Finance and Investments

This post is intended to underscore reforms undertaken by Securities and Exchange Board of India (SEBI) and glimpse of the organization

SEBI, the country’s financial market watchdog, has to be responsive to the needs of three groups, which constitute the market:

• the issuers of securities
• the investors
• the market intermediaries.

Though SEBI has enormous power, there is an appeals process to create accountability. There is a Securities Appellate Tribunal (SAT) which is a three member tribunal where grievance can be filed against SEBI. A second appeal lies directly to the Supreme Court.

SEBI was headed by Mr Meleveetil Damodaran for a period of 3 years from 2005 to 2008 before which he had headed the IDBI Bank. He belongs to the Indian Administrative Service, Manipur-Tripura cadre. He has been succeeded as chairman of SEBI by Chandrashekhar Bhaskar Bhave.

C B Bhave who was appointed as chairman of (SEBI) in February 2008 was heading National Securities Depository Limited (NSDL). He was instrumental in setting up NSDL. He also served as independent director on board of two listed companies – PSU CMC (now part of the Tata group) and Avaya Global Connect. He is an electrical engineer and 1975 batch IAS officer.

As shown in the diagram above, Mr Damodaran has taken enough measures in secondry market to bring it to fairly efficient level. But primary market is still has a lot of scope for improvement and I believe that Mr bhave, during his tenure, will improve primary market considerably.

Notable reforms by SEBI

·      Quick movement towards making the markets paperless, Introduction of rolling settlement on T+2 basis 

·      Direct Market Access:  This reform relieved Foreign Institutional Investors (FII’s) from front running problem. Front running, which is rampant in the Indian stock market, happens when a trader profits from information of large institutional orders. He profits from the price spurt or fall that takes place due to an institution buying or selling in a stock.

In DMA, the broker’s infrastructure is bypassed. But the trade and settlement obligations and risk management compliance involving payment of margins and exposure limits — arising from the orders and trades in the DMA terminal will continue to apply to the broker. 

·      Refunds through Electronic Clearing Scheme:  Till recently, refunds in public issues were sent only through post/ registered post, which had time and cost implications for investors. SEBI has decided to extend the facility of electronic transfer of funds, viz, ECS to public issue refunds also. This will ensure faster and hassle free refunds to investors.

 ·     Introduction of optional grading of IPOs: SEBI Board has granted in principle approval for introduction of optional “grading” of public issues by unlisted companies by credit rating agencies registered with SEBI. IPO grading would not be mandatory. It would be solely at the option of the issuer company. SEBI will not certify the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of the concerned agency. The grading would be a one-time exercise and would only focus on assisting the investor particularly Retail Individual investors, in taking an informed investment decision.

·      Tightening of Corporate governance norms At least half of the members in the director board must be independent directors if the chairman is the executive director of the company and at least one-third should be independent, if the chairman is non-executive director.

 ·    Removal of entry load by mutual funds to investors who apply without intermediately.

·      Approval of seven new products in derivatives such as mini contracts, options in futures, longer dated options and currency futures and options.

·      Introduction of short selling and stock lending and borrowing for investors opting for short-term gains

·      Increase in the retail-quota in IPOs to 35 per cent from the earlier 25 per cent

·      Investors to receive interest till shares are allotted to them in IPO

·      Ceiling on expenses charged by index funds brought down, in order to encourage investors to look at low cost products

Recently, I came across an interesting research report on Knowledge process Outsourcing (KPO) from KPMG. The report focused on different aspects in Knowledge Process Outsourcing. Broadly, the report delved on the following points:

• Emergence of KPO industry especially financial services KPO
• Comparison of KPO with ITO and BPO industry
• Viability of KPO industry in different countries
• Teething problems faced by Indian KPO industry

The report also profiles few emerging KPO firms that participated in the survey.

Prominent findings of the research are as follows:

• Knowledge Process Outsourcing (KPO) enables clients to unlock their top-line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool.
• KPO is about “intellectual arbitrage”. This differentiates KPO from BPO, both of which emphasize cost arbitrage. KPO is characterized by niche offerings, highly skilled staff and a relatively small scale. It cuts into the traditional “core competencies” of many organizations.
• Knowledge processes are fundamentally different from business processes, with clear differences in process complexity, skill sets and scalability.
• There is a good mix of both third-party and captive structures in the KPO industry at present.
• Organizations with experience in outsourcing IT and business processes will likely have a shorter learning curve when entering into KPO.
• Decisions about outsourcing may be accelerated to preserve and increase competitive advantage.
• The KPO industry’s staff qualifications and skill-set requirements are significantly different from those of the BPO industry. This requires KPO providers to develop specialized recruitment and retention strategies.
• The location selection for KPO should take into account the nature of knowledge process work, skill sets, and supporting educational and certification organizations which are expected to produce a supply of talent in the selected location.
• India is currently the leading country providing KPO services. However, other countries have the potential to capture significant KPO market share, by better leveraging the depth and maturity of existing skill sets, and in some cases, their non-English language capabilities.
• Within the KPO industry, legal and compliance departments are currently under resourced and inadequately empowered. This has implications for managing insider trading, conflicts-of-interest, intellectual property and professional indemnity liabilities.

If interested in reading further, you can download the detailed report (1.5MB) from here or www.in.kpmg.com.

A link to report on “Scope of Financial research in India” can also be found here.

Lastly, if you want more information on Indian KPO industry, the job prospects and different companies in this sector, you can have a look at www.kprofessionals.com

The book “The Monk and the Riddle” written by Randy Komisar gives a good perspective of VC Industry. The book illustrates how deals are executed in VC industry and what makes a business plan attractive to VC’s. The book is interesting and the points in book are articulated effectively. In case you are looking for VC funding, this book may be very helpful. Few of the highlights from the book are listed below.

The Author stresses that VCs first and foremost invest in people. The composition and experience of the entrepreneur’s team are something VCs will look very consciously.

He states that VCs want to invest in potential leaders. As most markets eventually consolidate, only leading players make money. The business plan, thus, should promise that the company will “dominate” the market. If a prospect seeking VCs funding doesn’t think in these lines, VCs may think that there something wrong with his projections or his ambitions.

In the early days VCs used to put their skills to make their nvestment successful. Many VCs came from operating roles and could contribute to the business they funded. The total money they had to invest was trivial as per today’s standards, which means they could make only handful of investments annually, a manageable number that allowed them to bring their experience to each venture.

Today’s funds are huge in comparison and thus VCs need to invest huge capital in more companies to produce a return that attract investors. Thus they don’t have enough time to invest in the business they have funded.

VCs want to know three basic things.

• Is it a big market? (If you are slightly off target in a big market, you may still make it but off target in a small market means you are dead.)
• Can your product or service win over or defend a large share of that market?
• Can your team do the job?

More importantly, the book takes the reader into intricate philosophical questions. The author makes a point that money can’t be the soul purpose for the efforts and energy one puts into business. The passion inside the person makes him successful and one should pursue what he loves doing.

In Authors word “Don’t confuse drive and Passion. Drive pushes you forward. It’s a duty, an obligation. Passion pulls you. Only passion will get you through the tough times.”

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Some important questions to ask while starting a business:

Why are you staring the business at the first place?
Is there a purpose that will keep you going when the things look bleakest?
Does the business has something worthy of the immense time and energy that you will spend, even if it fails?
Will it change the way world operates?
Will it change people’s life in a meaningful way?
Who are you and how could you express that in your business?
How can you make a difference by starting the business?

Think about building a legacy company, a place you can be proud of, where people work hard, care about what they do and respect each other. Build a place you can believe in, in every way – what it does, what it stands for and how it works.

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Finally, About Deferred Life Plan as explained by the author which we should try to avoid but most of us follow , is as follows:

Become a Professional, build a career, establish yourself and be successful. Then you can do what you want to do.

Rules of Deferred Life Plan

Rule One: Do what you should do
Rule Two: Do what you wanted to do.

In Deferred Life plan, you postpone risking what matters most to you; that happens later, if it happens at all.

The author makes strong point to pursue your passions rather than the deferred life plan.

You can also see another review of the book at this Website.

I am writing this post to enlighten beginners about NCFM Certifications. NSE’s certification in financial markets commonly known as NCFM Certifications is the first step towards the ladder of financial world. The purpose of these certifications is to create awareness among the finance professionals about Indian Financial Markets.

There are 16 separate modules in NCFM, most of which are fairly easy to clear and that’s why few people call them kinder garden certifications. But remember, to reach the 10^th step of a ladder, you need to clear first nine. Clearing these certifications not only increases your knowledge about financial world but also shows your commitment to build career in financial markets.

Please Note : Clearing these  certificates dont guarantee you a job but do make your Job application stronger than other candidates.

Among all the modules I think NSDL Module needs serious preparation. That’s because it deals with many new concepts like stock lending and borrowing, intermediately account, back end processes, dematerialization and Rematerialization etc. More importantly NSDL Module deals with the process flows during different transactions.

The fees of most of the modules vary from Rs 500 to Rs 1500 and validity of the certificates varies from 3 years to 5 years. The exam date can be taken through NSE Website and the process is quite easy. Most of the modules need preparation of 8 to 14 hours. Once you register for the exam, the study material is sent to you at the prescribed address. Alternatives you can download study material from NSE Website. The Study Material online is exactly the same you will get via post. You can also call NCFM Helpline(02226598216) for further enquries.

I hope this post will help guys planing to take NCFM certifications in future. In case of any queries you can write to me at amit2.saxena@gmail.com and I will be happy to answer them.

To make better use of my time and to pursue my hobby, I have decided to start Tax Advisory Services. The objective of the service is to enable people to take informative decisions for future financial planing. As it is my hobby and not business, it is free of cost.

I think I can find enough time out of my job and advice people and that I will enjoy this part time hobby.

All you have to do is to mail me your Gross Compensation Letter and Pay Slip. Once I have gone through them we can discuss how to plan tax savings depending on your financial objectives and risk profile.

Interested people can write to me at amit2.saxena@gmail.com and call me at 9916912663 (preferably, between 7 PM to 9PM)

The Bombay Stock Exchange (BSE), India’s leading stock exchange, has classified Equity scripts into categories A, B1, B2, S, T, TS, & Z to provide a guidance to the investors. The classification is on the basis of several factors like market capitalization, trading volumes and numbers, track records, profits, dividends, shareholding patterns, and some qualitative aspects.

As on February 2008 following criterion are used for classifying stocks into various categories by the Bombay Stock Exchange (BSE).

Group A:

It is the most tracked class of scripts consisting of about 200 scripts. Market capitalization is one key factor in deciding which scrip should be classified in Group A.

At present there are 216 companies in the A group.

Group S:

“The Exchange has introduced a new segment named “BSE Indonext” w.e.f. January 7, 2005. The “S” Group represents scripts forming part of the “BSE-Indonext” segment. “S” group consists of scripts from “B1” & “B2” group on BSE and companies exclusively listed on regional stock exchanges having capital of 3 crores to 30 crores. All trades in this segment are done through BOLT system under S group.”

Group Z:

“The ‘Z’ group was introduced by the Exchange in July 1999 and includes the companies which have failed to comply with the listing requirements of the Exchange and/or have failed to resolve investor complaints or have not made the required arrangements with both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for dematerialization of their securities.”

Group B1 & B2:

All companies not included in group ‘A’, ‘S’ or ‘Z’ are clubbed under this category. B1 is ranked higher than B2.

B1 and B2 groups will be merged as a single Group B effective from March 2008.

Group T:

“It consists of scripts which are traded on trade to trade basis.”

Group TS:

“The “TS” Group consists of scripts in the “BSE-Indonext” segments which are settled on a trade to trade basis as a surveillance measure.”

Besides these equity groups there are two other groups i.e. Fixed Income Securities (Group F) and Government Securities (Group G).

For more details please visit the source: http://www.bseindia.com/about/tradnset.asp

Article Taken from http://finmanac.blogspot.com/