Investing in the Indian Stock Market is usually a choice  between the Bad and the Ugly as Corporate Governance exists only in name.With the Indian government frozen with its top officials and ministers accused of numerous billion dollar corruption scams,Corporate India too has come under the corruption crosshairs.Note investing in India has always been a dangerous game which I have written probably too many times in this blog.Institutional Money Managers are mostly blind to the risks or plain incompetent most of the times.But now with the global capital in the risk off mode,scams and scandals are again affecting stock prices.Note in the last correction many of the high flying mid cap and small cap stocks had faced heart breaking falls in stock prices.Manipulation by “operators” and company promoters is nothing new.In fact both the Reliance groups have either paid fines or under investigation for massive insider trading.Note the ADAG Group has its 3 top executives in jail for swindling the Indian exchequer out of billions during the 2G Scam.

Now India’s Largest Company Reliance too has seen its stock fall to a post Lehman low on concerns that it has colluded with the Oil Regulator and Ministry to gold plate its costs in the KG 6 Gas concession.Reliance is India’s biggest oil and gas company with interests throughout the supply chain.Note its nothing new as Reliance has always been known to be the most powerful corporate in India .However with the government’s own auditing department CAG raising allegations of collusion and corruption,Reliance too may find itself snared in the corruption scandal.Note the infamous Nira Radia tapes had ample proof of how the powerful Reliance group manages the appointment of its favored persons in key federal ministries.The company must now by hoping that the Supreme Court which is already preoccupied with a ton of corruption cases does not take a keen interest and gets the CBI to investigate the allegations.

The CAG has rapped oil ministry and its technical arm DGH charging it with favouring Reliance Industries, but did not say if the Mukesh Ambani firm overbilled the government when it more than doubled KG-D6 gas field cost and caused loss to state exchequer.The CAG in its draft audit report of KG-D6 block said the ministry and the Directorate General of Hydrocarbons allowed Reliance to raise cost of developing the nation’s largest gas fields by 117 per cent.It said rules were also bent to grant “huge benefits” to Reliance when the ministry allowed the company to retain entire block but said gains cannot be quantified.”The increase in cost from (USD 2.39 billion proposed in the) Initial Development Plan (of May 2004) to (USD 5.196 billion) in the addendum to the Initial Development Plan is likely to have a significant impact on the government of India’s financial take.

Groupon the most popular daily deal website in the world which has filed for a multi billion dollar IPO seems to be on the way to a massive failure in India at least.The company entered India quite late after numerous such companies like Snapdeal,Taggle,Cityoffers,MyDala etc. etc had already set up camp.Groupon did this by acquiring one of the many myriad startups in this space SoSasta.But any hopes that Groupon would differentiate itself from the rest of the group has not proven true.It is marked by the same indifference to customers like the rest of the service providers in India like broadband companies Airtel,Tata Indicom etc.It totally lacks in any sense in choosing its vendors since I have personally experienced 2 vendors that were totally zoned out and had no idea in what they had gotten into.Sosasta or Groupon instead of promptly acting on the complaint had done nothing despite repeated complaints by me on phone and email.By the way it is a tough task getting to the customer service of Groupon through phone as nobody picks up.

The vendor choice itself shows total lack of judgment and good sense it seems and the contract law being what it is in India,any customer who goes to Sosasta is totally on his own if he wants to recover money which he has to pay upfront.I had personally applied to 2 vendors and nobody has been able to give the required service in the 2 months that had been alloted.After phoning Sosasta 3 times and mailing them twice I finally recieved the money back ,however in the case of the second service ,even after mailing them twice nothing has happened.On top of that the customer care phone numbers don’t pick up the phone.

For investors who are thinking that Groupon is the next thing after Google think twice before putting your money.Groupon or Sosasta is no different from the myriad other daily deal services and probably worse than the Daily Deal sites in India.It suffers from all the problems that service providers in India face and its management quality in India hardly seems up to the mark.It seems that Groupon was in a hurry to expand into India and has not done proper due diligence.If other readers have an experience to share then please comment as my observations are based on my experience only.

The Indian Stock Market saw a flash crash on the morning of 20th June at 10 am.The market which started weak at 9 am fell by almost 3% in 10 minutes.The main index Nifty which was trading at around 5350 crashed to around 5200 in around 10 minutes.The market recovery by 1% but is again starting to go down to the low levels fo  5200 .Note the Indian stock market has been hammered due to worries on inflation,massive endemic corruption which is facing protests from the civil society.The FIIs which are the main buyers of Indian equities in the last year or so seem to have abandoned the Indian stocks as QE2 starts ending and global risks like Greece,US slowdown,inflation and interest rates worries in emerging markets  come to the fore.Note Indian stock markets are not the easiest to invest in with scams and scandals happening regularly and it at best remains a market in which you have to choose between the bad and the ugly.

The flash crash took place on news that Mauritius might lose its tax haven status as the treaty between India and Mauritius might be revised.Note Mauritius is one of the largest investors of money in India as the investments there are not taxed according to a treaty.This has made Mauritius the favorite destination of Fund Managers looking to invest money in India.It has been rumored to be the biggest funnels of black money in India which is under considerable scrutiny in India now with Baba Ramdev and Anna Hazare (Jan LokPal Bill) leading very popular public agitations.

The Anil Ambani Group stocks have led the fall,note this conglomerate has been at the centre of troubles with its top executives being jailed for the last 2 months as accused in the 2G Telecom Scam.There are reports that Anil Ambani himself might face charges of corruption by the CBI as the Supreme Court of India is directly supervising the case.Note other top realty firms like DB Realty,Unitech too have seen their CEOs cooling their heels in the Tihar Jail for defrauding the Indian government of billions of dollars in the Telecom Scam.

Nifty below 5300; all sectoral indices in red

Indian equity benchmarks were taking huge beating post reports that Mauritius government agreed to revise tax treaty with India. Stocks with investments from Mauritius were witnessing selling pressure.

More than 40% of foreign direct investment In India comes from Mauritius. Lanco Infratech, KS Oils, Jain Irrigation, Delta Corp and Alok Industries were down more than 10-20%.

Indian equity investing through offshore funds might not be the best idea as these funds have underperformed the benchmarks by putting too much weight on infrastructure and capital goods sector.Note lured by the $500 billion investment target for Indian infrastructure,an Indian infra ETF INXX was also launched at a ludicrous valuation.However the endemic corruption in India with scams related to major infrastructure sectors like Real Estate,Telecom popping up everyday,its not a surprise that the stocks have tanked.Note investing in the Indian stocks markets is hazardous with issues like insider trading,pump and dump schemes quite rampant.The risks of corruption are huge and even top asset managers like Goldman,GMO have become victims of fly by night operators just like a simple retail investor.

India faces teething problems as it looks to invest heavily in the infrastructure sector.Institutionalized corruption,delays,bribery,petty jealousy between ministers all stand in the way.This has led  to the darling infra stocks being shunned.Some of the popular Indian infrastructure stocks like GMR,GVK,Punj Lloyd,JP Associates have lost more than half of their value from the 2008 peaks.The less said about Real Estate stocks like DLF,Unitech the better.Note the CEO of Unitech is cooling his heels in jail with another top realty CEO Balwa in the 2G Telecom Scam.

Offshore Funds Trail Benchmarks ,Better off Investing Directly than paying high Manager Fees for Losing your Money

It might be a good idea to invest directly in the Indian stock markets through low cost ETFs like Nifty Bees than paying high fees for suboptimal performance from offshore funds.According to an ET report, 65% of the offshore funds have performed abysmally with HSBC India Infra Equity Fund, the worst performer in the ‘India fund’ category with a loss of over 17% in dollar terms.

Kotak PMS loses more than 80% of its corpus as it performs disastrously

Portfolio Management Schemes (PMS) had become the rage in the last couple of year as asset management companies in India had promoted them to offset the low fee structure in selling mutual funds.These PMS schemes had little transparency and high fees despite providing no expertise.The managers of these schemes were low level employees with little education or understanding.They collected large funds from investors and promised high returns through active management.Instead they lost money of their investors and charged high fees through a huge number of transactions.Some investment managers have also been alleged to have misused the power of attorneys given to them by clients. RBI and SEBI are taking measures to curb such practices.You can fool all people some of the time,some people all of the time but you can’t fool all people all the time.So the result is that these PMS schemes have failed with most investors taking out their money.

Kotak Securities’ PMS assets plunge 79% as poor returns force investor exits

Klassic Portfolio, a scheme under the discretionary portfolio scheme fell 22.91% during the period, according to a document in possession of ET. Core Portfolio declined 34.24%, Select Portfolio tumbled 23.81%, Select Portfolio-Large cap lost 22.44% in the three years to December 2010 when Sensex rose nearly 47%, while BSE Small Cap and Mid Cap indices gained 32% and 38%, respectively.

Assets of Kotak Securities’ discretionary portfolio management schemes, designed to provide higher than market returns, have plunged 79% in the last three years as returns fell below market rates, and even lower than schemes run by group mutual fund.Kotak PMS schemes’ assets with discretionary power fell to Rs 765 crore at end March, 2011, from Rs 3,576 crore on March 2007, documents available with ET shows. The assets under non-discretionary PMS have fallen to Rs 979 crore, from Rs 1,049 crore during the same period.

More Interesting Links on How to Invest in Indian Equities

How to invest in the India Stock Market where Managment Quality is a choice between Bad and Ugly

More Indian Insider Trading Malfeasance exposed as SKS Microfinance falls 20% before Loss Announcement

Top 5 Indian Stock Market Pitfalls as Nifty falls below 200 EMA(PIN,INP,EPI,INDY)

Indian Small Cap Index,ETFs (SCIF,SCIN) get Massacred by Surfeit of Scandals

How to Beat the Indian Stock Market “Operators” Suckering Investors at their Own Game as another manipulated smallcap Bedmutha Industries gets Dumped

India’s new anti monopoly watchdog Competition Commission of India (CCI) has belatedly started operations and its first few orders hardly inspire much confidence.Note most of the developed countries like USA and European Union have highly developed and advanced competition regulators which impose hundreds of millions in fines against domestic and international companies who indulge in anti-market practises.The huge fines serve as a great deterrence where powerful corporates try to undermine the market forces through their sheer size.The landmark anti monopoly legal cases against Microsoft,LCD companies have proved to be very effective in punishing super powerful businesses who have shafted consumers through illegal practises.

India has become large economy and it needs effective competition regulators against the giant conglomerates which manage to subvert the governing forces in the country.Many of the  country’s top telecom and other regulators are nothing but stooges for these companies.Not that India is the only country where business interests have effectively captured regulation.Even in the USA,the BP Oil Spill was caused as the oil and gas regulator was found to be nothing more than a puppet for the very powerful oil and gas giants.The CCI has fined the Indian film producers Rs 1 lakh for colluding and forcing the theater owners to agree to their demands.Note Rs 1 lakh is equal to roughly $2200 which is a pittance especially when you compare it to the earnings of these film producers.They would be rolling with laughter at the amount of the fine and this fine will never have a deterrent effect on further cartelization and collusion activities in the film industry.Further other industries will think the newly formed CCI to be a toothless regulator and will not stop their monopolistic practises.For CCI to not only be effective but look effective it must impose punishment which serves a purpose instead of making itself a laughing stock

CCI fines 27 film producers for colluding through cartel

The Competition Commission of India (CCI) today imposed a penalty of Rs one lakh each on 27 film producers on charges of colluding through a cartel to exploit theatre owners.The CCI imposed the fine on filmmakers after having found them guilty of entering into anti-competitive agreement.

The issue pertains to the strike in 2009 by film producers who decided not to screen their movies in multiplexes over payment matters.”They have been found having violated section 3 and 4 of the Competition Act 2002, which pertains to anti-competitive agreement and abuse of dominant position,” a CCI official told PTI.

What is WEEE

WEEE refers to the  Waste Electrical and Electronic Equipment Directive issued by the European Community on E-Waste along with the Restriction of Hazardous Substances Directive in  2003 which regulates the collection,recycling and disposal of electronic and electrical equipment.The Directives are 2002/96/EC and 2002/95/EC and are going to be revised soon as 2/3rd of E-Waste in Europe continues to be dumped in Europe and Third World Countries .WEEE makes it mandatory for the producers of to dispose of the Electronic Waste.Unlike the USA which does not have such a strict policy,the companies must do so in an environment friendly way and can’t just export all the electronic junk ot Africa,India and China which has been the way of the industry till then.

The legislation provides for the creation of collection schemes where consumers return their used e-waste free of charge. The objective of these schemes is to increase the recycling and/or re-use of such products. It also requires heavy metals such as lead, mercury, cadmium, and hexavalent chromium and flame retardants such as polybrominated biphenyls (PBB) or polybrominated diphenyl ethers (PBDE) to be substituted by safer alternatives.The EU’s WEEE and RoHS laws simply serve as a template for national laws. They are transposed into national law at national level.Member States are required to draw up a register of producers and collect information on an annual basis on the quantities and categories of electrical and electronic equipment placed on their market, collected, re-used, recycled and recovered within that Member State and on collected waste exported.

WEEE Provision

The directive sets out collection requirements and a minimum collection target of 4 kg per inhabitant per year for WEEE from private households. In line with the so-called waste hierarchy, preference is given to re-using whole appliances of collected WEEE. In addition the directive provides minimum combined targets for re-using components and recycling and minimum recovery targets.

What is Restriction of Hazardous Substances (ROHS)

The Restriction of Hazardous Substances Directive (RoHS), which bans the use of certain hazardous substances (such as lead, mercury, cadmium, hexavalent chromium and some polybrominated flame-retardants) in EEE. RoHS allows possible exemptions.

WEEE Objective

The prevention of waste electrical and electronic equipment (WEEE), and in addition, the reuse, recycling and other forms of recovery of such wastes so as to reduce the disposal of waste. It also seeks  to improve the environmental performance of all operators involved in the life cycle of electrical and electronic equipment

WEEE Collection

Main Points

a) Systems have to be set up so that Final holders and Distributors are able to return such waste at least free of charge

b) When supplying a new product, distributors shall be responsible for ensuring that such waste can be returned to
the distributor at least free of charge

c) Producers  are allowed to set up and operate individual and/or collective take-back systems for WEEE from private households

d) Member States shall ensure that all WEEE collected  is transported to treatment facilities

The Commission proposes to set mandatory collection targets equal to 65% of the average weight of electrical and electronic equipment placed on the market over the two previous years in each Member State. The recycling and recovery targets of such equipment would cover the re-use of whole appliances and weight-base targets would increase by 5%. Targets are proposed also for the recovery of medical devices.

WEEE Success/Failure and Need for Revision

Despite Rules on Electronics collection and recycling  approximately a third of waste electrical and electronic equipment (33%) is reported to be treated according to the legislation. The rest goes to landfills (13%) and potentially to sub-standard treatment inside or outside the EU (54%). Illegal trade to non-EU countries is still widespread. The collection target of 4 kg per person per year does not reflect the amount of WEEE arising in individual Member States.

WEEE Revision

The European Commission has published its legislative proposal for the review of the WEEE Directive on December 3rd, 2008. The proposal will be debated and amended in a political legislative procedure by the European Parliament and EU Member States governments.New rules will probably not take effect until 2011-2012. Significant changes such as a broader scope, the introduction of CE marking requirements and new bans on substances could be made during this procedure.

Which changes does the Commission propose?

  • harmonise the registration and reporting obligations for producers and make national registers of producers inter-operational so that producers need only register and report in one Member State for all their activities in the EU. This is expected to lead to potential savings of €60 million;
  • clarify the scope and definitions;
  • change the collection target from the current 4kg/capita per year ("one size fits all") to a variable target that takes into account the economies of individual member States. The new target is set at 65% of the average weight of products placed on the market in the two preceding years. Although many Member States have already reached this target it becomes binding in 2016, thus giving other Member States time to adjust;
  • a combined recycling and re-use target which is socially and environmentally viable that will sort out current deterrents to re-using;
  • enhance environmental benefits and material savings by including recovery and recycling/re-use targets for medical devices;
  • set minimum inspection requirements for Member States to strengthen the enforcement of the directive and include minimum monitoring requirements for shipping WEEE;
  • make Member States, where appropriate, encourage producers to finance all the costs of separate collection;
  • allow producers to show to consumers at the time of sale the cost of collection, treatment and disposal of products in an environmentally-sound manner, without time limitation and for all equipments. This is in line with the principles of sustainable consumption and production and ensures that consumers can make informed purchasing choices.

What overall improvements are expected?

  • Significantly reduce the administrative burden to producers without lowering the level of environmental protection;
  • Enhance effectiveness of the directive through simplified and improved implementation;
  • Reduce the environmental impacts of collection, treatment and recovery of WEEE at levels providing the greatest benefit to society.

WEEE Categories of Electrical and Electronic Equipment

1. Large household appliances
2. Small household appliances
3. IT and telecommunications equipment
4. Consumer equipment
5. Lighting equipment
6. Electrical and electronic tools (with the exception of large-scale stationary industrial tools)
7. Toys, leisure and sports equipment
8. Medical devices (with the exception of all implanted and infected products)
9. Monitoring and control instruments
10. Automatic dispensers

Sources and Further Reading

  1. http://epp.eurostat.ec.europa.eu/portal/page/portal/waste/data/wastestreams/weee
  2. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0095:EN:NOT
  3. http://www.buyusa.gov/europeanunion/weee.html
  4. http://ec.europa.eu/environment/waste/weee/index_en.htm
  5. http://www.buyusa.gov/europeanunion/weee_info.html
  6. http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/764&format=HTML&aged=0&language=EN&guiLanguage=en