Did Aditya Birla Group invest in PMS of Prime Securities, stuck with crashing Gitanjali Gems?

Earlier this year, Prime Securities was hawking a portfolio management scheme –PMS with an indicative return of 12%. Did Aditya Birla Nuvo invest in this scheme? If so, how will it recover the money? Did the investment go into Gitanjali Gems?

Late on Thursday, market regulator Securities and Exchange Board of India (SEBI) and three stock exchanges barred Gitanjali Gems’ chief executive Mehul Choksi, Prime Securities and its CEO N Jayakumar and 24 other entities from the stock market. The shares of Gitanjali Gems have been crashing, locked in lower circuit for most days since middle of June. According to market sources who were approached to subscribe to the scheme, Aditya Birla Nuvo through its associates has invested large sums of money in this scheme. It appears that the portfolio management services (PMS) was designed primarily to support the price of Gitanjali Gems. And this raises more questions about SEBI’s lax regulation of PMS schemes.
 

The price of Gitanjali Gems was around Rs300 in July last year. It was rigged up to over Rs600 in just six months. According to sources, the price rigging was done using money options and shares of Gitanjali Gems were deposited as margin with the National Stock Exchange (NSE).

 


However, Gitanjali shares were falling from May onwards and the NSE apparently refused to accept the shares of Gitanjali Gems as margin. This led to a collapse of the scheme to prop up of the share price. People close to the management argued that the price of Gitanjali was falling because of gold prices were down and the company was stuck with a huge inventory. Another reason touted was that the government’s decision to discourage imports of gold was affecting all jewellery companies. The fact: Gitanjali Gems was being rigged up through an ingenious scheme and that scheme had broken down.

As a last resort, the PMS was floated with 12% indicative return. While investors are locked into the scheme as per the terms, it seems difficult to see how the scheme will pay back the money it has raised.
 

About three years ago, Aditya Birla Money had lost Rs103 crore on its Options Maxima strategy scheme, causing losses to its investors. This product was risky and mis-sold to older people whose risk profiles did not even match. At that time, Kumar Mangalam Birla stepped in with his personal money to compensate the irate investors. According to a report in Forbes, AB Nuvo paid over Rs100 crore to investors for the loss they suffered in Aditya Birla Money’s risky called Options Maxima.
 

While N Jayakumar frequently appears on TV channels dispensing wisdom on stocks and market trends, Prime Securities has been an investor in a clutch of companies, some of them shady. The last annual report of Prime Securities shows N Jayakumar holding 225,000 shares of Gitanjali Gems apparently bought for Rs7.68 crores at Rs341 each. In addition, Prime Broking Company India Ltd, a wholly owned subsidiary of Prime Securities, holds 17.02 lakh shares of Gitanjali Gems. How has it paid for these shares? Even at Rs300, the value of these Gintanjali shares amounts to Rs51.6 crore. Do these shares belong to the promoters?

 

Stock

Nos.

Amt invested (cr)

Purchase cost (Rs)

 

CMP

 

% Loss

 

ABG Shipyard

336,500

13.15

 

390

272.40

-30.15

Aanjaneya Lifecare

65,000

 

2.72

 

418

 

44.7

-89.31

El forge

97,316

 

0.14

 

14.38

 

3.95

-72.53

Gitanjali Gems

225,000

 

7.68

 

341

 

108.55

-68.17

Great Offshore

290,000

 

6.45

 

222

 

50

-77

Greycells Entertainment

512,029

 

5.81

 

113

 

11.74

-90

Intense Technologies

421,000

 

0.46

 

10.92

 

8.46

-23

IOL Netcom (suspended due to penal reasons)

1,079,930

 

4.01

 

37.13

 

1.3

-96

Logix Microsystems

213,421

 

1.00

 

46

 

7.75

-83

Lumax Industries

50,000

 

1.75

 

350

 

336

-4

Total

 

43.17

 

 

 

 

                            

According to reports, Jayakumar has pledged the holdings of Prime Securities to raise short-term borrowings. However, this seems unlikely. According to an Economic Times report, Prime Securities owes more than Rs80-Rs100 crore to NSE in the equity derivatives segment thanks to some dubious trades in Gitanjali Gems. Surprisingly, NSE that acts tough with brokers has not yet declared Prime Securities as a defaulter.
 

According to market sources, these shares are possibly held on behalf of promoters, designed to keep the stock price up. However, this scheme was not quite working as these stocks sagged, margins had to be paid and Prime’s position in the marketplace became shaky. It is then that the PMS was floated which have landed investors in a major mess.

 

Moneylife sent an email to AB group. However till writing the story there was no response from the company. We would incorporate AB Group's reply as and when we receive it.

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COMMENTS

nagesh kini

5 years ago

When the competitors themselves are the judges who award themselves by patting their own backs nothing better can be expected. Cobrapost or not such panels and awards must stop with neutral entities like BCSBI or CAFRAL initiating the juries.

Arun Mehta

5 years ago

KM Birla(AB group) has announced the strongest Boards in India decided by a jury panel (Himself heading it)# 1 being HDFC Board.How can this Board be strongest when it did little to prevent it's involvement in the recent Cobrapost sting validated by RBI findings on Money laundering.One clue is yet another Bank CEO also involved the the same sting operation, was also part of the jury.

Sandeep Consul

5 years ago

Financial Publications always miss out an important point in their articles - the complacency in the Indian Mutual Fund Managers because of the benchmarking concept. Lest see the following situation - if you have to build a portfolio of a diversified or a sectoral fund - Would you ever put 45% of your funds in a single stock, however good that stock may be ???? - not even by a long shot from whatever you have been writing over last many years.
Lets consider an example - In India we have two FMCG funds from ICICI Pru and SBI. If you look at their portfolio you will find that both of them have about 45% investment in ITC..... isn't it totally against whatever you have learnt and have been telling readers for years? Doesn't it throw all the principles of Portfolio Management for a toss ? Then why do these funds have 45% exposure to ITC.
As Jeremy Grantham said "the primary directive, first and last, is to keep your job. To do this, he explained, you must never, ever be wrong on your own."
So how do fund managers do it -the fund manager very conveniently has a benchmark against whom he can compare himself. To retain his job he must not underperform the benchmark even in the worst case scenario by a huge margin. In the best case scenario he hopes to outperform the benchmark little bit by slight tinkering in the portfolio to earn his bonus.
So if SBI's FMCG fund has appx 50% weightage in ITC, SBI FMCG fund has about 45% of its investment in ITC, even though its totally against what every fund manager/analyst/investment guru learnt and preached throughout his life.
The idea at the back of any fund managers mind is NEVER about giving good absolute returns to their investors - as a retail investor naively assumes, reading all the good articles about -long term benefits of investing and investing thru mutual funds - where one of the biggest benefit is always proclaimed to be DIVERSIFICATION (as a retial investor can not diversify in to many stocks with limited funds). The primary goal of the fund manager is saving his job and for that he has to clone the index.
Simillar thing is carried out in a Diversified Mutual Fund, like a Large cap or Flexi cap fund, but on a more sophisticated level which a retail investor can't figure out (based on the Beta of the the benchmark index etc etc, more on that some other time).
Do you think fund managers are doing a great job, if over five years they beat a benchmark, in which Stock are included at four digit prices and excluded at two digit prices, by a couple of percentage points???
The dark reality is that Financial websites and Journals avoid writing about it because they are part of the system, they are dependent on Mutual Funds for Ad Revenue hence they will write about everything from SEBI's inefficiency to misselling by distributors to financial illiteracy of investors but not about the rot in the fund management

Sandeep Consul

5 years ago

Financial Publications always miss out an important point in their articles - the complacency in the Indian Mutual Fund Managers because of the benchmarking concept. Lest see the following situation - if you have to build a portfolio of a diversified or a sectoral fund - Would you ever put 45% of your funds in a single stock, however good that stock may be ???? - not even by a long shot from whatever you have been writing over last many years.
Lets consider an example - In India we have two FMCG funds from ICICI Pru and SBI. If you look at their portfolio you will find that both of them have about 45% investment in ITC..... isn't it totally against whatever you have learnt and have been telling readers for years? Doesn't it throw all the principles of Portfolio Management for a toss ? Then why do these funds have 45% exposure to ITC.
As Jeremy Grantham said "the primary directive, first and last, is to keep your job. To do this, he explained, you must never, ever be wrong on your own."
So how do fund managers do it -the fund manager very conveniently has a benchmark against whom he can compare himself. To retain his job he must not underperform the benchmark even in the worst case scenario by a huge margin. In the best case scenario he hopes to outperform the benchmark little bit by slight tinkering in the portfolio to earn his bonus.
So if SBI's FMCG fund has appx 50% weightage in ITC, SBI FMCG fund has about 45% of its investment in ITC, even though its totally against what every fund manager/analyst/investment guru learnt and preached throughout his life.
The idea at the back of any fund managers mind is NEVER about giving good absolute returns to their investors - as a retail investor naively assumes, reading all the good articles about -long term benefits of investing and investing thru mutual funds - where one of the biggest benefit is always proclaimed to be DIVERSIFICATION (as a retial investor can not diversify in to many stocks with limited funds). The primary goal of the fund manager is saving his job and for that he has to clone the index.
Simillar thing is carried out in a Diversified Mutual Fund, like a Large cap or Flexi cap fund, but on a more sophisticated level which a retail investor can't figure out (based on the Beta of the the benchmark index etc etc, more on that some other time).
Do you think fund managers are doing a great job, if over five years they beat a benchmark, in which Stock are included at four digit prices and excluded at two digit prices, by a couple of percentage points???
The dark reality is that Financial websites and Journals avoid writing about it because they are part of the system, they are dependent on Mutual Funds for Ad Revenue hence they will write about everything from SEBI's inefficiency to misselling by distributors to financial illiteracy of investors but not about the rot in the fund management

CA PRADEEP AGARWAL

5 years ago

TOLD SEVERAL TIMES THAT MONEY POWER HAS TAKEN OVER ALL ETHICS, WHO CARES ABOUT REPUTATION NOWADAYS IF MONEY IS IN POCKET EVERYTHING WILL BE TAKEN CARE OFF, SYSTEM HAS REALLY ROTTEN, NO ONE LOOKS APPROPRIATE TO CLEANSE THE SYSTEM. THESE ARE THE FEELERS BEING RECEIVED.

Nem Chandra Singhal

6 years ago

It is sad to know that even NSE, Birla group are involved in such affairs. The reputation of them are at stake. It needs to overhaul the system.
Nem Chandra Singhal

sachchidanand

6 years ago

NSE NOT DECLARING PRIME SECURITIES AS DEFAULTER , ITSELF SHOWS THAT NSE ITSELF IS ALWAYS HAND IN GLOVE WITH BROKERS. NSE IS ANTI-INVESTOR. JUST GO THROUGH THE ARBITRATION AWARDS. MOST OF THEM ARE IN FAVOUR OF BROKERS. SOME OF THE ARBITRATORS WITH NSE ARE WELL KNOWN FOR STRIKING DEALS WITH BROKERS

nagesh kini

6 years ago

I, for one, never believed in any kind of PMS that I hold goes essentially by 'experts' choosing to promote particular companies. Rather, seek advice, but yourself monitor and track triple A companies and take your own call based on your gut feeling and risk appetite.

pravsemilo

6 years ago

Last year AB Nuvo was among the top 10 holdings of a leading mutual fund.

Irony is that the stocks that are chased a lot are the ones that don't run their businesses ethically. FMCG (Nestle, P&G, HUL, Marico), pharma (Ranbaxy, Pfizer - US, Johnson & Johnson - US), IT (TCS, Infy), banks (Kotak Mahindra, HDFC, ICICI bank) - all have been embroiled in some controversy or other. And these are the stocks which are held by mutual funds on whom we trust our money. These are the stocks which quote high RoNW, PE. Sadly majority of the businesses that give great returns are the ones that are run unethically.

sanjay

6 years ago

Stock price rigging - A blatant white collar crime . Moneylife , I want to share with you about some shady operator dealers - how & where can I get in touch with you ?

REPLY

Sucheta Dalal

In Reply to sanjay 6 years ago

You can write to the editor at [email protected] (Debashis Basu) or me at [email protected]

Santhana Krishnan

6 years ago

Once bitten, twice shy. Twice bitten? Aditya Birla Money is advertising to manage your wallet and expenses. This is how they manage theirs? It is one thing to repay with personal money for people who lost money through your schemes, far better to not lead them to those schemes.

Vinayak Bhimarao Mudholkar

6 years ago

Huge sums are at stake....That is why in the next bull run mania, prices of all these "worthless" shares would be rigged to have an escape!

Veeresh Malik

6 years ago

That investment in ABG SHipyard also does not look like it will float well very soon, does it? And it is the major chunk going in the portfolio.

REPLY

Rakesh

In Reply to Veeresh Malik 6 years ago

Not supposed to. Designed for price rigging only

Ramesh Poapt

6 years ago

KM Birla is great success as Industrialist, proved his mettle thru his many mega Co;s.But here,in perhaps the only area,he is having bad luck.No one can be master in every field.In the road to success, there may be some failure bumps.He hasenough bitter lessons now.But he owns MF,insurance,equity firms since long. Then why and how he faced the mess?very surprising, if not shocking!

R Balakrishnan

6 years ago

With all this, will the Birlas ever get a bank license? RBI is known to have a long memory

RIL Q1 net profit up 19% to Rs5,325 crore
RIL's total revenues declined 4.6% to Rs90,589 crore, however its June quarter net profit rose 19% on higher operating rates and embedded options in crude sourcing
 
Reliance Industries Ltd (RIL), India's largest private sector company, reported a 19% higher net profit for the first quarter despite a decline in revenues.
 
For the quarter to end-June, RIL said its net profit rose to Rs5,352 crore from Rs4,503 crore, while total revenues declined 4.6% to Rs90,589 crore from Rs94,927 crore, same period last year.
 
Mukesh Ambani, chairman and managing director of RIL, said, "Our performance this quarter reflects higher operating rates and embedded options in crude sourcing and product placement, given the size and scale of the refining business. Robust growth in petrochemical products demand augurs well for our biggest ever expansion programme. Retail business continues to make remarkable progress and registered a 53% growth in revenues during the first quarter."
 
During the first quarter, RIL said its operating profit before other income and depreciation increased 3.9% to Rs7,075 crore ($1.2 billion) from Rs6,811 crore   due to higher margins in refining and petrochemicals business. This was partly offset by lower production in the oil and gas business.
 
Profiting from the sale of investments in the fixed income instruments and higher average liquid investments, RIL earned other incomes of Rs2,535 crore compared with Rs1,904 crore same quarter last year. 
 
Before the results, RIL shares closed Friday marginally up at Rs923.1 on the BSE, while the benchmark Sensex too ended the day marginally up at 20149.
 

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Investor Interest   Exclusive
Sensex, Nifty up move intact: Friday closing report

As long as the Nifty holds itself above the previous day’s low, the up move may continue. The index is however, overbought and could react any day now.
 

The Sensex opened at 20,213 while the nifty opened at 6,057, slightly above yesterday’s levels. On Thursday, we had mentioned that as long as Nifty manages to stay above the 5,995 we might see the up move continuing. Today the index remained well above this level, but closed marginally in the red. The NSE saw a volume of 56.46 crore shares.
 
Both the Sensex and the Nifty hit new intraday high in the early noon session. The Sensex hit a high of 20,257, highest after 21 May 2013 while the Nifty hit a high of 6,067, highest after 31 May 2013. However, weak trading in European market brought weakness back home as well. The indices hit their respective lows in the end. The Sensex hit a low of 20,111 while the Nifty hit a low of 6,020. The Sensex closed at 20,150 (21 points up, 0.11%) while the Nifty closed at 6,029 (9 points down, 0.15%).
 
Among the broader indices, the BSE Mid-cap index fell 0.58% and the BSE Small-cap index fell 0.56%.
 
Among the sectoral indices, four closed in the positive territory. The top gainers were BSE IT (up 2.81%); BSE Teck (up 2.20%); BSE Auto (up 1.66%) and BSE Oil & Gas (up 0.67%). Top losers were BSE Capital goods (down 1.99%); BSE Power (down 1.87%); BSE Bankex (down 1.84%); BSE Realty (down 1.83%) and BSE Consumer durables (down 1.19%). 
 
Out of the 30 stocks on the Sensex, 16 stocks settled higher. Top gainers were TCS (up 4.92%); Bajaj Auto (up 3.68%);  Hero MotoCorp (up 2.62%);  Tata Motors (up 2.52%) and  Gail (up 2.51%). BHEL (down 8.02%); Sun Pharma (down 3.35%); Sterlite Inds (down 2.93%); Jindal Steel (down 2.77%) and ICICI Bank (down 2.64%) were among the top losers.
 
The top two A Group gainers on the BSE were- MMTC (up 4.96%) and TCS (up 4.92%).
 
The top two A Group losers on the BSE were- BHEL (down 8.02%) and Financial Technologies (down 7.22%).
 
The top two B Group gainers on the BSE were- Thirumalai Chemicals (up 19.98%) and Assam Company (up 19.90%).
 
The top two B Group losers on the BSE were- Astec Lifesciences (down 19.39%) and Swasti Vinayaka Synthetics (down 19.02%).
 
Of the 50 stocks on the Nifty, 24 ended in the in the green. TCS (up 4.97%); Bajaj Auto (up 3.97%);  HCL Technologies (up 3.43%); Gail (up 2.73%) and Hero MotoCorp (up 2.44%) were among the top gainers while BHEL (down 9.02%); IndusInd Bank (down 3.98%); Axis Bank (down 3.88%); Sun Pharma (down 3.70%) and Ranbaxy (down 3.60%) were top losers today.
 
Earlier in the day, Prime Minister Manmohan Singh said that the economy may grow slower than previously expected 6.5% for the year to March 2014. India is committed to bringing its current account deficit under control and reducing demand for gold and petroleum products. He also said that more foreign direct reforms are on the anvil while listing out the various positive measures undertaken by the UPA government to improve the country's finances and bolster growth.
 
On the issue of the rupee's slide, he said that the central bank is doing its bit to stabilise the market, however, the recent measures taken by the RBI "are not meant to signal long-term high interest rates." Dr Singh added that if the situation improves, RBI can even consider reversing some of those measures.   
 
US indices rose Thursday after the second day of congressional testimony from Federal Reserve Chairman Bernanke. New claims for jobless benefits fell in the world's biggest economy and factory data improved on Thursday. Back home the indices too opened in the green and traded mostly in the positive throughout the trading session. Federal Reserve Chairman Ben Bernanke spent a second day on Capitol Hill on Thursday, discussing the outlook and Fed rate policy with the Senate Banking Committee. The Fed chief said that economic data since the last Fed rate-policy meeting have been "mixed" and it is "way too early" to make a judgment on when the central bank will slow down the pace of its asset purchases. He remained silent on his future plans during the two hour hearing before the Senate Banking Committee.
 
The Asian indices closed mostly in the red with Taiwan Weighted being the major loser (1.62%). KLSE Composite rose the most (up 0.35%). 
 
European indices were trading in the red. Among the US Futures indices, Dow Jones Industrial Average and S&P 500 were trading in the red.
 

 

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