Short takes on happenings in the Indian financial sector. Plus dashes of other interesting stuff thrown in. Enjoy!
Thursday, August 30, 2012
Saturday, August 11, 2012
22,451 (Crores)
Largest ever
quarterly loss in Indian corporate history? Check.
Calling for your
product to be regulated again because its only nudge-nudge-wink-wink ‘deregulated’
now? Check.
The people
supposed to pay you money not having any because they paid you out last time?
Check.
Running out of
cash to pay your suppliers? Check.
IOCL’s quarterly
numbers are a disaster, to put it lightly. Its easy to read a number and go
whoa, without really understanding anything about it. Let’s put it in
context, shall we?
You read about
the latest, greatest mobile phone going around? A little birdie called the
Samsung Galaxy S3? It retails for around 38,000. This loss could buy 59 lakh of
those and dump them in the Arabian Sea. Or wait, IOCL’s a oil company right? With
this much money, you could buy around 300,000 Honda City and dump them too. I’m
sure neither Honda nor Samsung would mind.
Actually, the
most interesting part of this for me is the news that soon IOCL will run out of limits
to buy stuff. Then what happens? Its not like we’re self-sufficient or
anything. Does crude oil inflow just stop? IOCL supplies around 40% of India’s
total crude requirement, so if something’s not done soon, we’re stuffed.
Plus a
4000-crore asset writedown and 3100 crore forex loss? Surely, surely these two
could’ve been minimized? Maybe not the inventory writedown (Brent prices fell
20% during the quarter), but the forex loss?
And yes, nothing
is going to improve till prices, especially of diesel, are raised. Prices can’t
be raised because that loses you votes stokes inflation. And so on.
Another
side-effect is that with these kinda losses, they can’t even go in for capex,
which would have helped them to increase the complexity levels of their
refineries (higher the complexity, the lower the quality of crude oil it can
turn to final products, low quality raw material costs less, hence lesser costs
and more profits) and this leads to GRMs in the range of 4 dollars or so, which
is not quite great, in the spirit of putting things mildly.
Quick question,
just how the hell do equity analysts suggest a price for these oil marketing
cos.? Isn’t just about everything determined by the government? Dunno…
In a couple of
days there will be a lot of equity research reports coming your way, if you’re
into those and I’ll be damned if this isn’t the gist of all of them. Everyone
needs to make a living.
Friday, August 10, 2012
Bear Cartel - II
So as I'd written earlier, I went through the SEBI order on the sudden mid-cap stock crash
and as is the case with most SEBI orders, I found it written up beautifully.
You should really try reading some of these sometime.
I'll try to quickly summarize; my thoughts at the
end.
- On July 26th, between 9.15 and 9.50 am, prices
of Pipavav Defence (PDO), Parsvnath Developers (PVD) and Glodyne
Technoserve (GDT) fell suddenly and without cause by 20% and that of Tulip
Telecom (TLT) by 25%. The marke, and SEBI, went WTF?!?
- NSE and BSE both dug into the list of sellers
and came up with the list of 19 entities which I'd posted here.
- The net sales by these entities in those four
stocks ranged from 51% to 95% of the market on NSE and 31% to 58% of the
market on BSE. They underbid on the stock by as much as 36% in
some cases. They were acting in unison i.e. one after the other. One would
place an order and after that got executed, someone else would place
another order and so on. And as one or two were driving prices downward,
other group entities were buying up the shares.
- SEBI dug into these entities and came up with
inter-linkages between them such as:
- Common phone numbers
- Common address
- Directorship in other entity
- Common CA (I found this brilliant)
- One of the guys, Ajit Kumar Jain, was found to
have links with companies that had been banned in the past for price
manipulation.
- A particularly neat touch was when SEBI
pointed out that these guys don't really have the stated income to be
trading in crores of rupees. Most of them were nil or upto 5 lakhs, with
two or three above 25 L.
- These companies, since Jan. 2012 were totally
into trading these four scrips and nothing else. 11 of them traded these
80% of the time or above.
- From the order, directly,
22. In my
view, generally, a seller would rationally seek a higher price to sell his
shares; however, in this case the clients were placing sale orders at
prices lower than LTP, thereby bringing down the price of the scrips. More
importantly, normally a seller would desist from revealing its entire
sell quantity since that may cause the supply-demand balance to immediately
become unfavourable to the seller. The data for the short period of time
in each scrip indicates several instances of fully disclosed orders which
were also a significant factor in causing the sharp decline of
approximately 20% in price of each scrip.
23. One
basic premise that underlies trading on the stock exchanges is that the
clients conform to standards of transparency and ethical behavior
prescribed in the various regulations and statutes, relevant in this
regard and do not indulge in fraudulent , manipulative and unfair trade
practices while dealing in securities. In this case, the above trading
pattern of the clients’ prima-facie indicates that there was a concerted
attempt to artificially manipulate/depress the prices of these scrips in a
disorderly fashion thereby adversely affecting the integrity of the
securities market.
- And then, BOOM, you're barred from the markets
pending further investigation.
But seriously, what were these guys thinking? Did
they really think they could get away with something as blatant as this? I am
also thinking of the ways in which they could have pulled this off without alerting
the regulator.
First of all, get different SIM cards.
In today's day and age, that should seriously not be a concern. Register
different addresses. I'm sure these guys have enough bogus addresses or shell
companies listed anyway. So choose carefully. These two should be no-brainers,
really.
Now it should get interesting. They'll
need different companies, obviously, operating out of the different premises
and having different phone numbers, but they'll need different directors too,
or else they are related parties. A public limited company needs seven minimum
while a private limited needs two. That gives a minimum of four people, in two
pairs, establishing a buyer and a seller. Because if they short a stock and
someone else buys it up they’ll end up losing loads of money. The timing has to
be co-ordinated. You need to establish a pattern of trading across various
stocks before zeroing in on the two-three you want to short. Don’t concentrate
80% of your trading in those.
I’m still not convinced. If one set of
companies does all the selling and another apparently unrelated group of
companies does the buying, doesn’t it become obvious? Maybe the ‘operators’
should settle on less greed. If you end up causing 20% price-drop in 30
minutes, you are bound to raise eyebrows. Why not 5% across multiple scrips,
snap ‘em up and sell them back at normal price? Given the crores in which they
deal, even 5% would be a significant amount. But 20% is pushing it a bit too
far, I think. Plus it gets you debarred.
Use different CA’s for the companies.
That also should not be a problem, ideally.
Ideally, you’d have 5-6 different set
of companies, 6-7 companies constituting a set, operating throughout India
(think Golden Quadrilateral), co-ordinating via Skype (no telephone trails),
selling and buying throughout a session (this would require some serious cash,
but I think they might have that covered). Choose your timing, in the best case
scenario, you should only trigger the selling and spook the market enough so
that they start panicking and selling. That might be a tough nut to crack. Make
sure the individuals and companies involved trade across a range of scrips
before settling on the one you want to manipulate. Random distribution of
profits would ensure everyone gains in the long-run, and collusion is difficult
to prove. This is all a bit too simplistic, yes?
Establishing 30-40 private limited
companies in India would not be a big issue for the concerned parties. An
enquiry here would involve seizure of communication equipment and I don’t think
SEBI is authorized to do that. SEBI’s the regulator, not the police. How do you
prove collusion when there is (apparently) no contact between the parties? They
might be best friends but in the absence of documentation, even friendship is
hard to prove, no?
If you’re a party who knows how shit goes
down and are laughing your guts out at me, let me know. I’d love to learn. (Not
that I’d use it, of course, but knowledge and power and all that jazz...)
If you’re SEBI, what’s your workaround
for this? Do you even need a workaround for this?
Again, putting it on paper is a
gut-wrenching reminder of absolutely how much I have no idea.
Saturday, August 4, 2012
Bear Cartels?
I'm such a noob in the stock markets that it hurts to even think about it.
This is what I came across today: Sebi bars 19 entities for involvement in mid-cap stock crash. Might be the first time I've noticed a 'bear cartel' in action.
I'll try to dig into it for more. In the meantime, if anyone has anything they want to share about these 19 entities, lemme know, yes?
- 4a Financials Securities
- A To Z Steels,
- Ajit Kumar Jain
- Cheminare Trade Comm
- G N Credits
- Gajria Jayna Precision Industries
- Kuvam Plast Pvt Ltd
- Littlestar Vanijya Pvt Ltd
- Manish Agarwal
- Milestone Shares & Stock Broking Pvt Ltd.
- Neelanchal Mercantile Pvt Ltd
- North Eastern Publishing & Advertising Co.
- Passions System Solution
- Premium Hospitality Services
- Ramkripa Securities
- Umang Nemani
- Venus Infosoft
- White Horse Trading Co.
- Yashika Holding Pvt Ltd.
It seems there is quite a lot of cross-holding between these. SEBI's website is down right now, so not able to read the order. Will check it out soon and we'll see how that goes...
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