Financial News

SEBI relaxes buyback regulation to enable the quicker raising of funds in times of the coronavirus pandemic. Currently, the buyback regulation disallows fresh raising of capital for a period of 1 year from expiry of the buyback period. SEBI has with immediate effect, reducing the 1 year period to 6 months applicable till Dec 31st 2020.

SEBI on April 30th gave a three-month extension till June 30 for liquid funds to comply with the requirement of holding at least 20% of their assets in liquid assets like cash and government securities.

SEBI had laid down an upper limit on the % of the unlisted debt that mutual fund schemes could hold. This limit was set at 15% of assets by 31st March 2020, to be further lowered to 10% by 30th June 2020. The regulator has now extended these deadlines to 30th September and 31st December 2020.

The Life Insurance Council of India released an update saying that all life insurers, public and private, are committed to processing any death claim pertaining to coronavirus (COVID-19) at the earliest. The Council also confirmed that the clause of ‘force majeure’ will not apply in case of COVID-19 death claims. "Force majeure" is a common clause in legal contracts that allows either party to limit their liability in the face of some unforeseeable, extraordinary event.

Health Insurance and Covid-19

1. For existing health insurance (HI) policy, then COVID-19 will be covered in the policy as per the directions of the Insurance Regulatory and Development Authority of India (IRDAI).
2. The hospitalization costs including the treatment costs will be covered by your insurer as per the terms and conditions of your existing health insurance policy.
3. A new infection like coronavirus cannot be termed as a pre-existing illness and is, thus, covered in any basic health insurance policy.

One should be careful buying a specific policy related exclusively to Covid-19 as there would be an initial waiting period during which the claim cannot be filed. Therefore, no need for a specific insurance policy if a health insurance policy is currently active. If no existing policy, then consider the initial waiting period before opting for specific disease-related insurance.

Franklin Templeton closed six of high yield credit-related fund schemes effective from April 23, 2020, due to massive redemption requests in times of heavy liquidity shortage in the Indian capital markets. These six funds are-Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

Steps to provide liquidity in the Debt Mutual Fund Market

1. On April 27, RBI started a special liquidity facility of Rs 50,000 crore to ease the liquidity strain on mutual funds.
2. Banks using their own funds to meet liquidity needs of MFs can claim the regulatory benefits available under SLF (Special Liquidity Facility)-MF scheme.
3. The liquidity availed under this window could be classified as held-to-maturity (HTM) even beyond 25% of the total investment permitted in the HTM portfolio.
4. The face value of securities acquired under the SLF-MF and kept in the HTM category will not be reckoned for computation of adjusted non-food bank credit (ANBC) for determining priority sector targets/sub-targets.
5. Support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits.

KNOWLEDGE

Is the Nominee a trustee or a beneficiary? In the case of a property left by a deceased individual, the legal heir and not nominee is the ultimate, rightful owner while the nominee of the property of the deceased receives and holds such property till the matter of succession or inheritance is decided. In the case of bank deposits with a bank, the nominee would receive the balance from the deceased's account, to hold "as a trustee of the legal heirs of the deceased", and that such payment by the bank shall not affect the right or claim of any person against the nominee. The same treatment stands in the case of mutual fund folios and stocks, the nominee will merely beholding it "in trust", and the legal heir is free to make a claim over the folios against the nominee.

Insurance – An Exception. In relation to the succession of insurance proceeds, post-2015 there was a relevant change in insurance law with the introduction of the concept of a "beneficial nominee". If a policyholder names his/her parents, or spouse, or his children, or his spouse and children, or any of them, as the nominee, such person(s) will be designated as beneficiary nominee and shall be treated as the ultimate beneficiary of the monies payable by the insurer. It is also possible to create successive nomination/alternate nomination.

Since the legal heirs have overruling powers in most of the assets and nominees misunderstand their right of claim of ownership, it is better to have a WILL in which he/she clearly sets out the terms of succession and nomination.

What happened to Oil on 21st April

The futures market participants include speculators who buy into a commodity to make a profit from the move in prices and not to lock future prices which a hedger would want to do. Therefore a speculator would close the long position before the expiry else he will have to take the delivery of the oil mentioned in the contract. Since the need for taking delivery was minimal as refinery shutdowns were common and demand was absent, getting the long position closed by the delivery route was not available. Therefore, people were willing to pay to store that oil somewhere and not have it delivered. This added to the downward pressure resulting in oil to trade at -$37.63. Producers of oil have refused to shut down or reduce operations substantially because there are high costs and potential complications with closing and restarting wells. All that oil must go somewhere if it’s not being used, and storage space is quickly running out combined with the current situation when there is an unprecedented drop in demand while simultaneously facing a huge excess in supply.

Some info related to the negative oil price

1. Oil touched negative $ in US only.
2. There are 2 oil price indices used worldwide. The WTI (West Texas Intermediate) refers to oil extracted in the US while Brent refers to oil extracted in Europe, Middle East and Africa accounting for 2/3rds of oil production.
3. The WTI is lighter and sweeter (lower Sulphur) compared to Brent Crude. The lighter oil is more expensive to refine and has lesser Sulphur residue. So with everything else constant, the WTI should be costlier but it changed in the last decade. The change in Brent becoming expensive had to do with the Arab Spring which stoked up fears of the Suez Canal getting closed and therefore increasing the Brent crude prices. At the same time, the US oil producers started the process of fracking, which resulted in the production of too much WTI and that also resulted in a price fall of WTI. So we had a situation of Brent rise and WTI fall simultaneously.
4. The speculators were not able to close the positions as the people who could take delivery were not wanting to buy because they were not operating due to COVID or they had reached full storage capacity. Since there was no demand, so the price of oil was zero as you cannot go negative however, the speculator had to pay ~$40 to store the oil upon delivery.
5. The WTI touched negatively while Brent had remained above $20.

POST COVID – Opportunity for India to develop as a manufacturing hub

India plans to develop a land pool nearly double the size of Luxembourg to lure businesses moving out of China. A total area of 461,589 hectares has been identified across the country including 115,131 hectares of existing industrial land in states such as Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh. The land has been one of the biggest impediments for companies looking to invest in India, with the plans of Saudi Aramco to Posco frustrated by delays in the acquisition. The government has hand-picked 10 sectors -- electrical, pharmaceuticals, medical devices, electronics, heavy engineering, solar equipment, food processing, chemicals and textiles -- as priority industries. As per Bloomberg News, India has asked its embassies abroad to identify companies scouting for options. Invest India, the government’s investment agency has received inquiries mainly from Japan, the U.S, South Korea and China, expressing interest in relocating to Asia’s third-largest economy, the news agency said. The four countries are among India’s top 12 trading partners, accounting for total bilateral trade of $179.27 billion. The foreign direct investments by the four nations between April 2000 and December 2019 stands at over $68 billion, government data shows.

DOMESTIC ECONOMY

Wholesale Price inflation printed lower at 1% for Mar-20, as compared to the previous reading of 2.26% for Feb-20. Food & Fuel inflation both, are showing signs of softening, with the fuel Index showing de-growth of -1.8% YoY. Core WPI (i.e. WPI Ex-Food Ex Fuel) has remained flat at -0.8% similar to the previous reading in Feb-20.

India's retail inflation (CPI) eased to 5.91% last month from 6.58% in February on a sharp fall in food inflation. Food inflation at 8.76% in March was lower from 10.81% in February.

As per Manish Sabharwal, co-founder and chairman at TeamLease Services, job losses and salary cuts due to Covid-19 would be much worse than in 2008. The work from home option may create a notion that India Inc. has been able to tide over the lockdown problems but lay-offs are inevitable as out of the 6.3 crore enterprises, only 1.2 crores are registered for GST and some 10 lakh enterprises pay social security commitments.

The labour participation rate has dropped by 7.2% to 35.4% as on April 26th as per the Centre for Monitoring Indian Economy (CMIE). It also underlined that over 7 crore people have quit the labour markets in a month. The unemployment rate stood at 21.1% during the week ended April 26, from the 26.2% recorded in the preceding week. The week ended May 3rd showed the jobless rate at 27.1%, 12.2 Crore people.

The Index of Industrial Production fell by 16.7% in March over last year, the government’s statistical office said in a release on Tuesday. According to revised data for the previous two months, IIP grew by 2.08% in January 2020 and by 4.62% in February 2020.

ICRA downgraded 584 corporates with an aggregate debt of Rs 7 lakh crore in FY20 compared to 390 downgrades with an aggregate borrowing of Rs.3.2 lakh crore in FY19. Ratings of about 282 firms were upgraded in FY20, compared to 513 in FY19.

Many top executives of Indian IT companies feel that the U.S. President Donald Trump’s decision on 22nd April to temporarily suspend immigration for two months would have little or no impact as travel is currently impractical.

The government rolled back a hike in special allowances to central government employees and pensioners, a move that may help it to save about Rs 21,000 crore. The government had announced a hike in DA to 21%, effective January 2020 earlier and now the DA will continue at 17% till June-end 2021.

For the 2nd time in less than two months, India raised taxes on petrol and diesel by Rs.10 and Rs.13 a litre, respectively without any change in the retail sale price of the fuel.

COMPANY NEWS

Facebook invested Rs 43,574 crore ($5.7 billion) in Jio Platforms, a unit of Reliance Industries, for a 9.99% stake. The intention of the deal is to utilize JioMart and WhatsApp to empower nearly 3 crores small Indian Kirana shops to digitally transact with every neighbourhood customer. It will allow traders and customers to move on to a more efficient payment system that can offer credit to both customers and shop owners on a non-cash, bank/financial institution-driven model. According to both the companies, the purpose of the deal is to come up with digital-based solutions for 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector.

Subsequently, Silver Lake, an American private equity firm, has said that it will invest close to Rs 5,656 crore in Jio Platforms, according to an exchange filing for a 1.15% stake followed by global investment firm Vista Equity Partners who bought over a 2.32% stake in Jio Platforms for $1.5 billion.

ICICI Bank has a $100 million exposure to Singapore based oil trading company Hin Leong Trading which has filed for bankruptcy protection in the Singapore courts. ICICI is one of the 23 secured creditors which have lent a total of $3.64 billion to the company. Out of ICICI's $100 million exposure, $75 million is secured over inventory.

A state-owned Chinese bank's acquisition of 1% stake in HDFC has raised worries that India's financial institutions are ceding ground to a country whose state-owned institutions are interested in taking up strategic assets by buying in the coronavirus-led stock market crash. HDFC announced that People's Bank of China raised its 0.8% stake to over 1% which required a declaration to the stock exchanges.

As per reports, Apple Inc. has plans to move almost a fifth of its production capacity from China to India.

INTERNATIONAL MARKETS

US Gross domestic product contracted at a 4.8% annualised rate in the January-March period, the largest drop since 2008, according to Commerce Department data released Wednesday. The median projection in a Bloomberg survey of economists had called for a 4% drop. With estimates for a second-quarter contraction that would be a record in data going back to the 1940s, the first-quarter figures confirm that a recession has begun.

According to FactSet Estimates, the U.S. economy will shrink by 4.3% in 2020 while the Eurozone contracts by 5.3%. China’s growth is expected to slow to just 1.8% compared to 6.1% in 2019.

Initial unemployment claims totalled 3.2 million in April’s last week. 33.5 million Americans have lost their jobs in the last seven weeks. The jobless rate dived down to 14.7% in April, the lowest level since the Great Depression. Data from Barrons shows that 35% from the bottom 20% of workers earning less than 13.5 USD/Hour have lost their jobs while 9% have lost jobs in the top 20% quintile earning more than 32.5 USD/Hour.

Some 40% of Americans said they won’t buy products from China, according to a survey of 1,012 adults conducted during May 12-14 by Washington-based FTI Consulting, a business advisory firm.