The crisis over Satyam has left the mutual fund industry in the wilderness as to what extra precautionary measures can be taken to judge the quality of a management while investing. Anticipating similar like fiasco in the future too, MFs plan to be more vigilant in scrutinising balance sheets.
Terming the incident as ‘detrimental to Indian Inc’ industry players are keeping close watch on all Satyam related developments, especially with respect to auditors and bankers of the company. “Auditor’s role is very crucial in this entire saga. We would like to hear from PwC as well as from all the bankers of the company. Their views will put more light into it. Based on that, we shall strengthen our efforts in judging corporate governance of a company,” said Waqar Naqvi, chief executive, Taurus Asset Management.
The balance sheet of Satyam carries inflated cash and bank balances of Rs. 5,361 crore as against Rs.5,040 crore and accrued interest of Rs.376 crore which is non-existent. Industry players express their helplessness over it. Said N K Garg, CEO, Sahara Mutual Fund, “It is not feasible for industry players to cross-check with every banker of a company about the cash in hand or any other item like accrued interest.”
However, Garg added, “it is not enough for MF investors to check only two pages of a balance sheet to draw a conclusion about a company. One will have to go through the schedules and notes of accounts mentioned with the balance sheet. Corporate governance gets 52% of the total scores in asset management in our house.”
As on 31 December, 2008, HDFC Growth and HDFC Equity had Satyam investment of 1.95% and 2.64% to their NAVs. Birla Sun Life Equity had 2.75%. Three schemes of UTI AMC and two schemes of Franklin Templeton had also holdings between 1.75% and 8%. As on November, 2008; Reliance Advantage fund and Reliance RSF had 1.19% and 2.83% respectively.
However, all those stakes have been brought down substantially in view of recent developments in Satyam. Most of the MFs offloaded their stake booking the loss to minimum possible extent when the scrip was traded at 3 digit figures on Wednesday in a losing streak. Fund houses refuse to be quoted on Satyam exposure.
Mentioned Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management, “for investments, there is no ready formula to counter such situation. In determining the quality of management we do every needful exercise. Going ahead, there could see many such cases of deliberate frauds.”
In a probable solution to mitigate the risk of investment in such unprecedented fraud case, Anoop Bhaskar, head – equity, UTI Asset Management, presents a case. He said, “It is great learning experience for all of us as it is the first Indian company involved in a fraud of this magnitude. We need to concentrate more on diversification of portfolios. If fund managers restrict a particular company investment to the tune of 2-3 per cent investment, the loss gets limited.”
Going through the annals of ENRON and Worldcom, fund managers are not surprised over Satyam but are scouting for ways to put more focus on corporate governance.
Terming the incident as ‘detrimental to Indian Inc’ industry players are keeping close watch on all Satyam related developments, especially with respect to auditors and bankers of the company. “Auditor’s role is very crucial in this entire saga. We would like to hear from PwC as well as from all the bankers of the company. Their views will put more light into it. Based on that, we shall strengthen our efforts in judging corporate governance of a company,” said Waqar Naqvi, chief executive, Taurus Asset Management.
The balance sheet of Satyam carries inflated cash and bank balances of Rs. 5,361 crore as against Rs.5,040 crore and accrued interest of Rs.376 crore which is non-existent. Industry players express their helplessness over it. Said N K Garg, CEO, Sahara Mutual Fund, “It is not feasible for industry players to cross-check with every banker of a company about the cash in hand or any other item like accrued interest.”
However, Garg added, “it is not enough for MF investors to check only two pages of a balance sheet to draw a conclusion about a company. One will have to go through the schedules and notes of accounts mentioned with the balance sheet. Corporate governance gets 52% of the total scores in asset management in our house.”
As on 31 December, 2008, HDFC Growth and HDFC Equity had Satyam investment of 1.95% and 2.64% to their NAVs. Birla Sun Life Equity had 2.75%. Three schemes of UTI AMC and two schemes of Franklin Templeton had also holdings between 1.75% and 8%. As on November, 2008; Reliance Advantage fund and Reliance RSF had 1.19% and 2.83% respectively.
However, all those stakes have been brought down substantially in view of recent developments in Satyam. Most of the MFs offloaded their stake booking the loss to minimum possible extent when the scrip was traded at 3 digit figures on Wednesday in a losing streak. Fund houses refuse to be quoted on Satyam exposure.
Mentioned Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management, “for investments, there is no ready formula to counter such situation. In determining the quality of management we do every needful exercise. Going ahead, there could see many such cases of deliberate frauds.”
In a probable solution to mitigate the risk of investment in such unprecedented fraud case, Anoop Bhaskar, head – equity, UTI Asset Management, presents a case. He said, “It is great learning experience for all of us as it is the first Indian company involved in a fraud of this magnitude. We need to concentrate more on diversification of portfolios. If fund managers restrict a particular company investment to the tune of 2-3 per cent investment, the loss gets limited.”
Going through the annals of ENRON and Worldcom, fund managers are not surprised over Satyam but are scouting for ways to put more focus on corporate governance.
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