10 THE SMART INVESTOR

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MUMBAI | 14 DECEMBER 2019

Trade deal hopes propel markets Good rabi season

THE COMPASS

UK poll results too boost sentiment; Sensex reclaims 41,000 gained, led by a gauge of metal com-

SUNDAR SETHURAMAN
Mumbai, 13 December
T
he benchmark indices rose
on Friday, along with other
global markets, as investor
appetite received a boost on news
that the US and China were closing
in on a limited trade deal, including
a reduction in the existing tariffs.
Most European indices gained
amid the UK election results, which
showed Prime Minister Boris
Johnson cruising towards a majority,
stoking hopes that the outcome
would put an end to the Brexit saga.
The Conservatives romped
home, winning 365 seats in the 650-
seat House of Commons.
The Sensex gained 428 points, or
1.05 per cent, to end at 41,010, the
highest close in two weeks and only
120 points below the previous high.
The Nifty gained 114 points, or 0.96
per cent, to close at 12,087.
Experts said the markets were
bolstered by the US’ proposal to roll
back tariffs on Chinese goods worth
$360 billion, imposed after the Bank, which gained 4.2 per cent.
panies. The BSE metal index gained
2.3 per cent followed by realty
SENSEX
INTRA-DAY
NIFTY
INTRA-DAY brightens prospects
trade war began in March 2018.
Market players said recent global
Vedanta and State Bank of India
rose more than 3 per cent each.
index, which rose by 1.72 per cent.
In the past three sessions, the of agri input players
developments had subsided the fear Among the losing stocks were benchmark indices have rallied
of a prolonged slowdown in the Bharti Airtel and Kotak Mahindra more than 2 per cent. Markey play-
global economy. Bank, which fell 2.5 per cent and 1.4 ers said expectations that the gov- Coromandel International, PI Industries
"The signing of the phase one per cent, ernment would come out with more may be some of the beneficiaries
trade deal between the US and respectively. measures to boost the economy in
China has come after a series of ‘on Barring one, all the 19 sector sub- the upcoming Budget are keeping
& offs’ over trade negotiations and indices compiled by the BSE sentiment bullish. However, some UJJVAL JAUHARI
appears a new positive step. This, say investors needed to be cautious,
TOP 5 SENSEX GAINERS & LOSERS
along with the emphatic victo- given the weak economic data. The (Price in ~) Dec 13 1-day chg (%) Many agri input compa-
ry of Boris Johnson in the UK retail price inflation in November GAINERS nies continue to gain
polls, has come as a major jumped to a 40-month high despite Axis Bank 752.0 4.2 momentum with
relief for the slowing global a slowdown, which led to some improved rabi season
economy,” said V K economists warning that the coun-
Vedanta 149.4 3.8 prospects, which is
Vijaykumar, chief invest- try could be entering into a stagfla- SBI 332.7 3.4 expected to drive their
ment strategist, Geojit tionary phase. Tata Motors 72.8 3.3 performance. While com-
Financial Services. “We advise exercising Maruti Suzuki 7,221.4 3.2 panies such as PI
On Friday, both foreign as caution in the stock selection Industries and
well as domestic investors were process. One should opt for LOSERS Coromandel International
net buyers in the cash segment. index majors over the stocks Bharti Airtel 427.5 -2.5 are trading near their 52-
Foreign portfolio investors in the broader market,” said Kotak Bank 1,692.0 -1.4 week highs seen recently,
(FPIs) bought shares worth ~116 Ajit Mishra, vice president- Bajaj Auto 3,233.1 -0.9 others like Rallis have
crore, while their domestic coun- research, Religare. rebounded and are up
terparts invested ~385 crore. Asian Paints 1,744.0 -0.4 about 24 per cent from
Twenty-four companies in the BACK PAGE P14 HUL 2,005.3 -0.1 their May lows. There
Sensex pack rose, led by Axis > NO IFS, NO BUTS, BREXIT BY JAN 31: JOHNSON Source: Exchange could be more gains in
the offing.
Improved soil mois-
ture and higher water

After 50% returns, 2020 may be Copper producers seek reservoir levels after a
good monsoon provide
confidence regarding
import duty waiver sowing in the rabi season.

an even better year for Indian IPOs JAYAJIT DASH

NUPUR ACHARYA & BAIJU KALESH
Mumbai, 13 December
India’s market for initial public offerings
(IPOs) is expected to gather pace in 2020
after this year’s relatively small crop saw
strong gains in the bourses.
The 14 mainboard IPOs this year
have risen by an average of more than
50 per cent since listing, data compiled
by Bloomberg shows. The S&P BSE IPO
Index, a gauge of shares in their first two
years of trading, has climbed 36 per
cent in 2019, compared with a gain of 13
per cent for the benchmark S&P BSE
Sensex Index.
“We expect this trend to continue in
2020,” said Satyen Shah, the Mumbai-
based head of investment banking at
Edelweiss Financial Services. “The year
2019 may look subdued in terms of the
number of issues, but most of them were
well subscribed and investors made
good money.” Shah said there are 21
companies that have filed documents
with market regulator the Securities and
Exchange Board of India (Sebi) for
planned IPOs, looking to raise a total of
about 300 billion rupees ($4.2 billion).
Of these, 11 have already received
approval to tap the market as soon as
next year, he added.
Companies planning IPOs include
SBI Cards and Payment Services, UTI
Asset Management, Computer Age
Management Services and Fincare Small
Finance Bank.
The outperformance of recent
debutantes is notable given the sluggish
performance of smaller Indian shares in
general. Gauges of small- and mid-cap
stocks are in the red for 2019. With a
record-setting rally in larger gauges
missing the broader market, investors
have been eager to participate in new
offerings.
The IPO of Ujjivan Small Finance
Bank was oversubscribed 166 times, the
most for an this year. The share sale of
railway monopoly Indian Railway
Catering & Tourism Corp (IRCTC) in
October attracted bids of 112 times the
offer size, and the stock doubled on the
first day of trading.
Amid the nation’s ongoing crisis in
non-bank lending, market participants
expect a larger number of financial
companies to list shares next year in order
to raise funds or meet regulatory
Bhubaneswar, 13 December
OPTIMISTIC MARKET
Copper producers in the
country have called for a
waiver of 2.5 per cent duty on
imports of copper concen-
trates to ensure viability
in operations.
Domestic copper manu-
facturers lean heavily on con-
centrates sourced from other
countries since India lacks
ample and high-quality
deposits. Only 4 per cent of
their demand is met through
requirements. Others see public sales indigenous supplies.
driven by large shareholders needing to In the aftermath of the
repay debt, large foreign partners looking shutdown of Vedanta
to exit investments in a buoyant market Thootukudi smelter in Tamil
and other backers looking to cash out. Nadu, India turned into a net
“Private-equity investors who have a importer of copper in FY19
time horizon for their investments have after 18 years. The industry
started selling their shares in the public believes the inverted duty
market,” said V Jayasankar, head of structure is to be blamed for
equity capital markets at Kotak the uptrend in imports.
Investment Banking. While imports of copper
Venture capitalist and former Infosys concentrates is taxed at 2.5
official Mohandas Pai recently said he per cent, countries that enjoy
expects 10 to 15 internet and tech Free Trade Agreements
companies to list in India over the next (FTAs) with India ship value
three years. “There is a large appetite for added copper products free
good-quality papers at the right price from duties.
from companies that have good Ahead of the ensuing
governance, large businesses and leave Budget for 2019-20, the
some value on the table for the investors Indian Primary Copper
to make money,” Edelweiss’s Shah said. Producers Association (IPC-
BLOOMBERG PA) has demanded cut in
import duty on copper con-
centrates from 2.5 per cent to
nil and hike in duty on
refined copper products from
5 per cent to 7.5 per cent.
The association has also
lobbied for more stringent
norms to apply to scrap recy-
clers to conform to the envi-
ronment pollution norms.
Besides, IPCPA has suggest-
ed levy of environment cess
on imported scrap based on
copper content and raising
duty on imported scrap from
5 per cent to 7.5 per cent.
Major copper producing
countries like China, Japan,
Korea, European Union (EU)
are already importing copper
concentrate at zero duty.
More on business-standard.com
Analysts at Reliance
Securities believe the cur-
rent rabi season would be
in stark contrast to that of
last year, with improved
sowing across key crops
and states.
The major states that
contribute to almost two-
third of the rabi acreage
include Uttar Pradesh,
Madhya Pradesh,
Rajasthan, Maharashtra
and Punjab. Analysts say
that reservoir levels have
improved in these states,
to the extent of 66-99 per
cent compared to 58-87
per cent in the year-ago
period. In fact, southern
and eastern states also
are seeing better reser-
voir levels. The pan-India
figure stood at 89 per
cent of storage capacity,
compared to 66 per cent
at the start of last year’s
rabi season.
“We expect domestic-
focused agrochemical
companies to report an
improvement in sales
momentum,” say analysts
at Edelweiss, who believe
that given the favourable
risk-reward ratio,
Dhanuka Agritech and
Coromandel International
are good bets.
Coromandel’s contin-
ued strengthening of its
market share in the key
fertiliser-consuming
states would play in its
favour. Reliance Securities
believes that Dhanuka
Agritech is also set for
revival, and its stock is
attractively priced. The
company had seen its per-
formance getting impact-
ed since the weak rabi sea-
son last year, while rising
chemical prices had hurt
its margins.
Rallis India’s perform-
ance, too, was impacted by
margin pressure, but a
strong portfolio for Kharif
season provided some
respite after the pick-up in
monsoon earlier this year.
Among other compa-
nies, PI Industries is
expected to be the biggest
beneficiary of higher rice
acreage in the country.
UPL, which has a diversi-
fied geographical pres-
ence and has been bene-
fitting from the growth
momentum in Latin
America, despite benign
sales in Europe and North
America, will get a further
leg up as a good rabi sea-
son will improve its
domestic performance.

IPO CORNER > FROM PAGE 1

Ujjivan SFB shares
drop nearly 7%
after stellar debut
A day after making a stellar
debut on the bourses, shares
of Ujjivan Small Finance Bank
on Friday dropped nearly 7
per cent on profit-booking.
The scrip tanked 6.89 per
cent to close at ~52.05 on the
BSE. During the day, it
dropped 8.49 per cent to
~51.15. On the National Stock
Exchange (NSE), it plunged 6
per cent to close at ~52.55. In
terms of traded volume, 27.97
lakh shares of the company
were traded on the BSE and
over 4 crore shares on the NSE
during the day. Ujjivan Small
Finance Bank on Thursday
listed with over 57 per cent
gains against the issue price
of ~37 and finally closed more
than 51 per cent higher. The
company's IPO, which was
open for subscription during
December 2-4, was
subscribed over 165 times at a
price band of ~36-37 per
share. PTI
Prince Pipes sets
IPO price band at
~177-178 a share
Prince Pipes and Fittings on
Friday said it has fixed a
price band of ~177-178 per
share for its initial public
offering, through which it is
expecting to raise ~500
crore. The IPO will open for
public subscription on
December 18 and close on
December 20, Prince Pipes
said in a statement. The
company’s ~500-crore
initial public offering
comprises ~250 crore
through fresh issue of shares
and an equal amount
through offer-for-sale. It
has set a price band of ~177-
178 per equity share for the
IPO. PTI
Ceiling prices...
The National Pharmaceutical
Pricing Authority (NPPA) has been
receiving applications for price
increases under the DPCO, 2013, for
two years. The applications cited
reasons like increase in API cost,
increase in the cost of production
and exchange rates, etc. In a
January meeting, the NPPA dis-
cussed 49 such applications, which
talked of 72 formulations.
In March a committee was con-
stituted to look into further exam-
ining 19 such formulations based
on parameters of essentiality, the
market shares of the applicant
companies, available alternatives,
etc.
This committee recommended
that these 19 formulations could be
considered for a price increase.
In subsequent meetings, the
NPPA shortlisted only 12 formula-
tions and referred the issue to the
Standing Committee on Affordable
Medicines and Health Products
(SCAMHP), the NITI Aayog, and
the government for guidance on
the modality and methodology to
be followed for such cases.
The Standing Committee in its
November 7 meeting recommend-
ed that the 12 formulations should
be allowed a one-time 50 per cent
increase. It also recommended the
NPPA examine any other addition-
al formulations or molecules for
price increases and present them
to the authority. Another nine for-
mulations were considered in the
subsequent meeting on November
26.
The NPPA said the unviability
of these formulations should not
lead to a situation where these
drugs became unavailable in the
market and the public was forced
to switch to costly alternatives.
The chairman of a leading phar-
maceutical company said: “While
no company can stop manufactur-
ing any drug under price control, it
can reduce the volumes by around
25 per cent each year. Irrational
price control has led to margin ero-
sions and made manufacturing
many drugs unviable.”
In a recent note assessing the
impact of rise of API prices on drug
pricing, Pricewaterhouse Coopers
(PwC) noted: “Since the announce-
ment of DPCO 2013, notified on
May 15, 2013, the immediate growth
had become a challenge for the
industry as almost 652 formula-
tions under 27 therapeutic seg-
ments of the National List of
Essential Medicines (NLEM),
which contributes to 18 per cent of
the domestic formulation market,
had come under the Price Control.
Even in the following years, to date,
the NLEM portfolio has grown
much lower than non-NLEM port-
folio.”
Citizenship law...
This may affect supply to refineries,
and chemicals and fertiliser indus-
tries in the region. The Northeast
has four refineries, including three
of Indian Oil Corporation and the
Numaligarh refinery, a subsidiary
of Bharat Petroleum Corporation.
IndianOil has refineries in
Guwahati, Digboi, and Bongaigaon
in Assam. Production in these
refineries is “down” because
IndianOil is unable to produce
more due to stoppage of tanker
movements.
“Our storage tanks are full.
Where will we store the products,
unless tanker movement happens,”
said an official. All the four refiner-
ies put together processed around
7 MT crude oil in the last financial
year.
The stoppage of oil and gas pro-
duction may lead to a cascading
effect on other sectors. There is fear
that supply by Assam Gas
Company may also get affected,
causing concern on the gas supply
to more than 400 tea gardens.
Industry sources have said that
another major impact will be on the
supply of cooking gas in the region.
“We already have a backlog of
10-15 days for LPG, as transporta-
tion is becoming an issue. This
protest may start affecting kitchens
soon,” Barua added. If the transport
of imported LPG from Haldia in
West Bengal, too, gets affected,
there may be a further rise in the
backlog.
The Assam Chamber of
Commerce said all the major
wholesale markets supplying to the
entire Northeast were closed for
four days now.
“On a daily basis, each of these
major eight markets is suffering a
loss of ~8-10 crore. In addition,
prices of onion have reportedly
touched ~180-200 a kg now,” said
Sisir Dev Kalita, secretary general,
Assam Chamber of Commerce.
Despite curfew and flag march
by the army in Guwahati, Tinsukia,
Jorhat, and Dibrugarh districts over
the past few days, protestors hit the
streets and blocked national high-
ways at various places, even on
Friday.
NBFCs, co-ops...
The central bank has created a new
department of supervision to cen-
tralise vigil on all entities it regu-
lates. It has raised a separate super-
visory cadre
only for this purpose. The RBI
wants supervisory rules as well as
penalties to be uniform.
If the policy is extended to
NBFCs and co-operative banks,
they will have to disclose diver-
gence in asset classification and
provisioning during RBI inspec-
tions in their audited financial
reports. Till now, these entities
have been exempted from this.
At present, there are more than
98,000 co-operative banks and
10,000 NBFCs.
Sources said the RBI would con-
centrate on the top 50 co-operative
banks and NBFCs.
According to RBI data, there are
only 54 scheduled urban coopera-
tive banks.
The RBI is already monitoring
top 50 NBFCs, considered system-
atically important.
The scrutiny regime is likely to
become tougher if the norms are
extended to these entities.
Most of the policy framework
applicable for banks have been
gradually been implemented for
the NBFCs. But RBI did not have
better control on cooperative banks
because of dual regulation. If this
is done, there will be better control
and supervision of RBI on entire
financial system which in turn will
bring much desired financial sta-
bility. This will instill more confi-
dence in the investors", said Deo
Shankar Tripathi, CEO or Aadhar
Housing Finance.
In 2017, the RBI said banks have
to make adequate disclosures
under two conditions: 1. If addition-
al provisioning requirements
assessed by the central bank
exceeds 15 per cent of the net profit
after tax of the bank; 2. If the addi-
tional gross non-performing assets
(NPAs) identified by the RBI
exceeds 15 per cent of the published
incremental gross NPAs for the
banks in a given period.
Now, statutory auditors of
NBFCs and co-operative banks may
be held accountable if there are any
lapses on their part in giving the
true picture of the financial state-
ments of the lenders.
In the past year, with the col-
lapse of IL&FS and the Punjab and
Maharashtra Co-operative Bank,
questions have been raised on the
quality of auditing done by the
statutory auditors.
Recently, an assessment by the
National Financial Reporting
Authority found Deloitte Haskins
& Sells failing to comply with stan-
dards of auditing and compro-
mised its independence by provid-
ing non-audit services for
substantial fees in the matter of
IL&FS Financial Services (IFIN).
The RBI last year said in case a
statutory auditor of any bank is
found liable of lapses in its auditing
standards, the RBI may bar the
auditor from undertaking statutory
audit assignments for banks for up
to three years. The same rule may
apply for large NBFCs and urban
cooperative banks now.
Smuggling of...
Owing to the high taxation, there
is a huge arbitrage opportunity
between the price of a phone which
is imported legitimately into the
country and that which comes
through the grey market from
Dubai, Hong Kong, and the US
which offer zero tax trading. The
Association points out in its letter
to the CBIC that a ~1 lakh phone in
India, with all taxes paid, is avail-
able in these foreign markets at a
price which is lower by ~25,000 to
~30,000 per phone, encouraging
grey market operations.
In simple terms, since such phones
do not pay basic custom duty or
GST, they can be sold at around two
thirds of the price of a legitimate
phone.
Unlike other consumer elec-
tronic items such as televisions,
phones are small and easy to smug-
gle in, especially as there are 10-14
flights daily between India and
Dubai and India and the US, even
though the price of the phones is
higher than the permitted baggage
allowance.
Mobile device manufacturers
who operate in this category have
said that the 20 per cent basic cus-
tom duty will not encourage them
to start manufacturing these
phones in India at all, or shift their
production bases from China,
Vietnam, and Taiwan to India.
The Association has advised the
tax authorities that while the basic
custom duty should be continued
at 20 per cent, the maximum duty
should be pegged at ~ 4,000 per
phone beyond CNF (cost net
freight) price of ~ 20,000 a device.
This would effectively mean
that a phone costing ~ 50,000
would be liable to only eight per
cent duty. The Association con-
cedes that this plan would lead to
a ~ 700 crore loss of revenue from
basic custom duty but points out
that the GST collection will more
than make up for this by going up
by at least ~ 1,000 crore.
Sebi denies...
It also observed that under “no cir-
cumstances, the securities received
in payout can be retained by the
stock broker beyond five trading
days and or can be used for any oth-
er purpose”.
IndusInd Bank, Bajaj Finance,
HDFC Bank and ICICI Bank had
moved the Securities and Appellate
Tribunal after
the National Securities
Depository transferred the client
shares wrongfully pledged by
Karvy Stock Broking back to client
accounts.
"In the absence of correspon-
ding trade instruction, the pledging
of securities of such clients is also
unauthorised and, hence, in law
not treated as a valid pledge," it
said.
IndusInd Bank, Bajaj Finance,
HDFC Bank and ICICI Bank had
moved the Securities and Appellate
Tribunal (SAT) after the National
Securities Depository (NSDL) trans-
ferred the client shares wrongfully
pledged by Karvy Stock Broking
back to client accounts.
The NSDL's move to transfer
80,000 client shares came after
Sebi passed an interim order on
November 22, which among other
things, asked depositories and
exchanges to initiate appropriate
disciplinary proceedings in the
Karvy matter.
After hearing the pleas of the
lenders, SAT had directed Sebi to
pass an order in the matter.