BQuick On Feb. 6: Top 10 Stories In Under 10 Minutes

This is a roundup of the day’s top stories in brief.

1. Blow For Proprietary Traders

The union budget for financial year 2019-20 has ushered in a paradigm shift in how stamp duty is levied on transactions involving financial instruments such as equity shares and derivatives.

• The shift that’s designed to curb avoidance will add to trading costs and may prove to be debilitating to proprietary trades by brokerages.
• The Finance Bill has specified new stamp rates on transfer of securities on a delivery basis, non-delivery basis and equity, commodity, currency and interest rate derivatives among other instruments.

The implications of these changes are three-fold.

2. A Year On, It Still Hurts...

In February last year, state-run Punjab National Bank disclosed that it had been hit by a massive fraud. Companies associated with diamantaires Nirav Modi and Mehul Choksi had found a way to use fake letters of undertaking to defraud banks of over Rs 14,000 crore. It was the largest bank fraud in Indian history.

• A year later, PNB, which was at the center of the fraud, has just about finished making provisions against what it lost; any hope of recovering the monies remains dim; and lenders continue to eye the gems and jewellery sector with caution.
• While the bank’s management said that it is continuing to pursue recoveries actively, there's no indication that long drawn-out legal processes will complete anytime soon.

PNB returned to profit this quarter, but it’s still reeling from the pain.

3. Nifty Rises Above 11,050, U.S. Stocks Fluctuate

Indian equity benchmarks ended higher for the fifth day in a row.

• The S&P BSE Sensex Index ended 0.98 percent higher at 36,975.
• The NSE Nifty 50 Index ended at 11,062, up 1.17 percent.
• The broader market index, the NSE Nifty 500 Index ended 0.94 percent higher.
• All the sectoral gauges compiled by NSE advanced.

Follow the day’s trading action here.

U.S. stocks fluctuated as investors weighed positive corporate earnings against persistent concerns over trade and another government shutdown.

• The S&P 500 was little changed after halting a four-day advance, with President Donald Trump’s speech to Congress having little impact on markets.
• Among earnings-related moves, General Motors rose after topping profit estimates, while Snap soared as its user base stabilized.
• The dollar extended its rally to a fifth day.
• Investors remained on edge with the deadline for Congress to reach a deal on keeping the government open fast approaching with little sign of compromise.
• There are also looming meetings in Beijing next week between U.S. trade representatives and their Chinese counterparts.
• Iron ore surged to near a two-year high after Vale raised worries of a global shortfall.
• West Texas Intermediate crude decreased 0.4 percent to $53.47 a barrel, the lowest in more than a week.

Get your daily dose of global markets here.

4. Earnings: Adani Ports, Cipla, JSW Steel

Adani Ports and Special Economic Zone Ltd.’s operating profit rose in the quarter ended December, in line with analyst estimates.

• Ebitda rose 3 percent year-on-year to Rs 1,843 crore.
• Net profit rose 41.7 percent to Rs 1,409 crore.
• Other income jumped 46 percent to Rs 345 crore.

Cargo volumes increased.

Cipla Ltd.'s quarterly revenue rose, but missed estimates for the 13th-straight quarter.

• Net sales rose 2 percent to Rs 4,008 crore.
• U.S. business grew 18 percent.
• Net profit dropped 17 percent to Rs 332 crore.

The drugmaker missed estimates due to lower other income.

JSW Steel Ltd.’s profit for the December-ended period fell due to higher expenses and lower sales.

• Net profit dipped 7 percent year-on-year to Rs 1,624 crore.
• Revenue rose 11 percent to Rs 20,318 crore.

Exports fell due to muted demand and weak pricing.

5. Why The RBI Should Bite The Rate Cut Bullet

Downside pressures on growth have risen, which should act as a drag on core inflation further out, writes Priyanka Kishore.

• The new MPC, led by Shaktikanta Das, is likely to have more dovish leanings as compared to the earlier one.
• But, Budget 2019’s fiscal profligacy could lead RBI to contemplate a slower path to monetary easing than warranted by economic conditions.
• Das will also face the unenviable task of convincing investors that RBI’s core operation—setting monetary policy—will not be compromised under his aegis.

The governor may choose to assuage some of these concerns.

6. NCLT’s Confusing Message

Bad facts make bad law. The National Company Law Tribunal’s decision in Bharati Defence and Infrastructure Ltd.’s insolvency case is a textbook example of that.

• In Bharati Defence’s insolvency case, the lead financial creditor, the entity initiating the insolvency process and the successful resolution applicant all happened to be Edelweiss Asset Reconstruction Company.
• Consequently, Edelweiss ARC’s resolution plan was approved by the CoC.
• But the Mumbai bench of the NCLT dismissed Edelweiss ARC’s plan.

Here’s how that sets a precedent for creditor-led recoveries.

7. Murthy's Four-Point Plan

How feasible is Prime Minister Narendra Modi’s aspiration to make India a $10-trillion economy by 2030? “Extremely impossible” if you ask Infosys Ltd. Co-Founder Narayana Murthy. According to Murthy, who was speaking at the annual event of TiE Mumbai, the ambitious target can be met only if the government follows these four strategies.

• Cultural transformation
• Higher contribution from exports
• Education
• Ease of doing business

Watch what Murthy had to say.

8. DVR Shares: Call For A Guarded Revitalisation

While differential voting rights are advantageous in promoting entrepreneurship and capital raising, particularly in the new economy, they are accompanied by significant corporate governance concerns, writes Umakanth Varottil.

• DVRs allow for innovation and risk-taking by founders without facing the potential of short-term considerations that may be applied by activist investors or hostile acquirers.
• On the flip side, the DVR structure will help embolden a class of promoters known as “controlling minority shareholders”.
• The SEBI-appointed sub-committee should balance the benefits of DVR structures with tight corporate governance measures.

Varottil prescribes these five riders, for bringing back DVRs.

9. The Next NBFC Crisis

Just a year ago, India’s third-largest mortgage lender was bragging about how it had shrunk its financing costs by replacing bank loans with market borrowings. Now, Dewan Housing Finance Corp. is confronting the fallout of that seemingly clever strategy, one that many of its peers face as well: a dangerously high exposure to India’s struggling developers, writes Andy Mukherjee.

• After sudden defaults by infrastructure operator-financier IL&FS Group last September, Dewan’s share price went into a tailspin.
• While the lender had no direct links with IL&FS, all shadow banks that were relying on short-term money-market financing to finance long-term assets — either bridges or homes — came under scrutiny.
• The risky part of the business is lending to builders. Leaving aside the relatively safe avenue of lease-rental discounting, India has about Rs 3.4 lakh crore ($47 billion) of outstanding developer loans.

It's a race against time.

10. Lawyers Voicing Opinion In Sub-Judice Cases Worries Supreme Court

The Supreme Court on Wednesday said there's a need for clarity on the issue of lawyers voicing their opinions in public in cases which they are representing and which are sub-judice in the courts.

• The top court was hearing a contempt petition filed by the Attorney General for India against Advocate Prashant Bhushan.
• The Supreme Court bench, headed by Justice Arun Mishra, observed that it may be possible that in certain cases, especially in criminal trials, the reputation of a person may be affected due to public discussions on sub-judice cases by the lawyers as the accused may be acquitted later on in the case.
• “All kinds of allegations are made in the petitions and then they are withdrawn before we deal with them. We are really worried about what's going on these days," the apex court noted.

Attorney General KK Venugopal said counsels should desist from making press statements.