Skip to main content

Sebi’s new rules make MFs see red

Sebi’s new rules make MFs see red
Front-running is the act of buying or selling a stock ahead of anticipated action by a fund manager. Impact cost is the cost incurred to execute a large buy or sell order.“We will be needed to rebalance our portfolios every six months to add or delete stocks to meet Sebi’s criteria. Daily market cap and portfolio holding data is in the public domain.
Savvy traders might do front-running as they will be able to calculate which stocks are going to be added or removed. It will also result in a churn of portfolios and increase the impact cost, as most mid-cap schemes may exit a particular scrip at the same time,” said a chief investment officer with a leading fund house.

According to the framework laid down by Sebi, MF industry body Association of Mutual Funds in India, or Amfi, will have to provide a ranking of stocks at the end of June and December, based on their average market cap on both the BSE and the National Stock Exchange. Fund managers will have to rebalance their portfolios within 30 days, according to the updated list.

For instance, public sector lender Punjab National Bank currently is a ‘large-cap’ stock, as it is ranked 97 in terms of market cap. However, if the stock slips below rank 100, fund managers will have to exit the stock from their large-cap scheme portfolio.Meanwhile, Sebi has provided 100 and 150 stocks for large- and mid-cap-focused schemes, respectively, to choose from. According to Value Research, currently the universe of stocks for large- and mid-cap schemes is 104 and 250, respectively. The current mid-cap universe has stocks with a market cap between Rs 5,200 crore and Rs 26,000 crore. About 150 of these companies will no longer be eligible for mid-cap schemes and fall in the small-cap category.

“Currently, we go by market cap where mid-cap schemes invest in stocks that have a market cap of more than Rs 5,000 crore. Sebi, for the first time, has officially defined large-cap, mid-cap, and small-cap. Instead of a ranking methodology, it should have gone for a freefloat market cap-based cut-off. It would have simplified the process,” said the head of another fund house, adding the industry might soon discuss this issue with Sebi.

Free-float market cap excludes the shares held by promoters or those under lock-in. As this method takes into consideration only the stock that is freely available for trading, it acts as a good filter for liquidity. The fund manager gave the example of Avenue Supermarts, which has a full market cap of Rs 76,000 crore, but a free-float market cap of only  Rs 5,300 crore. At the end of September, the assets under management of equity MFs stood at Rs 6.6 lakh crore, and the number of open-ended schemes offered by fund houses was 359.

The move so far in medical devices Out of the 20-odd devices which have been classified as drugs, two have come under the ambit of price control much against the industry’s wish.First, the National Pharmaceutical Pricing Authority (NPPA) slashed the prices of coronary stents by 85 per cent. The NPPA capped the price of all drug-eluting stents at around Rs 30,000, down from their earlier maximum retail price (MRP) of almost Rs 2 lakh. Then came knee implants. The NPPA brought down the prices of orthopaedic knee implants by 50 per cent.

Lower prices of these devices brought cheer to the consumer as they would have to pay less for at least one component in their hospital bill. For the industry, it was a bitter pill, an analyst said. Soon, the government was flooded with withdrawal applications from companies.

In the case of stents, the government had to invoke section 3(i) of the Drug Price Control Order, 2013, to ensure device makers do not opt out of the Indian market. The provision was invoked for a period of six months ended August. Once again, device makers moved applications for withdrawal. The Department of Pharmaceuticals (DoP) had four applications for withdrawal, which is why it had to re-invoke section 3(i), a source said. This provision suggests that no manufacturer can bring down the production of import of the commodity.

Pre-emptively, the department also invoked section 3 (i)

The Business Standard, New Delhi,18th October 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …