The Nifty was back at new highs as it closed 26 points higher at 11,387 backed by banking stocks. While banks like ICICI, Axis and SBI triggered the rally, the mid caps also rallied which was evident from the positive advance / decline ratio on both the stock exchanges. In fact, mid-caps showed traction with 47 stocks hitting 52-week highs on Monday. Stocks hitting new highs included GAIL, Graphite India, Page Industries, Havells, Alembic Pharma, VIP Industries, Torrent Pharma, Excel Crop Care etc. Focus is more on quality mid-caps for now. Mid Caps has been the worst hit since January this year.
HDFC AMC gets a bumper listing on the bourses and closes 65% higher on Monday. The stock never lost the momentum that it gained on listing and continued to hold value on the back of a surge in investor demand for the stock. The stock is already closing in on a valuation of Rs.50,000 crore or approximately 14% of its AUM. The stock is valued at more than twice the valuation of Reliance AMC if you compare them on a percentage of AUM bases. Of course, HDFC AMC has a much higher equity franchise, but even then the valuation does appear to be quite steep leaving little margin of safety for investors.
Britannia announces the issue of bonus debentures; may consider stock split. This is a unique instrument that is issued as bonus non-convertible debentures to shareholders in the ratio of 1:1 at a price of Rs.60 per NCD. The company is also planning a stock split to bring the stock price in an easier range. There is no payment to be made by shareholders as it is a bonus issue and this will add a debt component to the stock which will make it more attractive to conservative investors. The stock has already been one of the best performing FMCG stocks in India in the last one year.
Parliamentary Panel urges RBI to resume issue of LOUs and LOCs. The letter of understand (LOU) was issued by Indian banks to enable exporters to seek credit from foreign banks abroad on the strength of the LOU. However, these instruments were banned by the RBI after the $2 billion fraud by Nirav Modi came to light using the LOU facility. However, this has led to cost of credit for exporters going up by up to 2.5%. Nirav Modi hand his cohorts had created fake LOUs and duped the banking system by hacking the SWIFT password to create LOUs and had raised finance worth $2 billion against the same.
Mr. Uday Kotak has called for regulation of International Proxy Advisors. Proxy advisory firms (ISS and Glass Lewis) were in the limelight recently after they asked shareholders of HDFC to vote against the continuation of Mr. Deepak Parekh. Currently, global proxy advisory firms are not regulated either by SEBI or by the MCA. Global investors, predominantly institutional investors, avoid voting on local resolutions either to stay neutral or due to paucity of time. Such tasks are outsourced to the custodians who in turn rely on these proxy advisory firms for the job. Mr. Kotak’s contention was specifically with respect to the HDFC vote where Mr. Parekh managed to get voted through. In fact, Dr. Jalan had resigned ahead of the vote to avoid an embarrassment on the day of the vote.
Rupee cracks by 28 paisa to close the day at 68.88/$ in a fairly surprising move. The rupee fall was driven by a surge in US Dollar demand from Importers and banks on the back lf rising trade deficit, deepening trade wars and a steadily falling forex reserve position. The RBI recently reported $1 billion depletion in the forex reserves even as the RBI has been steadily selling dollars to stem the fall in the INR. The sharp fall in the INR was also driven by the trade deficit touching a high of $16.6 billion in the month of June and the likelihood of widening further in July.
