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Sebi bars Allegro Capital, individual for insider trading activities in Biocon shares

Sebi has barred Allegro Capital and one of its senior executives from the securities market for one year in a case related to alleged insider trading activities in the shares of Biocon. Besides, the market watchdog has directed them to disgorge wrongful gains along with interest. The amount would be more than Rs 24 lakh.

Allegro Capital and its director as well as major shareholder Kunal Ashok Kashyap have been fined Rs 10 lakh each, according to an order by Sebi dated July 8. They also have to jointly and severally disgorge Rs 24,68,751 along with an interest of 12 per cent per annum from January 19, 2018, till the date of actual payment.

The regulator noted that Allegro Capital was in a temporary business relationship with Biocon and that Kashyap also held directorship in Mazumdar Shaw Medical Foundation. On January 18, 2018, Biocon had announced an exclusive global collaboration with Sandoz on next generation biosimilars.

Sebi had observed that shares of the company rose 5.6 per cent at close on the day after the announcement. Later, the regulator initiated a probe to ascertain whether certain persons/entities have traded in the scrip of Biocon while they were in possession of Unpublished Price Sensitive Information (UPSI) and were in violation of Sebi norms.

Based on the chronology of events leading up to the corporate announcement, it was alleged that the UPSI period was from December 4, 2017, to January 18, 2018, the order said quoting the showcause notice sent to Allegro Capital and Kashyap.

Kashyap had submitted that by resorting to his independent directorship in Mazumdar Shaw Medical Foundation and by making reference to Allegro Capital where Arun Chandavarkar (then CEO and Joint MD) and Kiran Mazumdar Shaw, have their trading accounts, Sebi was clearly grasping at straws trying to conclude that he was a connected person.

“In this regard, it is observed that reliance on the aforesaid have been placed to show that the association of Noticee No. 1 (Kashyap) with senior management of the company is not merely in the capacity of an advisor on specific set of projects, but it goes beyond that where he not only serves on the board of the charitable foundation of the promoter of Biocon but also provides broking services to the promoter and the then CEO and Joint MD,” Sebi said in the order.

This shows that Kashyap is in frequent communication with the key managerial personnel of Biocon outside his contractual relationship with Biocon and also shows his proximity to the management of Biocon.

“The same makes Noticee No. 1 stand on a different footing as compared to other advisors, if any, contracted by Biocon. Therefore, Noticee no. 1 association with M/s Mazumdar Shaw Medical Foundation and Allegro Capital Advisors Ltd., where he is the majority shareholder are relevant factors as it establishes his relationship / connection with Biocon and/ or its management. “Hence, the submission of the Noticee No. 1 is untenable,” the order said.

Passing the order, Sebi Whole Time Member Madhabi Puri Buch said that even if, the noticees (Kashyap and Allegro Capital) were bullish with respect to Biocon’s scrip in the long term, the sudden spurt/ jump in volume shown by them during UPSI period has not been justified by them.

“To put it differently, noticees may have been bullish about Biocon but because of the UPSI, their purchases in the scrip of Biocon were advanced as they wanted to buy it before the price starts to increase after the publication of the announcement.

“Thus, the trigger for buying irrespective of the long term bullish view was on the basis of UPSI. Therefore, it is held that the noticees have dealt in the scrip of Biocon on the basis of UPSI and hence have violated Section 15G(i) of Sebi Act,” the order noted.

Section 15G pertains to insider trading.

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Sebi levies nearly Rs 23 lakh fine on 16 entities

Markets regulator Sebi has imposed a total fine of nearly Rs 23 lakh on 16 entities for violation of market norms while dealing in the scrip of Timbor Home Ltd.

The entities entered into off-market transactions without making the payment of considerations within the timeline as stipulated under the Securities Contracts Regulation Act (SCRA).

In another investigation conducted by Sebi in the scrip of Timbor Home between April 2014 – May 2015, 21 entities who were allegedly connected and had allegedly acted in concert as part of a scheme to plant unsolicited and misleading advice, recommending purchasing the company’s shares to induce unsuspecting investors to buy the scrip and thereafter offloading a large number of shares in the secondary market pursuant to such misleading recommendation.

The modus operandi included the off-market transfer of shares of Timbor Home by certain promoters of the company to other connected entities and in turn, the connected entities sold the shares in the market.

Analysing the data regarding off-market transactions, Sebi noted that the off-market dealings of the entities in the scrip of Timbor Home were not in conformity with the SCRA norms.

Besides, certain entities also failed to furnish the information sought by the regulator.

For violation of market norms, the 16 entities are facing a fine in the range of Rs 1 lakh to Rs 2.2 lakh.

In a separate order, Sebi has warned Shri Parasram Holdings Pvt Ltd “to exercise caution, care and due diligence in its future conduct as a stockbroker in all its dealings with its clients and to ensure compliance with the applicable laws at all times in future”.

The order came after Sebi inspected the books of accounts and other records of the broker for the period April 1, 2012, to January 20, 2014, to verify whether it had complied with the regulator’s circular.

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IndiGo, SpiceJet share prices surge up to 5% after Civil Aviation Ministry increases flight capacity to 65%

IndiGo, Spicejet and other airline share prices surged up to 5 per cent on BSE on Tuesday, a day after the Ministry of Civil Aviation raised the flight capacity allowance to 65 per cent. Analysts say even though the aviation ministry increased flight capacity to 65 per cent, rising fuel prices, slack monsoon period and fear of an impending third Covid-19 wave could dampen the upward momentum for airline stocks. Barring Jet Airways share price, which hit a 5 per cent lower circuit at Rs 108.45 apiece, all the airline stocks were trading in green.

InterGlobe Aviation shares surged 3 per cent, Spiecejet nearly 4 per cent, Global Vectra Helicorp 5 per cent and TAAL Enterprises 4.3 per cent. In comparison, BSE Sensex was up 78 points at 52,958 levels. The Civil Aviation ministry in its tweet said considering the increasing passengers’ demand for domestic air travel, the capacity of domestic civil aviation operations will be increased to 65 per cent from 50 per cent from the date of issue of this order and upto 31.07.2021 or until further orders. “Technically, IndiGo share price faces strong resistance at Rs 1,813. Similarly, SpiceJet faces strong resistance at Rs 84. Close above these levels only could trigger a strong up move,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told Financial Express Online.

The airline stocks have witnessed a rebound with partial resumption of travel and amid mass vaccination drive. The recent increase in flight capacity from 50% to 65% may further add some tailwind, said an analyst. “However, it’s an industry we would like to avoid considering a potential third wave. Not to mention that barring Interglobe Aviation, there was no comfort on the fundamentals front in aviation stocks in the pre-pandemic period. The stock of Interglobe Aviation is close to its lifetime high, touched in the year 2019, offering no valuation comfort,” Richa Agarwal, Senior Research Analyst, Equitymaster, told Financial Express Online.

Carriers have been operating with only 50 per cent of their pre-COVID domestic flights since June 1 in accordance with a May 28 order of the ministry. The May 28 decision to bring down the cap from 80 to 50 per cent was taken on the back of a sudden surge in the number of active COVID-19 cases across the country, decrease in passenger traffic and the passenger load (occupancy rate) factor.

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PSU stocks turning value creators after a decade of underperformance; Edelweiss bets on these shares

Listed public sector companies may now be turning the page, after a decade of underperformance, to emerge as attractive investment opportunities. Domestic brokerage and research firm Edelweiss believes that as the environment turns reflationary and valuations remain at a discount, the fortunes of PSU stocks could change. “PSUs have been value traps in 2010s (flat for decade) in stark contrast to being value creators in 2000s (10x in 10 years),” Edelweiss Securities said in a note. PSU stocks underperformed during the previous decade due to ballooning debt and hurt by the government’s pro-cyclical fiscal policy.

What’s changing for PSU stocks?
Moving away from the deflationary trend could benefit the PSU stocks. “With commodity price rally broadening now to oil prices and demand recovery underway, it augurs well for PSU profitability and stock performance. Historically, during commodity price rise, PSU stocks have delivered very strong returns, with their earnings tending to do better than that of Nifty,” they said. Further, PSU companies’ capex may have peaker, according to Edelweiss. Capital work in progress (as % of gross block) seems to have peaked out and is now trending lower, suggesting a lot of assets now coming on stream. “With capex cycle peaking and improving cash flows, there is significant deleveraging potential for equity investors. Thus, PSUs present large operating and financial leverage potential to capitalise on the changing macro environment,” they added.

PSUs, except banks, could also get an edge for operating in oligopolistic sectors. In most industries (ex-banks), their elevated market shares have remained broadly intact. Hence, changing environment can quickly lead to a bounce in these franchises,” the note said. PSUs have 83% market share in the coal sector, 88% in fuel retailing, 40% in power transmission, and 75% in oil exploration.

To top it all PSU stocks are available at attractive valuations. Currently, PSUs (ex-financials) are trading at a record 60% discount to Nifty. Edelweiss highlighted in 2011 these traded at a mild premium. “While we are far away from the business cycle vibrancy seen in 2011, we believe such large valuation discount for strong franchises (as most are present in oligopolistic industries) is unjustified,” Edelweiss said.

Investable themes
Edelweiss has classified PSUs into three categories; structural stories, cyclicals, and balance sheet improvement. Among the structural stories, the brokerage firm believes city gas distribution companies with the power of pricing and limited competition could benefit going ahead. Along with these, Container corporation is also seen as a structural story. “In India, the share of railway freight is significantly lower than that of roadways–one of the bottlenecks for manufacturing. However, things are likely to change on this front with the commissioning of the Western Dedicated Freight Corridor (DFC),” they added.

In the cyclical space, oil marketing companies are expected to benefit from strong refining and marketing margins. They added that marketing margins are currently on a structural upswing and current high levels should sustain. Further upstream oil and gas businesses such as GAIL and ONGC — both deep cyclicals are believed to offer value at current prices.

Banking on improvement in balance sheets, Edelweiss Securities has picked utilities as the cheapest way to play industrial recovery. Banks have also made the cut in this theme as analysts expect a turning corporate cycle to benefit PSU banks with their strong buffers.

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