Daily Market Update – Oct 26th 2020

unnamed Daily Market Update   Oct 26th 2020

The Karnataka High Court has asked Franklin Templeton not to wind up the six funds without getting the prior consent of the unit holders. On April 23rd, Templeton had summarily shut down 6 schemes with AUM of over Rs.28,000 crore due to illiquidity issues. The actual reason for the winding up was a bunch of bad credit decisions where the funds had invested heavily in low quality debt instruments. The Court has observed that it was open to the idea of the trustees obtaining consent of the unit holders and taking further action. Templeton plans to take up the order from a legal perspective.

In a week that markets bounced back sharply, frontline stocks drove the Sensex above 40,600 and the Nifty above 11,900. During the week ended 23 October, six out of the ten most valuable companies on the NSE added Rs.86,684 in terms of market capitalization. The week clearly belonged to the banks after the stellar results of HDFC Bank. It was the top gainer adding Rs.20,199 crore to its market. Meanwhile HDFC added another Rs.18,147 crore to its market cap while Bharti Airtel added Rs.17,894 crore in value. Among other gainers, ICICI Bank added Rs.14,415 crore to its market cap while Kotak Bank added Rs.9204 crore. The big value loser was Reliance giving up Rs.42,567 crore followed by TCS losing Rs.28,437 crore. The declines in Hindustan Unilever and Infosys were much smaller in context.

Foreign portfolio investors or FPIs infused funds aggressively in the week bringing in more than $1 billion in 5 trading sessions. In the month of October so far, the FPIs have infused a total of Rs.17,749 crore. While the equity segment saw inflows of Rs.15,642 crore, the debt segment also saw inflows to the tune of Rs.2107 crore during the month. The much better than expected corporate results so far have been instrumental in the resurgence in FPI interest in Indian equities. Apart from the quarterly results, the RBI emphasis on sustaining the accommodative monetary stance has also revived FPI confidence in India.

With the India Energy Forum likely to attract some of the biggest oil names from the OPEC countries, the government expects oil investments to the tune of $206 billion coming into India in the next 8 years. This would include an investment of nearly $67 billion in gas infrastructure including LNG capacity, pipelines and CGD networks. Apart from OPEC members, global oil giants like Total, Shell and Exxon have also evinced interest in investing in India. Oil exploration and production is expected to see total investments of $59 billion while $80 billion is expected to be invested in refining and marketing of oil.

The government will seek parliamentary approval for Rs.37,000 crore additional spending on infra projects. This would include major infrastructure projects including roads, defence, water supply and urban development. This includes the Rs.12,000 crore 50-year interest free loans to states to invest in infrastructure. This will come from supplementary grants as it is over and above Rs.413,000 crore approved in the Union Budget. The government is now betting on the multiplier effect of infrastructure investments as a potential catalyst to revive growth. GDP in FY21 is expected to contract by -10.5%.

It now looks quite likely that the LIC IPO may spill over to the next fiscal with just about 5 months left for this fiscal year to end. The government was counting on LIC divestment to meet half of its ambitious disinvestment target of Rs.210,000 crore for FY21. The government is not keen to jump into an IPO without getting an independent actuarial valuation for LIC. The process will have to begin with statutory amendments to the LIC Act since it is a corporation formed under statute of Parliament. Modifications pertain to dividend payments and asset allocation. While the original plan was to sell 10% stake in LIC, now the government may even be open to selling a larger stake subject to the valuation. Apart from the insurance business, where LIC is the leader, it also has subsidiaries and real estate assets to be valued.

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