India’s NSE Says 59 Erroneous Orders Caused Stock Plunge

By Rajhkumar K Shaaw, Santanu Chakraborty and Shikhar Balwani - Oct 6, 2012

The plunge and rebound in Indian stocks that pushed the S&P CNX Nifty (NIFTY) Index down 16 percent in eight seconds underscored concern about financial markets.
Trading in the Nifty and some companies stopped for 15 minutes in Mumbai yesterday after the 50-stock gauge tumbled as much as 16 percent. A brokerage that mishandled trades for an institutional client was to blame, according to the National Stock Exchange of India.
Indian Finance Minister Palaniappan Chidambaram told reporters in Mumbai today that the government will investigate the stock plunge, as regulators around the world probe market structures and electronic trading after a series of malfunctions. In May 2010, high-frequency orders worsened the U.S.’s so-called flash crash, which briefly wiped $862 billion from the nation’s stocks. The Nasdaq was this May overwhelmed by cancelled orders and trade confirmations were delayed in the public debut of Facebook Inc. (FB), 2012’s largest initial public offering.
“Everyone is very sensitive to these electronic errors,” Adam Mattessich, head of international trading at Cantor Fitzgerald LP, said by phone from New York. “It’s the kind of thing that could be nothing or it could become a financial calamity.”

Emkay Orders

Orders entered by Emkay Global Financial Services Ltd. (EMKAY) that led to trades valued at 6.5 billion rupees ($125 million) caused the drop, said Divya Malik Lahiri an NSE spokeswoman in New Delhi.
Circuit-breaker limits enforced by the NSE get activated “after existing orders are executed,” Ravi Varanasi, head of business development at the exchange in Mumbai, said by phone. “We are investigating the reason behind the wrong orders and how checks and balances at the member’s end failed.”
The NSE’s trading limits for the Nifty range from 10 percent to 20 percent. The percentages are calculated into index points at the end of every quarter and applied for the next three months. A rise or decline of 570 points, equal to 10 percent of the Nifty’s closing level of 5703.3 on Sept. 28, is meant to halt trading on any day in the quarter through Dec. 31, according to a circular on the NSE’s website.

Volume Doubled

The volume of stocks in the benchmark index that were traded almost doubled from the 100-day average, according to data compiled by Bloomberg. An index of Indian stocks traded in New York slipped as much as 1.2 percent.
“Even if there was order backlog, the index couldn’t have slumped 900 points before halting when the circuit filter was set for a 570-point fall,” Arun Kejriwal, director at Kejriwal Research & Investment Services Pvt., said by phone. “This is a system failure. Blaming a broker does not absolve the exchange of the lapse on their system’s part.”
“I am assured that there is no systemic risk” to Indian markets, Chidambaram told reporters. “The NSE is looking into it and SEBI will also investigate the matter,” he said, referring to the financial regulator.
The NSE’s systems weren’t at fault, according to the exchange’s Varanasi.
“There is no question of any glitch or malfunctioning in NSE’s systems,” he said by e-mail. “The broker’s dealer put in an erroneous quantity in the orders, which is being investigated.”

Shares Plunge

Emkay Global Managing Director Prakash Kacholia didn’t answer his mobile phone. The broker’s shares plunged by the 10 percent daily limit to 31.1 rupees.
While the drop in India drew comparisons with the rout in American equities on May 6, 2010, the U.S. event spurred many times the losses of the Nifty’s plunge and affected more companies.
About 20 stocks in India saw declines of 19 percent or more on Oct. 5, compared with the more than 300 securities that lost at least 60 percent during the flash crash before the trades were canceled, a September 2010 report from the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission found. The decline and rebound in the Nifty lasted seconds, compared with more than 15 minutes for stocks, futures and indexes in the flash crash.

‘Fat-Finger Mistake’

“It’s definitely concerning but we feel it was a fat- finger mistake rather than a market structural issue,” Ben Rozin, who helps manage the $600 million Manning & Napier International Fund, which includes Indian stocks, said by phone from Rochester, New York. “When we look at the Indian equity market, we think it’s pretty well run, and that this has very low impact.”
The NSE, India’s largest bourse, controls more than 90 percent of India’s $28 billion equity derivatives market and handles 75 percent of the stock trades. The stoppage, the biggest such problem in more than two years, comes as a burst of policy reforms by Prime Minister Manmohan Singh propels Indian stocks to a 17-month high. Foreign investors have plowed a net $16.5 billion into local shares this year, the most among 10 Asian markets tracked by Bloomberg, excluding China.
The Nifty slipped 0.7 percent to 5,746.95 by the 3:30 p.m. close of trading yesterday. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, rose 0.6 percent at 857.8 rupees, rebounding from a 20 percent plunge, while Housing Development Finance Corp. (HDFC), India’s biggest mortgage lender, lost 5 percent to 749.95 rupees after also falling 20 percent.

Reliance Declines

Of the 4,100 companies trading on the exchange, 19 fell 19 percent or more intraday. Mumbai-based Reliance dropped from 856 rupees to 816.7 in one trade at one second before 9:51 a.m., traded again at that price, then rebounded. A second later, it fell to 682.35 rupees in two trades, Bloomberg data show.
The stock jumped back to 856 during the same second. A total of six trades occurred below 840 rupees during the session, all of them at the bid price.
Housing Development Finance opened at 775.80 rupees and traded at an average price of 753.63 during the day. Thirty-five trades occurred at prices below 740 rupees. The day’s low was reached because of two trades at 2 seconds before 9:51 a.m. executed at a price 16 percent below the previous transaction.

ADRs Fall

An index of Indian stocks traded in New York fell the most since Sept. 25, after rising over the previous two days. The Bank of New York Mellon India ADR Index dropped 1.2 percent to 1,071.40 by 2:47 p.m. American depositary receipts of Infosys Ltd. (INFY), India’s second-largest software exporter, declined for the first time in seven days, losing 1.5 percent to $48.93.
“The crash definitely hurts as there has been a lot of foreign flows in the last two months and any erroneous order would impact investor confidence,” Daphne Roth, head of Asian equity research at ABN Amro Private Banking in Singapore, which oversees about $207 billion, said by e-mail. “Investors would still ultimately look to future reforms, not just related to the bourse but also to the economy.”
Combined daily volumes on the nation’s two biggest bourses averaged 989 million shares last month, 27 percent more than in August, data compiled by Bloomberg show. Trading last year in the Nifty, at 35.5 billion shares, was the lowest in four years.
“It’s not something that India needed at this stage when volumes are just beginning to recover,” Aquarius’ Rajan said.
In a separate statement, the NSE said it had “disabled” Emkay Global and closed out the broker’s outstanding positions. N. Hariharan, a spokesman at the Securities & Exchange Board of India, the market regulator, wasn’t available for comment.

Electronic Trading

The NSE, founded in 1992, began trading equities electronically in 1994, spurring the 137-year-old BSE, which runs the BSE India Sensitive Index, to follow suit.
Trading at both exchanges takes place through an open electronic limit order book, where order matching is undertaken by the trading computer.
The entire process is order-driven, meaning market orders placed by investors are automatically matched with the best limit orders and buyers and sellers remain anonymous. The order- driven market brings more transparency by displaying all buy and sell orders in the trading system, though there’s no guarantee that orders will be executed because of the absence of market makers.
All orders must to be placed through brokers, many of which provide online trading facilities to retail customers. Institutional investors can gain direct market access through trading terminals provided by brokers for placing orders directly into the stock market trading system.
Competition among Indian bourses is poised to intensify with a third bourse, the MCX Stock Exchange, planning to start trading equities around Diwali, the Hindu festival of lights, which falls in November.
“With another exchange set to be operational in about a month investors would have an alternative,” Kejriwal of Kejriwal Research said.
To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

India Clears FDI in Insurance, Pensions in Economy Reboot

By Andrew MacAskill and Bibhudatta Pradhan - Oct 4, 2012

Indian Prime Minister Manmohan Singh’s cabinet unveiled a second wave of policy changes intended to bolster a slumping economy as he seeks to restore faith in his leadership and establish a platform for his party less than two years before the next general election.
In a move that signaled the Congress party-led government’s intent to push ahead with the biggest opening of the economy to global investors since 2004, ministers approved proposals allowing overseas companies to hold as much as 49 percent in insurance firms, and for the first time permit foreign investment in pension funds. The bills will need the consent of lawmakers in parliament.
“We have gone from a situation where we had lost faith in the government to suddenly where it is doing all the right things,” said Pauli Laursen, an Aabenraa, Denmark-based fund manager at SydInvest Asset Management, who manages about $700 million in shares of BRIC companies, including Indian power producer NTPC Ltd. (NTPC) “But for money to keep going to India, we need to have a continuous strong news flow of good decisions.”
Spurred to take action by an economy growing close to its slowest pace in three years and warnings that India’s credit rating faced being downgraded to junk status amid stalled policy making, Singh’s widening embrace of foreign investment risks further protests in the streets and in Parliament. His biggest ally quit the ruling coalition last month over the Sept. 14 proposals to allow foreign supermarket chains to open stores, while opposition parties called a daylong strike.

Aviva, ING

Aviva Plc (AV/), Allianz SE (ALV) and ING Groep NV (INGA) are among global insurers that will be able to further invest in their Indian ventures if lawmakers approve the proposals when Parliament resumes next month. The votes may provide the first test of Singh’s ability to drum up the support among regional powerbrokers that his minority administration will need to pass legislation.
Indian stocks rallied to the highest level in 17 months as investors added to their holdings before the cabinet meeting. The rupee rose to its strongest in five and a half months.
Rejecting a parliamentary panel, which in December said a further increase may not be in the interest of the country’s insurance industry, the government will present a bill to Parliament proposing to lift the cap on foreign investment in insurance to 49 percent from 26 percent currently. A separate bill will allow overseas investment in pension funds.

Banerjee Exit

Last month, Singh’s cabinet allowed overseas retailers such as Wal-Mart Stores Inc. (WMT) and Carrefour SA (CA) to own as much as 51 percent in supermarket ventures. The government also said foreign airlines can own as much as 49 percent in local carriers, and permitted overseas investment of up to 49 percent in power exchanges.
The second round of big-ticket policy changes announced yesterday may be harder to enforce because unlike foreign investment in retail and aviation, which are enacted by a cabinet decision, opening insurance and pensions requires parliamentary approval. Since the exit of Mamata Banerjee’s Trinamool Congress from the ruling coalition two weeks ago, the government has been reduced to a minority in both chambers of parliament.
“So far they have decided to take the low-hanging fruit,” Laursen said in a phone interview before yesterday’s cabinet meeting. “It is going to be much harder for them to pass the pensions and insurance bills because they don’t have the allies in Parliament.”

Buffett Venture

Singh’s government has in the past been rebuffed in its efforts to lift the caps on insurance and pensions by rival political parties. Both bills have been introduced in Parliament before, with the government unable to win the support of groups ideologically opposed to private companies investing in pension or insurance funds, many of them state run.
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said last year during a visit to India that the prior limit on overseas ownership of local insurers made investments in the country less attractive. Berkshire began selling auto coverage in the country last year after forging an agreement with Bajaj Allianz General Insurance.
“India would be more attractive if we could buy more than 26 percent,” Buffett said at a media conference in Bangalore in March 2011. “That is a factor in the decision of not investing.”

U.S. Interest

U.S. insurers have been seeking to add sales in India as they look to emerging nations for expansion. New York-based MetLife Inc. (MET), the largest U.S. life insurer, announced a deal last year for Punjab National Bank (PNB) to distribute its products.
“MetLife has long spoken out in support of the expansion of foreign direct investment opportunities in India,” Peter Stack, a company spokesman, wrote in an e-mail. “We are encouraged by these developments and will continue to watch the bill’s progress through Parliament closely.”
In May, Michel Khalaf, MetLife’s president of Europe, the Middle East and Africa, contrasted the limits in India with opportunities in Brazil, South America’s largest economy.
In India, “there are restrictions in terms of foreign ownership, a challenging regulatory environment,” Khalaf said. “Brazil is a different case in the sense that Brazil is an attractive market.”
Liberty Mutual Holding Co. struck a deal with Videocon Industries Ltd. (VCLF) in 2010 to form a company that would sell both personal and commercial insurance. The Boston-based insurer said in July that it received approval to begin writing coverage in the country.
To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

India Pushes Economy Opening With FDI Insurance, Pension Plans By Abhijit Roy Chowdhury - Oct 3, 2012

ndian Prime Minister Manmohan Singh is seeking to build on the biggest opening of the country’s economy in a decade with the cabinet today scheduled to consider proposals to lift caps on foreign investment in insurance and pension industries.
Ministers will consider allowing overseas companies to own as much as 49 percent of local insurance ventures, from the current 26 percent, and for the first time permit foreign direct investment of as much as 26 percent in pension funds, according to two government officials with direct knowledge of the matter, who asked not to be identified, citing rules. The plans would need parliamentary approval to become law, which may prove difficult for a minority government.
After two years of policy paralysis, the Congress party-led government burst into life last month with decisions to throw open retail and aviation sectors, and its energy markets, to foreign investment and cut fuel subsidies. While the moves, which didn’t need the support of lawmakers, splintered Singh’s biggest ally from the ruling coalition, the prime minister defended his actions saying only strong economic growth would pay for programs to aid millions of poor people.
“It’s amazing how quickly expectations of the government have changed,” said Alex Mathews, research head at Geojit BNP Paribas Financial Services Ltd. (GBNP) in the southern city of Kochi. “The government looks set to continue with bold reforms.”
Singh’s administration has rejected a recommendation by a parliamentary panel, which in December said a further increase in foreign direct investment may not be in the interest of the country’s insurance industry, according to the people, who spoke yesterday.

Insurers Gain

Indian insurance companies gained yesterday on speculation the legislation raising overseas investment will be passed by ministers, Mathews said. Max India Ltd. (MAX) rose 6.1 percent and Bajaj Finserv Ltd. (BJFIN) climbed 3.5 percent, outpacing the BSE India Sensitive Index (SENSEX), or Sensex, which closed up 0.24 percent.
In the past, the government has been rebuffed in its attempts to pass these rule changes due to opposition from political parties, including communists, ideologically opposed to private companies investing in pension funds or insurance companies, many of them state run.
Since the exit of Mamata Banerjee’s Trinamool Congress from his ruling coalition, Singh has to rely on smaller regional parties outside his alliance to get measures passed in parliament because the government is in a minority in both chambers of the legislature. He’s seeking to bolster an economy growing at near its slowest pace in three years and stem his party’s declining popularity following a series of corruption allegations and defeats in provincial elections.

Aviva, ING

Aviva Plc (AV/), Allianz SE (ALV) and ING Groep NV (INGA) are among global insurers that will be able to further invest in their Indian ventures if the cap is raised.
The cabinet may also consider proposals that will overhaul the way India distributes subsidized food to the poor as the government attempts to curb rampant theft that denies nourishment to many of 350 million people living on less than 50 cents a day.
Ministers will discuss plans to fully computerize the five- decade-old Public Distribution System, the world’s largest effort to provide affordable meals, Food Minister K.V. Thomas told reporters yesterday without giving further details.
Coming amid the slew of policies to open a slowing economy to foreign investment, the move would deliver on a promise by Singh to balance bolstering growth with assistance for the nation’s poorest.
In a prime-time address to the nation Sept. 21, Singh said his government would do more to spread the benefits of economic expansion in the 18 month leading up to the next election.
His speech followed criticism from opposition parties and allies that the decisions to raise diesel prices and open the economy to foreign supermarket chains would erode farmers’ incomes and put the jobs of millions of small shopkeepers at risk.
To contact the reporter on this story: Abhijit Roy Chowdhury in New Delhi at achowdhury11@bloomberg.net
To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

Oil Slides With Crops on Supply Concern; Aussie, Euro Decline By Glenys Sim and Yoshiaki Nohara - Oct 2, 2012

Commodities declined for a second day, led by oil and grains, on speculation supplies are rising. The Australian dollar slid to the lowest in four weeks and the euro traded near a three-week low while Asian stocks fluctuated.
Oil in New York lost 0.3 percent to $91.63 a barrel at 9:06 a.m. Tokyo time. Soybeans dropped to the cheapest since July 12. The so-called Aussie slumped 0.4 percent. The euro was at $1.2906 after touching $1.2804 on Oct. 1, the lowest since Sept. 11. The MSCI Asia Pacific Index (MXAP) and futures on the Standard & Poor’s 500 Index declined 0.1 percent. Hong Kong’s Hang Seng Index rose 0.6 percent as trading resumed after a two-day break. Financial markets in China and South Korea are closed.
U.S. crude stockpiles probably increased 1.5 million barrels last week, according to a Bloomberg News survey before an Energy Department report today. Rain forecast in South America may boost the potential crop yield. Data today may show retail sales in the euro area shrank a second month in August, the first consecutive drop this year, before European Central Bank officials gather tomorrow to decide on monetary policy.
“You’ve got a lot of uncertainty at the moment, and I think the market is going through a little bit of a consolidation phase,” said Cameron Peacock, a Melbourne-based market analyst at IG Markets, a provider of trading services for stocks, bonds and currencies.
The dollar strengthened against most of its 16 major peers before a private report today that may show employers in the U.S. added fewer workers, and data Oct. 5 that’s forecast to show the jobless rate in the country rose to 8.2 percent last month from 8.1 percent in August. The Dollar Index, which tracks the greenback against six U.S. trading partners, rose 0.1 percent, gaining for the first time in three days.

Aussie, Ringgit

Australia’s dollar declined for a fourth day, dropping to $1.0222, the weakest since Sept. 6, before trading at $1.0225. The Reserve Bank of Australia will reduce rates to the lowest level in its 53-year history, according to credit markets that predicted yesterday’s cut more accurately than economists.
Australia recorded its widest trade deficit since March 2008, with imports exceeding exports by A$2.03 billion ($2.08 billion) in August, missing economists’ estimates for a deficit of A$685 million.
Asian currencies fell for a second day as the Asian Development Bank cut the region’s growth forecasts for 2012 and 2013. The Bloomberg-JPMorgan Asia Dollar Index lost 0.1 percent as Malaysia’s ringgit slipped 0.4 percent to 3.0633 per dollar.
The Manila-based lender forecast Asia excluding Japan will expand 6.1 percent this year, according to a report today, compared with a July estimate of 6.6 percent and an April target of 6.9 percent, as Europe’s sovereign debt crisis and fiscal contraction in the U.S. slows economies from China to India.
To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Tommy Hilfiger’s Partner Seeks Brand Ventures: Corporate India By Swansy Afonso - Sep 30, 2012

Arvind Ltd. (ARVND), which sells Tommy Hilfiger Corp.’s and Mossimo Inc.’s products in India, is in talks for more partnerships to revive sales growth that analysts forecast may slow.
Revenue may rise 14 percent to 56 billion rupees ($1.06 billion) in the year that started April 1, Chairman and Managing Director Sanjay Lalbhai said in an interview. That’s more than the median 7 percent growth estimated by five analysts compiled by Bloomberg. The company will spend as much as 5 billion rupees this year to develop its brands, textiles and real estate businesses, he said.
Arvind, which last week agreed to acquire the Indian franchisee of Debenhams Plc (DEB), Next Plc (NXT) and Nautica, is seeking more licenses to tap demand that’s also attracted billionaires Mukesh Ambani and Kumar Mangalam Birla into the industry. Technopak Advisors Pvt. forecasts the apparel market in Asia’s third-largest economy to more than double to $98 billion in the 10 years to 2021, exceeding the global pace of growth.
“We have a healthy pipeline of negotiations going on,” Lalbhai said in Mumbai. “Most of the dialogues are with single brand companies.”
Arvind, set up in 1931 following calls by India’s independence leaders to boycott British clothing, paid about 550 million rupees for the acquisitions last week, according to Nirmal Bang Institutional Equities. Arvind will invest 1.5 billion rupees in the three brands, the company said in a statement on Sept. 27.

Cash Flow

The acquisitions may “exert pressure” on Arvind’s cash flows as the brands are unprofitable, Jignesh Kamani, an analyst at Nirmal Bang, said in a report. The purchase may affect the company’s plan to purchase more licenses, he said. Arvind had total debt of 19.7 billion rupees as of March 31.
“We are trying to grow out of our own internal accruals, which is a bit of a limiting factor,” Lalbhai said. As earnings before interest and taxes increase “and our cash flows rise we will increase the expenditure in the coming years.”
Kamani cut his 12-month target on the company’s share price by 5 percent to 92 rupees following the purchases. Arvind has risen 20 percent this year compared with a 25 percent gain in the BSE500 index. The shares gained 1.6 percent to 79.9 rupees in Mumbai on Sept. 28.
The company is targeting 50 billion rupees of revenue from selling branded apparel in the next five years, according to the statement on Sept. 27. It reported 13 billion rupees from selling branded apparels in the year ended March 31.

Reliance Trends

Arvind group sales rose 21 percent to 49.25 billion rupees in the year ended March 31. Earnings margin before interest, taxes, depreciation, and amortization narrowed to 12.7 percent. That compares with an average margin of 13.6 percent for its rivals in Asia, according to data compiled by Bloomberg.
Competition is intensifying in the sector that Technopak forecasts will expand at a compounded annual growth rate of 9 percent, compared with 6 percent globally. Prime Minister Manmohan Singh this year allowed overseas companies to own 100 percent of single-brand retailers.
Ambani’s Reliance Trends, that focuses on apparel, luggage and accessories, had 90 stores as of March 31, according to parent Reliance Industries Ltd. (RIL)’s annual report. Reliance Trends sells Hardy and London Fog brands in India. The company also owns 51 percent of a venture with Marks & Spencer Group Plc.
The company’s recent “acquisitions strengthen Arvind’s position in facing pressure from the likes of Reliance Retail, the Birla group and others in the market,” said Nikhil Upadhyay, an analyst at Equirus Securities Pvt. “The consumption pattern is evolving positively for rivals to grow in the short to medium term.”

Cotton Prices

A drop in cotton prices will ease input costs for the supplier of denim to Gap Inc. (GPS) and Levi Strauss & Co., and help fund expansion, Lalbhai said. About 70 percent of Arvind’s revenue is from making textiles.
“Prices will go down further,” he said. “China is not buying cotton. So till December, cotton will remain bearish.”
Cotton futures have tumbled 22 percent this year and are down 67 percent since reaching a record $2.197 a pound on ICE Futures U.S. in New York in March 2011. .
Arvind is also planning to expand its Arrow and French fashion brand Elle in eastern Africa and the Middle East, Lalbhai said.
“Arvind’s brand business is still in investment phase,” Equirus’ Upadhyay said. “Better performance in the brand and retail business are key for re-rating” of the stock.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net