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Sebi chief Ajay Tyagi says the disconnect between financial markets, real economy a global phenomenon

Capital markets regulator Sebi chairman Ajay Tyagi on Thursday acknowledged the systemic risk concerns raised by the RBI and Financial Stability Board over a disconnect between financial markets and the real economy, but said that this is a global phenomenon.

He said the heavy fall in markets, followed by quick gains on the equity benchmarks since the onset of the pandemic is the sharpest V-shaped recovery in the last 30 years. ”Typically, stock markets have been the barometers of the economy and move in the direction in which the economy moves or is expected to move. However, after the onset of pandemic, several institutions including FSB and RBI have raised concerns of an increasing disconnect of financial markets with the real economy and a possible risk it may pose to systemic stability,” Tyagi said. ”It is not just India which has been witnessing such unprecedented market movements, but similar trends have been there across many global markets i.e. movements one can clearly attribute to effects arising out of the pandemic and the efforts to tackle the pandemic,” Tyagi said, speaking at an NISM event.

It can be noted that in the last few months, a slew of concerns have been raised about the disconnect wherein the markets have rallied by over 80 per cent from the lows of April post a sharp correction following the declaration of the pandemic, even as the economy went into a contraction zone.

In the Financial Stability Report, RBI Governor Shaktikanta Das flagged risks to overall financial stability and asked lenders to be cautious about the same.

According to some experts, a liquidity glut induced by economy-boosting measures taken by countries following the pandemic has resulted in the surge in markets.

Tyagi on Wednesday said the pandemic has been rare and catastrophic, and has led to never-before jump in volatilities. The volatility index has come down in the last few months, but continues to be higher than five year averages.

He said a defining trend in FY21 has been the direct retail play in the markets, which has seen an increase in both the number of demat accounts and also investments by individuals. Corporates have adopted a newer way of working, with annual general meetings and board meetings being held online.

Tyagi said there is a possibility of many of these new practices continuing even after the end of the pandemic, but said issues over confidentiality and security on virtual board meets will have to be assessed going ahead.

He also pondered whether shareholders are getting adequate time to pose their questions at the annual general meets.

Tyagi welcomed the focus on environment, social and governance themed investing and added that Sebi is looking at introducing newer regulations for having more granularity in disclosures.

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Inflow in Gold ETFs surges 45 pc to Rs 625 cr in January

Investors put in Rs 625 crore in gold exchange traded funds (ETFs) in January, 45 per cent higher than the preceding month, on expectation that the yellow metal will perform well going forward.

The inflow pushed the asset base of gold funds by 22 per cent to Rs 14,481 crore at the end of January from Rs 14,174 crore at the end of December, data available with Association of Mutual Funds in India showed.

After witnessing a net outflow of Rs 141 crore in November 2020, the Gold ETF category is once again back under investors’ radar. While it received a net inflow of Rs 431 crore in December, the net inflow in January was even higher at Rs 625 crore.

Himanshu Srivastava, Associate Director Manager Research, Morningstar India said the gold prices have come-off its all-time highs touched in August last year. The month of January also saw fair bit of correction in its prices.

“This, along with expectation that gold may do well going ahead provided a good buying opportunity to investors, which resulted in net inflows for the category in January,” he added.

Barring March and November, such instruments had seen a net inflow in the entire 2020. Gold ETFs had attracted Rs 6,657 crore last year, much higher than just Rs 16 crore inflow seen in 2019.

According to Srivastava, gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal, as has been evident since 2019.

From January 2019 till January 2021, the category has received a robust net inflow of Rs 48,159 crore.

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Mahindra & Mahindra shares hit 10% upper circuit as investors react to positive Q3 results

Mahindra & Mahindra’s (M&M) share price soared 10% to hit the upper circuit on Monday morning. The up-move in the stock came just days after the company reported its fiscal third-quarter earnings where the company reported a 40% on-year jump in net profit. Revenue of the firm stood at Rs 14,057 crore, up 16% from the same period last year. Domestic brokerage firms see positives in the company’s results with many increase their target price for the stock by as much as 20%. Shares of the company were currently trading at Rs 924 per share.

Positives up ahead

Analysts at Motilal Oswal said that M&M’s third-quarter performance was driven by good performance in both, Tractors as well as Autos businesses. “Furthermore, it has guided for an almost 90% reduction in international subsidiary losses in FY22E, driven by the completion of phase-1 of the capital allocation exercise,” they added. The brokerage said that M&M is the best rural proxy. “MM has one of the highest exposures to the rural markets (~65% of volumes), which would likely be less impacted by the on-going COVID-19 disruption. According to our estimates, rural markets should contribute over 60% to revenues, ~80% to core PAT, and ~70% to SOTP in FY22E,” they added.

So far in February, the stock price has jumped a massive 22%. Domestic brokerage and research firm Prabhudas Lilladher said that M&M has a sharp focus and execution on capital allocation to help prioritise investments and returns. Further, the company’s focus beyond tractors is also being noted as a positive. The move has so far resulted in farm machinery revenues growth of 48% on-year in the current fiscal, according to Prabhudas Lilladher. The report highlighted that M&M has the lowest system stock since the first quarter of fiscal 2018 both in tractors and Auto segment.

Management’s words

M&M’s management y expects the industry to log ~20% on-year growth in the tractor segment in the current fiscal year. Current production run rate for Thar is at nearly 3,000 units per month and would be ramped up to 4,000 units per month by April-May, the management said. Cumulative bookings as of date are at over 39,000. Further, they added that the SsangYong deal is moving forward, but toward the PrePackage scheme and not the ARS scheme under the bankruptcy court.

Target price

ICICI Direct expects sales, adjusted PAT to grow at 20%, 40% CAGR, respectively, in FY21E-23E. The brokerage firm has increased its target price to Rs 1,000 per share. Prabudas Lilladher has raised target multiples of core business to 18x (from 16x) to factor in faster than expected turnaround in subs, while the target price has been increased to Rs 1,011 per share. Analysts at Motilal Oswal have a target price of Rs 1,040 per share. HDFC Securities has the most modest upgrades with an ‘Add’ rating and a target price of Rs 880 apiece.

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Future group stocks hit lower circuit after Sebi bans Kishore Biyani and other promoters from capital markets

Most of the Future group shares have hit their respective lower circuits on Thursday, after the capital market regulator Sebi banned Kishore Biyani, along with certain other promoters of Future Retail Ltd from the capital market for one year for indulging in insider trading in the shares of the company. Future Consumer Ltd shares hit 5 per cent lower circuit at Rs 7.80, Future Enterprises Ltd at Rs 11.15 apiece, Future Market Networks Ltd at Rs 19.95 apiece, Future Lifestyle Fashions Ltd at Rs 83.95 apiece, Future Retail at Rs 74.20 apiece and Future Supply Chain Solutions Ltd at Rs 95.15 apiece.

AR Ramachandran, Co-founder & Trainer, Tips2Trade, told Financial Express Online that the current development of Sebi announcing a one year ban on Kishore Biyani in securities market along with the legal tangle they find themselves in with Amazon has led to a breakdown in the faith of investors leading to a sharp sell-off in the Future group stocks. “Investors are best advised to look for every opportunity to exit these stocks and invest in better and more stable retail stocks like Avenue Supermarts (DMart) and V-Mart Retail Ltd for better returns,” Ramachandran said.

Sebi has also imposed a fine of Rs 1 crore each on Kishore Biyani, Anil Biyani and Future Corporate Resources. Apart from this, they have been asked to disgorge Rs 17.78 crore for the wrongful gains made by them. In comparison, BSE Sensex was trading 117 points or 0.23 per cent up at 50,373, while the Nifty 50 index was trading 45 points or 0.30 per cent at 14,835.

Moreover, Future Corporate Resources and FCRL Employee Welfare Trust have been directed to disgorge Rs 2.75 crore for the wrongful gains made by it. Anil Biyani and Future Corporate Resources are promoters of Future Retail Ltd. The market regulator had also conducted an investigation in the shares of Future Retail Ltd to ascertain whether certain persons and entities had traded during March 10, 2017, to April 20, 2017 period on the basis of Unpublished Price Sensitive Information (UPSI) pertaining to segregation of certain business of the firm.

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