August 22, 2017

Large MFs slow down bank shares' accretion in July, turn cautious

Latest story I wrote for the news organisation I work for currently:

Large MFs slow down bank shares' accretion in July, turn cautious
Cogencis, Tuesday, Aug 22

    By Rajesh Gajra
    NEW DELHI - Select large mutual fund houses have curtailed the rate of
growth in exposure of their equity schemes to large banks last month with
some even reducing the exposure, the latest on-month change in fund house
level exposure in large bank stocks shows.
    This comes in the backdrop of a sharp rise in collective equity exposure
of all mutual fund schemes in all banks in the last one year, rising to
22.57% of total equity assets under management at the end of July from 19.86%
at the end of July last year, according to Securities and Exchange Board of
India data.
    In July, ICICI Prudential Mutual, the largest fund house by total assets
size in Apr-Jun, reduced its fund house level equity exposure in four of the
give largest bank stocks, according to fund house wise share holding data
from brokerage firm East India Securities (see table).
    The equity holding data, which excluded arbitrage funds, showed Reliance
Nippon Mutual Fund's on-month rise in fund house level holding in four of the
largest bank stocks in July slowing down as compared to the previous month.
    HDFC Mutual Fund increased its bank share holdings in July but at a
slower rate in two large bank stocks and stayed unchanged in another bank.
    HDFC Mutual Fund and Reliance Nippon Mutual Fund were the second-and
third-largest mutual funds by total assets size in the quarter ended June,
according to Association of Mutual Funds in India data.
    The on-month change was considered for fund house holding in the five
largest banks by market cap size--HDFC Bank Ltd, ICICI Bank Ltd, State Bank
of India Ltd, Axis Bank Ltd and Kotak Mahindra Bank Ltd. Together, the five
banks' market cap account for 80% of total market cap of 14-stock Bank Nifty
index and form a substantial portion of mutual funds' banking sector exposure.

    In the case of SBI, HDFC Mutual Fund and Reliance Mutual Fund
dramatically slowed down their accretion of the bank's shares in July as
compared to the previous month.
    ICICI Prudential Mutual Fund went a step ahead and cut its shareholding
in SBI by 7.19 mln shares on month.
    There was a mixed trend in the case of HDFC Bank shares.
    ICICI Prudential Mutual Fund was seen selling continuously in HDFC Bank
the last three months. At the end of July, the mutual fund's total holding in
HDFC Bank stood at 24.27 mln shares having sold 1.41 mln shares across its
various schemes during the month.
    Scheme wise, the largest sellers in July were ICICI Prudential Balanced
Advantage Fund, ICICI Prudential Select Large Cap Fund, ICICI Prudential
Value Fund and ICICI Prudential Focused Bluechip Equity Fund, data from
Cogencis' Corporate Fundamental Database showed.
    HDFC Mutual Fund, however, increased its fund house level exposure to
HDFC Bank shares in July by 1.96 mln shares on month to 27.52 mln shares,
which was more than the on-month increase in the previous two months.
    Reliance Nippon Mutual Fund bought 980,000 shares of HDFC Bank in July.
While this was an improvement over an on-month decline of 730,000 shares in
June it was much lower than 2.24 mln shares it had bought in May.
    Interestingly, in the case of ICICI Bank, ICICI Prudential Mutual Fund
was a seller for the third consecutive month in July. HDFC Mutual Fund and
Reliance Nippon Mutual Fund too slowed down their fresh accretion of ICICI
Bank shares in July as compared to the previous month.
    A similar trend was seen in the case of Kotak Mahindra Bank shares.

    Banking stocks have been among the most preferred buys of several mutual
funds in the last one year with the industry wide exposure in bank stocks to
the extent of 21.91% of total equity assets at the end of July being the
highest in one year.
    But analysts are cautious of whether the rapid growth seen in bank stocks
exposure will continue in the next one year.
    Valuations of bank stocks are not cheap, according to Vinay Sharma, fund
manager at ICICI Prudential Mutual Fund who manages ICICI Prudential Banking
and Financial Services Fund among a few other schemes. "But there is still
scope for valuation expansion given that we are in early stage of an economic
cycle," said Sharma.
    Any positive or negative surprise on either non-performing loans
resolution, credit growth or any other related reforms could act as a trigger
for increasing or decreasing exposure to banking stocks, according to Sharma.

The table below lists the on-month change in holdings of five large bank
stocks in the last three months by three of the largest mutual funds.

                  On-month change (In mln shares)
                  HDFC MF            ICICI MF             Reliance Nippon MF
                  ---------------     ---------------     ------------------
                  Jul   Jun   May     Jul   Jun   May     Jul   Jun   May
                  ---   ---   ---     ---   ---   ---     ---   ---   ---
Axis Bank         0.9   0.4   0.0     1.5   2.6   5.1     2.9   3.8   0.2
HDFC Bank         2.0   1.3   0.8    -1.4  -0.7  -2.1     1.0  -0.7   2.2
ICICI Bank        4.3  34.9   3.3    -5.2  -6.1 -20.1     4.8   6.5   0.4
Kotak Mah. Bank   0.0   0.0   3.2    -0.1   1.1   7.5     0.0   0.1   0.1
SBI               5.0  16.4   2.4    -7.2  64.3   7.2     2.3  12.6   2.3

Data source: East India Securities


August 16, 2017

Sebi's 2016-17 Annual Report says fee collection jumped 33% YoY in FY17

Sebi's FY17 annual report reveals details of fees and charges collected from various intermediaries.
Here's something brief I wrote on it for the news organisation I work for currently:

    Collection of fees from various intermediaries by the
Securities and Exchange Board of India rose a sharp 33% on year in 2016-17
   This was revealed in SEBI's annual report for financial year 2016-17,
published on its website today.
   The data showed total fees and charges collected by SEBI rose 33% on year
to 5.19 bln rupees in 2016-17, exceeding the on-year growth of 21% in the
preceding financial year.
   The high growth in fees was led by an on-year rise in registration and
turnover-based fee charged to equity derivatives brokers by 14% on year to
894 mln rupees.
   Fees charged to foreign portfolio investors jumped 41% on year to 852 mln
   These two categories of intermediary alone made up for a little over
one-third of total fees and charges collected by SEBI in 2016-17 (Apr-Mar).
   SEBI's collection of charges pertaining to offer documents and prospectus
jumped 64% on year to 479 mln rupees while the fees collected from equity
cash market brokers rose 14% on year to 389 mln rupees.
   The only major area where SEBI's fee collection declined pertained to
mutual funds. Total fees and charges collected from mutual funds in 2016-17
were 217 mln rupees, down nearly 10% on year.

   The regulator's annual report also pointed out the measures it had been
taking with regard to the ease of doing business through digital initiatives.
   SEBI said its new enterprise portal, which it had initiated last year to
digitally transform its working, was being expanded in 2017-18 (Apr-Mar) to
cover all intermediaries in the e-registration initiative it had started in
2016-17 (Apr-Mar).
   Further, SEBI said it was going to execute a case management system for
end-to-end management and tracking of all cases it takes up right from
inception till the closure of a case.
   The regulator will also integrate its complaint redressal system with its
mobile app for better tracking and faster resolution of investor complaints,
the annual report said.  End

August 10, 2017

Impact of Sebi's shell companies order on mutual funds

Earlier this week, our capital markets regulator Sebi, rather surreptitiously through stock exchanges, issued directions on 331 suspected shell companies.

Sebi should have issued a press release when it communicated to the stock exchanges to take the measures. But Sebi did not do this.

Anyways, I wrote something (for the news organisation I work for currently) on the impact of the shell companies order on mutual funds -->

SEBI order on shell cos likely to hit NAVs of around 25 MF schemes
Cogencis, Wednesday, Aug 9

    By Rajesh Gajra
    Net asset values of a dozen mutual fund schemes are likely to get affected due to their holdings in a couple of stocks which are a part of the trading suspension list emanating from latest directive by Securities and Exchange Board of India on 331 alleged shell companies.
    Mutual funds, currently, do not have holdings in a vast majority of the alleged shell companies.
    Of the 331 alleged shell companies, 48 are listed on the National Stock Exchange of India and the exchange has suspended trading in their shares from Tuesday.
    Mutual funds held shares only in J Kumar Infraprojects Ltd and SQS India BFSI Ltd of the 48 NSE-listed alleged shell companies, data from Cogencis' Corporate Fundamental Database showed.
    In the case of J Kumar Infraprojects, as of Jun 30, 24 mutual fund schemes across seven fund houses had holdings in the company as of Jun 30, and their collective holding value on that day was 2.55 bln rupees.
    Of these, a dozen schemes' exposure to J Kumar Infraprojects' shares exceeded 0.5% as of Jun 30 (see table). The holding of IDFC Infrastructure Fund in shares of the company was worth 92 mln rupees or 3.1% of the scheme's assets under management, as of Jun 30.
    Birla Sun Life Small and Midcap Fund held 223-mln-rupee worth of J Kumar Infraprojects' shares amounting to 2.4% of the scheme assets, while DSP BlackRock India T.I.G.E.R Fund's holding was to the tune of 257 mln rupees or 1.6% of the scheme assets.
    In terms of absolute value, UTI Mid Cap Fund held J Kumar Infraprojects' shares worth 333 mln rupees making up for 0.9% of the AUM of the scheme.
    SQS India BFSI, the other alleged shell company having mutual fund holdings, will have an affect on only one mutual fund scheme. Union Small and Micap Fund held 1.2% of its AUM of 2.37 bln rupees as on Jul 31 in SQS India BFSI shares.
    As per the SEBI directive to stock exchanges, trading in the alleged shell companies will be permitted only once a month on the first Monday. Further, the trading shall take place at a price not exceeding the last traded price, which means the share price can not go up.
    This will hit the valuation of the affected stocks in mutual fund scheme portfolios. And, the higher the exposure of a mutual fund scheme to the affected stocks, the higher will be the impact on the scheme NAV.
    The effect on the NAVs of the affected schemes will be seen over the course of the next couple of weeks and till such time as J Kumar Infraprojects and SQS India BFSI are able to establish to the stock exchanges through documentary evidence that they are not shell companies.

    The table below lists the mutual fund schemes where the holding in shares of J.Kumar Infraprojects was more than 0.5% of their assets as of June 30

                             Holding value*   AUM      
                             -------------    ---       % of holding
                                (In mln rupees)         to AUM
                             ---------------------      ------------
IDFC Infrastructure            92            2960           3.1
Birla SL Small & Midcap       223            9167           2.4
Birla SL Infrastructure       102            5488           1.9
Birla SL Spl. Situations       30            1590           1.9
DSP BR India T.I.G.E.R        257           15580           1.6
HDFC Capital Builder          235           16040           1.5
UTI Infrastructure            191           15630           1.2
UTI Mid Cap                   333           38600           0.9
UTI Multi Cap                  33            3730           0.9
Reliance Small Cap            297           39300           0.8
Edelweiss Mid & Small Cap      28            4620           0.6
HDFC Infrastructure            82           13110           0.6
* based on the share price of Jun 30


July 28, 2017

ETF assets size to rise from EPF's 225-bln-rupee investment in FY18

A story I wrote this week for the organisation I work for presently.

ETF assets size to rise from EPF's 225-bln-rupee investment in FY18
Thursday, Jul 27
    The assets under management in exchange traded fund schemes
of mutual funds would grow by at least 225 bln rupees in 2017-18 (Apr-Mar)
due to investments by the Employees Provident Fund, going by the data given
by Minister of State and Employment, Bandaru Dattatreya in Rajya Sabha on
    The Labour Minister said the estimated investment in ETF for current
financial year was approximately 225 bln rupees and this was due the rise in
investment limit in ETFs to 15% from 10% sanctioned by the trustees of the
EFP in May this year.
    In the last two financial years, 2015-16 (Apr-Mar) and 2016-17 (Apr-Mar),
the EPFO has invested a total of 215.61 bln rupees in five ETF schemes of
three fund houses, the Labour Minister's statement showed.
    The current value of assets in 26 ETFs amounted to 387.90 bln rupees, as
of the end of last month, data from Value Research Online showed.
    Since EPF investments in equities through ETFs are long-term in nature,
the funds invested would typically still be invested in the ETFs.
    The one-year returns in these ETFs is in the range of 15-19% as of July
25, and the value of EPFO's investments would have also appreciated by at
least 15%. This would make their current contribution in ETFs' current asset
size to be nearly 60%.
    EPF investments over the last two years were the highest IN SBI Mutual
Fund's Nifty 50 ETF at 128.34 bln rupees. Other ETF schemes invested in by
EPF were SBI Sensex ETF, UTI Nifty 50 ETF, UTI Sensex ETF and Reliance CPSE
ETF (see table).
    The aggregate of the assets under management of these five ETFs as of
June end was 359.31 bln rupees, making up for over 90% of assets of a total
of 26 ETFs in the mutual fund industry.
    As per EPF's mandate, its investments in ETFs can only be in Nifty 50 ETF
or Sensex ETF. Of the 26 existing ETFs, 20 would, therefore, be eligible. But
mutual fund analysts are not sure whether EPF will diversify beyond the
select few ETFs it has invested in till date.
    The EPF is also likely to invest in any new CPSE ETF the government may
launch through a fund house in the current financial year. Till date, it has
invested in 18.08 bln rupees in CPSE ETF, which is managed by Reliance Nippon
Mutual Fund.
    The table below lists details of the ETFs where EPF has invested in the last
two years:

MF scheme           EPF's investments        Current AUM
---------           In FY16     In FY17      of scheme
                    -------     -------      -----------
                              (In bln rupees)
SBI Nifty 50 ETF     49.22       79.12          200.25
SBI Sensex ETF       16.55       26.91           61.74
UTI Nifty ETF         Nil        19.11           30.55
UTI Sensex ETF        Nil         6.62            9.68
CPSE ETF              Nil        18.08           57.09

(From exactly 5 years ago) An editorial on abuse of double taxation avoidance treaties

This-day-that-year...  ...
July 28, 2012

Here is an editorial on the issue of double taxation avoidance agreement signed by India with over 70:

Obfuscating role of DTAAs 
India-Mauritius DTAA is being used for everything but what the concept stands for

Three weeks before an important meeting of Indian and Mauritian on the revision of the double taxation avoidance agreement (DTAA) between the two countries, the minister of 
foreign affairs, international trade and cooperation of Mauritius was camping last week in India and holding press conferences with the Indian media in what appeared to be an attempt to soften the hardline thinking on DTAAs among Indian tax and government officials. 

This was notwithstanding the fact our Prime Minister currently holding the additional position of a finance minster is not seen as someone being anywhere close to the hardline thinking group of which the previous finance minister, Pranab Mukherjee, was considered as a crucial member. Mukherjee played a key role in getting a draft of the General Anti Avoidance Rules (GAAR) on direct taxation ready and seeking its implementation as soon as possible regardless of whether the larger proposed Direct Taxes Code was approved or not. 

With influential members of the political establishment being on either side of revise-and-curb-allowances-under-DTAAs, with the one holding the status quo view being more influential right now, it is time to take a hard look at the original purpose and objective of a DTAA whether or not any of the DTAAs signed by India with over 70 countries meet them or not. In a world, and in an era encompassing a few centuries, where global trade has inevitably flourished, companies and individuals earn income and make profits from their business operations and transactions in multiple countries. It becomes not just unfair, but also unviable, for a taxpayer if the income or profit made from operations in a foreign country is taxed by that foreign country as well as his home country. 

It was precisely to remove this element of double taxation, treaties such as the DTAAs were conceived and implemented by countries across the globe. The idea was always to eliminate unfair double taxation in order for countries to encourage trade between themselves and attract foreign investments. It was never the purpose to do this by making the rate of taxation very low or almost zero. But this is not considered by the status quo proponents of India's DTAAs with all countries including with countries such as Mauritius which are un-deniably nothing else but tax havens since they charge zero or close to zero rates for income or capital gains taxation. 

Foreign investments into India, whether direct or indirect, are pouring in through such tax havens. About 37 per cent of foreign direct invesments in the country come from Mauritius-registered companies. Clearly, this is nothing but treaty shopping by companies from other countries and there is also the element of round-tripping by Indian companies which route their domestic investments through shell companies set up in Mauritius to evade domestic rates of taxation. 

Such misuse of DTAAs should not be allowed to continue regardless of the threat of foreign investments drying up if they are stopped. India-Mauritius DTAA use is perfectly legitimate if a global investment firm, with its home base in US, or a European country, sets up shop in Mauritius, garners funds from domestic Mauritians and then invests it in India. But if the source of funds are not Mauritian, as they pre-dominantly, then the DTAA ought to be immediately revised to prevent it from happening. 

Even the draft GAAR clauses are lenient in the sense that they only cover residency which only requires board meetings to be held in the other country and adequate manpower and capital to be deployed in the business. Capital requirement is minimal for investment companies seeking registration in Mauritius and even GAAR can not effectively be a party pooper. But a real revision of the India-Mauritius DTAA can provide the much-needed cleansing.

June 13, 2017

What's happening in Madhya Pradesh wrt rule of law

"napm india" <>
Date: Jun 13, 2017 6:09 PM
Subject: Press Note | June 13, 2017: Leading Activists Found Shocking Anarchy in Madhya Pradesh leading to and following Death of Farmers in Police Firing & Torture

> Press Note on Mandsaur Police Firing : 13th of June
> New Delhi | June 13, 2017: Following a call given by Jai Kisan Andonlan of Swaraj Abhiyan, NAPM, Kisan Sangharsh Samiti of MP, Bandhua Mukti Morcha and several farmer organisations, a delegation of their representatives went to visit Mandsaur in Madhya Pradesh where 7 farmers were killed in a police firing on 6th of June. The delegation comprised about 25 representatives from Gujarat, Maharashtra, Tamil Nadu, West Bengal, Bihar, UP, Haryana, Rajasthan and Delhi, besides local farmers and farmer leaders. These included Ms. Medha Patkar, Swami Agnivesh, Dr. Sunilam, Paras Saklecha, Kalpana Parulekar, Avik Saha, Ajit Singh, Balakrishnan and Yogendra Yadav.
> What follows are some of the key observations made by this delegation.
> Law & Order, Legal & Human Rights – Nightmarish Situation
> ·         Democratic Rights & Human Rights at an unbelievable low in MP – Constitution & Laws of India seem not to apply here – has it ceded from the Union of India?
> ·         Police & Civil Administration of Ratlam District keep strong surveillance on, illegally stop (from visiting Mandsaur) & arrest activists like Medha Patkar, Swami Agnivesh, Yogendra Yadav & Avik Saha, with lifelong adherence to peace and non-violence, on ground of breach of peace!!
> ·         In agitation-free Neemuch District, police illegally prevent Yogendra Yadav, Dr. Sunilam, Avik Saha & Ajit Yadav from interacting with villagers; use sheer brute force to push them out of MP into Rajasthan
> ·         Delegation interacts with farmer leaders and activists and finds complete break-down of rule of law; reign of terror as Districts affected by and surrounding locations of farmers agitation cordoned off and jungle law implemented
> ·         Independent persons and agencies barred entry while full might of state appears to be influencing & torturing witnesses to the murder of farmers by police, causing disappearance of material evidence and running an extortion racket by intimidation
> Probable Background Causes of Present Situation – Deep Rooted & Long Neglected Life & Livelihood Issues of Farmers
> ·         Already un-remunerative and further downward spiraling prices of all produce (Report annexed), despite MP reporting highest agricultural growth in the country and winning prizes, seems to have lead to wide spread discontent; State Government's inaction in this crisis fuelled unrest
> ·         Non-fulfillment of ruling BJP's Manifesto promise of 50% profit above cost price compounded with the slow down of purchasing power of traders in mandis due to demonetisation completed the cycle of despair, disillusionment and discontent
> ·         Local reports complained of extreme bureaucracy at mandis & looming threat of disentitlement of rights; e.g. compulsory registration of seller-farmers only through Aadhar, downgrading of ration entitlement under PDS ration if sales above 50 quintals made, 50% payment through bank, which forthwith deducts all loans
> ·         Drought of 2 consecutive years have severely depleted the MP farmers and have led to the 4th highest farmers' suicides in the country in 2015; with added pressure of loan repayment and almost 50% price fall in produce, farmers have reached the end of their tether
> ·         Non-payment & whimsical small payments of insurance for crop loss made farmers desperate for redressal of their financial grievances    
> Murder of Farmers by State of Madhya Pradesh  
> ·         Since the State has already admitted that firing was done without any formal order and without following due process, the death of farmers in police firing is nothing but murder by machinery of state
> ·         The heinous and brutal killing of a farmer by beating and torture in the hands of police, after the gunning down of 5 farmers, is unbelievably shocking & can only be termed state sponsored terrorism
> ·         It is sad to note that Madhya Pradesh has learnt no lesson from the findings of the Commissions that investigated the Multai Firing during Congress regime, when 23 farmers were brutally gunned down; Again, there was no dialogue with the protestors before firing; such dialogue could have easily prevented this unnecessary loss of life
> We Demand
> ·         The State of Madhya Pradesh must immediately ensure remunerative price for all crops grown in Madhya Pradesh in fulfillment of the promise made by BJP in its manifesto (cost + 50%) and also ensure guaranteed purchase of the produce through market stabilization funds and other mechanisms; agriculture is a state subject and Madhya Pradesh, like Karnataka can ensure relief for farmers through agriculture price commission and allied statutory interventions  
> ·         We demand that farmers of Madhya Pradesh be given a one-time waiver of all loans, which, coupled with remunerative prices, will pull them out of the vicious cycle of debt and death though debt-trap
> ·         The State of Madhya Pradesh must immediately, in consultation with farmers organizations (1) appoint an Independent Commission headed by a sitting High Court Judge (2) prepare comprehensive TOR of the Commission to go into all circumstances that lead to the murder of farmers by police firing
> ·         The State of Madhya Pradesh must immediately register murder case against all policemen and administrative officers who ordered firing on farmers and executed the order
> ·         The State of Madhya Pradesh must immediately withdraw all cases registered against farmers in connection with the Farmers Movement in Madhya Pradesh during 1st to 10th June 2017
> ·         The State of Madhya Pradesh must immediately ensure that comprehensive crop insurance is provided for all crops grown in Madhya Pradesh and not just a few crops as presently stipulated under the PMFBY
> ·         Opposition parties like the Congress who have extended support to the farmers must establish their credential by ensuring that in the states of Punjab and Karnataka, where they are in power, there is no shooting on and killing of farmers, MSP at cost + 50% is given in terms of the recommendation of the Swaminathan Commission  and all loans of farmers are waived

> National Alliance of People's Movements
> National Office : 6/6, Jangpura B, Mathura Road, New Delhi 110014
> Phone : 011 24374535 Mobile : 09818905316
> Web : |
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> Twitter : @napmindia

June 11, 2017

Brokerage firms' Jan-Mar performance

A story I wrote last week on brokerage firms' Jan-Mar 2017 financials --

Institutional brokerages Jan-Mar PAT growth better than retail firms
    Profits of large domestic brokerage firms with a heavy dependence on retail clients fell in Jan-Mar even as those with a decent institutional clientele saw profits rise.
    During the quarter, trading turnover rose across the board on stock exchanges.
    The mixed performance of large brokerage firms followed a slide in the profits across the board in the December quarter.
    Cash market turnover on the National Stock Exchange of India rose 20% on quarter to 14.38 trln rupees in Jan-Mar, which was much better compared to the 10% on-quarter decline seen in Oct-Dec.
    Key factors driving up stock market trading volumes were a sharp rise in benchmark equity indices and increase in trading activity by institutional investors.
    Investor sentiments picked up in Jan-Mar after the previous quarter had seen it taking a big hit. The December quarter had seen subdued stock market activity due to the demonetisation-induced fall in corporate earnings in many sectors. Also, foreign funds outflow in Oct-Dec, on the back of uncertainties around Donald Trump's win in the US presidential elections.
    Net inflow by foreign portfolio investors in the equity cash market was 365 bln rupees in Jan-Mar, compared with a net outflow of 343 bln rupees in Oct-Dec.
    On gross turnover basis, an indicator of overall trading activity, FPIs traded more in Jan-Mar.
    The sum of FPIs' purchases and sales rose 16% on quarter to 6.44 trln rupees in Jan-Mar. This was an improvement over the 5% on-quarter fall in the previous quarter.
    Net inflow of mutual funds into the cash market fell 64% on quarter to 115 bln rupees in Jan-Mar. But they still fueled the trading momentum in the stock market as their gross cash market turnover--sum of purchases and sales--shot up by 31% on quarter to 2.34 trln rupees during the March quarter.
    The equity derivatives market of the NSE too, saw total turnover rise by 11% on quarter to 276.24 trln rupees in Jan-Mar. NSE makes up for over 99% of all equity derivatives trading in the country,
    BSE's cash market turnover jumped up 132% on quarter to 4.23 bln rupees in Jan-Mar, which stock market analysts was aided in a big part by bulk trades involving transfer of shares by promoters.
    In the previous quarter, BSE had seen it cash market turnover fall 12% on quarter to 1.82 trln rupees.

    Out of four large brokerage firms, for which Jan-Mar earnings data was available from their listed parent companies, two firms recorded on-quarter rise in profit from broking activities while two firms saw it fall on quarter.
    All these four brokerage firms saw a 9-14% on-quarter fall in profit in the December quarter.
    ICICI Securities, which operates ICICIdirect, the largest online retail broking platform in the country, is pre-dominantly dependant on revenues from its retail clients.
    The firm saw its net profit decline 6% to 830 mln rupees in Jan-Mar. It was, however, less severe than the 11% on-quarter fall in net profit recorded by the brokerage firm in the previous quarter.
    Faring better was Kotak Securities, having a decent institutional business along with national retail operations. The firm's net profit in Jan-Mar stood at 1.21 bln rupees, up sharply from 850 mln rupees in Oct-Dec.
    Kotak Securities' net profit had fallen 11% on quarter in Oct-Dec. Revenues rose 28% on quarter to 3.67 bln rupees in Jan-Mar.
    According to the firm, the firm had 1.4 mln secondary market customers at the end of March, up from 1.3 mln rupees a quarter ago. The number of its branchises and franchises, however, declined to 1,281 from 1,300.
    Edelweiss Financial Services Ltd carries out equity broking operations through its subsidiary, Edelweiss Broking, and also has a significant institutional business. The firm also other subsidiaries, including one into commodity broking business.
    In Jan-Mar, the subsidiaries of Edelweiss Financial, collectively clocked a net profit of 400 mln rupees, up 29% from the previous quarter. Their collective revenues rose 12% to 2.49 bln rupees during the March quarter.
    Retail-oriented brokerage firm, Motilal Oswal Securities, earned 1.98 bln rupees as revenue from broking activities in Jan-Mar, up 8% from the December quarter, according to an earnings presentation of the parent company, Motilal Oswal Financial Services Ltd, which is listed on the stock exchanges.
    The broking firm said the March quarter saw disproportionate high cash volumes in the market due to large-scale inter-promoter transfers.
    This led to a muted revenue growth during the quarter and the broking firm's net profit fell to 180 mln rupees in Jan-Mar from 214 mln rupees in Oct-Dec recording a 16% decline.
    In the December quarter, Motilal Oswal Securities had seen its net profit fall by a lower degree of 9% on quarter.
    These four broking firms are among the top 20 broking firms in terms of numbers of unique client codes held with the NSE. Every investor account of a brokerage firm carries a unique client code at the time of transacting on the stock exchanges.
    Data from NSE showed that as on Apr 30, these four brokerage firms had 1.20 mln unique client codes, accounting for around 26% of aggregate across all NSE brokerage firms.
    All in all, the March quarter saw an across-the-board rise in turnover on the stock exchanges and institutional investors traded more than they did in the previous quarter.
    But since retail investors were not as active as the institutional investors during the quarter, the brokerage firms with heavy reliance on retail clients did not do as well as those with a better retail-institutional mix of business.

June 09, 2017

Flows in balanced MF schemes increase multi-fold in Jan-May

An article I wrote for the news organisation I work for currently.

Flows in balanced MF schemes increase multi-fold in Jan-May
    Flows into balanced schemes of mutual funds have shown extra-ordinary growth in the last three years, with the first five months of the current calendar year witnessing more net inflow than in the whole of last year.
    As the stock market continues to run up there is a growing number of investors who perceive balanced funds to be less riskier than equity funds and at the same time giving higher returns compared to income funds, said Vivek Mahajan, head of research at Aditya Birla Money.
    Mutual fund investors are turning slightly wary of the high valuations in the stock market and are getting cautious by turning to balanced funds.
    Balanced funds are hybrid in nature investing in both, equities and debt securities, with an orientation towards either. An equity-oriented balanced fund, would have 50-65% exposure to equities and balance in debt, and vice-versa for debt-oriented balanced funds.
    The balanced funds recorded net inflows of 286 bln rupees in Jan-May this year, exceeding the net inflow of 247 bln rupees in entire calendar 2016. This is the highest in over seven years, data of flows from Association of Mutual Funds in India showed (see table).
    In May, assets under management in balanced funds crossed the one-trln-rupee mark ending the month at 1.02 trln rupees, more than double from the year ago level.
    Equity funds have recorded net inflows worth 335 bln rupees in Jan-May while income funds have seen net inflows of just 230 bln rupees.
    Last year, balanced funds saw net inflows grow 16% on year, compared to 7.7 times on-year growth in income funds' net inflow and a 46% on-year fall in net inflows in equity funds.
    But it was in 2015 when flows in balanced funds increased dramatically. In that year, the net inflow in balanced funds jumped 3.7 times on year to 214 bln rupees, even as equity funds' net inflow increased just 74% on year and that in debt funds declined by 37%.
    According to analysts, the relationship managers in financial services firms and equity brokerage firms which sell financial products to retail investors find it easy to market balanced funds to existing and new investors as a safe product.
    Since November last year, when demonetisation made investments in real estate un-attractive, and with gold prices continuing to be subdued, the entire surplus investible surplus of most investors have been ploughing into equities and debt instruments.
    In their aggressive marketing of systematic investment plans, mutual funds are giving balanced funds the same importance as they typically give to equity funds.
    For instance, in the market commentary of its latest monthly factsheet for the current month, ICICI Prudential Mutual Fund said since the uncertainty of global events cannot be ruled out the equity market could be volatile in the near term and that new or first time investors looking for equity exposure could consider SIP in ICICI Prudential Balanced Advantage Fund.
    All balanced funds which invest minimum 65% in equities qualify as equity schemes under tax rules. Tax norms allow for zero long-term capital gains liability and tax-free dividends for equity schemes of mutual funds. The tax norms do not factor in the net exposure to equities after the use of equity derivatives to hedge.
    But some mutual funds also offer a variant of balanced funds which in law are equity funds but which have a net equity exposure of less than 65%. Typically known as balanced advantage funds these schemes provide tax benefits to investors by having 65% of their corpus as investments in equity shares at all times and additional significant exposure in the equity derivatives market which hedge a good part of their equity holdings.
    For instance, ICICI Prudential Balanced Advantage Fund, which had assets to the tune of 184 bln rupees in April, had 65.11% of it invested in equities and the balance in debt securities and money market instruments. But the net equity exposure of the scheme was 50.11% since it had equity derivatives positions in the form of stock futures and index futures and options to the extent of 15% of its AUM.
    The trend of robust inflows in balanced funds may continue for some more time till the current market rally lasts, according to Aditya Birla Money's Mahajan.
    Gold ETFs or exchange traded funds, which offer investors a non-physical way of investing in gold, have been steadily losing assets in the last four years. In Jan-May of current year, too, gold ETFs have seen net outflow of 3 bln rupees.
    The table below lists the trend in net inflow in select mutual fund
categories in the last few calendar years
            Net inflow (in bln rupees)
       Balanced   Equity   Income   Gold ETFs
       --------   ------   ------   ---------
2017*     286      335      230       -3
2016      247      463     1375       -9
2015      214      851      178       -9
2014       57      490      285      -17
2013      -11      -87      270      -18
2012       -4     -141      567       18
2011       13       68     -122       40
2010        8     -162     -835       17
* till May                       
Data source: AMFI

May 11, 2017

Citizens of India have a right towards genuine Election process
"...there are also substantial number of well informed scientists and technologists who believe that even those machines which are stand alone, not networked and hardwired, as an Indian EVM is, can be tampered with. These are well-intentioned people, they want to save and strengthen democracy. They cannot be treated as criminals or enemies. If this attitude is not changed we will progressively weaken the Indian democracy, and people will lose trust in their vote. A change of attitude is required...."

Very true.

Its not about AAP, BSP, Congress or any other party asking questions to Election Commission on the tamepring of EVMs.

It is first and foremost to us, the citizens of this country, to whom the Election Commission needs to prove beyond all doubts that the EVMs can not be tampered illegally by vested political and corporate interests.

And, if the Election Commission of India can not convince us citizens then we have every right to expect the voting in all elections in the country to take place only through physical ballots.


May 01, 2017

Growth trend in TCS-Infosys verticals' annual EBIT margins

An analytical story I contributed recently to the media organisation I work for currently:

Segment dynamics weigh on TCS and Infosys margins growth

Over the last 4-5 quarters the stock market has accepted the grim reality of sluggish revenue growth in the information technology sector on the back of slowdown in business from banking and financial services clients as well as those from the retail and consumer major challenges and events.
There are also expectations of hi-tech and telecom business driving the growth engine of the software companies. Upsides from high end digital and next gen services offerings are expected by most analysts from the large software companies in the long term.
But how did past expectations play out last year. A fine reading of segment-wise margin numbers of the two largest Indian software companies, Infosys Ltd and Tata Consultancy Services Ltd, whose Jan-Mar quarter results are out, brings out interesting revelations.
Breaking down the segment-wise EBIT margin numbers shows Infosys and TCS getting better EBIT margins in 2016-17 from their manufacturing and retail verticals as compared to the previous year, according to an analysis of segment results data.
On the other hand, the EBIT margins fell in the verticals of banking and financial services, energy and utlities, communication and hi-tech for the two software majors.
The net impact was adverse since manufacturing and retail verticals had a 27% revenue share in both the companies while banking and financial services, energy and utilities, communication and hi-tech verticals together ha 57% revenue share each in Infosys and TCS.
Analysts have downgraded earnings growth for TCS since it delivered an earnings before interest and tax margin of 25.7% in 2016-17 (Apr-Mar) which was lower that the company’ stated EBIT margin guidance band of 26-28%.
Infosys' performance has invited similar reactions from the analyst community so far. Axis Capital said in its post-results research note that Infosys' margins performance in Jan-Mar and its lowered guidance for 2017-18 were below the brokerage firm's expectations.
The EBIT margin from the manufacturing vertical rose on year to 24.6% from 22.5% for Infosys, and to 28.6% from 26.8% for TCS, in 2016-17, an analysis of segment results data from Cogencis Corporate Fundamental Database showed. The earnings before interest and tax margin was considered as the operating margin in the analysis of the segment-wise financials.
Revenue from manufacturing clients accounted for 11% of total revenues for both the major software companies. The retail and consumer vertical also delivered better operating margins for Infosys and TCS in 2016-17 as compared to the previous year.
However, in terms of on-year revenue growth in 2016-17 this vertical, which contributed nearly 17% each to Infosys’ and TCS’s total revenue, saw growth fall more sharply as compared to 2015-16 compared to most other verticals.
Traditional retailers in developed markets, the main clients for the large Indian software companies, have undergone challenging times in the last one year.
Deceleration in retail and consumer vertical weighted on overall growth for 2016-17 for TCS, said Prabhudas Lilladher brokerage in its research note.
TCS, analysts said, has already cautioned of structural headwinds in this vertical going forward.
In the case of Infosys, Axis Capital noted that for Infosys retail and consumer vertical was likely to remain soft with volatile performance throughout 2017-18. "Despite headwinds, opportunity exists around data analytics, legacy transformation and digital initiatives," the brokerage firm noted.
The 2016-17 performance of the banking and financial services vertical, the biggest contributor to revenues for both the companies, was hit the hardest, due to caution in spending by the large global banking and financial service clients.
For TCS, the EBIT margin from coming from this vertical, which contributed 41% of the company's revenues, declined sharply to 27.6% in 2016-17 from 29.1% in the previous year.
In its post Jan-Mar quarter results interaction with analysts, TCS tried to allay concerns for the banking and financial services vertical. The company attributed the on-quarter decline in revenue in Jan-Mar from this vertical to the closure of one project and said it was confident of pick-up in growth from Apr-Jun quarter of 2017-18 itself, according to a post-results research note by IDBI Capital.
Infosys, which had 27% of 2016-17 revenues coming from banking and financial services vertical, has said recently that it is more optimistic on the US markets given the rate hikes which it expects would lead to an uptick in budgets of banking and finance clients in Jul-Dec.
"In Europe, (Infosys) management sees opportunity from catch-up exercise by banks (they are behind the curve in tech adoption), and (from) the under penetration in Europe," said Axis Capital in its research note.
The energy and utilities vertical hit Infosys' EBIT margins hard in 2016-17 as the margin from the vertical fell to 28.7% from 29.7%.
For Infosys, margins from its hi-tech vertical also came under a lot of pressure. The EBIT margin recorded a sharp decline to 24.9% in 2016-17 from 26.6% in 2015-16. Expectations from analysts were high from this segment, but performance on the ground did not match up.
With slowdown in revenue growth being the expected norm in 2017-18, it will be the margin trajectory which will hold the key for the two largest Indian software companies.