Tag: Ananth Narayan

Is current account surplus good or bad? Experts discuss

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India posted a current account surplus in the April, May and June quarter. This is for the first time in seventeen years that India has posted a current account surplus. The negative from this is that it has come from a very sharp drop in imports because of economy’s inability to consume. However, the positive, some economists say, is that it makes it easy for government to run up a larger fiscal deficit. How was the fiscal deficit connected to current account surplus and more importantly will the current account surplus situation continue?

Sajjid Chinoy, Chief India Economist at JPMorgan, Samiran Chakraborty, Chief Economist – India at Citi and Ananth Narayan, professor of Finance at SP Jain Institute of Management and Research (SPJIMR) discussed in detail.

“We think the current account surplus will sustain at least for this fiscal year. This year we are quite certain that we will get a surplus of 1.5 percent of gross domestic product (GDP), next year if the economy recovers faster and households have more confidence about the future then you would expect them to mark savings rates down,” said Chinoy.

“The longer the shock perseveres and the more uncertainty there is about the future, the higher will savings rate be for the private sector and that should all else equal result in a lower current account balance,” Chinoy added.

“Our number is 1.2 percent of GDP but next year I think it will depend a lot on these nominal variables, gold prices, oil prices etc,” said Chakraborty.

“What we are seeing this year is a forced austerity shock because of the COVID situation. This year will be a current account surplus, I think it will be closer to 2 percent of the GDP,” said Narayan.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

New SEBI risk-o-meter significant for debt mutual funds: Experts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The new risk-o-meter introduced by SEBI will drive home the point to investors that higher returns come with higher risks, Ananth Narayan, Associate Professor, Finance SPJIMR said in a panel discussion on CNBC-TV18.

“One of the issues that AMCs had in the past that you have investors asking for higher returns without recognizing that that will only come if you have a higher risk. So hopefully, when you have a scurry for returns, the fact that the risk is also going up either through credit risk or liquidity risk will show up prominently and therefore, investors will be better informed and will be able to take a better decision,” Narayan said.

He said the new mechanism would be greatly help investors in debt funds.

“Take debt fund for instance, much of the issues around credit risk and for that matter liquidity risk is dependent upon the rating of the paper as well as nature of the paper whether it has any bespoke structure embedded etc,” he said.

“If I have to think like a crook on how I make credit fund look safer than it is; it is probably by cutting down on duration, but remember duration has lesser weightage as far as the risk-o-meter is concerned. Liquidity is given the primary importance which means if there are issues that come up there, it will straight away show up in my risk and will overwhelm any duration risk.”

Sandeep Parekh, Managing Partner, Finsec Law Advisors agreed with the points made by Narayan.

“It’s something which is going to be true to label,” Parekh said, “..so whether you are looking at duration or the risk-o-meter; essentially the fact is that the investors will get a better sense of what they are buying.”

Swarup Mohanty CEO, Mirae Asset Global Investments said that funds will now have a risk history since the risk report will be made public monthly. Mohanty did not see any operational problems in implementing the new risk-o-meter and said the regulation will be quite significant for debt mutual funds.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Here’s what key voices from the world of business and markets told CNBC-TV18 today

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The long-term structural growth story of India is still intact. That is why we continue to invest in India. I have a very strong bias towards largecap stocks because as a foreign investor, we know that India can be volatile and when liquidity dries up, those very high beta smallcap and midcap stocks can damage your portfolio. So, I generally stick with largecaps and Infosys and Tata Consultancy Services (TCS) are the two largest IT services stocks in my portfolio.

– Mary Manning, portfolio manager at Ellerston Capital

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India has done better than ASEAN, places like Taiwan, Malaysia, Philippines or some of the weaker EMs like Brazil, South Africa, Turkey or Russia. India never looks attractive on the regional or a global basis from a valuation perspective. It is going to be the thirteenth year in a row of declining earnings. It is the promise of India and a select few pockets where Indian businesses actually do have competitive advantages that keep investors invested in India. 

– Viktor Shvets, Macquarie

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I think the other states may also follow suit (stamp duty cut) because housing can spur economic growth in a big way as it creates many jobs. In July, we disbursed about Rs 7,600 crore which is 18 percent higher than what we had done June.  Year-on-year in July we have done 81 percent of what we had done in July last year.

– Keki Mistry, CEO of Housing Development Finance Corporation

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In terms of FX – foreign currency – RBI does not have a policy framework. The only thing is the RBI intervenes to manage some unstated measure of volatility, it does not target a level. They don’t have a policy in place, which means they can justify anything.

We have to second-guess what the RBI will be thinking and too much of appreciation of the rupee is not good for our industry. It is true that we have a current account surplus. But when the economy recovers again and the consumption comes back, chances are that we will go into a current account deficit again and we will have negative overall permanent flows going through.

– Ananth Narayan, Professor at SPJIMR

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We are now looking at immediate horizons that when we meet our targets. We need to book the profits and stay with it at that point of time. Even if you have to churn sectors, that is fine with us but now there are no more holy cows in the system that we must carry them long-term. We are very clear in our mind that profit targets need to be met.

– Ajay Srivastava, CEO, Dimensions Corporate Finance Services

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There will be some pressure on the asset quality because 90 percent of our customers have already self-occupied their residential properties which we have funded. So no construction risk is there in our book. We may see some delay in the collections but there may not be ultimate default or losses this year.

– Ghanshyam Rawat, Co-Founder & CFO, Aavas Financiers

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There is a lot of demand from digital channels. So, it is new for the industry and the consumers, and brands that can satisfy consumer needs will definitely get the benefit. Compared to the last year, things are subdued and tougher, but overall we see a positive demand from the customers. We had a very strong Q1 and we continue to have a strong momentum even in Q2. So we remain optimistic and bullish.

– Mohit Malhotra, MD & CEO of Godrej Properties

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If in the month of September all SMA II customers default, that will add up to NPA. We are pretty comfortable on that because we had very tight control on our SMA numbers. So we don’t see any significant rise in NPAs next quarter.

– Girish Kousgi, MD & CEO of Can Fin Homes

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When we opened up in the post lockdown, everybody thought that consumer durable was seeing pent-up demand. But now in August, we have seen that demand is back. We are more or less nearly at par with last August. In July we were 70-75 percent, in August we are nearing to 100 percent.

– Nilesh Gupta, Managing Partner of Vijay Sales

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Our overall business is actually growing now. We have seen growth in August for the first time over last year’s numbers. July would be around 90-95 percent of last year, but YTD given that April and May got washed out we are still significantly negative. There is some demand where customers actually ask which country has this come from, but no discernible shift so far.

– Ritesh Ghosal, CMO, Croma – Infinity Retail

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Debt mutual fund norms to be rejigged soon

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Investors of debt mutual funds have been living under a shadow over the last many months, and indeed to some extent ever since the IL&FS crisis. There have been many calls for a rejig of the debt mutual fund definitions to factor in the ‘new reality’ which includes defaults, liquidity concerns and the loopholes within investment norms and definitions.

According to sources, market regulator Sebi has been taking feedback from the mutual fund industry and has now formed a working group to look into best practices to ensure robustness of liquidity risk management of open ended debt funds. This working group will be chaired by Ananth Narayan, Associate Professor at SPJIMR and a member of Sebi’s Mutual Fund Advisory Committee.

Also read: SEBI offers relief to stressed companies, eases preferential allotment and open offer exemption rules

This working group will also include representatives from the mutual fund industry including current AMFI chairman Nilesh Shah (MD & CEO, Kotak Mah AMC); AMFI CEO, NS Venkatesh; Amit Tripathi, CIO-fixed income, Nippon India AMC; Anil Bamboli, fund manager, HDFC AMC; Maneesh Dangi, CIO-debt, ABSL MF and Mahendra Jajoo, CIO-fixed income, Mirae AMC. This working group will provide recommendations to Sebi for their consideration and the timeline for the same has not yet been specified.

Foremost among the issues this working group will consider is whether there should be a mandate that all open ended debt funds should have minimum 10 percent exposure in liquid assets like cash, government bonds, T-Bills and TREPS. Currently, there are no such limits for any category of debt schemes except liquid funds. While it may bring down returns, it will definitely up the safety factor.

Also read: Franklin Templeton Mutual Fund’s shut schemes receive Rs 3,275 crore since closure

The elite group will also consider mandatory stress testing of all open ended debt schemes. So far, only general guidance has been provided by Sebi and Association of Mutual Funds in India (AMFI) regarding stress test for schemes but it has been left to the discretion of the mutual fund trustees to decide periodicity and the action to be taken on stress test reports. One would have thought that trustees would be seized of the seriousness and necessity of a stress test but industry sources say that is not the case.

Given the recent shutdown of the 6 managed credit schemes by Franklin Templeton MF, the Sebi working group will also consider whether there should be some restriction on redemption or gating. What this essentially means is that a fund manager will have the ability to limit or halt redemptions beyond a certain specified limit.

Another point of consideration will be swing pricing for mutual fund schemes. This is a tricky one which has not been seen in the Indian market. In a developed market like US, the market regulator Securities and Exchange Commission (SEC) had introduced this concept in 2016. Swing pricing basically allows a fund to adjust its NAV to pass on to purchasing or redeeming shareholders the costs incurred arising from their purchases or sales. For example, a fund faced with heavy redemptions is forced to liquidate some bonds at a discount, then the impact cost of being forced to sell this bond on an urgent basis will reflect in the NAV of existing investors. Thus, the less knowledgeable retail investor who is left behind in the scheme will not have to bear the brunt of lower NAV alone.

Also read: Mutual fund or direct investment in stocks? Here’s how young investors altered their course

Sebi has also asked the working group to look at the process of creation of segregated units or ‘side pockets’ as they are commonly called. The regulator had originally introduced this regulation in 2018, prior to the DHFL default. When the DHFL default happened, many asset management companies (AMCs) had not even created the provision of segregation in their schemes and were left red faced. Even then, it was never envisaged that some schemes would end up creating multiple segregations. The expert panel will have to find ways to update this regulation to the challenging times at hand.

Sebi has also given a free hand to this working group to add to the overhaul as required. This is where industry insiders say is the scope for some more reform.

It’s interesting that currently, duration funds have no minimum requirement of credit quality of underlying paper and credit funds have no requirement in terms of underlying duration. For example, short term bonds should not be allowed to invest in perpetual bonds or floating rate bonds which don’t fit the basic requirement of the fund in terms of maturity but are there because of something called Macaulay Duration. Macaulay duration is the weighted average term to maturity of the cash flows from a bond. So, a near term fund’s offer document may read a Macaulay Duration of 3-6 months implying access to liquidity but a closer inspection may reveal bonds which will mature after 7-10 years. Many independent experts say the scope of this calculation should be tightened and more clearly defined.

Also read: How to measure the risk of mutual funds investments

Sources say that Sebi had not defined the credit requirements in duration funds and duration requirements in credit funds as they had left it to the ‘wisdom’ of the fund manager to understand the spirit and requirements of their schemes. However, many have chosen to flex the rules, leaving a bitter after taste. It is perhaps time to marry the two at some level.

Another area of concern has been the prevalence of PTCs or ‘Pass Through Certificates’ in non-credit risk bonds. A PTC is a certificate that is given to an investor (either banks or mutual funds or insurance cos) against certain mortgaged-backed securities that lie with that issuer. Given that a six month moratorium has been given on loans, and the vast relaxations in existence regarding this source of investment, it may be time to look into it more closely.

Given the battered sentiment of the retail investor, this is a golden opportunity for the market regulator to tighten the rules and extend the scope of the overhaul as wide as required. Despite being a fiduciary industry, many AMCs have exploited existing norms under the garb of “it’s not mandated otherwise” and it’s time to change that. That alone will regain the lost ground of the last few months and one can only hope that it won’t be squandered away.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow