Inappropriate to say that markets have bottomed; invest in a staggered way

At current levels, it is time to be overweight on equities.

India continues to witness a perfect storm. A once in century medical crisis has disrupted economic activities, which in turn, is reflected in financial market stress. Sectors catering to necessity are doing better than those catering to luxury. On the other hand, hospitality, entertainment and aviation have been hit badly. Major sectors such as auto, real estate, BFSI are also feeling the stress. Sectors like FMCG, Telecom, agri industries are less affected.

Financial year 2020-21 (FY21) will witness negative gross domestic product (GDP) growth for the first time after 1980. In April, steel production was down 87 per cent year-on-year (YoY) and power generation was down 22 per cent YoY. Overall business outlook, as measured by the PMI Index, was down to lifetime low. The risk of the second wave continues to exist as we do a calibrated opening of the economy.

Other countries are also in the same boat. As per IMF, the US is likely to see -5.9 per cent while the EU is likely to see 7.5 per cent contraction in GDP despite high fiscal and monetary stimulus.

However, there is a silver lining. Fertiliser sales nearly doubled in May over last year. It’s a sign of a boom in the agri sector. Britannia posted over 20 per cent revenue growth in April and May. Power demand has begun to inch up again – a sign of economic activity recovering from bottom. ‘Fastag’ & E-way bill generation of May also show some recovery from bottom.

There is also demand for good quality Indian papers, as reflected in successful offerings by Reliance Industries (RIL), Hindustan Unilever (HUL) / HDFC Life / Bharti Airtel and Kotak Mahindra Bank. MSCI & FTSE has proposed to increase India's weight in emerging market (EM) indices over next quarter. This can bring anywhere between $3-7 billion foreign portfolio investor (FPI) flows in Indian equities.

YES Bank in talks with mutual funds for raising up to $500 million

If the private bank is able to raise funds in this round, it would get some breathing space.

YES Bank has approached domestic asset management companies (mutual funds) for raising fresh equity capital worth $300-$500 million. This comes amid a slew of rating downgrades and stress on its loan book.

If the private bank is able to raise funds in this round, it would get some breathing space. The lender, however, will still have to work to raise more funds to address concerns. The bank has been aiming to raise a total of $2 billion.

The private lender has been struggling to raise capital for months. It also had to postpone its December 2019 quarter results as the fundraising process consumed most of its top management’s time.

Investment bankers associated with the fundraising exercise said the bank has approached domestic mutual funds for issuing equity shares.

“While there is definite interest in the offering, firm commitments have not been made yet. The bank is in dialogue with mutual funds which had participated in the last equity raising round in 2019,” said one of the bankers.

In August 2019, YES Bank had raised Rs 1,930 crore through the qualified institution placement (QIP) route.

Fund managers have conveyed reservations over putting money into instruments which have a lock-in period. However, discussions are on to find a solution. An email sent to the bank to know the status of its fundraising plans did not get response till the time of going to press.

There is also a plan to issue equity shares on a rights basis. For participating in a rights issue, an investor must be a shareholder, which is why some existing shareholders (mutual funds) are being approached, the banker said. The final investor approvals are expected over the next three days. These investors may exit once a deal to sell a controlling stake in the bank is struck.

On February 12, YES Bank had delayed announcement of its December quarter results as it was in talks with potential investors, including J C Flowers, for raising equity capital. It received non-binding expressions of interest from several investors, including J C Flowers and Tilden Park Capital Management.

Last month, ICRA downgraded the bank’s tier-I and tier-II bonds from “A-” to “BBB+” due to continued delay in capital raising by the lender.