Tag: Bombay Stock Exchange

Global Economy Survived Ukraine War, but Can It Shrug Off Israel Strife?

A perfect storm is building as crude prices harden and the US dollar strengthens on the back of very high 10-year bond yields.

India’s stock market index has lost nearly 5% over the last six days as global markets also turned jittery over the possible consequences of the Israel-Hamas war. The emerging market stock indices were already weakening for about 12 weeks before the Hamas attack, as weakness in the global economy seemed to persist.

A perfect storm is building as crude prices harden and the US dollar strengthens on the back of very high 10-year bond yields, which have touched 5%, which was last seen in 2007 before the global financial crisis. High bond yields signal higher inflationary expectations. Given this background, there is little likelihood of the Federal Reserve pausing its interest rate hike cycle anytime soon. India’s RBI too has indicated that inflation will have to be watched more carefully, following the Hamas-Israel war and its potential spread to the broader West Asia region. This is not particularly good news for ruling regimes across the world which are approaching general elections.

The markets may not take kindly to Israel’s excessive bellicosity towards UN Secretary General António Guterres, who is pressing for the observance of international law and the rules of war. The markets are psychologically impacted by words used by top global leaders.

In Ukraine, 9,600 civilians were killed over 18 months. In Gaza already 7,000 plus civilians are dead in a few weeks in the most destructive bombing in a short period.

For instance, US President Joe Biden advising Israel to eschew rage in its response may have caused nervousness in the markets. If Israel continues to act aggressively over the next few weeks, sharpening the brinkmanship between the Western powers and the Iran-Russia-China axis, one could well witness another round of spikes in inflation and interest rates globally.

Some reputed Wall Street analysts have made the contrarian argument that the markets are taking the Israel-Hamas war in their stride and there is some optimism that it won’t spread to the larger region. Perhaps this optimism flows from the manner in which the Russia-Ukraine war avoided the worst economic consequences simply because nations ranged against each other chose to minimise damage by letting Russian oil come into markets via the backdoor. Surely there was an economic backlash in terms of the hardening inflation and interest rates, but the worst-case scenario was avoided.

There is hope that a similar cycle may play out during a prolonged Israel-Palestine conflict. It is true that the powerful political-business elites in the US, Europe, China, Russia, Saudi Arabia, Iran and Israel are heavily invested in global financial assets and their instinct would be to minimise economic damage. But as President Biden observed, any response characterised by rage and vengefulness could upset such rational calculations. The collective market intelligence is well aware of this, too. Things can easily spiral out of control in a war that increasingly becomes part of big powers rivalry. Such accidents do occur in history. Hence the continuing nervousness seen in the behaviour of stocks, bonds, crude and gold, all of which can have a profound impact on the real economy. India will not be insulated from this. A lot of foreign institutional money has left the Indian stock market in the past several weeks. Foreign equity money is leaving most emerging markets in search of safer investment options. US bonds are seen as offering good risk-free returns.

Foreign direct investment (FDI) into India has also slowed down considerably because events like Ukraine and Gaza urge global investors to hold back until there is clarity on what is likely to happen in the near future. India’s foreign trade ― both imports and exports ― has slowed sharply in the last quarter, reflecting shrinking economic activity. Imports and exports together constitute nearly 50% of India’s GDP. PM Modi and his economic policy advisors were hoping that private sector investment would finally pick up after nine years of drought in new corporate investments. But negative global events ― first in Ukraine and now in West Asia ― seem to have put another spoke into the possibilities of any meaningful recovery in the global economy. India will also likely see a holding operation in the coming months as the nation prepares for the Lok Sabha elections in 2024.

For Free Rations Scheme, Modi Should Be Considered for Nobel Peace Prize: BSE Chief

Ashishkumar Chauhan hailed the prime minister for “successfully executing the world’s largest free food programme” during the COVID-19 pandemic.

New Delhi: Bombay Stock Exchange (BSE) chief Ashishkumar Chauhan on Friday said the Nobel committee should seriously look into awarding the Peace Prize to Prime Minister Narendra Modi for his role in expanding the free food programme in India during the COVID-19 pandemic.

Chauhan hailed the prime minister for “successfully executing the world’s largest free food programme” during the COVID-19 pandemic.

The Nobel Peace Prize 2020 was awarded to United Nations World Food Programme (WFP) for offering food to 11.5 crore people, which is only about 14% of India’s 80 crore people who were provided with free rations during the pandemic, Chauhan said in Kolkata.

According to the UN website, the WFP was awarded the Nobel Peace Prize 2020 after it assisted 97 million (9.7 crore) people in 88 countries, who are victims of acute food insecurity and hunger in the previous year.

“We have performed very well in managing COVID despite our per capita earning being 10-30 times lower than that of developed nations. We should be proud,” the BSE MD and CEO said while delivering his speech at the convocation of IIM-Calcutta.

“Will the Nobel Prize Committee look seriously into Modi’s role in the free food programme remains to be seen,” he said.

The IIM-C alumni also praised all politicians, social workers, and doctors for their hard work to help India overcome the pandemic woes. “We blame politicians but this time they stood up to the expectations though all of us faced hardships,” said the BSE head.

Chauhan, whose second term as the BSE chief will expire in November, is likely to apply for the MD and CEO job at the National Stock Exchange (NSE), according to reports. He is one of the founders of the NSE.

The NSE’s incumbent chief Vikram Limaye will move on in June, when his term ends.

(With PTI inputs)

Russia-Ukraine: How will Indian Markets Deal with a War? 

While the Centre doesn’t have a clear role in so much as a correction is concerned, it is now faced with the effects of a commodity price surge, global instability, sharp foreign investor outflows and rattled domestic sentiment.

Two months into the year find financial markets in a tricky space. After negotiating the uncertainty and jagged nature of a post-COVID economic recovery, global markets now find themselves staring at the possibility of a full-blown war. The Russian military is carrying out airstrikes on Ukrainian military compounds, leaving a large part of the Western world tense and polarised. And crude has surged to triple digits. 

Here in India, when taking a broader perspective, the quantum of the cuts for key indices is still not savage. Outperformers like IT have been punished hard (the Nifty IT Index has lost more than 15%) and the broader market is feeling bruised (Midcap Index down almost 10%).

As a jumpy market flits nervously from Ukraine to COVID recovery and also to a hawkish US Federal Reserve (Fed), three things have emerged clearly. 

Global shivers, global money 

Year to date, foreign investors have pulled out over Rs 53,000 crore from equities. To be fair, it is equally noteworthy that domestic money has tried hard to absorb that system shock; domestic institutions have bought approximately Rs 40,750 crore into the markets so far.

A smooth and often profitable run for SIPs so far will now face a dual test. Fresh money needs to keep coming into the market via SIPs and other instruments, but it also remains to be seen whether there can be a huge growth in the number of retail investors flocking to the stock market. Household incomes and savings are under pressure, retail inflation is ticking higher and Crypto remains a far bigger favourite for younger India than equities. 

There’s also a degree of relentless pummelling here. In 2020, overseas investors closed the year with an inflow of a modest Rs 26,000 crore; down 84% from the Rs 1,70,260 crore they invested the previous year. To jog our memories, it was the worst inflow – quantum-wise – since calendar year 2018. This year, of course, we’re off to a roiling start with over Rs 50,000 crores offloaded.  

Many things are going into the global blender at this point. March may bring the “lift-off” everyone’s expecting from the Fed. In fact, minutes from its meeting suggest it may even be open to tightening monetary policy more quickly than expected if US inflation doesn’t ease off. That places a big question mark on future inflows and the step-in-step edginess of global markets that has been on display over the last few weeks. 

India may suffer more than others simply because it outran many markets on gains and valuations. The benchmark BSE Sensex rose over 20% on a year-to-date basis till December last year; the BSE Midcap was up almost 40% and the BSE Small cap index had a spectacular 60% run. 

Added to all of that is the ongoing geopolitical tension around Ukraine. While there are tenuous links to draw between financial markets and geopolitical strife, what markets need less off is uncertainty. At this point, however, it is piling on in heaps. 

Also read: Explained: What the Fed’s Inevitable Rate Hike Means for India and the Global Macroeconomy

Commodities and their sting 

A $100/barrel mark on crude is here and all signals point to the commodity crossing those levels, if tensions escalate further and for longer between Russia and Ukraine.

Paul Hickin, director, S&P Global Platts writes about how the global economy can withstand a short-lived price spike, but a spike with a higher peak and longer duration does much greater damage to global oil demand and its recovery to pre-pandemic levels. 

There are many ways in which this will play out badly for India. Retail prices will have to be upped, causing greater financial pain for households; the government may have to shell out more in its subsidy pay-outs for fertilisers; and with 80% of our oil needs met by imports, we are both hamstrung for want of options or choices and the Finance Minister now has a higher oil import bill to contend with. 

Neither does this equate to a big lottery amongst the listed oil companies. While the ruling government attempts to kick the can down the road, thanks to ongoing state elections, oil marketing companies and refiners are left hamstrung and uncertain about the quantum of losses they may need to grin and swallow. 

There is another development that’s slowly but surely building – Nickel has risen to $25,000/tonne; a first since 2011. Copper, now in hot demand for electric vehicles, wind turbines and other green energy initiatives, doesn’t seem to be in any mood to cool it’s rally. Goldman Sachs analysts are calling it “the new oil”. They see prices average $11,000 per metric ton over the next 12 months.

All this means far higher input costs for many frontline companies that were, so far, insulated from any big escalation in costs. Fast-Moving Consumer Goods (FMCG) firms have been candid about subdued demand in rural pockets, and the added pinch of high input costs sullies the earnings pitch for India – not the best background for a market that has been patently overvalued in many pockets and has enjoyed the fruits and attention of that overvaluation for months now. 

Of big bets and IPOs 

If 2020 was about a ‘big bang market’, 2021 was about an even bigger bang primary market; initial public offerings (IPO) were flowing on tap, valuations were stratospheric and there was a virtual stampede for subscriptions. From that point of milk and honey, things have turned quite quickly. One could debate the timing of this, but as I had written, post the Paytm listing, a sour run for this giant IPO may have been the cataclysmic beginning of the end for the IPO circus. 

As the Indian Express collates, at least one in three IPO this financial year since is currently trading below its issue offer price. There’s similar damage across the mid and small cap fields, where stocks have already seen savage cuts of over 20% this year.

In the small cap space, the losses are even deeper. A lot of the froth is moving out of the system. That’s never an easy or painless process. It may also take with it a section of the more risk- loving trading section. What remains to be seen, is whether people will walk away with burnt fingers forever, as many did in the last bear market of 2008-2009, or whether they will come back to trade another day. 

Also read: The Winners and the Losers of Union Budget 2022

All regulator hands on deck 

The market correction, just like the pandemic, will take its course. Stocks will bleed, prices will be reset and lessons will be learnt. What’s more important from here on, especially in the context of this year, is what our key regulatory authorities choose to do. 

Number one; the Reserve Bank, that was either feeling extremely optimistic or extremely misplaced in its reading of the situation. Rising inflation is not going away in a hurry; it is and has been sticky in nature and will likely get worse, given the trends on crude oil and the pass-through we will face on petrol and diesel prices post the election results in March. 

By attempting a status-quo on rates, the central bank is creating an atmosphere of uncertainty and confusion. It is, of course, another matter that they have also chosen to disregard the growing and apparent inequality of incomes in India, but let’s leave that discussion for another day. 

Number two; after a crash-and-burn run through 2021, there’s still a lot of IPOs set to hit the market. The Life Insurance Corporation (LIC) is the biggest and the first to go, but it will be followed by many others, including Ola, Byju’s and Delhivery. This is the time to set things in order. With respect to pricing and the role of anchor investors and transparency of financials, especially with regards to start-ups.  

And finally, the Finance Ministry, that doesn’t have a clear role in so much as a financial market correction is concerned. But it will also be the first time they are faced with the effects of a commodity price surge, global instability, sharp foreign investor outflows and rattled domestic sentiment. It will also need to watch the sharp gyrations on the Crypto market, which as we now know, is taxed but not legitimate. With prices sliding sharply on actively traded coins like Bitcoin, there may well be fire-fighting required on multiple fronts. 

The markets have shown their hand. A geo-political crisis is underway. Are India’s regulators ready? 

Sensex Jumps Over 300 Points to Breach 50,000 Mark for the First Time

The broader NSE Nifty also scaled its highest level of 14,738.30 in early trade.

Mumbai: Equity benchmark Sensex rallied over 300 points to hit the 50,000-mark for the first time ever in early trade on Thursday on strong gains in index majors Reliance Industries, Bajaj Finance and ICICI Bank amid positive global cues.

After touching a lifetime high of 50,126.73, the 30-share BSE index was trading 300.09 points or 0.60% higher at 50,092.21 in opening deals.

Similarly, the broader NSE Nifty surged 85.40 points or 0.58% to trade at 14,730.10. It too scaled its highest level of 14,738.30 in early trade.

Bajaj Fiserv was the top gainer in the Sensex pack, rising around 4%, followed by Bajaj Finance, Reliance Industries, IndusInd Bank and Axis Bank.

On the other hand, TCS and HDFC twins were the laggards.

In the previous session, the Sensex had advanced by 393.83 or 0.80% to close at its fresh record of 49,792.12, and the Nifty had jumped 123.55 points or 0.85% to settle at a lifetime high of 14,644.70.

Foreign portfolio investors (FPIs) were net buyers in the capital market as they purchased shares worth Rs 2,289.05 crore on Wednesday, as per exchange data.

According to Binod Modi, head (strategy) at Reliance Securities, domestic equities look to be good at the moment given positive global cues.

“We believe the underlying strength of the market remains intact given the continued recovery in key economic data and expectations of sustained recovery in corporate earnings. Further, the ongoing vaccination drive and likely opening-up of the economy at full scale augur well for the economy and equities. Additionally, favourable monetary policies of global central bankers, a weak dollar and large fiscal stimulus in the US are expected to ensure sustained flow of FPIs in domestic equities,” he said.

US equities finished at record highs on Wednesday after Joe Biden was sworn in as the president and he vowed to take all necessary measures to bring back the country’s economy on track.

Elsewhere in Asia, bourses in Shanghai, Hong Kong, Seoul and Tokyo were trading with significant gains in mid-session deals.

Meanwhile, the global oil benchmark Brent crude was trading 0.30% higher at $55.91 per barrel.

What We Should and Shouldn’t Take Away from Vedanta’s Delisting Failure

A final answer should be given on this tale of technical glitches and unconfirmed bids.

The offer made by the promoters to delist the shares of Vedanta Ltd. has fallen through.

There are multiple ways to read this, even if each individual perspective doesn’t give the full picture. Does it reflect a sense of confidence in the company by the shareholder community? Or, does it indicate poor judgement on the part of the investors?

As analysts scratch their heads to understand why the delisting offer failed at the eleventh hour, a few questions have begun to be asked on how the entire process played out.

The delisting was sought to be done through a process of ‘reverse book-building’. Under this, the company concerned decides on a floor price. This price is then widely communicated to the shareholders. Thereafter, stock exchanges step in to facilitate the process of reverse book-building via an online bidding system. Shareholders then communicate their bids through the trading members (brokers, to be precise). The buy-back price will eventually be determined after the offer closes. Once this buy-back price is arrived at, all bids or offers equal to or below this price will be accepted.

There is a rider, though. The offer becomes successful only if a minimum number of shares are tendered.

In this instance, at least 134.12 crore shares are required to be validly tendered for the delisting offer to be declared successful. Only at that level, the promoters’ holding could breach the 90% level as required by the rule in a delisting exercise.

Till the final lap, it was assumed that the Vedanta offer would sail through. After all, public shareholders tendered 137.1 crore shares. The total public holding was in the vicinity of 169.73 crore shares. The story was playing out fairly on the expected line for the most part of the final day of the closure of the offer, i.e. October 9.

But it turned topsy-turvy later in the day as the evening approached. The explanation being put forth is that a technical glitch in the tender process perhaps gave the game an unintentional result.

The rules say that the offer must have closed at the close of the trading hour. But technical hiccups earlier in the day, on account of which some shareholders reportedly faced trouble in tendering shares, forced the authorities to extend the bidding time till 7 pm.

By 7:35 pm, the BSE website indicated that only 125.47 crore shares were confirmed to be tendered. That means that 12.31 crore shares weren’t confirmed. This deficit in eventual bids turned the delisting offer into a failure.

A man walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, March 6, 2020. Photo: Reuters/Francis Mascarenhas/File photo

India Inc has a number of examples of delisting offers having met with failure and thus this is nothing new or shocking. The issue with Vedanta though, is that the way the process played out has raised some questions.

J.N. Gupta, the co-founder of the proxy advisory firm Stakeholder Empowerment Services, is surprised. Not because the offer fell through, which would be fine. But what has caught Gupta and his ilk totally off guard, is the non-confirmation of bids worth 12.31 crore shares.

“If you have put in a bid, why haven’t you confirmed it?” asks Gupta.

Non-serious bidders are a dime a dozen in any bidding exercise, especially when it comes to project tenders – India’s power sector is a classic example. Such bidders enter the fray just to scuttle the whole process.

The question now being asked here is whether the technical glitch was the only reason behind any non-confirmation of bids. For instance, one question being asked is that if technical problems were the reason, why didn’t they confirm even when the authorities had extended the bid timing beyond the normal trading hours? Who are these bidders who failed to confirm? How much holding do they control together?

At the moment, the only thing that is known officially is that the delisting offer has failed. The onus is now on the authorities – the stock exchange mandarins and the market regulator – to give a final answer.

Had the delisting offer gone through, it would have helped the investor community make a reasonably satisfactory exit from Vedanta. With institutional investors such as the LIC quoting over Rs 300 a share, the final discovery price would have been far higher than the offer price announced by the promoters.

In the end, the non-confirmation of a sizable number of bids appears to have poured cold water into the whole delisting exercise. What went wrong? Media reports indicate that capital markets regulator SEBI may ask the BSE to probe and get to the bottom of the matter, an exercise whose results will no doubt be keenly watched.

Sensex Plummets Over 1,200 Points; Nifty Below 8,700

The rupee too receded from morning highs depreciating 5 paise to 74.29 against the US dollar.

Mumbai: Equity benchmark Sensex plunged over 1,200 points in afternoon session on Wednesday as global markets failed to hold on to early gains and resumed their downward spiral.

The rupee too receded from morning highs depreciating 5 paise to 74.29 against US dollar.

Investor gloom returned despite signals of massive stimulus packages by federal governments, traders said.

The BSE barometer oscillated over 1,600 points in a highly volatile session. It was trading 1,227.65 points or 4.01 per cent lower at 29,351.44 at 1230 hours.

Similarly, the boarder Nifty plunged nearly 500 points from the day’s high, trading 343.85 points, or 3.83 per cent, down at 8,623.20.

IndusInd Bank was the top loser in the Sensex pack, tanking over 32 per cent. Axis Bank, Bajaj Finance, Kotak Bank, SBI and Titan were also trading significantly lower.

According to traders, domestic equities failed to hold on to early gains as concerns over an economic recession continued to hammer investor sentiment.

Market participants were on edge as slowdown fear is leading company heads to plead for billions in government help to prevent them going under, experts said.

Before market hours this morning, S&P Global Ratings lowered India’s economic growth forecast to 5.2 per cent for 2020, saying the global economy is entering a recession amid the coronavirus pandemic.

The agency had earlier projected a growth rate of 5.7 per cent during the 2020 calendar.

Asia-Pacific economic growth in 2020 will more than halve to less than 3 per cent as the “global economy enters a recession”, S&P said in a statement.

Bourses in Shanghai, Hong Kong, Seoul and Japan too plunged up to 5 per cent.

Global stocks opened higher as hopes of economic stimuli from governments gave some temporary respite to the increasing woes of investors.

US stocks recovered in overnight trade after reports that US President Donald Trump will ask Congress to approve a massive USD 850 billion emergency spending package to contain the growing economic damage from the coronavirus (Covid-19) pandemic that will include a payroll tax cut and a bailout for airlines.

The number of deaths around the world linked to Covid-19 has topped 7,400, with over 1,80,000 infections recorded globally so far.

In India, the number of infected cases stood at 130, as per union health ministry log.

Meanwhile, global oil benchmark Brent crude futures fell over 1.53 per cent to USD 28.29 per barrel.

Nifty, Sensex Dive as Fed Rate Cut Fails to Calm Coronavirus Fears

Further spooking investors was data out of China that showed the country’s industrial output contracted at the sharpest pace in 30 years in the first two months of the year.

Bengaluru: Indian shares sank on Monday as the US Federal Reserve’s emergency move to cut rates back to near zero and disappointing economic data out of China spooked investors about the impact of the coronavirus outbreak on global growth.

The surprise rate cut on Sunday by the Fed and its measures to ensure liquidity in dollar lending ahead of a scheduled meeting that had been set for Tuesday and Wednesday sent US stock index futures tumbling to their daily down limit.

“Major concern is about the steps being taken to contain the virus spread by the government, stimulus is not something that is enough to calm nerves right now,” said Siddhartha Khemka, head of retail research at Motilal Oswal Securities.

“In India, the number of cases are going up, the volatility index is also high, indicating that markets will remain under pressure.”

The rupee, which fell to a record low of 74.508 against the dollar on Friday, was 0.44% weaker at 74.1725 by 0410 GMT.

Indian equities, which rebounded from a steep fall on Friday in hopes of coordinated stimulus measures to combat the impact of the virus, were kept in check on Monday by losses in financial stocks.

Also Read: Mayhem in Markets Over Global Factors as Sensex Nosedives Nearly 2,000 Points

The NSE Nifty 50 index slid 5.2% to 9,442.95 in early trading, while the benchmark S&P BSE Sensex dropped 5.4% to 32,2547.79.

India’s volatility index rose by more than 12%.

Further spooking investors was data out of China that showed the country’s industrial output contracted at the sharpest pace in 30 years in the first two months of the year due to the disruptions caused by the virus.

Lockdowns and travel bans spread across the globe over the weekend, affecting tens of millions of people.

On the blue-chip Nifty 50 index, Yes Bank Ltd was the only stock trading in positive territory, surging nearly 45%.

Miner Vedanta Ltd dropped more than 7% and was the biggest loser on the index. The Nifty Metal Index slipped 6.58%.

Shares of cinema hall chains Inox Leisure Ltd and PVR Ltd plunged 15% and 20%, respectively. India on Friday directed theatres to remain closed in some states in a move to contain the spread of the virus.

Shares of IndusInd Bank Ltd slid over 9% while those of State Bank of India were down 8%.

Oil-to-retail conglomerate Reliance Industries Ltd fell as much as 5.4%.

(Reuters)

Tremors of Possible Vodafone-Idea Collapse Spread After SC Rejects AGR Verdict Review Petitions

From the stock market to debt mutual funds, there are concerns over the consequences of a potential shutdown of Vodafone-Idea.

New Delhi: Shares of Vodafone-Idea plunged as much as 39% to hit an all-time low of Rs 3.66 on the Bombay Stock Exchange, a day after the Supreme Court firmly rejected review petitions moved by incumbent telecom operators against the controversial AGR (adjusted gross revenue) verdict.

In early trading, a total of 264.17 million shares changed hands on the BSE and National Stock Exchange, but the company’s stock slightly recovered and was trading down 25% as of 2:15 pm.

The apex court in October 2019 settled an over-decade-long dispute between the Department of Telecommunications and the telecom industry over payment of dues linked to AGR. With the rejection of the review petitions, all telecom companies will have to pay an estimated Rs 1.47 lakh crore in AGR dues to the government by January 23.

In the latest report, brokerage firm Citi pointed out that situation for Vodafone Idea “remains precarious” given that the liability equates to more than 2x to its current market cap. Meanwhile, according to estimates by Credit Suisse, net debt of Vodafone Idea could escalate to over 8x.

“The verdict may put a severe burden on telcos and have unconceivable repercussions, particularly against the backdrop of Vodafone Idea facing a risk of shutdown, it may result in Rs 1.2 lakh crore debt default, large-scale job losses and subscriber churn,” said analysts at MOFS.

They, however, pin hopes on government intervention to save the telecom firm.

Also read: Verdict on AGR: How Much do India’s Telecom Industry Have to Cough Up?

“Centre has to recover Rs 900 billion as deferred spectrum debt from VIL, which has stated it will shut operations if asked to pay the entire AGR liability. Also, VIL owes Rs 300 billion to banks (against this, Aditya Birla Group and Vodafone Plc’s stake in VIL stands at a mere Rs 70 billion and Rs 80 billion, respectively). Moreover, the implication on end-customer in the advent of VIL shutdown could be terrible. In such a scenario, we believe that the government may look to exercise other options,” they said.

In December 2019, Vodafone-Idea chairman Kumar Mangalam Birla had said that the telecom venture would shut down if the Centre didn’t provide any relief.

“We will have to shut shop,” Birla said on a query about the course of action for the company going ahead in the absence of government relief.

Franklin Templeton writes down?

Meanwhile, India’s mutual funds have also not been able to escape a possible Vodafone-Idea shutdown. According to the most recent data, MFs hold a nearly Rs 3,400 crore exposure to the company.

Among the asset management companies holding the paper, Franklin Templeton AMC took a a steep hit.

“Franklin India Ultra Short Debt Fund Super Institutional Plan, Franklin India Short Term Income Plan, Franklin India Low Duration Fund, Franklin India Credit Risk Fund. Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund have exposures of 4-7%. The schemes have written down almost their entire exposure to Vodafone Idea causing losses of 4-7% in their NAVs over a single day. The largest NAV drop has been in Franklin Low Duration Fund at 6.87%,” one report said.

“The AMC has taken this write off before any official downgrade by a credit ratings agency which would have mandatorily triggered a write down to NAVs as per a table issued by the Association of Mutual Funds of India (AMFI). The lack of a ratings downgrade has also prevented Franklin Templeton AMC from side pocketing its exposure. This can be done only when debt is marked below investment grade,” it added.

Bharti Airtel, on the other hand, gained up to 5.1% to hit a 26-month high of Rs 498.65 on the BSE. So far, about 12.6 million shares have changed hands on the counter on the NSE and BSE. Analysts remain positive on the stock after it managed to raise $2 billion (approx. Rs 14,000 crore) through the QIP route.

“Bharti Airtel has sought relief on AGR liability but also prepared itself with a plan-B by raising nearly Rs 14,000 crore during the past week by way of QIP and FCCB (Rs 700 crore). The balance Rs 13,000 crore could be funded by bank loans. Bharti’s present net debt stands at Rs 89,000 crore with EBITDA of Rs 40,000 crore in FY21 (net debt to EBITDA of 2.2x). So, incremental Rs 13,000 crore would still keep net debt manageable at Rs 1,02,000 crore with 2.6x net debt to EBITDA,” said analysts at Motilal Oswal Financial Services.

Also read: Situation Critical: Vodafone’s Future in India May Be in Doubt after SC Ruling

They further added that given the adverse situation for Vodafone Idea, Reliance Jio and Bharti Airtel could “gain disproportionately”.

“Thus, irrespective of an adverse ruling, Bharti has best hedged position even if it is required to pay the AGR liability. Assuming subscriber share of 70:30 for RJio/Bharti, both telcos could see EBITDA addition of INR240b/100b with 70% margin, implying a jump of 55 per cent/20 per cent,” they said.

Analysts at BofA-ML and Edelweiss Securities, too, maintain a positive stance on the stock.

“Given sufficient cash on its books, Bharti Airtel would be able to repay the dues and thus gain market share from competitors… While Bharti Airtel will have to now shell out INR340bn, it would be net-positive since revenue would spike without a concomitant addition of costs,” said analysts at Edelweiss Securities.

They added: In the absence of any government intervention, the market would turn into a duopoly benefitting incumbents Bharti and JIO. Bharti Airtel is trading at 7.2x FY21E EV/EBITDA, thus we maintain ‘BUY’ on the stock with a target price of Rs 533.

Disappointed with the decision, Bharti Airtel, which is facing an estimated AGR demand of Rs 35,586 crore said it was evaluating filing a curative petition, which is the last judicial resort available for redressing grievances.

A collapse of Vodafone Idea, however, could erode Bharti Airtel’s value in its subsidiary Bharti Infratel as Vodafone Idea is a large customer for Bharti Infratel.

According to analysts at SBICAP Securities, a decline of Vodafone Idea will accentuate tenancy losses and pressure on profitability. “Bharti Infratel contributes about 12 per cent of estimated FY20 consolidated Ebitda for Bharti Airtel and around 8 per cent of the fair value ascribed to Bharti Airtel,” they said.

“The industry continues to face severe financial stress and the outcome could further erode the viability of the sector as a whole. The industry needs to continue to invest in expanding networks, acquiring spectrum and introducing new technologies like 5G,” Bharti Airtel said.

(With inputs from Business Standard)

Infosys Shares Take Worst Dive in Six Years After Whistleblower Complaint

In a fresh statement, chairman Nandan Nilekani says the company has retained a law firm to conduct an independent investigation into the allegations of financial misconduct.

New Delhi: Shares of IT major Infosys nosedived by as much as 15% on the Bombay Stock Exchange on Tuesday morning, after a whistleblower complaint regarding alleged lapses in corporate governance were made public on Monday.

The stock recovered slightly after that and by 12:11 pm, it was trading at Rs 655.50, down 14% and over Rs 108 from its opening price.

The company is facing a new round of whistleblower complaints that allege a lack of corporate governance and the possibility of its financial accounts having been dressed up by CEO Salil Parekh.

Also Read: New Whistleblower Complaint Accuses Infosys CEO of ‘Unethical Practices’

In a statement issued on Monday, Infosys said that the complaints will be examined by the board’s audit committee as per established practice.

The 15% intra-day fall is the most in nearly six years – the last time the company’s shares fell more than this was on April 12, 2013. 

Nilekani responds

In a statement issued on Tuesday morning, Infosys chairman Nandan Nilekani said the company’s audit committee will conduct an independent investigation into the accusations that Parekh and CFO Nilanjan Roy indulged in “unethical practices” to boost short-term revenue and profits.

The committee began consultation with independent internal auditors EY, and has retained law firm Shardul Amarchand Mangaldas & Co. to conduct an independent investigation, Nilekani noted in his statement to the stock exchanges.

Nilekani also said that one board member had received two anonymous complaints on September 30, 2019 – one dated September 20, 2019, titled ‘Disturbing unethical practices’ and an undated note with the title, ‘Whistleblower Complaint’.

He said both had been placed before the audit committee on October 10, 2019, and before the non-executive members of the board the following day.

“Post the board meeting of October 11, 2019, the audit committee began consultation with the independent internal auditors (Ernst & Young) on terms of reference for their prima facie investigation. The audit committee has now retained the law firm of Shardul Amarchand Mangaldas & Co. (October 21, 2019), to conduct an independent investigation,” Nilekani noted in his statement.

The board, in consultation with the audit committee, will take such steps as may be appropriate based on the outcome of the investigation, he added.

Nandan Nilekani.

Downside to continue 

Reacting to the development, Infosys’ ADRs (American depositories receipts), too, tumbled in the overnight trade on the New York Stock Exchange (NYSE). The domestic stock exchanges were closed on Monday, due to assembly elections in Maharashtra.

“Very serious news indeed. This equates to a corporate governance issue. Deputy CFO has also quit. This in itself is an indirect admission that something is rotten. Stock will now languish 10-15 per cent lower in the near term,” said Harit Shah, Research Analyst at Reliance Securities.

The market is very unforgiving of companies that have corporate governance issues and while it would not be fair to directly jump to conclusions, this issue appears quite ugly at least on the surface, Shah added. 

(With inputs from Business Standard).

Infosys Notes Sensex Gains Ahead of Release of Quarterly Figures

Market rallied tracking gains in global markets after US President Donald Trump offered an positive assessment of US-China trade talks, traders said.

Mumbai: Equity benchmark BSE Sensex jumped 247 points on Friday amid positive cues from global markets enthused by hopes of a trade truce between the US and China.

After swinging 608 points in a volatile session, the 30-share Sensex ended 246.68 points, or 0.65%, higher at 38,127.08. It hit an intra-day high of 38,345.41 and a low of 37,737.85.

The broader NSE Nifty too rose 70.50 points, or 0.63%, to close at 11,305.05.

Infosys was the top gainer in the Sensex pack, rallying 4.19%, ahead of its quarterly earnings.

Vedanta, Tata Motors, ONGC, Tata Steel, HUL, HCL Tech, Tech Mahindra and Bharti Airtel too rose up to 3.96 per cent.

On the other hand, Yes Bank, M&M, RIL, TCS, Hero MotoCorp, IndusInd Bank and NTPC declined up to 3.30 per cent.

Also Read: Shifting Fortunes Push All PSUs Out of India’s Top Ten Market Cap Club

Market rallied tracking gains in global markets after US President Donald Trump offered an positive assessment of US-China trade talks, traders said.

“We just completed a negotiation with China. We’re doing very well. We’re having another one tomorrow. I’m meeting with the Vice Premier over at the White House,” Trump told reporters at the White House on Thursday.

In Asia, Shanghai Composite Index, Hang Seng, Kospi and Nikkei settled significantly higher.

Equities in Europe were also trading on a positive note in their respective early sessions.

Meanwhile, the Indian rupee appreciated marginally to 71.03 against the US dollar intra-day.

Brent crude futures, the global oil benchmark, surged 1.79 per cent to $ 60.16 per barrel, after reports of missile strikes on an Iranian tanker in Saudi Arabia sparked fresh supply concerns.