The last time the yield curve inverted – the difference between the 10 year and the 2 year went negative – in recent memory was back in Feb 2012.
Surprisingly, no apparent correlation with bank stocks though.
So what gives?
Category: Your Money
The Nifty went down 1.04% for the week, but yesterday was the proverbial “Black Friday” with the index tanking -4.08% in one day.
Index Performance
Banks were the worst hit with NPAs coming to roost. Plus the CBI is investigating debt restructurings that were a bet too promoter friendly.
Top winners and losers
| ABIRLANUVO | +8.71% |
| IDEA | +8.83% |
| TATAMOTORS | +12.61% |
| BHEL | -10.09% |
| TITAN | -9.05% |
| YESBANK | -8.74% |
Titan was the lamb to the slaughter with the RBI and the Finance Ministry hell bent on curbing jewelry sales. Idea continued to baffle sane investors.
ETFs
| GOLDBEES | +8.50% |
| INFRABEES | -0.10% |
| NIFTYBEES | -0.76% |
| JUNIORBEES | -1.24% |
| BANKBEES | -3.46% |
| PSUBNKBEES | -11.62% |
Banks got no respite while paper gold surged. How long before the government annexes the gold in the gold ETFs?
Advancers and Decliners
Yield Curve
The yield curve continued to shift up. Maturities out 5 years mostly flat but short-term looks stressed.
Sector Performance
2-3 wheelers over-turned their last week’s under-performance.
Thought for the Weekend
Linear thinking is dangerous. It is the easiest form of reasoning, lying on the path of least resistance. The simpler the path, the more readily people will march along it. Linear arguments are easy to make, as they require the least amount of evidence — past data points with a straight line drawn through them. However, the larger the crowd that follows the wrong line of reasoning, the more people pile in, and the greater the consequences if they are proved wrong.
Source: Ben Bernanke: Buy One Suit, Get Three Free
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National Spot Exchange Limited’s (NSEL) decision to suspend trading of all one-day forward contracts was enough to shake investors and have brokers hammering on NSEL doors. Shares in NSEL owner Financial Technologies (India) Ltd (FTIL) fell 73% and over ₹5,500 crore of investor money in NSEL is at stake. Fear of default has created widespread panic that NSEL and investigating authority, Forward Markets Commission (FMC), are trying but failing to allay.
Going by NSEL’s docile obeisance in face of FMC directives and disinclination to adopt legal recourse, it appears that NSEL has indeed been caught dipping its fingers in shady pies. NSEL is accused of allowing short sales by not verifying whether the seller of a commodity actually had stocks with them as well as offering 20-40 days settlement periods in forward contracts. If it turns out that there are no commodities to sell, how will NSEL meet its payment obligations? That’s the big question on everyone’s mind.
According to a report on the Press Trust of India, NSEL has formed an independent committee to advise and monitor the settlement of trade funds amounting to ₹5,500 crore. Chairman and managing director Jignesh Shah of FTIL says that NSEL will announce a pay-out settlement by August 14. Till then, investors will remain on tenterhooks.
What is NSEL about?
NSEL is the facilitator of on the spot trading of commodities in India. Promoted by FTIL, it was established in 2008 to lower costs of intermediation and increase market efficiency.
But like other agencies before and after NSEL such as the Multi Commodity Exchange (MCX), FTIL itself and even SEBI that’s participating in the investigation, the exchange has become just another channel for bureaucrats to swindle money from public.
Scam or rivalry, investors’ the scapegoat
Three years back at a regional commodity exchange meeting in Kolkata, some members brought FMC officials’ attention to trading issues at NSEL that did not conform to spot transaction practices. But nothing came out of that till July 9, 2013. This long gap is a question in itself. Was there an intentional lack of interest and vigilance on the part of the FMC, heading the meeting then?
There is another angle to the story too. NSE and FTIL are longtime rivals. FTIL is the promoter of NSEL and MCX-SX, direct competitor of NSE. In 2009, MCX-SX filed a case against NSE for which NSE was served a show cause notice for violation of provisions under the Competition Act, 2002. MCX charged NSE of lowering trading costs unfairly to kill competition. In June 2011, Competition Commission of India (CCI) fined NSE a penalty of ₹55.5 crore, payable within 30 days and ordered it to immediately stop subsidizing its services. Some say that the recent NSEL saga has a lot to do with the FTIL-NSE rivalry.
Last month, the Minister for Food and Consumer Affairs issued a statement that the Centre will take action against NSEL for violating spot trading rules. In three days, it sought an undertaking to stop the exchange from launching contracts with a greater than 10 day settlement period. On July 15, FMC directed NSEL to stop any such order till further notice.
That was the start of investor panic. When NSEL suddenly suspended all contracts, except the e-series that offer gold and base metals on July 31, there was total market chaos. NSEL then announced the deferment of payments amounting to ₹5,500 crore.
What now?
NSEL has announced that 13 of its members will pay 5% of their outstanding obligations, a total of ₹3,107 crore, on a weekly basis and 8 others will immediately settle contracts amounting to ₹2,180 crore. It is yet to reach an agreement with 3 members having outstanding obligations of ₹310 crore.
The FMC chairman Ramesh Abhishek has informed Reuters that the government has given it the power to take strong actions against any NSEL counterparties that default on their obligations.
Unanswered questions
How did NSEL get away with forward contracts in the first place? How come these goings-on went undetected by the State, FMC and Department of Consumer Affairs before now? Despite complaints 3 years back, why were NSEL’s operations not verified or monitored? And lastly, are the commodities really there? If they are, why the deferment?
Inflation and global market volatility are hitting Indian investors from the outside and it seems Indian bureaucrats are hell-bent on eating the capital market from the inside. It’s a double whammy that’s crippling the economic growth of the country as scam after scam hurt its international reputation. Still, bureaucrats and politicians are too busy conniving schemes to hoodwink people and fill up their own pockets. What do they care?
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The Nifty continued its slide, down -1.98%. Some of the beaten down sectors staged a dead-cat bounce. The new RBI governor is likely to follow Brazil and Turkey in hiking short-term rates to stabilize the currency and tame inflation. Meanwhile, overly leveraged business are going to take a hit. Not to mention the worsening of the payment situation in the infrastructure and real-estate sectors.
Index Performance
Top Winners and Losers
| BHARATFORG | +17.08% |
| PFC | +17.64% |
| RANBAXY | +31.53% |
| BHEL | -21.52% |
| ASIANPAINT | -13.40% |
| GSKCONS | -11.27% |
Ranbaxy was the turn-around story of the year (so far…) It appears that investors are finally able to overlook short-term challenges and look at longer-term growth.
ETFs
| JUNIORBEES | +3.41% |
| GOLDBEES | +1.38% |
| PSUBNKBEES | -0.76% |
| NIFTYBEES | -2.48% |
| INFRABEES | -4.42% |
| BANKBEES | -5.98% |
Banks continued to get crushed.
Advancers and Decliners
Not a bull in sight…
Yield Curve
The yield curve seems to have stabilized. However the RBI did announce further liquidity tightening measures after the markets closed yesterday.
Sector Performance
Thought for the weekend
Sometimes I am asked things I could not possibly know, particularly about the future. Rather than guess, I believe the best approach is to admit the truth, then plan accordingly. The alternative is to do what too many people do: Make predictions, then marry those forecasts. This usually leads to catastrophic results.
Source: On the Value of Not Knowing
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In January last year, Reliance Chairman Mukesh Ambani surprised one and all by investing over Rs 1,700 crore in Raghav Bahl’s debt-ridden media entities Network 18 and TV18 Broadcast that would give him access to ready-made content.
The deal reflected the attractive growth opportunities present in the media sector, considered as ‘sunset’ industries in developed markets but flourishing in India. The readership in newspaper industry may be declining in many international markets with the advent of digital media but continues to thrive in India, thanks to increasing literacy rates and higher disposable income coupled with growth of regional and special interest newspapers.
In 2012, media and entertainment (M&E) industry grew at 12.6 per cent to Rs 82,000 crore, says a Ficci-KPMG report. While a slowing global economy and reduced advertising budgets is likely to pull down growth slightly to Rs 91,700 crore this year, the future looks promising.
Driven by digitization, strong growth of regional media, upcoming elections, burgeoning film industry and fast increasing new media businesses, the sector is set to grow at a healthy rate of 15.2% to reach Rs 1.66 lakh crore by 2017.
Last month, DB Corp, which publishes eight newspapers with 65 editions in Hindi, Gujarati and English including Dainik Bhaskar and Divya Bhaskar reported strong set of numbers with net profit rising by 74% to Rs 76 crore. The Kalanidhi Maran-owned Sun Television Network also saw net profit rising to Rs 164 crore during the June quarter while HT Media clocked a net profit of Rs 47 crore. Reliance Broadcast and Dish TV narrowed their losses during the quarter.
The print media accounts for 46% of the total ad spending by advertisers. Despite the surge in alternative media (private TV, radio and internet) over the past three decades, print holds value and derives its appeal from high degree of regionalization and localization, broad based coverage, etc. However, off late, slowing ad revenue growth and rising newsprint prices have forced companies to cut down on non-profitable editions to stay afloat. Regional markets (especially Hindi) have been growing faster than metro-focused English markets.
Markets beyond tier-1 cities are largely catered to by the regional print media (Hindi and other languages). Also, the penetration of digital media in these markets is lower due to poor infrastructure and language barrier as digital media is largely English centric.
While the M&E industry continues to grow at a strong pace, proper regulation to ensure plurality and diversity of views has been found lacking. With increased commercialisation and entry of multinational media corporations in Indian media, cross media ownership has been a tricky subject that the industry has failed to address.
Broadcasting companies owning television channels are venturing into distribution segments of cable television, Direct-to-Home (DTH), Headend-in-the-Sky (HITS) and Internet Protocol Television (IPTV) while distribution segment companies are entering into television broadcasting, sparking fears of content monopoly and market power.
Companies like Bennett, Coleman & Co Ltd and Anil Dhirubhai Ambani Group, among others, have a significant presence in print, TV and FM radio while Sun TV and Essel Group have interests in print, TV, FM as well as distribution platforms like Direct-To-Home (DTH) and MSOs.
An Administrative Staff College of India (ASCI) report in 2009 recommended that cross media ownership rules for broadcasting, print and new media must be put in place since there is ample evidence of market dominance in certain relevant markets.
Also, political parties, either directly or indirectly control newspapers, TV channels and cable TV distribution. Such players may selectively stream content to suit the needs of their political masters and also suppress competition in the market, depriving consumers of unbiased information.
Tamil Nadu is a prime example of this where political parties of all hues own news channels and thus control the flow of information.
The growing clout of Ambanis and other corporates have raised concerns that they can influence policy making to promote their vested interests while generating business revenues for themselves.
Lack of regulation has given rise to the culture of paid news, corporate and political lobbying, biased opinions and sensationalism in reporting, especially in entities with business and political interests.
The government should limit the number of licenses held by a single entity, restrict ownership across media and telecom companies. The key is to ensuring a high level of plurality of news and views while providing freedom to companies to expand and innovate.
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