On this version, we speak about SEBI’s actions to curb fairness derivatives buying and selling in addition to its selections to approve a brand new funding product and simpler norms for passive funds. We additionally speak concerning the challenges Tata Electronics and Samsung Electronics are going through and the doable influence on India of rising geopolitical tensions.
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Habit is simple to accumulate and arduous to kick. And that is true for any dependancy—whether or not seemingly innocent ones like your morning cup of espresso to extra dangerous decisions like nicotine and narcotics.
Why are we speaking about dependancy? No, it’s not due to Delhi Police seizing cocaine value about Rs 6,500 crore within the nationwide capital’s greatest drug bust or the rising drug abuse in India—though these are issues of grave concern.
We’re speaking about dependancy of a special form—futures and choices buying and selling. Certainly, F&O buying and selling has grow to be closely addictive in India, particularly amongst younger individuals within the post-pandemic inventory market bull run over the previous 4 years.
And like different addictions, F&O buying and selling has had main dangerous results, as common readers of this text would know.
Actually, simply final week, we wrote concerning the Securities and Alternate Board of India’s research that confirmed particular person F&O merchants suffered a complete lack of Rs 1.8 trillion over the past three fiscal years and that 93% of particular person merchants misplaced cash.
SEBI and lots of market observers have been elevating concern over the exponential progress in buying and selling of derivatives that the legendary investor Warren Buffet calls “monetary weapons of mass destruction”. Whereas many individuals have equated F&O buying and selling with playing, Dhirendra Kumar—founding father of mutual fund analysis web site Worth Analysis—has even referred to as it “theft”, highlighting the income that institutional buyers and likewise merchants made on the expense of particular person merchants.
This week, the capital markets regulator lastly cracked the whip to curb F&O buying and selling.
So, what precisely has SEBI finished?
For starters, SEBI has raised the minimal buying and selling quantity from Rs 5 lakh to Rs 15 lakh to Rs 20 lakh. It has additionally lowered the variety of weekly choices contracts obtainable to commerce for buyers to at least one per trade, efficient Nov. 20. Presently, each the BSE and the NSE supply a number of weekly choices contracts.
Mainly, the regulator has raised the entry barrier for fairness derivatives buying and selling and made it extra pricey to commerce.
Individually, SEBI has requested the BSE and the NSE to extend their danger administration measures for fairness derivatives and directed them to extend the collateral for these contracts.
What would be the influence of SEBI’s measures? To start with, the BSE and the NSE in addition to brokerage corporations will likely be hit as buying and selling volumes will fall. Already, BSE has determined to scrap weekly spinoff contracts linked to the Bankex and Sensex 50 indices. This implies it should retain solely contracts linked to the 30-stock Sensex.
However will SEBI’s actions assist F&O merchants change course and kick the behavior? We gained’t take a punt on that!
Weigh the Dangers
F&O wasn’t the one merchandise on SEBI’s agenda this week. The capital markets regulator additionally accredited a brand new asset class—or moderately a brand new funding product—for buyers that can allow them to take larger dangers through a regulated product.
The SEBI board accredited a proposal to permit asset administration firms to supply derivatives methods, akin to long-short fairness, to buyers with a better danger urge for food with a minimal ticket measurement of Rs 10 lakh.
This new funding product is actually positioned between mutual funds, the place the minimal funding quantity is simply Rs 500, and portfolio administration companies, the place the minimal threshold is Rs 50 lakh.
SEBI, nonetheless, additionally put some safeguards for the brand new product. It mentioned that these merchandise can’t take any leverage and might’t put money into unlisted and unrated devices past these already permitted for mutual funds.
In different key selections, SEBI launched a liberalised MF Lite framework for passively managed mutual funds with a view to decrease compliance necessities, increase competitors, and facilitate entry for much less dangerous schemes. The regulator mentioned that MF homes can now hive off passive funds underneath a separate entity with decrease capital and fewer regulatory necessities.
SEBI additionally eased guidelines for firms trying to elevate funds through rights points to present shareholders and determined to widen its trial of same-day settlement for buyers from the highest 25 shares presently to the highest 500 shares by market cap.
Ought to MF buyers put their cash within the new asset class? We are able to’t inform you both manner, no less than not till fund homes launch such merchandise. Even then, as we all the time say, perceive your risk-taking skill and persist with your asset allocation.
Manufacturing Woes
Transferring on to different information, the federal government’s ‘Make in India’ programme accomplished a decade final week. Whereas the federal government says the programme has helped to spice up the manufacturing sector, there are a number of arguments on the contrary. For one, the share of producing within the India’s gross home product has remained stagnant over the previous decade at 17.3%, in line with the federal government’s personal knowledge. Extra worryingly, the share of producing in whole employment slipped to 10.6% in 2022-23 from 11.6% in 2013-14, knowledge from the Reserve Financial institution of India present.
Now, we gained’t deliberate on the explanations behind manufacturing’s lower-than-expected efficiency however two current cases spotlight the problem the sector faces.
Late final week, a Tata Electronics plant in Tamil Nadu that makes parts for Apple Inc.’s iPhones caught hearth. Whereas no worker suffered any severe accidents, the hearth compelled the corporate to droop manufacturing.
The Tata Group firm is without doubt one of the main suppliers for Apple in India, together with Taiwanese big Foxconn, and is crucial to the US tech firm’s makes an attempt to diversify its provide chain away from China. However the hearth may hamper these efforts, extra so as a result of it comes proper forward of the festive season.
Whereas Tata Electronics is trying to resume partial manufacturing, South Korean electronics big Samsung is going through a special problem. For the previous one month, over 1,000 of the 1,800 staff at Samsung’s Tamil Nadu manufacturing facility have been on strike demanding greater wages and recognition of a union.
The strike has continued even after Samsung warned that it will hearth the placing staff. The scenario worsened this week when police detained greater than 900 staff for organising a avenue protest, earlier than releasing them a day later.
As India enters the festive season, resolving the strike is essential for Samsung because the manufacturing facility makes TVs, fridges, and washing machines, and accounts for nearly 20% of the corporate’s India income.
Geopolitical Tensions
Speaking concerning the festive season, what may spoil the vacation temper this yr is the flaring up of tensions within the Center East after Israel launched a floor offensive in Lebanon and Iran fired dozens of missiles at Tel Aviv.
How does rising stress within the Center East have an effect on India? Properly, for one, 1000’s of Indians stay and work within the Center East, largely within the UAE and Saudi Arabia but additionally in different international locations together with Israel.
Additionally, fears of an escalating battle pushed crude oil costs 5% greater on Thursday, taking year-to-date good points to eight%. To make certain, oil costs are nonetheless about 10% decrease from a yr in the past, however any additional rise in tensions may push crude greater. That may have multiplier results internationally together with in India, which imports greater than 80% of its crude oil wants.
Larger oil import payments may even push up inflation, negating the efforts of the Reserve Financial institution of India and different main central banks over the previous few years. This, in flip, may immediate the RBI to suppose twice earlier than slicing rates of interest. The US Federal Reserve, in the meantime, is broadly believed to be course for a second fee minimize in November, though opinion is split whether or not it should scale back charges by 25 foundation factors or go for a 50-bps discount once more.
One other influence of geopolitical tensions is rising demand for safe-haven belongings just like the US greenback. This, in flip, will put strain on the rupee, which is already close to all-time lows. A weaker rupee will push up India’s export invoice additional. All these worries weighed closely on buyers in direction of the tip of the week, pulling the inventory markets sharply decrease.
Market Wrap
Broader markets slumped this week, damage by geopolitical tensions and SEBI’s F&O curbs. The 30-stock Sensex in addition to the 50-stock Nifty slipped greater than 4.5% every within the holiday-shortened week—markets have been closed Wednesday for Gandhi Jayanti.
Solely a handful of Nifty shares managed to defy the pattern and ended within the inexperienced. These included JSW Metal and Infosys.
Index heavyweight Reliance Industries led the decline, falling virtually 9% throughout the week. Lenders akin to Shriram Finance, Axis Financial institution, Bajaj Finance and Bajaj Finserv have been among the many main losers and sank greater than 7% every.
These have been adopted by auto shares akin to Hero MotoCorp, Bajaj Auto, Eicher, Maruti Suzuki and Tata Motors, which all fell greater than 6%. Different shares that misplaced greater than 5% throughout the week included BPCL, Asian Paints, Tata Shopper, Apollo Hospitals and engineering big Larsen & Toubro.
Different headlines
- India’s manufacturing output progress in September slows to eight-month low: PMI knowledge.
- India’s infrastructure output falls by 1.8% in August, first contraction since February 2021.
- India’s present account deficit widens to $9.7 billion in April-June from $8.9 billion yr in the past.
- India’s fiscal deficit throughout April-August reaches 27% of full-year goal.
- Govt collects Rs 1.73 trillion in GST in September, up 6.5% yr on yr.
- Govt appoints Ram Singh, Saugata Bhattacharya and Nagesh Kumar to RBI’s financial coverage committee.
- RBI says seen irregularities in gold mortgage business, asks lenders to take correction motion.
- RBI knowledge present banks’ mortgage progress moderated in August amid slowdown in bank card debt.
- Dabur forecasts drop in income for July-September quarter.
- Marico tasks excessive single-digit income progress in July-September quarter.
- Anil Ambani-led Reliance Group to construct photo voltaic, hydro tasks in Bhutan.
- Vardhman Group’s 82-yr-old chairman SP Oswal duped with pretend Supreme Court docket listening to.
- Bharti Airtel pays Rs 8,465 crore to partially settle 2016 spectrum dues.
- Tata Energy to take a position Rs 1.2 trillion in renewable power in Rajasthan over 10 years.
That’s all for this week. Till subsequent week, completely satisfied investing!
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