Month: April 2020

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Axis Bank, Max Financial Services gain on stake deal

Shares of Axis Bank and Max Financial Services on Tuesday gained up to 6.6 per cent after the bank decided to raise its stake in Max Life Insurance to 30 per cent. Axis Bank shares zoomed 6.61 per cent to close at Rs 455.55 on the BSE. During the day, it jumped 7.24 per cent to Rs 458.25.

Max Financial Services also gained 5.14 per cent to close at Rs 475.80. It rose by 8.79 per cent to Rs 492.35 during the session. Axis Bank has decided to raise its stake in Max Group promoted Max Life Insurance to 30 per cent, a development which values the insurer at over Rs 5,000 crore.

With the deal going through, sources said, the bank is expected to pay Rs 1,600 crore to Max Financial Services (MFS), the holding company of Max Life. Axis Bank holds about 1 per cent stake in Max Life and is the biggest banking channel partner for distribution of its products. Products sold through the bank reportedly contribute for 54 per cent of Max Life’s revenues.

The boards of Axis Bank, MFS and Max Life approved the transaction late on April 27, a joint statement said on Tuesday. “This is an outcome of the inter-se discussions after the three companies had signed a confidentiality and exclusivity arrangement on February 20, 2020 to explore the possibility of a long-term strategic partnership between Axis Bank and Max Life,” it said.

Interestingly, the deal comes at a time when the economy is hit by COVID-19 crisis impacting all sectors of the economy, including the financial sector.

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Franklin Templeton tries to calm mutual fund investors; here’s what India head says about returning money

Franklin Templeton’s top management, in an effort to reassure investors, said that it is committed to returning the money invested at the earliest. The fund house is trying to soothe investors after having closed six of its debt and credit mutual fund schemes. “We are committed to doing all we can to return monies in the schemes that are wound up at the earliest to investors, and to regain your trust in our brand,” Franklin Templeton Asset Management (India) President, Sanjay Sapre said in a note to investors. The fund house last week announced the closure of six schemes owing to redemption pressure and lack of liquidity in the secondary market.

With an asset under management (AUM) of close to Rs 36,000 crore, the schemes that were closed included — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

“As the schemes liquidate portfolio holdings subject to market conditions, receive coupon payments and scheduled maturities, the Trustees will start to return monies to investors at the earliest instance in compliance with regulation 41(2)(b) of SEBI (Mutual Fund) Regulations 1996,” Sapre said. The fund house with over 25 years of experience in India has come under the spotlight for investing in low-grade securities. Sapre However clarified that under the investment strategy followed, the closed schemes invested across the credit rating spectrum. “This strategy served the schemes and its investors well until recent times. The schemes were able to generate significant cash flows even during the last 6 months which were more turbulent times for the credit markets,” Sapre said in the note.

After wounding up the six schemes, Franklin Templeton has looked to reassure investors about other fixed income schemes run by the fund house. “Our other fixed income schemes which are open for subscription and redemption, primarily invest in highly liquid securities such as Government Securities, AAA-rated bonds, or other cash and cash equivalents,” Sapre explained to investors. He added that these schemes have enough liquidity to cope-up with the redemption pressure. Industry body Association of Mutual Funds in India (AMFI) too rushed to scene on Friday to assure investors that the majority of the fixed-income mutual fund schemes were safe.

Coming to aid of the struggling mutual fund industry that is reeling under redemption pressure, the Reserve Bank of India on Monday announced the opening of a special liquidity window for the industry. Under this, the central bank will provide Rs 50,000 crore worth liquidity support to the industry. The amount will be provided to the banks who can then lend the same to the fund houses or buy investment-grade bonds and commercial papers from these fund houses.

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Large number of retail investors open to buying gold: WGC

A survey of Indian retail investors by the World Gold Council (WGC) has revealed that as much as 29% of them, who have never bought the precious metal in the past, are open to purchasing it in the future.

As much as 52% of investors already owned some form of gold, with 48% having invested in the one year preceding the survey, which was conducted between June and December 2019, before the Covid-19 outbreak in the country. But gold analysts say the precious metal’s attractiveness as an investment instrument has only enhanced after the pandemic spread its tentacles far and wide and caused a flight to safe-haven assets. About 76% of urban investors in India have said they invested in gold bars and coins in the past and 21% of the respondents, who have never bought the metal, wish to do so in the future. This suggests gold currently has a deeper penetration among urban investors. Nevertheless, 37% of rural investors would consider buying gold in the future despite never having done so before. And while these rural gold considerers offer a lower value opportunity than urban counterparts, they offer significant growth potential.

The survey came at a time when India’s gold demand dropped 9% year on year in 2019 to hit a three-year low of 690.4 tonne.

Demand crashed 18% y-o-y in the December quarter despite festive consumption, as record prices of the metal and an economic slowdown had put a leash on retail purchases. In fact, the September-December 2019 was the second worst quarter for Indian gold demand in a decade, while the July-December period marked the worst half-yearly performance since 2009. The survey’s findings are reflective of the immense potential for the yellow metal to emerge as an attractive investment option for the public, with appropriate policy intervention.

Somasundaram PR, MD, WGC India, said: “India’s retail investment landscape is evolving, underpinned by government-led financial inclusion programmes, the surge of fintech, and increasing investor knowledge. And, this clearly affects the gold industry. Businesses are constantly striving to leverage technology to make gold more accessible to retail investors.”

The survey points out that both rural and urban investors need further simplicity and reassurance from their investments. Also, the survey, titled ‘Retail gold insights 2019’, revealed that while 48% of respondents were deterred from buying gold due to a lack of trust, as much as 61% of Indian ‘considerers’ identified issues around trust as a barrier to buying the precious metal. “But there is, nonetheless, a sizable opportunity to increase penetration of gold investment among the Indian retail investor base. In total, almost one third of Indian investors who have not bought gold before are open to doing so in future. We call this group ‘gold considerers’ and they represent a significant pool of untapped demand,” the WGC said.

The survey also showed the gold industry has the potential to appeal to a sizable new audience. Technology can play a key role in opening up new avenues for gold investment; easy online accessibility is a must in this era of increasing global digitisation. Similarly, 65% of potential gold investors said they have gaps in their knowledge around gold.

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Kotak Mahindra, Federal, IDFC First Bank sold part of Yes Bank shares in just 14 days after bailout

After having saved the cash-strapped Yes Bank from going bust, three of the banks, which invested in the troubled private lender at an RBI-guided bailout price, sold some part of their equity share allocations, according to the shareholding data available on the stock exchanges. Uday Kotak’s Kotak Mahindra Bank sold almost 9.4% of its total shareholding that it picked up in Yes Bank. Federal Bank sold 19.5% of its entire shareholding; and IDFC First Bank sold 16% of its total shares. The banks, which bought shares in Yes Bank as part of the bailout were allowed to sell only 25% of their equity stakes each, with the remaining 75% in a three-year lock-in period. Apart from these three lenders, all other investors, including State Bank of India, did not sell any of their equity holdings till the end of March this year.

Six banks and Housing Development Finance Corporation (HDFC) invested Rs 10,000 crore in Yes Bank in the second week of March under the Yes Bank Reconstruction Scheme 2020, picking up equity stake at Rs 10 per share. The shares, allotted to the institutional investors on March 15, jumped a whopping 60% from its previous closing to trade at Rs 58.65 per share. This meant a surge of Rs 48.65 per share for the equity shares held by the seven institutional investors, growing their investment six times in just two days.

Kotak Mahindra Bank invested Rs 500 crore for 50 crore shares of Yes Bank; now Kotak Mahindra Bank’s shareholding in Yes Bank has fallen to 45.27 crore shares. Federal Bank, another struggling private lender, invested Rs 300 crore in Yes Bank and received 30 crore shares, now it holds 24.13 crore shares. IDFC Bank was the smallest investor, shelling-out Rs 250 crore for 25 crore shares; by the end of the January-March quarter, the lender was left with 20.97 crore equity shares.

The biggest investor in Yes Bank was India’s largest public lender State Bank of India (SBI). The PSU bank invested Rs 6,050 crore for 605 crore shares. SBI Chairman, Rajnish Kumar had on March 17 clarified that SBI will stay fully invested in Yes Bank for the entire lock-in period despite having a lock-in restriction of 26% only. SBI has stayed true to its word so far. ICICI Bank and HDFC, the other two big investors, put in Rs 1,000 crore each for 100 crore shares; none sold their equity holding in Yes Bank till the end of March 2020. Other investors included Axis Bank and Bandhan Bank, getting 60 crore and 30 crore shares respectively. Both have held on to the shares allotted.

All Yes Bank shareholders were put under a lock-in period of three years under the Yes Bank Reconstruction Scheme 2020. Under this, all shareholders with 100 shares of more had 75% of their equity shares locked-in for a period of three years.

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