Concerns about future foreign equity inflows triggered by tougher norms from the Securities and Exchange Board of India (Sebi) on offshore derivative instruments (ODIs) or participatory notes (P-notes) pulled Indian stocks lower. The barometer index, the S&P BSE Sensex, fell 97.82 points or 0.39% to settle at 25,301.90. The Nifty 50 index fell 33.70 points or 0.43% to settle at 7,749.70. The two key benchmark indices trimmed losses after extending intraday slide in late trade. Except the BSE FMCG index, all the other sectoral indices on BSE registered losses. With third straight day of decline, the Sensex and the Nifty, both, hit two-week closing low.
The broad market depicted weakness. There were almost two losers against every gainer on BSE. 1,688 shares declined and 879 shares rose. A total of 180 shares were unchanged. The BSE Mid-Cap index fell 0.49%. The BSE Small-Cap index fell 0.83%. The fall in both these indices was higher than the Sensex's decline in percentage terms.
Stock market regulator Sebi after trading hours yesterday, 19 May 2016, announced tightening the regulations for issuers and subscribers of offshore derivative instruments (ODIs) or participatory notes (P-notes) with a view to enhance the transparency and control over the issuance of ODIs. In order to bring about uniformity in the know-your client (KYC) and anti-money laundering (AML) norms, it has been decided that Indian KYC/AML norms will now be applicable to all ODI issuers. The KYC/AML norms applicable to ODI issuers will be the same as that for all other domestic investors.
Sebi also said that ODI issuers would have to identify and verify the beneficial owners in the subscriber entities, who hold in excess of the threshold that is 25% in case of a company and 15% in case of partnership firms/trusts/unincorporated bodies. The ODI issuers will have to identify and verify the persons who control the operations of these entities, Sebi said in a press release issued yesterday, 19 May 2016, after the conclusion of a meeting of the Sebi board in Mumbai. P-notes are derivative instruments issued by registered foreign portfolio investors (FPIs) to overseas investors to enable them to trade in Indian stocks without having to register with Sebi.
Henceforth, the ODI subscribers will have to seek prior permission of the original ODI issuer for transfer of ODIs. As per prevailing regulations, ODI subscribers are not required to take prior permission of the ODI issuer for transfer of ODIs to another investor offshore. The ODI issuers will have to capture the details of all intermediate transfers during the month and report the same to Sebi in the prescribed monthly report. Presently, ODIs issuers submit the details of the holder of ODIs in a monthly report to Sebi. The regulator also said that ODI issuers would have to file suspicious transaction reports with the Indian Financial Intelligence Unit on the ODIs issued by them. Besides, the ODI issuers will have to carry out reconfirmation of the ODI positions on a semi-annual basis.
According to Sebi data, the notional value of ODIs to the AUC (assets under custody) of FPIs has declined over the years from a high of 55.7% in June 2007 to 10% in March 2016.
In addition to tougher norms on offshore derivative instruments (ODIs) or participatory notes (P-notes), concerns about further interest rate increases in the United States sparked worries about future foreign equity inflows. Investors in emerging markets, including India are worried that higher interest rates in the US will drain liquidity from emerging markets and redirect it to developed economies. Hawkish comments from two Fed officials yesterday, 19 May 2016, amplified rate-hike worries. New York Fed President William Dudley who is a permanent voting member of the central bank's rate-setting committee said an interest-rate increase in June or July is possible if fresh data confirm his optimistic forecast of economic growth. Richmond Fed President Jeffrey Lacker defended the Fed's hawkish stance in an interview with a news agency, saying the case is pretty strong for a June hike.
Expectations of further increase in US interest rates had already gained more traction after recent data showed improvement in the US economy and after minutes from the US Federal Reserve's April policy meeting showed that Fed policy setters discussed the possibility of a June rate increase if the economy continued to strengthen. The Fed released the minutes of its April policy meeting on 18 May 2016. The Federal Open Market Committee next undertakes monetary policy review on 14-15 June 2016. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.
Index heavyweight and cigarette major ITC rose after the company announced a 1:2 bonus share issue at the fag end of the trading session after the announcement of its Q4 March 2016 results. Shares of pharma major Lupin tumbled on concerns surrounding its Goa facility as it has yet to resolve concerns raised by US Food and Drug Administrator's (USFDA) observations on the manufacturing unit. SpiceJet slumped after the company's Q4 results announced after trading hours yesterday, 19 May 2016, failed to cheer investors.
The Sensex fell 97.82 points or 0.39% to settle at 25,301.90, its lowest closing level since 6 May 2016. The Sensex fell 147.82 points or 0.58% at the day's low of 25,251.90. The barometer index rose 106.34 points or 0.41% at the day's high of 25,506.06.
The Nifty fell 33.70 points or 0.43% to settle at 7,749.70, its lowest closing level since 6 May 2016. The Nifty fell 47.65 points or 0.61% at the day's low of 7,735.75. The index rose 29 points or 0.37% at the day's high of 7,812.40.
Eighteen out of the nineteen sectoral indices on BSE registered losses. The BSE Realty index (down 1.42%), the S&P BSE Healthcare index (down 1.39%), the S&P BSE Energy index (down 0.95%), the BSE Capital Goods index (down 0.75%) and the S&P BSE Industrials index (down 0.68%) underperformed the Sensex. The S&P BSE FMCG index (up 0.19%), the S&P BSE Power index (down 0.01%), the S&P BSE Utilities index (down 0.03%), the BSE Auto index (down 0.29%) and the S&P BSE Metal index (down 0.31%) outperformed the Sensex.
The total turnover on BSE amounted to Rs 2488 crore, lower than turnover of Rs 5195.09 crore registered during the previous trading session.
Index heavyweight and cigarette major ITC rose 3.99% after the company announced a 1:2 bonus share issue at the fag end of the trading session after the announcement of its Q4 March 2016 results. The company's net profit rose 5.67% to Rs 2495.20 crore on 9.49% rise in total income to Rs 10580.33 crore in Q4 March 2016 over Q4 March 2015.
Shares of oil exploration and production (E&P) companies saw mixed trend. Cairn India (up 1.4%) and ONGC (up 1.33%) edged higher. Oil India shed 0.64%.
Index heavyweight Reliance Industries (RIL) lost 1.8% to Rs 933.40. The stock hit a high of Rs 954.60 and low of Rs 932.35 in intraday trade.
PSU OMCs declined. HPCL (down 0.3%), BPCL (down 2.11%) and Indian Oil Corporation (down 0.06%) fell.
In the global commodities markets, Brent for July settlement was currently down 17 cents at $48.64 a barrel. The contract had fallen 12 cents or 0.24% to settle at $48.81 a barrel during the previous trading session.
Shares of pharma major Lupin tumbled on concerns surrounding its Goa facility as it has yet to resolve concerns raised by US Food and Drug Administrator's (USFDA) observations on the manufacturing unit. The stock lost 9.11%. Lupin received USFDA Form 483 for Goa facility with 9 observations during March 2016. The inspections of Lupin's Goa facility were on aspects such as inadequacy and adherence to standard operating procedures (SOP). Lupin reportedly depends on Goa facility for about 40% of its US sales.
Stocks of private sector banks were mixed. HDFC Bank (up 0.1%), IndusInd Bank (up 0.01%) and Yes Bank (up 1.15%) rose. ICICI Bank (down 2.48%) and Kotak Mahindra Bank (down 0.28%) fell. Axis Bank was unchanged at Rs 490.30.
PSU bank stocks fell. Andhra Bank (down 2.45%), Allahabad Bank (down 2.81%), State Bank of India (SBI) (down 0.61%), Punjab National Bank (down 0.54%), Bank of Baroda (down 1.13%), Bank of India (down 2%) and Union Bank of India (down 1.26%) dropped. Canara Bank rose 3.55%. IDBI Bank was unchanged at Rs 64.40.
Cement stocks dropped. ACC (down 1.43%), Ambuja Cements (down 1.71%), Shree Cement (down 4.12%) and UltraTech Cement (down 1.12%) declined.
Grasim Industries declined 1.09%. Grasim has exposure to the cement sector through its holding in UltraTech Cement.
Tata Power Company rose 1.75% after its wholly owned subsidiary Tata Power Renewable Energy (TPREL) completed the acquisition of 100% shareholding in Indo Rama Renewables Jath (IRRJL). IRRJL has a 30 megawatts (MW) operating wind farm in Sangli district of Maharashtra. With the latest acquisition, Tata Power's total generation capacity now becomes 9,213 MW and current operating non-fossil based capacity increases to 1,704 MW, the company said in a statement. The announcement was made during market hours today, 20 May 2016.
Aviation stocks declined. Jet Airways (India) (down 4.37%) and InterGlobe Aviation (down 4.2%) fell.
SpiceJet lost 10.5% after the company's Q4 results announced after trading hours yesterday, 19 May 2016, failed to cheer investors. SpiceJet's net profit surged 225% to Rs 73.19 crore on 85.12% rise in net sales to Rs 1448.66 crore in Q4 March 2016 over Q4 March 2015. Earnings before interest, taxation, depreciation, amortization and aircraft and engine rentals jumped 100.51% to Rs 393 crore in Q4 March 2016 over Q4 March 2015. SpiceJet reported one-time expense of Rs 173 crore in Q4 March 2016 towards stabilising and improving the reliability of its fleet.
Aditya Birla Nuvo (ABNL) fell 3.31% to Rs 1,001.75 at 15:13 IST after the company reported weak Q4 earnings during trading hours today, 20 May 2016. On a consolidated basis, ABNL's net profit fell 1.51% to Rs 327 crore on 9.16% decline in revenue to Rs 6425 crore in Q4 March 2016 over Q4 March 2015. Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) rose 16.63% to Rs 1781 crore in Q4 March 2016 over Q4 March 2015. On a like-to-like basis, consolidated net profit fell 1.80% to Rs 327 crore on 13.26% rise in revenue to Rs 6425 crore in Q4 March 2016 over Q4 March 2015. Consolidated EBITDA rose 29.25% to Rs 1781 crore in Q4 March 2016 over Q4 March 2015.
Pidilite Industries rose 6.2% after consolidated net profit rose 89.24% to Rs 152.60 crore on 19.66% increase in total income to Rs 1259.47 crore in Q4 March 2016 over Q4 March 2015. The announcement was made after market hours yesterday, 19 May 2016.
Esab India rose 3.62% after the company reported a net profit of Rs 9.37 crore in the quarter ended 31 March 2016 compared with net loss of Rs 1.38 crore in the quarter ended 31 March 2015. Esab India's net sales rose 7.7% to Rs 113.34 crore in the quarter ended 31 March 2016 over the quarter ended 31 March 2015. The result was announced after market hours yesterday, 19 May 2016.
Vaibhav Global lost 15.8% after consolidated net profit fell 50% to Rs 8.79 crore on 3.2% decline in net sales to Rs 347.49 crore in Q4 March 2016 over Q4 March 2015. The result was announced after market hours yesterday, 19 May 2016.
GHCL surged 7.42% after net profit rose 54.5% to Rs 78.96 crore on 1.5% growth in net sales to Rs 647.42 crore in Q4 March 2016 over Q4 March 2015. The result was announced after market hours yesterday, 19 May 2016.
Meanwhile, Sebi has made it mandatory for the top 500 listed companies in terms of market capitalization to formulate and disclose a dividend distribution policy in annual reports and on their websites. The dividend distribution policy will include the circumstances under which shareholders can or cannot expect dividend, the financial parameters that will be considered while declaring dividends, internal and external factors that would be considered for declaration of dividend, policy as to how the retained earnings will be utilized and provisions in regard to various classes of shares. When a company proposes to declare dividend on the basis of parameters other than what is mentioned in the dividend distribution policy or proposes to change its dividend distribution policy, it will have to make appropriate disclosures. According to Sebi, a formal dividend distribution policy will help investors in taking an informed investment decision.
Meanwhile, with an aim of smoothening the process of registration of Infrastructure Investment Trusts (InvITs) with the Securities and Exchange Board of India (Sebi) and launching of the offer, the stock market regulator has proposed amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014. Sebi intends to allow InvITs to invest in two-level SPV structure. The stock market regulator has also proposed bringing down the mandatory sponsor holding in InvIT to 10% from current 25%, subject to certain conditions. The stock marker regulator has proposed increase in the number of sponsors in InvITs to 5 from 3. Sebi said that it would bring out a consultation paper in due course proposing the above-mentioned changes in the InvIT regulations.
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