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Commentary

#Linkfest- Australia’s Fight With Social Media, Dangerous Perpetual Bonds, Double-take for Ericsson

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At Capitalmind Premium, we have a very active Slack channel where we discuss a lot of interesting topics. In there,  a number of interesting links come our way. Here’s the most interesting of such links shared by our members in recent days.

1. #bonds and funds: Read the Fine Print Before Investing in Perpetual Bonds

Perpetual bonds don’t have a fixed maturity period unlike other commercial papers. Since they carry a higher risk, the metrics used to rate them should also be different. However, issuing corporations have been conveniently glossing over this fact when they sell these bonds to clients. Rating agencies have also aided them by rating these bonds as they would other bonds. Now, the RBI and SEBI have woken up to this chicanery. Link

2. #bonds and funds: The Road Ahead for Mid-cap Funds, Feat Bloomberg Quint

In theory, mid-cap funds should outperform large cap funds. But the performance of large cap funds in the recent past, have cast doubts on that claim. Are mid-cap funds still attractive? Mirae Asset Global Investments’ (India) Swaroop Mohanty discusses this conundrum in an interview with Bloomberg Quint. Link

3. #fx-commodities: Saudi Arabia Stares the U.S in the Eye Over NOPEC

Under Trump, the U.S has been very vocal in its opposition to OPEC’s attempts to rig petroleum prices. One of the steps it has taken to put OPEC in its place is a bill called NOPEC, which will expose OPEC members to an antitrust motion in the U.S if they try to rig the oil price. But Saudi Arabia, one of the largest producers of petroleum in the world, is not buying it. It has threatened to stop using the U.S dollar in its oil trade, if the U.S goes ahead with the move. Link

4. #fx-commodities: Norway’s New Oil Wells in the Arctic Turn Out to be a Damp Squib

New oil well discoveries have become a rarity in today’s times. Running out of options in more hospitable climes, oil rigging companies have been forced to drill wells in extreme locations in their quest for oil. One of these locations is the Arctic circle. It has been estimated that the Arctic ocean holds some of the last undiscovered giant oil/gas wells on the planet. However, preliminary drilling in the region has given little to cheer about. Link

5. #geek stuff: Personal Data Goes for a Toss on Facebook

Facebook is the world’s largest social network, with more than 2.3 billion active monthly users. For years, Facebook has been saying that the data on its network is safe, even as several leaks were reported. Now, in what is being seen as a major embarrassment to the company, it has been revealted that the Facebook data of at least 540 million users was exposed on an Amazon cloud server, putting the privacy of millions of users at risk. Link

6. #geek stuff: Australia Threatens Social Media Companies that Show Violent Content with New Law

Social media giants like Facebook, Twitter, and YouTube will have to tread very carefully in Australia from now onward. Under a new law that was passed with bipartisan support in the Australian parliament, social media companies will have to take down violent content, on their own or if they are notified of the same. Failure to comply will attract criminal charges. Social media companies have decried that the law was passed in haste and without consultation. Link

7. #geek stuff: Hype Vs Reality: The World’s Most Hyped Technologies Since 2000

It is not necessary that just because a technology is hyped, it should be commercially viable. For example, 3D printing was touted as the next big thing in 2012. But six years down the line, the hype around 3D printing has more or less died down, as people have come to realize its limitations Vs actual uses. This infographic will give you an idea of the most hyped technologies since 2000 and where they actually stand now. Link

8. #general: Shocker! Government Stood Guarantor for Failed Infrastructure Company IL&FS

During its heyday, many retiring government servants were given plush-after retirement postings in IL&FS, one of the largest business conglomerates in the country for many years. If you are surprised by this, you will be shocked by what you are about to read next. It has been revealed that the government actually stood guarantor for loans taken by IL&FS (a private company) from foreign entities and had to repay the money when those loans went bad when IL&FS collapsed. Link

9. #general: Why You Should Take ‘Investing Truisms’ with a Pinch of Salt

People often resort to investment truisms when they want to stress on a particular point. For example, they say, ‘buy stocks with a margin of safety, but be ready to pay more for high-quality stocks’. If you read carefully, you will notice this truism gives a conflicting idea. So the question is how much should you depend on truisms when it comes to life decisions like investing? Link

10. #general: Electric Bus Numbers Grow Exponentially in India, Thanks to Government Orders

Electric buses are slowly making inroads into the Indian transport ecosystem, thanks to the government. State transport undertaking in India have placed major orders for electric buses, giving the sector a much needed leg up. But the Indian electric vehicle story still pales in comparison to China, where the number of electric vehicles has reached stratospheric heights. Link

11. #general: Mutual Fund Interest Groups Might Report to a Self-regulatory Overlord Soon

If SEBI has its way, mutual fund distributors and advisers will soon report to a self-regulatory body that will supervise these professionals. The proposed body will have the authority to impose non-monetary penalties, to suspend, and even expel truant mutual fund distributors and advisers, who mis-sell mutual fund products or engage in portfolio churning to generate fees. Link

12. #general: Will Sins of Parent Take Down IL&FS Financial Services Ltd.?

IL&FS is said to owe nearly Rs. 99,000 crores to various entities in India and abroad. However, some of its subsidiaries are rumoured to be in better shape. But are they really? Close to 90% of the business loans advanced by IL&FS Financial Services Ltd. to other companies, including its parent, have turned bad, posing a big challenge to the interim board appointed to deal with the problem. Link

13. #general: Mutual Fund Body Wants Fund Houses to Bite the Bullet on Commissions

In September 2019, SEBI had passed a decree that capped the expense ratio charged by mutual fund houses to 2.25% from 2.5% earlier. A part of this commission was passed on to mutual fund distributors, who stand to be affected by the new rule. Now, the Foundation of Independent Financial Advisers has asked fund houses to take the damage due to the rate cap on total expense ratio on themselves and not pass it to the distributors. Link

14. #general: SEBI Clashes with Finance Ministry Over Commodity Derivatives Trading

In March, SEBI allowed mutual funds and portfolio managers to use the commodity space to hedge their positions. But according to reports, the Finance Ministry has not taken the decision well because the new participants (mutual funds and portfolio managers) won’t have any ‘skin in the game’. The Finance Ministry is also worried the entry of the new participants will lead to speculative bets in the commodity markets, and create new risks for existing participants. Link

15. #general: Reliance Promoter Group Company Faces Heat for Alleged Diversion of Funds

Recently, three former employees of a Dutch company who allegedly helped an Indian energy major launder $1.2 billion around the world were arrested by the Dutch police. The Indian company has now been revealed to be East West Pipeline (earlier known as Reliance Gas Transportation Infrastructure Ltd.), a Reliance Industries Ltd. subsidiary. However, East West Pipeline has denied any wrongdoing. Link

16. #general: EPS Subscribers Set for Pension Windfall After Supreme Court Order

Salaried employees who’ve been contributing to the Employee Provident Fund Scheme can rejoice because the Supreme court, in a landmark order, has decreed that EPS subscribers will now receive a pension on the basis of their last drawn salary and not on the basis of an earlier cap on monthly contributions. Following this order, pensions from the EPS are set to rise drastically. Link

17. #general: Debtors Take RBI to Apex Court Over Order on Strict Time-line for NPA Resolution

Nearly 75 companies that stand to lose if a contentious RBI order from February 12th is applied have taken the apex bank to the Supreme court to prevent its enforcement. According to the order, if a debt resolution plan is not achieved within 180 days, lenders can take the company to the NCLT, where the debtor will face insolvency proceedings. But the debtors have opposed the order. Link

18. #macroeconomics: Norway Takes to Electric Vehicles Like a Duck Takes to Water

58% of all cars sold in Norway in March, 2019 were electric. And many of these Tesla Model 3s. This might seem strange for a nation which is one of the biggest producers of petroleum in the world, but the Norwegians don’t seem to think so. In fact, they are pushing for 100% of new cars sold in the country to be all-electric by 2025. This means companies like Tesla will be laughing all the way to the bank. Link

19. #macroeconomics: PSBs Distribute Funds Under PM Mudra Yojana Like There is no Tomorrow

Having been on the receiving end for having distributed lakhs of crores of rupees to corporates, a large proportion of which eventually turned non-serviceable, public sector banks have now turned their attention to ordinary individuals to expiate their sins. In 2018-2019 alone, public sector banks have distributed over 2.73 Lakh crores rupees worth of loans to individual borrowers under the Mudra Yojana. But the RBI doesn’t seem to be happy. Link

20. #macroeconomics: Restaurants Lose Sleep Over Removal of Tax Sop

Input tax credit used to help restaurants in India bolster their EBITDA. But not anymore because the government has done away with the scheme. The silver lining is, the government has reduced GST on restaurant services from 18% to 5%. However, restaurants are not happy with the decision to remove ITC. Link

21. #macroeconomics: Baltic Banks in the Dock for Helping Russian Entities Launder Money

The Baltic states (Estonia, Lithuania, Latvia) are geographically close to Russia which makes them susceptible to illegal money flows from their large Slav neighbour. But that party is probably coming to an end. Recently, many Baltic banks were heavily penalized and sanctioned for helping Russian entities launder money. Link

22. #politics: Whatsapp Jumps into the Fray Against Fake Messages

Fake news is a big problem in India. Many innocent people have been lynched due to fake news and it has also caused many riots. So there is a good reason to tackle this anomaly. Social media entities who were unable or unwilling to tackle fake news have often come into the government’s cross hairs. Now, the latest entity to join the fight against fake news is the popular messaging application, Whatsapp, which has tied up with a third-party for the job. Link

23. #politics: More Taxes from Middle Class to Fund Proposed NYAY Scheme, Says Sam Pitroda

The Congress party’s proposed NYAY scheme has received mixed reactions. Some observers have said that to implement the scheme, the Congress party will have no option but to raise tax rates. Others are asking citizens (read, the middle class) to not be so selfish and to be ready to pay more taxes to fund the scheme. One of the biggest supporters of the scheme is the Congress party’s Sam Pitroda. Link

24. #stock fundamentals: Nike Ejects Wipro from SAP Maintenance Contract

Nike had enlisted Wipro’s support to implement a SAP project at Nike. But Wipro apparently delayed the delivery of the project by a year. Naturally, Nike was not happy with Wipro’s shoddy handling of the project and declined to award Wipro the maintenance contract for the project it had just implemented. The loss of the project is expected to set Wipro back by $10 million to $40 million. Link

25. #stock fundamentals: Indiabulls Housing Hopes to Bring Laxmi Home With LVB Merger

The board of Laxmi Vilas Bank has approved a merger with Indiabulls Housing Finance. Recently, the boards of the two companies had met to iron out their differences. It is possible that Indiabulls might be seeking a backdoor entry into the banking sector through the merger, since the RBI has been quite selective in giving banking licenses to finance companies. Link

26. #stock fundamentals: The Great Indian Judicial Drama: Feat Reliance Com and Ericsson

A two-member bench of the NCLAT has said that Ericsson, which recently received a Rs. 550 crore payout from Reliance Communications may have to refund the money to RCom if the NCLAT vacates a stay it placed on RCom’s liquidation earlier. Readers may remember that RCom was forced to pay Rs. 550 crore to Ericsson, after the Supreme court said it will send company chairman Anil Ambani to jail if RCom refused to honor the award. Link