Know the IDR FAQs as Stanci sets the ball rolling

The largest foreign bank in India, Standard Chartered Bank is all ready to become the first foreign company to list in India through an Indian depository receipts (IDR) issue. It will sell 240 million IDRs through a public issue opening on May 25. Ten IDRs will equal a share of Standard Chartered.

The bank expects to mop up around USD 500-750 million (Rs 22,500-33750 million) to expand its businesses globally.

Parties to the IDR issue include - issuer company, overseas custodian, the domestic depository and Registrar and Transfer Agent. Their roles are as under:

Issuer Company: It is a foreign listed company. The investor gets an exposure to the Global Company, so remember there is global risk. If Stanchart (Standard Chartered Bank) has a problem in any part of the world and the Stan C shares fall in UK, Indian IDR will fall.

Domestic Depository: Is a SEBI registered Custodian will issue the IDR and acts as a trustee for the IDR holders – for more details read the Deposit Agreement.

Overseas Custodian: Issuer Co issues shares to Overseas Custodian who holds it on behalf of the Domestic Depository on the basis of which the DD issues IDR in India. It is a foreign entity appointed by the DD

Registrar and Transfer Agent: Provides services to the issuer company, DD, and IDR holders in India. It does record keeping, coordinating corporate actions, handling investor grievances, etc.

Provides services like record keeping, co-ordinating corporate actions, handling investor grievances to issuer co, DD, IDR holders

Why is Stanci (Standard Chartered) taking the IDR route?

The fundamental rule goes thus….If `A` being a foreign company cannot list in India directly, it will take route of sharing the risk and rewards with Indian shareholders.

The logic of buying IDR of Standard Chartered Bank:
The very high price earning ratios of Indian banks is likely to be one the reasons which prompted Stan C to think of an IDR. Most of the revenues for Stan C come from Asia, it employs many Indians even internationally, and they have a fantastic client base in Asia. So they will lap it up in India hence they must be issuing shares. Also for the company the currency risk is reduced with the Euro not in great shape. In all, a win –win deal for all.

The risks involved are….

Well…each investment has its pros and cons assigned to it…..IDRs are not an exception. When you are investing you are exposing yourself to the global risk. But it like saying that our Indian markets are not impacted by the global economic environment. So, ideally speaking if you are ready to reap what it takes by investing in global company, IDRs are for you………….Happy investing !!!

ABC of Index Funds

An index fund allows you to enjoy the good parts of a mutual fund, with little or none of the bad, by buying stock in all the companies of a particular index and thereby reproducing the performance of an entire section of the market. An index fund builds its portfolio by simply buying all the stocks in a particular index - the fund buys the entire stock market, not just a few stocks. The most popular index of stock index funds is the Standard & Poor`s 500, but there are index funds that track 28 different indexes, and more are added all the time.

An S&P 500 stock index fund owns 500 stocks - all the companies that are included in the index.

According to Chetan Patel, VP-PMS, Sushil Finance (P), `` this is the key distinction between stock index funds and ``actively managed`` mutual funds. The manager of a stock index fund doesn`t have to worry about which stocks to buy or sell - he or she only has to buy the stocks that are included in the fund`s chosen index. A stock index fund has no need for a team of highly-paid stock analysts and expensive computer equipment that goes into picking stocks for the fund`s portfolio. So the hard part about running a mutual fund is gone. ``

``Investing in stock index funds is often called passive investing, since the funds don`t use the same active management techniques as other funds. Passive investing has two big advantages over active investing. First, a passive stock market mutual fund is much cheaper to run than an active fund. Eliminate those analysts` salaries and an index fund can cut its costs tremendously - and those savings can be passed along to investors in the form of higher returns, `` he adds.

Chetan Patel is VP- PMS, Sushil Finance (P) since October 2007. 

7 risk factors in the market today!

So should you invest directly in equities? Well here are some risks that I can see in the market today. Thought I should share it with you:

Risk No. 1: No fund manager is talking about interest rates going up. Ben Bernanke who thinks all problems can be solved by keeping interest low will have a problem. Once a few countries (did you notice a few small countries bought gold recently? smaller quantity than what India did, but is it a trend?). So Greenback could be in some tight spot in the longer run. As a country and as a world investor, we need to be prepared for the cumulative effect of credit deterioration around us - sovereign defaults will increase, big corporates will struggle, Euro competitiveness is a joke - see the Chinese power equipment pricing power. The recession may have just started - remember W is just 2 Vs stuck together? So we may be in a double dip recession in the world. And India may not create enough jobs for the 3-4 million MBAs, engineers, CAs, we churn out.

Risk No. 2: We ignore what we want to ignore: When Dubai happened, we said Dubai is not US. When Greece happened, we said Greece is not US. When Spain happened we said… When the Red Shirts disturbed Thailand, we said Thailand is not India. Dubai, Greece, Spain are symptoms of a world living beyond its means. One day it will catch up. We are all hoping when the music stops, the parcel will not be in our hand.

Risk No. 3: Throwing US currency from being the `reserve` currency will be bloody. The US thinks the rest of the world owes it a living. It subsidizes cotton - which leads to farmer suicide. Even Sharad Pawar will have to wake up to this. Dollar is strong because the Euro is worse. Watch this space it will be bloody. Our blood.

Risk No. 4: We think India is insulated from all this. We are not. Our luck is whichever currency is strong, there will be enough Indians working there and remitting money from there. Thank God for Keralites, Sindhis, Punjabis, Gujaratis, and Tamilians - and their wandering spirit!

Risk No. 5: Thinking that only the above 4 risks matter.

Risk No. 6: Thinking all risks will be nicely tabulated and given to you in a website. I call this the MBA power-point solution - problem. Most of us want only 7 slides - problem, example, what will happen, what is supposed to have happened, what is the solution, scenario of this solution applied to past data, and therefore will apply to the future, thank you and contact details.

Risk No. 7: The risk that will get your net-worth down is not listed here from 1 to 6. It is your behavior when the market is up or when the market is down. Investor behavior is much worse than market behavior.

Amusing risk: I just received a ppt from a broking house - showing about 20 companies which were supposed to do well in the future. I had not heard about this research house, so I opened it out of curiosity. The sender Mr. J had called them `Multi-beggars`. Of course I do not wish to share the name of the analyst of the name of the company. This I think is the worst risk. There are 20 good analysts, but 2000 people masquerading as analysts… This is perhaps the biggest risk- if it is not the media.