banks and IPO's

The Reserve bank of India has fined seven banks for their role in the allotment of shares in the initial public offerings by firms. While the move is belated, it needs to be welcomed for taking note of investor concerns and norms already in the books of these banks. It is a good move for ensuring long term stability of the stock markets.
In a recent case, just a handful of individuals managed to open 14000 demeterialsed accounts and route them to corner a large share of the offering of a public issue from the Infrastructure development finance corporation. There was a lot of concern expressed at the fact that the regulator did not act in time to avoid such manipulation.
While the fine in itself is not a very big amount, ranging from Rs five to twenty lakhs, it does harm a banks reputation and sends a strong message. Banking norms will ensure that the banks that have been fined will have to mention the penalty in their annual report thus denting their credibility.
The action also brings into focus the myth of the small investor. It appears that a large part of the small investors are in fact punters shopping to get shares at a discount price just too offload it at the earliest opportunity for a profit. While there is nothing intrinsically wrong with such a move, it is important to underline that these are not hapless small individuals that they are often made out to be but speculators.
Speculators do not deserve special treatment.
The Indian markets need a vigilant regulator and restoring the confidence in the purchasing of shares in initial public offerings is a critical step if the dream run of the Sensex is to be sustained and taken forward. Unlike many foreign markets, the Indian bourses have been so far powered by domestic and foreign institutional investors. If the faith of the domestic investor is restored in the stock markets the Sensex can easily go to greater heights. The penalty will go a long way in curbing the speculative instincts of a section of the players in the bull market who try to coroner a large share of the initial public offerings. The fine on the banks is an important though symbolic step in ensuring that banking norms are followed and market speculation curbed.

mills update bombay

Mills to develop into a new city center @ parel

The Supreme Court verdict, allowing unfettered development of mill lands brings to a close a bitterly fought struggle between the green lobby and the builders combine. The agenda is now set for commercial and residential development of 600 acres of land spread over sixty textile mills in Parel and laubaug in central Mumbai. .The decision will make 4 million square feet of developed land available in Mumbai within two years.
Fears have been expressed that the new development may at best stabilize the price of commercial space in Mumbai - but may not bring it down by much. The DLF group has proposed the development of a one million square feet mega mall on the NCT land it bought while India bulls –the group that successfully bid for two mills - is to redevelop for commercial space.
This leaves very little new property for residential purposes. The average bidding price for mill lands at the auctions was Rs. 15,000 per square feet. The price will naturally be much higher once development and marketing costs are factored by the builders. The residential property on offer given is unlikely to be within the reach of the middle class. What it may do however, is to take the price pressure off the better properties in the suburbs - and bring a general ceiling to land prices rising in the near future.
This may be just what Mumbai needed given that it will slow a sudden downturn in price. The deal may deflate the price bubble and reduce the chances of a burst..
For the greens the court order is a blow. They had hoped for 400 acres of green space from the mill land redevelopment scheme. However, with the Supreme Court upholding the the amendment in 2001, that changed the availability of free land these hopes have been dashed. The city will end up getting only about 60 across of green land in the new deal. This is bad news or Mumbai, by contrast Lodi Gardens, just one of the open spaces in Delhi is over 100 acres in spread. The order means that Mumbai landscape in terms of gardens walks and such like - that are a given in all the other great cities of the world is unlikely to change much. The ration of open space per thousand person is .003 acres in Mumbai and that is likely to remain unchanged.While the greens may have lost this immediate battle, they will do well to fight on. The docklands – the size of 60 Nariman points are likely to come up for redevelopment at some stage in the future an active campaign could yet help develop a green lung for the city.

cut indian subsidies

Nectar in a sieve
The Prime Minister’s assertion that subsidies provided by the government of India do not reach the poor and are counter productive for their well being are a welcome sign for any cardiologist watching his political heartbeat. Apparently there is a stubborn reassertion of the reform spirit in his cardiogram. Perhaps the fact that the lecture was delivered at the institute of economic growth in the environs where the professor Prime Minister feels at home was something to do with his reform self resurfacing. As any sensible student of economics knows, in a pork barrel economy like India where pubic policy is hostage to the whims of clan oriented priorities, economic subsidies are dead on arrival.
Coming from the Prime Minister such candor is welcome. The Prime Minister has been candid and has admitted to, even with an election looming, a crisis in governance. The fact is that in any sphere from public distribution system to fertilizers to primary education and onto public health the deliverables on the money invested in subsidies are in terrible shape. The poor are being denied their due by an entrenched system of government functionaries and political patrons. The working of the Indian administrative services, the state and local level counterparts is nothing less than scandalous in its inability to deliver projected results. The reason for this is not far to seek when you allow the state to allocate who should get what - as apart from letting the market distribute the same, discrepancies are inevitable.
The flagship public distribution system is the real culprit. It leaks like a sieve. It has a pronounced urban bias and despite spending billions of dollars a year on the subsidy the Government does not give social return. The story is repeated across the subsidy domain.
The prime ministers statement should be a wake up call. Alas it is unlikely to be anything but rhetoric. As a background one may consider an earlier promise in August during the Independence Day speech where the PM promised an increase of $6 billion in agricultural sector spending. Without a serious re look at the governance issues and delivery problems involved with public policy subsidies in India the coming budget may remain more of the same. That would be a pity for his reform legacy and a tragedy for the Indian poor. .

the volatility index

The decision by the Security and exchange board of India to introduce the volatility index will add depth to the futures and options market in the country. Such an index already exists on the NYSE as well as the LSE, where it is called VOX. With this index an investor can have data that helps him gauge future price movements on the basis of advanced computer based simulations that try and predict price instability.
While the index will not make risk disappear all together, and neither will volatility vanish, it will make indexing volatile changes in stock process that much easier. The index will lead to three major benefits for investors. In the first will be the information advantage that will come form a complex supercomputer based mechanism that will provide a road map for future pricing and thus introduce new and more transparent derivative products. The second gain form such an index will be in that it will allow for inventors to gauge implied volatility - that is by what measures are prices likely to move in the future based on current and historic trends. Lastly the retail investor who has been largely ambivalent about entering the futures and options market will be encouraged by more information that such an exchange will provide. Thus a larger base on investor will now be able to enter the futures and options mart.

The index is the perfect tool for the Indian markets. There are several factors likely to introduce future pricing uncertainty. These include the monsoons, the impact and depth of a recession in the US the rise of the rupee and policy changes in certain sectors such as telecom and retail. Not all of these will be covered by their index but a substantial measure of information driven decision-making can ome form the factors that are included in the index.
As for the actual adoption of the index, there are two principal options one is to adopt the VOXC which is already in use abroad, the second is to go in for the measure that, according to media reports, has been developed by the national institute of industrial engineering.With Indian stock market at record high and the expectations of growth continuing the added measure to gauge volatility will help investor confidence. A better-informed investor is always likely to take greater stakes in the market and thus the measure bodes well for the growth of the Indian investor community.

Mumbai needs to be more cosmo not less

Bombay needs Cosmo character
Mumbai has many attractions that work as a magnet for investors. It has a tradition of commerce, a deep-sea port, a vibrant stock market and most of all a hardworking workforce and a cosmopolitan culture. These values have combined to make it a financial powerhouse with a majority of Indian and multi national firms headquartered in the island city.
The cosmopolitan culture of the city though is under fresh attack. Like its ramshackle infrastructure, cosmopolitan Mumbai is degrading by the day. The latest assault comes from a politician known for his strident chauvinistic line.
The controversy started with Raj thackery’s comments on film star Amithabh Bachchan questioning his credentials as a true citizen of the city just because he was the brand ambassador of another state - Utter Pradesh.
He also questioned the right of religious festivities observed by migrant labors from uttar Pradesh and Bihar. His followers bashed up people of these states at a political rally the next day for good measure.
While it is true that there has been a slow and continues process of ghettoizing of Mumbai since the 1970’s, when Shiv Sena a party pioneered pandering to lower middle class Marathi chauvinism with attacks on Gujratis and South Indians of the city. The Mumbai riots in the 80’s further ghettoized the city. Even earlier during British times Mumbai was neatly divided among communal lines with different clubs and residents for different communities leading to an ethnic separation. However the difference between that time and now is that Mumbai's people worked and co existed as one.
If Mumbai is to remain the financial center and commercial capital of India this slide in communal harmony and cosmopolitan way of life needs to been arrested immediately.
In a global world the Indian state often needs to take a stand when Indian minorities are harassed overseas. Most recently this happened in Malaysia and Kenya. Ethnic Indians also face visa discrimination in the UK. A country can hardly take a stand on such issues if at home its own people are treated as outsiders with impunity. It is for the center to take a stand put an end to this dangerous trend of rule by the mob. Capital flees ghettos and embraces stability this is a lesson Mumbai knows well. Not to arrest this slide now will tantamount to killing the proverbial goose that lays the golden eggs