SEBI bars Alderbrooke PMS, two directors from stock market

SEBI while restraining Alderbrooke PMS and its two directors from market asked them not to divert funds collected from investors under their portfolio management scheme-PMS

Market regulator Securities and Exchange Board of India (SEBI) has barred Alderbrooke Portfolio Management Services Pvt Ltd (Alderbrooke PMS) and its directors, Anandkumar Kanubhai Ravat and Jalpeshkumar Amrutlal Makwana from the securities market till further directions. SEBI has also asked them not to divert any funds raised from investors.


SEBI also asked Alderbrooke PMS, Ravat and Makwana to cease and desist from acting as a portfolio manager and not to solicit or undertake such activity or any other activities in the securities market. These three entities are alo asked to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to their portfolio management activities or any activities in the securities market.


The ex-parte order was passed by SEBI whole time member S Raman on 20 December 2013.


PSUs can help cut fiscal deficit by Rs20,000 crore

According to CRISIL, top 20 PSUs with a pre-dividend corpus of Rs1.6 lakh crore, can comfortably pay special dividends of Rs27,000 crore and above to heldp reduce fiscal deficit by 20 basis points

CRISIL Research, has estimated that the Indian government can reduce its fiscal deficit by as much as Rs20,000 crore this fiscal by using cash reserves of public sector units (PSUs).


“Apart from the expected shortfall in tax revenue collections, the union government may not be able to meet its disinvestment target, which could result in it falling short of the budgeted fiscal deficit. In such a scenario, the cash reserves of PSUs provide an alternative source of income. However, a lot will depend on whether the government is able to convince the companies to part with the surplus cash as a special dividend,” said Mukesh Agarwal, president, CRISIL Research.


These top 20 PSUs include Bharat Electronics Ltd, BHEL, BPCL, Coal India Ltd, Container Corp Of India Ltd, Engineers India Ltd, GAIL (India) Ltd, MMTC Ltd, MOIL Ltd, NALCO, Neyveli Lignite Corporation Ltd, NHPC Ltd, NMDC Ltd, NTPC Ltd, Oil India Ltd, ONGC Ltd, Power Grid Corp of India Ltd, Shipping Corp of India, SJVN Ltd and Steel Authority of India Ltd.


By 31 March 2014, the top 20 PSUs by cash holding, will have an estimated pre-dividend corpus of around Rs1.60 lakh crore. At the end of the last fiscal, the total cash holding with these 20 PSUs was Rs1.70 lakh crore. CRISIL said its analysis shows these companies are comfortably placed to pay special dividends of Rs27,000 crore over and above their normal dividend payouts, without impacting capex plans.


CRISIL said, "We estimate, these companies are well placed to distribute 40% of the corpus (Rs64,000 crore) as dividend without impacting growth plans. That is Rs27,000 crore more than the Rs37,000 crore  dividend paid by these companies  last fiscal. In proportion to the shareholding, the excess payout to the government could, thus, be Rs20,000 crore out of the extra Rs27,000 crore."


“The government will have to cut spending to meet its fiscal deficit goal. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Hence, the government could persuade companies with large cash reserves to announce special dividends or a buyback programme,” said Sandeep Sabharwal, Senior Director, CRISIL Research.


Without incorporating the extra dividends over and above what was paid last year, CRISIL said it expects this year’s fiscal deficit at 5.2% of the gross domestic product (GDP). The Rs20,000 crore  additional income  would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8%, the research note said.


Is SEBI too late in changing rules to curb manipulation and illiquidity?

In a surprise move, SEBI has changed the rules of its controversial and harebrained PCAS system. It seems to have realised its folly, and has now excluded profitable companies from the ambit

The Securities & Exchange Board of India (SEBI) seems to have woken up to its poor decision making, perhaps too late. On Friday, it announced new measures to “rationalise” its controversial periodic call auction system (PCAS), a (then harebrained) scheme hatched to prevent stock manipulation and supervise illiquid stocks. According to the new system, which is better than the old one, (), the PCAS would now exclude profitable and dividend paying companies. This means unprofitable, illiquid and penny stocks would now come under the new PCAS ambit.

 According to the new circular, companies would be excluded from PCAS if:

a) A scrip is having more than Rs10 crore average market capitalisation;

b) A company has paid dividends at least two times during last three years;

c) A company is profitable at least two out of the last three years and not more than 20% of the promoters’ shareholding is pledged in the latest quarter, and its book value is three times or more than its face value.

Moneylife had earlier pointed out that many good companies would come under the PCAS because they would not satisfy the older criteria set by SEBI. For instance, earlier, way back in June, we had written of the absurdity of the PCAS system in which a single trade wiped off Rs1.72 crore of market capitalisation of Hind Industries, a then healthily traded small-cap stock (even good small cap stocks are thinly traded). Suddenly, it was declared ‘illiquid’ overnight and shifted to the PCAS. Not only did it carry a stigma but it was made more prone to stock manipulation! This caused losses to shareholders who suddenly saw their wealth eroded in one shot.

This also shows how deeply flawed and shallow SEBI’s approach is to curbing illiquid stocks and stock manipulation. The market regulator spent over Rs50 crore of taxpayer’s money on elaborate surveillance monitoring systems to detect such stock manipulation. Of those companies caught by SEBI, many are let off the hook through its consent order mechanism, while at the same time small shareholders are left to suffer losses for no fault of theirs. The SEBI consent order mechanism is a form of disgorgement where unscrupulous promoters pay a sum of money to the market regulator and are let off the hook without admitting any guilt. However, SEBI doesn’t use the disgorgement to repay retail shareholders. Instead, it uses it to fatten up its own kitty. Shyam Sekhar, an avid market watcher opined on Twitter: “Disgorgement should also apply to regulatory oversight. This is the only way to bring responsible regulation.” He further tweeted: “SEBI virtually pulls the curtains on PCAS. But the officials who drafted must be sued for causing wilful loss to small investors.”  

With the new rules instead of the 2000+ or so odd stocks that were brought under the ambit of PCAS (BSE has 2337 stocks as of current quarter), it is expected that the number would come down. This means that the PCAS system with fewer stocks to supervise using SEBI’s ultra-expensive monitoring system would be needless. Even then, the trading segment would be dead. Jigam's blog states: “Now PCAS will be a dead segment and now it will die a natural death in long run, because now there won’t be many companies in PCAS and they would be very illiquid.”

Will the new rules make any difference? No matter what the rules are, SEBI still needs to catch unscrupulous promoters and boost supervision, for which it has been failing. Moneylife routinely writes about many such stocks, in the every issue of the magazine’s Unquoted section Moneylife, where stock prices either have rocketed or cratered without any respect to stock fundamentals. Moneylife also carried an exclusive Cover Story last year, which saw many stocks rising and falling right under the nose of SEBI.



Jubin Jose

3 years ago

SEBI has to be that ideal investor which can value all stocks according to its merit, which is close to IMPOSSIBLE and that is directly proportional to SEBI's ability to control manipulation. Hence SEBI preventing manipulation is unlikely. Each investor guarding him/herself would stand better chance.

mm sundram

3 years ago

THE SEBI officials not even understanding the complaints in normal way and this PCAS things will definetly affect the small investors very much. the officials who drafted must be sued for causing wilful loss to small investors” it is correctly said. and also the sebi's taking over investor funds for their betterment should not be allowed at any cost. there should be action like the NEW party taken over the Newdelhi in the last election otherwise the sebi officials along with the rude and adamant companies swindle the investor monies.


3 years ago

There are so many good companies in this..
This hurts only the Small investor, who now finds it even extremely difficult just to even place an order for these stocks. They keep expiring every hour or so, the broker also does not help.


Bosco Menezes

In Reply to Priya 3 years ago

Priya, when the original announcement was made in Feb, many regular investors reacted with disbelief as it was clear that the rules would present a huge barrier to free trade, which in a shallow market like ours, was basically committing hara-kiri.
Regarding brokers - with competitive rates, brokers do not earn much from orders for small qty of low priced scrips .... so it was obvious that they would be very reluctant to do 6 times the work (6 CA sessions) for the same small brokerage.
I believe that several brokers (including online trading firms) declined orders in this segment after it came into existance . Some allowed only selling. Neither the exchanges or the regulator made sure they continued to cater to this segment.
Net Result : Great anguish to millions of retail investors
As long as there continues to be only 1 representative of Investors/Investor Associations in the 16-member SMAC, do not rule out further experiments, with us investors being the lab rats.

Bosco Menezes

3 years ago

PCAS dealt a severe blow to sentiment / investor confidence in small cap scrips.
It is difficult to predict whether investors will embrace them again, as long as PCAS continues - though on a smaller scale, as at the back of the mind will be the thought that another arbitrary change in criteria may see the scrips back in jail :-)
But after this course correction, i am indeed daring to dream of a full revocation of PCAs in another 6-12 months :-)

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