Investor Issues
Kotak Securities asks retail clients to ‘accumulate’ and institutions to ‘reduce’ the same scrip

The brokerage firm has made contrasting calls on the same scrip on the same day to its retail and institutional clients. The firm washes its hands of the matter citing a ‘Chinese wall’

Brokerage firms worldwide are notorious for making dubious recommendations to their clients. It is well known that when the stock markets are on a roll, most brokerages flow along with the mass market euphoria.

Recommendations to buy outstrip those to sell by a huge margin. The same happens when the markets are in a mess - 'sell' recommendations suddenly become the norm - after stocks have fallen off the cliff. But when they start offering contrasting advice to different sets of clients for the same scrip, it is bewildering, to say the least. And when they attempt to justify their action by waving the archaic and spurious 'Chinese wall' concept, investors should be a worried lot.

Kotak Securities, one such brokerage firm, has come out with two contrasting reports on Container Corporation of India on the same day. The two reports make diametrically opposite recommendations for the private clients on the one hand and institutional clients on the other. But before anyone can stand up and question its analysis, Kotak Securities has washed its hands of the matter. In clear terms, the private client report has mentioned, "Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited."

In essence, what the disclaimer means is that one hand does not know what the other is doing - the two research teams are separated by Chinese walls. Of course, this is not the first time a brokerage firm is making contrasting recommendations and putting its hands up.

Moneylife has previously reported (see: http://www.moneylife.in/article/8/5949.html) on how India Infoline had flashed the Chinese wall concept to explain its contrasting calls on the same scrip (Punj Lloyd) on the same day. As we had said then, this notion of existence of Chinese walls in today's financial system is highly dubious and ironic.

The Chinese wall concept is most commonly utilised in financial institutions with interests in both investment banking and brokerage operations. Its purpose is to provide a separation between the two, while allowing the company to engage in both activities without creating a conflict of interest. This wall is not a physical boundary, but rather an ethical one that financial institutions are expected to observe. But this Chinese wall is very porous, as was proved during the recent crisis in Wall Street, when investment banks went belly up one after the other. Kotak itself has brought this to the fore, a large number of PMS investors of Kotak Securities have suffered severe losses due to gross bungling by Kotak's portfolio managers (see: http://www.moneylife.in/article/8/5372.html).
In the effort to generate brokerage income, the managers eroded the wealth of these investors.

Both the reports, whose copies are with Moneylife, were published on 21 October 2010. In one report, Kotak Securities wanted institutional investors to 'reduce' holdings in Container Corp. It also gave a 12-month target price of Rs1,250 or 3% lower than the then trading price of Rs1,287 as on 26th October. According to Kotak's ratings definitions mentioned in this report, a 'reduce' meant that they expected the stock to underperform the BSE Sensex by 0-10% over the next 12 months.

On the other hand, Kotak's second report, issued on the same date and on the same company for its private client group made a recommendation to 'accumulate' shares of Container Corp with a target price of Rs1,360 as against the then trading price of Rs1,270, translating into an upside potential of 7%. The report fails to mention the time horizon, but it is assumed that all brokerages use 12 months as a standard period for target price.

What is even more shocking is the stark difference in earnings estimates reported for the two groups. The private client report maintains FY11 earnings as is and has introduced FY12 estimates. Meanwhile, the institutional equities report reduced earnings estimate for FY11 as well as for FY12!
Our query to Uday Kotak of the Kotak Mahindra group as to the rationale behind the contrarian calls remained unanswered till the time of writing this report.

User

COMMENTS

kumar

7 years ago

Similar to this story..recent debacle from Aditya Birla Money..thanks to its head Mr. Vivke Mahajan. Read this artcile : http://www.moneylife.in/article/81/10216...

K.S.S. Holla

7 years ago

sir,.. I am shocked to know that a highly reputated brokerage house like kotak sec, has given twin diffrent calls,for a single scripe to two diffrent type of clients is highly deplorable.. Weather it is a china wall or ratwall, it is the ethical value which is foremost for any business concern in the long run.. From now on investor must double cautious for any advise given by these firm.. Thanks to MONEY LIFE..

Gerard Colaco

7 years ago

We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.
- Warren Buffett

REPLY

Deepak K Rao

In Reply to Gerard Colaco 7 years ago

Dear Gerard,
Absolutely right. Its great to see your comment on the article.
Regards.
Deepak

Deepak K Rao

7 years ago

Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood.
"Anthony C. Sutton"

The idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. Yet the market is full of people who think they can do it.
"Daniel Kahneman"

If there’re 10,000 people looking at the stocks and trying to pick winners, one in 10,000 is going to score, and that’s all that’s going on.
"Merton Miller"

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.
"Mark Twain"

Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.
"Fred Schwed Jr"

The stock market will continue to be essentially what it always was in the past – a place where a big bull market is inevitably followed by a big bear market.
In other words, a place where today’s free lunches are paid for, doubly tomorrow.
"Benjamin Graham"

Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes.
"Jesse Livermore"

vimal tapadia

7 years ago

I remain a big loser with my large part of life's saving entrusted to them.
They have grossly mismanaged my fund and remain evasive on meeting personally..
I sincerely wish if they could be taught a lesson by reimbursing losses inflicted on a retired person like me..

KSecRetailInvestor

7 years ago

This is definitely not the first time KSec has done something like this. I am a very regular user of KSec, and I had emailed them a question pointing out to mismatched recommendation in bank stocks in the retail and institutional report a while back. They did not bother to respond. And this Chinese wall principle is a very wrong one -- if thats what you follow then you should make provisions for contradictory views to the same set of clients, right?

I think this calls for SEBI action immediately. Also, if brokerages make recommendations they should be made to declare prop trading positions including those in derivatives market.

Roopsingh

7 years ago

Kotak and India infoline are two notorious names in security markets-they are working for interest of Institutions on the loss of retail because INSTITUTIONS are powerful to act against them while retail has no voice to say against them-and watch dog SEBI has no action on them for misguiding and misselling of investors-infact SEBI is doing favour to them by harming MF industry-so they will escape without any punishment-and if these brokerages firms try to escape by saying that there is chinese wall betaween 2 research teams-then they should scrap this concept of chinese wall which is just a tool of hunting rtail clients-

udai

7 years ago

I remember story of a saadhu who used to tell different satta no. to 10 different patrons. He used to get at least one good dinner. Is MOST follows same policy.

Ramkumar K

7 years ago

Congratulations ML. Its a great eye opener for the retail investors and the intraday traders too. Favouring institutional investors at the cost of small investors wealth means cruel huntings are on process by the giant brokers. Retail participants should care of their money of their own.

sachin

7 years ago

Misread the targets. The targets are 1250 and 1360. Anyway, these targets are too far away too - less than 10%.

sachin

7 years ago

Actually, both the price targets aren't too far away. 1287 and 1360 are just 6% apart.

In either case, the client should understand the upside potential of the scrip is capped and thus look for better opportunities or be prepared to wait for the period of more than 2 years.

I see nothing wrong with these 2 reports differing in their final call.

Even the same analyst may come out with difference earnings estimates on different days. If two different analysts have a price target that is 6% apart, it has to considered normal.

REPLY

sachin gangwal

In Reply to sachin 7 years ago

Ha, nice way of defending something. All of us know that research firms of brokerage houses are not independent. So if two analysts 'independently" have a 6% price difference .... kind of thing is impossible. In any case organisations should speak with one voice.
This is the same kotak incidentally, which has made a hash of so many investors PMS accounts. Forget returns ... they have huge losses. I have a friend who complained to SEBi after losing a few lakhs of his principal.

I think the two voices are especially serious in a case like Kotak!!! What is SEBI doing?

maryseven

7 years ago

thx ML for the observation!
readers like wud hv missed altogether!

yr report confirms that many of the Big names are actually unreliable! in fact,
we have no other means to know this except by the vigilant website like the ML.
thx

VINOD GUPTA

7 years ago

is this not goldman sacha way where the us regulatory authorities are taking ACTION BUT in india companies as wll as brokerage houses go scot free and sebi/bse/nse are merely mute spectators and are afrais of taking ction i have many such incidents , uco, vijaya, united banks even gave wrong figures of eps both in annual reports and quarterly by not deducting prorata dividend of PNCPS from the profits before arriving at eps, the auditors of these three need to be hauled up for the serious lapse and not allowed to do banks audit. there are cases where there is a blatant violation of accounting norms and regulatory authorities failed to take action

vikas batra

7 years ago

it is a very clear trading strategy, if it goes up one type of client is satisfied and if it goes down then other is satisfied, try it kotak is not the one only one even all players who come on tv do the same thing, asking viewers to buy and asking their rivate clients to sell that and vice versa. so that they should remain in business

s k kataria

7 years ago

Congratulations for the wakeup call and cautioning about the brokerage.What does SEBI do in such matters.Could you please elaborate

S K KATARIA
9810502151

REPLY

vikas batra

In Reply to s k kataria 7 years ago

sebi is again barking dog of brokers, as it has tried to put mutual funds in their arena and was trying to do for infrastructure bonds to be demated, so that their baby is promoted and will not say word about various irregulariries happening in the market.
i complained about one and still to get a reply, its been five months

Suspended animation of scrips: Investors suffer, and errant companies are let off the hook

Suspension of scrips, or delisting them, punishes investors and helps companies who want to ditch their retail shareholders after raising funds from them

After Moneylife wrote earlier about some 1,500 scrips being in suspended animation, even as the Securities and Exchange Board of India (SEBI) is set to tweak the takeover and delisting rules, intermediaries and investors are writing to protest the lack of action.

Suspension of scrips, or delisting them, punishes investors and helps companies who want to ditch their retail shareholders after raising funds from them. Companies merely need to violate the listing rules by refusing to pay the fees or making correct disclosures. Meanwhile, investors are stuck. They continue to pay the annual depository charges and cannot even close the DP account without transferring the shares; re-materialising them involves a further cost on what could be a worthless share.

An intermediary told Moneylife that, at present, of the 1,537 scrips suspended from trading, just 673 companies account for a combined equity capital of Rs14,119 crore. Virendra Jain of Midas Touch Investors Association says that nearly 800 companies file returns regularly. But, in most cases, investors are clueless.

Among the scrips that investors say they are clueless about are: Assambrook Ltd which was suspended on 3 July 2008 where around 8,000 investors, who hold 64% of the equity, are affected. While tea companies are doing well, shareholders of Assambrook are stuck with illiquid stock even though the shares were trading at Rs15 when it was suspended. Two others are: Delhi-based Talbros Engineering and Cochin-based Vysali Pharmaceuticals.

Interestingly, investors have repeatedly taken up this issue with CB Bhave, even when he headed the National Securities Depository Ltd (NSDL), but have not made much headway. One reason may be that most of these scrips are listed on the (older) Bombay Stock Exchange (BSE), whose turnover has steadily shrunk over the past 15 years to just under 4% of the total market, even though it has more than 3,000-odd shares listed on it with negligible trading. Clearly, it is unfair, and expensive, for the BSE to bear the cross for legacy issues. The regulator needs to step in on behalf of investors and make investor protection funds available to pursue these companies, initiate action against directors (one committee had suggested barring them from the boards of all companies) and file winding-up proceedings against the companies. Meanwhile, several investors and intermediaries have innovative ideas to revive trading in these scrips, if only the regulator would listen. One suggestion sent to Moneylife is to transfer these shares to one of the 20 defunct regional bourses which can provide an over-the-counter (OTC) platform to trade the shares and give them liquidity. These would be like the bulletin boards or pink-sheet exchanges that exist abroad, with lower regulatory requirements. Clearly, this and other suggestions need to be examined by the regulator to find a solution.

User

COMMENTS

sathya cumaran

6 years ago

i have been cheated by IIFL by bse nse sebi

R Balakrishnan

7 years ago

Yes, indeed, delisting helps the bloody promoters. If SEBI is serious about investor protection, what should be done is to bar each and everyone (director/independent or otherwise, auditors and solicitors etc) from ever being associated with the capital markets and put up their names not only on the website of SEBI but also publish them in all national dailies.
The promoters should be held accountable. Punishing the shareholders is like helping the promoter to rob them.

sodhan

7 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

sodhan

7 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

sodhan

7 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

Krupal K G

7 years ago

Investors associations, also , should take up the new listing business that is taking place on the First day trading. In case of Emami Infra, Prakash steelage, Bedmutha Industries etc., rampunt speculation has driven the price to dizzy heights and dropped like a hot potato. Bringing all the new listings under Trade to Trade for one or two months is the need of the hour. Anchor investors lock in period of one month is too short a period, it should be increased to minimum 3 months, to make the market healthy.

Aditya Birla Money: A saga of wrong bets, losses and damage control

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.
 

User

COMMENTS

manish shah

1 month ago

Do companies like squareoff, minance are doing the same thing?

Subrahmanyam

7 years ago

Not recommend in investment in shares in Adityabirla money. You loose hard earned money by investment, the marketing persons are giving false promises on invesment of Rs.25k and you get Rs.4k in every month. Practically you never get and dont fall in trap and tell your circle not to invest in AB money.

REPLY

ramkishan sonthalia

In Reply to Subrahmanyam 7 years ago

I think this was a scam almost similar to the Citibank. Please give your comment.

ramkishan sonthalia

7 years ago

If such type of irregularities are noticed, who will give them a banking liacence is a big question. Same incidence may happen again, who konws.

kishore

7 years ago

ANOTHER RS. 100 CRS LOSS IN THE MAKING BY ADITYA BIRLA MONEY

Buy LIC Housing Finance, target Rs 1426: Aditya Birla Money has recommended a `Buy` on LIC Housing Finance with a price target of Rs 1426 in its report dated Nov. 24th, 2010.

LIC HOUSING FELL MORE THAN 20% ON THE SAME DAY. AS A CLIENT, I LOST MY MONEY BECAUSE OF VIVEK MAHAJAN RECOMMENDATION.

Dev singh

7 years ago

if company goes by recommendation this is what will happen. Mr. Pankaj razdan ( ex ICICI) referring Mr. Vivek Kanwar (ex ICICI). Mr. Kanwar referring his close associate Mr. Vivek Mahajan. His recent recommendations on Eros media and GPIL made people lose in crores. Would we also be refunded ???

ashok L Surana

7 years ago

whether this is exactly front running by fund manager and whether this is a genuine loss or fabricated loss to pass on gain to someone.this needs to be checked by sebi messiah of investor

REPLY

ramkishan sonthalia

In Reply to ashok L Surana 7 years ago

I also have the same doubt as Mr Surana has in his comments. My suggestion would be for full invstigation in the matter.may be the scheme was launched for the benefit of birla executives only. who knows?

pushkar

In Reply to ramkishan sonthalia 7 years ago

Aditya birla nuvo(parent company of Aditya Birla Money ltd) took this loss made by the acts of 2 individuals in its 2Q sep 2010 results.

These 2 individuals Mr. Vivek Mahajan and Mr. Kanwar vivek were not selected by any selection process. As the above news article says by referrals they were choosen with no real merits.

Aditya Birla group is known for its business ethics. So they have made good the losses. But Mr. Vivek Mahajan's recommendations day in and day are causing crores of losses to many innocent investors. The recommendations given by him in media is given with no fundamental research but by just toss of a coin. Again one cannot blame him. Its like asking a door painter to draw a beautiful painting !

There are small shareholders and investors losing money because of irresponsible acts of uncalibered individuals. Thousands of individuals through their hard earned moeny fund a company's growth by getting the company's shares listed. By certain professionals like Mr. vivek mahajan and Mr. kanwar vivek only help in ruining the company.

With less than 3 months of joining Mr. vivek mahajan helped the company make Rs. 100 crs loss. May be company is waiting for him to make Rs. 1000 crs loss !!!

ram kishan sonthalia

In Reply to pushkar 7 years ago

Agree with all of your views but how will bell the cat.

chaitanya

7 years ago

Mr. Vivek mahajan of aditya birla money ltd was recently hired to oversee the operations of options maxima of aditya birla money ltd. But in his style he overlooked the operations causing Rs. 100 Crs loss to the company. The press releases when he joined says he has rich experience. But definitely he became rich after joining this company. Mr. Vivek kanwar who hired him unfortunately has to take responsibility and left the company.

shirish

7 years ago

Mr. Vivek mahajan caused Rs. 100 Crs to aditya birla money Ltd. he expected market to consolidate. But market gave a bull run. He short the market heavily in options maxima scheme.

REPLY

ramkishan sonthalia

In Reply to shirish 7 years ago

Is there any legal procedure to be followed against such person/company?

hebe

7 years ago

who is this kanwar vivek? He is the expelled Managing Director of Aditya Birla Money Ltd. He is close associate of Mr. Pankaj Razdan (CEO of Aditya birla financial services). Kanwar vivek gets Rs. 5 crs as salary. Under his very efficient leadership not only did Birla Sun Life Distribution Ltd ( now Aditya Birla Money Mart Ltd) kept making losses, but its partner Sunlife also withdrew its partnership as there was no turnaround. This person appointed another person vivek mahajan for a salary of Rs. 2 Crs. Both of them paid this hefty salary to make this much loss to the company is it? Why doesnt Aditya Birla Money Ltd recruit people of good caliber? A costly mistake by the company board.

Ravi M

7 years ago

I am one of the unfortunate investor of this scheme. Surely, this scheme was wrongly sold, as stated in the article.
However, the manager (employee of AB Money) who sold me this scheme, refused to give any compensation for losses over 25%. Well, I have exited form the scheme.

Can we trust a company like AB Money - that is owned by person like Aditya Birla ???

REPLY

raj

In Reply to Ravi M 7 years ago

I was also in the scheme...Yet there is no solution is done for me... ? Can you please give me your email id or reply on raj.patel011967@gmail.com...Please help me out...

ramkishan sonthalia

7 years ago

good coverage. may be the scheme was launched for the benefit of birla executives only. who knows?

Narendra Doshi

7 years ago

Congrats Moneylife Digital Team for this report, so fast, so soon.
Also, kudos to Aditya Kumar Birla for his personal touch & action, again so fast, so soon, for being a responsible Head of his group & taking timely action , PERSONALLY, and accepting the eventual responsibility. Birla's action is worthy of being followed by several other business group operations.

ramchandran

7 years ago

Financial services recruitments need to be looked into seriously. You just cant go by people's resume , a proven track record & reputation is a must.

REPLY

praks

In Reply to ramchandran 7 years ago

Read this arcile

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