Sebi nod for Indiabulls' MF business

Indiabulls Financial Services has got the regulatory approval from the Securities and Exchange Board of India (Sebi) to set up an asset management company. The new company, which will undertake the mutual fund business, will be a subsidiary of Indiabulls Financial Services, said market sources. When contacted Indiabulls spokesperson confirmed that the company has received Sebi approval for starting a mutual fund business.

As of now 33 fund houses are present in the Indian MF space. Additionally, a handful of firms, foreign as well as domestic, are in different stages of seeking regulatory approvals for launching their AMC businesses, mainly lured by the tremendous growth opportunity they see in this business. Going by assets under management (AUM), in the last one year to January, the industry has grown by a whopping 61.6% to Rs 5.48 lakh crore from Rs 3.37 lakh crore as of January 2007.

Along with the growth in AUM, valuation of fund houses has also shot up. Of late, two deals in the asset management space has pushed the valuations of fund houses to a new peak.

Reliance Globalcom launched

Plans $2 bn upgradation, mulls initial float.

Reliance Communications (RCom) has consolidated its global businesses into a newly-formed subsidiary, Reliance Globalcom, and will invest over $2 billion by the financial year 2009 for upgradation and expansion.

The company, which will be headquartered in London, would also go in for an initial public offering in the “near future”, Punit Garg, president of Reliance Globalcom said today.

Reliance Globalcom will become the holding company for the global operations of Reliance Communications (which offers voice services like Reliance India Call, Reliance Global Call, Reliance Netcall and Reliance Passport), the submarine cable subsidiary Flag Telecom and the recently acquired US-based Yipes Enterprise Service (an Ethernet technology major).

“Reliance Globalcom will bring a diverse portfolio of global communications business services like the global voice, managed network, carrier Ethernet and fibre capacity into a single group,” Garg said.

“Apart from this enabling us to reach the customer faster, it will also help us increase our global footprint and emerge as one of the top telecom companies in the world.”

About $2 billion will be spent by 2009 for managed services network, infrastructure upgradation and capacity expansion of Flag. “Of this around $1.5 billion has already been committed and the remaining 0.5 billion would be infused next year,” Garg said.

With the consolidation of its global business, the company will have an annualised start-up revenue of $1.32 billion and EBIDTA of $334 million, he said.

The company will target the global telecom arena that has an annual addressable revenue potential of $285 billion.

RCom has also changed the name of its subsidiary Yipes Enterprise Services to Reliance Globalcom Services and that of Flag Telecom to Reliance Flag. Both the companies will function as subsidiaries of Reliance Globalcom.

Reliance Globalcom will have a presence in over 50 countries, including the top 20 financial centres in the world, among them New York, London, Tokyo, Paris, Chicago, Toronto and Frankfurt.

Last week, another telecom major Videsh Sanchar Nigam Ltd (VSNL) re-christened the company as Tata Communications and integrated VSNL, VSNL International, Teleglobe, Tata Indicom Enterprise Business Unit and Cipris brands under the new name.

Broking firms see 400% leap in online trading value

The number of investors opting for online trading has gone up manifold, according to the recently published 'India’s Leading Equity Broking Houses, 2008' by Dun & Bradstreet (D&B). The publication says that less than 10% of the 191 broking firms surveyed reported huge growth in opening of e-broking accounts and some firms saw a surge in value of up to 400% in e-broking during 2007.

According to the report, number of e-broking accounts registered in 2007 have grown exponentionally. Indiabulls Securities Ltd added 4,51,611 accounts while a relatively new firm in the industry, Reliance Money added 2,15,678 accounts during the same time period. Motilal Oswal Securities Ltd managed to add 19,065 accounts while Unicon Financial Intermediates Pvt Ltd could increase their e-broking accounts by 13,787.

Manoj Vaish, president and CEO-India, D&B Information Services India, said, “A new class of tech-savvy investors is increasing in India and also the maturity level of these investors is reaching new heights. e-broking also makes a good business sense as the manpower cost gets reduced and also the reach is amazing. The broking firms can get away from expansion cost and the risk management system is quite robust when technology is used. I see the trend in the e-broking increasing in the years to come and as of now I don’t see any major roadblocks in the way."

According to market watchers, the rise in the value of on line transactions is also because of sustained bull run witnessed in 2007, when the 30-share Sensex of the Bombay Stock Exchange (BSE) gained from 13,842 points to 20,207 points, a gain of 6,365 points (up 47%).

e-broking is contributing a sizeable portion to the trading volumes and also to the revenue generated for leading stock broking firms. Some examples of the percentage contribution to trading volumes contributed by e-broking are 91% in case of Reliance Money, 62% for India Bulls, 20% each for ASL Capital and Shreyas Stock, 19% Angel Broking, and 15% Farsight Capital.

In respect of revenues generated from e-broking, India Bulls (63%), Reliance Money (54%), Unicon Financial (30%) and Shreyas Stock (20%) reported higher shares in 2007. Ashika reported 98% growth in e-broking business in the first 10 months of 2007.

Another significant trend is the growth in international business of broking firms. Firms that reported presence of offices outside India include Reliance Money, Motilal Oswal, Karvy Stock Broking, JRG securities, Vogue and Bonaza Portfolio.

Brokers seek securities tax rationalisation

Broking firms want the securities transaction tax (STT) to be rationalized, in Budget 2008. STT is being levied at the rate of 0.125 per cent for capital market transactions and 0.017 per cent in the derivatives segment.

Under the current tax structure, buyers and sellers have to shell out Rs 100 each on delivery-based trades worth Rs 1 lakh, while the seller has to pay Rs 20 on non-delivery trades amounting to Rs 1 lakh.

The government gets monthly revenues of Rs 200 crore on an average. Almost 65 per cent comes from non-delivery based transactions, according to brokers.

Brokers maintain that cost of transaction has to go down, which would lead to an increase in volumes. Currently, the trading cost in India is among the highest in the world.

There should also be clarity on how the stock market gains are taxed. Nilesh Shah, CEO, Ambit Capital, said, “We need clarity on whether stock market gains will be taxed as capital gains (short term and long term capital gains) or business income. Since there is a lot of confusion, the finance minister should address the issue.”

The applicability of STT on arbitrage trades is unclear, either. These trades, which constitute a very large component of daily volumes and provide liquidity to the markets, carry the same STT rates as client trades.

There is a lack of clarity regarding STT credit between the arbitrageur and brokerage houses. There is also confusion regarding the applicability collection of service tax from sub-brokers. Under current regulations, the registered sub-brokers do not collect brokerage fees from investors.

However, this is a mandatory requirement for registering under the service tax regime. The anomaly needs to be addressed, said Asit C Mehta in a pre-budget note.

Centre to issue special securities to SBI

The bank will mop up Rs. 16,736 cr.

through rights issue

Huge additional capital required to

meet growth targets

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NEW DELHI: The Union Cabinet on Thursday approved the issue of ‘special marketable securities,’ amounting to Rs. 9,995.99 crore to enable the Central Government to subscribe to the rights offer of State Bank of India.

The Cabinet decision is, in effect, a modification of its earlier approval that sought to provide the SLR (Statutory Liquidity Ratio) status to government securities as the Reserve Bank of India (RBI) declined to grant that status.

Under the SLR norms stipulated by the RBI, it is mandatory for banks to park 25 per cent of their deposits in government securities and, thus, the provision of the SLR status to these securities would have helped SBI meet the central bank’s guidelines.

“The Government is likely to receive around Rs. 1,449 crore additionally by way of dividend and taxes from the bank [SBI] during 2008-09, as against an expenditure of around Rs. 825 crore as interest to be paid to the bank for the proposed securities,” an official statement said. However, in subsequent years, the Government is likely to receive higher amount of additional revenue (Rs. 1,683 crore in 2009-10, and Rs. 2,049 crore in 2010-11 and thereafter), the statement pointed out.

In a bid to raise additional capital to meet its growth targets, the country’s largest state-owned bank had decided to issue 10.5 crore equity shares on a rights basis so as to mop up Rs. 16,736.31 crore. The issue, which opened on February 18, will close on March 18. The Government, in order to maintain its 59.7 per cent stake in SBI, had decided to invest nearly Rs. 10,000 crore. However, with the RBI declining to accord the SLR status to the bonds to be offered to SBI by the Government as its subscription to the rights offer, the Finance Ministry had to approach the Cabinet again for a review of its decision.

Sources said that although the Finance Ministry would continue to take up the matter with the RBI and request it to notify the proposed securities as SLR securities, due to time constraint, it had to ask the Cabinet to amend its decision taken on November 29 last year.

Modified approach

The official statement said that on receipt of the modified approval by the Cabinet, “the transaction will be completed within the current financial year and, thereafter, a ‘securities redemption fund’ will be created to redeem these securities on due date.”

According to SBI estimates, it would require an additional capital, totalling Rs. 1,02,574 crore over a five-year period to meet its growth targets, its leadership in the banking industry as also various regulatory norms. It has projected the need for additional funds, amounting to Rs. 19,535 crore, during the current fiscal, Rs. 14,434 crore in 2008-09, Rs 17,592 crore in 2009-10, Rs. 22,857 crore in 2010-11 and Rs. 28,156 crore in 2011-12.

MCX to enter global league with IPO

Commodity exchanges have come of age. Mumbai-based MCX’s decision to file for an IPO marks India’s entry into an exclusive global club of listed exchanges, whose members include biggies like the Chicago Mercantile Exchange, the Chicago Board of Trade and Euronext-Liffe and Bursa (Malaysia). As exchanges guard street credibility with their lives, opening themselves up for even more stringent public scrutiny only adds to trader trust.

Though MCX is already a demutualised exchange, it will now be opening itself to even more regulation by getting listed. MCX will be regulated both, by the Forward Markets Commission, which is the commodity trading regulator, and Sebi, which keeps an eye on India’s 10,000 listed companies.
Once the MCX IPO is through, the exchange would be listed on both, the NSE and the BSE. But even though the NSE has a 2% stake in the company, it is unlikely to create any conflicts of interest between its roles as shareholder and regulator of MCX.

Experts say the matter has been investigated and settled more than 20 years ago. “The Kania committee in India, which included renowned names like justices MH Kania, M N Chandurkar and YH Malegam deliberated on these issues and that it would be desirable for a demutualised stock exchange to list its shares on itself or on any other stock exchange,” said an observer.

More importantly, as the seventh largest exchange in the world, NSE itself has sufficient credibility and effective regulatory mechanisms in place to deal with such potential conflicts. “When NYSE, LSE and NASDAQ can be self-listed and be trusted by their regulator to manage a conflict situation of 100%, we see no reason why the same cannot be replicated in India as well,” he added.

Companies that promoted NSE and on its board of directors are also listed on it. NSE had had no problems till now in regulating them as it does any other company. “There is no reason to believe that any information sent by MCX to NSE and BSE will be released to the public only by the BSE and not by the NSE due to conflict of interest. After all, the promoters of NSE are already being regulated by NSE for the last 10 years,” said an industry observer.

Getting listed is also unlikely to create any conflict of interest within MCX itself. While it will continue to act as regulator of the trading on its platform, it will simultaneously further shareholder value by improving business prospects.

“When MCX is listed on the NSE and the BSE, they will only regulate MCX only as a company for its financial performance as per the listing agreement. The NSE and the BSE will have nothing to do with the trading on MCX,” said an analyst here.

“If MCX as a corporate has gone in for voluntarily listing, then it displays its readiness for greater scrutiny and compliance, which could have easily been avoided by just avoiding listing,” he added.

How the Sensex is calculated

For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1.

Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.

Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. (See below: Explanation with an example)

Due to is wide acceptance amongst the Indian investors; Sensex is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the Sensex has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The Sensex captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through Sensex.

Sensex Calculation Methodology

Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.

Dollex-30

BSE also calculates a dollar-linked version of Sensex and historical values of this index are available since its inception.

Understanding Free-float Methodology

Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.

It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and Bankex in June 2003. While BSE TECk Index is a TMT benchmark, Bankex is positioned as a benchmark for the banking sector stocks. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.

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Example (provided by rediff.com reader Munish Oberoi):

Suppose the Index consists of only 2 stocks: Stock A and Stock B.

Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are available for trading to the general public. These 800 shares are the so-called 'free-floating' shares.

Similarly, company B has 2,000 shares in total, of which 1,000 are held by the promoters and the rest 1,000 are free-floating.

Now suppose the current market price of stock A is Rs 120. Thus, the 'total' market capitalisation of company A is Rs 120,000 (1,000 x 120), but its free-float market capitalisation is Rs 96,000 (800 x 120).

Similarly, suppose the current market price of stock B is Rs 200. The total market capitalisation of company B will thus be Rs 400,000 (2,000 x 200), but its free-float market cap is only Rs 200,000 (1,000 x 200).

So as of today the market capitalisation of the index (i.e. stocks A and B) is Rs 520,000 (Rs 120,000 + Rs 400,000); while the free-float market capitalisation of the index is Rs 296,000. (Rs 96,000 + Rs 200,000).

The year 1978-79 is considered the base year of the index with a value set to 100. What this means is that suppose at that time the market capitalisation of the stocks that comprised the index then was, say, 60,000 (remember at that time there may have been some other stocks in the index, not A and B, but that does not matter), then we assume that an index market cap of 60,000 is equal to an index-value of 100.

Thus the value of the index today is = 296,000 x 100/60,000 = 493.33

This is how the Sensex is calculated.

The factor 100/60000 is called index divisor.

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The 30 Sensex stocks are:

ACC, Ambuja Cements, Bajaj Auto [Get Quote], BHEL, Bharti Airtel [Get Quote], Cipla, DLF, Grasim Industries [Get Quote], HDFC [Get Quote], HDFC Bank, Hindalco Industries [Get Quote], Hindustan Lever [Get Quote], ICICI Bank [Get Quote], Infosys [Get Quote], ITC, Larsen & Toubro, Mahindra & Mahindra, Maruti Udyog [Get Quote], NTPC, ONGC [Get Quote], Ranbaxy Laboratories [Get Quote], Reliance Communications [Get Quote], Reliance Energy [Get Quote], Reliance Industries [Get Quote], Satyam Computer Services [Get Quote], State Bank of India [Get Quote], Tata Consultancy Services [Get Quote], Tata Motors [Get Quote], Tata Steel [Get Quote], and Wipro [Get Quote].

Hedge funds face India exposure cap as Sebi readies guidelines

India’s stock market regulator Securities and Exchange Board of India (Sebi) will soon come out with guidelines regulating hedge funds that wish to operate here.
“We are looking to provide a broad-based, registered and regulated platform to these entities, depending on their individual track records,” said a senior official at Sebi who did not wish to be identified.
Among the measures being considered is one that will allow single hedge funds (those that have a single strategy or a single investor, and, therefore, a higher degree of risk) to invest only 49% of their investment corpus in India.
Hedge funds are aggressively managed portfolio investments that use strategies such as leveraging, and taking long (a bet that the underlying asset will appreciate), short (that the underlying asset will depreciate) and derivative positions in the markets in order to make high returns.
Several well-known hedge funds have already been granted entry into India.
Sebi’s previous chairman M. Damodaran had always maintained that the regulator was more comfortable with hedge funds coming into the domestic market through the front door, as entities registered with it. In October, Sebi had clamped down on anonymous inflows of foreign money into equities through so-called participatory notes (PNs).
According to the Sebi official, the registration of new hedge funds will be contingent on their track record. “In case of newly set-up hedge funds, they will be given an entry if the fund manager has a good one-year track record,” he said.
Since clamping down on PNs, Sebi has made it easier (and quicker) for foreign investors, including hedge funds, to register themselves with it. Some prominent hedge funds such as the Old Lane Llp (a Citigroup fund) have since registered their names with the regulator.
“We have registered around 200 foreign institutional investors in the last two months, among which there are at least 20 hedge funds,” the Sebi official said.

Reliance Power asks Sebi to probe listing day manipulation

Anil Ambani-led Reliance Power is understood to have complained to market regulator SEBI about the possibility of a pre-meditated manipulation of its scrip immediately on its listing on February 11. Asking SEBI to fully exercise its powers to investigate into the matter, the company alleged that all stocks of the ADA Group were simultaneously subjected to the same "vicious selling", bringing their prices down by 10-20 per cent in a single trading session which was disproportionate to the overall decline in the market. The ADAG companies are Reliance Communications, Reliance Energy, Reliance capital and RNRL. This episode of bear hammering in the scrip of Reliance Power appears to be a part of the same vicious campaign, the company is believed to have said in its complaint to SEBI. RPower is understood to have asked Sebi to call for relevant information from both the BSE and NSE exercising its powers under Section 11 C of the Sebi Act and other provisions. It also wanted the market regulator to check data from both the bourses relating to trades in R-ADAG stocks in the cash and futures and options (F&O) segments. The market regulator should ask for details of the quantities of shares sold, the names of the brokers and their clients, the pattern and timing of sales, the funding of margins, stock-lending under FII route and Participatory Notes (P-notes), the company said.

India Reliance targets Europe diesel exports

Indian oil company Reliance Industries (RELI.BO: Quote, Profile, Research) is planning to export low sulphur diesel to Europe once its new refinery at Jamnagar comes on stream later this year, P. Raghavendran, the company's refining business manager, said on Tuesday.
Reliance sees an opportunity to export cleaner diesel to Europe as refineries in the former Soviet Union and in eastern Europe will not be able to meet the European Union's tougher fuel standards reducing sulphur levels to 10 parts per million which come into force in 2009, he told a conference.
"A lot of molecules from the FSU and eastern Europe can't meet (the new EU standards)," Raghavendran said.
"This will provide a window of opportunity for the next 3-4 years for refiners from Asia and the Middle East."
Reliance's new 580,000 barrel a day refinery at Jamnagar is designed to produce low sulphur fuels for export. It is slated to start up in December but company officials have said it could start three to four months earlier.
High shipping costs could prove an obstacle to exports but to overcome this Reliance is looking to ship diesel west in large volumes.
Europe relies on imports to meet its growing demand for diesel. Figures presented to the conference showed a diesel shortfall in northwest Europe and the Mediterranean of 25 million tonnes this year, rising to 36 million tonnes by 2012.

Reliance, HDFC Bank launch virtual credit card

Imagine your mobile phone doubling up as your credit card. Reliance Communications and HDFC Bank have joined hands to offer virtual mobile credit cards in the country. Under the scheme, a Reliance mobile phone will get credit card functionality and the mobile number will act as the credit card number. “Initially, the service would allow card holders to make payments to merchant partners like Adlabs, Yatra and Billdesk, with the list to be expanded to other partners follwing the roll out,” Mahesh Prasad, president of the applications, solutions and content group at Reliance Communications said. For HDFC Bank, this will be an additional payment choice for customers who don’t want to disclose their credit card details online. “This is not an exclusive agreement. Over the next few months, we might tie up with more mobile companies as well for similar services,” said CN Ram, country head for IT, said. The service will come with a transaction passcode and there will be no financial liability to the user in the case of mobile phone theft. It could become a preferred way of making payment in future as it does away with the risks associated with carrying cards and revealing its details at merchant establishments.Security and convenience are two major benefits of the new facility, he said.Internationally, this technology was introduced only a couple of years ago and has been a great success in countries like South Korea, Japan and Philippines, Mr Prasad added.

Reliance Power asks shareholders to make balance payment

Anil Ambani Group company Reliance Power on Wednesday said it has asked shareholders to make balance payment by February 26 on shares alloted to them in the IPO to be eligible for bonus shares.

"The balance amount was due on allotment and a notice for the same has been sent to shareholders to make the balance payment on or before February 26," Reliance Power said in a filing to the Bombay Stock Exchange.

By issuing the notice, the company has complied with SEBI guidelines, and all shares have been made fully paid up, Reliance Power added.

Reliance Power's IPO had offered a discount to retail investors, and an option of staggered payment to all segments.

Fertilizer stocks soar at BSE on positive sentiment

Shares of fertiliser firms on Tuesday jumped up to five per cent at the BSE spurred by the release of Rs 3,610 crore worth bonds by the government and expectations on the price front from the Budget.

Shares of Nagarjuna Fertilisers were trading up by 3.6 per cent at Rs 54.65, while Chambal Fertilisers rose 3.1 per cent to Rs 63.25, Rashtriya Chemicals and Fertilisers was at Rs 86.50 (2.31 per cent up), National Fertilisers by 4.93 per cent at Rs 67.10 and GSFC at Rs 247 (3.07 per cent up) during the afternoon trade at the BSE.

The Government of India Special bonds, carrying 7.95 per cent coupon rate, is the second and final tranche of the total Rs 7,500 crore bonds which were announced in December last year to subsidise the companies which sell fertilisers below the cost of production.

The government had already issued bonds worth Rs 3,890 crore to 22 companies in December 2007.

The upward movement of fertiliser stocks at BSE is also being attributed by analysts to the market speculation that the government may fix the fertiliser prices at par with the global rates in the coming budget.

The mood is upbeat as the government had earlier announced it was thinking of bringing price parity in the fertiliser sector to attract investment, which has stopped for over 15 years despite 100 per cent FDI, an analyst with a leading brokerage firm said.

SMC Global Vice-President Rajesh Jain said the uptrend in fertiliser shares is due to positive expectations for the budget.

The Fertiliser Association of India has sought withdrawal of customs duty on fertiliser project imports, tax holiday for 15 years to all new projects after the budget and VAT exemption on fertiliser inputs.

Split end: Face value of Rs 1/share mooted

n a move that has significant ramifications on the capital markets, a Securities and Exchange Board of India panel has recommended that the face value of shares be made a uniform Re 1 in two phases.

In the first phase, said the primary market advisory committee of SEBI, all forthcoming IPOs be priced based on a mandatory Re 1 face value per share.

In the second phase, listed entities having shares with more than Re 1 face value be asked to bring it down to the uniform value.

A DNA Money analysis shows that 93 per cent or 2,783 out of 2,962 currently listed companies have share face values ranging between Rs 2 and Rs 100.

Such divergence makes it difficult for an investor to compare companies using a simple, common yardstick of share price or dividend paid.

But what happens in the case of a stock split?

"For a face value Re 1 share, an equivalent number of shares would have to be issued (a de facto bonus). This will augment liquidity. This has been done in the past and can be done in the future, too," said T V Raghunath, ED, investment banking, Kotak Mahindra Investment Banking.

Another banker with a US-based brokerage, who did not wish to be named due to compliance reasons, agrees since fractionalisation beyond Re 1 is not possible, companies can only improve on it. "So stock-splits would not be possible. Companies will be forced to issue bonus shares. We will move back to the old days when there was no concept of a stock-split."

He said the recommendation does not help the retail investor much because in IPOs, they act based on demand from qualified institutional buyers. "They are not savvy enough to do the earnings per share math," he said.

Deepak Jasani, head of retail research at HDFC Securities, said there is a positive rub-off, too: companies will not be able to play around by splitting the face value at regular intervals.

"On the negative side, investors will get attracted to the low price due to the small face value, irrespective of other considerations like price-earnings ratio, price to book value, dividend yield, etc. This is all the more applicable for new firms that are setting up large projects and have long gestation periods. If the suggestion is implemented, it could be misused by a lot of promoters," Jasani said.

Ambareesh Baliga, vice-president of Karvy Stock Broking, says the move also spawns a perception issue: "To many investors, Rs 10 shares trading below Rs 100 will start looking like penny stocks once the face value is reset. This will mean a major mindset-change will be needed for the serious investor," he said.

The panel recommendation would be discussed at the next SEBI Board meeting —- the first under the new chief C B Bhave.

But why Re 1?

Regulatory sources said the panel thinks bringing face values down for compliance is a better option than asking firms to raise it to a uniform Rs 10 or Rs 100.

"If it was kept Rs 10 then companies that have a face value below that number would have to hike it. No company has a face value below Re 1. So it was pegged at the base," the source said.

The proposal had been discussed for quite some time, but the final recommendation of has come just now. After being discussed at the SEBI board level, the recommendations would be put out as a draft for public comments before becoming the norm.

Hung Parliament verdict may affect rating:S&P

Standard & Poor's today said lack of clear mandate in the Lok Sabha elections (scheduled in 2009) may lead to protracted period of uncertainty and stall economic reforms.

Such a state of affairs (hung Parliament) could affect ratings on the sovereign (India), S&P said in report titled "Politics And Policy Environment: Credit Constraint For Many, Support For A Select Few In Asia-Pacific".

India’s rating now is "BBB-/stable/A3".

The current government's reform agenda is hindered by its minority position in the Parliament and by Prime Minister Dr. Manmohan Singh's lack of a political base and dependency on support from allies.

India's political landscape remains characterised by an entrenched bureaucracy, coalition politics, and a fragmented administration. Nevertheless, for a highly diverse country, India's political system is stable with significant power-sharing between the central and state governments, the report said.

The implementation of reforms in an effective and timely manner remains a key challenge. The vested interest of unions, public sector managers, and political parties has significant bearing on the working of the government.

The resistance to government's plans for privatisation and special economic zones underscore such challenges, S&P said.

Canara to tap broking biz;SBI to scale up ops

Recognising the potential in the broking space, state-run Canara Bank is mulling a foray in the sector while State Bank of India has plans to scale up its business manifold by next year.

Canara Bank, plans to foray into broking along with its wholly-owned broking subsidiary, Gilt Securities Trading Corporation.

Presently, SBI's services in broking is limited to online equity trading. However, the bank will shortly enrich its portfolio by enabling customer-access to mutual funds and IPOs, a company official said.

Kolkata-based United Bank is also understood to have zeroed in on leading broking firm IDBI Capital Markets as its partner from among a group of bidders, including Sharekhan. The official announcement is expected within a month, an official connected with the development told PTI.

"The deal is most likely to emerge in favour of IDBI Capital. The announcement may happen in March and operations would start in a few months time," the official said.

SBI started its broking operations in 2005 by partnering with Motilal Oswal and with its own subsidiary, SBI Cap Securities last year.

Presently, SBI has a minimal presence in the segment, having only around 20,000 customers, but plans to scale up its business manifold by 2009.

"We are aiming to be among the top three players in the next two years," a senior SBI official said.

L&T wins Rs 1250cr order from ONGC

Larsen & Toubro (L&T) has won a Rs 1,250 crore turnkey fast track project from Oil & Natural Gas Corporation (ONGC), India. This order reaffirms L&T's world class capabilities in the Oil & Gas sector.

According to a release issued by L&T to the BSE today, the company will have single point responsibility for the complete engineering, procurement, fabrication & installation of the of the offshore platforms.

'The project comprises building three smart well platforms, sub-sea interconnecting pipelines, sub-sea cables and topside modifications for the Mumbai High South field. It will involve 15,000 tonnes of topside and jackets, 58 KM sub-sea pipelines & 22 km sub-sea cables, in addition to many state of the art & modern facilities. It is to be completed by April 2009.', the release added.

L&T will carry out the engineering design at their subsidiary L&T Valdel in Bangalore, and fabrication will be carried out at L&T's world class shore-based manufacturing complex at Hazira near Surat, as well as at the company's modern large fabrication facility at Sohar in Oman.

This contract was won through a competitive bidding process against international competitors.

L&T has a strong track record of timely completion of similar projects for the upstream Oil & Gas sector.

R-Power mulls bonus shares

In an unprecedented move, Anil Ambani Group company Reliance Power will give free bonus shares to all its shareholders to compensate the losses they suffered when the company was listed a week ago.

"Reliance Power board will consider issuing free bonus shares to all shareholders excluding the promoters," a group spokesperson said.

On the day of its listing at Rs 547.80 a share, Reliance Power performed miserably at the stock exchanges and closed the day nearly 32% lower.

The IPO had attracted a total demand of about Rs 7,50,000 crore and the company had issued the shares at Rs 450 while giving a discount Rs 20 a share to retail investors.

A board meeting of Reliance Power would be held next Sunday, February 24, to consider issuance of free bonus shares, the company informed the stock exchanges today.

"From the time of opening of initial public offer of Reliance Power on January 15, the Sensex was down 13% while the Reliance Power stock was down 11% from the IPO price for retail investors, and 15% for other categories of investors," the company said in a statement.

The company said that the decline in share price has been compounded by "a vicious and orchestrated campaign of market manipulation and market abuse unleashed by rival corporate interests," it said.

The campaign was to hammer down all Reliance ADA group stocks in an attempt to undermine its fair name and reputation and cause losses to millions of genuine investors, the statement added.

Reliance Power has formally written to market regulator SEBI seeking an investigation into the same.