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Market Review: Oil, rupee unleash bears, mow down equities

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Sensex equity Nifty

Mumbai, Oct 6: A free-fall in rupee value coupled with high crude oil prices, along with a massive outflow of foreign funds, dragged the key domestic equity indices lower for the fifth consecutive week.

Additionally, the Reserve Bank of India’s new policy stance of “calibrated tightening”, uncertainty in global trade and fears over fiscal slippages led to the downward trajectory.

The S&P BSE Sensex plunged by over 2,000 points in only three trading sessions, while the NSE Nifty50 has shed over 650 points.

The Indian equity market was closed on Tuesday to observe Gandhi Jayanti.

On a weekly basis, the Sensex closed at 34,376.99 points, lower by 1,850.15 points or 5.10 per cent from its previous close.

Similarly, the wider Nifty50 of the National Stock Exchange on Friday closed at 10,316.45 points, down 614 points or 5.61 per cent from the previous week’s close.

The market breadth on both NSE and BSE was negative in three out of the four trading sessions of the week.

“Domestic markets extended losses week after week on account of depreciation in rupee, higher crude prices, continuous selling by foreign investors, rising US Treasury Bond yields, and of course bloodbath in the small and mid-cap stocks…,” said D.K. Aggarwal, Chairman and Managing Director of SMC Investments and Advisors.

“Fall in the rupee led to a sharp rise in government bond yields, due to increasing expectations that the RBI’s monetary policy committee (MPC) could go for a bigger rate increase than expected. However, the central bank kept rates on hold.”

Apart from high global crude oil prices and the government’s efforts to ease domestic transportation fuels costs, the RBI on Friday belied market expectations of a rate hike. However, the “neutral” stance of monetary policy was changed to “calibrated tightening” which triggered a massive sell-off in the equities market.

The RBI’s move also impacted the foreign participants in the domestic equity markets and the rupee value.

In terms of investments, provisional figures from the stock exchanges showed that foreign institutional investors sold scrip worth Rs 9,522.44 crore, while the domestic institutional investors bought Rs 6,933.07 crore stocks in the past week.

Figures from the National Securities Depository (NSDL) suggested that foreign portfolio investors (FPIs) divested Rs 7,497.46 crore, or $1,025.28 million, in the equities segment during the week ended October 5.

On the currency front, the rupee closed at 73.77 on Friday, weakening by Rs 1.29 from its previous week’s close of 72.48 per greenback.

The Indian rupee plunged to a record low of over 74 during the week.

According to Deepak Jasani, Head of Retail Research at HDFC Securities: “It was the worst week in two years. Mid-cap and small-cap stocks witnessed heavy selling pressure through the week (though less than the Nifty). GoI’s decision to ask OMCs (oil marketing companies) to cut prices of petrol and diesel was not welcomed by the market participants.”

“There were no sectoral gainers for the week. The top losers were energy, auto, FMCG, realty and pharma indices.”

The only weekly Sensex gainers were Yes Bank (up 1.48 per cent at Rs 206.20); Wipro (up 1.47 per cent at Rs 325.30 per share).

The major losers were Bharti Airtel (down 16.67 per cent at Rs 296.75); ONGC (down 16.51 per cent at Rs 146.95); Reliance Industries (down 16.21 per cent at Rs 1,049.85); Mahindra and Mahindra (down 12.28 per cent at Rs 768.60); and Hero MotoCorp (down 11.35 per cent at Rs 2,740.85 per share).

IANS

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Centre suspends fresh IBC proceedings till Dec

In June, the Union Cabinet approved the suspension, which came into effect from March 25 and was brought in through the ordinance route.

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Nirmala Sitharaman

New Delhi, Sep 24 : In a major relief for stressed companies amid the pandemic woes, the Centre on Thursday announced the suspension of fresh insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) by three more months till December.

In a gazette notification, the Ministry of Corporate Affairs (MCA) said that the suspension on operation of Section 7, 9 and 10 of the IBC has been extended.

“In exercise of the powers conferred by section 10A of the Insolvency and Bankruptcy Code, 2016, the Central Government has extended the suspension of sections 7,9, 10 of the IBC for a further period of three months,” the Minister of Finance and Corporate Affairs, Nirmala Sitharaman said in a tweet.A

She said that the decision reinforces the government’s commitment to protecting businesses.

“It also gives companies breathing time to recover from financial stress,” she said.

In June, the Union Cabinet approved the suspension, which came into effect from March 25 and was brought in through the ordinance route.

Section 7 of the IBC allows initiation of corporate insolvency resolution process by financial creditor, while Section 9 allows operational creditors to file application for initiation of insolvency process by operational creditor.

Further, a corporate debtor who has committed a default, can file for initiation of a corporate insolvency resolution process under Section 10 of IBC.

Although the decision to extend the suspension has brought much-needed relief for business stressed in the midst of the pandemic, sector experts, however, have raised concerns regarding the financial stress it may create once the suspension is revoked.

Sumit Batra, Partner at India Law Alliance, said: “Another extension of three months beyond 25.09.2020 for initiation of bankruptcy against defaulting corporate entities will further aggravate the situation and lead to an unprecedented rise in fresh filing once the suspension is revoked.”

Noting that while the logic of suspension for not being able to initiate proceedings under Section 7 and 9 of IBC, seems justified to an extent that lockdown triggered due to widespread outbreak of Covid-19 affected the paying capacity of the corporate debtors, but “why such a suspension is being imposed for applications under section 10 seems illogical”.

The intent and extent of section 10 petition is to enable the corporate debtor to initiate insolvency against themselves in order to resolve the financial stress in a time-bound manner, Batra said, adding that, therefore, Section 10 petitions should have been excluded from being covered under this suspension.

In a recent debate in the Parliament, Finance Minister Nirmala Sitharaman had defended the decision to suspend Section 10 saying that in view of the economic situation, the companies filing for bankruptcy would not have achieved high valuations and bidding amounts would have been low, thereby not achieving the desired goal.

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Oil Ministry yet to recover $510 mn from contractors under PSC: CAG

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Dharmendra Pradhan

New Delhi, Sep 23 : The Comptroller and Auditor General (CAG) has said that the Ministry of Petroleum and Natural Gas has not recovered $510 million as cost of unfinished minimum work programme (CoUMWP) from contractors in respect of 45 blocks.

The CAG report on Union Government (Economic & Service Ministries-Civil) – Compliance Audit Observations, which includes important audit findings, was presented in the Parliament on Wednesday.

It noted that the government awarded 254 blocks during the New Exploration and Licensing Policy’s (NELP) I to IX rounds for exploration of oil and gas. As per the terms and conditions of Production Sharing Contracts (PSC), contractors are required to pay the cost of unfinished minimum work programme, if the block is relinquished or terminated by government.

However, contractors of 54 relinquished blocks failed to pay the CoUMWP as specified in the PSCs.

“An amount of $510.79 million (Rs 3,652.64 crore), which was 77 per cent of the Ministry of Petroleum and Natural Gas’s (MoPNG) approved amount of $664.67 million (Rs 4,753.03 crore) on account of CoUMWP in respect of 45 blocks still remained unrecovered (September 2019),” the report said.

It added that the CoUMWP for nine blocks is yet to be worked out by Directorate General of Hydrocarbons (DGH) or yet to be approved by the ministry.

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IT Dept ignored land/flat sellers as ‘potential assessees’: CAG

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real estate

New Delhi, Sep 23 : The Comptroller and Auditor General (CAG) has said that during financial years 2014-15 to 2017-18, the IT Department did not initiate any action regarding land and flat sellers who could be potential assessees.

The Performance Audit on ‘Search and Seizure Assessments in Income Tax Department’, tabled in the Parliament on Wednesday, said: “The Department did not initiate any action in respect of sellers of land/flat/ commodities pointed out in the respective Appraisal Report, who could be potential assessees. The department also did not confirm whether these were in the tax net of the department and regularly filing returns.”

It also said that there were loopholes and deficiencies in the provisions of the Act in respect of search assessments, mainly relating to absence of specific provisions in the Act and Rules, the report said.

“In respect of certain Groups, 76.5 per cent of additions made in search assessments did not stand the test of judicial scrutiny in appeals at the level of CIT (A)/ITAT,” it said.

The report found that assessing officers (AOs), while finalising the assessments, did not take a uniform stand in making additions on account of bogus purchases, accommodation entries and in adoption of figures of assessed income or revised income.

“The additions were made arbitrarily either on lump sum amount basis or different percentage ranging from five per cent to 50 per cent under similar circumstances without proper justification,” the report said.

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