Gujarat IFAs want to bid for Fidelity's business !
Ever since the news headlines announced Fidelity's decision to consider exiting India as one of its strategic review options, there has been a lot of buzz and a lot of backroom work going on. Prospective bidders have been discussing finer aspects of the deal. Big international names have been doing the rounds as prospective buyers / bidders. While all of this action has been going on in Mumbai and overseas, an IFA from Gujarat has come up with an idea that most would consider audacious - he wants IFAs from across the country to come together and jointly bid for Fidelity's business ! And he has got a number of IFAs from Gujarat who seem to be enthusiastic about this. Read on to understand his dream - and decide for yourself whether this is a dream that you might want to support - or dismiss....
Gujarat has a rich tradition of producing entrepreneurs who dare to think beyond what others think is possible. Whether it is the Reliance story or the Nirma story or the Adani story - they all have one thing in common - an entrepreneur who dreamt of something most others regarded as foolish and impractical. Sure, for each such success story, there must be numerous more that failed - stories of entrepreneurs who dreamt big but could not really execute big.
Is this a dream that most will regard as foolish and impractical? Which way will this dream go - only time will tell. But then "dare to dream" is a success mantra that most management gurus preach, don't they?
Nitin Patel is a man on a mission
Ahmedabad's Nitin Patel is a man on a mission. Ever since the news of Fidelity's possible exit from India hit the headlines, Nitinbhai has become a man possessed by a big idea. When I met him last week at the ICICI Prudential i-mentor session that I was conducting for select advisors from Gujarat, he shared with me his proposal to create a consortium to bid for Fidelity's India business. Many of the advisors at the session seemed to be enthusiastic supporters of his idea. And, he believes that he can easily rustle up another 50 distributors from Gujarat who will come on board. Here is his proposal and his rationale :
1. Good quality asset book
Fidelity, he believes, is one of the few AMCs which has a robust product portfolio - no misadventures of ill-timed product launches that have created ill-will among investors
Performance of their equity schemes is quite satisfactory, in his view
Brand loyalty from investors is visible - he has seen clients of his who are very comfortable continuing their SIPs in Fidelity Equity Fund, which they started at the launch of this fund - even when they contemplate switching out of some other schemes of some other AMCs
2. Ill-timed exit is an opportunity
If Fidelity does exit now - at a time when markets are low and business volumes are low, it presents a good buying opportunity, in his view. In the next 3 to 5 years, markets and volumes are bound to grow and the same business will have a much better valuation than what it can fetch today. Fidelity's India business is a great value buy today, in his view.
3. Why should IFAs not come together and bid?
Nitinbhai wants IFAs from across the country to come together and bid for this business. The outline of his proposal goes something like this :
Find a strong corporate group which will pick up a 51% stake and which can satisfy all of SEBI's qualifications for the promoter
Distributors come together to pick up the balance 49% stake. This will automatically give the business the much needed distribution strength, which any AMC needs for growth.
Distributors will be happy to put the funds of this AMC high up on their recommendation lists, he says. A combination of a good product portfolio and a personal stake in the success of the AMC will motivate distributors to recommend this AMC's products much more vigourously.
Over the next 5 years, as markets and business volumes improve, there is likely to be a significant upside available to distributors who come together today to bid for this business, at today's valuation.
4. Give us DSOPs, like you give your employees ESOPs !
Nitinbhai in fact says that should he be a shareholder in the AMC, he would happily settle for much lower commissions. Companies give their star performers ESOPs - employee stock options - to align their personal interests with those of the company's. In a similar way, if IFAs are given DSOPs - Distributor Stock Options, they should agree to lower commissions and look for a much bigger longer term upside from their relationship. Lower commissions will automatically translate into higher profits for the AMC. Higher profits mean higher business valuation - which means a bigger upside on the DSOPs. Nitinbhai says that this kind of a hybrid compensation structure - is a win-win for all.
DSOP - an idea whose time has come?
The talk about DSOPs got me thinking - is this an idea that should be explored by the MF industry? Of course, the one hitch in this DSOP proposal is that none of the AMCs are listed yet. Lack of listing denies any DSOP or ESOP holder of any exit - which is a pre-requisite for the success of any such incentive plans. But, instead of dismissing the idea completely, is it worth a thought? If an AMC were to get listed, and were to reward its key employees and key distributors with ESOPs and DSOPs and lower the salary and commission payouts respectively, would this not boost profitability and therefore valuation and thus result in a win-win for all? After all, in an AMC's business, salary costs and distributor costs are the two biggest expenses. What if an AMC were to reward its key distributors with DSOPs instead of trips to exotic locales for example? Would that not be a better idea for all? Of course the flip side to this entire argument could be that it actually deepens conflict of interest for distributors rather than eliminate it. Should a distributor or an advisor's earnings be more aligned to the satisfaction levels of his investors or to the fortunes of his AMC partners?
What do you think?
What do you think of Nitinbhai's idea of getting together to bid for Fidelity's business? Too fanciful? Too bizzare ? Or is it a daring move that should be supported? And what do you think of the DSOP proposal - which can actually be independent of any idea of bidding for any AMC? Should AMCs look to get listed and reward their key stakeholders - employees and distributors with stock options? Will that be a win-win situation? Would you settle for lower commissions in lieu of DSOPs? And, how serious is the conflict of interest situation, if something like DSOPs were to be introduced? Share your thoughts with fellow advisors across the country by posting your comments in the box below - its YOUR forum
In a move that will surely shock, shock, the monetary purists out there, the Bank of Japan has just gone and done what we predicted back in May 2011, with the first of our "Hyprintspeed" series articles: "A Look At The BOJ's Current, And Future, Quantitative Easing" (the second one which discussed the imminent advent of the ¥1 quadrillion in total debt threshold was also fulfilled three weeks ago). So just what did the BOJ do? Why nothing short of join the ECB, the BOE, and the Fed (and don't get us started on those crack FX traders at the SNB) in electronically printing even more 1 and 0-based monetary equivalents (full statement here). From WSJ: "The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy. With interest rates already close to zero, the BOJ has relied in recent months on asset purchases to stimulate the economy. In Tuesday's meeting, the central bank expanded that plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion." The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips. As for gold, not a peep: as if the market has now priced in that the world's central banks will dilute themselves to death. Unfortunately, it is only at death, and the failure of all status quo fiat paper, that the real value of the yellow metal, whose metallic nature continues to be suppressed via paper pathways, will truly shine.
The WSJ explains the BOJ's stunning decision further:
Only one out of the 11 analysts polled by Dow Jones Newswires had predicted the BOJ to ease this week.
Most BOJ watchers had said that while there were concerns over the impact of the strong yen and the European debt crisis, neither financial nor economic conditions had worsened to levels that warranted immediate further action.
The BOJ policy board also revised the wording of its "understanding of price stability," saying now it has set a "price stability goal" of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being. For calendar year 2011, Japan's core consumer price index—excluding food prices—was negative 0.3%.
The bank had come under criticism that its definition of price stability, the goal it seeks to achieve in its fight against deflation, was too convoluted and vague. Such attacks had increased in recent weeks after the U.S. Federal Reserve in late January adopted a more explicit price target.
Faced with a prolonged deflation, politicians have stepped up their calls on the BOJ to take fresh action, with some threatening to revise legislation to strip away the central bank's independence from the government.
First of all, don't get us started on inflation targeting. Or rather, get Dylan Grice started: he will tell you all about it, and then some.
And while we now really just can't wait to bring to our readers what the global central bank balance sheet will look like after February, when it takes into account the recent GBP50 billlion BOE expansion, the €500-€1000 billion European LTRO part Deux, and now the ¥10 trillion additional BOJ easing, here is what we said on the topic back in May of 2011.
"In a sign some in the BOJ were more cautious about the economic outlook than Shirakawa, Deputy Governor Kiyohiko Nishimura proposed on Thursday expanding the central bank's asset buying scheme by 5 trillion yen ($62 billion). While the proposal was outvoted by the board, some market players said it may be a sign the BOJ may loosen policy as early as next month. "And loosen it will, because unfortunately as the past 30 years have shown, the country at this point has no other choice but to take the same toxic medicine which merely removes the symptoms briefly, while making the underlying problems far worse. Also, with the Fed threatening to end QE2 in precisely two months, someone out there has to be dumping hundreds of billions in infinitely dilutable 1 and 0s into primary dealer prop desks. Furthermore, as shown above, the BOJ needs not to buy securities outright: tinkering with the shadow economy in the form of the repo market will provide just as desirable an outcome… If, of course, said outcome is to see gold and silver continue on their relentless rise to new all time record highs. And/or higher. Because the only thing limiting the price of gold is price stupidity and the amount of paper money in existence. Both are infinite.
It's good to see that our May 2011 quote on what the only realy gating factor on the price of gold is has now been broadly absorbed in the asset management vernacular. And yes, once the market does realize what is happening, following the usual 6-8 week uptake period, expect another step function higher in precious metals, CME margin hikes notwithstanding (and the recent CME faux margin cut bull trap aside).
Finally, unlike our own Fed, at least the BOJ is not shy telling the world it is openly buying up REITs and ETFs. For some odd reason our boys over at Liberty 33 are still playing so coy they can only punch their equity trade tickets via Citadel.
Buy Nifty 5400 put at 55
Current Market price : 56
Target 61, 64.5
Stop Loss: 50.50
Current Market price : 56
Target 61, 64.5
Stop Loss: 50.50
Buy Nifty 5400 Call for 73
Target 82
Stop loss 64
Time line : Intraday
Book Profit at 89
Congratulations to all who have enjoyed upmove !!
Target 82
Stop loss 64
Time line : Intraday
Facebook might file for IPO as early as wednesday, according to sources. Facebook will launch its long awaited IPO with the offerings of $5 billion. Initially the size of IPO was $10 billion, but company is being cautious in the market.
This will hardly be a surprise to anyone with 3 neurons to rub across their frontal lobe, but at least it is now official.
WORLD BANK CUTS GLOBAL GROWTH OUTLOOK, SEES EURO-AREA RECESSION
Bloomberg, which just released an embargoed summary of the World Bank action, summarizes it all.
World Bank cuts global growth forecast by most in 3 yrs as euro area recession threatens to exacerbate slowdown in emerging markets, World Bank says in Global Economic Prospects report.
Sees world economic growth of 2.5%, down from June est. of 3.6%
Sees euro area GDP contracting 0.3% in 2012, compared with pvs est. of 1.8% growth
World Bank estimates euro area entered recession in 4Q
U.S. outlook cut to +2.2% from +2.9%
Japan forecast cut to 1.9% growth from 2.6%
China's GDP growth will slow to 8.4%, unchanged from interim revised projection released in Nov.
India forecast cut to 6.5% from 8.4%
And the punchline:
World Bank urges developing economies to "prepare for the worst" as it sees risk for European turmoil to turn into global financial crisis reminiscent of 2008
Even achieving much weaker outcomes is very uncertain
Reliance Communications on Monday said it has tied up refinancing for outstanding FCCBs (Foreign Currency Convertible Bonds) worth Rs. 6,125 crore.
"Reliance Communications (RCOM) has tied up refinancing for maturity value of outstanding FCCBs of USD 1,182 million (Rs 6,125 crore)," the company said in a regulatory filing to the BSE.
Following the announcement, shares of the company jumped 5.61 per cent to an early high of Rs. 91.30 on the BSE.
The refinancing is being funded by Industrial and Commercial Bank of China (ICBC), China Development Bank (CDB), Export Import Bank of China (EXIM), and other banks, it said.
The company also said it will benefit from extended loan maturity of seven years and attractive interest cost of about 5 per cent.
The loan proceeds would be used for refinancing the entire redemption amount of FCCB which are due for redemption on March 1, 2012.
FCCBs are bonds that are issued in currencies different from the issuing company's domestic currency.
