In cases where guarantees furnished by the companies within the group on behalf of the wilfully defaulting units are not honoured then such group companies should also be reckoned as wilful defaulters, says RBI in a clarification
The Reserve Bank of India (RBI) on Tuesday issued clarification on its guidelines on wilful defaulters. Accordingly, it said, banks can name company management as wilful defaulters. Similarly, group companies of a defaulting company can also be termed as wilful defaulters, the central bank said.
"While dealing with wilful default of a single borrowing company in a group, the banks and financial institutes (FIs) should consider the track record of the individual company, with reference to its repayment performance to its lenders. However, in cases where guarantees furnished by the companies within the group on behalf of the wilfully defaulting units are not honoured when invoked by the banks/ FIs, such group companies should also be reckoned as wilful defaulters,” RBI said in its clarification.
According to the new clarification, guarantors who refuse to pay will also be treated as defaulters. RBI said, "when a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor. case the said guarantor refuses to comply with the demand made by the creditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter."
The central bank, however clarified that these norms would be applicable only prospectively. "It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks/FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees," RBI added.
Though the net inflow was lower compared to the past couple of months, equity mutual funds report a net inflow of Rs5,364 crore in August 2014
Equity mutual funds recorded another month of net inflows. Not surprisingly, the stock buying by mutual funds in August 2014 reached a record high. Mutual funds in August 2014 bought Rs5,847 crore of equities, the highest in the past eight years (Read: Mutual funds bought Rs5,847 crore of stocks in August 2014, highest in over eight years). The record stock buying was supported by the Rs5,364 crore net inflow in to equity schemes. Investors have been on a buying spree over the past four months. While net inflows peaked to Rs10,945 crore in July 2014, in August net inflows were considerably lower due to lower sales.
Net sales of equity mutual fund fell to Rs10,340 crore in August 2014 compared to Rs17,634 crore in July 2014. Redemptions too were lower in August. In fact, it was the lowest in the past six months at Rs4,976 crore. As many as seven new fund offers were launched, bringing in Rs1,229 crore.
According to CRISIL Research, equity mutual fund assets soared 6.01% to Rs2.67 trillion in August steered by both inflows and mark-to-market (MTM) gains. With the rally in equities stoking interest, the category clocked inflows for the fourth straight month at Rs53.64 billion. To be sure, that’s lesser than the Rs8.45 billion seen in July, but consolidated inflows since the beginning of 2014 now stand at Rs242.98 billion. The CNX Nifty Index, which is the underlying asset class for this category of mutual funds, gained 3.02% in August on positive domestic and international cues.
Conversely, just like in July, August also saw heavy redemptions from income funds. Sentiment for the category dampened after the Union Budget on July 10, when the long-term capital gains tax on debt-oriented mutual funds was doubled to 20% and the definition of 'long term investment' was tripled to 36 months. Nearly Rs13,000 crore flowed out of equity mutual funds.
Overall, during the current financial year so far (April-August), MF on a net basis have mobilised around Rs3 lakh crore compared with Rs53,783 crore garnered in the entire 2013-14 fiscal.
If Nifty heads below 8,130, we would see a deeper short-term decline
After closing at a new life time high on Monday, the Indian indices made a weak move on Tuesday. The only time when the indices moved in the green was when it hit the day’s high during initial trading.
The S&P BSE Sensex opened at 27,316 while NSE's CNX Nifty opened at 8,162. Both Sensex and Nifty hit their respective high at 27,328 and 8,175. Sensex moved lower to hit 27,177, while Nifty hit a low of 8,127. Sensex closed at 27,265 (down 55 points or 0.20%), while Nifty closed at 8,153 (down 21 points or 0.26%). NSE recorded a volume of 91.58 crore shares. India VIX fell 0.27% to close at 12.7575.
On the NSE, top five sectoral gainers were FMCG (0.90%), Nifty Midcap 50 (0.58%), Consumption (0.49%), Nifty Junior (0.47%) and Midcap (0.44%) while the top five losers were Bank Nifty (0.31%), Finance (0.33%), PSE (0.34%), Realty (0.79%) and IT (0.88%).
Of the 50 stocks on the Nifty, 22 ended in the green. The top five gainers were Cipla (2.53%), Coal India (1.89%), IndusInd Bank (1.63%), ITC (1.50%) and Tata Motors (1.41%). The top five losers were Tech Mahindra (1.84%), Asian Paints (1.63%), HCL Technologies (1.52%), DLF (1.47%) and Bajaj Auto (1.47%).
Of the 1,610 companies on the NSE, 820 companies closed in the green, 721 companies closed in the red while 69 companies closed flat.
The Supreme Court on Tuesday reserved its order in the coal block allocation case. However, it has not announced a date for when it will declare its judgement in the case.
The bench headed by Chief Justice RM Lodha reserved the verdict after a day-long hearing on the consequences of its earlier decision, holding that the process of the allocation of these coal mines by the steering committee and under government dispensation was arbitrary and illegal.
On Monday, the Indian government left it to the apex court to decide on the issue of cancellation of coal blocks. The government gave details of about 40 operational coal blocks and six blocks which are ready to be functional to the Supreme Court.
In other news, Commerce Minister Nirmala Sitharaman said on Monday that the government will not allow foreign direct investment in multi-brand retail.
As per reports, prime minister Narendra Modi will meet US President Barack Obama in Washington on 29-30 September 2014 to discuss ways to accelerate economic growth and increase security cooperation. The two leaders will discuss a range of issues of mutual interest in order to expand and deepen the US-India strategic partnership, the report added.
Coming back to stock markets, pharmaceutical company Cipla (2.09%) hit its 52-week high today. It was the top gainer in the Sensex 30 pack. Cipla has made a commercial collaboration with S&D Pharma in the Czech Republic and Slovakia. This collaboration will enable Cipla to focus on its core therapy areas, while S&D Pharma will be the key partner for generics. Under the collaboration, Cipla will be driving its respiratory product portfolio in both Czech Republic and Slovakia through a Cipla owned sales force team, managed by Cipla commercial head.
S&D Pharma will physically distribute all products, including respiratory products, and this portfolio will increase over the next few years.
Bajaj Auto (1.53%) was the top loser in Sensex 30 stock. The stock had hit its 52-week high on Monday. It has launched two new KTM motorcycles expanding the range of the Austrian super bike brand available in the country from two to four. The two new bikes — the RC 390 and the RC 200 — have been priced at Rs2.05 lakh and Rs1.60 lakh respectively. They will be sold through a 140-strong dealer network that will stand at 175 by the end of the fiscal.
Ashok Leyland (5.44%), which hit its 52-week high today was also the top gainer in ‘A’ group on the BSE. It has received orders for 4,000 buses worth Rs1,500 crore from state transport undertakings. It will offer a mix of JanBus, midi-buses and ultra-low entry (ULE) buses as a part of this order.
Unitech (3.21%) was among the top two losers in ‘A’ group on the BSE. It was recently in news for its plans to sell non-core land parcels to reduce debt by 15%-20% and improve cash-flows for faster execution of ongoing projects.
US indices closed Monday flat with a negative bias.
According to a research report released by the Federal Reserve Bank of San Francisco, fuelled expectations for an earlier rate hike by the US Federal Reserve.
Asian indices which were trading today showed mixed closing. Taiwan Weighted (0.29%) was the top gainer while Jakarta Composite (0.94%) was the top loser.
European indices were trading in the marginally lower while US Futures were trading marginally in the green.
The European Union on Monday is said to have agreed on new sanctions against Russia over its alleged role in the Ukrainian conflict, but will wait a few days before implementing them in view of the current ceasefire in eastern Ukraine.
The French trade deficit fell less-than-expected in July. Ministry of Finance said that French trade deficit was at 5.5 billion euros, from 5.6 billion euros in the prior month whose figure was revised from 5.4 billion euros.