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T+1 settlement system is in the interest of market participants: Sebi chairman

Capital markets regulator Sebi chairman Ajay Tyagi on Thursday said the T+1 (trade plus one day) settlement cycle is in the interest of all market participants and the new system will not lead to fragmentation of liquidity. T+1 means that market trade-related settlements will need to be cleared within one day of the actual transactions taking place. Currently, trades on the Indian stock exchanges are settled in two working days after the transaction is done (T+2).

“Early settlement will be good for all market participants. It is in the interest of everyone and the new system will not lead to fragmentation of liquidity,” Tyagi said in an event organized by the Confederation of Indian Industry (CII). This comes amid brokers’ association raising concerns over the implementation of the shorter settlement system.The Securities and Exchange Board of India (Sebi), earlier this month, allowed exchanges to move to the T+1 settlement cycle on an optional basis.

As of now, Sebi has introduced this mechanism on an optional basis, so exchanges will decide whether to implement the T+1 settlement or continue with the T+2 old mechanism. The new mechanism will come into force on January 1, 2022. This is not the first time that Sebi has chosen to shorten the settlement cycle. Earlier in 2002, the capital markets regulator had cut the number of days in the settlement cycle from T+5 days to T+3 days, and then in 2003, it was reduced to T+2 days.

Tyagi said that the Indian markets have been witnessing a boom in fundraising through initial public offerings (IPOs). During the last 18 months, growth oriented technology companies have raised a sum of around Rs 15,000 crore through IPOs. Their filings with SEBI at present show a pipeline of around Rs 30,000 crore.

Funds raised through IPOs in the ongoing fiscal till-date are almost equal to what was raised in the entire financial year 2020-21, which was Rs 46,000 crore, he said. The Sebi chairman said that individual investor participation in the market has increased by “leaps and bounds”. On an average, about 4 lakh new demat accounts were opened per month in 2019-20, which increased to 12 lakh per month in the 2020-21, he said. The trend gets further accentuated during the current financial year 2021-22 — on an average 26 lakh demat accounts have been opened per month, he added.

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Rakesh Jhunjhunwala wins Rs 21 crore in a day on this stock in the news; Zee Ent stock hits again 52-wk top.

Rakesh Jhunjhunwala earned a mark-to-market profit of Rs 20.53 crore in just one day on his purchase of Zee Entertainment shares yesterday. Further, he is earning more from this stock with the uptrend continuing today. Rakesh Jhunjhunwala’s Rare Enterprises bought 50 lakh shares of Zee Entertainment Enterprises Ltd (ZEEL) at Rs 220.44 per share on Tuesday, 14 September in bulk deals. ZEEL stock ended at Rs 261.5 on Tuesday, earning a neat Rs 41 per share for Rakesh Jhunjhunwala, totalling to Rs 20.53 crore.

ZEEL share extended yesterday’s rally, jumping another 12 per cent today to a fresh 52-week high of Rs 295.15 intraday. The share has rallied 34 per cent from Rakesh Jhunjhunwala’s purchase price. Rakesh Jhunjhunwala or Rare Enterprises name does not figure in the shareholding pattern as names of only those entities are shown that own over 1 per cent stake in the company.

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India’s inclusion in global bond index to attract $170-250 bn inflows; stock markets may also benefit

India could be included in the global bond index in early 2022, a move that may attract $170-250 billion in bond inflows for the country in the next decade, said Morgan Stanley in a recent note. Investors have been staying away from the Indian bond market in the past few years given the widening fiscal deficit, above-target inflation and gradually weakening currency. However, recent macroeconomic stability could change this in early 2022. India’s inclusion in the global bond index is likely to have profound implications for the economy, FX, bond yields, and equity markets, according to analysts at Morgan Stanley.

Desire for growth
India has shown a significant improvement in macro stability and the government has indicated its desire to push for capex-driven growth which is expected to result in an inclusion in the global bond index, making it the last emerging market to join the group. Although India historically, has had a mixed response toward foreign bond inflows, the same has changed in 2020. “The push for capex-driven growth alongside an improvement in macro stability has set the stage for a calibrated opening up of India’s government debt market,” Morgan Stanley analysts said.

The opening up of bond inflows, in Morgan Stanley’s view, hints at policy-makers’ desire to push growth rates higher through investment. “It will push India’s balance of payments into a structural surplus zone, indirectly create an environment for a lower cost of capital and ultimately be positive for growth,” they said. The consensus expects India to join global bond indices but the timing and implementation remain uncertain. With the floodgates opening for bond inflows, equity market returns could be higher due to the positive impact on growth and interest rates, the global brokerage firm said.

Stock markets to benefit: Financial stocks in focus
“Obviously, equity performance is a function of the growth and interest rate outlook. Equity markets do well when the growth outlook is strong and the rate forecast is benign,” Morgan Stanley analysts wrote. Indian banks are seen to be among the beneficiaries of the expected inflows. “We believe that the opening up of the sovereign bond market and resultant inflows will have multiple implications for the banking sector,” they said. Morgan Stanley analysts believe that over time the inflows will add to the source of growth capital and help to manage interest rates.

Large private banks are expected to benefit the most. Meanwhile, multiples are also expected to benefit. “Lower interest rates coupled with better confidence in growth/profitability is a great outcome for stock multiples. Overall, such a macro backdrop is good for equity prices, as it implies a lower cost of equity and stronger sustainable RoEs,” Morgan Stanley said.

Apart from banks, non-bank lenders are also seen as beneficiaries over the longer run. The opening up of the sovereign bond market and the resultant potential implications like lower longer-term G-Sec yields could result in favourable structural implications for NBFCs and HFCs — namely, higher foreign investor interest in corporate bonds, including NBFCs and HFCs, lower cost of borrowing and higher access to bond funding,” the report highlighted. Key frontline beneficiaries in Morgan Stanley’s view are likely to be Housing Development Finance Corporation, Bajaj Finance, SBI Cards, Mahindra Finance, and Cholamandalam Finance.

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Shifting to T+1 cycle may reduce margin requirement, boost investment: Experts

Sebi’s decision to introduce an optional T+1 (Trade plus 1 day) settlement system for the markets could help reduce margin requirement for clients and boost retail investment in equity markets, experts said on Thursday.

T+1 means that settlements will need to be cleared within one day of the actual transactions taking place. Currently, trades on the Indian stock exchanges are settled in two working days after the transaction is done (T+2).

The learnings from this exercise will help in evaluating whether T+1 can work or it is good to continue with T+2 settlement cycle, he added.
Sebi’s decision to introduce an optional T+1 (Trade plus 1 day) settlement system for the markets could help reduce margin requirement for clients and boost retail investment in equity markets, experts said on Thursday.

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In a circular on Tuesday, the regulator allowed exchanges to move to the T+1 settlement cycle on an optional basis.
As of now, Sebi has introduced this mechanism on an optional basis, so exchanges will decide whether to implement the T+1 settlement or continue with the T+2 old mechanism. The new mechanism will come into force on January 1, 2022.

Experts said the T+1 settlement system will allow the cycle of money to move faster without waiting for an extra day.
However, Mywealthgrowth.com co-founder Harshad Chetanwala said it is too early to comment on the pros and cons of this move, as exchanges may face some operational issues as there are multiple factors and entities involved in completing the entire settlement cycle.

The learnings from this exercise will help in evaluating whether T+1 can work or it is good to continue with T+2 settlement cycle, he added.

Jaideep Arora, CEO, Sharekhan by BNP Paribas said, “The new rule of T+1 settlement is a good move on the part of the regulator as it could help reduce margin requirement for clients with their margin being blocked for 1 day, rather than 2 days”.

Additionally, this reduction in time to get investment back to one day would mean more retail investment would come to equity markets, he added.

“The T+1 settlement is a welcome move for all participants in the stock market, as it allows the cycle of money to move faster without waiting for an extra day,” Prateek Singh, Founder and CEO, LearnApp.com, said. Sebi has allowed the exchanges to decide which stocks to allow the T+1 settlement in. This means, it is not mandatory for both the exchanges to follow the T+1 settlement process.

“They have the liberty to choose; but the question is if one exchange chooses to opt for T+1 and the other one doesn’t, then wouldn’t that become a little confusing? Brokers will have to first clearly mention and show whether T+1 is available and then which exchange is allowing it,” Singh said.

“My guess is that for the top most liquid stocks, both exchanges will allow the T+1 settlement because there is no reason not to and the less liquid ones will still have a T+2 going forward,” he added.

Vijay L Bhambwani, head of research Behaviour Technical Analysis, Equitymaster, also welcomed the move.
“It means the banks have managed to put in place a faster clearing system for monetary transfer. This means capital can rotate faster and higher turnover is the single biggest factor in boosting the country’s GDP,” he said.

According to him, so far money was moving lethargically in the financial system. Faster settlements means quicker turnaround time. Both in stock markets and the economy as a whole.

Under the new framework, if the exchanges opt for Trade+1 settlement then, they need to continue this settlement for a minimum of six months. After that, exchanges will have the option to opt for a Trade+2 settlement cycle after giving one month’s notice to the market.

“We believe that this new mechanism of Trade+1 day rolling the settlement will help investors to get the stock or fund the next day of the trade itself so that investors can use shares or funds for further transactions,” Yash Gupta, Equity Research Analyst, Angel Broking, said.

He, further, said this will be good for traders as the settlement will be faster and they can use stock or funds for margins, for long term investors it may not impact them much.

“We believe that this is a positive development for brokerages as this can ease some pressure arising from the application of 100 per cent collection of upfront margin starting September 1, 2021,” he added.

This is not the first time that Sebi has chosen to shorten the settlement cycle. Earlier in 2002, the capital markets regulator had cut the number of days in the settlement cycle from T+5 days to T+3 days, and then in 2003, it reduced to T+2 days.

However, for the past 18 years, exchanges are continuing this T+2 days settlement cycle. Angel Broking’s Gupta said the new mechanism will also impact the auction market as if a seller is not able to deliver stocks on the settlement day, those shares will come in the auction. As of now, auctions are done on T+3 days which will also reduce to T+2 days.

Earlier, brokers association Association of National Exchanges Members of India (Anmi) had raised concerns on issues related to the implementation of the T+1 settlement system.

In its letter to Sebi last month, Anmi, a group of over 900 stockbrokers across the country, had said the T+1 settlement system should not be implemented without addressing operational and technical challenges.
“Shifting to T+1 settlement would make India a pre-funding market and global institutional investors will be faced with multiple issues with this structure,” the brokers’ association had said.

According to Anmi, global investors appreciate the economic efficiency of being able to fund settlement obligations for purchase transactions in one market with sales proceeds from another.

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