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Returned Rs 17,777 cr to investors of 6 shuttered schemes: Franklin Templeton MF

Franklin Templeton Mutual Fund (MF) on Thursday said it has returned Rs 17,777 crore to unit holders of six shuttered debt schemes till June 15. This amounts to 71 per cent of assets under management (AUM) as on April 23, 2020, when the fund house shut its six debt mutual fund schemes citing redemption pressures and lack of liquidity in the bond market. Further, cash to the tune of Rs 580 crore was available for distribution as on June 15, Franklin Templeton MF said in a statement.

The schemes — 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 — together had an estimated Rs 25,000 crore as assets under management (AUM).

“The schemes have returned Rs 17,777.59 crore to unitholders amounting to 71 per cent of AUM as on April 23, 2020,” the fund house said.

Under the first disbursement in February, investors received Rs 9,122 crore, while Rs 2,962 crore were paid to investors during the week of April 12, Rs 2,489 crore in the week of May 3, and in the latest disbursement during the week of June 5, investors were paid Rs 3,205 crore.

In March, the Supreme Court accepted the standard operating procedure (SOP) finalised by SBI Mutual Fund to monetise assets and distribute the proceeds to unitholders of the six debt schemes of Franklin Templeton MF. SBI MF has been appointed as the liquidator for the schemes under winding up by the Supreme Court.

Last week, Sebi barred Franklin Templeton from launching any new debt scheme for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the case of winding up of six debt schemes in 2020. Also, it was asked to refund investment management and advisory fees of over Rs 512 crore (including interest) collected with respect to the six debt schemes. This amount will be used to repay unitholders, as per Sebi order.

Sebi had found several irregularities in the running of the schemes, which impacted the interests of unitholders and the asset management company violated provisions of mutual funds norms.

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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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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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