumar Mangalam Birla personally inspected the books of the company at its office and was there very late into the night. We have learnt that the Birla group has written cheques to make good the losses through a private group entity. But such a blunder could not go unpunished. The buck had stopped at Kanwar Vivek, managing director of Aditya Birla Money, who apparently put in his papers. Pankaj Razdan, deputy chief executive, financial services, Aditya Birla Group had roped in Mr Vivek a while ago. We have now learnt that this incident has also put Mr Razdan under considerable pressure. However, company sources deny any talks of him leaving the company.
An Aditya Birla Group spokesperson declined to reveal more details regarding this sensitive issue as the listed company is slated to come out with its quarterly performance figures early next week. However he did mention that most of the reports in the media were purely speculation, including the estimates of the loss incurred by the scheme. "As a company policy, we do not comment on speculation," said the spokesperson.
At a time when the group is intent on making significant strides in several of its new-generation businesses, Mr Birla would surely like to put this incident behind him. Financial services forms a big part of the group's plans and has contributed 37% to the FY 2009-10 consolidated revenue of Aditya Birla Nuvo, the holding company. Mr Birla is infusing more cash into businesses like financial services and telecom through Nuvo and enhancing his own stake in the process. Aditya Birla Financial Services is, in fact, intent on launching banking services provided the Reserve Bank of India (RBI) gives it a banking license.
The local market opened on a strong note this morning on positive cues from across the globe. Easing of weekly inflation numbers and good earnings figures gave the indices the much-needed boost, enabling them to erase the losses suffered over the past two days.
The market started the day in the green on optimism seen in the US markets overnight; it also brushed aside the cautiousness exhibited by Asian bourses this morning. Early buying gave way to range-bound trade in the morning session. However, easing of the country's weekly food inflation numbers lifted the indices further, helping them touch the day's highs and surpass the crucial levels of 20,200 on the Sensex and 6,100 on the Nifty.
The Sensex ended the day's proceedings at 20,260, up 388.43 points (1.95%). The index touched a high of 20,293 and a low of 19,886 during the session. The Nifty settled at 6,101, up 119.40 points (2%). The benchmark touched a high of 6,113 and a low of 5,985, intraday.
The market breadth was in favour of the gainers. Twenty nine of the thirty Sensex stocks ended in the green today. The Nifty closed with 45 gainers against 5 declining stocks. Among the broader indices, the BSE Mid-cap index surged 1.37% while the BSE Small-cap index rose 1.04%.
The top performers on the Sensex were Hindalco Industries (up 5.05%), Bharti Airtel (up 5.03%), Hindustan Unilever (HUL) (up 3.95%), ITC (up 3.65%) and Cipla (up 3.59%). NTPC, down 0.12%, was the lone loser today.
All sectoral indices ended in the positive zone today. BSE Fast Moving Consumer Goods (FMCG) (up 3.19%), BSE Bankex (up 2.09%) and BSE Oil & Gas (up 2.03%) were on the top of the list while BSE IT, with a gain of 0.89% ended at the bottom of the list.
Food inflation declined to 15.53% for the week ended 9th October, down by 0.84 percentage points from 16.37% in the previous week, government data showed.
Experts said the impact of adequate monsoon was slowly becoming visible on prices of essential items, as supply-side pressure was easing after the good harvest.
Markets in Asia ended mostly in the green on positive signals emanating from the US markets in overnight trade. However, cautiousness prevailed as China announced sluggish growth numbers for the third quarter even as inflation in September rose to the fastest pace in yearly two years.
The Hang Seng was up 0.39%, Jakarta Composite was up 0.25%, KLSE Composite was up 0.29%, Seoul Composite gained 0.23% and Taiwan Weighted added 0.08%. On the other hand, the Shanghai Composite was down 0.68%, Nikkei 225 shed 0.05% and Straits Times lost 0.49% in today's trade.
Markets in the US erased most of the losses accrued on Tuesday on good earnings reports and a weak dollar, which increased investors' appetite for riskier assets like stocks and commodities. Material and energy stocks, which took a beating on Tuesday, were the top performers yesterday. Financial companies reported mixed earnings. While Wells Fargo & Co announced higher earnings but Morgan Stanley came up with a surprise loss.
The Dow advanced 129.35 points (1.18%) to 11,108. The S&P 500 gained 12.27 points (1.05%) to 1,178. The Nasdaq rose 20.44 points (0.84) to 2,457.
Participation by institutional investors was lacklustre on Wednesday, giving an indication that funds have gone to the Coal India initial public offering. While foreign institutional investors were net buyers of stocks worth Rs16.35 crore, domestic institutional investors were net sellers of Rs27.50 crore.
Gayatri Projects (up 1.09%) has bagged an order worth Rs43.45 crore from FLSmidth for completion of work at the Kumaraswamy Iron ore Crushing project at Donimalal, Bellary in Karnataka.
Gayatri Projects is one of the fastest growing construction company in India executing major civil works including construction of concrete/masonry dams, earthen dams, national highways, bridges, canals, aqueducts, airports, ports, etc.
With a view to push its bulk drugs and immuno-suppressant products overseas, RPG Life Sciences (down 2.57%) is eyeing marketing and distribution tie-ups with foreign companies, a top company official said.
The tie-up will help the RPG Group company push its products in Europe. Both the companies will buy products from each other and sell them in their respective strong markets.
State-owned exploration and production (E&P) major Oil and Natural Gas Corporation (ONGC) (up 0.56%) today wrote to Cairn Energy Plc insisting that the UK-based firm will need its explicit nod before it can sell its India unit to Vedanta Resources Plc.
ONGC, which partners Cairn India in all of its three producing assets and most of the seven exploration acreage, wrote to Cairn Energy Plc saying that it has the right of first refusal (RoFR) on these assets.
Cairn Energy, which holds 62.38% stake in Cairn India, is selling 40%-51% stake in the India unit to London-listed Vedanta Resources for $8.48 billion.
Hydro-mechanical equipment supplier, OM Metals Infraprojects Ltd in joint venture (JV) with SEW Ltd has won a contract worth Rs144 crore from Madhya Pradesh Water Resource Department.
The scope of work includes over flow and non-over flow construction of concrete dam including HM components in Pench diversion project in Chindwara district.
On Thursday, OM Metals Infraprojects shares ended 15.1% up at Rs67 on the Bombay Stock Exchange, while the benchmark Sensex closed 2% higher at 20,260 points.