We had mentioned yesterday “while the market is on a firm uptrend, there is a chance of a sharp decline at least on an intraday basis. A fall below 5,530 will signal the first weakness”. Expect further decline after 650 points loss in Sensex today
Except for few minutes of trading in the green, Indian indices saw a gradual slide downwards, trading in the negative for the entire session and ending with a huge decline on today. The 30-share BSE Sensex opened higher at 19,003 and hit an intra-day high of 19,007. The index hit the low of 18,166 and closed down at 18,235 (down 651 points or 3.45%). The Nifty opened higher at 5,575 and, after hitting an intra-day high at 5,581, ended at 5,324 (down 209 points or 3.77%). The percentage loss on the Sensex and the Nifty is the highest since 16 August 2013. The National Stock Exchange (NSE) saw a higher volumes of 62.63 crore shares.
All the other indices on the NSE closed in the negative. The top five losers were Bank Nifty (5.20%); Realty (4.88%); Finance (4.87%), FMCG (4.63%) and Media (4.47%).
Of the 50 stocks on the Nifty, three ended in the green: Lupin (2.59%); Coal India (1.14%) and Cairn (0.91%). The major losers were Axis Bank (-10.65%); IndusInd Bank (-8.67%); DLF (-7.17%); Reliance Infrastructure (-7.11%) and Punjab National Bank (-7.05%).
Last week, after the passage of the Food Security Bill, the market was pulled down on concerns of rising fiscal deficit. Yesterday, the Rajya Sabha approved a $20 billion scheme to distribute subsidised wheat and rice to 80 crore people.
Partly because of rising concerns of higher fiscal deficit, Standard & Poor's (S&P) considers chances of a credit ratings downgrade for India higher than for Indonesia. According to S&P, there was more than a one-in-three chance for India rating cut within two years. The ratings agency has a "BBB-minus" rating on India with a "negative" outlook. A downgrade would push Asia's third largest economy to "junk" status. S&P rates Indonesia at "BB-plus."
Goldman Sachs has cut India's GDP forecast to 4% from 6% for FY14 and to 5.4% from 6.8% for FY15. It says the downgrade reflects the more difficult external funding conditions for Asia as markets increasingly anticipate Fed tapering and eventual exit from unconventional monetary policies. They have also put out more bearish forecasts for the rupee, expecting the currency to trade at 70 in three months, at 72 in six months and back to 70 in 12 months against the US dollar.
Adjustment in the rupee, which has fallen by nearly 20% since May, was called for as the country has seen higher inflation compared with other countries, Prime Minister's Economic Adviser C Rangarajan said. Today the rupee reached closer to its all time low level of 68.80 per US dollar. Just six months ago, a clueless Rangarajan had pointed out that rupee should trade between 55-53 to the US dollar.
Rising crude oil prices due to fears about a potential US military strike on Syria also added to woes in stock markets. Russian defence ministry was quoted by a news agency as saying that the radar station at Armavir, near the Black Sea, which is designed to detect missiles from Europe and Iran, had detected two ballistic "objects" fired towards the eastern Mediterranean. However, there was no sign of a missile strike on the Syrian capital Damascus according to Russia's state-run RIA news agency.
Except for Straits Times (down 0.03%) all other Asian indices ended in the green. Nikkei 225, was the top gainer, up 2.99%.
China's official purchasing managers' index (PMI) for the non-manufacturing sector dipped slightly to 53.9 in August from July's 54.1, according to the National Bureau of Statistics. A reading above 50 indicates activity in the sector is accelerating, while one below 50 indicates it is slowing. The services sector index followed the bureau's manufacturing PMI on Sunday, which showed China's factory activity expanded at the fastest pace in more than a year in August with a jump in new orders.
Australia’s central bank left its benchmark interest rate unchanged and omitted a reference to scope for more easing. Governor Glenn Stevens and his board kept the overnight cash-rate target at a record-low 2.5%. The Governor said, “The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values, and further effects can be expected over time.”
US stock markets remained closed on Monday, on account of the Labor Day holiday.
Europe's financial markets were trading lower in early trade on Tuesday ahead of monetary policy decisions in Japan, the Euro zone and the UK on Thursday and the US employment report on Friday. US futures were sharply up.
While MCX shares have been hitting the upper circuit limit for 10 out of 11 days, Bank of India sold its entire 1.03% stake in the company. What made the Bank so impatient?
On Monday, Bank of India sold its 1.03% stake in Multi Commodity Exchange of India Ltd (MCX) for over Rs20 crore in the open market. The sale was made through a bulk deal on the National Stock Exchange (NSE) at an average price of Rs392.60 per share. The sale came at a time when the scrip was getting locked in its upper circuit in 10 out of the past 11 trading days. Over this period, the stock on the Bombay Stock Exchange (BSE) has moved up by over 60% to Rs391.55 as on 2 September 2013 from a low of Rs243.25 on 16 August 2013. What made Bank of India so impatient?
The stock price of MCX had crashed by over 274% to all-time low of Rs240.65 as on 16 August 2013 from as high as Rs911 as on 10 June 2013, following concerns about a scam that has wiped out another group entity National Spot Exchange Ltd (NSEL). Today, the stock again opened hitting the upper circuit at Rs411.10 and closed at the same level.
Earlier, the stock was hit on concerns about investigation into MCX, in which the Jignesh Shah-led Financial Technologies’ held 26% stake. Financial Technologies is also the main promoter of scam-ridden NSEL. While the investigation is on whether the promoter—Financial Technologies—is fit to run the exchange, there are rumours that MCX will change hands, so to speak. However, media reports say that Shah would explore all legal options to retain control of MCX.
While there is much debate about the promoters, MCX is still the leading commodity futures exchange in India with a market share of 87.3% in terms of the value of commodity futures contracts traded in FY2012-13. This brings us to the question—why was Bank of India in a hurry to sell its 1% stake when the stock had begun moving up from its all-time low?
Let’s analyse the reasons for them to sell their stake.
Scenario 1: Jignesh Shah will not able to resolve the NSEL issue
In this case, Shah would probably be declared as ‘not fit and proper’ and would cease to be the promoter of MCX. Going by the shareholding pattern of MCX, more than 55% stake is held by institutional investors. They and Forward Markets Commission (FMC) may then look for a ‘fit and proper’ person to run the Exchange. Therefore, even if Financial Technologies has to exit, the stock would look undervalued and would be attractive as an investment, not something to get rid of. The stock price of MCX started moving up when the management on 19 August clarified that it had no exposure to scam-hit NSEL.
A change in promoter probably would not make a significant impact on the current business of MCX. The Exchange would have to meet all regulatory norms and, with all these checks and balances in place. The Exchange is debt-free and has a net worth of over Rs1,000 crore. With the stock trading at less than half its value compared with previous months, it still makes a good buy. There have been reports that the Kotak Group, which has an interest in the commodity business, may acquire MCX.
This is probably the main reason the stock has been hitting the upper circuit for eight days in a row.
Scenario 2: Jignesh Shah is able to able to hold on to MCX
This would mean that MCX would continue to function as a going concern with its profits, assets, business volumes all remaining intact. That again would mean the stock has to correct upwards after the severe decline it has suffered. Only if one suspects that NSEL issue will drag on and money would be siphoned from MCX to resolve the issue would one sell the stock.
Clearly, Bank of India has acted like an impatient retail investor and sold its entire stake.
There is another possibility.
Did someone know that one of these two scenarios is going to happen soon, calculate that the stock could be undervalued and so, got Bank of India, the state run lender, to part with its shares on the cheap? Will the Bank management investigate?
SEBI noted that Maitreya Plotters had launched a scheme towards booking or purchase of plot of land and invited investment from public, on promise of allotment of land
Market regulator Securities and Exchange Board of India (SEBI) has barred Maitreya Plotters and Structures Pvt Ltd and its directors from raising money from public in name of realty business.
After a preliminary probe into Maitreya Plotters' real estate scheme, SEBI said it found that the company was running a collective investment scheme (CIS) without permission and registration with the market regulator.
Accordingly, SEBI has directed Maitreya Plotters and its directors, Varsha Madhusudan Satpalkar and Janardan Arvind Parulekar, not to collect any more money from investors including under the existing schemes.
Satpalkar and Parulekar are also directors of another company Maitreya Services against which SEBI has already taken action for running unauthorised schemes.
Besides, the entities have been asked not to launch any new schemes, not to dispose of any of the properties or alienate any of the assets of the schemes and not to divert any funds raised from public at large, which are kept in bank account(s) and/or in the custody of the company.
"...I find it reasonable to take recourse through an interim action against Maitreya Plotters and its directors for preventing them from further carrying on with fund mobilising activity related to CIS, without registration from SEBI," SEBI's whole time member S Raman said in the order.
SEBI had received complaints alleging illegal mobilisation of funds through activities in the nature of CIS by Maitreya Plotters.
SEBI observed that the firm had launched "Scheme towards Booking or Purchase of Plot of Land" inviting investment from the public, on promise of allotment of land.
Following the execution of an agreement with the investor the firm also undertook the task to develop plot of land to make it suitable for cultivation purpose.
The regulator observed that the scheme run by the company "does not show any resemblance to real estate business or transaction but rather operates as a disguise to mislead and attract investment from the general public towards the fund mobilising activity of MPSPL, which is in the nature of CIS".
Further, SEBI said that the company had not obtained any certificate of registration under the CIS norms for its fund mobilising activity under the scheme offered by it.