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Sustainable investing: Why investing in ethically sound companies is a trend that is here to stay

Amidst the COVID-19 crisis, and an increasing concern over climate change and other environment-related challenges, the consideration of Environmental, Social & Governance (ESG) factors while making investment decisions is gaining traction.

In India, certain investors consider the ethical aspect of what they are channelling their capital into – often, this process involves negatively (or exclusionary) screening of certain companies engaging in tobacco, alcohol, or arms, for example. With increasing investor awareness over time, there appears to be a shift towards a more inclusionary approach to investing. This approach has come to involve positive screening with a primary focus on ESG factors, such as funds with exposure to renewable energy and eco-friendly transport.

Thematic indices such as the NIFTY100 ESG index and the NIFTY100 Enhanced ESG Index are designed the reflect the performance of companies within the NIFTY100 index that have an ESG score and steer clear of businesses engaged in tobacco, alcohol, controversial weapons and gambling operations. These indices beat the NIFTY50 benchmark consistently from 2012-2018, bringing to the forefront the idea that companies that effectively manage ESG challenges are generally more sustainable in the long-run, and can offer a better risk-adjusted performance.

Interestingly, COVID-19 has fostered a rising concern for the environment amongst Indian investors. According to a Morningstar report, sustainable funds in India have brought in upwards of $500 million from January to March 2020. The report also speaks of the “stickiness” of these funds. Since investments made in these funds are driven by the ESG values that investors firmly believe in for the long-run, they are more likely to stay invested even in times of poor performance, translating into a fascinating resilience in times where other funds are seeing unprecedented volumes of sell-off.

The millennial generation is vast, with 426 million millennials in India alone, almost 34% of the country’s population. This generation is more conscious of these factors and could pave the way for ESG investing to become a norm in subsequent years. Several American studies have shown that millennials have a higher tendency to contribute to socially responsible activities. In line with this, more companies will be forced to incorporate ESG factors into their business processes to cater to this generation’s tendencies.

In India, ESG investing is still a fledgling industry. With only three schemes that have not delivered spectacular returns so far, ESG investing may not excite too many investors at the moment. However, ESG-based investing is a theme that we anticipate is here to stay. With investors and regulators alike coming to terms with the adverse impacts of climate change and unsustainable business practices, non-financial factors are coming to the forefront, and most companies will have to align to this or risk being uncompetitive.

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Bharti Airtel share price jumps over 2.5% on strong data subscriber base; Vodafone Idea shares fall

Bharti Airtel share price jumped over 2.5 per cent in the opening deals to Rs 426.30 apiece on BSE, a day after the Telecom Regulatory Authority of India (Trai) released the data. In July, Bharti Airtel added 3.26 million users and the mobile subscriber base of the telecom giant stood at 319.93 million. In today’s trade, the stock opened at Rs 420 and quoted day’s high of Rs 426.30 apiece, so far in the day. Analysts at Emkay Global Financial Services said that Bharti Airtel has already surpassed their Q2 expectations with a 4.4 million expansion in its data subscriber base despite VLR (visitor location register) subscriber base remaining flat sequentially.

In terms of wireless broadband users, which include 3G and 4G, the subscriber base of Bharti Airtel rose by 4.41 million to 153.25 million from 148.84 million in June. Research and brokerage firm Motilal Oswal Financial Services in its report noted that the number of wired broadband subscribers, after remaining flat for the past several years, improved at 6 per cent over April-July, 2020 (1.1 million subscribers added to 20 million). “However, Reliance Jio and Airtel surprisingly gained just 28 per cent share, while 70 per cent share was bagged by small fragmented players with market shares below 5 per cent,” said analysts at Motilal Oswal.

On the flip side, Vodafone Idea share price fell 2.5 per cent to Rs 8.48 apiece on BSE as it lost 3.72 million subscribers in July. At the end of July 2020, the mobile subscriber base of Vodafone Idea stood at 301.37 million. The telecom company also lost 1.18 million broadband users in July and its base declined to 115.26 million from 116.44 million in June.

VLR subscribers dipped slightly due to the declines in key circles such as Bihar, Rajasthan and Karnataka. “We estimate 2.5mn net adds for Q2, while they remained constant in July. However, the data subscriber base expanded by 4.4mn in July itself vs. our Q2 estimate of 4.3mn,” Emkay Global said. Vodafone Idea continued to see weakness, with net VLR subscriber base narrowing by 3.8 million. For the nine consecutive months, it has lost VLR market share (28.2% vs. 32% in July’19), Emkay added.

Airtel adds gross subscribers in July for first time since Feb 2020

For the first time in four months, Bharti Airtel has added gross subscribers in July 2020, adding 3.3 million gross subscribers to reach 320 million. “However, Bharti has maintained quality customers in line with its strategy, reflected in its market lead in MBB adds for the second straight month at 4.4m (i.e., 65% incremental market share),” said Motilal Oswal.

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China gains hoist Asian stocks to a two-year peak

Chinese stocks led Asian markets higher on Monday as investors bet on a steady recovery for the world’s no. 2 economy, though caution about the fate of U.S. stimulus kept the dollar firm and a central bank policy tweak unwound some of the yuan’s gains.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8% to 2-1/2-year highs, buoyed by a 2% gain in Chinese blue chips and a 1.5% rise by Hong Kong’s Hang Seng index. Japan’s Nikkei slipped 0.3% as investors fretted about corporate earnings.

“If capital is moving on relative growth rates, then China is looking quite attractive,” said Chris Weston, head of research brokerage Pepperstone in Melbourne. Equities are cheap, yields advantageous and the outlook solid, he said.

“From a virus perspective as well, we’re seeing concerns in Europe, while China is considered a quasi-safe haven.”China has returned from an eight day Mid-Autumn festival with investors encouraged by a robust rebound in tourism and ebbing coronavirus cases. Qingdao city said on Monday it will conduct COVID-19 tests for the entire population of more than 9 million people over five days after small number of new cases.

Elsewhere, in the U.S. midwest, infections are at record levels and the World Health Organization is urging fresh curbs for Europe. Coronavirus aid plans in the United States are also in disarray, with the Trump administration on Sunday calling on Congress to pass a stripped-down relief bill while talks on a more comprehensive proposal were again at an impasse.S&P 500 futures wobbled either side of flat in the Asia session, while European futures edged higher.

“The economic fallout of COVID-19 has accelerated the relative decline of the U.S. as the world’s economic engine,” said ANZ chief economist Richard Yetsenga. “It is also increasing the centrality of Asia – and particularly, of China.”Chinese blue chips have gained nearly 17% this year, compared with an almost 8% gain by the S&P 500. Foreigners’ buying of Chinese government bonds hit its fastest pace in more than two years last month.YUAN WOBBLESIn currency markets, a 0.4% drop in the yuan dragged the China-sensitive Australian dollar lower and underpinned small but broad gains for the dollar against other majors.

The People’s Bank of China has scrapped a requirement for banks to hold a reserve of yuan forward contracts, removing a guard against depreciation. Traders said that suggested authorities were discomfited by recent gains in the currency.

However the lack of an aggressively weaker setting of the onshore trading band cooled some of those concerns and the yuan pared losses a little.The yuan is up more than 7% since late May and had shot higher on Friday as investors wagered that a Joe Biden presidency would drive smoother Sino-U.S. relations.

It last sat at 6.7211 per dollar in onshore trade.”We continue to expect a stronger yuan on the back of our expectation of solid Chinese growth and favourable interest rate differentials between China and the U.S.,” Goldman Sachs’ analysts said in a note, with a 12-month yuan forecast at 6.50. The euro edged 0.1% lower to $1.1816 and the yen was broadly steady at 105.55 per dollar. The kiwi dipped 0.1% with the softer yuan to sit at $0.6661. In commodity markets, oil prices were back under pressure after the resolution of an oilworkers strike in Norway and the resumption of production after a storm in the Gulf of Mexico.

Brent crude futures slipped 0.9% to $42.48 a barrel and U.S. crude futures were down about 0.8% at $40.26.Gold held steep Friday gains at $1,927 an ounce as investors stuck with bets that U.S. stimulus would eventually arrive and drive inflation to the benefit of bullion.The U.S. bond market is closed on Monday for Columbus Day.

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SEBI mandates listed firms to disclose forensic audits to stock exchanges aim to improve transparency

SEBI has asked listed companies to disclose the initiation of forensic audits against them to stock exchanges, in a bid to ensure greater transparency, news agency PTI reported. The move comes weeks after SEBI’s board approved proposals regarding the same. Post this, companies listed on the stock exchanges in India are now required to make disclosures about the fact of initiation of forensic audit along with the name of the entity initiating such audit and reasons for the same. The move is aimed to increase transparency.

Additionally, SEBI’s new rule will also make it necessary for companies to inform the bourses about the final forensic audit report when the listed entity receives such a report. Firms have been allowed to post management comments along with such reports. “The move will create awareness among common investors about the company, its promoters and the usage of their hard earned money,” Neeraj Bhagat, of Neeraj Bhagat & Co; a Delhi-based Chartered Accountant firm had said earlier after SEBI’s board approved the proposal. The move is aimed at filling the gaps in availability of information. However, some market participants voiced concerns about the same, adding that some banks and non-bank lenders undertake such audits regularly when irregularities arise and should be exempted from making such disclosures.

Apart from the new disclosure requirements, the market regulator made changes in rules for listed companies, which list their non-convertible debt securities, with regard to maintenance of asset cover and intimation about documents to debenture trustees. According to the report, listed entities will now have to maintain 100% asset cover, or asset cover as per the terms of offer document, sufficient to discharge the principal amount at all times for the non-convertible debt securities issued. With this, SEBI has now removed the framework that said maintenance of 100% asset cover will not be applicable in case of “unsecured debt securities issued by regulated financial sector entities eligible for meeting capital requirements as specified by respective regulators.”

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