If Nifty moves down, it will find support around 7650
We mentioned on Wednesday that the Indian indices will try to move higher. The benchmarks opened Thursday higher and immediately hit the day’s high which was also their new lifetime high. After this, Sensex stopped trading due to technical issue for more than three hours for which Securities and Exchange Board of India (Sebi) has sought a reply from the BSE.
The S&P BSE Sensex opened at 25,876 while CNX Nifty opened at 7,734. Sensex hit a high of 25,999 before it stopped trading because of network outage. Nifty hit a high at 7,755. In the last few minutes of the trading session the indices hit a low at 25,794 and 7,707. Sensex closed at 25,824 (down 17 points or 0.07%) while Nifty closed at 7,715 (down 10 points or 0.13%). The NSE recorded a volume of 109.72 crore shares. India VIX rose 1.34% to close at 17.8050.
Road Transport and Highways Minister Nitin Gadkari said that the government will initiate measures to turnaround the highways sector in two years by garnering funds to the tune of Rs1 lakh crore in a year.
Inflation is still uncomfortably high in India and the new government should avoid fiscal slippage as it seeks to revive the economy, the World Bank's India director told the media.
The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved the inclusion of onion and potato under the purview of stock holding limits under the Essential Commodities Act, 1955. This will empower the State Governments to undertake de-hoarding operations and control the prices of onions and potatoes.
India's services sector registered a strong growth in June 2014, a survey showed today. The seasonally-adjusted HSBC Services Business Activity Index edged up to a 17-month high of 54.4 in June 2014, from 50.2 in May 2014. New business flows and stronger business sentiment supported expansion in the services sector activity in June 2014.
Tata Motors (3.03%) was the top gainer in the Sensex 30 pack even though it reported a 27 % year-on-year decline in its June sales. Hero MotoCorp reported 10% growth over the corresponding quarter of the previous fiscal. The company sold 17,15,129 units of two-wheelers in Q1 of this fiscal compared to 15,59,282 units sold in the corresponding quarter of the previous fiscal. In June, Hero MotoCorp commenced production at its fourth manufacturing plant at Neemrana in Rajasthan. With the commissioning of the plant, which has an installed capacity of 750,000 units, Hero MotoCorp now has a total annual installed capacity of 7.65 million units of two-wheelers. Hero MotoCorp (3.17%) was the top loser in the Sensex 30 stock.
Eicher Motors today hit its 52-week high at Rs8,679.15 on the BSE. Eicher’s motorcycle sales surged 83% to 25,303 units in June 2014 over June 2013. Sales for models with engine capacity up to 350cc jumped 80% to 22,073 units in June 2014 over June 2013. Sales for models with higher engine capacity jumped 106% to 3,230 units in June 2014 over June 2013. Exports rose 60% to 784 units in June 2014 over June 2013. Eicher (5.16%) was among the top three gainers in the ‘A’ group on the BSE.
GMR Infrastructure (7.98%), top loser in the ‘A’ group on the BSE, has launched its qualified institutional placements. The price band is Rs31.5-32.4 and the floor price is Rs33.14. Apart from the QIP of $300 million, the board has also approved allotment of 18 crore preferential warrants to the promoters.
US indices closed Wednesday flat. Employment at companies climbed in June by the most since November 2012, a sign the US job market is strengthening along with demand, a private payrolls report showed. The 281,000 surge exceeded the most optimistic forecast and followed a 179,000 increase in May, data from the ADP Research Institute showed. Asian indices had a mixed record. Taiwan Weighted (0.44%) was the top gainer while Jakarta Composite (0.40%) was the top loser. European indices were trading higher. US Futures were trading marginally in the green.
The proxy advisory firm also recommended companies set caps on executive remuneration, and limit the range of the board’s powers to decide compensation
In India, pay packages for executive directors needs shareholders’ approval. But till now, managements have pushed shareholders to vote on executive director compensation with resolutions that are ambiguous, and effectively provide the board with a large amount of discretionary powers. Institutional Investor Advisory Services India Ltd (IiAS), citing three resolutions related with executive compensation that were defeated by shareholders of Tata Motors Ltd, said there is need to have greater clarity on such resolutions.
"Companies must wake-up to the message being sent by shareholders. These resolutions are built upon the practical understanding of investor psych: they are unlikely to vote against a resolution unless there is a material performance dip. Most compensation resolutions are merged with (re)appointment resolutions, adding to the decision-making dilemma, and creating a greater challenge for investors wanting to veto the resolution. A more proactive approach and independent oversight from the board/ management will go a long way in addressing this concern raised by shareholders," the proxy advisory firm said in a statement.
According to IiAS, on Thursday, three resolutions relating to executive compensation presented by Tata Motors were defeated, where 53% of the non-promoter shareholders participated in the voting. Remuneration resolutions need to be passed by a 75% majority – in these three cases, almost 30% of the votes were cast AGAINST, it said.
The recent amendments to Clause 49 of the Listing Agreement and the Companies Act 2013 break the compensation conundrum by enforcing disclosures that provide greater clarity on executive directors’ compensation. In addition to these, IiAS said it recommends companies set caps on executive remuneration, and limit the range of the board’s powers to decide compensation. Shareholders need clarity on what they are being asked to vote on.
The proxy advisory firm said, the ambiguity of compensation resolutions could have material implications. While reviewing the pay practices of the BSE S&P Sensex and Nifty 50 companies (excluding public sector units), IiAS said it observed certain anomalies, like, the fixed pay is often ambiguous. This component comprises the basic salary along with perquisites and allowances (including accommodation, insurance, club memberships, leave en-cashment, conveyance, telephone etc). Companies do specify a standard set of perquisites that executive directors are eligible for, yet these are rarely quantified. The lack of an overall cap leaves shareholders guessing on what will be the actual compensation payout - the complete control over compensation and annual increments, for all intents and purposes, rests with the board. And sometimes, even a cap might not be enough to provide clarity. If the upper cap is very high, the basic salary can range within a very broad band.
While analysing such resolutions, IiAS assumes the last paid salary as the minimum. Companies must also provide clarity on the fixed pay because with lack of adequate disclosures, the other components i.e perquisites, allowances and retirement benefits, which flow from this number, become open-ended, it added.
Talking about short-term incentives like commission, IiAS said, in 40% of the Nifty 50 companies, the commission is either specified as a percentage of net profits or is left to the discretion of the board. "The idea of linking commission to profits is sensible. However, in large companies, where profits are more than a threshold (say Rs40-50 billion), companies must be far more specific about the commission payout, given that even a nominal percentage of the net profits can result in a very high payout range. If left to the discretion of the board, companies need to formulate and disclose the performance benchmarks which are used to arrive at the commission payable, and also set a reasonable cap on the maximum amount that will be paid," it added.
Employee stock options (ESOPs)
ESOPs are a long-term incentive tool used by companies to attract, retain and motivate employees. Given its inherent linkage with performance, most companies tend to grant large number of ESOPs to its employees, including executive directors. However, only one out of the Nifty 50 companies (who have ESOP schemes) actually spelt out the maximum number of ESOPs its director will be entitled to. In all other cases, it was left to the board. It can be argued that companies have to make annual disclosures on the number of ESOPs granted to its directors in that year. But that’s a post facto argument. Shareholders have the right to get some clarity on the number of
ESOPs that are likely to be granted to directors before their approval is sought.
"For example," IiAS said, "YC Deveshwar, Chairman of ITC, was granted 270,000 ESOPs in FY13 at an exercise price of Rs2,494. Considering that these options were valued at Rs647.92 each, his total compensation through stock options amounted to Rs175 million in FY13. This is significantly higher than his remuneration of Rs99.3 million disclosed to shareholders."
Not all companies pay excessive salaries. For example, Infosys, Sun Pharma and the Tata Group ensure that their executives are paid in line with the industry average. However, even their remuneration policies are designed in a discretionary fashion and are open ended.
Till now, most institutional investors have not openly voiced their view on this. However, they are slowly starting to question the high payouts. Not surprisingly, the regulators have started pushing for greater scrutiny of executive compensation in listed companies.
IiAS said it believes the new disclosure requirements can act as self-regulatory tools and may induce companies to be more considered in their compensation decisions. Moreover, the consistency in disclosures will create comparability, thereby fostering an environment of competitive behaviour that will serve shareholders’ interest and the corporate governance agenda.