LIC MF gets mega bailout

"Insurance firm picks up illiquid realty bonds worth Rs1,755 crore
from mutual fund arm amid a credit crunch"


State-owned Life Insurance Corp. of India Ltd (LIC) may have bought
illiquid debt paper, largely of real estate firms, worth at least
Rs1,755 crore from its unit LIC Mutual Fund Asset Management Ltd (LIC MF) in October, according to people familiar with the matter.

The off-market deal was effected to provide liquidity to LIC MF to
meet redemption pressure without resorting to distress sale of assets, an option not readily available to other mutual funds.

LIC, India's largest insurer, had assets under management of Rs5.59
trillion at the end of fiscal 2007, the latest period for which
figures were available from the Insurance Regulatory and Development
Authority, more than the sum of assets managed by the entire mutual
fund industry in India.

The acquired debt included bonds worth Rs650 crore sold by BPTP Ltd, Rs543 crore by Housing Development and Infrastructure Ltd, Rs195 crore by Unitech Ltd and Rs117 crore by Sobha Developers Ltd, among others, said at least three people with knowledge of the matter who didn't want to be named.

At the end of September, LIC MF held bonds of realty firms worth about Rs2,180 crore in its so-called liquid and liquid-plus funds, which are popular debt schemes among corporate investors and bank treasuries for parking surplus funds. 

By October-end, when a liquidity crunch had taken a firm hold on the
markets, the liquid and liquid-plus funds only had about Rs425 crore
of real estate paper, suggesting that LIC MF had disposed of assets
worth Rs1,755 crore in an illiquid market. A transaction between LIC
and LIC MF would have been off the market and not reflected on the
corporate bond market.

Neither Thomas Mathew, managing director of LIC, nor Sushobhan Sarker, chief executive of LIC MF, responded to emails and phone calls.

Large-scale early withdrawals since mid-September, after the collapse of investment bank Lehman Brothers Holdings Inc., plunged the global financial system into an unprecedented liquidity crisis which also hit Indian fund houses hard. Mutual fund investors redeemed at least Rs96,000 crore from debt schemes in September and October.

The turnover in the corporate bond market dipped to Rs7,803 crore in
October compared to an average of at least Rs11,000 crore in the first
nine months of 2008, according to data on the website of the capital
market regulator Securities and Exchange Board of India.

"Lack of liquidity and risk aversion killed the (corporate bond)
market then," said J. Moses Harding, vice-president, wholesale
banking, IndusInd Bank Ltd. "It has not improved since."

A flight to safety among investors further sucked liquidity out of the
system. Despite the central bank extending a Rs60,000 crore credit
line for banks to lend to mutual funds, debt managers working in an
illiquid corporate bond market had a tough time selling bonds to meet
redemption demands.

LIC is not the only firm to bail out its mutual fund unit. Housing
Development Finance Corp. Ltd, India's largest home loan company, and its partner Standard Life Plc. have taken a similar route. Standard
Life holds a 40% stake in HDFC Asset Management Co. Ltd.
"The fund has certain property assets owned by Indian property
companies and those assets have now turned out to be not as good
quality as we thought they would be," said Gerry Grimstone, chairman of Standard Life, in a recent interview with Mint.

"The promoters have found a way of removing those assets from the fund to the benefit of the investors in the fund," Grimstone said,
explaining that the firm has "substituted some of the assets of the
fund which have a longer duration with high-quality short-term assets
to make sure that the fund's liquidity is preserved".

Sources

Sharekhan Post-Market Report dated December 18, 2008

Sharekhan's daily newsletter December 18, 2008   Index Performance Index Sensex Nifty Open 9,710.20 2,955.35 High 10,110.34 3,072.55 Low 9,633.04 2,922.65 Today's Cls 10,076.43 3,060.75 Prev Cls 9,715.29 2,954.35 Change 361.14 106.40 % Change 3.72 3.60   Market Indicators Top Movers (Group A) Company Price  (Rs) % chg Gainers India Infoline 52.75 16.19 RNRL 55.65 15.34 Educomp Solutions 2,615.75 12.57 IRB Infra 127.35 12.35 GVK Power 21.40 12.34 Losers Glenmark Pharma 298.65 -8.63 Aban Offshore 751.80 -5.67 Pantaloon Retail 213.60 -4.69 Cairn India 159.70 -3.97 Blue Star 153.05 -3.68 Market Statistics - BSE NSE Advances 1,490 792 Declines 966 410 Unchanged 91 42 Volume(Nos) 42.01cr 85.74cr  Market Commentary  Realty stocks lift market spirits Rally in realty stocks leads the Sensex gain 361 points for the day. Better weekly inflation numbers spirit up the market as the 30-stock Sensex gains around 350 points at close. The market staged a solid performance, backed by strong all-round buying   inspite of other major Asian indices exhibiting a subdued trend in morning trades. The market opened five points higher at 9,710, but slipped immediately on selling in heavyweight, health care and oil & gas stocks and touched the day's low of 9,633. However buying at lower levels in realty, banking, power and public sector units' stocks saw Sensex shed all losses and enter into the green again. Sustained buying thereafter helped Sensex regain the 10,100 mark and touch the intra-day high of 10,110. Sensex finally closed the session at 10,076, up 361 points. Nifty ended the session 106 points higher at 3,061. The market breadth was negative with the losers outpacing the gainers in the ratio of 1.43:1. Of the 2,547 stocks traded on the BSE, 1,490 stocks advanced, whereas 966 stocks declined. Ninety one stocks ended unchanged. Among sectoral indices, BSE IT moved up by 5.77% followed by BSE Teck (up 3.94%), BSE Metal (up 3.63%) and BSE Auto (up 3.54%). However BSE CD and BSE Realty closed in a negative territory and shed 0.05% each. Among reality stocks, DLF shot up 9.56% at Rs277.40, Unitech soared 9.17% at Rs38.10, Indiabulls Realestate surged 8.95% at Rs143.05 and Phoenix Mill jumped 4.96% at Rs77.20. Among other gainers, JP Associates moved up by 9.36% at Rs84.15, Reliance Infrastructure scaled up 9.32% at Rs600.35, ICICI Bank was up 9.16% at Rs471.35, SBI advanced by 7.88% at Rs1,295.85, Satyam Computer Services gained 7.15% at Rs169.35 and Tata Motors advanced by 7.09% at Rs173.63. However, Grasim Industries slipped 0.33% at Rs1230.35 followed by Sterlite Industries down 0.11% at Rs270.90.  Over 3.34 crore shares of Satyam Computer Services changed hands on the BSE followed by Reliance Natural Resources (2.27 crore shares), HDIL (1.99 crore shares), Suzlon Energy (1.62 crore shares) and Unitech (1.30 crore shares). European Indices at 16:00 IST on 18-12-2008 Index Level Change (pts) Change (%) FTSE 100 Index 4338.50 14.31 0.33 CAC 40 Index 3223.63 -18.30 -0.56 DAX Index 4754.34 45.96 0.98 Asian Indices at close on 18-12-2008 Index Level Change (pts) Change (%) Nikkei 225 8667.23 54.71 0.64 Hang Seng Index 15497.81 37.29 0.24 Kospi Index 1175.91 6.16 0.53 Straits Times Index 1798.95 19.66 1.10 Jakarta Composite Index 1351.76 -12.22 -0.90

 

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Sharekhan Post-Market Report dated December 17, 2008

Sharekhan's daily newsletter December 17, 2008   Index Performance Index Sensex Nifty Open 10,073.10 3,040.45 High 10,073.10 3,076.20 Low 9,682.91 2,943.50 Today's Cls 9,715.29 2,954.35 Prev Cls 9,976.98 3,041.75 Change -261.69 -87.40 % Change -2.62 -2.87   Market Indicators Top Movers (Group A) Company Price  (Rs) % chg Gainers MMTC 15,840.95 20.00 Future Capital 181.85 13.09 United Phosphorus 110.40 11.29 Max India 118.00 8.26 United Breweries 89.05 4.27 Losers Satyam Computer 158.05 -30.22 RNRL 48.25 -16.01 Thermax 181.20 -15.96 GVK Power 19.05 -14.00 Reliance Infra 549.15 -13.73 Market Statistics - BSE NSE Advances 956 325 Declines 1,569 898 Unchanged 72 27 Volume(Nos) 37.8cr 84.43cr  Market Commentary  Market gives up three-day winning streak  Sensex witnesses an intra-day swing of 390 points and sheds 262 points on broad-based selling pressure.  Taking cue from last three day's gain of around 342 points, Sensex opened on a firm note at 10,073, around 96 point up from the previous close of 9,977.     While the market witnessed a fluctuating trend for a while, the afternoon trades saw the index tumble below the 9,700 mark to touch the day's low of 9,683 amid relentless selling pressure. Sensex finally ended the day with loss of 262 points at 9,715, whereas Nifty declined by 87 points to close at 2,954.  Market breadth was extremely weak as losers outdid gainers. Of 2,597 stocks traded on the BSE, 1,569 stocks declined while 956 stocks advanced. Seventy two stocks ended unchanged. All the sectoral indices slipped sharply. BSE Realty dropped 7.36% followed by BSE Teck (down 5.02%), BSE Power (down 4.44%), BSE Metal (down 4.36%), BSE IT (down 4.04%) and BSE CG (down 3.86%). Most of index heavyweights witnessed heavy correction. Among majors, Satyam Computer Services tumbled 30.22% at Rs158.05, Reliance Infrastructure dropped 13.73% at Rs549.15, Reliance Communications moved down by 13.36% at Rs202.70, and JP Associates lost 12.11% at Rs76.95. Other frontline stocks lost between 1-9% each. Select counters, however, bucked the downtrend and ended with gains. ICICI Bank advanced 2.43% at Rs431.80 and HDFC Bank moved up by 1.83% at Rs1,002.05, while Infosys, Wipro, Hindustan Unilever Ltd, Mahindra & Mahindra, Grasim Industries, ONGC and Maruti Suzuki India ended with modest gains.  Realty stocks were hit hard and dropped sharply. India Bulls Realestate crumbled by 11.13% at Rs131.30, Orbit Corporation lost 10.57% at Rs60.10, Unitech shed 9.11% at Rs34.90 and DLF declined by 8.64% at Rs253.20. Mahindra Life Science, Ansal Properties and Infrastructure, Parsvnath Developers and Peninsula Land were down over 6% each.  Over 3.33 crore shares of Satyam Computer Services changed hands on the BSE followed by Reliance Natural Resources (2.27 crore shares), HDIL (1.99 crore shares), Suzlon Energy (1.61 crore shares), Unitech (1.30 crore shares) and GVK Power & Infrastructure (1.17 crore shares). Satyam was the most actively traded counter on the BSE and registered a turnover of Rs551 crore followed by Reliance (Rs347 crore), HDIL (Rs305 crore), Reliance Infrastructure (Rs165 crore) and Educomp Solutions (Rs160 crore). European Indices at 16:00 IST on 17-12-2008 Index Level Change (pts) Change (%) FTSE 100 Index 4250.37 -58.71 -1.36 CAC 40 Index 3207.83 -43.83 -1.35 DAX Index 4657.28 -72.63 -1.54 Asian Indices at close on 17-12-2008 Index Level Change (pts) Change (%) Nikkei 225 8612.52 44.50 0.52 Hang Seng Index 15460.52 330.31 2.18 Kospi Index 1169.75 8.19 0.71 Straits Times Index 1779.29 -2.80 -0.16 Jakarta Composite Index 1363.98 21.14 1.57

 

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RBI & DOLLAR RELATION

The Reserve Bank of India sold $20.6 billion in October, according to the figures published in the December bulletin of the bank.

It was during October that the local currency faced severe pressure. The currency declined from about 47 to the dollar at the beginning of the month to a little over 50 at the end of October. The decline in forex reserves during that period had prompted speculation that the RBI was 'intervening' massively to prop up the local currency.

The super spike in oil prices on the one hand and flight of capital on the other have been the two factors that saw the RBI furiously sell off dollars to prop up the rupee, according to Dr D.K. Joshi, Director and Principal Economist at rating agency Crisil.

The RBI has so far in this fiscal sold close to $34 billion while purchasing $5.68 billion. The net sale of $28.3 billion would mean that an equivalent amount of Rs 1,20,000 crore has been removed from the banking system – causing some liquidity crunch before the announcement of recent liquidity infusing measures.

Why RBI buys

The RBI buys dollars in the market when there is a heavy inflow of dollars – as was the case in the last few years. This is done to prevent the rupee from appreciating beyond the level that the RBI is comfortable with. A considerable part of the liquidity enjoyed by commercial banks during the past few years owed its origins to the dollar inflows that were sucked out by the RBI.

By placing rupees in their hands and once again 'sterilising' it by selling government paper to banks, the RBI was hoping to keep inflation under control.

During 2006-07 the RBI did not sell any dollars in the market. In 2007-08 also the RBI remained a purchaser of dollars – except in March, when it sold about $1.4 billion. During these two years alone, the RBI had purchased about $100 billion – which got added to the country's forex reserves.

The RBI was also very active in the forward market for dollar purchase from October 2007 when the inflows were high. Its outstanding net purchase of dollars in the forward market was at a high of $17 billion in April 2008 after which it has gradually reduced the net position to a mere $90 million in October 2008.

Since June this year, the RBI has had to intervene actively and sell more dollars than what it purchased during each month. There was a brief reprieve in August but things have taken a turn for the worse after that.

Volatility to continue

According to Dr Joshi, the nascent, if hesitant, uptrend in rupee in recent times should relieve the pressure on the Reserve Bank to continue to aggressively engage the market.

The drop in oil prices has come in as a major stress-buster, but Dr Joshi was apprehensive that the exchange rate scenario would continue to be volatile with each passing day bringing out varyingly depressive forecasts on global finances.

But he struck an optimistic note with a hunch that capital flows should begin to trickle in sooner than later. And that next year would not require the RBI to be as active in the market as it has been throughout year 2008.

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Courtesy: Rohit

Sharekhan Post-Market Report dated December 16, 2008

 

Sharekhan's daily newsletter December 16, 2008   Index Performance Index Sensex Nifty Open 9,794.48 2,983.60 High 10,009.21 3,052.55 Low 9,790.31 2,963.30 Today's Cls 9,976.98 3,041.75 Prev Cls 9,832.39 2,981.20 Change 144.59 60.55 % Change 1.47 2.03   Market Indicators Top Movers (Group A) Company Price  (Rs) % chg Gainers MMTC 13,200.80 20.00 Videocon Industries 125.15 19.99 GMDC 45.70 19.95 HCL Tech 122.95 17.99 Bajaj Hindusthan 66.65 16.83 Losers Sterlite Industries 285.95 -7.07 HDFC 1,545.40 -4.13 Sintex Industries 183.35 -4.08 Jain Irrigation 310.55 -4.06 MTNL 78.40 -3.21 Market Statistics - BSE NSE Advances 1,866 962 Declines 648 253 Unchanged 67 39 Volume(Nos) 37.79cr 77.28cr  Market Commentary  Sensex flirts with 10,000 The market notched up gains for third consecutive session on buying in consumer durables' and public sector units' stocks. The 30-stock Sensex of BSE began the trading session at 9,794, down 38 points from yesterday's close and moved up in early trades on buying in heavyweights.     However, the index eased on profit booking in metal stocks and touched an intra-day low of 9,790. Down the day, the index surged and touched an intra-day high of 10,009 on substantial buying in consumer durables, public sector units and oil stocks. The Sensex finally settled at 9,977, up 145 points. Nifty ended the session at 3,042, up 61 points.  The market breadth was positive. Of the 2,581 stocks traded on BSE, 1,866 stocks advanced whereas 648 stocks declined. Sixty seven stocks ended unchanged. Of 13 sectoral indices, BSE CD advanced 7.44% followed by BSE PSU (up 5.03%), BSE Oil & Gas (up 3.30%) and BSE HC (up 2.48%).  Most heavyweights ended in positive territory. ONGC rose 6.07% at Rs713.75, Grasim Industries advanced 4.59% at Rs1,227.60, ACC climbed 4.34% at Rs535.65, Tata Motors surged 4.33% at Rs164.95, HDFC Bank gained 4.10% at Rs984, Reliance Industries added 3.64% at Rs1,386.80, National Thermal Power Corporation jumped 3.50% at Rs1238.15, State Bank of India advanced 2.80% at Rs1238.15, Ranbaxy Laboratories added 2.50% at Rs219.10 and Tata Consultancy Services was up 2.37% at Rs480.75. Among the laggards, Sterlite Industries shed 7.07% at Rs285.95 and HDFC slipped 4.13% at Rs1545.40. Reliance Infrastructure, Reliance Communications, DLF, Larsen & Toubro and Tata Steel ended with marginal losses. Over 3.51 crore shares of Reliance Natural Resources changed hands on BSE followed by Unitech (2.29 crore shares), IFCI (2.24 crore shares), Reliance Petroleum (1.50 crore shares) and GVK Power & Infrastructure (1.46 crore shares). European Indices at 16:00 IST on 16-12-2008 Index Level Change (pts) Change (%) FTSE 100 Index 4316.41 38.85 0.91 CAC 40 Index 3228.61 42.95 1.35 DAX Index 4723.39 68.92 1.46 Asian Indices at close on 16-12-2008 Index Level Change (pts) Change (%) Nikkei 225 8568.02 -96.64 -1.12 Hang Seng Index 15130.21 83.26 0.55 Kospi Index 1161.56 3.37 0.29 Straits Times Index 1782.09 7.33 0.41 Jakarta Composite Index 1342.84 -16.44 -1.21

 

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