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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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Decrypting cryptocurrencies for India; what could proposed regulations hold for the new-age currency

Since its inception, cryptocurrencies have seen a surge in its prices just re-asserting their highly volatile nature. The cryptocurrency paradigm continues to boom despite the global pandemic impacting economies across the globe. During the past year alone, many other cryptocurrencies have come into foray fueling the interest in cryptocurrencies. The price of one Bitcoin (one of the legacy cryptocurrencies) has increased by six times over the past 12 months. Due to the positive volatility in the cryptocurrencies, it is being viewed as an investment asset which promises to provide quick returns providing a lucrative trading market. Today, WazirX, one of India’s most trusted cryptocurrency exchanges, estimates the investment of around 7 million Indians in crypto-assets worth USD 1 billion. Considering the volatility of the cryptocurrencies, it may be susceptible to risks and misuse. Of late, such concerns have resulted in the need for regulating the cryptocurrency market in India.

Legal Development in India
As of now, there is no legislative framework that governs cryptocurrencies in India. In the past decade, India has generally held a cautious position towards use and transactions involving cryptocurrencies. In 2013, the Reserve Bank of India had first issued a press release cautioning users and investors of virtual currencies, and indicated that they were reviewing the legality of such assets under the prevailing regulatory frameworks. The first formal restriction on the use and transaction involving cryptocurrencies was affected by circular issued by the RBI in 2018. The circular specifically barred banks and other financial institutions from dealing with cryptocurrencies based platforms and any form of virtual currencies. This dealt a major blow to the cryptocurrencies industry in India. Though the order of the RBI was appealed, a Finance Ministry Committee on virtual-currencies recommended banning crypto-currencies in India and proposed a draft Bill, namely Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 for regulating cryptocurrencies in India. The Bill proposed an absolute ban on private cryptocurrencies on one hand, and on the other proposed establishing a ‘digital rupee’ instead. Later, the Supreme Court struck down the 2018 RBI circular banning all the regulated entities from using cryptocurrencies in Internet and Mobile Association of India v. Reserve Bank of India (2020 SCC Online SC 275). The Supreme Court in reaching their decision applied the principle of proportionality and held that even though the RBI is empowered to regulate the financial sector, its act of banning the use of cryptocurrencies as per the 2018 circular is not proportional to the alleged ‘mischief’ or harm caused to the RBI regulated entities (such as banks) that it aimed to address. The order resulted in a revival for cryptocurrency-based platforms in India. The Lok Sabha Bulletin for the present Parliamentary Session indicates that a new bill, namely, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is likely to be tabled before the Parliament.

What is the proposed Bill likely to hold?
Since the text of the Bill is not yet available, it is still not clear how the cryptocurrency platforms are likely to be affected. Only limited information is available in this regard. For example, the Lok Sabha Bulletin Part-II indicates that the Bill will establish a ‘facilitative framework’ for creation of an official digital currency to be issued by the Reserve Bank of India. The digital currency, which is termed as Central Bank Digital Currency (CBDC), is not a novel concept. A CBDC uses a blockchain-based token to represent a digital form of a fiat currency. The value of such a CBDC is linked and is equal to the fiat currency and may be free from the volatility that is generally associated with typical cryptocurrencies. CBDCs have been mooted by the Indian government, which have pushed for establishing such a digital cryptocurrency equivalent to the Indian rupee.

The Bill also proposes to prohibit all private cryptocurrencies, and related activities in India (such as mining, buying, holding, selling, dealing in, issuance, disposal or use). It is still not clear as to what will constitute such ‘private cryptocurrencies’ and how cryptocurrencies other than such private cryptocurrencies would be regulated. The 2019 Bill gave a very broad definition to the term ‘cryptocurrency’ which raised apprehensions that it may even include tokens, or other such digital issues generated through non-cryptographic means. Similarly, other related issues like tax implications and the scope of the Bill’s applicability to Indians holding crypto-assets outside India are still unknown. The exact implications of these can only be assessed once the Draft of the new Bill is laid before the Parliament.

What is expected from the proposed Bill?
Regulation rather than ban

One of the reasons as to why India perhaps has been leaning towards banning cryptocurrencies is the possibility of the cryptocurrencies being used for financing illegal activities (such as funding terror, money laundering, tax evasion, etc.). It may be noted that curtailing such activities may not be possible by banning cryptocurrencies in India. Other concerns include investor protection, consumer protection (in case of purchase/sale of goods in lieu of cryptocurrencies), lack of oversight or control by any regulatory authority. Such concerns may be practically addressable through a regulatory framework while at the same time ensuring that the intrinsic value from cryptocurrencies is available to all. Suggestions towards implementing such a regulatory framework has also been proposed by NASSCOM.

Similar approaches are being explored in other jurisdictions. On the 24th September 2020, the EU Commission has officially released the Proposal for a Regulation on Markets in Crypto-assets (“MiCA”). The proposed regulation is intended to bridge the gap in financial services regulations in the EU in relation to crypto-assets (which includes cryptocurrencies).

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Reserve Bank to buy govt securities worth Rs 1.20 lakh cr under G-SAP 2.0

The Reserve Bank of India (RBI) on Friday said it will initiate a secondary market government securities acquisition programme or G-SAP 2.0 worth Rs 1.20 lakh crore in the second quarter of this fiscal to enable an orderly evolution of the yield curve.

Under G-SAP 1.0, the central bank will purchase Rs 1 lakh crore-worth government securities and the last transaction of such acquisition to the tune of Rs 40,000 crore is scheduled for June 17.

“In my statement of April 7, 2021, I had indicated that in addition to G-SAP, the Reserve Bank will continue to deploy regular operations under the LAF (Liquidity Adjustment Facility), longer-term repo/reverse repo auctions, forex operations and open market operations, including special OMOs (Open Market Operations), to ensure that liquidity conditions evolve in consonance with the stance of monetary policy and financial conditions remain supportive for all stakeholders,” RBI Governor Shaktikanta Das said on Friday. So far this fiscal, Das said RBI has undertaken regular OMOs and injected an additional liquidity to the tune of Rs 36,545 crore (up to May 31) in addition to Rs 60,000 crore under G-SAP 1.0.

“A purchase and sale auction under operation twist has also been conducted on May 6, 2021 to facilitate the smooth evolution of the yield curve. Going forward, the Reserve Bank will continue to conduct regular operations for liquidity management,” he said.

Taking these developments into account, Das said it has now been decided that another operation under G-SAP 1.0 for purchase of G-Secs of Rs 40,000 crore will be conducted on June 17, 2021 Of this, Rs 10,000 crore would constitute purchase of State Development Loans (SDLs).

“It has also been decided to undertake G-SAP 2.0 in Q2:2021-22 and conduct secondary market purchase operations of Rs 1.20 lakh crore to support the market. The specific dates and securities under G-SAP 2.0 operations will be indicated separately. We do expect the market to respond appropriately to this announcement of G-SAP 2.0,” he said.

To support growth that has been hit by the coronavirus pandemic, the government has planned a large borrowing of Rs 12.05 lakh crore in the financial year ending March 31, 2022.

As a result, the fiscal deficit is expected to be 6.8 per cent of GDP, down from 9.3 per cent in the last fiscal. Das also said RBI has been taking several measures to encourage investments by Foreign Portfolio Investors (FPIs) in the Indian debt market such as introduction of new channels for investment and periodic review of the operational framework in place for investments by non-residents.

“With a view to easing operational constraints faced by FPIs and promoting ease of doing business, it has been decided to permit Authorised Dealer banks to place margins on behalf of their FPI clients for their transactions in government securities (including State Development Loans and Treasury Bills), within the credit risk management framework of banks,” he said.

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Credit Suisse favors cement stocks after cutting metals weightage; remains bullish on private banks

Cement stocks along with consumer discretionaries have attracted the attention of global brokerage and research firm Credit Suisse as it looks to bank on beneficiaries of input cost normalisation. In a note co-authored by Neelkanth Mishra, Abhay Khaitan, and Prateek Singh, Credit Suisse said that going forward, the normalisation of input costs would help sectors such as paints and cement with pricing power in their hands. “An extreme supply-chain bull-whip is likely driving chemicals too: inputs to adhesives, paints, cement, etc. As costs fall, firms with pricing power should benefit,” the report said. After having stayed overweight in metals for months, Credit Suisse recently trimmed weightage fo metal stocks, finding the risk-reward unfavourable and terming the commodity price surge, cyclical and not structural.

Paints and Cement to benefit

The note highlighted that chemicals that are used as raw materials in sectors such as paints, adhesives, and cement are now priced at unseasonally high levels owing to supply-chain inefficiencies. “As petrochemical price trends normalise and costs fall, firms with pricing power should benefit,” the report said. Credit Suisse has added Asian Paints, to its portfolio to benefit from the trend.

Further, the report adds that the cement sector would also benefit from lower costs of such materials. “We, therefore, go overweight on cement, adding UltraTech Cement despite the near-term concerns on adverse seasonality and a weak outlook for low income/rural discretionary consumption,” the report said. UltraTech Cement is also expected to benefit from capacity expansion and reduction of fixed costs in the near term. The sector currently trades at an 11% premium to the market. Historically, the sector has traded at a 14-year average premium of 25%.

Overweight on banks, rejig IT portfolio
In the financial sector, Credit Suisse has retained its overweight rating on private banks and State Bank of India. “We believe they are the best plays on our expectation that medium-term economic growth would be better than consensus,” the report said. The brokerage firm has ICICI Bank, Axis Bank, SBI, and HDFC Bank in its portfolio.

Seeing the resilience among Industrials during the second wave of covid-19 in India, analysts at Credit Suisse have retained their heavy overweight stance on the sector. Forward P/B of Industrials relative to the market remains below historical averages even though in absolute terms it is at five-year highs. In the Information Technology space, Credit Suisse remains underweight. The brokerage firm has removed HCL Technologies from the portfolio, adjusting the weight by increasing TCS.

Model portfolio
Infosys, Dr. Reddy’s, Ambuja
HDFC, Coal India, HDFC Bank
Reliance Industries, Cholamandalam, Motherson Sumi
ICICI Bank, Indigo, SIEMENS
Maruti Suzuki, Ultratech, Asian Paints
TCS, Airtel, Eicher Motors
HUL, Mahindra, Aurobindo
Axis Bank, ITC, ABB
L&T, Hindalco, Godrej Consumer
SBI, Shriram, Marico

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