The controversial company is now a playground for the punter, its shares often getting locked in the upper and lower circuit filters. Will SEBI continue to look the other way?
SKS Microfinance, which had attracted a lot of bad press for its loan recovery tactics and the suicide deaths of some of its poor borrowers in Andhra Pradesh, is now making headlines for a different reason. Its share price has been violently moving up and down over the last seven days, for reasons not clear to anyone.
The stock of this beleaguered and controversial microfinance company was languishing at Rs342 on 6th July. But on 7th July it was up 20% locked in the upper circuit and again on the 8th it was up 20%. Over the next two days the stock was up 10% and 8% respectively.
The ostensible reason for the rally was the assumption that SKS's troubles were over, now that the Reserve Bank of India (RBI) would be regulating the microfinance sector. RBI would be aided by a proposed law that would supercede the stringent state law passed by Andhra Pradesh. Indeed, even as the stock was being ramped up on this assumption, the new CEO came on CNBC and asserted that all is well with SKS's future. However, there was little in the new regulations that could have fundamentally improved the business model of SKS and other microfinance companies. Certainly, some of the provisions would stop these companies from again making super profits, which had attracted smart private equity firms and even the venerable NR Narayana Murthy of Infosys.
Under the new law, microfinance institutions would have to be registered with the RBI, which would dictate their borrowing costs, interest rates and the fees they charge. MFIs would also be subjected to rules that decide the method and how frequently the firms can recover loans. Their business would be as regulated as banks, minus the powers banks have to recover loans.
If a better future is what caused the prices to jump for four days, then what caused the price to slump (with no takers) for the next two days? After rallying 54% over four days, the stock hit the lower circuit (down 10%) the next day, that is, Wednesday. On Thursday again the stock was locked at the lower circuit, down 10%. Today, the stock price gained more than 5% to Rs502.85 in the first hour of trade. Market circles believe that the stock rally has been engineered so as to take off the pressure from investors on the present management.
The share price of the high profile SKS had opened for listing at Rs1,036 in August 2010 and hit a high of Rs1,490 in the next month. From early October, however, it has consistently fallen and hit a low of Rs262 in May 2011, down by 75% from its listing price, causing massive losses to many smart investors. The current rally merely brings the stock back to the level it was at in April.
A few private equity investors who have invested in SKS Microfinance are known to be exploring options to change the management of SKS Finance. A spokesperson of SKS has denied this as "baseless". But if the stock continues to bounce up and down locked in circuit filters, it would be looked upon as one of those hundreds of BSE-listed penny stocks. As Moneylife has been reporting for the last two years, these stocks are rigged at will by promoters for money laundering and tax evasion.
There have been concerns about the possible impact on agri-commodities following an official report about lower than average rainfall so far
Lower rainfall in the first few weeks of the monsoon season has set off concerns over the possible impact on agriculture. But experts say that it might be too soon to predict anything either way.
The Indian Meteorological Department (IMD) said last week that the rainfall so far has been 4% below the 50-year average. Some brokerages have also talked about the rain deficit in important agriculture states and the shrinking of crop acreage.
"July-August is the peak monsoon period, and we have to wait at least till the end of July to see how the monsoon progresses to make any predictions about production or prices," said Sageraj Bariya, head of equity research firm Equitorial Industry Alternate. The deficit averages out at the national level, whereas production will depend on how the monsoons behave regionally, he said.
Some say that with stable market prices and expectations of good production, there is no need to press the panic button.
According to the IMD, the cumulative rainfall received for the country as a whole during the period 1st June to 6th July 2011 was 217.6 mm, which is 1% above the average.
The rains were delayed by 20 days in Gujarat, which is an important cotton producer. Still, a good yield is expected, despite the rainfall being 60% below normal. While the increase in cotton acreage may not balance out the shortage in production due to weak rains, Dhiren Sheth, president of the Cotton Association of India, said sowing is expected to pick up now. Despite a late harvest, there are more chances of good production. The Cotton Advisory Board has estimated the production for 2010-11 at around 31.2 million bales.
Sugar has seen a significant rise in terms of cultivation. Reuters news agency reported an increase in the acreage by 220,000 hectares to about 5 million hectares as on 17 June, from that in the previous year. The estimated output in 2010-11 was 24.2 million tonnes, while a bumper production of 6.5 million tonnes is being estimated for the year. While the government recently allowed the export of 5 lakh tonne of sugar, the markets are expected to see a slight rise in prices.
According to the Ministry of Agriculture, the procurement of wheat as on 8 July 2011 was 280 lakh tonne, higher than the 224.80 lakh tonne up to the corresponding period last year.
Rice also saw increased procurement of 318 lakh tonne as of the same date, compared to 296.77 lakh tonne in the previous corresponding period. The government is holding massive stocks of rice, thus prices are unlikely to surge. The kharif crop of wheat, on the other hand, may suffer severely due to lower rain.
Despite an increase in the sowing area for pulses and oilseeds, there is a possibility of a shortage. The western states, which are chief producers of oilseeds, have also had lower rain. In pulses, a surplus in lentils from the previous year could help put a cap on the prices.
"A 4% deficit, at this time, is not earth-shattering. We should wait and see how the monsoon behaves in the next couple of weeks," an analyst said. "If the deficit persists till the end of July, it will be difficult to make that up in one month. But inflation is another important factor that would determine prices."
The country’s central bank had bought 200 metric tonnes of the precious metal in October 2009 as part of its forex management operations
Gold prices touched a new high of $1,594 per ounce on Thursday, on heightened global concerns over the debt-crisis in Europe. This timeless precious metal has gained a fabulous 31% in the past one year and looks like going higher still in the current environment. ($1,594 = Rs70,933)
Gold in India is a big attraction and the country is one of the biggest buyers. But a little known aspect is that the Reserve Bank of India (RBI) has been a huge gainer from this gold price increase.
In October 2009, the country's central bank had purchased 200 metric tonnes of gold from the International Monetary Fund (IMF) for about $7.4 billion. That worked out to about $1,050 an ounce. At the current price, that purchase of such a large quantity of the yellow metal is worth about $11.18 billion (Rs49,750 crore), a gain of $3.78 billion (Rs16,820 crore) or 51% in just 20 months.
The RBI made the purchase under the IMF's limited gold sales programme, as part of its foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two-week period from 19 to 30 October 2009 at market-based prices.
As on 10 June 2011, the RBI's total foreign exchange reserves stand at $310 billion, of which gold accounts for $24.39 billion.
Gold is expected to pierce the $1,600 mark before end-2011. (Read, "Gold survey 2011: The yello halo", Moneylife, 5 May 2011.) Despite talks about gold turning into a bubble, investors' have continued to show keen interest in the previous metal as a hedging instrument. The global financial crisis, set off in the United States, saw a rush for gold over the past couple of years, and now the euro zone debt crisis is seeing investors rushing back into gold again, which is pushing the price up further.
In India, the demand for gold has been strong, particularly for jewellery from a growing middle class that is 64 million strong, and due to a high savings ratio of between 30% and 40% and a strong cultural affinity for gold, according to the World Gold Council (WGC). Steadily increasing income is expected to increase gold purchasing power by about 3% per annum.
India accounts for 32% of global jewellery. Gold jewellery contributed around 75% of total gold demand in the last decade and more than 50% of this buying has been motivated for investment purposes. Indians hold the largest stock of gold in the world, and 18,000 tonnes of this is held by households.
There is a strong demand from China as well. According to the WGC, China produced 340 metric tonnes of gold last year, while consumption was 700 metric tons. This year, the investment demand has skyrocketed more than 120% in the first quarter alone, to nearly 91 tonnes. The total demand for gold in China is up more than 47% over the last year to more than 230 tonnes. The investment demand for gold in China increased by 70% in 2010 year-on-year, according to WGC.