The committee will submit a compressive report on investor issues, annual reports of companies, financial literacy as well as integration of redressal mechanisms of MCA and SEBI
The ministry of corporate affairs (MCA) has set up an experts committee under the chairmanship of Jaydeep N Shah, president of the Institute of Chartered Accountants of India (ICAI), for following up action points on several issues associated with investor education and grievances redressal.
The committee will develop a 20-point summary report for making annual report of companies more meaningful and understandable to common investors. In consultation with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), the committee will also develop educational material used in financial literacy for schools and common investors.
According to a notification from the MCA, the committee will prepare a background paper for discussion on transparent processes for stakeholders and colour coding of financial products. It will also prepare a road map for integration of redressal mechanisms of MCA and SEBI and evaluate existing grievance redressal module of MCA, so that it can be strengthened.
In order to channelize household savings, the committee will identify the scope and modalities of a study that would be conducted by ICAI.
The committee would also prepare a proposal for evaluation of websites that contain best investor related information.
The Indian Institute of Public Administration has prepared an “Impact Assessment Report” about investor education and awareness. The committee will examine and discuss the report and action points identified in the ICIM events and prepare a compressive road map for effective investor awareness initiatives of the MCA. This will include role and contribution of professional institutes and the trade and business chambers for implementing these initiatives.
Ananta Subramanian, vice president of the Institute of Company Secretaries of India (ICSI) is convenor of the committee, while Rakesh Singh, vice president, ICAI, Arvind Pradhan, secretary general, Indian Merchants Chamber (IMC), NK Jain, secretary, ICAI are other members. Moneylife’s Managing Editor, Sucheta Dalal, is also one of the members of the committee.
The committee will also have one representative each from SEBI and RBI. It will submit its report by 9 August 2012, the MCA said in the notification.
The new scheme will follow an approach which gives weightage to stocks based on their fundamentals
Axis Mutual Fund wants to rise above the clutter of the 200-odd equity schemes. Earlier this year it filed an offer document with the Securities and Exchange Board of India (SEBI) to launch a goal-oriented equity scheme—Axis Life Plan. This is a unique scheme where the asset allocation changes as it approaches the target date of the goal.
The fund house has now filed an offer document to launch an open-ended equity scheme—Axis Fundamental Factors Equity Fund. In this scheme the weightage of the stock will be determined by their fundamental factors such as sales, cash flow, dividend and book value which will be picked from an index based on the same factors. Around 90% to 100% of the assets would be invested in equity instruments constituting the FTSE RAFI India 50 Index. The FTSE Group has partnered with Research Affiliates to create the FTSE RAFI Index Series. The FTSE RAFI India 50 Index is part of this series which weighs index constituents using four fundamental factors—dividends, cash flow, sales and book value. The scheme performance would be benchmarked against FTSE RAFI India 50 Index and the S&P CNX Nifty.
This FTSE RAFI India 50 Index comprises the largest 50 stocks by fundamental value, listed in the Indian equity market. The top five stocks in this index as per their weightage are Reliance Industries, ICICI Bank, Tata Steel, State bank of India and Infosys. Out of the 50 stocks, 10 are banks having a total weight of 24.37% in the index.
How is this scheme different from other diversified equity schemes?
It falls between index funds and actively managed funds. An index fund would invest in the constituent stocks of a popular index keeping the weightage of each stock the same as in the index. The weightage of stocks in most of the popular indexes like the Sensex, S&P Nifty, etc, are based on their market capitalisation (free float).
Diversified equity funds pick their stocks and depending in their confidence level, they decide how much of exposure the portfolio should have to each individual stock.
A fundamental index-based fund takes the formula approach of indexing but does not rely on a popular index which it thinks is flawed. Instead of using market capitalisation to determine how much to buy of each stock in the index, other measures like the company’s sales, its earnings, dividends, etc, are used to determine weightage. Therefore companies with greater amount of sales, earnings etc will have a higher weightage in the index. The weightage is not influenced by price at all; therefore it will not overweight overpriced stocks as it would be in a market-cap weighted index.
This new Axis scheme will be giving weightage to the stocks based on their fundamental factors and not necessarily undervalued stocks. Motilal Oswal’s MOSt Shares M50 ETF follows a similar investment style, but here the weightage according to the fundamentals is given to the constituents of the S&P CNX Nifty Index.
This concept is not new and has been around since the 1980s, but does this really work? Joel Greenblatt, author of the book ‘The Big Secret for the Small Investor’ mentions that there is plenty of evidence that these indexes actually work. In the book he mentions that Research Affiliates has backtested an index (known as the FTSE RAFI 1000 Index) that has outperformed the market-cap weighted S&P 500 by approximately 2% per year since 1962 (before expenses). However, a company’s fundamental size often has a high correlation with its market capitalisation. Therefore companies that have a lot of sales and earnings usually have a high market capitalisation, for the same reason, mega-cap companies like Reliance Industries, ITC, Infosys are heavily weighted on the FTSE RAFI India Index as well as the Sensex which is a market-cap weighted index.
How has the index performed with respect to the Sensex? As of 30 March 2012, over the last three-month, six-month, one-year and three-year periods the index gave absolute returns 18.50%, 4.8%, -12.3% and 104% whereas the Sensex returned 12.61%, 5.78%, -9.75% and 79.27% respectively. These are fixed period returns, not rolling returns and therefore of limited value. The index values of the FTSE RAFI Index are not readily available. This makes it even more difficult. The Motilal Oswal ETF, which was launched in 2010, did better in two out of the three periods returning 18.61%, 9.16% and -9.99% in the first three periods whereas the S&P CNX Nifty Index returned 14.56%, 7.13% and -8.49% in the same periods.
Axis MF has equity schemes which have been inexistence for barely a couple of years. In the one-year period ended 25 May 2012, its equity schemes—Axis Equity Fund and Axis Midcap Fund returned -6.85% and -1.30% outperforming their benchmarks. This is too short a time frame to judge the performance of the fund management. Sudhanshu Asthana, who has an experience of six years as an equity analyst and over five years as a fund manager, will be the fund manager for the scheme.
Additional Scheme Details
Minimum Investment amount: Rs5,000 and in multiple of Re1 thereof
Additional Investment amount: Rs100 and in multiple of Re1 thereof
Annual scheme recurring expenses: 2.50% p.a. of average daily net assets
Exit load if switched before one year: 1%, and nil after one year
Massive input cost pressures, especially from imported coal, inflation and global uncertainty led to a consistent decline in operating profit of SAIL for the third consecutive quarter
Steel Authority of India (SAIL), a leading steel manufacturer, posted robust fourth quarter results, which helped the company achieve its highest-ever annual sales turnover of Rs50,000 crore. For the three-month period ended March 2012, the company posted 13% increase in sales turnover at to Rs14,785 crore. It recorded net profit of Rs1,577 crore, which was an improvement of 3% year-on-year, over the corresponding period last year.
While the sales turnover for the quarter looks impressive at 13% which is over the 3% average year-on-year growth over the last three quarters, its operating profit declined by 20%. In fact, it is worrying that this trend has been continuing for the last three quarters. The average operating profit year-on-year growth for the last three quarters is actually a negative 35%. In other words, the operating profits have shown consistent decline, which doesn’t bode well for this company as it struggles to rein in costs. According to the company, massive cost push due to a variety of factors chipped away the topline gains, resulting in the effect of input price increase, amounting to over Rs4,000 crore. This was mainly on account of imported coking coal with average prices rising to $288 in FY11-12 from $213 the previous year, compounded by the volatility in dollar-rupee valuations, carrying an adverse impact of around Rs900 crore.
The market-cap-operating profit of the company is quoting at roughly 5 times, which is tad expensive, given that steel is a fragmented industry, heavily dependent on global conditions, which at the moment isn’t too positive.
According to SAIL chairman CS Verma said, “It is a matter of great pride that SAIL’s turnover crossed the Rs50,000-crore mark during a year in which the global economy faced many challenges. With 2012 having begun on a very positive note for us, and our strategic initiatives in several areas taking firm shape, our outlook is bright. The focus during the current year will be on completing the ongoing M&E plan to give SAIL the readiness to meet the projected growth in steel demand during the 12th Plan period and beyond.”
While we applaud the Rs50,000 crore milestone, its operations is what the management should be concerned about, especially tightening costs in the face of inflation and global uncertainty. Its capex requirements were met mainly through internal resources, and hence the steel major managed to reduce external borrowings by around Rs3,050 crore during the year, taking its debt-equity ratio to 0.41 as of March 2012.
The company expects several new major production units to become operational this fiscal, at its plant at Burnpur, including raw material handling system, sinter plant, COB-11, blast furnace and casters, power blowing station and wire rod mill, paving the way for full-fledged operations to start in this greenfield plant.