Invest only in regulated cos or pick long-term funds: Sebi

"Investors cannot be an expert in determining whether a company is genuine or not, while investing in an equity market. If someone does not possess that expertise, then it is best advisable in long-term funds that will give assured returns," he said in CNBC-TV18's show Depositor Protect Thyself.

For the past three to four years, con jobs or fraudulent companies attracting investments from individuals have risen, so an ordinary investor should first find out whether that company is regulated or not, he added.

He also elboarted on the role of Sebi as a market regulator.

Below is the edited transcript of his interview to CNBC-TV18.

Q: First, a broad outline as to how Sebi prevents fraud. What, basically, are the kinds of fraud or con jobs that companies indulge in? Can you give us a broad outline?

A: What we are noticing in the last three, four years is that companies which are not regulated by any central agency, are trying to reach out to individuals and raising money.

For example, if you are a collective investment scheme, you have to get registered with Sebi. If you are a non banking financial company (NBFC), you have to get registered with RBI.

However, there are many companies which only get registered as a company under the Companies Act. Under the Act there are lakhs of companies and they have their own style and purpose of business. What we are noticing nowadays is that some of them are saying that they are in the business of real estate, timeshare, multi-level marketing etc.

To an ordinary investor they reach out as being a registered company. And then they start raising money. The problem is that which regulator will act when a compliant is given to him.

For collective investment scheme Sebi is the regulator, for NBFCs RBI is the regulator. So, for an ordinary investor, my first advice would be that find out whether they are regulated by any of the financial sector regulators or not.

Q: Chandigarh is a city of employees. And they are generally interested in investing in initial public offering (IPOs). At one time there was controller of capital issues (CCI). It always fixed the prices of IPOs, rights all that and they were very genuine prices. It is only when Sebi came in CCI was no longer there. Then the prices which were fixed by the companies were absolutely wrong. The fixation of prices, of rights and IPOs must be fixed by Sebi. It should take up this point as henceforth, people will not be cheated that way. I am a victim of a company known as Zylog Systems. This company was very popular at one time and I invested quite heavily. Thereafter, for 15-20 days, the stock was on the down circuit and Sebi took no action. It behaved just like a policemen who comes after the crime and the criminals are at their home; this is very sad. The day Sebi took action from thereafter, the stock is everyday under down circuit for 5 percent. As a result even if the promoter has their hands, so to say, but the investor has been equally hanged, investors are suffering. A share which was being sold at Rs 600 now yesterday it was sold at perhaps Rs 20.

A: First question was about the pricing of the IPO and the issue being made was that, earlier in the CCI days, CCI used to fix the price. It also used to fix the number of shares that can be issued. It also fixed the time of the year when those shares can be issued. The law of the land has changed and Sebi cannot fix the price of the share. The share price has to be determined by the market.

What Sebi can do is to ensure that proper disclosures have been made. If disclosures have not been made properly, then Sebi can take action against a company. You began your speech by saying that Chandigarh is a city of retired people or of government servants.

I presume you also meant to say that these are people who are not experts in the capital market. So, my counter question to you would be an advice; would it be that if you are not an expert in the capital market, why are you playing in the primary or the secondary market?

There is a hierarchy of risk in the capital market and the basic principle is that if you are not an expert then don't start taking risk in the secondary market -buying and selling shares in the secondary market or even in the primary market. The right route for you is to come through mutual funds, through informed investors where there are experts who are investing on your behalf.

Sebi has been advising again and again that unless you are an expert, you are capable of looking into the results of a company and analyzing it on a day-to-day basis or even real-time basis, which is what experts are doing. It is what CNBC does on a minute-to-minute basis during the marketing hours then I would advice that people who you describe as they are government servants or retired civil servants they should not be going into the market this way.

You are bound to have a risk. However, I would like to add that when a share price falls it can on a statistical basis maybe a short-term thing. I must also add that on a long term basis Indian capital market has given a very good return.

New 52-Week High for State Street - Analyst Blog

Shares of State Street Corporation (STT) achieved a new 52-week high, touching $68.86 at the end of the trading session on Jul 9. The closing price of this global banking major reflected a solid year-to-date return of 43.6%.

Despite the strong price appreciation, this stock has plenty of upside left, given its estimate revisions over the last 60 days and expected year-over-year earnings growth of 15.3% for 2013.

Growth Drivers

The expected year-over-year growth rate of 17.5% for second-quarter, impressive first-quarter 2013 results and solid capital deployment activities were the primary growth drivers for State Street.

The company is scheduled to announce second-quarter results on Jul 19. The Zacks Consensus Estimate for the quarter is pegged at $1.19 per share. The Zacks Earnings ESP (Read:Zacks Earnings ESP: A Better Method) for State Street is 0.00% for the second quarter. This, along with its Zacks Rank #2 (Buy), lowers the chances for a positive earnings surprise.

Moreover, in April, State Street's first-quarter earnings beat the Zacks Consensus Estimate. Better-than-expected results were driven by an increase in fee income, partially offset by higher operating expenses and a decrease in net interest income.

Estimate Revisions Show Potency

For State Street, over the last 60 days, 6 of the 14 estimates for 2013 have been revised upward, raising the Zacks Consensus Estimate by nearly 1% to $4.55 per share. For 2014, 6 of the 14 estimates moved north, helping the Zacks Consensus Estimate advance 1.2% to $5.19 per share.

Other well performing banks include JPMorgan Chase & Co. (JPM), KeyCorp. (KEY) and Northern Trust Corporation (NTRS). All of them carry the same Zacks Rank as State Street.

Tech stocks: Social stocks quiet ahead of Twitt…

Stocks in social networks including Facebook, LinkedIn, Groupon and Yelp are mixed in midday trading as Twitter prepares to make its Wall Street debut.

Daily deals site Groupon is down more than 4%, while Yelp has plunged nearly 6%. Both LinkedIn and Facebook are down slightly.

Twitter is expected to announce its official price for the launch of its initial public offering on Wednesday before trading on the New York Stock Exchange on Thursday.

For those investors wanting a slice of Twitter, here's a primer on how to snag some shares. But as USA TODAY's Matt Krantz suggests, it's best to hold off for now.

Meanwhile, shares of Activision are up nearly 2% in pre-market trading as the publisher is fresh off launching the latest title from its flagship Call of Duty franchise.

The company announced Call of Duty: Ghosts, available Tuesday, sold more than $1 billion into retail stores on its first day. However, the publisher did not disclose how much revenue was earned through copies sold to consumers.

The game faces stiff competition from Take-Two Interactive's blockbuster Grand Theft Auto V, which generated $800 million in revenue on its opening day, and raked in $1 billion in three days.

Follow Brett Molina on Twitter.

I’m Adding More Money to This Incredible Value

Earlier this week, Bridgepoint Education (NYSE: BPI  ) revealed that the Western Association of Schools and Colleges had approved the company's Ashford University application for accreditation for five years. Investors had been concerned about this accreditation issue for the last year or so, and shares jumped on the news. They're now up about 50% from where my Special Situations portfolio bought in late April.

But guess what? Despite the price rise, the stock has been significantly de-risked, it's cheap, and it's time to buy more before a future run-up. So my Special Situations portfolio is adding another $1,000 to the allocation of this for-profit educator.

All the news
The accreditation news was the biggest overhang on the shares, and it was with a sigh of relief that I heard the word. But with the worst-case scenario off the table, the stock is arguably cheaper than it was before. That's because now the company has a range of value-creating actions.

First, Bridgepoint also announced that it has targeted $85 million in cost cuts. The company suggests that these cuts "will not sacrifice the commitments and investments we made to improve student learning, success and outcomes." At Bridgepoint's trailing effective tax rate of 38.2%, that translates into $52.5 million in after-tax profit, or nearly $1 per share. That's a significant cost-cutting program. Those effects won't come into full effect until mid-2014, but until then, the income statement will be bolstered by ongoing cost reductions.

Of course, that cost savings is in addition to whatever the company would earn otherwise. Maybe that's $1 per share, maybe $1.50. The company is declining to give guidance on its upcoming conference call in early August, but noted that enrollments should hit an inflection point in the fourth quarter and head upward.

Second, the company has nearly $429 million in cash and short-term investments, as well as more than $96 million in long-term investments. Plus, it has no debt. That's not a capital structure that maximizes shareholder value.

With few other likely uses for that cash, it should be returned to shareholders in some form or other. That could include buybacks, or a special dividend, and ideally would include some type of leveraged recap, as well. Issuing debt, and then getting that money to shareholders through buybacks or a special dividend, would show that management is serious about creating value.

Encouragingly, there is a precedent for buybacks, with the company having spent a total of $135 million in 2010 and 2011 on shares. I'd love to see more of this, and at a more aggressive level. In any case, this type of cash should not be sitting on the balance sheet.

In short, this stock should be worth a lot more.

Foolish bottom line
Despite the run-up in shares, Bridgepoint still looks like a great special situation. So I'll be adding $1,000 of the stock to my Special Situations portfolio.

Interested in Bridgepoint Education or have another stock to share? Join me on my discussion board and follow me on Twitter (@TMFRoyal).

Spirit Realty Sets Pro Rata Q3 Dividend

With Spirit Realty Capital (NYSE: SRC  ) set to merge with Cole Credit Property Trust II in the third quarter, the commercial real estate REIT announced yesterday it would pay a pro-rated dividend for the third quarter based on a quarterly payout of $0.3125 per share, the same rate it paid last quarter. Spirit only went public last September and began paying dividends in January.

The board of directors said the quarterly dividend is payable to shareholders of record as of 5:00 p.m. New York time on the day before the merger. They will receive $0.0034 per share per day from July 1, the first day of the third quarter, through the day before the merger. Payment of the pro-rated dividend is contingent upon the closing of the deal.

Spirit Realty Capital anticipates that the surviving corporation will declare a dividend for the remainder of the third quarter following the closing of the merger. The full quarterly payout would equate to a $1.25-per-share annual dividend, yielding 7% based on the closing price of Spirit Realty Capital's stock on July 1.

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Lost Decade for Bonds Looms With Growing Return for Equities

Jin Lee/Bloomberg While investors flee bonds, Laszlo Birinyi, one of the first money managers to tell clients to buy stocks before the bull market began in March 2009, said the S&P 500 could climb to 1,700 as more people move into equities.

U.S. Treasuries are now providing less than half the yield of stocks, giving investors little reason to keep the three-decade bull market in bonds alive as housing starts, consumer confidence and corporate profits point to an improving economy.

While 10-year Treasuries yield 2.61 percent, up from a 2013 low of 1.61 percent on May 1, the aggregate earnings yield of stocks in the Standard & Poor's 500 Index (SPX) was 6.4 percent of the index's price level, Federal Reserve data compiled by Bloomberg show. Even after the selloff in bonds, the four percentage point gap is more than double the average of 1.9 points since 2000.

With the Fed saying it could start tapering its $85 billion of monthly bond purchases later this year, investors from Leon Cooperman's Omega Advisors Inc. to BlackRock Inc. are avoiding longer-term Treasuries, concerned that returns will be depressed for years to come. Money managers foresee the end of a rally that began after former Federal Reserve Chairman Paul Volcker vanquished inflation in the early 1980s.

"The lost decade for bonds has begun," Howard Ward, the chief investment officer at Rye, New York-based Gamco Investors Inc., which oversees $36.7 billion, said in a June 19 telephone interview. "Stocks are likely going to be the asset class of choice over the course of the next 10 years. Now that the tide has turned and the economy is doing better, investors in bonds are going to have a hard time making any money."

Stocks Preferred

With consumer confidence approaching a six-year high, housing starts increasing to 2008 levels and corporate profits double what they were five years ago, investors withdrew $9.1 billion from fixed-income mutual funds and exchange-traded funds in the week ended June 5, the second-highest total in more than 20 years, according to Denver-based Lipper.

JPMorgan Chase & Co., the most-active underwriter of corporate bonds since 2007, earlier this month joined Barclays Plc, Bank of! America Corp., Morgan Stanley and Goldman Sachs Group Inc. in recommending stocks over most bonds as equity returns outpace company debt by the most since at least 1997.

The Bank of America Merrill Lynch U.S. Corporate & High Yield Index's 2.6 percent loss this year compares with a 12.8 percent gain for the S&P 500 Index, including reinvested dividends. Treasuries have lost 2.8 percent, according to the Bloomberg U.S. Treasury Bond Index. (BUSY)

Yields Surge

Fed Chairman Ben S. Bernanke told reporters in Washington on June 19 that policy makers are prepared to begin phasing out its bond buying later this year and halt purchases around mid-2014 as long as the economy meets the central bank's forecasts. Bonds around the world fell along with stock markets.

The global economy is "in the early stages of the recovery of the equity culture and perhaps the end of a 30-year growing love affair" with bonds, Jim O'Neill, the former chairman of Goldman Sachs Asset Management and now a Bloomberg View contributor, said in a June 11 interview on Bloomberg Television. "When the game starts to change with central banks, it is inevitable bonds are going to suffer."

Treasury 10-year yields rose last week by the most in a decade, surging 40 basis points, or 0.4 percentage point, according to Bloomberg Bond Trader prices. Yields extended gains today, rising eight basis points to 2.61 percent as of 11 a.m. in New York, after reaching 2.66 percent, the highest since August 2011.

Global Selloff

The selloff wasn't limited to the U.S. Yields on 10-year German bunds soared 21 basis points last week to 1.73 percent. U.K gilts increased 34 basis points to 2.4 percent.

"Liquidity today is king and what we're getting is cascading liquidity failures," Mohamed A. El-Erian, chief executive and co-chief investment officer at Pacific Investment Co., said today in a Bloomberg Radio interview with Tom Keene and Michael McKee. "When you change the liquidity p! aradigm, ! what you get is massive technical unwinds and that speaks to the volatility."

Globally, bonds of all types have lost 1.5 percent in 2013, even after accounting for reinvested interest, Bank of America Merrill Lynch's Global Broad Market Index shows. The gauge hasn't had a down year since 1999, when it fell 0.26 percent.

Prospects for less Fed stimulus also hit stocks last week. The S&P 500 fell 2.1 percent to 1,592.43, down from the record high of 1,687.18 on May 22. The benchmark Stoxx Europe 600 Index 3.7 percent, while the MSCI World Index dropped 2.9 percent. The S&P dropped 1.5 percent today.

Earnings Outlook

Profits for companies in the S&P 500 will jump more than 10 percent in each of the next two years after almost doubling since 2008, the average of more than 11,000 analyst estimates compiled by Bloomberg show.

Earnings gains of that magnitude would send yields to 8.3 percent assuming no change in the stock index. The S&P 500 now trades at a multiple of 14.7 times this year's profit forecast.

"The stock market multiple is low relative to interest rates," Leon Cooperman, the chairman and chief executive officer of New York-based hedge fund Omega Advisors, with $8.4 billion under management, said in an interview on Bloomberg Television's "In the Loop" with Betty Liu on June 20. "There's scope for rises," he said, adding that a fair level for the S&P 500 is between 1,600 and 1,700.

Bonds have their backers. Treasuries will be the best performers for the next few months, according to Jeffrey Gundlach, manager of the $41 billion DoubleLine Total Return Bond Fund. The fund returned 4.35 percent in the 12 months ending of June 21, beating 91 percent of its peers. It has lost 0.1 percent this year, better than 88 percent of competitors.

Slow Inflation

"Government bonds are also caught up in price deflation of assets and commodities, but I just think if bond yields rise further then it seems crystal c! lear to m! e equities and commodities will tank," Gundlach said in a telephone interview on June 20. "Therefore, you'll lose less in Treasuries if rates rise than many other asset classes."

Slow inflation is also a lure to Treasuries. The Fed's preferred gauge of consumer prices, the personal consumption expenditure index, will average 0.8 percent to 1.2 percent this year and climb 1.4 percent to 2 percent in 2014, the central bank reported June 19. Its target is 2 percent.

Fed economists revised their forecasts for U.S. economic growth, saying on June 19 that gross domestic product will rise 2.3 percent to 2.6 percent this year, compared with a previous estimate of 2.3 percent to 2.8 percent. The rate next year might be as high as 3.5 percent. Unemployment will drop to as low as 6.5 percent by the end of 2014, the central bank said.

Treasury Bull

The difference between Treasury 10-year yields and the annual rate of inflation, a measure known as the real yield, touched 1.17 percent on June 21, the highest since March 2011, after falling to negative levels as recently as March.

"Those that are selling Treasuries in anticipation that the Fed will ease out of the market might be disappointed unless we have inflation close to 2 percent," Bill Gross, the manager of the world's biggest fixed-income fund at Pimco, said in a June 19 interview on Bloomberg Television's "Street Smart" with Trish Regan and Adam Johnson.

Gross has been advising investors to buy Treasuries while the Fed continues to purchase debt, even as he says that the 30-year bull market for bonds is over.

His $285 billion Total Return Fund (PTTRX) had 37 percent of its holdings in Treasuries in May, down from April's 39 percent, the most since July 2010. The fund returned 0.7 percent the past year, beating 74 percent of its peers. It has lost 3.71 percent in 2013, beating just 12 percent of competitors.

"Real growth to lower unemployment below 7 percent is a long shot over ! the next ! six to 12 to 18 months," Gross said.

'No Rush'

While investors flee bonds, Laszlo Birinyi, one of the first money managers to tell clients to buy stocks before the bull market began in March 2009, said the S&P 500 could climb to 1,700 as more people move into equities.

"We still haven't seen the real rush to equities," Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, said in a telephone interview on June 19. "We're still confident this market has a long ways to go."

Equity investors may reap unusually high returns during the next five years, according to a May 8 report from the Federal Reserve Bank of New York. Stocks are inexpensive as measured by the Fed Model, which compares the earnings yield for equities with government bond yields.

The spread touched a record high of 6.6 percentage points in March 2009, data compiled by Bloomberg showed. The gap shrank to 0.3 percentage point in December 2009 in the early stages of the bull market while earnings declined as the recession drew to an end in June of that year.

Calculated Losses

With 10-year yields rising, "equities represent better value than Treasuries, particularly on the longer end of the curve," Rick Rieder, chief investment officer for fundamental fixed-income at BlackRock, said in a telephone interview on June 20. "We've seen the lows on interest rates."

Rieder recommends government debt due in less than five years, estimating that 10-year Treasury yields will move closer to 3 percent next year. New York-based BlackRock is the world's largest money manager, with $3.94 trillion of assets.

An investor buying 10-year Treasuries at the current yields would gain 0.1 percent if they reached 3 percent at the end of 2014, Bloomberg data show. Rates on the benchmark securities touched a record low of 1.379 percent in July.

"The only way bond yields will come down and revisit those lows is if the economy relapses," David Rosenber! g, the ch! ief economist at investment advisers Gluskin Sheff & Associates Inc. in Toronto, said in a telephone interview on June 18. "The odds of that happening at least in the next year have come down significantly. The economy has managed to crawl through."

Fed Tool

Rosenberg is shorting, or betting against, government debt in favor of high-quality corporate and speculative-grade securities. He's also buying stocks of banks and insurers.

Treasuries yields are still below the average 3.57 percent for the past decade. The 10-year term premium, a model that calculates the risk of holding longer-duration securities, rose above zero on June 19 for the first time since October 2011. A positive reading suggests the securities are at fair value.

"The stock market would not be where it is without the bond market where it is," Rosenberg said. "The Fed is using the bond market as a tool to generate a higher stock market and it's certainly working. The secular bull market is over."