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.

Why the Sensex has rallied 600 pts today and will the up move sustain?

Last week, Indian bourses saw their worst weekly fall in a decade with the S&P BSE Sensex and the Nifty50 tumbling nearly 7 per cent each during this period.

A drop of nearly 3 per cent on Friday amid a global sell-off on coronavirus health scare and fears that weak economic data from China over the weekend ticked most of the checkboxes that could have sent the markets spiraling down further as they opened for trade on Monday. However, the over 600-point up move intra-day caught many by surprise.

The markets, analysts say, over-reacted to the developments and sold-off in a panic mode on Friday. The rally on Monday, according to them, could also be on account of short-covering. Most global markets suffered their worst weekly fall since the 2008 global financial crisis last week. The velocity of the fall in stocks was sharp across markets in Asia, Europe, and America. Indian bourses, too, saw their worst weekly fall in a decade with the S&P BSE Sensex and the Nifty50 tumbling nearly 7 per cent each during this period.

“The markets now seem to have realised that coronavirus may not be as bad a scare as it was made out to be. The only way it can spread is via physical contact amid conducive temperature / climate. India, though not completely insulated from the global meltdown in financial markets, is still relatively safer as regards this health scare. I don’t see the markets selling-off in a way they did on Friday. There can be intermittent corrections but quality stocks will start to perform now,” says A K Prabhakar, head of research at IDBI Capital.

Another reason is the hope of a fiscal stimulus by global central banks to prop-up growth, which was already hit by US China trade spat, till the onset of coronavirus made things worse. The developments, according to experts, are enough reasons for central banks to cut rates and inject liquidity into the system to aid growth. This, in turn, will benefit most asset classes.

“The fundamentals of the US economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Fed Chairman Jerome Powell said over the weekend.

Is it a good time to buy gold as a safe-haven bet amid coronavirus fears?

Gold, which was hovering around $1,321 an ounce in January 2019, has already breached $1,600 per ounce in the past few sessions to a seven-year high.

For an asset class that has already seen an appreciation of around 25 per cent in a year, analysts expect the onset of coronavirus (Covid-19) to fuel a further upside in gold prices over the long-term should the panic spread. In the short-term (six months), however, they expect the upside to be limited given the rally since the past year.

Gold, which was hovering around $1,321 an ounce in January 2019, has already breached $1,600 per ounce in the past few sessions to a seven-year high.

“The effects of coronavirus is adding to global woes. At a time when we were beginning to think that there could be some resolution to the trade wars, the onset of coronavirus has dealt a double blow to an already slowing world economy,” says Kishore Narne, associate director for commodity research at Motilal Oswal Financial Services.

Meanwhile, the total number of coronavirus-related deaths in mainland China have crossed 2,700, while the number of confirmed cases in mainland China are above 78,400. Moody's Analytics has forecast a global recession if this health scare becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea.

“Gold prices are likely to remain range-bound in the next six months given the rally seen over the last one year. However, one needs to monitor coronavirus-related developments and how global economy plays out. A rise in cases / fatalities could push investors to safe-haven assets like gold and silver, which in turn will see their prices move up,” says G Chokkalingam, founder and managing director at Equinomics Research.

Policy-wise, global central banks are likely to resort to more stimulus measures in the form of rate cuts and/or pumping in more money to revive growth. All this can trigger a liquidity-driven rally in most asset classes, including gold.

How equities will react to this move will also depend on how corporate earnings play out, analysts say.

YES Bank calls shareholders' meet on February 7 for nod on fundraising

There had been offers from Erwin Singh Braich, Citax Holdings and Citax Investment Group.

Market News : YES Bank has, it told the stock exchanges, convened an extraordinary general meeting of its shareholders on February 7 on fund raising for Rs 10,000 crore, and to authorise an expansion in its authorised capital from Rs 800 crore now to Rs 1,100 crore.

Last week, it notified the exchanges that its board of directors had approved the raising of funds up to Rs 10,000 crore in one or more tranches, through Qualified Institutional Placement, Global Depository Receipts, American Depository Receipts, Foreign Currency Convertible Bonds or any other method on a private placement basis.

Earlier, it was in talks with several investors in this regard but after months of uncertainty, scaled down the fund raising plan substantially. There had been offers from Erwin Singh Braich, Citax Holdings and Citax Investment Group. Braich updated its offer but the bank decided not to proceed with this. Citax’s offer will be taken up later, as “relevant conditions precedent could not be completed”. The bank’s core equity capital is 8.7 per cent of the total, against the minimum regulatory requirement of 8 per cent.

Its shares closed 8.4 per cent down on Tuesday, at Rs 38.55 on the BSE exchange.

YES Bank acquires 30% in Reliance Power arm

YES Bank on Tuesday said it had acquired around 30 per cent stake in a wholly-owned subsidiary of Reliance Power pursuant to invocation of pledged shares.

The bank has acquired 12,73,21,500 equity shares having nominal value of Rs 10 each per share constituting around 29.97 per cent of the post-issue paid-up share capital of Rosa Power Supply Company (RPSCL), a wholly-owned subsidiary of Reliance Power, YES Bank said in a regulatory filing.

“Shares have been acquired pursuant to invocation of pledge of shares to RPSCL subsequent to default/breach of terms of credit facilities sanctioned by YES Bank to Reliance Power,” it added. Incorporated in 1994, RPSCL is engaged in the business of power generation. The plant (1,200 Mw) in Uttar Pradesh, owned by the RPSCL generated 4,341 million units for the year ended March 31. (With PTI inputs)

Use volatility in markets to book profit in global funds, say advisors

Experts say investors can use this opportunity to re-balance their portfolio.

Market News : International funds — which have been the top performing ones over the last one year with gains of over 20 per cent — are being recommended by advisors for booking partial profits, with escalating tensions between the US and Iran threatening to spill over to and also impact global indices. “Investors can use this volatility in global markets to take some profits off the table, especially those investors that are close to their investment horizon,” said Amol Joshi, founder of Plan Rupee Investment Services. In the last one-year period, international funds have delivered returns of 25.49 per cent, outperforming large-cap funds by a wide margin. The latter has delivered returns of 10.63 per cent, thanks to polarisation in markets that favoured large-cap stocks.

Experts say investors can use this opportunity to re-balance their portfolio.

“Investors can re-align their portfolio, in-line with their original allocations. With value of investments in international funds going up, investor allocations are likely to have also gone higher to these funds,” said Vidya Bala, co-founder at Primeinvestor.in. According to industry observers, international funds had been attracting investor interest as domestic-focused funds have struggled to beat their benchmark returns.

According to a study, around 50 per cent of 200 actively-managed equity schemes had underperformed their benchmarks in CY19. Mid-cap and small-cap schemes — where retail investors had expected to make robust returns — have been the worst of the lot. The mid-cap and small-cap funds have delivered 3.5 per cent and 0.08 per cent returns in one year.

Advisors say that while investors can book partial profits in these schemes, they should continue to maintain some allocation. “International funds help from the point of view of diversification. Investors get exposure to different markets, rather just being exposed to domestic markets. Second, it also gives currency hedge, if the investor has dollar expenditure for foreign travel or for higher education of children,” Bala added.

According to experts, a weaker rupee and strong dollar is also a factor that can benefit international funds.

“International funds largely invest in companies that earn their revenues in dollar terms. This works favourably when rupee is seeing a depreciation,” said a fund manager. The rupee is expected to depreciate further as tension brewing between US and Iran can lead to spike in oil prices, and lead to further widening of current account deficit. Amid fears of spike in oil, the rupee breached the 72-mark against the dollar this week

Broadcasters, channels decline after Trai caps MRP on individual channels

Sun TV Network slipped over 6 per cent, while Balaji Telefilms and Sahara One Media dipped over 4 per cent.

Market News : Shares of channels and operators declined on Thursday after Telecom Regulatory Authority of India (Trai) made amendments to the new regulatory frameworks to allow TV users access to more channels at lower subscription price.

Among individual stocks, Sun TV Network slipped over 6 per cent, while Balaji Telefilms and Sahara One Media dipped over 4 per cent each, and Zee Entertainment and Den Networks both slid over 3 per cent in early morning trade today. The Nifty Media index dipped over 1.4 per cent as compared to the benchmark Nifty50 index's gain of 0.3 per cent.

However, most of these stocks recovered from their intra-day low and were trading in green by 10:30 AM. On the other hand, Sun TV Network and Zee Entertainment were trading lower by 3 per cent and 1 per cent, respectively.

The Trai has made the amendments to the New Tariff Order (NTO) according to which cable operators will have to provide 200 channels for Rs 153. The regulatory authority has also reviewed the pricing of channel bouquets compared to a la carte ones. The regulator has now set January 15 as the deadline for broadcasters to announce their new pricing structure.

At present, direct-to-home (DTH) or cable TV operators provide only 100 channels for a network capacity fee (NCF) levy of Rs 153 (Rs 130 excluding taxes).

According to the NTO that was released last year, consumers were given the option to pay only for the channels that they chose to watch, at the maximum retail price (MRP). Earlier, they were offered pre-set channel bouquets. The NTO was expected to bring monthly bills down, but it was the opposite that happened.

In order to address the huge discounts offered for bouquets, vis-a-vis the sum of a la carte channels, Trai has set two conditions to ensure the pricing of a-la carte channels does not become illusionary. First, the sum of the a la carte rates of pay channels forming part of a bouquet is not to exceed 1.5x the rate of the bouquet of which such channels are a part.

Bank of Baroda underreported bad loans by Rs 5,250 cr in FY19: RBI report

In recent months, there have been several instances of under-reporting of bad loans by lenders.

Government-owned Bank of Baroda has reported a Rs 5,250-crore divergence in the calculation of bad loans for the 2018-19 financial year.

The Reserve Bank of India's (RBI's) assessment of its gross non-performing assets (NPAs) for the year is Rs 75,174 crore. Against this, the bank had reported GNPAs of Rs 69,924 crore, it told the BSE exchange. All figures are for the recently amalgamated entity, wherein Vijaya Bank and Dena Bank were merged with BoB.

After the disclosure, BoB's share price fell by 3.3 per cent to Rs 98.9 on Wednesday. Net NPAs assessed by the RBI for FY19 are Rs 29,045 crore, as compared to BoB's own calculation of Rs 23,795 crore. The provisioning BoB had made on its balance sheet for NPAs were Rs 46,001 crore for the year; RBI says this has to be Rs 50,091 crore, an additional Rs 4,090 crore.

The bank has said of this Rs 4,090 crore divergence, it had already made a provision of Rs 1,475 crore in the current financial year. Leaving an additional impact of Rs 2,615 crore. Consequently, the adjusted net loss for FY19 is Rs 10,998 crore, in place of the earlier reported net loss of Rs 8,339 crore.

In recent months, there have been several instances of under-reporting of bad loans by lenders, prompting regulatory action by the central bank.

Last month, the capital markets regulator, Sebi, had said disclosures in respect of divergence and provisioning are in the nature of material events and, hence, necessitate immediate disclosure.

Further, this information is price-sensitive, requiring prompt disclosure by a listed entity. It has asked banks listed on the stock exchanges to make disclosure of divergences and provisioning beyond a specified threshold as soon as reasonably possible and not later than 24 hours upon receipt of RBI’s Final Risk Assessment Report.

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Gold's impressive performance in 2019 may spill into the new decade

Spot gold -- which last traded at about $1,461 an ounce -- is up 14 per cent this year.

Market News : Gold’s impressive advance in 2019 -- aided by trade war frictions, easier monetary policy across the world’s leading economies and sustained central-bank buying -- may be set to spill into the new decade.

As 2020 looms, BlackRock Inc., the world’s largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs Group Inc. and UBS Group AG see prices climbing to $1,600 an ounce -- a level last seen in 2013.

Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg Commodity Spot Index, as a year dominated by trade war vicissitudes and a trio of Federal Reserve interest rate cuts propelled the traditional haven to the forefront. Still, with global equities remaining buoyant and the US labor market proving resilient, gold’s outlook isn’t clear cut due to uncertainty over what central banks will do in 2020.

“Economic growth and inflation remain moderate and central banks continue to lean toward accommodation,” said Russ Koesterich, portfolio manager at the $24 billion BlackRock Global Allocation Fund. “In this environment, any shocks to equities are likely to come from concerns over growth and, or geopolitics. In both scenarios, gold is likely to prove an effective hedge.”

Annual Advance

Spot gold -- which last traded at about $1,461 an ounce -- is up 14 per cent this year, on course for the third annual gain in the past four years, with the only backward step being 2018’s 1.6 per cent fall. In September, the metal hit $1,557.11, the highest since 2013. While holdings in bullion-backed exchange traded funds have eased, they remain near a record.

Geopolitical and economic risks are likely to feature in 2020 just as they did this year, which could support gold: a phase-one trade accord between the top two economies may be close, but the US has pledged to impose tariffs on more imports if a deal isn’t struck by Dec. 15.

The US presidential vote looms in November, and before that there is the possible impeachment of the incumbent. Donald Trump has said many different things on the trade war, his stance shifting week to week, including recent remarks he likes the idea of waiting until after the polls to sign a deal.

“Who knows what the US president does next, he has surprised us many times,” said Giovanni Staunovo, a commodity analyst at UBS Wealth Management. “We also have the presidential elections, so expect more volatility, more noise in the market.”