Exchanges bear the brunt

The market downturn last year had not just left the investors sweating. The stock exchanges too had to suffer through a decline in turnover and volumes. The fall in the volume of trading activity was reflected in the decline in income from transaction charges. For the National Stock Exchange (NSE), this contributes 56% of total income, and it fell 23% in FY2008-09. The Bombay Stock Exchange’s (BSE) income from transaction charges fell 30%.

Last year also witnessed little action on the IPO front and this was reflected in the fall in book-building fees. NSE’s book-building fees fell 92% in FY2008-09 while BSE recorded an 86% decline. While NSE recorded a small drop in total income, BSE’s total income remained largely unchanged. This was mainly due to the fact that BSE had a larger cushion from income from investments and deposits. Income interest grew by a whopping 231% for BSE whereas for NSE it grew by 63%. BSE’s total income was also supported by income from other services, which grew 56%.

In line with the reduced trading activity, BSE recorded a significant reduction in expenditure. But the same did not hold true for NSE. While BSE’s total expenses fell 31%, NSE’s expenses grew 15% over the year. NSE’s expenses were higher on account of higher spend on employee and administration expenses.
– Debashis Basu with Sanket Dhanorkar  [email protected]

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AMCs under stress

After the Securities and Exchange Board of India abolished the entry load on mutual funds, the asset management companies (AMCs) have found that their business models have gone for a toss. They can no longer dip into investors’ corpus to pay for the huge launch expenses of funds. This would put a severe strain on the survival of several AMCs. These companies were designed to be businesses run on a small capital base. They cannot take on the huge cost of advertising and promotion on themselves. Already some of the AMCs are in talks to sell out. A few weeks ago the Murugappa group sold its stake in DBS Cholamandalam mutual fund to L&T Finance. Which are the others that would be vulnerable? Those that have made losses in 2008-09 have little hope to launch new funds. Their only option is to recapitalise the business. Of the 26 AMCs that have declared results for 2008-09, 11 have registered losses. Surprisingly some AMCs like Quantum, Kotak Mahindra, ICICI Prudential and UTI are yet to declare their results for financial year 2008-2009.

Among the large loss-making AMCs, Principal PNB Asset Management Company, which is a joint venture between Principal Mauritius, Punjab National Bank and Vijaya Bank, tops the list. In the financial year 2008-2009 the AMC has reported a loss after tax of Rs42.74 crore. It manages Rs8,138 crore, most of it under its various debt funds. Mirae Asset Global Investments (India), sponsored by the Korean fund giant Mirae, was the second in the list, declaring a loss of Rs20.06 crore after tax. It was one of the last to enter the business—in 2007—when the market was booming. It has Rs174 crore of assets under management. Canara Bank and Robeco Group joint venture Canara Robeco Asset Management which manages about Rs8,478 crore lost Rs17.17 crore last year. A surprising entry in the list is HSBC Global Asset Management which has both performance as well as strength of distribution on its side. It reported a loss of Rs16.95 crore after tax even though it has Rs7,782 crore of assets under management. Surely HSBC will not sell out its Indian asset management business.
 
The joint venture of Bank of Baroda and Pioneer Investments, Baroda Pioneer Asset Management Company, posted a loss of Rs6.12 crore after tax. It too is a small AMC, managing Rs3,875 crore of assets. JM Financial Asset Management was one of the earliest to have got permission to set up an AMC. It has been around for 14 years and its funds have been racked by poor performance. The fund has reported a loss after tax of Rs5.69 crore in the financial year 2008-2009. Sahara Asset Management and Shinsei Asset Management (India) are absolutely tiny entities, each reporting loss of Rs2.51 crore. Sahara will almost certainly be sold sooner or later. Shinsei, a large Japanese bank, has just come into India and will wait and watch how the business does. Edelweiss Asset Management, another new entrant, posted a loss of Rs2.42 crore. It has no plans to sell out out now but will certainly lie low. One AMC that may sellout is Escorts which reported a loss of Rs76 lakh. It does not launch new funds and has a very small corpus of around Rs180 crore. Bharti AXA, another new entrant, reported a loss after tax of Rs2.5 crore but is funded by deep-pocketed sponsors. In short, PNB, Principal, Canara Robeco, Baroda Pioneer may seem undergo a realignment of shareholding while Sahara, Escorts and JM Mutual Fund don’t seem to be long-term survivors in their present form.

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COMMENTS

Arvind Thakur

7 years ago

It is a very useful data and study for me as a financial advisor.
I am heartiest thankful to you.

LN Mittal-Uttam Galva on course to set up more projects By Sucheta Dalal
On 4th September, Uttam Galva Steels Ltd informed bourses about its co-promotion agreement with ArcelorMittal Netherlands BV, the world’s largest steel producer. Under the agreement, Mittal with purchase a 5% stake (at Rs120 a share) in Uttam Galva followed by an open offer to acquire another 29.4% making ArcelorMittal an equal partner with the Indian promoter Rajinder Miglani. Uttam Galva has a steel production capacity of 750,000 tonnes per annum.
 
However, very reliable sources told Moneylife Digital that Miglani and Mittal have another bigger project on the anvil. They say ArcelorMittal will partner with Miglani to set up a 2 million tonne Hot Rolled Coil (HRC) project at Redi near Goa. Miglani already owns 750 acres of land there, which once belonged to Usha Ispat, controlled by Vinay Rai. Usha Ispat had a pig iron plant at Redi, which was auctioned under the provisions of the Sarfaesi Act, 2002. The land is also located near a jetty and is close to the raw material source.
 
The advantage to the deal between Miglani and Mittal, say our sources, is that Uttam Galva has all the permissions in place to get the project off the ground very quickly. We learn that LN Mittal will be dominant partner in the Goa project with a 70% holding while Miglani will own 30% to start with. The company may raise public funds to finance the steel project.
 
With this partnership, Uttam Galva, a standalone galvanizer will enter the big league of steel players in India. This project is probably what Rajinder Miglani had in mind when he told a newspaper that “the whole purpose of the joint venture is to grow the business in India and transform Uttam Galva Steel from a galvanized player to an integrated steel maker”.
 
The change is reflected in the stock market’s reaction to the announcement. The Uttam Galva stock rose nearly 10% to close at Rs113.70 on the Bombay Stock Exchange on Friday.

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