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Franklin Templeton CEO, fund managers fined Rs 15 cr by SEBI; forensic audit reveals discrepancies

Capital markets regulator SEBI (Securities and Exchange Board of India) has fined Franklin Templeton Trustee Services; FT AMC CEO Sanjay Sapre; and seven others to the tune of Rs 15 crore, in the matter relating to the abrupt closure of six debt mutual funds schemes last year. SEBI in its order said that the evidence seen by it does not indicate that the Trustees had exercised high standards of service, exercised due diligence, ensured proper care and exercised independent professional judgment to address risks. Earlier last week, SEBI had fined Franklin Templeton and asked it to return Rs 512 crore in management and advisory fees to investors.

CEO, CIO, fund managers fined
The SEBI order imposes a Rs 3 crore penalty on Franklin Templeton Trustee Services and another Rs 2 crore each on Franklin Templeton AMC CEO, Sanjay Sapre and CIO Santosh Kamat. Further, the order has imposed a Rs 1.5 crore penalty each on Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai, and Umesh Sharma — all fund managers. The market regulator has also fined Saurabh Gangrade, the Chief Compliance Officer of the firm Rs 50 lakh. The order said that the penalty has to be paid within 45 days.

“The serious lapses and violations clearly appear to be a fall out of the FT-MF’s obsession to run high yield strategies without due regard from the concomitant risk dimensions,” SEBI’s order said. They further added that the terms of investment covenants were apparently not in the interest of investors and the deficiencies in the agreements were sought to be corrected through a ‘commercial understanding’.

Forensic audit reveals discrepancies
In the forensic audit, ordered last year, SEBI found that in the six closed schemes there were similarities in investment strategy although the investment objectives were different. “This was observed by way of high exposures in “AA and below” Corporate bonds in all the six schemes even though investment objectives as per the SIDs of these schemes are different,” the market watchdog noted. The audit found that in 42 instances (for FI-UBF) and 17 instances (for FI-LDF), exit options were in fact not exercised where available.

The audit also revealed that there were discrepancies in respect of valuation of securities where terms of the issue have been changed frequently which resulted in the declaration of incorrect NAV. It also found that FT failed to carry out due diligence with respect to investments in illiquid securities and observed that the pattern of investment transactions is “akin to giving loan to issuers”.

Franklin Templeton, reacting to the order said that disagrees with SEBI order. “We believe the company and employees have acted in compliance with regulations and in the best interest of unitholders in discharging their responsibilities. Based on our initial review of the order, we are considering all options with regard to next steps which may include filing an appeal before the Hon’ble Securities Appellate Tribunal (SAT),” a Franklin Templeton Spokesperson said. The six schemes under winding up have distributed Rs 17,778 crores to unitholders or 71% of the AUM of Rs 25,214 crores on the date of the winding-up decision.

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Coal India share price hits new 52-week high, m-cap surges past Rs 1 lakh crore; stock may rally 13% more

Coal India share price surged as high as 5.4 per cent to Rs 164.90 apiece in intraday on BSE, taking the total market capitalisation above Rs 1 lakh crore. Coal India stock surpassed its previous high of Rs 162.95 apiece, touched on February 26 this year. So far this month, the stock of the state-owned company has gained nearly 12 per cent as compared to a 1.3 per cent rise in S&P BSE Sensex. Analysts suggest 13 per cent more rally in the stock. In volume traded terms, 23.47 shares have exchanged on BSE, while a total of 3.18 crore stocks of Coal India have traded on NSE so far in the day.

Coal India shares may rally 13% more

The stock has given a breakout from its 100-week average with strong volumes and on back of positive news flow of higher auction coal prices, Binod Modi, Head Strategy at Reliance Securities, told Financial Express Online. He expects Coal India stock to rally up to Rs 185 apiece over the next few weeks. The company is scheduled to announce its January-March quarter results next week on June 16.

Coal India: What should investors do with stock?

Demand for Coal India’s e-auction sales has begun to recover after plummeting last fiscal, when the miner was required to auction at a notified price for nearly six months to obtain volumes in an effective short-of-demand market. Premiums and realisations for e-auctions have improved as demand has recovered. Global thermal coal prices have been on the rise, which bodes well for e-auction success, Likhita Chepa, CapitalVia Global Research, told Financial Express Online. “We estimate Coal India’s profitability to rebound strongly in FY22, on the back of improved offtake and realisations. Therefore, investors can consider holding this stock with a long-term perspective,” Chepa added.

Last month, Coal India reported strong offtake in dispatches, registering a 37.6 per cent on-year increase in volumes. Offtake growth in May 2021 came on the back of a 15 per cent rise in coal-based generation, amid a 7 per cent rise in overall power demand, and re-stocking of inventory at Power plants, Motilal Oswal Financial Services said in a report. Analysts at the brokerage firm maintained a ‘buy’ rating to the stock with a target price of Rs 180 apiece.

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ITC’s margins to improve, changing consumer behavior to drive demand; stock may surge 20%

ITC reported a strong uptick in revenue, across segments during the January-March quarter as demand recovery aided the topline performance. The performance of the FMCG-to-hospitality is expected to get better going forward, improving margins of the company, domestic brokerage firm Geojit Financial Services said. “With constant focus on innovation and improving product mix, ITC is well-placed to capture demand across segments,” the brokerage firm said while maintaining a ‘Buy’ rating on the stock. Currently, ITC trades at Rs 212 per share, down 0.61% on Wednesday.

All segments of ITC saw strong on-year growth in revenue during the January-March quarter, except hotels. Standalone revenue was up 24.1% from the previous year to Rs 14,023 crore on account of robust recovery across all the segments boosted by increased demand for discretionary products, analysts at Geojit Financial Services said.

Changing consumer preferences to help FMCG biz

Going forward, the brokerage firm expects ITC’s FMCG business to continue witnessing the growth momentum. “Integration of Sunrise Foods should help ITC focus on value-adding niche products which further enables margin expansion for this segment,” the report said.

The FMCG business of ITC, according to analysts at Gejoit Financial services, will also benefit from the changing consumer buying preferences from private labels to branded ones. “This shift in behaviour could largely be attributed to increased concerns over hygiene and safety in the current pandemic scenario. ITC is well-positioned to benefit from this opportunity with adequate inventory levels, coupled with rapid expansion on outlet and stockists front to capture demand going forward,” they added.

Over 20% upside potential

So far this year, ITC’s share price has traded flat, hovering around Rs 212 levels. “Steady topline growth along with improved margins going forward should help reduce its operational leverage, further boosted by its ability to implement structural changes in its value chain,” the report said. Geojit Financial Services has a target price of Rs 256 per share on ITC, translating to 20% upside from current levels.

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DHFL stock WARNING! Be careful before buying, it’s set to delist; share price hits upper circuit despite news

Dewan Housing Finance Ltd (DHFL) share price hit 10 per cent upper circuit at Rs 22.85 apiece intraday on BSE, even as the debt-ridden company in an exchange filing said that its shares would be delisted. Analysts suggest investors to stay away from DHFL stock, as it may be written down to zero soon. Also, investors who currently hold DHFL shares are advised to exit and book whatever their profit or loss. Yesterday, DHFL said in an exchange filing that the Mumbai bench of the National Company Law Tribunal (NCLT) approved Piramal Capital & Housing Finance Ltd’s insolvency resolution plan with certain conditions.

“As part of the Resolution Plan, the equity shares of the company are proposed to be delisted,” it said in a BSE filing. The shares, when delisted, would most likely become worthless. The resolution plan had already received approvals from the RBI in February and the Competition Commission of India (CCI) in April 2021.

DHFL stock at upper circuit: What should investors do now?
DHFL shares were locked in a 10 per cent upper circuit for the second straight day on Tuesday. Since June 2, the stock price has been mapping an upward trajectory, surging 27 per cent to date. India’s largest brokerage firm Zerodha, in a tweet, warned investors that the value of DHFL shares may be written down to zero. “Equity shares of DHFL are likely to be extinguished as part of acquisition of the company due to NCLT’s insolvency process. There can be a significant risk of you losing your entire investment by trading in this stock,” it said in a tweet. It also said that DHFL stock is at the upper circuit price today because there are no sellers. “Buy order will remain pending until filled,” it added.

Given that $DHFL may be delisted and the value of the shares may be written off to zero, this is the nudge we are showing on Kite to warn users of the risks. pic.twitter.com/0cml99TEgG
— Zerodha (@zerodhaonline) June 8, 2021

Deepak Shenoy, Founder, Capital Mind, also asked investors to stay away from DHFL shares as the resolution plan stated that the company’s entire share capital (all current shares) will be cancelled. “This will happen soon. Means the shares being traded now are a ticking time bomb,” Deepak Shenoy said in a tweet.

Adding to this again: DHFL SHARE WILL GO TO ZERO.

Please do not buy this. The resolution plan states that the company's entire share capital (all current shares) will be cancelled. This will happen soon. Means the shares being traded now are a ticking time bomb.
— Deepak Shenoy (@deepakshenoy) June 8, 2021

Analysts suggest that at the current levels, it is better to sell and exit the stock. “Even as the stock is hitting 10 per cent upper circuit, it is advisable to book profit and exit the stock, as DHFL is soon going to be delisted,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told Financial Express Online. Analysts also suggested investors to not fall prey to hearsay on DHFL. “It is advisable to consider squaring off positions in DHFL as there is a risk of losing the entire investment made in the stock because when a company becomes insolvent, existing capital may be written off to zero,” Likhita Chepa, CapitalVia Global Research, told Financial Express Online.

Piramal Capital & Housing Finance’s Rs 37,250-crore offer for DHFL implies around 40 per cent recovery for the financial creditors on a total admitted claim of Rs 87,082 crore. State Bank of India (SBI) is a lead creditor to DHFL with admitted claims of Rs 7,170 crore. DHFL had gone bankrupt with more than Rs 90,000 crore in debt to various lenders, including banks, mutual funds and individual investors who kept fixed deposits with the company.

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