Daily Market Update – Nov 20th 2020

unnamed Daily Market Update   Nov 20th 2020

Reliance Retail Ventures concluded it’s fund raising from global PE funds. Till date it has raised Rs.47,267 crore by selling 10.09% stake to global PE and sovereign funds. This gives RRVL an overall valuation of Rs.468,500 crore; marginally lower than the value for the digital business of Jio Platforms. The investors in RRVL include marquee names like Silver Lakes, KKR, General Atlantic Partners, TPG, GIC Singapore, Mubadala, PIF and Abu Dhabi Investment Authority. Apart from GIC, all the other names had invested in Jio Platforms also. Unlike Jio Platforms, there has been no strategic investor in Reliance Retail.

While Vedanta appears to be one of the bidders in the fray for the 52.98% stake of the government in BPCL, the real question is about funding purchase. Apart from 52.98% stake of the government, BPCL will have to buy another 22.2% from the public to take their stake to 75%. However, that would entail a total investment outlay of Rs.75,000 to Rs.80,000 crore. While the payback can be worked out through dividends, the question is how Vedanta would fund this upfront. Assuming that Vedanta can sell down BPCL stake in IGL and PLNG, it would still need funding to the tune of Rs.53,000 crore entailing an annual interest outgo of nearly Rs.5,500 crore annually. Vedanta may not be heavy on debt but most banks have, in the past, raised serious questions about the extent of leverage of Vedanta’s parent company.

On Thursday, the Sensex fell by 580 points leading to a market cap wipe-down of Rs.140,000 crore in a single trading session. However, resistance at closer to 13,000 levels of the Nifty was expected after the frenetic 14% rally in less than 1 month. The immediate negative trigger was the surge in COVID cases in states like Gujarat and Rajasthan, raising fears of another round of lockdowns. Ahmadabad has already imposed night curfew and markets fear that things could just get worse. Rate sensitives like banks, financials and realty took it on the chin, although the NSE-VIX still remained below the 20 mark.

According to a report by Credit Suisse, the stressed debt of corporate India has come down sharply since the opening up of the economy. The share of debt in loss making companies is down from 30% to 23%. The stressed debt levels in companies like Tata Steel, SAIL and Bharti Airtel has fallen sharply. What is more gratifying is that the share of stressed with interest coverage below 1, has dropped to the lowest level in five years. Credit Suisse expects this to be value accretive for banks as the asset strain comes down. However, Vodafone, TAMO, Adani Power, Alok, GMR and MTNL still contribute to stress in banks.

Standard & Poor has lauded the prompt action by the RBI and the government in intervening to rescue the troubled Lakshmi Vilas Bank. RBI had asked DBS Bank Ltd, part of DBS Singapore, to take a controlling stake in LVB. This is the first time that a foreign bank, other than a PSU bank, has been called upon by the RBO to rescue a troubled bank. In the view of S&P, the speedy action by RBI has ensured that any systemic risk was avoided and the 1-month moratorium will pre-empt any fund outflows from LVB. In the last couple of years, LVB, PMC Bank and Yes Bank have been the big challenges for the RBI.

The CIO of Bajaj Allianz Insurance has pointed out that active mutual funds have consistently performed below par in recent times. For example, most large cap funds delivered 6-11% in the last 3 years compared to much better returns of 11-13% in the last 5 years. This has been largely due to the Kurtosis effect where the funds are not able to participate in specific outperformance stories due to ownership limitations under SEBI limits. The first signals are evident from the fact that nearly 4 million SIP accounts have been terminated in the last six months. If you leave out the top 2-3 funds, most have done worse than the Nifty, so most investors do feel they would have been better off in index funds. Despite the sharp rally in the Nifty since March, YTD returns on large cap funds are less than 5%. That is the catch.

Related Post

Add a Comment

Your email address will not be published.