According to Goldman Sachs, investment case for India has turned less favourable because recovery in growth recovery looks elusive and the economy is more vulnerable
Investment banking and securities company Goldman Sachs has downgraded its rating on India to 'underweight' due to increased risk of foreign institutional flow reversal from equities market and sluggish growth outlook as the key reasons.
Sunil Koul, analyst, Goldman Sachs in a note said, "Very little foreign selling has occurred in Indian equities relative to the massive foreign inflows over the past few years."
Foreign institutional investors (FIIs) have been net buyers in Indian stocks worth Rs66,000 crore ($12.5 billion) so far in 2013 after pumping in about $25 billion in 2012. But, these investors have sold shares worth Rs6,086 crore in July. The more severe sell-off has been in debt, where FIIs offloaded Rs12,037.60 crore worth of bonds.
“Recent activity data has been sluggish with no signs of a pickup in investment demand. The external funding environment has also become challenging causing Reserve Bank of India (RBI) to tighten liquidity,” Koul added.
Goldman Sachs said the investment case for India has turned less favourable because recovery in growth recovery looks elusive and the economy is more vulnerable.
The investment bank also cut its 12-month Nifty target to 6,200 and said it does not rule out further downgrades if the rupee weakens further.
MCX at all-time low; FT at 8-year low as National Spot Exchange suspended trading and merging of settlement cycles of all one-day forward contracts, except e-series as per the order from the government
Financial Technologies Ltd (FT) shares tumbled over 62% on Thursday to Rs182, while Multi Commodity Exchange Of India Ltd (MCX) hit its lower circuit at Rs212.05 in morning trading on the BSE as National Spot Exchange Ltd (NSEL) suspended trading and merging of settlement cycles of all one-day forward contracts, except e-series following an order from the Department of Consumer Affairs (DCA).
Financial Technologies opened at Rs487.40 from yesterday's closing of Rs541.55 and tumbled to Rs182 in the morning trading due to selling pressure. This is the 52-week low for the stock. At 12.25pm, Financial Technologies was trading 59.4% down at Rs220 on the BSE, while the benchmark Sensex was flat at 19,406.7.
Similarly, MCX opened at Rs623.95 from Wednesday closing of Rs640 and hit its lower circuit of Rs512.05 at 10.45am. MCX is sister concern of NSEL. For MCX, the topmost commodity exchange in the country, this is its all-time low. Its 52-week high was Rs1,617 reached on 13 November 2012.
Financial Technologies ended Thursday 64.6% down at Rs191.75 on the BSE while the benchmark Sensex closed the day marginally down at 19,317. This is the lowest in past eight year for the company. On 25 January 2005, Financial Technologies closed at Rs170.85.
In a regulatory filing, Financial Technologies, the promoter of both MCX and NSEL, said, "Pursuant to the applicable Clauses of the Listing Agreement, please be informed that National Spot Exchange received a letter from DCA for which NSEL has issued a press note and the contents of the same are self-explanatory."
In its release, NSEL said, "Pursuant to directions issued by the DCA vide letter dated 12 July 2013, the Exchange had given an undertaking to the government and simultaneously, with a view to ensure orderly performance of the markets, introduced T+10 contracts with Trade for Trade settlements. Despite this, there is a loss of trading interest in the market due to underlying uncertainties, which has led to trade in-equilibrium."
"Under these circumstances and also in view of the grave emergency that has emerged in the market and in order to safeguard interests of all participants and market in general and pursuant to Bye-laws and Rules, the relevant authority is satisfied that continuation of trade in one day forward contracts, other than e-series contracts, is not in the interests of market," NSEL said.
NSEL said it decided that...
i. Trading in all contracts, except e-series contracts, stands suspended until further notice.
ii. Notwithstanding anything contained in the Byelaws or any contract, it has been decided to merge the delivery and settlement of all pending contracts with effect from today and to defer it for a period of 15 days and consequently, the positions outstanding in the contracts will be settled by way of delivery and payment after expiry of 15 days.
iii. A revised settlement calendar will be announced for contracts due for settlement after such 15 days period.
NSEL, however, clarified that trading, settlement and physical delivery pertaining to e-series contracts like e-gold, e-silver will continue as usual.
Last month, food and consumer affairs minister KV Thomas had said that the government would soon take action against Financial Technologies promoted NSEL for violating certain rules while offering commodity contracts.
Last year in October, the ministry had issued a show-cause notice to NSEL after it found violation of some conditions set by the government for operating the exchange.
Spot exchanges, including NSEL, were allowed to offer one-day duration forward contract under Section 27 of Forward Contract Regulation (FCR) Act, subject to conditions, like the member of exchange would not resort to 'short sale' and outstanding positions at the end of trading day would result in delivery.
However, commodity regulator Forward Markets Commission (FMC) found that the exchange allowed trading on its platform without verifying whether the seller had stocks, in effect allowing short sales by members.
Short selling is the sale of commodities that one does not own at the time of a contract with the hope of buying them at a lower price before the delivery time. If the delivery period exceeds 11 days, it is called a futures trade.
The FMC also found that the contracts traded on the exchange for which the settlement period exceeded 11 days were non-transferable specific delivery contracts (NTSD), which was in violation of provisions of Forward Contract Regulation Act (FCRA).
There are three national spot exchanges in India. NSEL and NCDEX Spot Exchange started operating since 2008. National Agriculture Produce Marketing Company of India Limited (National APMC) was granted license by the Gujarat government to set up electronic spot exchange with three commodities cotton, castor and cumin.