March 29, 2017

SEBI's own financial statement

A story I did last week, in the organisation I work for currently, on India's stock market regulator SEBI's own financial statement for 2015-16 (Apr-Mar) which the regulator released last week, almost a year after the 2015-16 financial year got over. It has taken SEBI almost 25 years to make its own financials public.

SEBI 2015-16 annual accounts show 52% YoY rise in total expenditure
Mar 23, 2017
    NEW DELHI - The capital markets regulator, Securities and Exchange Board of India, spent 2.64 bln as staff costs in financial year 2015-16 (Apr-Mar), up 67% on year, while administrative expenses rose 32% on year to 778 mln rupees.
    This was revealed today in SEBI's annual accounts for 2015-16 which was made public by the regulatory body today on its website.
    SEBI's total expenditure stood at 3.74 bln rupees, up 52% on year, while its total income was 6.02 bln rupees in 2015-16, up 17% on year.
    Staff costs were termed as establishment expenses by SEBI in its annual accounts and nearly three-fourth of it was through salaries and wages with remaining being allowances, bonuses, and other expenses.
    The regulator makes most of its money from the intermediaries and other entities it regulates in the securities market. In 2015-16 (Apr-Mar) it collected fees and subscriptions from the regulated entities to the tune of 3.91 bln rupees, up 21% on year.
    SEBI also earned income from investing its accumulated cash reserves which is kept in a general fund account. Its income from investments, which were predominantly in bank deposits, was 1.86 bln rupees in 2015-16, up 9% on year.
    Interestingly, the highest fee collection by SEBI is from equity derivatives segment brokers of the stock exchanges. SEBI collected 786 mln rupees from them in 2015-16, 11% more than the year ago period. Fees for offer documents filed by companies and mutual funds amounted to 730 mln rupees in 2015-16, down 2.5% on year.
    Registration, annual, renewal and other charged by SEBI to foreign portfolio investors and their sub-accounts amounted to 609 mln rupees in 2015-16, up 40% on year.
    Among other intermediaries, SEBI collected 342 mln rupees from cash market segment brokers of stock exchanges in 2015-16, up 6% on year, while it got 339 mln rupees worth of takeover fees from companies which was 24% lower than the year ago figure.
    After transferring the excess of income over expenditure to it, the general fund account of SEBI had 28.22 bln rupees on Mar 31, up from 24.58 bln rupees a year ago.  End.

March 13, 2017

Paper trail needed to deter manipulation of electronic voting machines

It is a no-brainer that a vital thing in a Democracy like an Election should be as much as fool-proof as possible.

So, if you have electronic voting machines being used in an Election, you must have the system give a small printout to the voter which will give him/her the vote he/she cast and another printout must be kept with the electoral office.

In case of recounting of electronic votes, the votes in the paper printouts have to tally with the electronic votes.

It is not enough for the Election Commission, the authority which conducts the elections, to ensure that EVMs are physically secured after voting. It is equally important that remote control of EVMs is eliminated and one of the ways to esnure this is for the Election Commission to make public on its website the details of the manufacturer and maintenance company of EVMs. The Election Commission should also employ techies to monitor whether EVMs are being remotely controlled before an election and between an election date and the election results date.

In a blog post in 8 years ago in April 2009, I had highlighted the issues surrounding the EVMs. In that post,, I wrote "One quick thought on the election process. The last 2-3 elections has been through electronic voting machines. Today, for instance, I pressed the button against Kalyan Galphade's name and that was that. My vote was cast. Now, all this is cool. But it only makes it convenient for a voter to cast his/her vote. What about safety against rigging?
We saw how Bush and his team rigged the electronic machines in some states in the US presidential elections of 2000 and 2004. The same thing can happen in India...To prevent it, a unique numbered printed receipt should be issued to each voter with a copy kept in Election Commission's files. If there is a dispute then the recounting can cross check with the printed receipts. Rigging normally happens such that no matter against which candidate you click the button the machine will register your vote against the candidate in favour of whom the machine would be rigged/programmed to do so."

Below are some examples of how the risk of fraud in Elections can happen and how fraud may be already taking place in some elections.

Are EVMs really fool-proof? The recent Maharasthra civic body polls show this may not be the case. (Rhythum Seth/The Quint)
Not Just Mayawati, ‘EVM Fraud’ Also Reared Head During Maha Polls
Ashish Dikshit
March 11, 2017, 7:18 pm

Refusing to concede her rout in UP elections, Mayawati has accused the BJP of tampering with the EVMs (electronic voting machines). She didn’t stop there. In a letter to the Chief Election Commissioner of India, the BSP chief has demanded fresh polls with the use of ballot papers. SP’s Akhilesh Yadav, too, has echoed her views.

Something similar (something worse, even) had unfolded in Maharashtra a few weeks ago. As counting for the local body polls in Maharashtra drew to a close on the evening of 23 February, news channels began to flash an unexpected development.

Violence erupted in Panchavati, in the heart of Nashik city, following complaints of tampering of EVMs. The city BJP chief’s son was declared the winner from the ward, but the Shiv Sena claimed that the total of the votes received by each candidate exceeded the total number of votes cast.

    This led to clashes between Shiv Sena and BJP workers in the streets. Soon, mobs began vandalising and burning vehicles. Police had to resort to lathi-charge and firing in the air to disperse the crowd of 800 people. Nine policemen, as well as some local residents, were injured in the rampage.

A similar charge of EVM fraud swirled in Pune, only the reaction was thankfully non-violent. In Yerawada ward, 15 candidates from different political parties registered a complaint against the Returning Officer (RO), alleging “misappropriation” of EVMs during the counting of votes.

They claimed that a total of 33,289 votes were cast, but 43,324 votes were counted. They demanded a re-poll using ballot paper. A police complaint was registered against the RO.

As the State Election Commission, which conducts local polls, turned down the demand for re-polling, a united opposition first held a protest meeting. As more cases emerged, they took out a mock funeral procession of replicas of EVMs on Tuesday, which were then symbolically cremated at the Vaikunth crematorium.

Defeated candidates from all parties participated in this unusual protest; many of them had shocking stories to share.

    I was announced as the winner and given the official letter under Section 149 (of the Representation of Peoples Act). Then we were asked to leave. But when we began our victory march, after about an hour, we were told that votes from one EVM were yet to be counted. And then suddenly, the BJP candidate was declared the winner.

Manisha Mohite, NCP Candidate, Pune

BJP MP Sanjay Kakde, who played a crucial role in getting criminals into the BJP fold, had accurately predicted the results for Pune. He had vowed to give up politics if his prediction proved wrong. Opposition parties now cite this claim as proof that the ruling party had manipulated the poll results.
“How Can I Get Zero Votes?”

In Mumbai, independent candidate Shrikant Shirsat got zero votes at the booth near his residence in Saki Naka in the western suburbs.

    I voted for myself, so did my family and neighbours. The EVM has to be defective. How else can I get zero votes?

Shrikant Shirsat, Independent Candidate, Mumbai

Similar complaints are being reported from various parts of the state. Efforts are being made to collate data. A body called the Lokshahi Bachao Andolan has been formed in Nashik to collect data related to alleged tampering of EVMs.

Along with Nashik, Pune and Amravati, a protest march was organised in Kolhapur too. Former High Court judge and social activist BG Kolse Patil is now trying to unite all these protesters and launch a state-wide agitation.

    Going by Modi and Shah’s past, I strongly feel they may have manipulated the machines. Many scams (relating to EVM fraud) are now emerging. So, I’ve decided to launch a protest against them. We want paper trail machines. If that doesn’t happen, we should go back to ballot paper.

BG Kolse Patil, Former HC Judge and Social Activist

The paper trail which Kolse Patil is referring to is an idea the Election Commission of India is experimenting with. It’s officially called the ‘voter-verified paper audit trail’ or VVPAT, wherein a voter immediately gets a printout of his vote. This has to then be put into the ballot box. So, every voter gets to see that his or her vote is rightly registered and in case of recounting, the printouts can be counted.

    The Election Commission tried out VVPAT machines in 8 Lok Sabha constituencies in 2014. This happened after the Delhi High Court ruled in 2012 that EVMs in the present form “are not tamper-proof” and the Supreme Court ordered the Commission to use VVPATs along with EVMs by 2019.

But the Election Commission is likely to miss the 2019 deadline, according to BJP MP Kirit Somaiya, who had led an anti-EVM movement when Congress was in power. He had said that “EVMs can be easily tampered with, manipulated as well as hacked”. But after the BJP came to power in 2014, his stance has changed completely and he finds nothing wrong in the system anymore.

    The process of replacing old EVMs with VVPAT machines has started. The Modi government has allotted Rs 5,000 crore for it, but it will take 10-12 years to replace all machines. Improvement is a continuous process and it takes time. (Shiv Sena chief) Uddhav Thackeray and (NCP boss) Sharad Pawar are making allegations as they have vested interests. If they think there’s an EVM scam, all their elected representative should first resign.

Although the BJP is happy with the system today, before 2014, it would complain of misuse and malfunctioning of EVMs. In fact, Somaiya and Devendra Fadnavis, who is now Maharashtra CM, were present at an anti-EVM event in 2010, where Hyderabad techie Hari Prasad had demonstrated how easily an EVM can be manually manipulated at various stages.

Hari Prasad was later arrested for stealing EVMs from the collector’s office in Mumbai. The police officer who had handled this case recently told MaxMaharashtra:

    Today, a lot of allegations are being made (against the BJP). When Congress was in power, the BJP had made the same allegations. In our democracy, the priorities of political parties change with time… I feel enraged.

Sanjeev Kokil, Retired Police Officer
In 2010, Hyderabad techie Hari Prasad (centre) had demonstrated how easily an EVM can be manipulated. (Photo Courtesy:

The State Election Commission has maintained that the entire election process was transparent and foolproof. Talking to The Quint, Maharashtra State Election Commissioner JS Saharia admits that there are various issues involved in acquiring paper trail machines.

    The Supreme Court has said that the VVPAT system has to be implemented only in stages. Even the Election Commission of India has tried it out only on an experimental basis. There are a large number of issues, including supply and finance. We will implement it as per the order of the SC.

JS Saharia, Maharashtra State Election Commissioner

When asked about the protests in Pune, Nashik, Kolhapur and Amravati, he ruled out any possibility of re-polling anywhere in the state.

    We take proper care. Machines are sealed in the presence of polling agents. There is no possibility of tampering with the machines at all. In any case, they are tamper-proof. The complainants have only expressed suspicion. If anyone comes with proof, we will definitely probe that. There is no system of re-polling as results have been declared.

The defeated candidates in Pune, Nashik and Mumbai have announced that they will move the High Court against the “EVM scam”.

Once the matter reaches the HC, the Election Commission as well as the Centre will likely have to inform the court about the progress on introducing the paper trail (VVPAT) machines. For, the court of the land is already convinced that the present EVM-based system cannot be called foolproof unless a paper trail is added to it.

March 12, 2017

Analysis: Food products growth of FMCG cos outpaced non-food segments in Apr-Dec 2016-17

An analytical story I wrote a few days back (in the news organisation I work for) on food products growth of FMCG cos outpacing non-food segments Apr-Dec2016-17

[C] Foods business drives growth of FMCG cos in Apr-Dec
Cogencis, Wednesday, Mar8
By Rajesh Gajra
NEW DELHI -  The foods products segment in the fast moving consumer goods industry is showing better revenue and net profit growth rates in Apr-Dec compared to the non-food products. The growth rates in operating margins of the two product categories, however, rose equally but marginally.
Among eight FMCG companies, forming a part of the sector's benchmark index, Nifty FMCG, the aggregate foods revenues grew 6.3% on year in Apr-Dec while the aggregate earnings before interest and tax went up by 7.7%, an analysis of data from Cogencis Corporate Fundamental Database showed.
On the other hand, the non-food segment recorded on-year aggregate revenue and EBIT growth of 2.2% and 3.1% respectively.
The foods segment's collective EBIT margin for the Apr-Dec period went up to 11.5% from 11.30% a year ago, while the non-food businesses recorded a collective EBIT of 18.7% up marginally from 18.5%.
Besides Hindustan Unilever Ltd and Dabur India Ltd which operate in food and non-food businesses, the analyis encompassed companies which operated purely in food products segment such as Britannia Industries, Jubilant Foodworks India and Tata Global Beverages Ltd or which were non-food FMCG companies such as Colgate-Palmolive (India) Ltd, Godrej Consumer Products Ltd and Emami Ltd.
ITC Ltd, the largest listed FMCG company by market capitalisation, could not be covered in the analysis since the company did not disclose the numbers of its foods business separately.
"The foods business of FMCG companies has seen stable growth compared to personal care products where the growth, though present, has deteriorated a bit," said Ajay Thakur, analyst--consumer at Anand Rathi Broking.
In the wake of demonitisation-induced liquidity squeeze during the Oct-Dec quarter consumers deferred their purchases of personal care and home care products but food products such as edible oils continued to be purchased as before, said Thakur.
Hindustan Unilever's EBIT from its foods and refreshments business grew by 6.4% on year to 43.77 bln rupees in Apr-Dec which represented better growth than the 2.2% on-year rise seen in its non-food products revenues of 211.89 bln rupees.
The Apr-Dec revenues of HUL from its foods and refreshments segments rose 6.4% on year to 43.77 bln rupees while the growth in non-food segments was less than 1% at .
In the Oct-Dec quarter HUL’s refreshment segment’s strong growth of 8.1% on year was led by its tea brands and its ice cream segment, according to a recent research note by ICICI Securities.
The personal care segment of HUL declined 2.7% on year during the quarter led by personal wash category which witnessed price hikes amid a tough environment to curb the impact of rising input cost, the research note said.
HUL’s EBIT margin in foods and refreshments stayed flat on year at 13.5% in Apr-Dec while the collective non-food business’ EBIT increased marginally to 17.5% from 17.3% in the year ago period.
Among other FMCG companies (see table below)in the analysis, Britannia Industries, a food products-only company, registered on-year growth rates of 8.7% and 4.9% in its revenues and EBIT in Apr-Dec. On the other hand, Emami Ltd, a non-food products FMCG company, recorded a EBIT growth of 4.1% on year on the back of a 9.1% on-year rise in revenues.
In the case of Tata Global Beverages and Godrej Consumer Products, the former, a food products-only FMCG company, logged a higher growth rate of 28.7% on year in its EBIT in Apr-Dec while for the latter, a non-foods FMCG major, EBIT grew by 13.6% on year.
Analysts said while the demonitisation effect was not acutely felt by many FMCG companies the current sluggishness in non-foods business is likely to continue for a few more quarters and last till the Jul-Sep quarter of 2017-18 (Apr-Mar).

The table below shows the on-year growth in revenues and earnings before interest and tax of eight major FMCG companies in Apr-Dec




On-year change (in per cent)

Colgate-P India
Jubilant Foodworks
Tata Global
Godrej Consumer
Hindustan Unilever


March 06, 2017

Analysis: Infosys may buy back 4-5% of its shares for 105-120 bln rupees

Here is an analytical story I contributed last week to the media organisation I work for currently:

Analysis: Infosys may buy back 4-5% of its shares for 105-120 bln rupees

    Infosys Ltd is seen buying back 4-5% of its equity share capital at an estimated cost of 105-120 bln rupees, as per a few analysts Cogencis spoke with.
    It is expected that the information technology sector major will come out with a buyback issue in the next few months after getting shareholders’ approval to amend its articles of association to allow for a buyback and thereafter getting its board to approve the buyback proposal.
    The company is following the footsteps of its big brother in the IT industry Tata Consultancy Services Ltd. The board of TCS recently approved a proposal to buy back 2.85% of its equity capital for an aggregate amount of 160 bln rupees at 2,850 rupees per share, and also announced that the company's promoter, Tata Sons Ltd, which holds a 73% stake, will participate in the buyback offer.
     The 160 bln rupees TCS plans to use for the buyback amounted to around 40% of its cash and treasury investments aggregate of nearly 390 bln rupees at the end of December.
    But Infosys is not expected to utilised that high a proportion of its cash reserves for its first buyback offer. The company had a cash and treasury investment pile of around 315 bln rupees as of Dec 31.
    "Infosys is likely to take baby steps in its buyback process since unlike in the case of TCS where the promoter may be in need of cash for other uses, the promoters of Infosys don't seem to be in a compelling need to receive large cash payouts. So, Infosys may use a portion of its cash and liquid investments in its books  for buyback, keeping aside the balance for organic or inorganic growth (necessary for reaching the stated revenue milestone of $20 bln by 2020) or return the cash in future in the form of buybacks and/or dividends," said Deepak Jasani, head of retail research at HDFC Securities.
    A recent Sharekhan research report said cash-rich IT companies are declaring share buyback offers to boost the investor sentiment amid ongoing uncertainties. Before TCS, Cognizant and midcap IT companies like Mphasis Ltd, eClerx and Hexaware Technologies Ltd have also announced buybacks, it said.
    But the research note argued that companies such as HCL Technologies Ltd and Tech Mahindra Ltd which are inclined towards inorganic growth options are not expected to come out with buyback offers.
    Infosys is likely to be a middle case where it will use buyback conservatively and keep the doors open for future inorganic acquisitions or organic growth.
    In an investor call held on Feb 14, Infosys CEO, Vishal Sikka said the company was not averse to a share buyback and wanted to use the cash in a way that provided the most advantage to shareholders. He said the company will look at the next 4-5 years of the business and see where capital is going to be needed even as he admitted that the pace of acquisitions in the last two years had not been strong.
    According to HDFC Securities' Jasani Infosys has a higher cash to market capitalisation ratio than TCS and it is likely to buy back about 4-4.5% of its
outstanding shares with a likely cash outgo of 100-120 bln rupees."
    On Mar 1, Infosys had a cash to market capitalisation ratio of 13.4% as compared to 7.9% for TCS.
    Infosys has typically had higher operating cash flow to net profit ratio. In Apr-Dec its operating cash flow contributed 97% to its net profit, according to a recent presentation made by Infosys to investors.
    Operating profit of Infosys in Apr-Dec stood at 139.46 bln rupees, up 12.1% on year, data from Cogencis Corporate Fundamental Database showed. The net profit in the same period logged a 8.7% on-year growth to 107.49 bln rupees.
    Under pressure from investors, Infosys has had to increase its dividend payout twice in the last 3-4 years, first from 30% to 40% and then from 40% to 50%.
    But investors are demanding better shareholder valuations from Infosys and other cash-rich IT companies. In a recent research note, Axis Capital said if Infosys were to hike payout to 100% of its operating cash flow in 2016-17 (Apr-Mar) it would double earnings per share growth rate and expand its return on equity by around 375 bps, which it said could make the market rerate the stock from 14 times price to earnings ratio to 18-20 times.
    For this to happen, the brokerage said, the company will be required to use 106.12 bln rupees cash for share buyback in early 2017-18 (Apr-Mar) extinguishing 4.8% of its share capital and pay dividends worth 35.37 bln rupees.
    According to Axis Capital's estimates, the EPS in 2017-18 (Apr-Mar) will be 72 rupees, up from 63 rupees in 2016-17 (Apr-Mar). The EPS for 2015-16 (Apr-Mar) was 59 rupees.
    It also estimated the return on equity post buyback to increase to 23.7% from 22.5%.  End

March 01, 2017

MFs turn net sellers in equities on stock exchanges in Feb after 6 months

A story I did yesterday on mutual funds turning net sellers in Feb after being net buyers for six months:

     Redemption pressure from investors has forced domestic equity
mutual fund schemes to turn net sellers in the equity cash market in
    The collective net sales by funds till Feb 23 was 530 mln rupees. This
comes after six consecutive months of steady net buying by the funds.
    According to a chief executive officer of a domestic fundhouse, investors
were taking money out of equity schemes to deploy it in non-equity tax saving
options before the financial year 2016-17 ends in March.
    Equity mutual fund schemes typically sell in the secondary market when
they encounter more outflows then inflows and have to liquidate holdings to
meet the redemptions.
    The last time when domestic mutual funds were net sellers was in July.
From August to January, mutual funds were net buyers at an average rate of
73.12 bln rupees per month (see table), data from Securities and Exchange
Board of India showed.
    On the other hand, mutual funds' counterparts foreign portfolio investors
have turned net buyers in February recording net purchases of 84.50 bln
rupees through the stock exchanges' cash market segment till Feb 27. From
October onwards, FPIs were net sellers, with monthly average net sales of
89.12 bln rupees till January.
    The largest selling of domestic mutual funds through the stock exchanges
in the last one year took place in March when their net sales were 101.98 bln
rupees, while the highest net buying by them took place in November when
their net purchases were 137.75 bln rupees.

Below is the monthwise net investment activity of domestic mutual funds and
FPIs carried out through transactions on stock exchanges:
           Mutual funds        FPIs
           ------------        ----
                 (in mln rupees)
Feb 2017*        -530         84500
Jan 2017        52340        -13150
Dec 2016        91789        -89600
Nov 2016       137752       -201160
Oct 2016        91285        -52580
Sep 2016        38415         72170
Aug 2016        27169         89060
Jul 2016         -335        120680
Jun 2016         -863         34180
May 2016        71484         20000
Apr 2016        -5757         83470
Mar 2016      -101981        207200
Feb 2016        59460        -60690
Jan 2016        73278       -101810
*till Feb 23 for MFs & Feb 27 for FPIs


Reported by Rajesh Gajra