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#Linkfest: SEBI Shows Mutual Funds Who’s Boss, China’s Affair with Bond(s), Iran’s Threats, Fraud Investment Advisers, IMF Roots for a Cashless Economy

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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.

Mutual Funds Become Poorer as New SEBI Guidelines Kick In

Until March 31st, 2018, Indian mutual funds had assets under management of more than Rs. 21.36 lakh crores. It indicates that mutual funds have achieved economies of scale. This should be good news for mutual fund investors, because theoretically the total expense ratio of these funds should decrease. But that didn’t happen. So SEBI was forced to step in with new rules to ensure that customers were not shortchanged. The new rules have hit mutual funds badly, most of whom have seen drastic falls in their TER. Link

China Tries to Cover Up Bond Market Mess with New Credit Default Swap Dictum

Credit default swaps are like an insurance policy for buyers of corporate or sovereign debt, to protect them against possible default in repayment by the debt issuer. Recently, the Chinese securities regulator came out with new rules requiring all new corporate debt issuers to insure their debt with credit default swaps. The official reason is, it will help Chinese companies to raise money in a tight market. But many are saying it is attempt to control new defaults, which are threatening to spiral out of control with existing companies. Link

Redemption Run on DHFL Mutual Funds Leaves Fund with Junk DHFL Securities

The recent debt crisis that hit bellwether companies like the Essel Group, IL&FS, and DHFL has left a unlikely victim in its wake – mutual funds holding the equity shares or debt of these companies. For example, rumors about a possible DHFL debt default led to a massive redemption run on DHFL mutual funds, leading to a 68% fall in AUM. The crisis also destroyed the market for DHFL debt papers, forcing DHFL Pramerica to sell ‘more’ liquid securities to pay for redemptions, leading to a massive rise in group exposure limits to DHFL debt. Link.

The Three Little Piggies That Didn’t Fall for the Wolf at the Door

The recent debt paper crisis has dealt a body blow to the debt fund industry. AMCs that invested in the debt papers of IL&FS, Essel and DHFL have suffered grievous losses to their AUMs, with investors none the better. But not everyone was effected. Some AMCs managed to avoid the storm by sticking to basic principles and following best practices. Read more about how these AMCs managed to navigate the crisis here. Link

Iran Blows Hot and Cold as U.S Decides to End Waivers for Iranian Oil Buyers

Iran’s Revolutionary Guards have threatened to use military might to block the Strait of Hormuz, if the U.S and its allies do anything to prevent Iran from using the Strait to export petroleum. The Strait of Hormuz is a major waterway for petroleum exports from the gulf. Meanwhile, the U.S has decided to end its waiver to countries that buy Iranian oil. Understandably, Iran is not pleased with the decision and is crying murder. Link

When the Fence Starts Eating the Crop: Fraud Investment Advisers

Has your investment adviser guaranteed to give you a ‘x’ amount of return? Does it seem like he’s giving you speculative advice, with regard to investing? If yes, you are probably being taken for a ride. Recently, SEBI dinged three Bhopal-based ‘investment advisers’ for duping investors to the tune of Rs. 10 crore, in the guise of giving investing tips. They were so meticulous, they even used the SEBI registration numbers of two other SEBI registered investment advisers to market their dubious services. Link

Apple Blinks in Patent War with Qualcomm

Apple’s patent war with Qualcomm is almost legendary. Apple accuses Qualcomm of hiking the royalties on Qualcomm technologies used by Apple on its devices, while Qualcomm wants Apple to part with a piece of the revenue from iPhone sales, for using Qualcomm patents. It is now revealed that Apple and Qualcomm have agreed to drop their fight and end their litigation. They have also signed a new global patent use agreement, and a multi-year chip supply contract. Link

Small Creditors Have First Right on IL&FS Monies, Rules NCLT

The NCLT has ruled that beleaguered construction behemoth IL&FS will first have to repay the dues of small creditors, like pension and provident funds, returning at least 80% of their money. This is good news for more than 15 lakh private and government employees many of whom were having sleepless nights, worrying about the fate of their life’s savings invested in the now defunct IL&FS. Link

Amazon’s Thirty Party Sellers in China to Get the Boot, as Company Mulls Shutting Shop

Amazon’s Chinese third party sellers may no longer be able to sell on the company’s Chinese portal soon. Apparently, Amazon is planning to close down its e-commerce operations in China. Amazon China has been facing stiff competition from homegrown companies like Alibaba and JD.com, who control more than 80% of the e-commerce market. This means, China is not profitable for Amazon and it sees no reason to continue operations in the country. However, Chinese customers can still purchase Amazon’s Kindle and online content in China. Link

Not All is What it Seems: The Dark Side of Algorithmic Trading

Algorithms are computer programs that use predefined instructions to conduct trades. In most cases, there is no human intervention in their operation. So algos are able to respond to favorable market conditions quickly. But sometimes, this feature can become their Achilles’ heel. There have been instances where algos have ended up buying or selling the wrong stock, as they rush to lock in gains. This happened most recently, when algos purchased Zoom Technologies, instead of Zoom Video Communications, sending the former zooming in price. The problem is, Zoom Technologies is a defunct company. Link

Income Tax Department Resorts to Unconventional Methods to Recover Tax Dues

There is an old Indian proverb, ‘If you are unable to get the ghee out of the can with a straight finger, twist your finger and do it.’ That is exactly what the Income Tax Department seems to be doing lately. Gone are the days, when the IT department would beg and plead with taxpayers to pay their income tax dues on time. In recent times, it has used at least six unconventional means to collect money, including dipping directly into assessees’ bank accounts to collect the dues. Link

A Cashless Economy Can Support Negative Interest Rates, says the IMF

Recessions are inevitable and whether you like it or not, they will occur. During world-wide recessions like the 2008 one, most major economies dampen in spirit. When that happens, their central banks go into firefighting mode and cut key interest rates, to make money more accessible and to boost spending. But if a recession were to happen today, most countries can’t reduce key rates as much as they would like to. Negative interest rates can’t even be imagined. However, it can be done if the countries move to a cashless economy. The IMF explains how this is possible in this article. Link

Apna Time Aayega! After Fertilizer Producers, Farmers to Enjoy DBT in Fertilizer Subsidies

The NITI Aayog and the Finance Ministry are working on a proposal to transfer fertilizer subsidies directly into the bank accounts of farmers. The proposal will be presented to the party or coalition that forms the next government at the center after the general elections, say people in the know. Notably, fertilizer producers are already enjoying the fruits of direct benefits transfer. But giving fertilizer subsidy DBT to farmers won’t be that easy, for a number of reasons. Link

The Gift that Keeps Giving, Feat Gujarat NRE Coke and JSPL

When Gujarat NRE Coke was dragged to the NCLT, JSPL, an unsecured creditor of the company, was awarded the former’s coal mines in Australia, in lieu of repayment. But now, Gujarat NRE Coke’s former promoter, Arun Jagatramka, has accused JSPL of withholding crucial facts about the mines from JSPL’s shareholders. He says, one of the mines has not been operational since 2014. The NSW regulator shut them down, because of JSPL’s lax attitude to workplace safety. JSPL has denied the charges. Link

Saudi Aramco and Reliance Industries Go into a Huddle over Possible Stake Sale

Saudi Aramco is said to be in talks with Reliance Industries to purchase up to 25% in the latter’s refining and petrochemical business. The parties have requisitioned the services of Goldman Sachs to advise on the deal. The deal values Reliance Industries’ refining and petrochemical business at $55-$60 billion. This news comes after Saudi Arabia’s crown prince, Prince Salman, on a state visit to Delhi, told the media that his country was going to invest more than $100 billion in India in the next two years. Link

McLeod Russel is No Longer the King of Tea Producers

McLeod Russel used to be the largest tea producing company in the world until last year. But the company is also saddled with huge loans, which it is struggling to parry. So much so that the company was forced to sell 21 tea gardens it owned, last year. Two of the tea gardens were acquired by Camellia Plc, an arm of Goodricke, another major tea producer. With the purchase, Goodricke has now unseated McLeod Russel as the world’s largest producer of tea. Link