June 19, 2000

The NAV game

The US authorities, last week, unearthed what is billed as the biggest ever Internet trading fraud which revealed the involvement of the mafia in rigging up share prices. In India, the mafia probably finds the drugs, extortion and hawala far safer than volatile stock prices, but price rigging is as rampant and brazen in the Indian markets as well. In the last couple of weeks, the prices of some specific scrips have shot up dramatically and a few have doubled with no real change in fundamentals. Coincidentally, these stocks happen to have been dumped by operators on a large mutual fund at probably their highest rates in the past 12 months. There is now a compelling need for the stock prices to be quoted high enough to prop up the NAV of this fund, if not the red faces will extend all the way from Mumbai to Delhi. Is it any surprise then that the ‘‘tight monitoring’’ of the clear price rigging is so lax and the regulators prefer to look the other way? In less than a fortnight, it will no longer be necessary for the NAV to be high or the regulator to play dumb. Investors may then see a flurry of regulatory action or dip in prices.

Reduced pulse rates

The Mahanagar Telephone Nigam Ltd (MTNL) has finally decided to increase the pulse rate for telephone calls connecting up to the Internet. The move is welcome, but far from adequate. Firstly, MTNL has been dragging its feet for over a year before increasing the pulse rate to four minutes and then to five minutes a little later. To make Net access reasonable, the pulse rate ought to be increased to at least 10 minutes. It will slowly increase the pulse rate, in line with competition from cable operators and that too only when they have their infrastructure in place and begin to pose a serious threat. Incidentally, it is interesting that some Internet Service Providers should threaten to take MTNL to court if access rates are not the same for everybody. If ISPs were truly concerned about spreading the use of the Internet, they ought to have joined up with telephone user groups who have been lobbying with the Telecom Regulatory Authority of India and MTNL to increase the pulse rate for Net charges.

Another Tata preferential Remember the Tata decision to get out of ACC? The Tatas are committed to sell their 14.5 per cent stake to Gujarat Ambuja Cement at Rs 370 when the market price remains barely above Rs 100. Tata sources had justified their decision to divest saying that since financial institutions (FIs) had refused to support a preferential issue to shore up their holding. It is no wonder then that group chairman Ratan Tata denied any plans to approach FIs who are substantial holders in the power companies with a preferential offer for the Tata stake. But the denial of the preferential issue too is interesting. The Tatas admit that their holding will drop after the merger and they would need to shore it up. The creeping acquisition route and ‘‘other means’’ will be their path, but that does not necessarily rule out a preferential issue. It may only mean that the Tatas will tread carefully and gauge the FIs attitude before making an announcement. After all, it is difficult to believe that two newspapers would have the same information and neither of them would have sourced it from the business house.

NPA standards

In the same week that the Finance Ministry ordered a crack down on loan defaulters including attachment of properties, financial institutions were busy clearing new loans and interest waivers to one particularly beleaguered industry group. After all the deadline for getting tough is October 1, and it gives plenty of time to the FIs to be soft until then. The FIs may have asked the Lloyd Steel group to pledge their holding and threatened to force a change in management if the company does not perform, but this clearly is not going to be the norm for others. A week ago they cleared a hefty Rs 1,154 crore to one group alone to support a power project, shipping terminal and an oil refinery. Now that the FIs have been empowered to crack the whip, it remains to be seen if they turn tough or continue to whine about lack of powers while they bail out non-performing companies.

 

Updated weekly.

The author's e-mail address is: suchetadalal@yahoo.com

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