Contagion risk of the Franklin Templeton fiasco is real. While the mutual fund industry is out on a damage-control drive, saying the credit and liquidity risks cited by Templeton to wind up six debt schemes was specific to those portfolios, and not a market-wide phenomenon, the fear is widespread and palpable. Industry veterans say the fact that Templeton was sole lender to 26 of the 88 securities it held in the portfolios and 50% in 43 others tells a story. They say each fund has a different credit and liquidity profiles and, should be seen like that. Most fund houses have not availed the facility to borrow up to 20% of their debt in AUM to meet redemption and dividend obligations, which shows that liquidity positions are not really tight. FT's seems to be more of case of illiquid exposure. Will that convince investors to stay put? Not sure.
MARKET CUES: Where we stand >>>  | Nifty futures on the Singapore Exchange traded 54 points higher at 7 am (IST) in signs that Dalal Street is headed for a positive start. |
| Nifty on Friday formed an indecisive Gravestone Doji on daily chart and a Hanging Man pattern on weekly chart. Analysts said the index needs to respect the 9,050-9,100 range, else selling pressure may intensify. |
| India VIX fell marginally by 0.29% to 39.12 level on Friday, continuing its falling spree since last four consecutive weeks. Options data indicated Nifty's immediate trading range between 8,800 and 9,500 levels. |
| Elsewhere in Asia, shares rose in Hong Kong, South Korea and Japan ahead of a busy week for earnings and central bank meetings, with much chatter the Bank of Japan will announce more stimulus steps. Nikkei gained 1.1%, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1% in early trade. |
| Stocks jumped on Wall Street in Friday's session as some states prepared to relax coronavirus-related stay-at-home orders. Dow rose 1.1 per cent while the S&P500 gained 1.4 per cent, and the Nasdaq 1.7 per cent. |
| Oil prices looked set for another volatile week, having fallen in eight of the last nine weeks. Brent crude futures firmed 45 cents to $21.89 a barrel, while WTI crude fell 52 cents to $16.42. |
| The rupee depreciated by 40 paise to settle at 76.46 against the US dollar on Friday, tracking weak domestic equities and a strengthening greenback overseas. |
| LOOK WHO'S |  |
GST relief for Covid-hit sectors?... India is considering a GST relief package to counter the impact of Covid-19 and help prop up the economy, said people with knowledge of the matter. The package being considered could include a six-month suspension of GST payments for the worst-hit sectors such as restaurants, aviation and hospitality as well as a lower rate for the real estate sector. Other proposals include a switch to a cash-based principle of levying tax from the current invoice-based system and providing GST relief on sales for which payment is not received due to the lockdown by treating those as bad debts.
Read More Regulators assess Franklin hit on MFs… Sebi and RBI swung into action over the weekend to assess the damage and contain the fallout from Franklin Templeton's decision to close six debt funds. To spur banks to lend more, RBI may tweak rules limiting the amount it absorbs from banks through the reverse repo window at, say, Rs 2 lakh crore or set a different amount. Sebi has sought details from mutual funds on the extent of redemptions and the liquidity position of debt schemes.
Read More Major Nifty recast ahead.... Bharti Infratel, Vedanta, Zee Entertainment, Tata Motors and GAIL India are likely to be excluded from Nifty in the forthcoming index rebalancing in September, said brokerage ICICIdirect. Avenue Supermarts, Divi's Laboratories, HDFC Life, Dabur, SBI Life and Pidilite are the likely candidates for inclusion in the index. This could be one of the biggest rebalancing in the index's history.
Read More | AND WHO'S |  |
Debt funds take big knock... Investors in debt schemes of mutual funds, especially those that bet on low-quality paper, have taken a big hit of as much as 72% in a matter of weeks following a slew of defaults by companies and credit rating downgrades. Most debt funds return 6-8% annually. At least 10 schemes have lost more than 10% in last one year. Many HNIs and retail investors were attracted to credit risk funds over the past five years as this category gave 200-300 basis points higher than bank fixed deposits.
Read More Motown poised to report zero sales... Indian auto industry is set to post almost zero sales in April for the first time in its history, as factories and dealerships are shut due to the nationwide lockdown. RC Bhargava of Maruti Suzuki, Venu Srinivasan of TVS Motor, Pawan Goenka of M&M and other industry leaders told ET they aren't expecting much improvement in sales next month as well, and have warned of a prolonged crisis in the sector. They expect a shift in the way the industry functions, with companies likely to work with lean inventory.
Read More MF overdrafts on bank radar... The relationship between some high-street banks and mutual fund houses will be put to test with lenders closely monitoring 'daylight overdraft' lines to mutual funds. Over the past few days, banks have been trying to assess the liquidity gap their MF clients could face this week amid fears of a surge in redemptions following Franklin Templeton's decision to close six debt schemes. Larger the redemption a fund has to handle, higher the requirement of these intra-day loan lines in the absence of fresh inflows from investors.
Read More Meanwhile... Bond issuers face litmus test... Seven top-rated NBFCs, including HDB Financial, Bajaj Finance, Mahindra Finance, L&T Finance and Tata Capital, are set to collectively raise up to Rs 10,400 crore this week in what could be a litmus test for shadow lenders, with investors seeking higher returns in the aftermath of the Franklin Templeton episode. The bonds being sold Monday and Tuesday through the BSE and NSE electronic bidding platforms will mostly have three-year maturities.
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