Mamata L5 P1 Sahara and NSEL

8/12/2019 Mamata L5 P1 Sahara and NSEL

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Sharemarket basics1. Debt vs Equity

2. OFCD3. How is SENSEX

calculated?4. Types of companies:

public ltd, pvt.ltd,PSU

Corporate scams:1. Sahara, NSEL, MCX,

Bhave CBI PE?2. regulatory sector-

reforms?

Corporate Tax1. Vodafone CGT

Transfer pricinNetherland BIPDTC, GAAR?

2. Nokia Royalty

India Finland DMicrosoft Deal

Todays Topics


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Share Market Basics


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Debt

Rs. 1000 @8%; 10 years Fixed income;Irrespective of profit

Bonds, debentures, loan,

ECB Creditor to company

First claim duringliquidation

Equity

Securities: Debt vs Equity


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Equity

*** % of shares 100%

Dividend from p

IPO, Shares, VC

Angel Investor Ownership Last claim durinliquidation



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Debt =Interest Equity = Divid


Slowdown Boom


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Optionally fully-convertible debentu(OFCD)

OFCD

Debenture Shares


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Company (Maalik)

Interest Paymentx Only profit share

No profit= no dividend

Higher profit=> Bdividend

Investor (Jun

OFCDDebenture Shares (E


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Debenture holders of a company ar

A.ShareholdersB.Directors

C.Debtors

D.Creditors

UPSC 2003

Right answer

1. Skip 2. Attempt 3. Mark n Rev


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SENSEX calculation?


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SENSEX calculation: 1979

30k with

Mallya

70k with

public


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Free float Market cap(FFMC)

=Price of each share xtotal # of shares withpublic.

=10 x 70,000

=7,00,000 Rs. (1stJan1986)

Shares with public (1986)


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Bull

Hopes that prices willrise,

Hence purchases.

Fears that pricesfall,

Hence sells.

Bear

Types of investors


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Free float Market cap(FFMC)

=Price of each share xtotal # of shares withpublic.

=2000 x 70,000

=14,00,00,000 Rs.(2014)

=14 crore. (2014)

Shares with public (2014)

BSE SENSEX F l


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(FFMC @Present / @base year) x 100

(@2014 /@1986) x 100

(14 Crore/ 7 lakh) x 100

20,000 = SENSEX

In real SENSEX: total FFMC of thirty

companies.

BSE-SENSEX Formula

BSE 30 i


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1. Axis Bank

2. Bajaj Auto

3. Bharat Heavy Electricals

4. Bharti Airtel5. Cipla

6. Coal India

7. Dr.Reddy's Laboratories

8. GAIL (India)

9. HDFC Bank

10. Hero MotoCorp

11. Hindalco Industries

12. Hindustan Unilever

13. HDFC

14. ICICI Bank

15. Infosys

1. ITC

2. Larsen & Toubro

3. Mahindra and Mahindra

4. Maruti Suzuki India5. NTPC

6. ONGC

7. Reliance Industries

8. Sesa Goa

9. State Bank of India

10. Sun Pharmaceutical Ind

11. Tata Consultancy Servic

12. Tata Motors

13. Tata Power Company

14. Tata Steel

15. Wipro

BSE-30 companies

BSE SENSEX F l


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Sensex =Sensitive + Index.

ASIA oldest: Bombay Stock Exchange(1875)

Worlds Oldest: Amsterdam Stock exch(1602) Netherlands

BSE-SENSEX Formula

D t i li ti DEMAT


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Paper share

delivery problem.

Fear of theft.

Transfer delay

Dematerialization (mid-90s)

Dematerialization: DEMAT

D t S t


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CSDL

NSDL

Depository

SBI

HDFC

ICICI

Dep.

Participant You

Cus

Demat System

Financial

inclusion

#PAN#DEMAT

T f i


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Company

Public Ltd

7-unlimiteMin.paidup 5

Private lt

2-50

1 lakh

Types of companies

Types of companies


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Company

Public Ltd.

Li

Vodafo

Un

NokPrivate ltd.

Types of companies

Public ltd Companies: Listed vs Unli


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Listed

Shares, IPO, Bonds,Debentures traded@Stock Exchange

Public offer/Issue=>SEBI

Offer OPEN Equity (IPO)=> 15-30days

Debt (Bond/OFCD)=> 3-10 days

Private offer (2=>Corporate Aff

SC: >50investors=>Pub

=> SEBI.

unlisted

Public ltd. Companies: Listed vs Unli

Infosys


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Infosys

Holding Vs Subsidiary


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Reliance

industries Ltd(Holding)

Delight protein

Ltd. (Subsidiary)

Gujarat Urja VNigam Ltd. (GU

(earstwhile GEGujarat StateElectricityCorporation Lim

(subsidiary)=>GNR, Kadana,Dhuvaran therplants

Holding Vs Subsidiary

PSU = RTI applies


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Governmentcompanies

ONGC, SAIL, Coal Indialtd.

Registered underCompanies Act

Government owns >50%

shares Majority BoD.

Employees Not publicGovt.

CAG appointed pvt.

auditors

LIC, Air India, IDBAct of Parliament /

Legislature

Wholly financed byGovernment

all BoD. Employees Not pu

Govt.

Directly by CAG (sexception)

Public Corpor

PSU = RTI applies

Dept undertaking =NOT PSU


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commercial activity such as engineering,manufacturing etc.

directly controlled by the government, jusany other department

Indian Railways, postal Department.not registered as companies under thecompanies act

Employees = Government servantDirectly CAGRTI applies.

Dept.undertaking =NOT PSU


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SEBI SaharaOFCD

2008-11: Game begins


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Sahara Housing Investment Corporatio(unlisted)

Sahara India Real Estate Corporation(unlisted)

Issue OFCDfor more than TWO Yea

10 days)>2 crore people (50 people)

>24,000 crores

2008-11: Game begins

Case begins


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SEBI (2011)

Stop OFCD Refund $$ + 15% interest Give proof of Refund Untraceable Account=>Govt.

SAT (2011)

Upheld SEBI order

SC (2012)

Upheld SEBI order

SAHARA

- Only refunded ~

- Refused to give (TRUCK)

- contempt

Case begins

Arguments


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SEBI act: All CIS,Except

1. Nidhi2. Chit Funds

3. Co-operatives

SAHARA argum

Unlisted compan

Under Corp. Affa

SEBI= only liste

Need time to Re

Arguments

MONEY LAUNDERING


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MONEY LAUNDERING

Before KYC norms (


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Before KYC norms (

2002 KYC


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REFUND??Untraceable

Only 5000 cr.

=to Govt.

SEBI Ordinance


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2013=> March 2014

Raid, attach,

Arrest for non-compliance

Fund gathered >100 Cr. = under SEBIinvestors, CIS

Fast track court, info.-exchange with foagencies

SEBI Ordinance

SEBI: a Brief History


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1992: Securities and Exchange board India (Statutory Body)

1999: Amendment- CIS brought under(Except Nidhi, Chit fund a and coopera2002: powers of search and seizure.2005: Patil Committee

SEBI = corporate bondRBI = Repo and Reverse repo(Government securities)

SEBI: a Brief History

cards


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PAN card

PAN: 10 digitalphanumeric number

By Income Taxdepartment

12 digit unique n By UniqueIdentification Auof India (UIDAI)

UID numbe

ca ds

cards


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PAN card

All residents Doesnt change withaddress

Same.

UID numbe

cards


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PAN card

No minimum /maximum age limit.

No biometric dataexcept photo.

~Rs100 fees

Less 3 years=>biometric infoX

Eye, photo, finge

No fees.

UID numbe

cards


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PAN card

individual, firm, jointventure

all residents and NRI

Only individual all residents and

UID numbe


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NSEL Crisis

1. What is commodity trading?

2. Why NSEL Crisis?

3. Steps taken?

4. Long term solution?

Commodity Market


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1. METAL: Aluminum, gold, silver

2. AGRI: castor seeds, cotton, wheat, basm

jeera3. ENERGY: Oil, coal

y


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2 Month Rent: Rs. 200

LOAN

T+1 = Rs. 1000/Qt.


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T+35 = Rs. 1800/Qt.

T+35 = Rs. 1800/Qt.


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2 Month Rent: Rs. 200Broker

Investors

Collateral / GuaranteeT+35 ; T+45


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2 Month Rent: Rs. 200Broker

Investors

Profit

Collateral / Guarantee


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Broker

Investors

Profit

2Govt.

T+20

E-series


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Dematerialized form

Broker => warehouse receipt =>Contra

BrokerageNSEL commission: 2,000 Cr (2009) =lakh Cr. (2013)

July 2013


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Broker

Investors

Profit

FM

T+

Inflation, i

Crisis beings: July 2013


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FMC orders T+10

NSEL directed all brokers / investors to set

T+10 Brokers: Motilal Oswal, Indian Infoline => Rcrore.

>Rs.5000 crore contracts

>15000 Investors

Crisis : August 2013


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NSEL: weekly settlement of dues

Will auction from warehouses

Weekly Rs.100 Cr. (Auction) Total 5600 Cr.

Not enough stock, fake receipt

Steps Taken


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Government banned E-series system

FMC investigation

Arvind Mayaram Panel (PM) FMC (Consumer Affairs)=> Finance Ministr

IT Dept. => NSEL allied companies

Reforms necessary?


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FMC => give more teeth

Hand over to SEBI

CBI PE against Bhave


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CBI PE against BhaveMCX-SX

Jignesh Shah


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FTIL

NSEL

Commodity Exchange

NAFED

License

2008

MCX-S

Stock Exch

Currency

CBI Preliminary inquiry (PE)


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CB Bhave (2008-13) SEBI Chairman

KM Abraham: SEBI board member

2007: Jignesh Shah IT raid (MCX, FTI2008: Jignesh Shah (FTIL) applies for SX license (SEBI)

Finance ministry 2SEBIdont untilinvestigation over

August 08: Bhave (SEBI) gives license

Fit and Prop


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FIT and Proper


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SEBI

Insolvent Not Convicted

Character- reputation

.

IT Raid = Not Fproper

Jignesh Shah / MSX..dont.

CBI

1 NSE dominant pla er in C rrenc DerCB BhavesDefense


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1. NSE dominant player in Currency Der.2. BSE unable to compete3. Needed competition4. Wrote letter to IT about Status5. IT replied: no merit in case.6. SEBI legal team: no conviction7. NSEL crisis @FMC8. MCX-SX running separately.9. Character certi. From Vinod Rai, GK Pill10.PE inquiry should not be released in me

Future of MCX-SX?


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(FMC order): Jignesh +FTIL not fit & proper

to run any exchange SEBI ordered FTIL tosell shares of MCX-SX

SEBI can cancel

license.


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After thoughtsSEBI-Sahara-OFCD

NSEL Crisis

Delays


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Banking Finance SEBI) Insurance IRDA)

In house SCORES InhouseB.Om SEBI I.Om

Consumer

courtSAT

Consumer

court

C

Court Supreme court Court

6 i l t

Lack of coordination


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6 primary regulators

RBI, SEBI, IRDA, PFRDA, EPFO, and

NABARD, SIDBI, NHB are also involveregulation

6 Central ministries + State Govt.

Consumer courts also involved.Lack of coordination, loopholes

S C ( ) 11 13Nachiket Mor (R

Regulatory Reforms: Committees


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FSLRC (FinMin) 11-13Nachiket Mor (R

14

FSLRC: Present vs Future AgencieRBI


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RBIRBI

Debt Mgmt

SEBI

FMC

IRDA

PFRDA

UFA

SAT FSAT

FRA

Financial Redress Agenc (FRA)

Nachiket


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Financial Redress Agency (FRA)

For all six regulator RBI, SEBI, IRDA,

PFRDA, EPFO, and FMCFRA: not an individual

Board of directors

Powers of Consumer courtsSimilar body @State level:

MFI-NGO, Chit-fund, Local moneylend

Customer complaints against bank

Banking ombudsman


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Customer complaints against bank

From UK => India 1995

RBIs general managers => 3 years =>reappointment

Except J&K

Jurisdiction of BO?


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Loan giving

Only

upt

A

GuD

H

(B

1 Saradha Chitfund scam?Assignment


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1. Saradha Chitfund scam?2. Gujarat (Abhay Gandhi, Zahir Rana, As

Jadeda)? [Fin.inclusion, education?]

3. Jignesh Shah=> Ketan Parekh, HarshaMehta4. what lessons we learnt from these crisi5. what steps should be taken to avoid re

of such crisis in the future?6. Do you existing Indian laws and regula

are capable enough of handling such cthe future?

7. FMC should be merged with SEBI?

Mamata L5 P1 Sahara and NSEL

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