News Opinion Feature investigation Special Reports Editors Choice Picture - Interview KM Interview -- Reji Jacob, Managing Director, JRG Securities JRG is a premier brokerage firm in India operating in major stock exchanges and commodity markets. In Dubai, it is a leading player in the Dubai Gold and Commodities Exchange through its joint venture JRG Metals and Commodities DMCC. Regi Jacob, Managing Director, JRG and director, JRG metals and Commodities DMCC speaks about stock and commodity markets, the Satyam controversy and future of commodity trading.-- Q--How do you see the current situation in the Indian stock market and commodities exchanges? The downward trend in the market is making people to learn from previous mistakes and minimize the risk involved in stock and commodity market investment. The global economy is facing a grim economic crisis and companies and investors have to know how to minimise risk through hedging mechanism. There has been high volatility in commodity price and currency exchange rates. Crude oil price has reached from a peak of $147 per barrel to less than $47 –a fluctuation of $100 in two months. Other commodity prices like steel, silver, gold and silver have witnessed violent fluctuations.Investors have to use hedging mechanism to minimise risk from these types of commodity price and currency exchange rate fluctuations. Q--What is your forecast for the current year –2009? The global financial crisis has started from the property and mortgage market in the USA and moved to Europe and the wind is flowing to South East Asia within 18 to 21 months. Following the stimulus packages and multibillion bailout packages the US economic crisis should have been arrested by December 2008. Looking back to different boom and depression cycles, the period from 2003 to December 2007 was one of the longest boom periods. The reverse recession started from January 2008 to December 2008. As boom period was long, recession will also be long. The bottom has yet to be found in many segments –commodities and stock exchanges. The US and European stock markets have come down substantially. Emerging markets like Brazil and China have witnessed sharp decline and the actual crisis is yet to come. In the last few weeks, Indian reality stocks are going down –a signal that there is scope for further down trend across the globe. We can expect further setbacks in various market segments. Q--What are your major businesses and give details of your Dubai joint venture? JRG started in Koch has three subsidiaries –we are members of leading stock exchanges in India. JRG Commodities is active in the Indian commodity markets and through our joint venture in Dubai—JRG Metals and Commodities DMCC (Dubai Multi Commodities Centre )–Dubai Gold and Commodities Exchange (DGCX). Insurance brokerage sector is the latest business for which JRG has acquired a license from the Indian Insurance Regulator. After India opened its insurance sector for foreign investment, a lot of foreign players have entered the market. Insurance broking is a new business area in India. JRG is one of the fist Indian brokerage firms to get an insurance brokerage license. As insurance companies are offering services directly to the customers, there is going to be intense competition in the Indian Market. JRG is member of the National Stock Exchange of India (NSE), the Bombay Stock Exchange, the National Multi Commodity Exchange of India Ltd (NMCEIL), the National Commodities Derivatives Exchange Ltd (NCDEX), the Multi Commodity Exchange of India Ltd (MCX) and the Indian Pepper and Spices Trades Association (IPSTA). In the stock market operations, JRG has 400 offices or centres in different parts of India and about 15,000 employees. Our Dubai subsidiary, JRG Securities and Commodities DMCC is a partnership firm in which JRG Securities hold 30 per cent stake and two directors Babu K Lonappan and Hazza Mohammed have 30 percent stake each. In Dubai we have organised a Commodities Summit to bring the benefits of global commodity futures for the practical use of businesses community in the UAE. These training sessions are designed to throw light on commodities as an asset class for investment, its correction with global downtrends and the hedging possibilities for corporate world to secure profit during highly volatile times. About 450 participants have engaged in mock trading sessions. About 2500 customers are registered in JRG trading platformAs the Dubai commodities exchange grows, Dubai which is a trading hub will become a hub of electronic commodity trading as well. JRG was the first commodity brokering company to initiate steel futures delivery through DGCX last year. With widespread services access across UAE, JRG serves to the needs of corporate, High Net worth Individuals and retail client base with latest technology platform for investment, hedging and trading needs in international commodities and foreign exchange. We have introduced mobile trading in Dubai and mobile phones are widely used for price discovery and accessing rates. The actual trading happens at the brokers end. Q--How are the agro commodities trading through commodity markets? The Indian agro commodities market involves trading in natural rubber, pepper, coffee etc. Due to high inflation and sharp fluctuation in commodities prices, trading in rubber and other agro commodities was banned for eight months in 2008. Now the ban on rubber trading is removed. In the Indian commodity market gold has huge trading turnover. In India people have more interest in gold than anywhere else in the world. We are seeing a big change in favour of gold as an investment. Compared to other commodities like oil and currencies,gold price has been steady. Gold will be a steady investment in future. Q--What is the impact of global economic crisis in India? The impact of global economic crisis is felt everywhere including India. In Kerala, there are not too many industries as in other Indian states. Tourism is a major foreign exchange earner in Kerala, has been already affected. Backwater tourism is severely affected as many international tourists have cancelled their holiday programmes, especially after the Mumbai terrorist attacks. The IT sector too will be affected by the current slowdown in the US and Europe. To add fuel to the fire, the controversy about Satyam computers will make foreign institutional investors sceptical about investments in India. Now the government has taken over Satyam Computers. Q--What is the response of investors, especially NRI investors who have invested in Satyam? What corrective measures can prevent such frauds? They are upset about the fraud and its impact on the company's share price. I know investors who have purchased Satyam shares about ten months back investing Rupees two million, but their share value has come down to just Rupees 100,000 –huge erosion of value in a short time. Wealth is being washed away and nobody envisioned such a situation. About 25,000 Satyam shareholders have purchased share through JRG Securities. That includes many NRI investors from the Gulf. Despite the Satyam controversy the corporate governance standard is high in India. Foreign institutions hold about 61 per cent share in the company. From its initial public offering in 1991 to 2008, Satyam shareholders were happy as the company was giving positive returns andhandsome dividends. There are issues in checking the company's balance sheet and auditors role. Q--What is your advise to retail investors? Investors can play a creating role in preventing such frauds by avoiding investment in fraudulent companies. How far it will be effective is debatable. Not only the big four auditing firms, but even the role of credit rating agencies in the USA is questioned now. The impact of Satyam fraud and all other similar fraud in the past is that only good companies will succeed. People should invest only their long-term surplus in stock market. Unlike gold or real estate, stock market investment still offers chances of high returns and losses. Wait for the market recovery.