Wednesday, July 27, 2016

May I dare ask a question?

"My father was a great innovator in public life, but when it came to raising his daughters, no one could have been more conservative."
—Rose Kennedy (American, 1890-1995)
Word for the day
Doctrinaire (adj)
Merely theoretical; impractical, Rigid
Malice towards none
ISRO loses the arbitration case relating to the cancellation of Antrix - Devas deal.
The government might have to shell out $672mn as compensation to Devas Multimedia.
List key learning from the fiasco.
First random thought this morning
GST will happen, monsoon session or the winter session or next year. The cobbler sitting at the corner of my street knows it. So what's the deal.
Do you seriously believe that market is still so inefficient that it has still not factored the cost and benefit of this tax regime change?

May I dare ask a question?

Last Friday 2,00,134 shares of Force Motors Limited were traded on BSE. Though not alarming, this volume was significantly higher as compared to the average daily volume of past few months. However on monthly basis the stock of the company has witnessed below average volumes (month till date).
In a commendable show of alertness, BSE asked the company to explain this spurt in the volume and if there is any development at the company that the market should know.
As per media reports last weekend (see here), "The Finance Ministry has directed all profit making PSUs to use their surplus cash to buy back shares and pay handsome dividend, besides considering issuing bonus shares or going for stock split."
As reported, "The Department of Investment and Public Asset Management (DIPAM) in a recent letter to Central Public Sector Enterprises (CPSEs) has asked them to pay dividend at the rate of 30 per cent of net profit or 5 per cent of the networth, whichever is higher." The said letter has purportedly asked the CPSEs "to consider share split if the book value of their shares exceeds 50 times their face value."
Instinctively I believe that the idea behind this directive is to help the government meet its fiscal goals; though the stated objective reportedly is to "encourage participation of small investors in capital markets". as "High price of shares sometimes act as a deterrent for investors to invest in the company and CPSEs needs to decide, from time to time, the option of splitting shares".
I could not find the said letter in public domain (so much for the committed transparency!). On the basis of whatever is reported in the media, I must say that this move raises a number of questions of the propriety, competence and intent. For example, consider the following-
(a)   The people who do not understand the simple basics of equity investment and markets have put in charge of managing enterprises worth trillions.
       Someone may please explain how a stock split or bonus per se increases the value of shareholders. The trading unit of all companies is just one share. Anyone with Rs.15,000 in his purse could buy one share each of 61 listed PSEs which are part of BSE PSU Index. I fail to understand, why a lower price per share would attract more investors.
(b)   Why the exchanges who are prompt enough to ask companies to explain the jump in the daily traded volumes of their listed equity, did not bother to ask these CPSEs, whose shares have seen quantum jump in price and volumes recently. "Why this policy decision was not promptly reported to the exchanges and the minority shareholders, as per the listing guidelines?"
(c)           Since the share prices and traded volumes of PSU stock has definitely seen unusual movements in past few months, Should the market regulator not investigate, like it does in other cases, whether there is any violation of the regulations relating to insider trading, market manipulation or unlawful activities?

No comments:

Post a Comment