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.
AMFI Diktat Makes Mutual Funds See Red
The Association of Mutual Funds in India (AMFI) has said that mutual fund houses shouldn’t wait for rating agencies to downgrade corporate debt, to apply hair cuts on substandard (investment grade) debts lying on their books. This diktat comes even as mutual funds are just learning how to navigate SEBI’s most recent circular which allows mutual funds to write down bad debt, with the approval of their investors and trustees. However, mutual funds are afraid that if they apply hair cuts voluntarily, they might face heavy fund redemption which will bring down their AUMs drastically. Link
32 Mutual Funds Take a Hit on Yes Bank’s Debt Downgrade
Recently, ICRA downgraded the long-term bonds of Yes Bank to ‘negative’. An unlikely victim of the downgrade were 32 mutual funds, who held close to Rs. 3632 crores in Yes bank long-term bonds. The fund houses are now left holding the short end of the stick and have no option but to take deep hair cuts on the exposure. Link
SEBI Dings Two Mutual Fund Houses over Standstill Agreement with Essel Companies
Two mutual funds who are owed money by some Essel companies, have signed a stand-still agreement with Essel promoters who have agreed to repay the debt in full by September 2019. In return, the mutual funds won’t sell the shares placed with them as collateral by the promoters. Apparently, SEBI isn’t happy with the ‘agreement’ and has sent notices to the two mutual funds – Kotak Mutual Fund and HDFC Mutual Fund, questioning them on the deal. Link
Corporate Affairs Secretary Says Crisis Looming in NBFC Space
Injeti Shrinivas, Secretary – Corporate Affairs has bad news for the Indian NBFC sector. He says the Indian NBFC space is staring at an imminent crisis, due to over leveraging, bad investment decisions, and a credit squeeze. However, he also said ‘responsible’ companies are unlikely to be affected much, and things will get better in the long run. Link
Six-mid Level Executives Quit DSP After Probe
Six mid-level employees at DSP Investment Managers have quit the company after the fund manager initiated a probe against them, for alleged violations of the company’s code of conduct. The allegation is, the employees gave money to two outside individuals, one of them a former employee of DSP, who then used the money to trade on behalf of the employees. Mutual fund employees are required to disclose all their transactions on a monthly or quarterly basis. Link
Hero Motocorp Launches New Strategy to Increase Two-wheeler Market Share
Hero Motocorp has partnered with CREDR, the two-wheeler re-seller to launch a buyback scheme for customers who purchase new Hero motorcycles. Under the scheme, customers who buy a new Hero Motorcycle will receive a buyback certificate from CREDR, with fixed buyback values every six months, for the next five years. The scheme, which is currently live in Pune, will soon be extended to 9 other cities. Link
TCS Will Soon Overtake DXC as the World’s Third Largest IT Services Company
India’s TCS looks all set to snatch the mantle of the world’s third largest IT services company, from DXC in 2018-19. DXC needs to clock a growth of 5.06% in Q4 FY19 and show revenues of $20.91 billion for FY19 if it wants to keep its mantle. DXC is going to reveal its numbers on 23rd May, 2019. Meanwhile, TCS has shown a growth of 9.6% in Q4FY19, with revenue from operations increasing to $20.91 billion for FY19. The first and second largest IT services companies’ in the world are IBM and Accenture, respectively. Link
The Indian Realty Sector is Neck Deep in Trouble, Says ICICI Prudential CIO
After putting out ominous warnings on the credit scenario in India, ICICI Prudential CIO Manish Kumar, has now turned his gaze to the state of the Indian realty sector. According to him, Indian realty companies are in a lot of trouble. In recent years, shadow banks have lent heavily to the real estate sector. The problem is, many of these loans are on the verge of turning bad, since the debt of these companies has overtaken their housing sales. Economic activity hasn’t picked up either, which is a double whammy for the real estate sector. Link
Leel Promoters in Trouble as SEBI Launches Investigation into Diversion of Funds
The promoters of Leel Electricals will be probed by SEBI on the basis of a complaint by Porinju Veliyath that they siphoned off Rs. 1550 crore that the company received from the sale of its consumer electrical division to Havells. Porinju Veliyath, whose PMS had invested in Leel Electricals in anticipation of windfall gains consequent to the sale, suffered a huge jolt when shares of Leel crashed from Rs. 250 to Rs. 12 in a matter of weeks, after it became known that the promoters weren’t going to share the sale proceeds with minority shareholders. Link
Chandra Kochar-led ICICI Misled RBI on Loan to Essar Steel, Says Indian Express
According to the Indian Express, in 2014, ICICI Bank under its then CEO Chanda Kochar, allegedly sanctioned millions of dollars in loans to Essar Steel for a project in Minnesota, USA. When the company failed to repay the loans, ICICI issued fresh loans to the company, in effect ‘evergreening’ the older loans. Later, when the RBI asked ICICI Bank to classify the loans as a ‘sub-standard asset’, the bank did not pay heed to the RBI. Link
Move Over Tesla! China’s BYD is Here
When most people discuss electric vehicles, the word Tesla usually creeps in. But did you know, Tesla is not the world’s largest electric vehicle maker? That place goes to a Chinese company called BYD, short for Build Your Dreams. It is not well known that the Chinese electric vehicle market is a behemoth, which puts everything else in the electric vehicle space to shame. For instance, there are 500,000 electric buses in China alone, compared to 1000 or so in the U.S. And the company in forefront of this phenomenon is BYD, led by its diminutive chairman, Wang Chuanfu. Link
Home-grown Online Grocer BigBasket Enters Unicorn Club
BigBasket has become the latest Indian e-commerce company to enter the coveted unicorn club (privately held startups valued at over $ 1 billion). The company achieved this status after $150 million were infused into the company by Mirae-Naver and Alibaba in a recent round of funding. The company will use the funds to expand operations and scale up its supply chain. BigBasket’s CEO, Hari Menon expects his company to break even by 2022. Link
Aswath Damodaran to ET: ‘Take the Likes of Warren Buffet and Ray Dalio with a Pinch of Salt’
Aswath Damodaran is a professor at the NYU Stern School of Business. He is respected for his views on the markets and investing in general and when he talks, people listen. According to him, people shouldn’t take investors like Warren Buffet and Ray Dalio on their word. He also says, investing in a commodity company on the basis of a business cycle is dangerous. On the U.S-China trade war, he says what is happening to the Chinese was long due. Read all this and more here. Link
Patanjali’s Ruchi Soya Acquisition Plans Hit a Speedbreaker
DBS-Singapore told the NCLAT, it is planning to move the tribunal against Patanjali’s Ruchi Soya acquisition plans. The bank contends that under the Rs. 4350 crore resolution plan submitted by Patanjali, it won’t receive a fair value on its investments. If the NCLAT accepts the bank’s plea, it will further delay Patanjali’s plans for Ruchi Soya, which actually owes Rs. 8377 crores to its lenders. Link
Shocker! ZEEL Promoters’ Owe Lenders Rs. 13,000 Crores
At a lenders’ meet with the ZEEL management, it has emerged that the promoters of the Zee Group owe their lenders Rs. 13,000 crores. Of this, mutual funds are owed Rs. 7000 crores, NBFCs/banks are owed Rs. 4000 crores, and offshore lenders are owed Rs. 2000 crores. The total value of the ZEEL shares its promoters have pledged with lenders stands at Rs. 9000 crores. It means, the promoters are short by Rs. 4000 crores, which is a big problem. Link
Etihad wants to invest in Jet but doesn’t want to ‘invest’
Etihad Airways emerged as Jet Airways’ knight in shining armor by tendering an offer to save the company, just before a deadline for the same expired on Friday evening. However, the offer comes with conditions. Etihad has made it clear it can’t be the only bidder and wants Jets’ lenders to find other partners. Jet Airways requires at least Rs. 15,000 crores to fly again. Link
UPI transactions may cost money in the future
As of now, any transaction on the UPI interface is free for customers. But that might change very soon because banks and payment companies want to charge for the service. Currently, every financial transaction on UPI up to Rs. 1000 costs banks and payment companies 10 paisa. After Rs. 1000, the charge goes up to 50 paisa. The National Payments Corporation of India has forbidden customer charges on UPI transactions citing lack of critical mass in number of transactions. Link
5 Million Kirana Shops Will go Digital if Reliance Has its Way
Reliance Industries to digitize 5 million kirana stores by 2023, with the help of its Jio MPoS device. The device currently retails for Rs. 3000, which is likely within the reach of most kirana shop owners. The Indian retail industry is a $700 billion market, but 90% of it is unorganized. Currently, only 15,000 kirana stores in India are equipped with a MPoS device, so there is a lot of scope for Reliance, to do something big in this space. Link
Indian Miners Ask the Government to End Tax Terrorism
India is one of the most taxed countries in the world, as far as mining is concerned. The effective tax rate on mining in India is in the range of 60-64%, depending on the jurisdiction. The miners have complained that this is too much and want a GST like ‘one tax’ for the mining sector, which will be capped at 40%. The miners have also complained the high tax rates on minerals make Indian products (that use these minerals) noncompetitive around the world. For instance, iron ore miners in India have to pay a royalty of 15% to the government, compared to 0.5-4% in China. Link
