Shares of Cairn India and Vedanta are in focus on Wednesday as they have received no objection from the BSE and the NSE for the proposed merger of Cairn India with Vedanta (PTI)

Shares of Cairn India and Vedanta are in focus on Wednesday as they have received no objection from the BSE and the NSE for the proposed merger of Cairn India with Vedanta, both the companies made the announcement after market hours on Tuesday.

At 9.36 am, Cairn India and Vedanta were trading 1.45 per cent and 2.73 per cent up at Rs 147.10 and Rs 99.55. Sensex was up 0.70 per cent at 25,886.82.

As per the merger scheme, minority shareholders of Cairn India will receive one equity share of Vedanta for each share held in the company. The minority shareholders of Cairn India will additionally get one 7.5 per cent redeemable preference share (RPS) of Vedanta of a face value of Rs 10 each for each share held in the company. No shares will be issued to Vedanta or any of its subsidiaries for their shareholding in Cairn India.

On a year-to-date basis, share price of Vedanta and Cairn India declined 56 per cent and 39 per cent to Rs 145 and 96.90 on September 15. Sensex slid 6.5 per cent during the period.

For the quarter ended June 2015, Vedanta reported a consolidated net profit of Rs 865.94 crore, up 130.57 per cent, against Rs 375.56 crore in the corresponding quarter a year ago. Net profit of Cairn India declined 23.60 per cent year-on-year to Rs 834.98 crore.

The BSE Sensex and NSE Nifty opened on a positive note on Wednesday tracking firm global cues. Sensex opened 178.12 points up at 25,884.05. Nifty opened 57.75 points up at 7886.85. (Photo: Reuters)

10.10 am: Equity brokers said fresh positions built up by investors tracking gains in other Asian bourses and overnight rally in US markets ahead of the Federal Reserve’s rate decision this week bolstered trading sentiment. Sensex was up 175 points at 25,881.

10.06 am: The rupee depreciated another 11 paise to 66.47 against the dollar in early trade on foreign funds outflows amid a significant slump in the country’s exports. The BSE IT and BSE Healthcare index were up 0.84 per cent and 1.14 per cent at 11,194.42 and 17,314.

9.50 am: Sun Pharmaceutical Industries’ one of subsidiary has entered into an agreement and plan of merger with InSite Vision Inc. (InSite Vision). InSite Vision focuses on developing new specialty ophthalmic products, including three late stage programs. The scrip was trading 2.57 per cent higher at Rs 889. Sensex was up 201 points at 25,907. Nifty was up 57.50 points at 7,886.60.

9.28 am: Sensex was up 145 points at 25,851. Barring the Capital Goods index (down 0.29 per cent) and Consumer Durables index (down 0.07 per cent) in the BSE sectoral indices, rest all other indices were trading in green. The Metal index and Realty index were up 0.90 per cent and 0.80 per cent, respectively.

9.15 am: Domestic equity markets opened on a positive note on Wednesday tracking firm global cues. Sensex opened 178.12 points up at 25,884.05. Nifty opened 57.75 points up at 7886.85.

Vedanta and Cairn India received no objection from the BSE and the NSE for the proposed merger of Cairn India with Vedanta, both the companies announced after market hours on Tuesday. Cairn India and Vedana were trading 1.14 per cent and 3.04 per cent higher at Rs 146.65 and Rs 99.85, respectively, on BSE.

The stock markets will remain closed on Thursday, September 17, on account of Ganesh Chaturthi.

Sensex and Nifty fell 0.58 per cent and 0.55 per cent at 25,705.93 and 7829.10 on Tuesday. The FIIs as per Tuesday’s data were net buyers in equity while they were net sellers in debt segment, according to data released by the NSDL. In equity segment, the gross buying was of Rs 2,647.93 crore against gross sell of Rs 2,511.80 crore. Thus, FIIs stood as net buyers of Rs 136.13 crore in equities. In the debt segment, the gross purchase was of Rs 603.28 crore with gross sales of Rs 719.78 crore. Thus, FIIs stood as net sellers of Rs 116.50 crore in debt.

Global Markets

US: The US markets closed higher on Tuesday and the main indices scored their third winning session in the last four. The Dow Jones Industrial Average added 228.89 points or 1.40 per cent to 16,599.85, the Nasdaq was up by 54.76 points or 1.14 per cent to 4,860.52 while, the S&P 500 gained by 25.06 points or 1.28 per cent to 1,978.09.

London: Britain’s top equity index turned higher in thin trade on Tuesday, as a strong start to trade on Wall Street helped lift mining stocks off their lows, including Glencore, which hit another all-time trough early in the day.

Tokyo: Japanese stocks rose early on Wednesday as investors took confidence from signs of health in the US economy and a rally on Wall Street, while value managers picked up bargains on low price-to-book stocks.

Hong Kong: The Hang Seng Index was up 1.03 per cent.

The slowdown in the Chinese economy and the turmoil in its stock markets have spooked investors — while $8.5 trillion billion of market wealth has been wiped out globally, in India the damage has been $132 billion. (AP Photo)

As the world waits for the US Federal Reserve to take a call on raising interest rates, foreign investors continue to pull out money from the Indian stock markets with close to $1 billion of sales in September so far on the back of $2.6 billion in August. Since July, most emerging markets have seen money move out: While markets like Taiwan and Thailand saw outflows of more than $2billion, South Korea led the liquidation with an outflow of $6.6 billion.

The slowdown in the Chinese economy and the turmoil in its stock markets have spooked investors — while $8.5 trillion billion of market wealth has been wiped out globally, in India the damage has been $132 billion.

The weakness in Chinese markets — the Shanghai Composite has lost more than 40% of its value since its peak in June 2015 — and the likelihood of a further devaluation of the yuan remain risks. For economies like India, a cheaper yuan hurts exports though softer commodity prices are a boon since the country is a net importer of oil. Exports fell for the ninth straight month in August to $21.3 billion.

According to a survey by Bank of America Merrill Lynch in August, 48% of 162 fund managers expect the Fed to hike the interest rate in the third quarter of 2015, up from 40% in July. If the Fed does increase interest rates, it would be the first hike since June 2006, when the US benchmark rate was raised to its five-year peak of 5.25%.

While the end of the third round of quantitative easing (QE3) announced in October 2014 has prepared investors for this reversal, the token increase from the current level of 0.25% could intensify the liquidation in emerging market equities, market watchers believe.

Given its relatively better economic fundamentals, including a less volatile domestic currency and better GDP growth momentum compared with its emerging market peers, India may withstand a hike better. However, India has commanded an overweight rating since the BJP government came to power, so it is possible money could move out.

Market watchers say the US rate hike apart investors are also taking some risk off the table since corporate earnings aren’t picking up as anticipated and valuations remain steep. “Equity valuations have moderated but are still above average,” Bank of America Merrill Lynch wrote recently, adding that the BSE Sensex one-year forward PE (adjusted for earnings downgrades) has slipped to 15.8 but still remains above the long-term average of 14.5 times.

Within the EM universe, India has been more resilient than other nations. While the MSCI Emerging Market Index has lost more than 15% in 2015, MSCI India has only come off by 3%. This relative outperformance could yet weigh on the Indian market’s performance going ahead.

India is also expensive when viewed from the point of a trailing multiple. At 25,706 levels, the 30-share Sensex trades at a trailing price to earnings multiple of 20.3 times, among the highest commanded by global benchmark indices. Compared to that, the Dow Jones Industrial average of the US is trading at just 14.3 times.

The combination of global and domestic problems have prompted brokerages to trim their year-end forecasts. At least four leading brokerages have lowered their Sensex and Nifty targets, citing slack earnings recovery, risk of continuous yuan devaluation and the chance of a US interest rate hike. Barclay’s, Macquarie and UBS now see the Sensex at 28,000 by March 2016 and the Nifty near 8,200-9,642 by end 2015.

Land Rover volumes are down ~2% while Jaguar’s volumes have grown ~42%. JLR wholesale volumes grew ~5% YoY (1.6% MoM) in August to 33,103 units (our estimate: 31,300 units).

We estimate ~9% volume growth in FY16, implying a residual monthly rate of 47,120 units or 18% growth for FY16.
Land Rover declined ~2% YoY to 26,509 units (our estimate: 25,642 units), while Jaguar grew ~42% YoY to 6,594 units (our estimate: 5,658 units).

In terms of regional retail sales performance, China volumes declined 31% YoY (due to slowing economic conditions and model transitions, specifically the launch of the locally produced Range Rover Evoque and Discovery Sport. The Jaguar XF and XJ are in their run-out phases ahead of upcoming launches. The month was also impacted by the Tianjin port explosion on 12 August, which affected up to 5,800 imported Jaguar Land Rover vehicles. US volumes grew ~13% YoY and Europe volumes grew 18.7% YoY. However, UK volumes grew 93% YoY.

We are lowering our EPS estimates by ~17% to Rs 43 for FY16 and by ~6% to Rs 54 for FY17 to factor in, lower JLR volumes due to higher-than-estimated impact of transitory issues, lower margins in JLR due to operating leverage, and lower volumes in LCVs. Even after factoring for lower China margins, we expect TTMT’s consolidated EPS to grow at a CAGR of ~17% over FY15-17.

The stock trades at 8.2x FY16E and 6.5x FY17E consolidated EPS. Maintain buy with a target price of Rs 488 (FY17E SOTP-based) for ordinary shares and R341 for DVR (~30% discount to target price for ordinary shares).

Amid rising concerns over mutual fund investors’ exposure to distressed corporate bonds, regulator Sebi has widened its probe and has sought fresh details from the fund houses on such investment decisions.

The issue is also likely to be discussed by the mutual fund industry body AMFI, which acts as a front-line regulator as well, at its board meeting here tomorrow.

Some fund houses are keen to take a collective stance and they want AMFI to take up the matter with Sebi to arrive at a common regulatory mechanism on investment in corporate bonds.

However, there is no consensus as some funds want the affected fund houses to resolve the matter individually rather than presenting it as an industry-wide problem, sources said.

The issue caught regulators’ attention after a smaller fund house JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of debt-laden Amtek Auto, while a few other mutual funds have also faced similar problems with regard to corporate bonds of a few other distressed firms.

Sebi is already looking into the issue of some listed companies failing to make proper disclosures on negative developments regarding their credit ratings.

Besides, Amtek’s listed subsidiary Castex Technologies too is under the lens amid share price rigging allegations.

With the regulatory heat on them, the Association of Mutual Funds of India (AMFI) is actively looking at ways to address the issue of their exposure to distressed corporate debt securities and alleged failure of some funds in making proper disclosures about their exposures, a senior executive at a leading fund house said.

At its meeting tomorrow, AMFI would discuss the matter to chart out a “pro-investor and pro-industry” approach, he added.

The focus would also be on putting in place a mechanism whereby mutual funds do not just depend on ratings to decide on their investments.

Credit rating agencies take action on a particular entity after analysing financial situation for sometime and a fund house taking an investment call merely based on a rating move would be like being behind the curve.

Sources said some mutual fund houses are also being probed to ascertain whether they failed to furnish information to investors about their exposure to such debt crisis-hit companies.

Recently, JP Morgan Mutual Fund restricted redemptions from two of its debt schemes u2014- Short Term Income Fund and India Treasury Fund.

The move came in the wake of a decline in NAVs (net assets value) of the schemes due to fund house’s exposure to Amtek Auto’s debt papers. These schemes have a collective exposure of about Rs 200 crore in Amtek Auto.