Stocks
Nifty, Sensex due for a bounce back – Monday closing report
We had mentioned in Friday’s closing report that Sensex, Nifty might try to attempt a weak rally. The major indices of the Indian stock markets suffered a correction on Monday and closed with losses of about 0.50%-0.75% over Friday’s close. Trading volumes on the NSE were however low. The trends of the major indices in the course of Monday’s trading are given in the table below:
 
 
Lower earnings guidance from IT (information technology) majors, along with heightened chances of a US rate hike and negative global crude oil prices dragged the Indian equity markets lower during the mid-afternoon trade session on Monday. Besides, broadly negative Asian markets, hike in petroleum product prices and an outflow of foreign funds during the entire last week eroded investors' confidence. The BSE market breadth was skewed in favour of the bears -- with 1,496 declines and 1,306 advances. On the NSE, there were 938 declines, 686 advances and 266 unchanged.
 
According to market analysts, IT, banking and pharma stocks traded lower on selling pressure. However, oil-gas, textile and aviation stocks traded firm on buying support, while media-entertainment, power and FMCG (fast moving consumer goods) stocks traded with mixed sentiments on short covering. 
 
The central parity rate of the Chinese yuan continued to weaken on Monday, hitting a six-year low against the US dollar. The yuan has now weakened against the dollar for nine trading days in a row, aside from a strengthening on Friday, as increased market expectations for an interest rate hike in the US have led to a stronger dollar. 
 
Indian consumer demand is currently seeing good growth in the ongoing festival season, as compared to 2015. "Riding on the back of an uptick in the economy and improving perception for better job prospects, coupled with steady lowering of interest rates, consumer demand is witnessing a marked growth of as much as 40% in the ongoing festival season this year, as compared to 2015," the Associated Chambers of Commerce and Industry of India said in a release. "Rural demand is adding to the festive fervour, as a good monsoon has boosted confidence among farmers and farm labour. However, as noted in an earlier Assocham survey, the demand for real estate and housing remains very low key," it said. The uptick in demand is seen clearly in the sale of automobiles, including passenger cars, two-wheelers, mobile handsets, consumer durables and fashion-wears. So far, the maximum push is seen in the eastern and western region while the northern region is expected to pick up in the run-up to Diwali," it added. These observations are favourable for aggregate demand and corporate earnings and are likely to push the major indices in the Indian stock markets upwards.
 
Mahindra & Mahindra (M&M) on Saturday said it would sell its BabyOye for Rs362.1 crore on a slump sale basis. "A business transfer agreement has been executed by and between Mahindra Retail Pvt Ltd (MRPL), a subsidiary of the company, BrainBees Solutions Private Ltd and founder of FirstCry to transfer the franchise division of MRPL (BabyOye) as a going concern on a slump sale basis to FirstCry," the company said in a filing to BSE. "The total lump sum consideration for the transfer of the business is Rs362.1 crore," the filing said. "In terms of the structure of the transaction, two companies have consolidated their operations, with Mahindra Retail selling its business to FirstCry, and operating all company stores under a FirstCry master franchise agreement," the company said in a statement. The Board of Directors of the two companies have already approved this strategic move. M & M shares closed at Rs1,317.00, down 2.95% on the BSE on Monday.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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Essar Stake Sale: A Big Step for Indian Banks?
The Ruia brothers are selling 98% of their stake in Essar Oil and 100% stake in Vadinar port to Russia’s Rosneft Oil Company and a consortium of traders led by Trafigura and United Capital Partners in an all cash deal. While the company management declined to provide details of cash flow or how it would be used to repay loans across the group companies, a research report feels that this deal is quite significant for the Indian banking system.
 
In this note, Kotak Institutional Equities Research, says, "The Rs85,000 crore transaction will release Rs45,000 crore of cash (our estimate) for Essar Group, which can be potentially used to repay debt of Rs23,500 crore in Essar Global Holdings Ltd (EGHL) and reduce debt in financially stressed entities such as Essar Steel and Essar Power."
 
"We view the 98% stake sale in Essar Oil and 100% stake in Vadinar port by the Essar Group for Rs85,000 crore (all-cash deal) as a very significant event for the Indian banking sector for several reasons. The formal announcement of the deal in the recent BRICS summit in the presence of the political leaders of India and Russia suggests a high degree of involvement of the Indian government in the transaction. We note that Indian public sector unit (PSU) oil companies had earlier purchased a 49.9% stake in the Vankor oil block of Rosneft. Indian banks have become very forceful in addressing the problem of bad loans. And Indian promoters may have little option but to sell profitable assets to reduce debt; this has been the case for the past two years," Kotak says.
 
According the report, Indian banks have large exposure to Essar Group and following the deal, their exposure may reduce significantly. It says, "We do not have full financials of the entities (of Essar group) as most are unlisted and their FY2016 financial statements are not yet available with the Indian Registrar of Companies (RoC). Nonetheless, it appears that Essar Group has total debt of Rs1.3 lakh crore to Rs1.4 lakh crore, with most of it raised from Indian banks. We note that VTB, a Russian bank, will finance around Rs26,000 crore of Essar Oil’s debt (Rs31,500 crore as per FY2015 annual report) as part of the deal, which will further reduce Indian banks’ exposure to Essar Group."
 
As per statements of Essar management, the group will use the cash available from the stake sale to reduce its debt. Kotak Research expects Essar Group likely to repay the debt of EGHL, a holding company with Rs23,500 crore of debt as per media reports with Axis Bank, ICICI Bank and Standard Chartered Bank being the prominent lenders to Essar Global Holdings. "Essar Group may invest a portion of the cash as equity in Essar Steel (standalone debt of Rs35,700 crore as per FY2015 annual report) and/or Essar Power to deleverage the companies. (Exhibit 2) Below is a hypothetical exercise for Essar Steel’s interest coverage at various levels of debt and steel prices while Exhibit 3 is another hypothetical exercise of its interest coverage at various levels of capacity utilization versus 34% in FY2015 and (2) lower debt of Rs20,000 crore versus Rs42,700 crore of debt at end-FY2015," the report says.
 
Kotak says, "While recovery and resolution of bad loans in several cases is still quite fluid, the growing number of transactions involving sale of assets by stressed companies to stronger Indian and foreign companies suggests that the eventual loss-given default (LGD) figure may be contained within manageable limits."
 
Asserting that Indian companies have limited options but to sell assets to reduce debt, Kotak Research says, "We have already seen several large transactions in the past two years (see Exhibit 5) and the recent Essar Oil one is the biggest one by far. We believe the combined and coordinated efforts of the Indian government, Reserve Bank of India (RBI) and banks will likely result in manageable levels of loss-given default (LGD) despite likely high non-performing loans (NPLs) in the Indian banking system."
 

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COMMENTS

Gupta

7 months ago

Lot of guesses here... anyone who knows this group well wouldn't be so hopeful... it would be the surprise of the millennium if all of this money is used to repay banks. This group never repays its debt... if at all it does, it raises 2x more debt... that's a condition to repay any bank!

Gupta

7 months ago

Lot of guesses here... anyone who knows this group well wouldn't be so hopeful... it would be the surprise of the millennium if all of this money is used to repay banks. This group never repays its debt... if at all it does, it raises 2x more debt... that's a condition to repay any bank!

Gupta

7 months ago

Lot of guesses here... anyone who knows this group well wouldn't be so hopeful... it would be the surprise of the millennium if all of this money is used to repay banks. This group never repays its debt... if at all it does, it raises 2x more debt... that's a condition to repay any bank!

Consumers with common interest can file or join class action suit: NCDRC
The National Consumer Disputes Redressal Commission (NCDRC) has upheld that consumers having a common interest or grievance and seeking same relief can file class action suit against the other party. This judgement also paves way for lakhs of investors to seek relief from companies that are not repaying money invested in corporate fixed deposits (FDs).
 
"In one of the written submissions, it is contended that since a complaint in a representative capacity can be filed only on behalf of all the consumer having the same interest, such a complaint will not be maintainable where one or more individual complaints, expressing such a grievance are already pending. We however, are unable to accept the contention. No such restriction finds place in Section 12(1)(c) of the Consumer Protection Act or in Order I Rule 8 of the Code of Civil Procedure. Accepting such a contention would defeat the very purpose of allowing such a suit or complaint since every consumer would be compelled to file an individual complaint leading to multiplicity of proceedings. Such an interpretation would not serve the cause either of the consumer or of the service provider," ruled a three member Bench at the NCDRC.
 
In the order, the Bench of Justice DK Jain, Justice VK Jain and Dr BC Gupta, stated, "Section 12(1) (c) of the Consumer Protection Act when read with Order I Rule 8 of the Code of the Civil Procedure will apply if (i) the consumers are numerous (ii) They have the same interest (iii) the necessary permission of the Consumer Forum is obtained and (iv) notice in terms of Sub-rule (2) of Rule 8 of Order I is given.  It however, is not necessary that the cause of action available to all the consumers should also be the same.  What is required is sameness of the interest and not the same cause of action."
 
The national consumer forum was hearing a case filed by Bahadurgarh, Jhajjar-based Ambrish Kumar Shukla and 21 others against Ferrous Infrastructure Pvt Ltd. The NCDRC Bench also referred two orders passed by the Forum relating to the interpretation of Section 12(1)(c) of the Consumer Protection Act.
 
Section 12(1) of the Consumer Protection Act reads as under:
 
(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by-
(a) the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided;
(b) any recognized consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;
(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or
(d) the Central or the State Government, as the case may be, either in its individual capacity or as a representative of interests of the consumers in general.
 
Section 13(6) of the Consumer Protection Act reads as under:
 
(6) Where the complainant is a consumer referred to in sub-clause (iv) of clause (b) of sub-section (1) of section 2, the provisions of rule 8 of Order I of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908) shall apply subject to the modification that every reference therein to a suit or decree shall be construed as a reference to a complaint or the order of the District Forum thereon.
 
Section 2(1)(b) of the Consumer Protection Act reads as under:
(b) “complainant” means—
(i) a consumer; or
(ii) any voluntary consumer association registered under the Companies Act, 1956 (1 of 1956) or under any other law for the time being in force; or
(iii) the Central Government or any State Government; or
(iv) one or more consumers, where there are numerous consumers having the same interest;
(v) in case of death of a consumer, his legal heir or representative;] who or which makes a complaint;
 
Order I of Rule 8 of the Code of Civil Procedure which finds reference in Section 13(6) of the Consumer Protection Act, reads as under:
8. One person may sue or defend on behalf of all in same interest.- 
(1) Where there are numerous persons having the same interest in one suit,—
(a) one or more of such persons may, with the permission of the court, sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested;
(b) the court may direct that one or more of such persons may sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested.
 
(2) The court shall, in every case where a permission or direction is given under sub-rule (1), at the plaintiff’s expense, give notice of the institution of the suit to all persons so interested, either by personal service, or, where, by reason of the number of persons or any other cause, such service is not reasonably practicable, by public advertisement, as the court in each case may direct.
 
(3) Any person on whose behalf, or for whose benefit, a suit is instituted, or defended, under sub-rule (1), may apply to the court to be made a party to such suit.
 
(4) No part of the claim in any such suit shall be abandoned under sub-rule (1), and no such suit shall be withdrawn under sub-rule (3) of rule 1 of Order XXIII, and no agreement, compromise or satisfaction shall be recorded in any such suit under rule 3 of that Order, unless the court has given, at the plaintiff’s expenses notice to all persons so interested in the manner specified in sub-rule (2).
 
(5) Where any person suing or defending in any such suit does not proceed with due diligence in the suit or defence, the court may substitute in his place any other person having the same interest in the suit.
 
(6) A decree passed in a suit under this rule shall be binding on all persons on whose behalf, or for whose benefit, the suit is instituted, or defended, as the case may be.  
 
 
While maintaining that the decision in one complaint filed in a representative capacity will bind all the consumers on whose behalf or for whose benefit the complaint is filed, as provided in Order I Rule 8 (6) of the Code of Civil Procedure, the NCDRC Bench clarified that second complaint with same grievance and relief will be dismissed. 
 
It says, "...once a complaint, in a representative capacity is filed under Section 12(1)(c) of the Consumer Protection Act, and the requisite permission for filing such a complaint is given by the Consumer Forum, a second complaint, in a representative capacity under Section  12(1)(c) of the Consumer Protection Act would not be maintainable by or on behalf of consumers having the same interest and seeking the same relief and if filed, is liable to be dismissed with liberty to seek impleadment  in the complaint already instituted in a representative capacity with the requisite permission of the Consumer Forum."
 
"Since a complaint in a representative capacity can be filed only on behalf of all the consumers having the same interest i.e. a common grievance and seeking the same relief against the same person, an individual complaint expressing such a grievance will not be maintainable and the only recourse available to a consumer having the same grievance is to seek impleadment in the complaint filed in the representative capacity," the Bench added.
 
At the same time, individual complaints filed before the grant of requisite permission under Section 12(1)(c) of the Consumer Protection Act cannot be compelled to withdraw and the consumer can go ahead with his/her complaint. "Since it cannot be said that the complaint in the representative capacity was filed on their behalf or for their benefit as well, the order passed in such a complaint will not be binding on them.  If however, such persons want to withdraw their pending complaints and join the complaint instituted in the representative capacity, there is no bar on their adopting such a course of action. The decision, of course, would rest with them whether to continue with the individual complaint already instituted by them or to withdraw the said complaint and become party to the complaint filed in a representative capacity," the NCDRC Bench said.
 
While emphasising upon the binding effect of a decision rendered in a complaint under Section 12(1)(c) of the Consumer Protection Act, on all the consumers, on whose behalf or for whose benefit such a complaint is filed, even if they chose not to join as a party to the complaint, the Bench said it is necessary to exercise due care and caution while considering such a complaint even at the initial stage and to grant the requisite permission, only where the complaint fulfils all the requisite conditions in terms of Section 12(1)(c) of the Consumer Protection Act read with Order I Rule 8 of the Code of Civil Procedure; as interpreted in this reference.  
 
"It would also be necessary for the Bench to either give individual notices or an adequate public notice of the institution of the complaint to all the persons on whose behalf or for whose benefit the complaint is instituted.  Such a notice should disclose inter-alia (i) the subject matter of the complaint including the particulars of the project if the complaint relates to a housing project / scheme, (ii) the class of persons on whose behalf or for whose benefit the complaint is filed, (iii) the common grievance sought to get redressed through the class action, (iv) the alleged deficiency in the services and (v) the reliefs claimed in the complaint. It will also be necessary to hear the opposite party, before taking a final view on the grant or otherwise of the permission required in terms of Section 12(1)(c) of the Consumer Protection Act," the National Consumer Forum concluded.

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