Mutual Funds
One more quantitative fund
SBI Mutual Fund, in which Societe Generale Asset Management has a 37% stake, has filed an offer document of its SBI WISE Fund with SEBI for approval. WISE Fund stands for Winning Investment Strategies in Equities Fund. This Fund is an open-ended diversified growth scheme. The scheme would invest in stocks which are the constituents of SGI (Societe Generale Index 1) WISE India Index, an index based on a quantitative model. As per the investment strategy it will use a screening and scoring model. The stock universe for the fund would be all the stocks listed in National Stock Exchange. Under the screening of the stock universe, the fund manager would follow two parameters. Firstly the stocks would be chosen on the basis of market capitalisation which are greater than Rs2,500 crore and in the second step the stocks would be selected if the 60-day average daily volume would be greater than Rs5 crore. This screening would result in a list of stocks which are primarily large cap.
 
After the screening is done, the Fund would score the stocks on two criteria— stock spot performance/earnings momentum and fundamental/valuation parameters. The first would include price-specific aspects like price momentum of the stock, short-term variation in the stock holdings by professional investors and future earnings momentum. The second criteria would include aspects based on a company’s balance sheet and profit and loss account with parameters such as cash flow growth (estimated), earning before interest tax, earning per share (EPS), price to earnings ratio (PE) and enterprise value. After every stock has been given a score, stocks which comprise the final index constituents are selected from the top 33% of the stocks with the highest averaged score. Finally the investment manager would make investments in constituents of SGI Wise India Index on an equal weighting basis. The scheme would be benchmarked against CNX 100.
 
Will it work? Any quantitative approach has the advantage of removing the fund manager’s bias. However, it also brings in rigidity to the stock selection process. What kills fund performance is fixed belief as a much as absence of rigorous method. There are two funds based on quantitative models. Of this, Reliance Quant Plus Fund has gained 9% against a 1% rise in its benchmark S&P Nifty since inception while Religare AGILE Fund (earlier under Lotus) has declined 24% while the S&P Nifty has declined 7%. The SBI model intends to chase momentum. If it can do that successfully the scheme will do well. But chasing momentum is the specialty of traders, not fund managers.
-Swapnil Suvarna [email protected]
 
 
 
 

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A few companies refuse to divulge employee remuneration details
At a time when every regulator and investor is beating the drum for greater transparency through disclosures and ministers are expressing concerns about obscene salaries, several companies are blatantly flouting disclosure requirements specified by the Companies Act, 1956. The Act, which outlines the regulatory and legal framework for companies in India, lays down specific guidelines regarding disclosures to be made by companies in their annual reports. One such guideline requires companies to disclose particulars of employees who draw a certain amount of salary (now Rs2 lakh per month) as an annexure to the director’s report. The disclosure includes the name, designation, qualification, experience and the name of the previous company where employed. The purpose is to enable shareholders of the company to know if salary is in fact commensurate with the experience and qualification of such employees.
 
However, several companies have decided to ignore this aspect and have not disclosed these details in their annual reports. These companies include ABG Shipyard, Aptech, Core Projects, Sterlite Industries, Mangalore Refineries and Petrochemicals Ltd and Network18, among others. In their defence, the companies are quoting a certain provision in the Companies Act and a SEBI circular to avoid the disclosure.
 
Section 217(2A) of the Companies Act makes it mandatory for every listed company to include in the director’s report a statement showing the name of every employee who is in receipt of remuneration (currently not less than Rs2 lakh) or which is in excess of that drawn by managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than 2% of the equity of the company. The section also requires that the statement mention whether such person is a relative of any director or manager of the company and if so, the name of such director. 
 
However, companies are skipping this section by taking recourse to Provisio (b)(iv) of Section 219(1) of the Companies Act and SEBI circular dated 26.04.2007 on sending abridged annual reports to the shareholders. The provision gives a listed company the option to send a statement containing salient features of balance sheet, profit and loss account and auditors’ report to the members of the company. The SEBI circular, in order to align Clause 32 of the Equity Listing Agreement with the provisions of Section 219(iv) made an amendment in the clause to permit listed companies to send a statement containing salient features of the above documents instead of sending full balance sheet and annual report. Using these legal aspects to their advantage, companies are not sending the required list of employees along with the annual report and are instead asking shareholders to write back to them in case they need the list.
 
This amounts to going against the Act as it supersedes all other enactments. Also, there is no way a company can abridge its director’s report or any of its annexures as it is dealt with a separate section (section 217 and not Section 219). Nowhere in the SEBI circular is there any clause which gives a listed company an option not to send the list of employees covered under section 217(2A) which is a part of the director’s report.
 
These companies should take a leaf out of the book of corporate governance biggies like Infosys Technologies and Tata Group of companies, who have set a good example by regularly making necessary disclosures in their annual reports.
Sanket Dhanorkar [email protected]
 

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COMMENTS

P P Valsan

6 years ago

This is nothing blatant violation of the provisions of act by some fraudulant people. By not sending salary details how much papers or cost they are saving? Most of the annual reports tom toms about their social commitments and imaginery achievements. If an investor have to write for getting information, he have to spend extra money and time which is not justifiable.

Biased austerity

The austerity move adopted by the babus got a new dimension when corporate affairs minister Salman Khurshid pointed out that even private sector companies should refrain from doling out obscene salaries. But Mr Khurshid should also pay attention to the quasi-government companies, especially the National Stock Exchange (NSE).

The National Stock Exchange (NSE) has created a perception of being a government entity with its virtual monopoly over running the stock market. But it has the highest paid non-promoter executives in the country, Ravi Narain, managing director, and Chitra Ramakrishna, deputy managing director.
 
Mr Narain and Ms Ramakrishna had an astounding gross annual income of Rs6.89 crore and Rs4.21 crore respectively, besides other perks in 2008-09. The salary of Mr Narain is more than London Stock Exchange (LSE) chief Xavier Roulet (around Rs 5.6 crore) and equal to NYSE Euronext CEO’s, Jean-Fancoise Theodore (around Rs7 crore).
 
Comparatively, NSE’s supposed competitor Bombay Stock Exchange’s (BSE) CEO Madhu Kannan earned a gross income of Rs1.6crore.
 
Interestingly, the stock exchanges which are in charge of regulating listed companies themselves refrain from maintaining transparency. NSE refrains from giving any information via Right to Information (RTI). Even its annual reports are not easily available nor does it comply with the Comptroller and Auditor General of India (CAG) norms.
 
The NSE has even filed a petition for a stay order on a request by the Chief Information Commissioner (CIC) in Delhi from revealing any information relating to NSE. In its petition, NSE has stated that ‘they are a non-government private sector company’ and not under the jurisdiction of RTI. But how just is the argument of the NSE not to reveal any information, considering it has large public sector undertakings like State Bank of India, Life Insurance Company (LIC) etc. as investors? If NSE is a private sector company, it is the only one to have a virtual monopoly in a crucial business that deals with million of citizens.
- Aditya Kshirsagar [email protected]

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