Midnight News Update – Sep 08th 2017
Mutual Fund AUM has for the first time in its history crossed the $300 billion mark. The AUM has, in fact, growth by over 100% in the last 3 years as Indian investors have increasingly shifted towards equities. Interestingly, the share of retail investors in mutual funds AUM has increased from 45% to 48% on a YOY basis. Recently, SEBI permitted mutual fund AMCs to charge a higher expense ratio if the mutual fund cult was being spread beyond the top-15 centres. That has also helped the growth in AUM. On the equity front, a chunk of the retail money is still coming through the SIP route, which is positive.
The CII members have complained that the GST has become a major business dampener for the business community with consistent network issues and the plethora of taxes and filings complicating the matter further. In fact, the GST cut-off dates for a variety of activities have been consistently extended due to a mix of logistic and technology related issues. The CII has also complained to the Finance Minister about the disruption in the regular business due to the high focus on compliance. GST is a complex process and requires 37 returns to be filed per year for each operating location.
SEBI is seriously considering making physical delivery mandatory for stock futures. Currently, all stock futures are cash settled and can either be reversed or they can be left to expire on the last date. SEBI has also sought the views of the stakeholders in the F&O segment to gauge whether it would be a better idea to introduce physical settlement in stock options first followed by stock futures. This is part of SEBI’s broader effort to de-toxify and reduce the risk of trading in derivatives. Stocks futures have become very popular India due to the trader’s familiarity with the erstwhile “Badla” product.
Deputy Governor of the RBI, Dr. Viral Acharya, is of the view that the deposit franchise of the smaller PSU banks should be sold off to the private banks as these stressed banks are running out of options. Dr. Acharya also referred to the limited utility of the government’s Indradhanush plan to recapitalize the stressed banks with capital to the tune of Rs.70,000 crore. According to Dr. Acharya, a solution to the problem of high Gross NPAs cannot be addressed with a gradual approach as credit growth will continue to be constrained till that point. Of course, convincing the bank unions may be the key challenge!
The Supreme Court has already given a very clear message to the borrowers that they must stop trying to dictate terms to the lenders and they need to cooperate in following the letter and spirit of the law. The case came into limelight when ICICI Bank had initiated insolvency proceedings against Innoventive Industries after they had defaulted on their dues to the bank. The company had challenged the order in the Supreme Court objecting to the bankruptcy proceedings as other options had not been exhausted. However, the Supreme Court held the case in favour of the lenders. Both the Supreme Court and the NCLAT are in agreement on this matter. However, sceptics are worried that this ruling may force lenders to become more trigger-happy and initiate insolvency proceedings without exploring other options.
BP and Reliance Industries are closing in on a gas field off the Bay of Bengal, which is located close to a military missile launching facility on the Bay of Bengal. The recent reforms including permitting the oil companies greater freedom in pricing oil and gas will be positive for RIL. Ironically, India’s gas consumption is rising even though production of gas has been consistently falling over the years. Massive investments by RIL, BP and ONGC are likely to boost annual gas production by over 70%. The only concern in the Mahanadi basin could be the proximity to the Chandipur missile area.
