Economy
Higher money supply growth points to a positive revenue growth: Morgan Stanley

The current earnings season may have turned out to be India’s worst over the last few quarters. However, a rising growth in the narrow money supply could lead to an improvement in broad market earnings. If this true, it would be an early bullish sign

It is earnings growth that drives a market and declining sales and rising costs in the past few quarters has resulted in a decline in operating profit margins and earning growth, leading to falling stock prices. All interest among smart investors is focused on discerning what can signal a reversal of this. It is money supply according to Morgan Stanley’s latest India Strategy report “Macro points to improvement in broad market earnings”. The report says that macro indicators are showing positive change for these drivers and hence, incrementally, a better earnings picture.

The growth of the narrow money supply (M1), which shows the amount of money in cash and demand deposits in the public domain, had hit a bottom in November 2011 and therefore the revenue growth for the following quarter which ended June 2012 took a hit. With the growth in M1 over the last quarter, sales in the subsequent quarters should stabilise or even pick up. However, the September and December quarters of the last financial year saw a significant revenue growth, therefore year on year revenue growth for the subsequent quarters may not reflect due to a base effect. But there could be an improvement based on the direction of M1 growth. The growth in M1 reflects in the revenue growth approximately six months later. Therefore if M1 growth continues its upward trend we could probably see this translating into a higher revenue growth.

Persistent high inflation, depreciating rupee and high interest rates along with sluggish demand has dented the profit margins of the broader market (excluding state-run oil companies) over the last few quarters. Profit margins have a favourable base going forward as margins had been on a decline since June 2010. If the current account deficit falls faster than the fiscal deficit, margins are likely to improve. However, if investments pick up during the financial year, the relative performance of current account deficit to fiscal deficit will be less relevant to corporate margins.

According to the report, interest costs have gone up by nearly 40% year on year and interest to revenues is the highest over the last few quarters. However, the 3-month commercial paper rate has fallen by nearly three percentage points over the past few weeks. Interest costs may have peaked and is likely to stabilise. This should help corporate margins.

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SEBI asks DPs to provide basic services demat account for small investors

All depository participants have been asked by SEBI to provide basic services demat account with limited services and reduced cost to retail investors

Market regulator Securities and Exchange Board of India (SEBI) has asked all depository participants (DPs) to provide a “basic services demat account” (BSDA) with limited services and reduced cost to small, retail investors.

 

“An individual can have only one BSDA in his or name across all DPs where the value of securities would be capped at Rs2 lakh at any point of time,” SEBI said in a release.

 

The Annual Maintenance Charges (AMC) structure for the BSDA shall be on a slab basis—if the value of holding is (1) up to Rs50,000 there will be NIL AMC and (2) for value of holding from Rs50,001 to Rs2 lakh AMC will be up to Rs100.

 

“The value of the holding shall be determined by the DPs on the basis of the daily closing price or NAV of the securities or units of mutual funds. If the value of holding in such BSDA exceeds the prescribed criteria at any date, the DPs may levy charges as applicable to regular accounts (non-BSDA) from that date onwards," SEBI said.

 

The BSDA account holder can get an electronic statement free of cost. He can also have two physical statements during the billing cycle free of cost, but would have to pay up to Rs25 for additional statements in physical format.

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SEBI tweaks rules for faster stake dilution by promoters

 

IPPs and OFSs are avenues made available to the promoters to help them dilute their stake and meet the guidelines of 25% minimum public shareholding in private companies and 10% in PSUs

New Delhi: With an aim to help promoters dilute stake to meet minimum 25% public holding norms, Securities and Exchange Board of India (SEBI) on Monday allowed the promoter entities to hit the market with successive institutional placement programme (IPP) and offer for sale (OFS) schemes with a two-week gap, reports PTI.

 

IPPs and OFSs are two recently announced avenues made available to the promoters by market regulator SEBI to help them dilute their stake and meet the guidelines of 25% minimum public shareholding in private firms and 10% in PSUs.

 

These are two fast-track stake sale programmes available for share sale through auction method, as against the long-drawn processes involved in traditional avenues like follow-on public offers (FPOs).

 

Various amendments have been notified by SEBI in its regulations pursuant to decisions taken at its last board meeting on August 16, where it decided that retail investors would be assured a minimum lot of shares and rules would be relaxed for promoters to meet minimum public holding norms.

 

However, the earlier regulations did not allow the promoter of a company to launch an IPP if any of the promoter group entities had purchased and/or sold shares in a 12-week period prior to the offer. Besides, the promoters were also not allowed to purchase and/or sell in the 12-week period after the offer.

 

While retaining this restriction, SEBI has amended rules to provide some relaxation to the promoters seeking faster dilution of their shareholding through IPP or OFS routes.

 

Now, such promoters may offer their shares through IPP or OFS routes within this 12-week period, subject to a condition that there shall be a gap of minimum two weeks between the two successive OFSs and/or IPPs.

 

In another amendment to its regulations mandating a minimum of 10% net offer to public in IPOs and FPOs, and of 25% in certain cases, SEBI has done away with the exemptions given to the government entities and certain infrastructure sector firms.

 

In a separate amendment to its ICDR (Issue of Capital and Disclosure Requirements) regulations, SEBI has amended rules that require minimum 90% subscription in an issue.

 

Now, this minimum subscription requirement for IPOs would be subject to allotment of a minimum number of securities.

 

This requirement would also apply in case of shares being sold through OFS scheme.

 

However, other minimum subscription related requirements would not apply to shares offered through OFS. These requirements include those related to refund of application money within a given time frame in the event of non-receipt of minimum subscription.

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