While barring Angel Broking, one of the biggest brokerages in the country, SEBI said the occurrence of synchronized deals in a circular manner persistently cannot be said to be a co-incidence as the shares were being rotated intra-day within a closed group and there was no change in the beneficial ownership in the shares of Sun Infoway
Market regulator Securities and Exchange Board of India (SEBI) has barred Angel Broking from accepting new assignments or any new clients for two weeks for violating code of conduct for stock brokers.
“The noticee (Angel Broking), by indulging in the trading pattern discussed above has failed to perform its duties as specified in the code of conduct for stock brokers in the Broker Regulations. In view of the above, I find that the noticee has violated Clauses A(2) and A(3) of the Code of Conduct prescribed for Stock Brokers in Schedule II under Regulation 7 of Broker Regulations,” said Prashant Saran, whole-time member of SEBI in an order.
The market regulator has also prohibited Allwin Securities and Bharti Thakkar India Securities from taking up any new assignment for two weeks. It also suspended erstwhile N C Jain (presently known as NCJ Shares and Stockbrokers Ltd) for a period of one week.
The order would come into force after 21 days.
The matter relates with trading of Sun Infoway (SIL) between 5 February and 2 May 2001. SEBI’s investigations prima facie revealed that circular/reversal traders were executed by certain brokers forming part of few groups in the scrip of SIL. Such circular/reversal trades created artificial volume to the tune of 5.43 lakh shares (gross) in 37 days out of 50 trading days. It was found that the circular trading in the scrip had generated 26% to 97% of the daily volumes on the days when such trading was observed. The circular/reversal trades had resulted into an increase in the price of the scrip in the beginning of the investigation period till 2 March 2001 and the price of the scrip had stayed in the range of Rs342 to Rs296 (opening price). Thereafter, the trading of these entities in the scrip reduced drastically, the volume of trades in the scrip became negligible and the price of the scrip also started declining. The “last traded price” (LTP) analysis for the entire period shows that the price of the scrip varied in the range from -14% to 11.54%, SEBI said.
SEBI said, during the investigation period, three different groups were found trading in the scrip of SIL in a circular manner. Out of these, the group consisting of eight brokers/sub-brokers, NC Jain, Opulant Stock Broking, Bharti Thakkar India Securities Pvt Ltd, ISJ Securities/Vintel Securities, Sripal Jain, Joindre Capital Service/Alwin Securities and Reneissance Securities/Mellennium Securities and their clients including Angel Broking were found trading amongst themselves in circular manner, which led to the creation of artificial volumes in the market. The total volume generated by this group by way of circular trades was 3.42 lakh shares (gross) or about 37.52% of the total quantity traded during the period of investigation.
In his order, Mr Saran said, “Considering the number of shares involved in the present proceedings executed by the noticee for its client and also the pattern of trading, I am of the view that these numbers were good enough for the noticee to raise some suspicion on the trading pattern of its clients. Therefore, it can be concluded that the noticee had aided and abetted its client in the creation of artificial volume in the scrip of SIL in violation of the provisions of Regulation 4(b) and (d) of the PFUTP Regulations.”
“I further note that if stock brokers are not careful and allow their systems to be misused, manipulations cannot be eliminated from the market. The circular/reversal trades are contrary to normal trading practices and create false market. The noticee (Angel Broking) has dealt in the scrip of SIL in a manner detrimental to the interest of investors. Such acts threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors as the same pose serious threat to the price discovery mechanism of the stock exchange and the safety of the securities market mechanism,” Mr Saran said.
Dena Bank announced its third quarter results which were positive overall, especially on the operations front. But some concerns remain
Dena Bank has posted a net profit of Rs206.44 crore for the quarter ended 31 December 2012, a 10.75% increase, when compared to Rs186.68 crore for the corresponding period last fiscal. At the same time, its total revenues have increased 33%, from Rs1,810.21 crore for the quarter ended 31 December 2011 to Rs2,408.42 crore for the quarter ended 31 December 2012. The profitability was helped by an increase in interest income, which rose 35% to Rs2,264 crore for the reporting quarter. The bank expects to maintain net interest margin of around 3% for the remainder of the 2013 fiscal.
For Dena Bank related news, please click here.
According to Moneylife’s database, the bank’s quarterly revenue growth rate (33%) has kept up with its three-quarter year-on-year (y-o-y) growth rate of 35%. However, its operating profit growth disappointed, rising only 13% for the quarter compared to 29% y-o-y growth rate in the preceding three quarters. Its annualized return on capital employed (RoCE) stood at a respectable 15%. Likewise, its operating RoCE was double, at 30%, which shows operating efficiencies of the bank. Given all this, the bank is quoting at an attractive valuation, with its market capitalisation quoting at just over two times its operating profit.
As of 31 December 2012, 30% of its loan portfolio was doled out to large industries while just over 10% was exposed to the agricultural sector. In the retail credit segment (which took up just over 12% of the total loan portfolio), the housing segment was its biggest contributor, with over 60% given out to new home owners.
Despite positives, there were some negatives too, but they weren’t of that much concern.
Asset quality somewhat deteriorated, with its non-performing assets (NPAs) rose as much as 48% to Rs1,317 crore during the quarter ended December 2012 from Rs885 crore from the same period last year. The bank has set aside Rs237 crore as provisions, which is higher by 15% when compared to the last quarter. The bank will start monitoring of borrowing accounts online to prevent slippages. At present, Dena Bank is monitoring all accounts above Rs10 crore on a daily basis.
As of December 2012, its advances stood at Rs63,040 crore when compared Rs47,928 crore as of December 2011. Likewise, its deposits stood at Rs84,882 crore on December 2012 when compared to Rs68,339 crore as of December last year. The increase in savings deposits by 10% to Rs20,216 crore led to a decline in CASA ratio, which is a concern. The CASA ratio stood at 30.98%, down nearly four percentage points, from 34.90% during December 2011. A decline would mean higher cost of funds for the bank which in turn would shrink margins. The cost of deposits stood at 7.75% which is marginally higher than 7.09% seen in December 2011 quarter.
Dena Bank has opened 14 new branches during the quarter and total 89 branches during the nine months ending December 2012.
The poor performance of the hedge funds industry last year as well as in the last 10 years has prompted many to question their very existence. Are they really worth it?
Hedge funds have had a miserable 2012 as they returned just 3% to the investors. By contrast, the S&P 500 index was up 18% during the year. In other words, you would have been better off just investing in the stock market index and tending to your garden. So much for hedge funds generating ‘alpha’ – excess over the market returns. Indeed, they have failed, again and again. Hedge fund managers with degrees from prestigious universities such as Harvard, MIT, Stanford, etc, and with years of experience in financial markets have simply failed to exploit gaps and take advantage of the favourable market conditions.
However, if you thought 2012 was just an unlucky year for hedge funds, think again. What is more startling, however, is the fact that S&P 500 index has outperformed hedge funds in the last 10 straight years, except for 2008—the year Lehman Brothers went bust. Worse still, according to Goldman Sach’s David Kostin, a whopping 88% of the hedge funds underperformed the market last year alone. This is by no means a small number, given that majority of them are presumably smart. How come these smart hedge fund managers couldn’t ride on the market’s coattails which went up 18%?
Even big name hedge fund managers fared poorly. For example, John Paulson, who famously made $1 billion shorting the housing boom in America, too, lost money. According to The Economist, he lost 17% in the first ten months of 2012, after a 51% fall in 2011. According to Reuters, David Einhorn’s Greenlight Capital lagged S&P 500 and gained only 3.17%. Einhorn rose to fame after famously calling Lehman’s bluff and predicted it would be bankrupt. Among Einhorn’s great recent ideas was Apple at nearly $700 while the price now is below $500, at around $458.
The irony is that the Federal Reserve, America’s central bank, had created conditions so ideal for market participants to thrive. After all, the bank bailouts of 2008 made hedge funds supremely wealthy and the market went up. The successive quantitative easing and loose monetary policy meant that financial institutions, banks, and especially hedge funds had more money to play around with. The quantitative easing also artificially propped up various markets. It is also pertinent to note that hedge funds usually had access to the highest echelons of the government and privy to information that mutual fund and retail investors did not have.
How come hedge funds lost money? One explanation is that while it is true that hedge funds had more money to play around with, they simply had to play the same game, namely the long game, with other investors, mutual funds and retail investors. In other words, they couldn’t go short when they wanted to because the central bank had virtually eliminated downside risks by printing more dollars. Hedge funds were created to go long AND short and everything else in between, unlike mutual funds and retail investors who normally go long.
Another explanation is their sheer big size. The industry size ballooned four times since 2000 and now manages over $2 trillion in assets, an astounding figure. This is where the laws of diminishing returns would probably kick in—too much cash chasing too few strategies, which means taking investment bets that lack the real ‘edge’. Simon Lack, a hedge fund critic, was found quoting in The Economist saying, “At $1 trillion of assets under management hedge funds delivered acceptable returns. Less so at $2 trillion.”
The inability to have an ‘edge’ over others, especially old-fashioned retail stock pickers, has endangered the very existence of hedge funds. According to Bloomberg Markets, 635 hedge funds shut shop last year due to poor returns and mass redemptions, 8.5% more than in 2011.
Another impediment to generating high returns is high fees with the added pressure to outperform the markets year after year. In fact, a study had shown that the smartest investors are the ones who invest in low-cost funds. We had written this in our 7 February issue of Moneylife in our Earning Curve section (this issue is currently on stands).
This doesn’t mean that every hedge fund is endangered. Indeed, there are a few who spot the gaps in the market and exploit it exceedingly well. For instance, last year, Dan Loeb’s Third Point Ultra Fund generated 33.6% returns after fees. And there’s Steve Cohen’s SAC which made 12% returns (still this is below the S&P 500 index) although Cohen is suspected to have benefited from insider trading. However, such funds are few and far between and spotting winning hedge fund managers beforehand is almost impossible.
Read our review of The Quest for Alpha which pulls together various studies to show how hedge funds, venture capital, private equity etc. by and large generate sub-par returns, after adjusting for risks.
So what should the retail investor do? According to The Economist, a simple investment portfolio—60% in shares and the rest in sovereign bonds—has delivered returns of more than 90% over the past decade, compared with a meagre 17% after fees for hedge funds. In other words, a simple portfolio consisting of diversified equities should do the trick. If not, at least investing in diversified equity mutual funds over the long-term is also a time-tested strategy. Or you could simply invest in an index fund, SIP method and relax.
Here are some useful links that we have written about investing the sensible way.