Category: Excerpts

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Govt proposes 49% FDI in Insurance

(Disclosure:I am market making in the shares of ICICI Pru Life)

The government plans to increase foreign direct investment in the insurance sector to 49 per cent with a rider that voting right of overseas partner will remain capped at 26 per cent.

The Insurance Laws (Amendment) Bill, 2008 proposes an increase in foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent with corresponding voting rights.

The Finance Ministry now proposes an amendment to the the Bill, pending since 2008, by capping voting rights of the foreign partner to 26 per cent even as FDI is raised to 49 per cent, sources said.

This is being done in the interest of meeting the growing capital requirement of insurance companies which are highly capital intensive.

Sources said the proposal says that equity shares of foreign company should not exceed 49 per cent of total paid-up equity capital of an insurance company provided voting rights of such foreign shareholders are not exceeding 26 per cent in aggregate.

Besides, the CEO of the insurance joint venture should be appointed by Indian shareholders subject to regulatory approvals, according to the proposal.

The proposal also stipulates that the majority of company’s directors should be  Indian nationals-from ET

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Go out and get some milk

This is about 14 years ago. I was working in the office. I work very late, and we were in the middle of the Quaker Oats acquisition. And I got a call about 9:30 in the night from the existing chairman and CEO at that time. He said, Indra, we’re going to announce you as president and put you on the board of directors … I was overwhelmed, because look at my background and where I came from — to be president of an iconic American company and to be on the board of directors, I thought something special had happened to me.

So rather than stay and work until midnight which I normally would’ve done because I had so much work to do, I decided to go home and share the good news with my family. I got home about 10, got into the garage, and my mother was waiting at the top of the stairs. And I said, “Mom, I’ve got great news for you.” She said, “let the news wait. Can you go out and get some milk?”

I looked in the garage and it looked like my husband was home. I said, “what time did he get home?” She said “8 o’clock.” I said, “Why didn’t you ask him to buy the milk?” “He’s tired.” Okay. We have a couple of help at home, “why didn’t you ask them to get the milk?” She said, “I forgot.” She said just get the milk. We need it for the morning. So like a dutiful daughter, I went out and got the milk and came back.

I banged it on the counter and I said, “I had great news for you. I’ve just been told that I’m going to be president on the Board of Directors. And all that you want me to do is go out and get the milk, what kind of a mom are you?”

And she said to me, “let me explain something to you. You might be president of PepsiCo. You might be on the board of directors. But when you enter this house, you’re the wife, you’re the daughter, you’re the daughter-in-law, you’re the mother. You’re all of that. Nobody else can take that place. So leave that damned crown in the garage. And don’t bring it into the house. You know I’ve never seen that crown.”-said Indira Nooyi,Pepsico CEO

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Ratnakar Bank IPO expected to draw strong response

(Disclosure:I am market making in Ratnakar Bank)

Analysts expect the RBL Bank IPO—the first primary market offering by a bank since Punjab and Sind Bank raised Rs.480 crore in 2010—to draw a strong response.

“We expect the Ratnakar Bank IPO to be subscribed by 20-30 times. Also, given the bank’s potential to capture a large market share, the investors are likely to get an annual market return of 20-25%,” said Vikas Khemani, chief executive for wholesale capital markets at Edelweiss Financial Services Ltd.

He added that RBL Bank can gain immensely at a time when public sector banks have been losing market share to private banks—a trend that is expected to accelerate with state-owned banks starved of adequate capital for growth. “This will be a litmus test for the bank because an IPO is always the lead indicator of things to come. How the IPO goes will be critical to subsequent issues and also what perception the bank develops in the minds of both retail and institutional investors,” said Robin Roy, associate director at audit and consultancy firm PricewaterhouseCoopers.

Apart from raising fresh funds, the issue will also help some of its existing investors exit. Over the last three years, global and local private equity and development funds have invested over Rs.1,400 crore in the bank in three tranches.

As recently as 10 April, RBL raised Rs.328 crore by selling fresh shares to UK government-owned development institution CDC Group Plc and Asia Capital and Advisors Pte Ltd along with existing shareholders World Bank-backed International Finance Corp. and Gaja Capital. Housing Development Finance Corp. Ltd, Norwest Venture Partners, Samara Capital, Beacon Capital, Faering Capital, TVS Shriram, Cartica Capital, Ascent Capital, Aditya Birla Private Equity, IDFC’s Spice Fund and ICICI’s Emerging India Fund are also shareholders in the bank.-from Mint

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BSE proposes upto 49% stake in Stock Exchanges by Foreign Exchanges

(Disclosure:I am market making in the shares of BSE)

The government should allow leading global bourses to hold up to 49% stake in Indian stock exchanges to enhance the competitiveness of domestic capital markets, BSE has said.

The current policy permits foreign bourses to own a maximum of 5% stake in Indian exchanges. “The current policy on ownership of stock exchanges may be amended to allow for an investment stake of at least 15% (or preferably even 26-49%) for foreign exchanges of international repute, in line with the regulations for Indian exchanges,” BSE said.

The recommendation has been made by BSE in a document to the ministry of finance ahead of the budget in July. According to the leading stock exchange, while the current policy does not “preclude a strategic partnership between an Indian and a foreign exchange, the 5% cap does make such a partnership difficult”.

It added: “Without the potential for a meaningful investment stake of at least 15% (or preferably even 26-49%) potential foreign partners are reluctant to engage fully because there is inadequate ‘skin in the game.’” BSE has said the move will allow domestic stock exchanges the flexibility to form deeper partnerships with global bourses, enhance global competitiveness, help attract more foreign funds, facilitate and accelerate adoption of best-in- class technology. “The foreign exchanges can only afford to invest their time and resources if their contribution is rewarded commensurately,” BSE said, adding that a larger ownership stake is one way to ensure their engagement.-from Mint

Currently, both Deutsche Bourse AG and Singapore Exchange Ltd. own around 4.92% each in BSE

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Are you an investment virgin?

It’s easy to be a long-term investor during a bull market. Everyone’s making money and it feels like you can do no wrong.  It’s when things don’t go as planned that this group loses control.

Bernstein says as much in the book when he observes, “If you began your investing journey after 2009 or haven’t yet started, then you’re an investment virgin.”-from WealthOfCommonSense