SEBI has been quietly letting off a few hundred chosen price manipulators and offenders with a simple ‘administrative warning’!
Open a newspaper and you will find lavish praises of the Securities and Exchange Board of India's (SEBI) long list of achievements and allegedly tough action against a few big corporate names. Moneylife has not been a part of this ridiculous chorus-for good reasons. We have found that SEBI has been routinely letting off a few hundred chosen price manipulators and offenders with simple 'administrative warnings', even if their actions-price manipulation, bear hammering, circular, synchronised or structured trades-have led to steep payments under the 'Consent Scheme' (without admitting or denying charges) or stiff penalties, including cancellation of registration of intermediaries, in scores of other cases.
Moneylife has access to a stack of sample 'administrative warning' letters which show that some offenders have been repeatedly let off. All SEBI letters merely say that the transactions 'give an impression' that 'they are not genuine' and ask the entities to improve systems and 'be careful in future'.
What are these administrative orders? And who is entitled to this special treatment? These administrative warnings, unlike other regulatory actions, are not reported on SEBI's website and do not have to be mentioned in offer documents and other applications.
Some orders are detailed, others seem deliberately sketchy. We asked SEBI chairman CB Bhave for the process of deciding which violations qualify for 'administrative warnings' and which ones are sent for consent or adjudication proceedings. The query was also directed to several board members and executive directors in charge of secondary markets and investigation. Despite a reminder, there has been no response. The orders have all been issued in the past three years under Mr Bhave's rule.
* On 15 June 2010, four brokers indulging in synchronised trades and creating artificial volumes in Godawari Power & Ispat Limited were let off. The four-OPG Securities Pvt Limited, Inventure Growth and Securities, Prashant Jayantilal Patel and HJ Securities manipulated the shares in August 2008 for a set of common clients (Deepak Desai, Dhiren Panjwani and Rhidhi Panjwani). Inventure has been let off at least thrice and there is no explanation for the leniency.
* On 15 June 2010, SEBI also let off three other firms for creating 'artificial demand' in the shares of Nandan Exim in 2006. These were Religare Securities for clients Tejas and Devan Patel who created a fake impression of liquidity in the scrip by placing large 'buy' orders below market price and updating them frequently. Inventure was also part of this racket and the third was Anand Rathi Securities.
* On 19 September 2008, repeat offenders were let off for ramping up the price of Saarc Net Limited in 2004-05. They were: Action Financial Services, Sunidhi Consultancy Services, Adolf Pinto and Pilot Credit Capital. Sunidhi Consultancy again got away with 'structured' deals in Moncon Investments through a 25 July 2008 order.
These orders suggest that SEBI's investigation, adjudication and enforcement action depends on the whims of investigation officials. SEBI does not feel that it owes the public an explanation for who is punished and who is let off.
For a more detailed report of this bizarre situation please read the next issue of Moneylife to hit the stands on 25th February.
The profit margins of the fast moving consumer goods sector have been affected by spiralling input costs recently. These businesses have also been bothered by inconsistent taxation and excise duties
The Union Budget this year is not expected to have anything worthwhile for the market. Already expectations in most sectors are low. For, after a dismal year dominated by high inflation and corruption, there's a lot that the government will have to straighten out.
One of the sectors that have been hit hard by spiralling costs is the fast-moving consumer goods business. But the fourth largest sector in the country by market size has a modest wish list for the finance minister that includes a reduction in the food prices and a viable more simple tax structure.
According to financial brokerage Sharekhan, high food inflation and surging inpurt costs are likely to affect the growth of the Rs130,000-crore business sector in the near term.
"The FMCG sector would expect growth in the coming year, in volume terms," said Milind Sarwate, chief of finance, HR and strategy, Marico Limited. "Chronic inflation will hurt India's growth potential. In addition, if the inflation is because of abnormal or undesirable factors like greedy intermediaries, or avoidable supply-chain bottlenecks, the government should act in time."
Input costs have spiralled due to a hike in prices of vegetable oils and other agri-products. Increasing ad-spends have also deflated margins. In the last quarter, FMCG giant Hindustan Unilever performed poorly despite its aggression and some other prominent names like Dabur, Marico, Emami and GCPL recorded only marginal profits.
While consumption levels and consequently sales for these businesses has gone up, profit margins have suffered. As a result, all these companies have undertaken price hikes. Now there's anxiety over the volumes. Recently, tensions in the Middle East and the North African (MENA) region have compounded the worries for some Indian FMCGs that have acquired units in this growing market in the past couple of years.
Taxes is another important area where the consumer goods sector is also seeking a change through the implementation of the Direct Taxes Code (DTC) and Goods and Services Tax (GST). The inconsistent rates, particularly for excise duties, have been a bother for producers in different parts of the country and companies are hoping that the new codes will streamline taxes and duties are merged with GST.
Adi Godrej, head of the Godrej group, estimates that the implementation of GST and DTC will result in a 10% growth for the sector. He also says, "All surcharges on income-tax should be dropped. The minimum alternate tax and dividend distribution tax rate must be reduced to 10%-12%. Lower rates of taxes will lead to stronger GDP growth rates which in turn would lead to increased tax collections."
But there is a catch in the implementation of GST as some daily-use products like edible oils are not in the excise duty list and hence get concessional VAT in many states. The application of GST in this case will increase the cost of these products and inconvenience customers.
The FMCG sector has been looking more closely at the rural market to expand its business. "Most of India's GDP growth now comes from the urban areas and it is important to de-bottleneck that part," says Mr Sarwate of Marico.
Last year there were ugly spats between big brands like Cadbury and Anchor Foods over copyright infringement. Strengthening the regime on intellectual property rights will help avoid such unnecessary irritations.
DQE will receive a royalty on sales generated from this agreement which is estimated to be circa €1 million over a two-year period
DQ Entertainment (International) Ltd said it has signed a licensing agreement with TV Mania Gmbh through DQE's merchandising agents in France, TF1 Enterprises.
Under the terms of the agreement, TV Mania will have the right to manufacture and distribute Jungle Book apparels and accessories for babies, kids and teenagers over a two year period. DQE will receive a royalty on sales generated from this agreement which is estimated to be circa €1 million over a two-year period, in addition to a minimum guaranteed amount.
Products to be manufactured include t-shirts, jackets, jogging suits, swimwear, fleece pullovers, shirts, socks, and a host of other garments. TV Mania has the rights for retailing in France & Benelux.
Tapaas Chakravarti chairman & CEO of DQE Group said, "TV Mania is one of the strongest players for apparel merchandise in Europe. The Jungle Book has started to air successfully in various territories such as France, UK and Australia and with a steadily increasing fan base, this collaboration is going to be strategically very important for us as we seek to further monetise this classical property."
On Thursday, DQE ended 5.38% up at Rs78.30 on the Bombay Stock Exchange, while the benchmark Sensex increased 1.13% to 18,506.82.