Stocks
Sensex, Nifty may be volatile and directionless for a day or two: Tuesday closing report

If the Nifty closes below 6,175, the index may head lower

Ahead of the February futures and options expiry the Indian market on Tuesday witnessed a highly volatile session. The indices opened in the green however soon started giving up gains and by the beginning of the noon session entered the negative zone. However after about an hour of effort to revive, the benchmarks could finally manage staying in the green and close in the positive for the third consecutive session. On Monday, we had mentioned that the indices may continue to head higher and level of 6,145 on the Nifty may act as support. The index managed sustaining itself above the level.

 

The BSE 30-share Sensex opened at 20,878 and moved in the range of 20,778 and 20,913 and closed at 20,852 (up 41 points or 0.20%) while NSE Nifty opened at 6,206 and moved between 6,177 and 6,217 and closed at 6,200 (up 14 points or 0.23%). The NSE recorded a volume of 50.02 crore shares.

 

The Bimal Jalan panel, which scrutinised applications for new bank licences, on Tuesday submitted its report along with shortlisted entities to the Reserve Bank of India (RBI). RBI had constituted the Jalan committee to examine the fit-and-proper criteria, business plans, corporate governance practices, etc, of applicants.

 

After finance minister P Chidambaram last week expressed disapproval about the RBI focusing more on fighting inflation, the central bank governor Raghuram Rajan in a television interview, which was broadcast on Monday, said "It's not as if the government is on a different page on what we've been doing on inflation thus far. They may have different views on what they would like to see done, but there is a process, there is a conversation. I think there is fair amount of coordination at the highest level". Rajan said the central bank panel report on inflation was consistent with the government's stance. "We have a committee which has suggested a target, which is also by the way, consistent with the process the finance ministry's committee has suggested, so there is no disagreement about the broader need to get a framework in place. I think in terms of how I see the process, is really that the government sets the objective, and the central bank delivers on that objective," Rajan said.

 

Petroleum Minister Veerappa Moily on Tuesday refused to answer queries on the FIR filed against him and industrialist Mukesh Ambani in Delhi in connection with the pricing of natural gas. He was speaking on the sidelines of a function to inaugurate the new building to house the Environment Ministry. Former Delhi Chief Minister Arvind Kejriwal took the step of ordering the state's anti-corruption wing to register a case against Mukesh Ambani and Veerappa Moily, accusing India's richest man and the oil minister of colluding to deliver a windfall to Reliance Industries by doubling natural gas prices.

 

US indices closed in the positive on Monday. US default risk has fallen to about half of what it was four months ago, trading near Germany’s level as the American economy outperforms that of the European nation. The cost to protect US debt against non-payment through credit-default swaps was 26.5 basis points, falling from 46 basis points in October. Germany’s was 25 basis points.

 

The latest data showed the Chicago Fed National Activity index fell to -0.39 in January from 0.16 in December while financial data firm Markit's preliminary February reading on the services sector fell to 52.7 from 56.7.

 

Among the Asian indices, four indices closed in the positive while five closed in the negative. Nikkei 225 (up 1.44%) was the top gainer while Shanghai Composite (down 2.04%) was the top loser.

 

European indices were trading in the red while US Futures were trading marginally lower.

User

COMMENTS

VGANESAN

3 years ago

Dear sir
In today movement of zee tele Very strong manipulation happened
in both price and options segment.The share price at Rs.255 but 270 put option maximum price
Rs.7 instead of 15 and call option moved from Es.1.40 to10.20
and finally settled at 5 paise.Communication from NSE regarding 21 bonus shares for every 1 equity shares has not reached the investors properly. Irequest MONELIFE TO take up the action and cancel all the option contract happened today.
Because of this kind of manipulation retail investors are not turning to indian capital markets.

VGANESAN

3 years ago

Dear sir
In today movement of zee tele Very strong manipulation happened
in both price and options segment.The share price at Rs.255 but 270 put option maximum price
Rs.7 instead of 15 and call option moved from Es.1.40 to10.20
and finally settled at 5 paise.Communication from NSE regarding 21 bonus shares for every 1 equity shares has not reached the investors properly. Irequest MONELIFE TO take up the action and cancel all the option contract happened today.
Because of this kind of manipulation retail investors are not turning to indian capital markets.

Is SEBI aware of huge mutual fund upfront commissions?

Mutual Funds continue to pay huge commissions to large distributors to promote their schemes. Is SEBI turning a blind eye to this practice? If so, why

The Securities and Exchange Board of India (SEBI) continues to propose policy changes to achieve sustainable growth of the mutual fund industry, but many of these changes seem to benefit large fund houses. Large fund houses are able to promote their schemes by paying high upfront commissions. In order to earn a higher income, distributors would prefer to promote these schemes than schemes of other new fund houses or smaller fund houses which may have a better track record of performance. If this continues, large fund houses would continue to gain assets, while smaller fund houses would probably go out of business.
 

A distributor has highlighted to us how FundsIndiaAdvisor.com, an online distributor, is offering commissions to its sub-brokers that are around 2% or more (which is almost equivalent or even more than the expense ratio of these funds) to promote different schemes of large fund houses. Advisors would need to bring in funds totalling Rs1 crore or more to qualify for the commissions. The commissions earned would be subject to claw back in case an investor redeems his investment before one year. See a screenshot of the offering below:
 


We contacted FundsIndiaAdvisor.com to know the rationale for paying such high commissions to their advisors and the actual commissions being earned from the fund house. They refused to comment. Fundadvisor.com is part of FundIndia.com a platform that offers investors the chance to invest mutual funds online.
 

The payment of such high upfront commissions by large fund houses is not new. There have also been cases where mutual fund brokers were offering pass back to investors. (Read: Edelweiss attracting investors by offering passbacks. Is SEBI watching?) Closed-end funds can incentivise distributors with hefty upfront commissions. A reason why Rajiv Gandhi Equity Savings Schemes, schemes specifically for first-time equity investors which was launched last year, was bringing in funds from existing investors and high networth individuals. (Read: High value applications perverting RGESS, while SEBI remains mum) This is probably a reason why we have seen so many close-ended schemes being launched this year as well. These schemes do not have a track record, thus it is easier for distributors to promote these schemes by citing other top performing schemes of the fund house.
 

Fund houses form an agreement with big institutional distributors such as banks and national broker’s offering them huge commissions if they meet specified targets. AMCs pay anywhere between 2%-5% in upfront commissions from their own pockets. Established larger fund houses, with their deep pockets, can afford to pay such high upfront commissions to push their products, while smaller fund houses struggle to survive. Most distributors push these products because it is in their interest and not that of the clients. But does the payment of high upfront commission ensure inflow of fresh assets into the industry?
 

Chilukuri KRL Rao, a distributor explains that the payment of high upfront commission leads to churning. It is a matter of transferring assets to a fund house that is paying a higher commission. “As long as upfront commissions are there it will be a game of moving assets from one bidder to the second bidder and the focus will never be on bringing in new assets and sustaining them,” says Mr Rao.
 

While the fund companies are running a business and would try every trick to gather assets by offering as much incentive as possible, what is the role of regulator in keeping an eye on such practices that lead to adverse selection? Well, the regulator possibly does not know the practices on the ground because it does not engage with investors. Instead, it is caught up in “promoting” mutual funds with harebrained ideas such as adoption of districts by mutual fund companies while allowing false product advertisements in the name of investor education.

User

COMMENTS

Londhe A

3 years ago

stop all upfront commision & have only trail model with increse in trail for retaining the investment for longer period this will stop miss selling

Rajesh Gupta

3 years ago

stunning. I think one day it will be another NSEL

Sam Koshy

3 years ago

VERY BASICALLY SPEAKING: AMCs are paying Banks& Big distributors more than triple the rate they pay small IFAs as upfront commissions. The reduction in IFA payment is flowing to banks & NDs.

Ban all upfront payments and implement a higher trail only model is the need of the hour to retain the investors' trust. This is will curb 95% churning from the industry. Transparency in commission payments is a must to develop trust.

It's mentioned in their comment that the National Distributor is paying " these are mot the actual levels of commissions we receive from the AMCs a part of the commission is developed from their own pocket"- Are they doing business or social work?

Poor small distributors are looted for higher upfront payments. Those who join the sub-broker ship will find it difficult to survive with nil or low trail brokerages in the coming years. Big distributors want this to happen and want to make the claws fixing deep into the investors hard earned money.

The sad part is everybody in the industry knows this except the regulators. It's time up already to act on. Ban the upfront commissions, implement a higher trail only model to save the investors, & save the industry.

REPLY

tewarisurendra

In Reply to Sam Koshy 3 years ago

Dear Sam,

You are absolutely right on every point. I am compel to admire your approach. SEBI should concentrate on well being of the industry instead of its immediate performance attracting maximum investment instantly and allowing, for this, the big players to create the complete mess. Thank you.

Srini

3 years ago

Every Industry has its own incentive structures. The structures vary depending upon the kind of marketing they undertake. In Mutual Funds too it happens, if one is to question this method then it should be thrown open to every industry that operates in this country. It may also be prevalent to your industry, here in your online portal there are many advertisements that are being flashed are they being done free of cost? For running a business all aspects of marketing are to be considered. It has to be ethical, whether it is being paid upfront or trial it is a business decision taken by the concerned AMC. Today most of the AMC are also giving 2 options either upfront or trial. Normally established players select the trial option and new entrants and smaller distributors opt for upfront. I do not say that all are straight forward but every time it is only the Mutual Fund business that is being questioned. The spread of mutual fund business is very small and it is one of the very few industries which has Direct investment option and claw back. Money Life in the past has been very supportive of the MF distributors. Mis selling is bad which everyone has to accept. But keeping on writing negatively about an industry which has huge potential seems to be quite unfortunate.

REPLY

Sam Koshy

In Reply to Srini 3 years ago

The “Business choice” of the fund houses to pay upfront commissions is affecting the investors adversely and consequently the credibility of the industry.


Moreover upfront commissions are being paid in a non-transparent manner, with huge variations as the article points out, short changing the small distributors in the process.


“Most of the fund houses offering upfront and trail models” is a myth. Only some fund houses (especially the smaller ones) are coming forward with trail only model for all the distributors. Established fund houses are offering only trial model either to very few selective distributors or to none.



Trail model being relatively transparent, manipulation in payment of commissions is difficult hence the resistance from the established fund houses for trail only model.



It is obvious that distributors who are habituated to passing back commissions to investors are supporting upfront commissions to the detriment of investors and small distributors, generously helping fund houses in the process.

tewarisurendra

In Reply to Sam Koshy 3 years ago

Dear Sam,

You have really deep understanding of the problem. Here I could not understand that Regulators do not allow passback of commission then why they insist on declaring it before the client. What purpose does it serve? When the distributor can not be allowed to pass back why is it necessary to declare it before the client? It tempts client to expect pass back (like Insurance and postal deposit schemes) and it is sufficient to making a distributor embarrassed before the client. Why the theory of transparency is applied in a sector where the small distributors are already getting little in comparison to other sectors? May it be in T-15 that the distributors charge fee from the clients but in B-15, it is the news that distributors are opting out of Transaction Charges in order to retain their clients. The question is whether the investors are ready to listen the news what the distributor earns? The investors are habitual of getting pass back, well it may fetch them far lesser returns (endowment insurance or postal deposits or so). Under the situation the transparency with a so called ban on pass back creates unethical environment and none gets benefitted. I expect comments in this regard.

Sam Koshy

In Reply to tewarisurendra 3 years ago

Dear Friends, the purpose of letting the client knSEBI wanted

Sam Koshy

In Reply to tewarisurendra 3 years ago

Dear Friends, the purpose of letting the client know about the commission distributor receiving for a transaction is to let the client know that the product a distributor offered is not commission driven. By banning upfront payments this problem also can be solved.if upfronts are banned then a higher trail will be offered to distributors. Some AMCs are already doing that. If a trail rate of 1% plus is offered your client will not ask for passing it back. Because ,tell him that if the client needs better& competent service we have to survive. If the payment I recieve is passed back then how it will be possible. Also tell him that the remuneration you are getting is paid fully received at the end of one year. You have to maintain office, pay taxes , live yourself etc. So you cannot do anything to pass back to client. Client has no other choice that upfront is already banned. So other distributors will also follow suit. Moreover, the trail income in the subsequent years willbe considerably high for you. So request for a ban of upfront commission.

sathyacumaran

In Reply to Sam Koshy 3 years ago

sathyacumaran
in an choppy market its not possible for any AMC to give such huge upfront brokerage in which case they would be fudging the accounts of the clients or there might be some other trading because all these mutual fund mostly invest in stock market and market is played some operators and this full of gambling and as such we feel that all the Balance sheets and account statement issued by these mutual funds are fudged this needs through CAG Audit which is not done even the RBI audit on these mutual funds are just an eye wash this is going to another NBFC racket where they promised higher rate of return upto 26% and looted the investors money for which RBI and Finance Ministry was silent spectator and as such law makers are strict in their law infact we can say that law makers are law brakers that is pathetic state of culture in india that for this past 10 years of UPA govt everybody start looting the money and there is no control and no law and order is our surmise

sathyacumaran

3 years ago

sathya cumaran
Sebi is very much aware of this upfront brokerage because they are also share in booty they lure their customer and go away with the money for which sebi is party that is reason why all the retired employees of sebi are taken as retainer in all these mutual funds inorder hush up the case and as such sebi even though they are supposed to watch dogs its not so in india they are hand in glow with these unscrupulous broking firms and AMc is our surmise we really thank for money life for such bold steps in exposing all these misdeeds only if the new Govt takes up charges then only investors would get some justice and all these unscrupulous govt officials of sebi and other would be punished

REPLY

tewarisurendra

In Reply to sathyacumaran 3 years ago

The head may be fair and unblotted but it is clear that all is not well at SEBI also.

sathyacumaran

In Reply to tewarisurendra 3 years ago

sathyacumaran
the Headof sebi wants to remove corruption and create an confidence among the investors but the down below employee are lured by fringe and non fringe benefits seduced by broking make them to circumb to their pressure if they wish not accept their immediate boss would charge unwanted chagres on these employee where by departmental wise they would be blacklisted thst is the situation of indian administration that to in sebi like insitutions sorry and pathectic state of affairs

SuchindranathAiyerS

3 years ago

Commissions are alright because nothing comes for free. But the extent of commissions?

sathyacumaran

3 years ago

SATHYACUMARAN
OPERATIONAL HEAD INDIA
SINGAPORE MEDIA AND CHANNEL GROUP
THE MUTUAL AMC AND SEBI ARE LOOTING THE INVESTORS MONEY WHEN THE MARKET ITSELF IS CHOPPY AND PEOPLE INVESTING IN MUTUAL FUND IS ALSO LOW AND MANY MUTUAL FUND MANAGERS FIND IT DIFFICULT TO RUN THE SHOW AND AS SUCH THESE HIGH UPFRONT COMMISSION SHOWS THAT THERE IS SOME FISHY TRANSACTION AS WE ARE SURE WITH OUT ANY PURCHASE OF MUTUAL THERE ARE QUIET ALOT OF FUNDS COMES FOR REDEMPTION AS BACK END OFFICE OF MUTUAL FUND REDEMPTION CENTERS AND THE AMC FUND MANAGER WOULD PUSH THEIR INFLUENCE OF THESE BACKEND OFFICE TO PROCESS IN WHICH WITHOUT INVESTING THE MUTUAL FUND IS REDEEEMED THIS RACKET IS THERE FOR QUIET FEW YEARS WHEN AS AN JOURNALIST WHEN WE TRY TO QUESTION THE FUND MANAGERS AND REDEMPTION CENTER BACK END OFFICE USE THE LOCAL GOONDAS TO THREAT OR THEY HAVE EVEN ENTERED AN AGREEMENT WITH SUCH MEDIA PERSONALITY FOR CERTAIN PERCENTAGE AND WE ARE NOT SUPPOSED TO RAISE THIS ISSUE SINCE OUR ORGANISATION DOESNOT HAVE AN SOLID INDIA BASIS WE OPTED OUT BUT IF ORGANISATION LIKE MONEYLIFE IF THEY PROBE INTO THESE ANGLES YOU COULD FIND SO MANY LOOPHOLES WHICH ARE VERY MUCH WELL AWARE FOR SEBI AS WELL RBI BUTALL ARE HAND IN GLOW PLEASE INVESTIGATE

Srikanth Meenakshi

3 years ago

This is Srikanth. I am with FundsIndia and FundsIndiaAdvisor.

Firstly, the article mentions that we “refused to comment”. This is false. Neither I nor any other promoter at FundsIndiaAdvisor or our head of sales (advisory) have received any call from the author or the publication. Folks at MoneyLife have interacted with us in the past, and they know our phone numbers. We run an open business and there is no reason we would not have commented on this topic.

What we are doing is completely above board and transparent. The issue that is spoken up about such commissions is that they lead to churning (going in and out of funds). We are explicitly protecting against that with strict claw-back clauses in the terms. There is nothing illegal about upfront commissions and there are no restrictions. As a growing business in this market, we need to make such and other aggressive business moves to attract sub-brokers and distributors to our platform. To make it clear, these are not the levels of commissions we get from the AMCs - a part of these are indeed borne by us.

In a mutual fund distribution market that is in disarray in the past few years, FundsIndiaAdvisor’s technology innovations and business overtures have been welcomed by the advisory community across the country. The path ahead for the mutual fund industry is to go through scalable technology platforms such as FundsIndiaAdvisory to increase both the quality as well as the reach of advisory services. The incentives that we are offering are towards increasing the IFA adoption of such solutions that will benefit them and their clients. We will continue on the path towards ensuring that all IFAs, and by extension their clients, are benefitted by the prudent investment options made available in our superior platform.

REPLY

sathyacumaran

In Reply to Srikanth Meenakshi 3 years ago

sathya cumaran
all these things are only in paper or for mail sake when you say that you are plain and out spoken why do recurit the retired Police officials in your organisation and sebi officials and bse nse officials as consultants this is because to hush your case and as such there is no transapirancy in your business there are quiet alot of fudging of accounts as an journalist we have facts

Jason Monteiro

In Reply to Srikanth Meenakshi 3 years ago

Dear Srikanth,

I guess there maybe a communication gap somewhere in your organisation or with your deputed PR agency.

We contacted your PR agent Ms.Telivala of Perfect Relations on 18 February 2014. After a follow up email, she mentioned via email and phone call on 19 February that Funds India would not be able to comment on the queries we put forward.

Srikanth Meenakshi

In Reply to Jason Monteiro 3 years ago

Jason,

Thanks for the clarification.

In future, just reach out to us directly. Mr. Basu, Ms. Dalal - all know our phone number to get in touch with us.

thanks,

Srikanth

Jason Monteiro

In Reply to Srikanth Meenakshi 3 years ago

Sure,,. Since you have a PR agency we thought it most natural to reach out through them, considering she has been continuously sending us mails to connect with you and Mr C.R. Chandrasekar

From now on we will contact you directly.

Milind Chitnis

In Reply to Srikanth Meenakshi 3 years ago


Yes, there indeed is claw back.

But when the period is just 1 year, will not distributor be tempted to keep money in equity scheme for just one year and then redeem the same and put it in another equity fund to earn another 4%?

Is this a good practise for industry?

When leaders preach about business "innovation" to increase the mutual fund spread, is this what they mean?


Nilesh KAMERKAR

3 years ago

Disagree . . . If 2.25% upfront commission is 'HUGE'?

Then why only 10000 AMFI registered MF distributors are active now?

-Five years back the number of active MF distributors was about 10 times more.

REPLY

tewarisurendra

In Reply to Nilesh KAMERKAR 3 years ago

Dear Nilesh,

Please think over it. Upfront commission is not beneficial to IFAs, to Investors and also to the industry. Instead, trail commission should be compensated fairly, preferably in ascending increase of rates. Higher upfront also encourages passing back to the investors which is fatal for the industry. Most of the Life Insurance agents and postal agents are in the habit of passing back the commission and they are also not hesitant to apply the tactic in MF distribution also BUT they can not compete here with large players and shall definitely go to ruin. It would result in flourishing of big players only and small IFAs shall be eliminated who are vital for the industry, at least in India, for the time being. Trail increase may tempt the distributors to convince the investors to stay invested for longer time, the very purpose of the investments, for fair gains. It would not only benefit the distributors but also to the industry at large. Please, re-think.

Vikas Gupta

In Reply to tewarisurendra 3 years ago

I also agree.

Nilesh KAMERKAR

In Reply to tewarisurendra 3 years ago

Dear Mr. Tewari,

Point by point rebuttal can be offered to invalidate each of your argument on structure of IFA compensation.

But, pardon me for not doing so . for lack of time and more so for futility of such an exercise.

tewarisurendra

In Reply to Nilesh KAMERKAR 3 years ago

Dear Nilesh,

I can respect your feelings. This is not the matter of validating or invalidating our arguments but it is the question of very survival of IFAs which is well rooted in trail and not in upfront. If you go into the deep you will realize the things. Earlier I was also disturbed with abolition of upfront b Mr. Bhave.

tewarisurendra

3 years ago

The upfront commission should be rationalized to a minimum and should be used as real incentive only. The distributors should be allowed trail rates in ascending order i.e. the older the investment, higher the rate of trail. Further, the passback of commission must be treated as economic crime and should be watched as such. Simply, gathering higher investments would do nothing good for the industry but lower upfront, ascending trail, no pass back of commission may miraculously improve the investment environment in the country and better penetration in domestic savings resulting in sustainable, stable and healthier investment environment domestically. It would be better to lessen the dependence of our market on FIIs.

Prevacid ODT could be a low-competition opportunity for Cadila Healthcare

Nomura remains positive on Cadila Healthcare, as it expects US approvals accompanied by business consolidation to help improve margins and profitability, in a research note on the pharma company

Cadila Healthcare won a favourable Appeals court decision on Prevacid ODT, which could be an interesting low-competition opportunity, reports Nomura in a research note based on management interaction. The company expects to gain approval for Prevacid ODT over the next 12 months, and Nomura believes the product could contribute up to Rs18/sh share annually in the initial period. The other low-competition launches that are possible over the next 12 months include Toprol XL, Asacol HD, Lialda (contingent on litigation outcome), nasal sprays (Azelastine, Desmopressin Acetate), transdermals (clonidine, estradiol weekly) and one Nesher product.

 

Nomura remains positive on Cadila Healthcare, as it expects US approvals accompanied by business consolidation to help improve margins and profitability. Business consolidation could include moving out of non profitable territories and lowering capex.

 

The pharma company’s management expects growth to revive in India formulation, consumer and JV businesses in FY15.

 

According to the Nomura forecast, the 12-month share price target is adjusted to Rs1,103/sh (18x one-year forward EPS of Rs58.6 + Rs47 for Asacol HD exclusivity). The current stock price is supported by expectation of earnings growth in FY16. The stock trades at 21x Nomura’s FY15 EPS estimate and only 13.2x Nomura’s FY16 estimate.

 

The company’s performance and forecast is captured in the following table:

 

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