Tuned out of the markets this week? Here are some interesting developments that you probably missed.
Sugar high The week began on a nice note with Twitter erupting with birthday wishes for Warren Buffet. Born on August 30, 1930, he has completed 86 this year.
Odes to the billionaire investor traced his net worth from $ 6000 at the age of 15 to $ 61 billion now.
Nastier folks reminded us of Buffett’s high-sugar, high-calorie diet, which includes a menu of Coke, french fries and chocolate chip ice creams, and wondered anew at his longevity. But Buffet has a finance-geek explanation for his diet too. “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year- old.”
Call drop The Reliance Industries’ (RIL) AGM always hogs the airwaves when it happens. This time investors in the company actually had something to be excited about, as Mukesh Ambani revealed the game-plan for its telecom foray.
Reliance Jio’s starter tariffs proved far more disruptive than market mavens expected. Ambani’s ‘all voice calls free for life’ on the high quality 4G LTE network, came as a rude shock to rivals. They after all earn three-fourth of their revenues from voice calls, which RIL plans to offer for free!
This was on top of deep cuts in tariffs for data, which RJio proposes to give away at Rs 50/GB, against the prevailing Rs 250/GB. Bharti Airtel and Idea Cellular had 7 and 11 per cent shaved off their stock prices on the AGM day. Whatsapp groups had a ball talking of how a 45 minute speech by Ambani had wiped out big market wealth for his rivals.
But the curious bit is that the markets didn’t take all that kindly to the disruptor either, with the RIL stock also losing 3 per cent. A few brokers reiterated half-hearted ‘Buys’ on RIL and said they were ‘Cautious’ on the two telco rivals. But there was an undercurrent of worry about how long this disruptive telecom foray would take to pay off, for RIL itself.
Not so solid Dusting off its 2012 case against leading cement companies for ‘acting in concert to fix cement prices’, the Competition Commission of India (CCI) on September 1, imposed hefty penalties on eleven players. Surprisingly enough, no brokerages rushed to put out ‘Sells’ on these cement firms.
ACC got slapped with a penalty of Rs 1,147.6 crore, Ambuja Cement with Rs 1,163.9 crore, Ultra Tech with Rs 1,175.5 crore, Jaiprakash Associates with Rs 1,323.6 crore, Lafarge with Rs 490 crore, Shree Cement Rs 400 crore and players such as Binani, Century, India Cements, JK Cements and Ramco with sums of between Rs 120 to Rs 270 crore. A small penalty of Rs. 0.73 crore was also imposed on the Cement Manufacturers Association.
The markets seemed to receive this piece of bad news with nonchalance, with the stock prices of Ultra Tech and Ambuja Cements actually moving up a bit on Thursday.
One argument was that the penalties accounted for a minor portion of the market-cap of the firms. This is true in most cases. The penalties account for between 1 and 4 per cent of the market cap for ten of the eleven players. But not for Jaiprakash Associates, which with a market cap of Rs 2,800 crore has been slapped with a Rs 1323 crore penalty.
A second argument was that cement bigwigs had managed to contest the CCI order and get it overturned in 2012, and would do so again. Now that is being too sanguine. One of the reasons the COMPAT set aside the CCI order last time was that it hadn’t given a hearing to the players’ side of the case. As the regulator has heard them this time around, wonder what new chink in the order the industry can come up with?
You can get your hands on the CCI release and order, which incidentally has interesting stats on the cement industry here.
Algo wars The week saw the brokers’ forum on the exchanges slugging it out on whether Algo trading is good or evil. SEBI had put out a discussion paper on August 5, proposing a new set of rules to rein in automated trading and high frequency trades (Read it here )
This paper has mooted many new controls that promise to put a spoke in the wheels of the Flash Boys, from a minimum resting time for orders, to random speedbumps in order matching to separate queues for co-located and non co-located terminals.
Predictably, institutional investors and large brokers reacted with suppressed horror to this announcement and urged SEBI to ‘go slow’ .
But smaller brokers, who don’t actively use algos, welcomed the attempt to ‘level playing the field.’ Need to see which way SEBI leans.