Why the markets were down, many IPOs this week, Vodafone's tax case, & more...

-Weekly-

Sensex 37,389 ▼ 3.75% 

Nifty 11,050 ▼ 3.95%

This week has not been easy for many investors.

But for some investors, weeks like this don’t change their investment plans much.

Sensex and Nifty fell nearly 4% this week. Why?

Well, could be because the US stock markets fell heavily the day before. And all our markets are interconnected. So something bad happening there is going to spill over to our markets too.

But, why did their markets fall?

Here’s the thing.

All over the world, many news channels are flashing the various reasons behind the fall. One of the prominent ones is “because of rising cases”. But this actually is a very weak explanation for why the markets are falling.

Think of it, the number of cases was already rising since March. They haven’t stopped rising since. But over the same period of time, the markets have recovered from the lows.

So to say the markets are now down a few percentage points because of rising cases isn’t a very convincing argument.

So what is actually happening?

Truth be told, nobody truly knows. Markets are very complicated and many things happen because of unexplained reasons. No person can tell you the actual reasons behind the fall. We can only speak of possible reasons. As of this week, it could be because of the excess liquidity in the markets. Which in this case means, the western countries have printed a lot of money. So there is more money in the system.

More money is difficult to invest when the performance of many investments aren’t very good. And due to uncertainty, investors might be shifting the money in and out of different investments quickly.

But again, this may be the reason. Nobody knows for sure.

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 IPOs Galore

We covered this in the previous digest too. Suddenly, there seems to have been a big uptick in the IPOs space of the Indian markets.

Route Mobile and Happiest Minds left their investors pretty happy.

And now, more and more people want to invest in IPOs. Just this past week, the subscription of Angel Broking, Chemcon, and CAMS closed. And from Monday, you’ll be able to subscribe to the IPOs of UTI AMC, Mazagon Docks, and Likhitha Infra.

What is an IPO?

Initial Public Offering. Basically, this is how a company lists itself on the exchange. Before IPO, the public can’t buy the shares of the company on BSE or NSE. But after listing, we all can buy and sell shares of the company on BSE and NSE. And after listing, there’s no difference between existing shares and a newly IPO-ed share. IPO frenzy is probably because of the gains made in the current IPOs

For long term investors, a cheaply priced share is a great buying opportunity.

For others, it is a quick way to grow money. But at the end of the day, owning a share is basically owning some business. And good and bad businesses are part of the markets. So, an IPO after launch can go up; can go down; or not change much - just like any existing share. And we all know, the best way to purchase shares is to research thoroughly whatever is being purchased.

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Victory for Vodafone Group in Tax Case

Back in 2007, you’d remember there was a telecom company called Hutch. Vodafone had acquired the company for around $11 billion and turned it into Vodafone. The Income Tax dept had claimed that the company owed Rs 22,100 crores in taxes to the government for the deal. According to Vodafone’s interpretation of the existing rules, Vodafone claimed that it had done nothing wrong. The case was fought in Bombay High Court which said that Vodafone did owe the taxes.

So Vodafone went to Supreme Court. The Supreme Court said that Vodafone was correct in their understanding of the existing tax laws. So they didn’t owe any taxes. The government then made changes to the rules. This meant that the taxes would have to be paid.

Vodafone then took this case to the Permanent Court of Arbitration at The Hague. They have suggested that this tax request should be dropped since it was retrospective in nature. Vodafone-Idea’s share price jumped 13% following this news. Vodafone Group is the parent company of Vodafone-Idea.

$755.1 mn: Amount US PE firm KKR & Co is investing in Reliance’s retail arm.

15kg: Weight of luggage you can now check-in while flying domestically. There was a restriction imposed on the weight since the lockdown which is now being removed.

 3 IPOs lined up this week

As mentioned earlier in this digest, there are 3 upcoming IPOs.

Mazagon Docks

A company that builds ships for defence as well as civilian purposes. They have also built submarines for the Indian Navy. Read more about the company and its IPO here. 

UTI AMC

This company has been active in the asset management space since 1963 and is the 2nd largest AMC by the size of funds managed. Read more about the company and its IPO here. 

Likhitha Infra 

This company has been active since 1988 and involved in the oil and gas pipeline business. Read more about the company and its IPO here.

How the Indian banking system threatened itself 

This week has been pressurising on many fronts. Jio has launched new post-paid plans, which could escalate the tariff-war in the telecom sector. Thanks to this development, Vodafone and Airtel's post-paid plans are selling at a 25% premium to those launched by Jio.

Further, the centre and states continue to bargain a higher share in the Union tax revenue. While the centre is not happy to forgo over 42% of its revenue, the states are demanding 50% of the chunk. We hope the 15th Finance Commission has a stress ball to calm its nerves.

Recently, over 2,500 documents filed by several major global banks between 2000 and 2017 were leaked, raising concerns about the integrity of the global and Indian banking system. Let’s discuss how this piece of news is relevant to us Indians and whether it is truly a matter of concern. Indian citizens and businesses are put up across the globe, which makes it impractical for domestic banks to serve them out of every nook and corner of the world. That’s why domestic banks have agents called as correspondent banks all over the globe. These are overseas banks that function in 2 ways. One, they facilitate fund transfers, accept deposits, and other effect other transactions between international customers and domestic banks (respondent banks). Two, they give respondent banks access to foreign financial markets. 

While the correspondent banking system opens new doors of business for Indian banks, it also gives them opportunities to effect illegal transactions. That is why, the US requires correspondent banks to file Suspicious Activity Reports (SAR) to Financial Enforcement Network (FinCEN), the US regulator, so such illicit transactions can be stopped/addressed. These reports feature respondent banks involved in potentially questionable transactions in the nature of money laundering, fraud, terror financing, corruption, and drug dealing. Fortunately or unfortunately, the recent FinCEN files that were leaked unveiled 44 major Indian banks (both public and private) and individuals involved in potentially harmful financial transactions. 

But it is noteworthy that these transactions only suggest concerns and are not proof of wrongdoings. Yet, these banks have defended themselves by pointing that they have red-flagged the suspicious transactions to the RBI on their own. Nevertheless, the development has put forth crucial gaps in India’s regulatory system, which is a concern. How could these transactions make it past the Financial Intelligence Unit-India (FIU-IND), the RBI, and other regulatory and investigative authorities’ attention? The concern is more so because international banks have been warned and fined time and again by regulators on failing to report such suspicious transactions being caught in apparent checks.

UP WINDS !!

Snuffed out by a fire 

A massive fire broke out at ONGC's Surat plant after 3 consecutive blasts took place at the Hazira Gas processing plant on Thu. While the fire has been brought under control and no casualty or injuries have been reported so far, the fumes have dampened investor sentiment. Apparently, the fire was caused by a rupture in a pipeline at the terminal

 

One acquisition at a time 

After acquiring Future Retail and apparently showing interest in selling a stake of Reliance Retail to Amazon, Reliance Industries Limited is now looking to takeover Debenhams, a 242-yr-old UK multinational retailer. The retail arm of Reliance is discussing with advisers at Debenhams for a probable takeover by Sep-end. Debenhams is currently facing legal action by creditors due to the coronavirus crisis

SKY FALL!!

On a default spree 

Future Enterprises Ltd hit the 5% lower circuit after revealing that it has defaulted on the payment of the interest on non-convertible debentures. Last week too, the Kishore-Biyani led entity had defaulted on payment of commercial paper of ₹ 90 cr.

Introduction to US Stock Indices

You have obviously heard of Sensex and Nifty. They’re the indices we use primarily in the Indian markets. Sensex is made up of 30 top stocks. Nifty is made up of 50 top stocks.

Likewise, the US too has its own indices. But their market is much much bigger than ours.

So they have Dow Jones made up of 30 stocks. And Nasdaq made up of 100 stocks. And S&P 500 made up of 500 stocks.

 Markets this week

📈 Sensex: 37,389 ▼3.75%

📈 Nifty: 11,050 ▼3.95%

🥇 Gold: Rs 49,659 ▼3.97%

🥈 Silver: Rs 59,027 ▼13.03%

📈 Dow Jones: 27,138 ▼1.87%

📈 Nasdaq: 10,913.56 ▲1.11%

HAPPY INVESTING 

SEE YOU TOMORROW !!