A weak rally

Strong global cues and falling domestic inflation helped to prop up bourses. But the short-term trend still points towards a dip

The market was up today, taking a cue from global bourses. The Sensex ended at 17,503, higher by 123 points (0.7%) and the Nifty ended at 5,254, higher by 38 points (0.7%). The bourse started the day with a surge, but soon pared its gains. It rebounded in the mid-morning session and traded in a narrow range till afternoon. At the late trading session, it was on a strong note and touched the intraday high of 17,532.

Asian stocks edged lower in volatile trade. Key benchmark indices in South Korea, Taiwan, China and Hong Kong were down by 0.32% and 1.1%. Key benchmark indices in Singapore and Indonesia rose 0.78% to 0.5%. Japanese markets were closed for the Showa Day holiday, and will remain closed Monday-Wednesday next week for local holidays. US markets edged higher on Wednesday (28th April), on the bullish stance taken by the Federal Reserve on the US economy, and employment prospects gave some relief to investors worried about possible debt defaults in Europe. Stocks were down earlier in the day after S&P downgraded its debt rating on Spain, a day after its downgrades on Greece and Portugal. The Dow gained 53 points (0.48%), to 11,045. The S&P 500 rose 7 points (0.65%) to 1,191 and the Nasdaq added 0.26 points (0.01%), to 2,471.

Closer home, the annual food price index eased in mid-April. However, the fuel price index went up. The food price index rose 16.61% in the 12 months to 17th April, lower than an annual rise of 17.65% in the previous week, government data showed on Thursday. The fuel price index rose an annual 12.69%, marginally higher than the previous week’s reading of 12.45%. Expectation of a normal monsoon and good harvest in the winter season has helped food prices to soften. The wholesale price index in March touched a 17-month high at 9.9%. The rise in inflation can be attributed to supply-side pressure as the poor monsoon last year dampened the harvest. Prime minister Manmohan Singh and his Pakistani counterpart Yousuf Raza Gilani met for the first time in nine months. A positive outcome of the meeting could help to reduce the tension between the two nations. 

Foreign institutional investors were net sellers of Rs131 crore. Domestic institutional investors were net buyers of Rs324 crore. The rupee was strong on firm equity markets, but month-end dollar buying limited its gains. HDFC’s (up 0.7%) board will consider a stock-split. NHPC (up 0.9%) has signed a joint venture agreement with SJVN and Manipur for setting up a 1,500MW hydroelectric power project. NHPC will hold 69% of the joint venture, SJVN will hold 26%, and the rest will be held by the Manipur government.  

SpiceJet (up 1.8%) has received an investment proposal from US investment fund Bravia Capital Partners to help the low-cost airline launch international operations. GAIL (down 1.2%) unit, GAIL Gas, is reportedly aiming to earn Rs150 crore in revenue over the next two years by expanding its network of natural gas distribution in cities. Reliance Cementation, Reliance Infrastructure’s unit (up 0.9%) plans to set up a Rs-1,500 crore cement plant in Karnataka. NTPC (down 1.4%) plans to set up at least three 4,000MW power plants in Chhattisgarh, Karnataka and Madhya Pradesh beginning December 2010.   Manaksia (up 5%) has touched a 52-week high on the back of its buyback plan. It has set aside up to Rs50 crore for share buyback from the open market through stock exchanges.

MindTree (down 10%) plans to invest about $10 million-$12 million to develop Intellectual Property (IP) for a 3G smartphone based on Google’s Android platform to be launched in the second half of the year ending March 2011.


Indage lives to fight another day

The Bombay High Court has given Indage Vintners some breathing space. The winemaker has obtained a stay on its liquidation till 17th June

The Bombay High Court has extended the stay order on Indage Vintners’ liquidation till 17th June, giving the winemaker more time to sort out its finances. The company plans to hold meetings with secured and unsecured lenders over the next few days.

According to Ranjit Chougule, Indage Vintners managing director, the corporate debt restructuring (CDR) package of the company has been approved. The secured and unsecured lenders have consented to Indage Vintners’ CDR package.

“All lenders are already addressed in the business plan by (the) CDR. A small amount of lenders, non-licensed lenders and trade creditors are keen to put pressure on the business for earlier repayment which we will address in our upcoming scheme of arrangement under Sections (391) and (394) of the Companies Act, to be presented to the court in June,” Mr Chougule told Moneylife.

There have been media reports that state that Indage Vintners is likely to sell its personal property to bring in capital. However, Mr Chougule has said that the company has no plans of selling its property.

The total debt obligations have been deferred by approximately two years. The promoters of Indage Vintners are to bring in Rs75 crore to Rs100 crore as capital. The total debt of Indage Vintners stands at Rs400 crore under the corporate debt restructuring scheme. This was led by ICICI Bank while the other lenders were IndusInd Bank, Allahabad Bank, UCO Bank, IDBI Bank and Bank of Rajasthan.

The efforts that the company put in to fund its acquisitions in Australia and South Africa, might have been a gamble the company shouldn’t have taken. When the global financial crisis occurred, Indage relinquished any chances of the company walking tall again. The international market did not perform to expectations and its plans to sell exotic Indian wines in overseas markets did not materialise. Domestic demand for international wine also fell far short of the hype created by the industry itself.

On 19th March, when the Bombay High Court had passed the order for Indage to wind up operations, many players in the industry were disappointed with the decision. Bearing in mind that it was the perseverance of Shyamrao Chougule, its founder, who brought international quality wine and champagne to India in the 1980s, the nascent wine industry in the country was saddened by the decision.


SEBI seeks to regulate fund investment in & disclosure of derivatives

SEBI has sought clarity and limits on MF exposure to derivatives and has outlined a uniform detailed format for computing derivatives in their half-yearly portfolios

Market watchdog Securities and Exchange Board of India (SEBI) has sought views from mutual funds on the proposed circular which tweaks certain clauses of its earlier orders in order to bring more transparency and clarity in disclosure of MFs’ investment in derivatives in their portfolio statements. The draft circular was sent to all the chief general managers and investment managers of fund houses on 25 March 2010. Moneylife possesses a copy of the draft circular sent to all asset management companies (AMCs). If approved by fund houses, the earlier format prescribed by SEBI in its circular dated 24 November 2000 will be discussed, and modified to include the new format.

The latest circular limits the gross cumulative exposure of MFs through debt, equity and derivatives positions to 100% and option premium paid to 20% of the net assets of the scheme. It cannot exceed the prescribed limits.

Exposure in derivatives due to hedging may not be included in the above prescribed limit, only if such exposure reduces losses. Cash or cash equivalents with residual maturity of less than 91 days will not be included in this limit. Further hedging cannot be done for existing derivatives positions; if done, then it will be included in the above mentioned limit. The derivatives instrument used to hedge has to have the same underlying security as the existing position being hedged. The quantity of underlying security associated with the derivatives position taken for hedging purposes should not exceed the quantity of the existing position against which hedge has been taken. Exposure due to derivative positions taken for hedging in excess of the underlying position against which the hedging position has been taken will also be included in the 100% gross exposure limit.

MFs can enter into plain vanilla interest rate swaps for hedging and the value of the notional principal must not exceed the value of respective existing assets being hedged by the scheme.

The circular also outlines certain modifications pertaining to derivatives position computing. Currently the manner of half-yearly portfolio derivatives disclosure is not uniform across the industry as the SEBI (MF) Regulations, 1996, do not specifically prescribe a format for such disclosures.

SEBI has also asked MFs to separately disclose the hedging positions through swaps as two notional positions in the underlying security with relevant maturities.

“For example, an interest rate swap under which a mutual fund is receiving floating rate interest and paying fixed rate will be treated as a long position in a floating rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed rate instrument of maturity equivalent to the residual life of the swap,” states the draft circular. MFs will also not write options or purchase instruments with embedded written options. Further, while listing net assets, the margin amounts paid should be reported separately under cash or bank balances.

Following the recommendations of the Secondary Market Advisory Committee, SEBI’s circular dated 14 September 2005 permitted MFs to participate in the derivatives market at par with foreign institutional investors (FIIs) in respect to position limits in index futures, index options, stock options and stock futures contracts. The SEBI circular dated 19 September 2002 included disclosures related to equity and debt schemes. 


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