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Global trade tensions dent rupee; closes at 72.98

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India Rupee

New Delhi, Sep 18: The latest global trade protectionist measures, along with high crude oil prices, dragged the Indian rupee to a fresh low of 72.98 per US dollar on Tuesday.

At 5 p.m., the rupee closed at 72.98 per greenback from its previous close of 72.51 per dollar.

It had opened at 72.60 per US dollar at the Inter-Bank Foreign Exchange Market and remained range bound.

However, the Indian currency’s slide commenced from 4.45 p.m. onwards as it touched 72.96 breaching its previous intra-day record low of 72.91 made on September 12.

According to analysts, concerns over a rise in inflation rate, growing protectionism in global trade and an outflow of foreign funds from the country’s equity market have had an adverse impact on the Indian currency.

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FinCEN files: Big banks let $2tn ‘dirty money’ move around world

There have been a number of big leaks of financial information in recent years, including 2017 Paradise Papers. The 2016 Panama Papers – Leaked documents from the law firm Mossack Fonseca showed more about how wealthy people are using offshore tax regimes, the BBC said.

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New Delhi, Sep 21 : The FinCEN files show that the world’s biggest banks have allowed criminals to move “dirty money” around the globe. In total, these reports flagged more than $2 trillion in transactions, according to BuzzFeed News.

The BBC reported that Russian oligarchs used banks to avoid sanctions and moved their money into the West.

It is the latest in a string of leaks over the past five years that have exposed secret deals, money laundering and financial crime, a BBC report said.

The FinCEN files are more than 2,500 documents, most of which were files that banks sent to the US authorities between 2000 and 2017.

These documents are some of the international banking system’s most closely guarded secrets. Banks use them to report suspicious behaviour but they are not proof of wrongdoing or crime.

They were leaked to Buzzfeed News and shared with a group that brings together investigative journalists from around the world, which distributed them to 108 news organisations in 88 countries, including the BBC’s Panorama programme.

FinCEN is the US Financial Crimes Investigation Network. Concerns about transactions made in US dollars need to be sent to FinCEN, even if they took place outside the US.

Suspicious activity reports, or SARs, are an example of how those concerns are recorded. A bank must fill in one of these reports if it is worried one of its clients might be up to no good. The report is sent to the authorities, BBC said.

It has been revealed through these documents that HSBC allowed fraudsters to move millions of dollars even after it learned from US investigators that the scheme was a scam.

JP Morgan allowed a company to move more than $1 billion through a London account without knowing who owned it. The bank later discovered the company might be owned by a mobster on the FBI’s 10 Most Wanted list.

There is also evidence that one of Russian President Vladimir Putin’s closest associates used Barclays Bank in London to avoid sanctions meant to stop him.

Accoridng to BBC, the UK is called a “higher risk jurisdiction” like Cyprus, according to the intelligence Division of FinCEN. That’s because of the number of UK registered companies that appear in the SARs. Over 3,000 UK companies are named in the FinCEN files – more than any other country.

Deutsche Bank moved money launderers’ dirty money for organised crime, terrorists and drug traffickers. Standard Chartered moved cash for Arab Bank for more than a decade after clients’ accounts at the Jordanian bank had been used in funding terrorism.

There have been a number of big leaks of financial information in recent years, including 2017 Paradise Papers. The 2016 Panama Papers – Leaked documents from the law firm Mossack Fonseca showed more about how wealthy people are using offshore tax regimes, the BBC said.

According to BuzzFeed News, some entities have been flagged numerous times in the FinCEN Files. Mayzus Financial Services, an online payment processing company that served clients involved in a bitcoin ring, sets the record, appearing as a subject of 36 SARs.

Second is Kaloti Jewellery International, a Dubai-based precious metals company that was flagged as a subject in 34 separate SARs by eight different banks.

More than 250 SARs reference people with addresses in the US, and more than 120 with addresses in Russia. The UK, China, Germany, the United Arab Emirates, Canada, and Ukraine were also common locations for people, each appearing in at least 20 reports, it said.

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Govt proposes to amend FCRA, make Aadhar mandatory for NGOs to receive foreign funds

The bill to amend the FCRA has been introduced in the Lok Sabha. It seeks to limit the use of foreign funds for administrative purposes from the current limit of 50 per cent to 20 per cent.

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The Centre on Sunday proposed amendments in the Foreign Contribution Regulations Act or FCRA through a bill it introduced in the Lok Sabha or lower house of Parliament.

According to the government, the proposed amendments “seek to streamline the provisions of the FCRA by strengthening the compliance mechanism, enhancing transparency and accountability in the receipt and utilisation of foreign contribution worth thousands of crores of rupees every year”.

The proposed amendments seek to bar public servants from receiving foreign funding.

The amendments seek to make Aadhar mandatory for all office bearers of NGOs and other organisations which are seeking foreign contributions.

The bill also seeks to limit the use of foreign funds received under FCRA for administrative purposes from the current limit of 50 per cent to 20 per cent.

“The annual inflow of foreign contribution has almost doubled between the years 2010 and 2019, but many recipients of foreign contribution have not utilised the same for the purpose for which they were registered or granted prior permission under the said Act. Many of them were also found wanting in ensuring basic statutory compliances such as submission of annual returns and maintenance of proper accounts,” according to the proposed amendment.

“This has led to a situation where the central government had to cancel certificates of registration of more than 19,000 recipient organisations, including non-governmental organisations, during the period between 2011 and 2019,” it further says.

The bill, if passed, will empower the government to ask a violator to not use the funds by holding a “summary inquiry”.

After the amendments are passed, no organisation will be able to transfer foreign contribution to any association/person under Section 7 of the FCRA.

“Every person who has been granted certificate or prior permission for foreign funding shall receive foreign contribution only in an account designated as “FCRA Account” which shall be opened by him in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify and for other consequential matters relating thereto,” the proposed amendment says.

The FCRA was enacted to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.

The act came into force on the May 1, 2011, and has been amended twice since then. The first amendment was made by Section 236 of the Finance Act, 2016 and the second amendment was made by Section 220 of the Finance Act, 2018.

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Focus to shift to Primary market – Market Watch

The Indian Rupee gained Rs 0.10 or 0.14 per cent to close at Rs 73.44. Dow Jones too ended flat for the week losing 8.22 points or 0.03 per cent to close at 27,657.42 points.

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Indian Rupees Sensex Economy

The week gone by had plenty of action and was volatile. While the benchmark indices were just about flat, BSEHEALTHCARE and BSEIT gained significant ground and helped the benchmark indices. Similarly post the SEBI announcement on multi-cap funds being directed to match the allocation of stocks based on their definition of large cap, midcap and Smallcap at 25 per cent each as a threshold level, we saw BSEMIDCAP and BSESMALLCAP indices gain substantially.

BSESESEX lost 8.73 points or 0.02 per cent to close at 38,845.82 points while NIFTY gained 40.50 points or 0.35 per cent to close at 11,504.95 points. The broader market saw BSE100, BSE200 and BSE500 gain 0.67 per cent, 0.92 per cent and 1.22 per cent respectively. BSEMIDCAP gained 2.65 per cent while BSESMALLCAP was up 5.09 per cent. Clearly market breadth gained while the benchmark indices were flat. BSEHEALTHCARE had a huge gain of 9.14 per cent lead by Dr Reddy which was up 21.04 per cent and supported by Lupin 12.31 per cent and Cipla 11.16 per cent. Even BSEIT gained 6.19 per cent. The laggard was BSEBANKEX which was down 1.84 per cent with the banking pack losing for the third consecutive week. SBI was down 4.98 per cent for the week.

The Indian Rupee gained Rs 0.10 or 0.14 per cent to close at Rs 73.44. Dow Jones too ended flat for the week losing 8.22 points or 0.03 per cent to close at 27,657.42 points.

From the above movement one can infer that there is some fatigue factor setting in among the benchmark indices stocks. The rally which was earlier led buy one single stock Reliance has now shifted to a handful of pharma and IT stocks. With their weightage being significantly lower, the net effect is not here to be seen. The gains are offset by losses in the BFSI space. In the broader markets there is a wider participation in small and midcap stocks and people seem to be mis-reading the SEBI circular. How long this optimism remains is anybody’s guess.

There is plenty of action in the primary markets. Shares of Happiest Mind Technologies listed on Thursday and had a dream debut with the stock price gaining a massive 123.49 per cent to close at Rs 371, against the issue price of Rs 166. Considering the non-anchor portion which has a lock-in of 30 days, delivery on day one was to the extent of 92.99 per cent of the IPO size. This indicates that almost all except 7 per cent of the investors whether they be QIB, HNI or Retail sold on day one. The share closed at Rs 358.45 for the week, a gain of 115.93 per cent. Effectively we have new investors in Happiest Mind who have invested at Rs 370 instead of Rs 166.

Shares of Route Mobile Limited would list on Monday, September 21.

The week ahead sees two primary market issues open on Monday and one open on Tuesday, making a total of three issues for the week. It seems September has suddenly brought the primary markets alive and there is a strong possibility that the last week of September may see a couple of more issues opening.

The first issue opening on Monday and closing on Wednesday, September 23 is from Computer Age Management Services Limited (better known as CAMS). The issue is an offer for sale from NSE Investment for 1.82 crore shares in a price band of Rs 1,229-1,230. The company’s primary business is being an RTA (Registrar and Transfer Agent) for mutual funds. The EPS for the year ended March 2020 is Rs 35.54 and the price earning multiple at which shares are being issued is 34.58-34.61. The asking price is rich in valuation and may not offer much scope for appreciation after listing. The expected listing price is likely to be in the region of Rs 1,560-1,600.

The second issue is from Chemcon Speciality Chemicals Limited which is into the business of speciality chemicals in the pharmaceutical and completion fluids for the oil well industry. One of the raw materials for the company is the bromide family which is a hazardous chemical and a difficult material and chemistry to handle. One of the recently listed peers in the similar field in Neogen Chemicals which also processes Bromide for different application. The issue opens on Monday, September 21 and closes on Wednesday, September 23. The price band is Rs 338-340. The EPS for the year ended March 2020 is Rs 15.37 and the PE multiple is between 21.99-22.12 times. The issue consists of a fresh issue of Rs 165 crore and an offer for sale of 45 lakh shares.

The third and final issue for the week is from Angel Broking Limited which opens on Tuesday, September 22 and closes on Thursday, September 24. The company is issuing fresh shares for Rs 300 crore and an offer for sale of Rs 300 crore. The price band is Rs 305-306. The EPS for the year ended March 2020 is Rs 11.44. The PE multiple for the company based on this EPS for March 2020 is 26.66-26.75 times. Even considering the fact that the April-June quarter was a great period for the broking industry during the Covid-19 pandemic time, it is difficult to expect the good times to continue. Margin rules being changed have affected volumes at the bourses and volumes have slipped from peak levels. Secondly, while the company had garnered new clients with a massive drop and restructuring of broking rates, the newness and effectiveness of the growth on account of the same is wearing off. At the asking PE, the share is more expensive than listed players from the industry, challenging the logic to subscribe.

The week ahead sees September futures expire on Thursday, September 24. The current level of NIFTY of 11,504.95 points means that the series is lower by 54.30 points or 0.47 per cent. While the loss is marginal, the law of averages may play catch up as we have been seeing monthly gains for the last three months from June 20 expiry onwards.

Covid-19 front saw the world have 3,09,92,980 patients, 9,61,475 deaths and 2,25,87,905 people recover. In India the number of patients has increased to 54,00,619 patients, 86,774 deaths and 43.03,043 people having recovered. Compared to the previous week the world saw 20,46,352 new patients, 36,865 deaths and 17,74,755 people recovering. In India the number of new patients has increased by 6,46,263 people, 8,160 deaths and 6,00,448 people recovering.

The week ahead would see the focus shifting to the primary markets with three new issues and one new listing. Further the euphoria in the small and midcap space would in all probability reduce and people take a breather. Also, the huge rally in HealthCare and IT stocks could also see profit taking while BFSI space is likely to see some value buying. Considering all of these factors including September futures expiry, expect markets to be choppy, volatile, two sided sharp movements and mixed. Trend determination may be difficult in the week and one must be prepared to see a correction which is long overdue. Caution is drawn to people asking them to refrain from shorting the market on an overnight basis and use sharp rallies to sell and equally sharp dips to buy. Be patient.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

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