Don’t be sensitive

The first Monetary Policy Review by the new six-member committee proved to be rather a damp squib. Yes, repo rates were trimmed by 0.25 per cent to 6.25 per cent.

But with the newly reticent RBI offering few clues about the future trajectory of rates, markets were left speculating if this is the bottom of this rate cycle or there is more to come.

While the equity markets were said to be ‘positively surprised’ by the cuts and the Sensex rose a modest 91 points on Tuesday, bond markets were cool to the move.

Nevertheless a few media houses/brokers were ready with lists of ‘10 rate-sensitive stocks to buy now’. But these lists were mostly an excuse to reiterate buys on usual suspects such as SBI, Bank of Baroda, Axis Bank, Maruti, L&T and Hero MotoCorp, already on everyone’s shopping list.

Hardly anyone was brave enough to up their ratings on banks with big NPAs or companies with a mountain of debt. The truth is that the incremental benefit from this cut for the really rate-sensitive sectors such as realty and infrastructure, steel and metals or PSU banks is quite limited.

Though RBI’s repo rates have tumbled by 175 basis points since January 2015 (including the latest cut), banks have passed on only 60-70 basis points to borrowers. And given how risk averse banks are currently, even these cuts are unlikely to have reached heavily indebted borrowers. The belief that rate cuts will give a leg up to retail credit, thus boosting sales of cars, two wheelers and homes is a little weak too, as these purchases depend more on the income prospects of consumers rather than interest rates.

So the stronger banks may be the sole gainers from the policy, with both treasury gains and better margins to look forward to. After all, such cuts give them a good excuse to slash deposit rates further (Read: It's advantage new borrowers ).

Slow reaction

SEBI issued an order under its Insider Trading regulations against Piramal Enterprises, Ajay Piramal, Swati Piramal and others after investigating ‘alleged irregularities’ in the scrip many years ago. This pertains to the company’s sale of its domestic formulations business to Abbott Labs, a good six years ago.

The sum and substance of SEBI’s order seems to be that Anand Piramal, son of Ajay Piramal, who is neither a Director nor an employee in the company, was in the know about the Abbott deal, much before details of it were announced to the stock exchanges on May 21 2010. SEBI has also alleged that the company did not close its trading window as talks for the sale were in progress. Also, one of the employees did not obtain pre-clearance to trade in the stock during this period.

The Piramals in their reply have contended that Anand Piramal, while he may have been privy to the news of the sale as a ‘connected person’, did not actually trade in the share. As to other issues like shutting the trading window, they have stated that as the commercial agreement was inked only on May 20, announcing it ahead may have amounted to ‘creating a false market in the share’.

We need to see if the Piramals appeal against this order or decide to simply pay up the modest fine of Rs 6 lakh each. The Piramal Enterprises stock, a value investor’s favourite, has wilted a bit this week (Rs 1,924 just before the order, Rs 1,855 now).

But no worries yet. SEBI’s order isn’t accusing the Piramals of making any monetary gains from insider trades; only procedural violations. And SEBI has also had limited success with making its insider trading orders stick in the past. Read this order here

Pounded!

Until now, it was sudden stock market convulsions that were blamed on ‘fat finger’ episodes (jargon for typos in keying in trades). But the British Pound was the victim this week, as Friday’s session saw the currency plunging by 6.1 per cent against the dollar to a 31-year low in the Asian markets.

Some thought it had to do with Brexit fears. Others speculated whether algo trades had aggravated fundamentals-driven selling triggered by Britain’s high debt and worsening terms of trade.

The week ended with stock markets worldwide slipping as they pondered the impact of a ‘hard’ Brexit , with both UK and the EU taking increasingly confrontational stances on the imminent negotiations .

Penny wise

The bull market is clearly alive and kicking, as the flood of unsolicited SMS stock tips landing in my inbox continues unabated.

One persistent tipster mysteriously named VM-KOTKMF (no relation to the real Kotak Mutual Fund) has been urging me to buy Shivansh Finserv at Rs 27, for an ambitious target of Rs 35 to Rs 42 in a week.

Not only does the tip claim that the company has bagged a small bank licence, it also asserts that there is ‘confirmed’ news of IDFC MF buying up 49 per cent in this midget, though there’s no stock exchange announcement.

Checking out this ‘hidden gem’s latest shareholding pattern at BSE tells us that its promoters own just a 1.03 per cent stake in the company, generously leaving the remaining 98.9 per cent to public shareholders (No institutional holding). That’s skin in the game for you!

I do wonder who actually falls for such tips. Not many people I think, given that I’ve received the same tip repeatedly for the last three weeks and the stock still closed on Friday at Rs 25.6.

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