Most equity-based MFs underperform in last 1 year:S&P Dow Jones

In terms of returns to investors, most of the equity focused mutual funds in the country have underperformed their respective benchmark S&P BSE indices, for one year ended December 2016, says a report.

The analysis is part of S&P Dow Jones Indices’ scorecard SPIVA which tracks the performance of actively managed Indian mutual funds against their benchmarks over the one-year, 3-year, 5-year and 10-year periods, as on December 31, 2016.

Over the one year period, the latest SPIVA India (S&P Indices Versus Active Funds) scorecard showed that 66.29 per cent of large-cap equity funds, 64.29 per cent of ELSS (equity-linked saving schemes) and 71.11 per cent of mid/small cap equity funds have underperformed their respective benchmark indices.

“Studies reveal that over the one, 3 and 5-year periods ending December 2016, only Indian ELSS funds maintained 100 percent style consistency,” Asia Index Associate Director (Global Research & Design) Akash Jain said in a statement.

“Over the 10-year period, only 30.63 per cent of Indian Equity Large-Cap funds and 28.57 per cent of Indian Equity Mid-/Small-Cap funds preserved their style,” Jain added.

The SPIVA Scorecard also revealed that the majority of the composite bond funds underperformed S&P BSE India bond index over one year, 3-year, 5-year, and 10-year periods.

Besides, most of the government bond funds underperformed S&P BSE India Government Bond Index over three, five and ten year periods.

Bharti Airtel gains on stake sale in Bharti Infratel for Rs 6,194 crore

Shares of Bharti Airtel advanced over 1 per cent after the company sold a 10.53 per cent stake, or 190 million shares, in its tower arm Bharti Infratel to a consortium of funds advised by KKR and CPPIB for a total consideration of Rs 6,193.9 crore ($952 million), or Rs 325 per share.

In December 2016, Reliance Communications agreed to sell 51 per cent stake in its tower unit Reliance Infratel for Rs 11,000 crore.

Bharti Airtel said it will primarily use the deal sale proceeds “to reduce its debt”. Airtel’s consolidated net debt stood at $14.34 billion in the fiscal third-quarter ended December 2016.

Following the announcement, shares of Bharti Airtel climbed 1.17 per cent to hit a high of Rs 344.65 on BSE.

Morgan Stanley expects “Airtel flexibility to step up its capex for the India wireless business to expand its data network coverage and capacity to counter Jio”.

The Infratel stake sale signalled the “start of consolidation” in the tower industry space, an analyst said.

“With consolidation there will be operators selling stake to reduce debt or use the cash for their mobility business

2nd round of oil field auction soon: Dharmendra Pradhan

India will soon launch the second round of auction of discovered oil and gas fields of state- owned ONGC and Oil India Ltd, Oil Minister Dharmendra Pradhan said.

As contracts for 31 small discovered oil and gas fields auctioned in the first bid round in more than six years were signed, he said a nation that is 80 per cent import dependent cannot afford to see its largest lease holder sit idle.

“There has to be accountability (for ONGC),” he said at the signing ceremony. The government, he said, is also looking at giving incentives for enhanced and improved oil recovery schemes to help reverse the declining trend in output from ageing fields.

“Discovered Small Fields (DSF) round-II is coming soon,” he said. Also, on cards is production enchancement contract (PEC) for producing fields of ONGC where operations can be outsourced after setting a minimum benchmark output level. State-owned oil firms IOCBPCL and HPCL cornered a third of the fields whose contracts were signed.

Touted as an auction round that would replicate the shale gas revolution of the US, half of the fields went to new and lesser known entrants like engineering company Megha Engineering & Infrastructure, KEI-RSOS Petroleum, Enquest Drilling and Nippon Power.

These fields, which hold in-place reserves of 62 million tonnes of oil and oil equivalent gas, can cumulatively produce a peak of around 15,000 barrels of oil per day and 2 million standard cubic meters per day of gas, Pradhan said. The peak oil and gas output envisaged is about 2 per cent of India’s current oil and gas production.

“It has been estimated that the indicative gross revenue over economic life would be approximately Rs 46,400 crore of which royalty collection and government’s revenue share is expected to be around Rs 5,000 crore and Rs 9,300 crore, respectively,” the minister said.

In all 46 idle fields, which were taken away from state- owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL), were put on bidding in DSF-I. 34 of them received bids. Of these, 14 were single bids. All the 26 onland areas had received bids, although 9 had only single bidders.

“We have completed the DSF-I in just under 10 months time from the date it was launched in May last year,” Pradhan said. The last auction of oil and gas acreage happened in 2009-10.

Govt, RBI to finalise first half borrowing calender today

The government and the Reserve Bank are scheduled to finalise first half borrowing calender today.

The government has decided to borrow Rs 3.5 lakh crore from the market in 2017-18, around Rs 75,000 crore lower than the current fiscal.

However, gross borrowing has been pegged at Rs 5.8 lakh crore for 2017-18, marginally higher from Budget estimate of Rs 6 lakh crore in the ongoing fiscal. Gross borrowing includes repayments of past loans and interests.

Repayment for past loans for the next fiscal has been pegged at 1.5 lakh crore.

Under the Market Stabilisation Scheme (MSS), the government will float bonds worth Rs 1 lakh crore in the next fiscal as against Rs 1.01 lakh crore in the current fiscal.

MSS does not add to the fiscal burden but it is used to manage liquidity in the market.

Against the Budget estimate of Rs 20,000 crore under MSS for the current fiscal, the government had to raise the limit to Rs 1.01 lakh crore in order to mop up additional liquidity infused in the market due to demonetisation.

Most equity-based MFs underperform in last 1 year:S&P Dow Jones

In terms of returns to investors, most of the equity focused mutual funds in the country have underperformed their respective benchmark S&P BSE indices, for one year ended December 2016, says a report.

The analysis is part of S&P Dow Jones Indices’ scorecard SPIVA which tracks the performance of actively managed Indian mutual funds against their benchmarks over the one-year, 3-year, 5-year and 10-year periods, as on December 31, 2016.

Over the one year period, the latest SPIVA India (S&P Indices Versus Active Funds) scorecard showed that 66.29 per cent of large-cap equity funds, 64.29 per cent of ELSS (equity-linked saving schemes) and 71.11 per cent of mid/small cap equity funds have underperformed their respective benchmark indices.

“Studies reveal that over the one, 3 and 5-year periods ending December 2016, only Indian ELSS funds maintained 100 percent style consistency,” Asia Index Associate Director (Global Research & Design) Akash Jain said in a statement.

“Over the 10-year period, only 30.63 per cent of Indian Equity Large-Cap funds and 28.57 per cent of Indian Equity Mid-/Small-Cap funds preserved their style,” Jain added.

The SPIVA Scorecard also revealed that the majority of the composite bond funds underperformed S&P BSE India bond index over one year, 3-year, 5-year, and 10-year periods.

Besides, most of the government bond funds underperformed S&P BSE India Government Bond Index over three, five and ten year periods.

Asia Index is a 50-50 partnership between S&P Dow Jones Indices and domestic bourse BSE.

Supreme Court to decide the fate of 8.3 lakh BS-III vehicles today

In a few hours the Supreme Court will take a decisive call on whether or not old and polluting Bharat Stage-III vehicles should be allowed to be registered after end of this month.

The fate of 824,000 unsold two and three-wheelers, trucks and buses will be determined by today’s judgement. Collectively worth over Rs 12,000 crore the inventory runs the risk of being turned into junk if the apex court rules that such vehicles cannot be allowed to be registered.

On Friday, a bench of Justices Madan B Lokur and Deepak Gupta said that the Centre had spent thousands of crores of rupees to upgrade technology to produce BS-IV fuel and the companies could not be allowed to frustrate the government’s initiative to check increasing pollution levels by selling around 8.2 lakh BS-III vehicles which they are holding in stock.

One alternative to banning the polluting vehicles that the SC had mentioned in its last hearing was the slapping of additional cess on the BS-III vehicles as a compensation towards polluting the environment. Even if this solution is adopted it would bring such vehicles on par, cost-wise, with a BS-IV vehicle and buyers will rather choose to buy the cleaner of the two.

Meanwhile, the Federation of Automobile Dealers Association (FADA), the apex lobby body of automobile dealers, has asked its vehicle makers to take back their unsold stock of BS-III vehicles if the SC decides to disallow their sales.

The Society of Indian Automobile Manufacturers had submitted data on manufacturing and sale of BS-III vehicles on a monthly basis from January 2016 and told the Supreme Court that the companies were holding stock of around 8.24 lakh such vehicles including 96,000 commercial vehicles, over six lakh two-wheelers and around 40,000 three-wheelers.

Irked by the reluctance of automotive companies to comply with the emission norms laid down by the government the Environmental Pollution Control Authority (EPCA) had moved the SC seeking a ban on sale of BS-III vehicles from April 1.

BS-IV vehicles have 80 percent less Particulate Matter (PM) and 50 percent less NOx emissions according to research findings. Bajaj Auto, Toyota Kirloskar and Daimler India have repeatedly voiced their opinions accusing majority of manufacturers of dragging their feet on the matter and refusing to comply with the norms.

Erich Nesselhauf, Managing Director and CEO, Daimler India Commercial Vehicles said, “In the current environment, OEMs ramping up BS-III vehicles aggressively before March 31 could create an imbalance to OEMs like BharatBenz that are ramping down BS3 vehicles. Selling BS3 vehicles should not be allowed after April 1, or at least the sales of those vehicles should be penalised in order to set off the additional cost and environment burden the society has to absorb. In general, it should not be allowed that some OEMs gain additional margins, delaying the implementation of the urgently needed new BS4 environmental standards.”.

Stakeholder LIC demands dues from Essar to give clearance to Rosneft-Essar deal

India’s top financial institution LIC wants its pound of flesh before it gives the green signal to the $13-billion Essar-Rosneft deal which would be the largest inflow of foreign direct investment into the country.

The state-owned life insurer has spelt out that it would issue a ‘no-objection certificate’ (NoC) only after Essar clears all dues. The covenants on LIC’s loan to Essar OilBSE -0.15 % require lender’s consent for change of management, said an LIC spokesman in response to ET’s email query.

LIC’s loan outstanding to Essar Oil is $125 million while its exposure to Essar Power is around Rs 1,500 crore. “We had received proposal from group companies for flexible restructuring and it was decided before considering (the) proposal… the company has to clear all the dues (sic),” said the LIC official.

The stand taken by LIC has put a question mark on whether the all-cash transaction will receive all the necessary approvals before March 31.

The deal was announced last October when Prime Minister Narendra Modi met President Vladimir Putin during a meeting of BRICS leaders in Goa.

According to an Essar spokesman, “Essar Oil and Essar Power have individually availed long-term facilities from LIC. These facilities cannot be linked.”

Bankers familiar with the situation told ET that LIC’s tough and somewhat unusual stance could be driven by fears that recovering loans from the power venture could be delayed once the deal with Rosneft goes through. “LIC may hold it as a bargaining chip, but it’s a small amount compared to the size of the deal. What if Essar Oil or Rosneft chooses to repay the loan to LIC,” said a senior official of the consortium bank.

Indeed, another banker said Essar is expected to indicate its willingness to prepay the Essar Oil loan. However, it’s “very unlikely” that the loan taken by the Essar’s power venture would be repaid immediately. “We are in discussions with LIC on the subject and have requested them accordingly. We are hopeful of obtaining their consent,” said the Essar official. He refused to share further details.

Sources said the Essar Group has put across the point that pressurising its power venture could worsen the situation in the energy sector which is battling macro headwinds due to unavailability of feedstock, low demand and volatile natural gas prices.
SEPARATE PACTS

As per the deal, Essar Energy Holdings Ltd and Oil Bidco (Mauritius) Ltd — which control Essar Oil signed separate agreements for the 98% stake sale. Essar announced that Russian firm Rosneft would buy 49% stake in Essar Oil’s refinery, port and petrol pumps, while The Netherlands-based Trafigura Group Pte, one of the world’s biggest commodity trading companies, and Russian investment fund United Capital Partners would split another 49% equity equally. The balance 2% would be held by Ruias, the promoter family.

Indian banks with large exposure to the group are hoping that the deal, with an enterprise value of $12.9 billion, would eventually help Essar to prune its huge debt.

At the time of the announcement of the deal, Prashant Ruia, Essar Group director and a member of the promoter family, had said that the funds from the Rosneft deal would be utilised to bring about a significant reduction in group’s debt pegged at over Rs 80,000 crore.

“Rosneft is keen to enter India and Essar is the only available avenue. Paying off $125 million to LIC and another $44 million to some of the government-owned general insurance companies is not exactly a big deal. But LIC would be a loser if only the Essar Oil loan is paid back…the company is making money and may have a ratings upgrade once the deal closes. That would be losing a good asset,” said a senior banker familiar with the negotiations between LIC and Essar.

It would be interesting to track the outcome of the negotiation: whether LIC would finally soften its stance to approve the prestigious deal that has the blessings of the government or would choose to dig in its heels and seek repayment of loans disbursed to the power venture.

RBI puts 4 public sector banks under watch on asset quality concerns

The Reserve Bank of India (RBI) has put four public sector lenders, including IDBI Bank and Indian Overseas Bank, under watch and advised them to stay off risky assets so that their financial health is not stressed further.

While UCO Bank also figures in the list, the name of the fourth lender could not be immediately ascertained.

Sources said these lenders were on the RBI’s radar as their financial health may not improve after the central bank’s asset quality review (AQR) comes to an end on March 31.

These banks have been advised by both the Finance Ministry and the RBI to improve their financials, look for avenues for capital infusion and create a self-sustaining model by selling assets, they added.

Queries sent to the RBI did not elicit any response, while no comments were available from the four lenders.

RBI had embarked on the AQR exercise from December 2015 and asked banks to recognise some top defaulting accounts as non-performing assets (NPAs) and provide for them.

The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.

On an year-on-year basis, the gross NPA of Indian Overseas Bank (IOB) increased by 52 per cent to Rs 34,502.13 crore at the end of December 2016, while the loss stood at Rs 554 crore.

Similarly, the gross NPA of IDBI Bank spurted by 80 per cent to Rs 35,245 crore and it booked a loss Rs 2,255 crore.

The government recently shifted IDBI Bank’s MD and CEO Kishor Kharat to Indian Bank. M K Jain, MD and CEO of Indian Bank, was in turn moved to IDBI Bank.

Kolkata-based UCO Bank’s bottomline too is expected to remain under stress during the fourth quarter ending March 31.

Its gross NPA during the third quarter surged by 49 per cent to Rs 2,181.26 crore and the loss was Rs 437 crore.

IOB was also put under ‘prompt corrective action’ in 2015 when its gross NPA touched 10 per cent.

The RBI has specified certain regulatory trigger points as part of the prompt corrective action (PCA) framework. They include three parameters — capital to risk weighted assets ratio (CRAR), net NPA and Return on Assets (RoA), for initiation of certain structured and discretionary steps.

Govt may sell stake in Axis Bank, ITC, L&T via ETF: Report

The government may sell some of its stake in Axis Bank, Larsen and Toubro and ITC through an exchange traded fund

Sources privy to the development say that this ETF would be larger than the Central Public Sector Enterprises (CPSE) ETF, a fund unveiled in 2014 that was made up of the government’s shares in state-owned companies.

Post the newsbreak yesterday, the price of all three stocks fell.

The government currently holds 12.02 percent stake in Axis Bank, 9.10 percent in ITC and 6.69 percent in L&T, through the Specified Undertaking of the Unit Trust of India (SUUTI). This is after considering the recent 2 percent stake sale in ITC.

The government had revised its disinvestment target for FY17 to Rs 45,500 from Rs 56,500 earlier and for FY18 the government hopes to raise a humongous Rs 72,500 crore.

Government officials told NewsRise it is not yet decided to include the SUUTI holdings in the ETF stake sale. The government is free to include any of its equity holdings under the new ETF.

SUUTI was formed in 2003 as an extension of the Unit Trust of India (UTI). It comprises 51 companies – 8 unlisted and the rest listed companies. Through SUUTI, the government holds minority stake in these companies and divests its shareholding from time to time.

IRDA seeks segment-wise balance sheets to clean up insurers’ books

The Insurance Regulatory and Development Authority of India (IRDA) will now seek segment-wise balance sheets from insurance companies to ensure that they make adequate provisions for claims as well as not offer unreasonable pricing in some segments.

People in the know have said that especially in segments like group health and fire where insurers have been found to be giving discounts even if the claims are high in order to retain the client’s business. In this process, some insurers compete aggressively on the premiums leading to heavy underwriting losses.

“When insurers bring out segment-wise results of various segments, it will be clear as to how much underwriting loss they are making. On the basis of this, the insurers can be questioned on their business strategies,” an official said.

The general insurance industry is making underwriting losses which means that the claims that they pay on a yearly basis is more than the premiums that they collect. In segments like group health, fire and engineering, and motor third party, underwriting loss for the public sector and private insurers are high.

According to data from IRDA, public sector insurers had Rs 10,862 crore of underwriting loss for 2015-16, compared to Rs 7,169 crore in 2014-15. Similarly, private insurers had Rs 3684 crore of underwriting loss in 2015-16 compared to Rs 2,432 crore in 2014-15. Here, the Chennai flood claims, cost of acquisition as well as intense competition led to higher losses.

With this, combined ratios (that includes claims, commissions and management expenses) also rose to 117.6 percent in FY16 from 114.2 percent in the previous financial year. This means that for every Rs 100 paid as premium, Rs 118 is paid as premium.

At the time of the renewal of a corporate policy, insurers offer reduced premiums so that the client is incentivised to stay insured with that particular company. While IRDA has discouraged the insurers from indulging in such practices, the incidents continue. A senior industry official said that while companies were asked to look into the burning cost of each policy before deciding the premium, close competition has led them to many players abandoning these strategies.

Many private sector insurers have also refrained from either offering better rates to clients or exited business so that their bottom-line does not get impacted at the cost of the top-line. Sources said that those companies offering discounts will also be required to maintain a higher level of capital.

In the public sector general insurance space where companies are in preparation for listing on the stock exchanges, the cleaning up of the books has begun.