Just one major IPO took place in 2013. Instead of working on reviving investor confidence and protecting them, SEBI plans to reduce disclosure—in a disclosure-based regime—to boost IPO interest.
I f Morgan Stanley’s exit reflects disenchantment with the mutual fund industry, then resource mobilisation through initial public offerings (IPOs) is in even worse shape. In the entire 2013 just one IPO caused a flutter among investors—of Just Dial. The other two worth a mention were VMart and Repco Home, while Power Grid picked up a massive Rs6,958 crore through a follow on offer. While, 35 IPOs from the small and medium enterprises (SME) mobilised around Rs367 crore, the IPO market is as much in the doldrums, as it was after the IPO mania of 1992-96 saw thousands of fly-by-night operators vanish with investors’ money. The difference between the situation 20 years ago and now is that policy-makers neither understand investor disenchantment nor do they care.
Consider the experiment with the SME sector. On the one hand, 35 public offerings based on a different set of rules (no filing of prospectus, but market-making mandatory and minimum application of Rs1 lakh) seem like good performance. But aggregator sites report that only 20 out of 45 stocks listed on the two national bourses are traded and that, too, with low volumes. But, instead of working on reviving investor confidence, the Securities and Exchange Board of India (SEBI) plans to relax entry barriers by scrapping IPO grading, reducing disclosures and doing away with even the formality of making a public offer. This is after the experiment with offering a safety net to investors had also failed (in fact, two issues offering a safety net had to pull out of the market). However, market observers believe this will only lead to SME listings being the newest way to launder money by hawala operators.
An improved code forces banks to be more careful about technology-related frauds on their customers, for which banks are unaccountable now
The year promises to begin on a better note for bank customers. A report in the Economic Times (ET) says that the revised code of services by the Banking Codes and Standards Board of India (BCSBI) is going to be significantly pro-consumer and move towards a better balance of rights and obligations between banks and their customers. According to the ET report, there are two main changes. First, when it comes to electronic fraud, the onus of proving that the customer participated in the fraud or compromised the user ID and password will shift to the bank. While the details of the changes prescribed by BCSBI are not known, these changes were recommended by the Damodaran committee on customer services way back in 2011.
Its report had said that Internet banking should be so designed that it would make consumers feel that electronic transactions are safe. And that there should be “a secure total protection policy/zero-liability against loss for any customer induced transaction, utilising technology through ATMs (automated teller machines)/PoS (point of sales)/online banking, etc. A customer should not be made to be out of funds when any loss is suffered on account of Net (Internet)/ATM banking transactions.”
In fact, the committee recommended that banks should allow customers to put in various checks to prevent fraudulent transfers. These could include, restricting transfers abroad unless specified and restricting transfers above a certain value. More recently, at a meeting of nodal officers and banking ombudsmen, Dr KC Chakrabarty deputy governor of the Reserve Bank of India (RBI) had emphatically said that banks cannot push the burden of proof on the customer and, if they could not find suitable insurance cover to mitigate their risk, they may want to reconsider offering Internet banking at all. “Nobody forced you to offer Net Banking,” he said.
The committee recommended tiered security for the safety of mobile transactions which have already been introduced by almost 50 banks. These include—cap on transaction value, destination of transaction (two-level authorisation for non-routine destinations), security based on handsets and the frequency of payments. More importantly, it had said that grievances about mobile banking should be dealt by banks without hassling the customer by referring the matter to the service-provider.
A frequent complaint is about ATMs failing to dispense cash. RBI already requires complaints to be resolved within seven days and the money credited back to the account, failing which the customer is entitled to a compensation of Rs100 per day of delay. RBI’s customer services department is now following up on the Damodaran committee’s recommendation that a small camera should be trained on cash being dispensed into a bin. But banks have been resisting the move on the grounds of the high.
A revised BCSBI code is certainly a big move forward, but customers must remember that the code will not protect customers who fall for phishing or vishing attacks on the pretext of account verification or succumb to the lure of a fake lottery or prize.
Another change in the BCSBI code is that banks will have to drop the quid-pro-quo deals with third-party products on customers, usually borrowers. These would include insurance tie-ups with car dealers, especially when there is a loan involved or making a specific insurance mandatory on mortgage loans.
This is again a small step forward in the large fight that Moneylife has been waging about stopping banks from selling third-party products altogether. We believe it is a strange travesty that banks take advantage of their fiduciary role of keeping deposits safe and, instead, push customers to withdraw funds to buy toxic and expensive insurance and investments, to earn commissions for themselves. But this is a global battle which will require persistent effort by bank customers around the world.
It is debateable as to how much of the rupee depreciation gains on margins are likely to be retained by companies going forward, says Nomura
Nomura analysts are positive on the demand outlook for FY15F in the IT services sector in India. While top IT companies are big exporters, translation of US macro improvements into better US demand, especially in discretionary spend areas, would be keenly watched. This will reinforce Nomura’s expectations of FY15F being a better year than FY14F in terms of demand. This is the key observation by Nomura analysts in their research note on the IT services sector. The analysts believe Europe and IMS/BPO momentum should stay strong and better US growth should provide the kicker for the sector in FY15F.
According to Nomura, Tier-1 IT companies saw 250-300bps quarter-on-quarter benefit on margins in 2Q on account of rupee depreciation. Nomura analysts’ are skeptic on sustainable margins going forward due to possible reinvestment towards growth and passage of benefits to clients/employees. Nomura believes that this is an area where street upgrades can happen, as the margin gains in the last leg of rupee depreciation are likely to be stickier.
Based on well-performing IT companies, Nomura analysts are overweight the IT services sector on: 1) continuation of strong growth momentum in IMS/BPO/Europe; 2) macro improvements in US raise the possibility of higher discretionary spend and better growth in FY15F; and 3) reasonable stock valuations supported by strong EPS growth. HCL Technologies and Cognizant remain top Buys in the stock market; Nomura prefers TCS over Infosys within other Buys.
The performance analysis of TCS and Infosys with special remarks is given below: