Sensex Opens at Record High; Nifty Breaches 13,000 Mark for the First Time

Tue, 24 Nov 09:30 am

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Asian share markets have begun the trading week with gains as traders took solace from progress towards a potential vaccine for Covid-19 and US President-elect Joe Biden was given the go-ahead to begin his White House transition.

The Nikkei is trading up by 2.7%. The Hang Seng is trading up by 0.1% while the Shanghai Composite is trading down by 0.1%.

In US, Wall Street indices ended higher as hopes for a COVID-19 vaccine lifted economically sensitive sectors such as energy and industrials.

The Dow Jones Industrial Average ended up by 1.1% while the Nasdaq ended up by 0.2%.

Back home, Indian share markets have opened the day on a strong note, following positive global cues.

Benchmark indices have opened the day at their record high levels with the Nifty breaching the 13,000-mark for the first time.

The BSE Sensex is trading up by 315 points. The NSE Nifty is trading higher by 93 points.

Maruti Suzuki and Adani Ports are among the top gainers today.

The BSE Mid Cap index and the BSE Small Cap index have opened the day up by 0.5% and 0.8%, respectively.

Barring energy stocks, all sectoral indices are trading on a positive note with stocks in the banking sector and telecom sector witnessing maximum buying interest.

The rupee is trading at 74.15 against the US$.

Gold prices for the latest contract on MCX are trading down by 0.8% at Rs 49,069 per 10 grams.

To know more about gold, you can check out our detailed article on investing in gold here: How to Invest in Gold?

Speaking of stock markets, in one of his latest videos, co-head of Research at Equitymaster, Rahul Shah discusses why he preferred a little-known stock over Nestle and how he was proven right.

Tune in to the video to find out more:

In news from the mutual funds space...

Franklin Templeton Mutual Fund has moved the Supreme Court (SC) against the Karnataka High Court (HC) order that upheld the view that unitholders' consent is a must before wind-up of any mutual fund (MF) scheme.

Sanjay Sapre, President, Franklin Templeton MF said that post the judgement of the Karnataka HC, Franklin Templeton MF considered all possible options over the last few weeks to start returning money to unitholders in the shortest possible time in an orderly manner. This included the option of seeking unitholder consent according to the judgment of the Hon'ble High Court.

The development comes as last month, the Karnataka HC held the view that unitholders' consent was a must to wind up any MF schemes.

In the 333-page order, the High Court examined various aspects of the matter including the role of the Indian stock market regulator and trustees in Franklin Templeton's decision to wind up six of its debt schemes. A large part of HC's order was related to the existing regulatory guidelines for winding up any mutual fund scheme.

As of November 13, 2020, Franklin Templeton's six shut schemes have received total cash flows of Rs 96.8 billion, since April 24, 2020.

The cash available stands at Rs 59.5 billion as for the four cash-positive schemes, subject to fund-running expenses.

Among individual schemes, Franklin India Ultra Short Bond Fund and Franklin India Low Duration Fund have 43% and 27% of their assets in cash. Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 26% and 8% of their assets in cash.

Last week, Franklin Templeton Mutual Fund said its six shut schemes have received Rs 9.4 billion from maturities, pre-payments and coupon payments in a fortnight.

On April 23, Franklin Templeton shut six debt mutual fund schemes, citing redemption pressures and lack of liquidity in the bond market, following the Covid-19 outbreak.

According to estimates, around 3,00,000 investors are impacted by Franklin Templeton's move to wrap up six of its yield-oriented debt schemes.

Speaking of the Franklin Templeton fiasco and mutual funds, Ajit Dayal, founder of Quantum group, talks about the corruption in the Indian mutual fund industry, in one of his articles. You can read the same here: Black swans, Black crows and Fund lies

Vijay Bhambwani also recorded a video on the analysis of the above situation and his recommendation for debt fund investors. You can check the same here: What the Franklin Templeton Fiasco Means for Traders

We will keep you updated on the latest developments from this space. Stay tuned.

Moving on to stock specific news...

Exide Industries is among the top buzzing stocks today.

Battery maker Exide Industries said it has increased stake in its joint venture (JV) with Swiss firm Leclanche to 80.15% with a further investment of Rs 331.7 million by way of subscription to equity shares of the JV.

In June 2018, Exide Industries had announced signing of a pact with Leclanche SA for setting up a joint venture company, Exide Leclanche Energy Pvt Ltd, to build lithium-ion batteries and provide energy storage systems for India's electric vehicle market.

With the above investment, the equity shareholding of Exide Industries in joint venture company stands increased from 77.87% to 80.15% of the total paid-up share capital.

EIL said its further investment is to meet the funding requirement, particularly the capital expenditure projects of the joint venture company.

The company said that as on date, the paid-up capital of the JV is Rs 1,285.9 million.

The company's net worth as on March 31, 2020 was Rs 1,449.8 million with a turnover of Rs 21.9 million. It posted a loss after tax of Rs 189.5 million for the year ended March 31, 2020.

Apart from the above, market participants will also be tracking banking stocks today.

As per the news, former Reserve Bank of India (RBI) governor Raghuram Rajan and deputy governor Viral Acharya has strongly criticized the central bank's internal working group (IWG) proposal of allowing industrial houses to float banks describing the proposal as a `bombshell' that is `best left on the shelf'.

The warning came as even other central bankers and S&P Global ratings have cautioned against the move stating that it is fraught with risks.

Rajan and Acharya in a note have questioned the timing of the move stating that nothing has changed to warrant a change in the stance of the RBI to deny bank licences to corporate houses.

They also cited the Yes Bank crisis as a limitation of the central bank to gather information on loans.

The duo also reasoned that giving licenses to industrial houses will concentrate economic powers to these corporates. When the industrial houses would need financing, they would get that without any question from the banks floated by them. Banks in India are rarely allowed to fail, which helps them garner huge deposits. If they are owned by industrial houses, it can lead to bad lending.

The duo also expressed surprise at the recommendation of the IWG in reducing the timeframe of converting a payments bank into a full-fledged commercial bank from five years to three years.

As per them, it won't be enough to give licenses to industrial houses by just changing the regulations. Regulations could not stop huge bad debt accumulation in banks.

The above comments come as the central bank's IWG yesterday proposed 12 changes to ownership guidelines and corporate structure for Indian private sector banks.

One of these proposed recommendations was that large corporate/industrial houses may be permitted to promote banks only after necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures between the banks and other financial and non-financial group entities.

The group also recommended that the cap on promoters' stake in the long run may be raised from the current levels of 15% to 26% of the paid-up voting equity share capital of the bank. The group, however, suggested a long 15-year transition for this change.

Here's what Tanushree Banerjee, co-head of Research at Equitymaster, has to say about these recommendations by the RBI for private banks...

• The RBI's new ownership guidelines for corporate structure of Indian private-sector banks seeks to change the central bank's conservative stance on the subject. The RBI's latest recommendation may allow large corporate houses to run banking businesses.
  
  From the conditional nature of the recommendation, it appears that large corporates could acquire NBFCs, which may be allowed to convert into banks.
  
  However, such recommendations were earlier rejected by the central bank on the grounds of 'conflict of interest' with the corporates' other businesses.
  
  Do note that even today 70% of the bad loans in the banking system are in the form of corporate NPAs.
  
  So, while stronger regulations may be necessary to issue banking licenses to large corporates, in the near term the guidelines could bring in liquidity and better valuations for the sector.

How these suggested changes pan out remains to be seen. Meanwhile, we will keep you updated on the latest developments from this space.

Speaking of the banking sector, note that the sector was one of the worst affected sectors in the Indian stock market when Covid-19 struck.

Banking stocks were severely punished. No investor wanted to touch them even with a 10-ft pole.

However, sentiment have changed now as investors are chasing banking stocks like never before.

Have a look at the monthly returns of major sectors for the month of March and October 2020 in the chart below:

Banks were among major losers with a cut of 34% in the month of March. Cut to October, they are the biggest gainers for the month with more than 11% returns!

We are closely tracking this sector and will keep you updated on all the top news from this space. Stay tuned.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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