Morgan Stanley cuts India Sensex forecast on earnings outlook

The brokerage also reduced its forecast for India’s 2012 gross domestic product (GDP) growth to 7.4% from 7.8% and its estimate for the fiscal year ending 31 March 2013, to 7.6% from 8%

New Delhi: Morgan Stanley on Thursday cut its year-end target for the Bombay Stock Exchange Sensitive Index (Sensex) by 15% to 18,850, saying the country’s economic growth and corporate earnings will slow, reports PTI.

The brokerage also reduced its forecast for India’s 2012 gross domestic product (GDP) growth to 7.4% from 7.8% and its estimate for the fiscal year ending 31 March 2013, to 7.6% from 8%.

“We believe a combination of factors—including persistently high inflation, higher cost of capital, cut in the ratio of fiscal spending to GDP, a weak global capital markets environment and slow pace of investment—will cause a further slowdown in growth,” analysts Chetan Ahya and Upasana Chachra wrote in the report.

The Sensex fell 1.3% to 16,617.42 at 11:15am yesterday. The gauge tumbled as low as 16,432 on 9th August, capping a 20% drop from its November peak, a level some investors consider a bear market, on concern that debt crises in the US and Europe will slow the global economic recovery and rising borrowing costs in India will hurt corporate profits. The index closed last year at 20,509.09, about 8% higher than Morgan Stanley’s forecast for this year-end.

“We think broad market earnings growth may have troughed,” Morgan Stanley analysts led by Ridham Desai wrote in a separate research note. “Lower share prices are affecting growth and vice versa.”

Earnings for 46% of Sensex companies lagged behind analyst estimates in the three months ended June, according to Bloomberg data. That compares with 33% that missed forecasts in the previous quarter. The Sensex trades at 13.8 times estimated earnings, the lowest since May 2009, and down from 21.5 times in March 2010.

“Earnings have support from decade-low gross margins and strong balance sheets, but face headwinds from fragile global growth,” the note said.

Morgan Stanley’s top stock picks include drugmaker Dr Reddy’s Laboratories, Infosys, the nation’s second-largest software maker, and sports-utility vehicle maker Mahindra & Mahindra, the note said.

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MCX-SX announces charges for currency derivative segment

“We have opted for fair transaction pricing to ensure healthy development of capital market as unhealthy price war has the potential of weakening an institution and affecting the long-term stability of the market,” Joseph Massey, MD & CEO, MCX-SX, announced

New Delhi: Within days of the National Stock Exchange (NSE) deciding to levy transaction charges for currency derivatives market, rival MCX-SX (MCX Stock Exchange) on Thursday followed suit and announced its charges for this segment, reports PTI.

Currency derivatives trading began in India in August 2009, with NSE being the first player, followed by MCX-SX and United Stock Exchange (USE) thereafter entering the segment.

However, no charges were being levied so far, which led to MCX-SX complaining to the Competition Commission of India (CCI) that it was not being able to charge for currency derivatives because of NSE’s zero-pricing regime.

In late June, CCI found NSE guilty of abusing its market dominance and asked it to stop unfair trade practices like subsidising of services.

Thereafter, NSE on 12th August announced levying of charges for the segment.

“We have opted for fair transaction pricing to ensure healthy development of capital market as unhealthy price war has the potential of weakening an institution and affecting the long-term stability of the market,” Joseph Massey, MD & CEO, MCX-SX, said.

The charges to be levied are almost similar to that of NSE.

Another player USE last week said that its board would meet later this month to decide on transaction charges.

MCX-SX would levy a charge of up to Rs1.10 per Rs1 lakh of average daily traded value (ADTV)

The exchange would also levy advance transaction charges of Rs50,000 per member per annum, which would be set off against actual transaction charges payable by the member in the respective financial year.

“Advance transaction charges on a pro-rata rounded off basis of Rs30,000 per member shall be collected for the current financial year,” MCX-SX said in an circular yesterday.

Both MCX-SX and NSE would start levying charges on currency derivative segments from 22nd August.

Further, MCX-SX would charge an admission fee of Rs2.50 lakh for trading members and Rs50 lakh for clearing members on all applications received on or after 22nd August.

According to the circular, a contribution of Rs0.05 per Rs1 lakh of traded value on each side would be collected from the members towards MCX Stock Exchange Investor Protection Fund Currency Derivatives Segment Trust. This would be effective from 1st September.

“The fixed charge of Rs250 per month being charged hitherto shall be discontinued from the month of September,” it noted.

Meanwhile, last week NSE said that it would levy transaction charges based on total turnover value, of up to Rs1.15 per Rs1 lakh in currency futures and of up to Rs 40 per Rs1 lakh in options market.

NSE has also asked its members to contribute for its Investor Protection Fund Trust.

Further, the exchange would levy an advance transaction charge of Rs50,000 per member per annum and would charge admission fee of Rs1 lakh for its existing members and Rs5 lakh for others.

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NSE challenges CCI order in Competition Appellate Tribunal

In its appeal before Compat, NSE has asserted that it had been wrongly charged of leveraging its dominance in equity and other segments for benefit in currency derivatives market and the charge had no basis either in facts or laws

New Delhi: Leading stock exchange National Stock Exchange (NSE) yesterday approached the Competition Appellate Tribunal (Compat) against a CCI (Competition Commission of India) order that pronounced it guilty of abusing market dominance and imposed a fine of Rs55.5 crore on the bourse, reports PTI.

In its appeal before Compat, NSE has asserted that it had been wrongly charged of leveraging its dominance in equity and other segments for benefit in currency derivatives market and the charge had no basis either in facts or laws.

The exchange has further claimed that the Competition Act did not envisage low price, which is not predatory, as an abuse of dominance, sources said.

NSE has further told the tribunal that CCI order was ‘antithetical’ or contradictory to the principal purpose of the Competition Act, which was to protect and promote consumer welfare.

In its order dated 23rd June, CCI had imposed a Rs55.5 crore fine on NSE for abusing its dominant market position and asked the bourse to stop unfair trade practices like subsidising its services with a zero-price regime in currency derivatives segment.

Imposing a penalty equivalent to 5% of the bourse’s three-year average turnover, CCI had said that there was “a clear intention on the part of NSE to eliminate competitors in the relevant market”.

The CCI order followed months-long probe by it into the matter after a complaint from NSE'’ younger rival MCX-SX.

In its appeal before Compat, NSE said it was forced to announce charges in currency derivatives segment after the CCI order and there were indications that its two rivals, MCX-SX and United Stock Exchange (USE), would also levy charges.

The move has already resulted in significant drop in trading volumes in currency derivative (CD) segment to the detriment of consumers, NSE has asserted.

Since NSE’s 12th August announcement of transaction charges, its currency derivative market turnover has fallen by about 8%-9%, pushing it to the third position in the market after MCX-SX and USE.

Also, its market share has fallen to 36% currently, from initial 100% in August 2009 when it entered the currency derivatives market as the first player.

NSE has said that it has mostly been number two in this market and zero-pricing strategy has developed the market, which was evident from growth in trading volumes so far.

Trading in currency futures segment has seen a rapid growth ever since its launch and the daily average trading volume has crossed Rs18,000 crore, from a turnover of Rs291 crore on the first day of trading on 29 August 2009.

NSE said it had waived the charges for benefit of the market and the consumers, and all market players, including exchanges, members and consumers, benefited from it.

NSE has sought relief from Compat on payment of penalty of Rs55.5 crore, as also from the requirement of maintaining segmented accounts and from any compensation claims that might be filed by MCX-SX or any other third party.

After the CCI order, MCX-SX had said it would look at claiming compensation for the losses and damages suffered by it due to NSE’s anti-competition business practices.

While MCX-SX did not quantify the compensation to be sought, sources pegged the claims at Rs400-Rs450 crore, including Rs150 crore of losses suffered by the exchange in currency derivatives business due to NSE’s zero-pricing.

NSE announced last week that it will start levying charges for currency derivatives trading from 22nd August, in deference to the CCI order.

On another matter concerning the trading software solution ODIN, NSE said in its appeal that the CCI passed a judgment despite the matter being subject matter of a court dispute at that time being heard by the Bombay High Court.

In its order, CCI had also directed NSE to put in place a system that would allow brokers a choice to select any software for trading, including ODIN, on the NSE platform.

According to the CCI, NSE’s conduct in refusing to share Application Programme Interface Code (APIC) with ODIN and putting Financial Technologies (FTIL) on watch list was an ‘exclusionary conduct’.

The APIC would allow the ODIN users to connect to the NSE trading platform through their preferred mode.

The dispute has now been settled by the two parties, NSE and FTIL, a promoter entity of MCX-SX, under which NSE has agreed to allow brokers to use FTIL’s ODIN software in currency derivatives market subject to certain conditions.

These conditions include FTIL agreeing to allow NSE to conduct inspection of the software to its satisfaction.

NSE said this vindicates its earlier position of barring FTIL on account of issues related to their software.

As per the settlement, NSE agreed to remove ‘FTIL-ODIN’ from its watch-list with immediate effect and “grant approvals in respect of new services/products of FTIL, subject to completion of pre-described requirements as agreed and FTIL shall co-operate with NSE for the same”.

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