In the past few days, a veritable game of musical chairs has been played out between the country's three most-valued firms on the bourses
Mumbai: Reliance Industries (RIL) today reclaimed the numero-uno position in the domestic market capitalisation charts, racing past state-run Oil & Natural Gas Corporation (ONGC) to emerge as the country's most-valued company yet again, reports PTI.
With a market value of Rs2,42,283 crore at 10:27am this morning, RIL surpassed ONGC's market cap of Rs2,38,270 crore to reclaim the top position.
On Friday, ONGC had toppled billionaire Mukesh Ambani-led RIL to claim the title of the country's most-valued company.
Shares of RIL went up by 3.49% to touch an early high of Rs744.65 on the Bombay Stock Exchange (BSE) today. The surge in the bellwether stock was a significant contributor to the overall bullish trend in the market, with the benchmark Sensex trading higher by 348.39 points at 16,197.22 at 10:27am.
The share price of ONGC, too, rose by 1.43% to touch an early peak of Rs282 on the BSE.
At the end of Friday's trade, RIL had a market cap of Rs2,35,571 crore, while ONGC commanded a market value of Rs2,37,842 crore.
RIL had first toppled ONGC to become the country's most-valued firm way back in late 2006, but the state-run energy giant later reclaimed the top position, albeit only for a few brief period.
In the past few days, a veritable game of musical chairs has been played out between the country's most-valued firms on the bourses.
Earlier, on 17th August, state-run Coal India (CIL) had dethroned RIL to become the country's top-valued firm.
Then, two days later on 19th August, RIL briefly slipped to third position in the valuation charts, after CIL and ONGC, only to reclaim the No 2 position by the market close.
CIL's stint at the top proved to be short-lived, with RIL reclaiming this position within six days on 23rd August.
A day later, on 24th August, CIL lost further ground and slipped to third position in the valuation charts after RIL and ONGC.
CIL continues to be the country's third-most valued company, with total market capitalisation of Rs2,31,052 crore this morning.
It is important to understand that MFIs co-opted local leaders as agents in their desire to grow rapidly, to cope with the costs of servicing the last mile and maximize profits
A few days ago I wrote that the proposed microfinance development bill must build safeguards against the presence of (notorious) agents in the decentralised microfinance model, which has become prevalent in India in the past few yearsi . That these notorious agents played an important role in the microfinance crisis needs no emphasis, but it is important to understand why they were used in the first place. And the stakeholders (including the Union Ministry of Finance and the Reserve Bank of India) which are involved in drafting the bill must try and isolate the reasons for the use of agents, as only then can appropriate safeguards be built into the regulatory framework that is being put in place.
I will try and describe some of the key reasons and these are based on my interactions with various types of agents and especially, center leader/group leader turned agents in various parts of India.
The desire of many MFIs to rapidly build scale
At least initially, the desire to use center or group leaders as agents seemed to have emanated from the desire of MFIs to build scale quickly in the delivery of microfinance services to low-income people. And many MFIs did get carried away and did not give a second thought to the kind of impact that these agents may have in the long run.
As one MFI staff put it, "We wanted to disburse several croresii of rupees on a daily basis and there was a lot of pressure from the senior management and also bankers/equity investors. We were told that if we show exponentially increasing disbursements, we would be able to attract more equity capital and also go in for a large IPO. Of course, stock options had by then become the standard way of compensating staff and this skewed the incentives all the more…."
Consistent pressure on MFIs to reduce interest rates
A second reason seems to be the pressure to reduce interest rates and this is something that I have always been saying - 'servicing the last mile is costly in microfinance and any attempts to force (artificial) interest rate reductions will cut out important controls and may even force MFIs to adopt short cuts'. And that is exactly what seems to have happened.
The drive for artificial interest rate reductions and the constant pressure on MFIs to achieve this seems to have resulted in several things: (a) omission of important client level and other controls at the last mile; (b) the proliferation and use of the decentralised model in its ultimate form-the agent-led model of microfinance; (c) further reduction of engagement with client (which was a significant one even in the original Grameen model adapted to use in India); and several other aspects that favoured decentralisation of microfinance operations.
Adoption of profit/value maximization syndrome by many MFIs
Another reason appears to be the pre-occupation of MFIs with the efficiency and value maximization syndrome-as part of the commercial microfinance movement over the past four years-where cost leadership (at scale), profit maximization and shareholder value enhancement became the order of the day, courtesy equity investors and others including bankers.
According to one senior manager at an MFI, "We started to look at ways to increase case load of staff significantly and this meant that we reduced the duration of center meetings, where we conducted these directly. Then, we realised that we could do better by outsourcing it with some quality checks and that is how the center/group leader agent came in. As these efforts expanded, in some cases we faced serious delinquency problems and to counter that in an effective manner, we used local opinion leaders and these strong men/women later became agents themselves. And then, there was no real exit and loan after loan had to be made and as long as the problems did not show up, we were not bothered. The use of agents was soon picked up by many MFIs and in fact, that used to be the strongest and fastest way to the rapid burgeoning growth that the microfinance sector in India wanted. Multiple-lending and high-indebtedness became natural phenomenons in the agent-led model of Indian microfinance."
Therefore, though there could be other reasons (as well) for the use of agents, these aspects of "building scale quickly", the "pressure to reduce interest rates" and the "desire to be a cost leader and maximize profits and value to shareholders" look to be the major ones that have pushed the Indian microfinance industry to using agents in a decentralized model. Further, while there are several types of agents, the most common one is where the center leaders become (informal) agents for the MFIs-a logical and easy extension of the decentralised microfinance model.
Hence, when coming out with the microfinance bill, I hope that the Union Ministry of Finance (MoF) and Reserve Bank of India (RBI) look closely at the prevalent agent models (including the rationale for their existence) and build sufficient safeguards against their use through supervision and other mechanisms. If this (building safeguards against their use) appears difficult, an alternative approach could be for them to consider streamlining and legalising the centre leader type agent model and building greater accountability into this type of arrangement- especially, if they feel that this model can be fitted under the RBI business correspondent regulations. However, the political agent microfinance model should be banned without question. All of these are aspects that the Union MoF and the RBI should look into and provide guidance on, as part of the regulatory architecture being framed.
Without question, there is increasing evidence about the (I would even say widespread) use of agents in Indian microfinanceiii , but the industry and key stakeholders continue to be in denial mode, often pretending that there is nothing wrong at all. I do sincerely hope that the microfinance industry in India and regulators such as the RBI and Union MoF take notice and together tackle this Frankenstein monster—either by bringing them under a robust legal framework or by ensuring that they just cannot operate-as otherwise, financial inclusion (let alone poverty reduction/alleviation) in India will just remain a mirage and never become a reality.
i Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill, (http://www.moneylife.in/article/implementation-safeguards-against-notorious-agents-are-an-imperative-for-the-proposed-microfinance-bill/19017.html)
ii$1 = 46 rupees and 10 million rupees = 1 crore
iii Microfinance in Crisis: the Case of the Hidden City, Microfinance Focus, 25th Jan 2011 by Daniel Rozas and Karuna Krishnaswamy; Srinivasan N., (2010), "Microfinance in India State of the Sector Report", Sage Publications; and Thorat, YSP and Ramesh S Arunachalam, (May, 2005), "Regulation And Areas Of Potential Market Failure In Micro-Finance", paper presented at the NABARD high-level policy conference in New Delhi and several others.
(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments).
This is the first time that derivative contracts on global indices are being launched in India. This is also the first time in the world that futures contracts on the S&P 500 index are being introduced and listed on an exchange outside of their home country
Mumbai: The US stock market is virtually coming to the doors of Indian investors, as they will be able to trade in the two top indices of the American bourses right here in Dalal Street from today, reports PTI.
The Dow Jones Industrial Average (DJIA) and the S&P 500—two of the most followed indices of the US stock markets—would start trading today on the National Stock Exchange (NSE), India’s biggest bourse.
The move would allow investors to take positions on trends thousands of miles away in the US market on Dalal Street, the commonly used term for the Indian stock market by virtue of being its traditional address.
The S&P 500 is an index of the 500 leading companies of the US economy, while the DJIA comprises of the 30-most liquid blue-chip companies based in the United States.
This is the first time that derivative contracts on global indices are being launched in India. This is also the first time in the world that futures contracts on the S&P 500 index are being introduced and listed on an exchange outside of their home country, the US.
In order to encourage active participation in trading of these indices, the NSE has decided that it will not levy any transaction charges on trades done till 29th February2012.
Trading would begin on Monday in futures contracts on both the indices and options contracts on the S&P 500 index.
The contracts would be rupee-denominated and would be traded during Indian market hours.
The NSE has said that all the member brokers of its equity derivatives segment would be able to trade in this product for themselves and their clients.
“Derivative contracts on these global indices will provide Indian investors easy access to US markets in Indian market hours, without taking any currency risk,” NSE managing director and chief executive Ravi Narain said.
The new products would help the Indian investors in portfolio diversification and hedging of risks.
The movements in these indices might not be affected by the economic and market trends in India and therefore, these indices can help the investors reap some benefits even in times of losses in Indian markets, provided there are favourable trends in the US markets, market experts said.
Besides, Indian investors can now take positions based on expected newsflow in the US market.
In late June, NSE had got market regulator Securities and Exchange Board of India’s (SEBI) approval to launch derivative contracts on these two US indices. SEBI had released the regulatory framework for such products in January.