Expect no significant move from the bourses on either side
The market was volatile today, after it factored in the eurozone aid program. The Sensex ended at 17,195, higher by 54 points (0.3%) while the Nifty settled at 5,156, up 20 points (0.4%). The bourses started with a gain, taking cues from Asian markets. However, they soon pared their gains and touched their intraday lows at the mid-morning session. There was a sharp recovery in afternoon trade, supported by realty and banking stocks.
Asian stocks were volatile after a firm start on concerns about the global economy's outlook despite the massive rescue package for the European debt crisis. Key benchmark indices in Japan, Taiwan and South Korea fell by 0.08% to 0.43%. On the other hand, indices in China, Indonesia, Hong Kong and Singapore rose by 0.31% to 1.13%.
US stocks were down on Tuesday on worries that the $1-trillion bailout for Europe won't solve the region's deep-seated problems. The Dow was down 37 points, (0.34%) to 10,748. The S&P 500 was down 4 points (0.34%) to 1,156 and the Nasdaq gained 0.64 points (0.03%) to 2,375.
There are concerns over the trillion dollar package to pull the eurozone out of the debt crisis. The emergency package announced on Monday offers loans and loan guarantees, if necessary, to help countries to service their debt. The European Central Bank’s (ECB) promise to buy government bonds will help support investor demand. However, the package is not directed to stimulate growth in the weak European economy.
Closer home, gold was trading at near record high levels on Wednesday afternoon tracking overseas gains. Traders were unwilling to buy at this high level. International gold was trading at $1,228.55/1,299.55 an ounce as against the previous close of $1,232.05/1,233.05, after hitting an all-time high of $1,233.65 in the last session.
Industrial output grew slower than expected at 13.5% in March from the year-ago period. The slow growth is because of the partial withdrawal of stimulus measures and increase in interest rates. The Planning Commission, however, believes that the slowdown in March industrial output will not affect the gross domestic product (GDP) of FY 2009-10.
The Reserve Bank of India (RBI) said that the capital account will be opened up gradually and there is no plan of imposing a Tobin Tax to curb currency speculation. The Tobin Tax is a transaction tax on currency conversions intended to curb volatility and speculation. The capital account convertibility is integrally attached with the broader goal of economic growth. However, the RBI also expressed its preference for long-term equity flows over short-term debt flows.
The agriculture minister has said that the government must protect its farmers from cheap imports of wheat and sugar. India abolished a 60% import tax on the sweetener in April 2009. The country, the second-biggest producer of wheat, allowed tax-free imports of the grain in early 2007.
Finance minister Pranab Mukherjee said that although there is concern over high inflation, it seems to be easing now. Wholesale price inflation touched a 17-month high of 9.9% in March.
Foreign Institutional Investors (FIIs) were net buyers yesterday of Rs20 crore. Domestic Institutional Investors (DIIs) also bought stocks worth Rs22 crore. The rupee was up, taking a cue from the strong equity market.
L&T (up 1.2%) has received a project from the Qatari government for waste water treatment. Cadila Healthcare (up 2.5%) has entered into a licensing and supply agreement with Abbott Laboratories that will help Abbott quicken the pace of its growth in emerging markets. As per the agreement, Abbott will gain the rights to at least 24 Zydus products in 15 emerging markets where Abbott has a strong and growing presence. The agreement also has an option for additional 40 products to be included over the term of the collaboration.
Despite being under regulatory watch for apparent financial subterfuge, Prithvi Information Solutions appears to be unfazed. Its recent overseas acquisition should raise some eyebrows
IT solutions and engineering services company Prithvi Information Solutions (Prithvi) is shrouded in multiple cases of financial manoeuvrings. Over the past one year alone, the Hyderabad-based company has attracted one controversy after another, without drawing flak from the regulator. Now, it has announced a $3-million acquisition of US-based business intelligence firm, Percentix.
How is it that a company conspicuously involved in questionable practices continues to operate unfazed and unbridled, to the extent of making overseas acquisitions? Consider the facts: In the year 2009, three international audit firms walked away without signing the balance sheet. Ernst & Young resigned after signing a heavily qualified balance sheet in March 2009. It was followed by PriceWaterhouseCoopers (PwC), which resigned in panic in the wake of the Satyam scandal.
The firm that replaced PwC as an auditor made as fast an exit as PwC and resigned in less than four months without signing the accounts. In the subsequent Annual General Meeting (AGM) of Prithvi, the company appointed another firm, VK Asthana & Co, which did not show any hesitation and signed the accounts without raising any questions. The firm completed its audit within just 23 days and issued the report on the financial statements. Very convenient indeed!
Less than a month after the AGM on 30th January, there was a report in Tehelka magazine dated 27 February 2010 about another scandal where Prithvi was issued a summons by a city criminal court. The Rs200 crore alleged fraud involves unpaid dues to a leading Japanese corporation. Tehelka says that the company diverted money to be used for buying telecom equipment for State-owned Bharat Sanchar Nigam Ltd (BSNL) to itself, by shadily diverting payment terms and having the money credited to its own accounts, without informing Sojitz Corp of Japan.
A couple of days earlier, the company had planted a report in a couple of obscure journals that it was set to bag an order worth Rs200 crore—the exact amount diverted in the Sojitz case. It is also facing action from the Directorate of Revenue Intelligence (DRI), although the accuracy of these charges is not known.
Add to this, Deutsche Bank had filed a first information report (FIR) in June 2009 accusing Prithvi's promoters of a fraud of Rs40 crore, according to a CNBC report. Although Deutsche Bank has remained tight-lipped in public, it is reported that Prithvi had diverted bank funds to real estate and made false claims about significant global contracts.
For a while, the Securities and Exchange Board of India (SEBI) had surprisingly chosen to remain a mute spectator to the company’s brazen actions. After Moneylife exposed the company’s practices a couple of months ago, SEBI stood up and took notice, and claims to have been investigating the company since.
Amitava Lahiri, senior VP and head of IT services at Prithvi had told the Financial Chronicle a few days ago that this acquisition is part of an overall strategy to make Prithvi a $1 billion firm by revenues. This seems ambitious considering the state of the company’s financials, which are worsening every year. For the March 2010 quarter, the company has recorded a net loss of Rs49.58 crore as against a net loss of Rs6.87 crore for the previous corresponding quarter. Its year-on-year performance has also witnessed a substantial drop. For the year ended 31 March 2010, the company registered a net profit of Rs4.92 crore compared to Rs44.46 crore for the year ended 31 March 2009.
Yet, the company appears quite optimistic about its future. Prithvi expects to bag several new deals this year and has even firmed up plans to increase its headcount in view of the same. Reports state that the company is looking to recruit about 1,000 more people to cater to its ‘expanding’ business.
Considering the extent of Prithvi’s financial machinations, one would think either the regulator or the stock exchanges would have taken the company to task long ago. Their deafening silence till recently was really surprising. Now that SEBI has supposedly decided to take a closer look at the company, some concrete action should be expected soon.
It should be a worrying fact for SEBI that the company remains unabashed despite the regulator’s presence.
Retired bank employees who want to join a pension scheme will have to refund the entire amount paid by the bank to their provident fund account and the interest accrued thereon, along with their share in the contribution
Retired bank employees, who had opted for provident fund (PF) and gratuity at the time of retirement instead of a pension, are feeling left out from the benefits of the new wage settlement signed between the Indian Banks Association (IBA) and the United Forum of Bank Unions (UFBU), a body comprising nine bank unions.
According to the new wage agreement signed on 27 April 2010, about 8 lakh employees from 26 public sector banks (PSBs), 12 private sector and 8 foreign banks will get a salary hike of about 17.5%. The revision will cost banks Rs4,816 crore, including arrears payment from November 2007, which will be given in a lump sum, K Unnikrishnan, deputy chief executive, IBA said.
A total of 2.7 lakh employees and 60,000 pensioners will be benefited by the second pension option in the agreement. For employees who had not joined the pension scheme in 1995, the new agreement gives them another opportunity to join the scheme. However, there is a catch. They will have to refund the entire amount of the bank's contribution to their PF and interest accrued thereon received on retirement with the employee’s share in the contribution.
"On an individual basis, this payment over and above the bank's contribution to PF and interest thereon has been worked out at 56% of the said amount of the bank's contribution to the PF and interest thereon received by the employee on retirement," the agreement, a copy of which is with Moneylife, says.
According to a comment posted by ‘Bhas’ on forestlaneshul.com, new pension optees will have to pay 2.8 times of their November 2007 revised salary from the earlier agreed 1.6 times. "All unions kept mum on this, which came to light only after signing and yet they say this is historic. All plans were accepted as per IBA modifications, and for this it has taken almost two and a half years," the comment reads.
CH Venkatachalam, general secretary, All India Bank Employees Association (AIBEA) and convener for the UFBU, said, "People had made the mistake of not joining the pension scheme earlier and some of them are still not ready to accept it. What they are not willing to understand is with the pension scheme, they can receive a regular income more than the interest they may earn. Plus this pension has a provision for dearness allowance to be revised every six months."
Refunding the entire amount of the bank's contribution to their PF and interest accrued thereon received by the employee on retirement with the share in contribution has not gone down well with some retired bank employees. Whether the employee retired in 1997 or in 2007, there is no differentiation and both have to refund the entire amount of bank’s contribution along with interest. For example, an employee who retired in 1997 might have received Rs6 lakh as terminal dues. If he invests the same amount at an average interest rate of 8%, then he would receive about Rs48,000 per year just as interest. From 1997 to 2010, he most probably would have received more amount as interest than his investment.
"This second pension offer is nothing but a cruel joke on retired bank employees. Retired bank employees, especially those above the age of 66, are finding this offer unviable and unfair since they have to pay a heavy sum and chances of recovering the principal amount are less," said Jagdip H Vaishnav, a retired bank employee.
When asked to explain the contribution and pension per month, Mr Venkatachalam said that if for example, an employee had received Rs10 lakh as PF and gratuity on retirement, then he will have to refund this Rs10 lakh plus around Rs5.5 lakh as his own contribution. However, the bank will also contribute around the same amount and the actual amount an employee has to refund comes to Rs10 lakh. To add to this, he will receive pension arrears of eight months at a rate of about Rs15,000 per month. If he can use this money for the refund amount, then his actual contribution to the new pension scheme comes to just about Rs8.5 lakh. He will continue to receive Rs15,000 every month thereafter. In addition, after every six months, the dearness allowance component in his pension will increase, so he will receive more money. On the other hand if he invests Rs8.5 lakh, then he would get an interest of about Rs68,000 for a year or Rs5,700 per month. Now he has to decide whether to opt for Rs15,000 per month or Rs5,700 per month, Mr Venkatachalam said.
One problem with the pension scheme is that some of the retired employees may not have enough cash left with them since usually people try to buy expensive things such as a home or a four-wheeler from the money earned at retirement. They most likely would find it very difficult to garner the required money so as to receive monthly pension or regular income.
Vishwas Utagi, secretary, AIBEA said, “We have been advising employees to keep the funds they received at the time of retirement separate, in case they plan to opt for the new pension scheme. So, I think refunding the bank’s contribution and interest should not be an issue.”
The UFBU has been asking the IBA to allow another option to for those to join the pension scheme—employees who were in the service of banks prior to 29 September 1995 in case of PSBs, and 26 March 1996 in case of associate banks of the State Bank of India (SBI) and who did not opt for the scheme. IBA, however, was not ready for the same due to cost considerations. The UFBU then offered to share a portion of the initial funding liability on a one-time basis for extending pension to the non-optees.
An actuarial valuation of liability by actuaries showed an estimated funding gap of Rs6,000 crore. The UFBU offered to contribute 30% or about Rs1,800 crore to bridge the gap for retired employees. An actuarial valuation on similar lines as conducted for serving employees had estimated the funding gap as Rs3,115 crore for those retirees or their families.
“Moreover, as per the new wage agreement, bank employees, both in service and retired, will receive arrears effective from November 2007 and it would help them while contributing to the 30% funding gap,” Mr Utagi said.
UFBU is receiving calls from children of retired bank employees asking how much their parents will have to pay to get a regular monthly income and these children are ready to pay from their own pockets, Mr Venkatachalam added.