After selling shares worth $2.6 billion in August, foreign investors have moved out $850 million in the first eight sessions of September. (Reuters)

Foreign portfolio investors (FPIs) are selling $100 million a day of stocks even as global markets mull the possible effect of a US rate hike when the Federal Reserve meets on monetary policy next week. After selling shares worth $2.6 billion in August, foreign investors have moved out $850 million in the first eight sessions of September, Bloomberg data show. That’s the second highest outflow among Asian emerging markets after South Korea’s $1.03 billion. Interestingly, the Indian bond markets have seen just $252 million being pulled out since mid-August after China devalued the yuan; in contrast, close to $3.5 billion of FPI money has exited the Indian equity market.

Market watchers say the US rate hike apart, investors are also taking some risk off the table as 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.

As such, a combination of global and domestic issues 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 rate hike.

While Ambit Capital expects the Sensex at 28,000 by March 2016, Barclay’s, Macquarie and UBS now see  the Nifty near 8,200-9,642 by end 2015.

As against buying of $23 million worth of India shares in mid-August, FPIs have been selling $175 million worth of equities on average in 21 days. With this liquidation, net purchases by FPIs in 2015 so far now stand at $3.64 billion, in line with their buying of Taiwan equities, even as they turned net sellers of $2.7 billion of shares in Thailand and $590 million in Indonesia.

Reports indicate that India Bulls Housing Finance is looking to raise $500-600 million through a QIP, and that implies ~12% dilution. While higher capital levels could be a trigger for a positive credit rating review, we still do not see the need for dilution currently, with a Tier-1 of ~15% and high liquidity on its balance sheet (+15% of assets).

Since June 2015, valuations of IHFL have moved up from 2.0x to 2.7x FY17F book, just 10% lower than our target multiple (3x FY17F book of 237). While a successful QIP issue will likely make valuations look reasonable at 2.1x FY17F book, we would like to see steady state financial performance of the company over the next 12 months before expecting a further re-rating.

With most HFCs operating at 11-13% Tier-1 levels, and Indiabulls Finance already carrying +15% of its assets in the form of liquid investments, we do not see any reason for capital raising currently. We expected capital raising by end-FY17F.

Indiabulls is rated AA+ by Crisil and Icra, with a AAA rating by CARE. As it looks to move down the mortgage risk chain, we think AAA rating becomes almost necessary from a long-term perspective. Credit ratings depend upon the quantum of capital and liquidity on the balance sheet. While this can be one of the reasons to front-end the capital raising, its Tier-1 level of +15% and liquidity of 15% on its balance sheet is already one of the highest among HFCs and we don’t know whether this can trigger a ratings review.

The insurance industry has requested Irdai to limit the requirement of investing 25% of Ulip funds in Central government securities to debt-oriented schemes and exempt equity plans.

In the first week of July, Insurance Regulatory and Development Authority of India had sent an exposure draft mandating at least 25% of Ulip funds to be invested in Central government securities. However, industry players believe such a move would lower participation of retail investors. Life Insurance Council — the apex body of life insurers — and representatives from the sector met Irdai to share their concerns.

“Ulips invest in line with customer preferences for a certain risk-return profile. Customers make investments on the basis of certain asset allocations and risk-return expectations. Bringing in this limit for existing products would be negatively disruptive and mean a deviation from customer expectations,” said a industry member.

There are several types of Ulips and different funds have different risk profile. While some invest in equity, other go for balanced funds whereas still others invest only in debt products. Ulips are also eligible for tax benefits under Section 80C of I-T Act.

According to estimates, the total corpus of Ulips stands at Rs 3.6 lakh crore out of which around Rs 60,000 crore is invested in Central government securities.

“Even now, we invest around 15-18% in Central government securities, but to subject even equity funds to that requirement will be injustice to investors. When an investor enters Ulips, he knows what risks he is taking and that money should be invested only in equity markets,” said the CEO of a top insurance company.

Biopharma firm Suven Life Sciences shares surged over 11 per cent in the afternoon trading session on Thursday after the company announced that it has secured five product patents in 5 nations (Express Photo)

Biopharma firm Suven Life Sciences shares surged over 11 per cent in the afternoon trading session on Thursday after the company announced that it has secured five product patents in 5 nations including China and Singapore, for a drug used in the treatment of neurodegeneratives diseases.

At 3.06 pm, the scrip was trading 11.92 per cent higher at Rs 231.50. It opened at Rs 205 and had touched a high and low of Rs 234.95 and 197.60, in trade so far.

In a BSE filing, the company said it has been granted “one product patent from China, one product patent from Israel, one product patent from Mexico, one product patent from Singapore and one product patent from Sri Lanka corresponding to their New Chemical Entities (NCEs) for the treatment of disorders associated with neurodegenerative diseases.”

For the quarter ended June 2015, the small cap company posted net profit of Rs 20.23 crore, down 41.76 per cent, against Rs 34.74 crore in the corresponding quarter a year ago.

Shares of Amtek Auto plunged 9 per cent, while that of its subsidiary Castex Technologies lost 5 per cent on Thursday after market regulator Sebi began a probe into alleged manipulation of the latter’s stock price. (Reuters)

Shares of Amtek Auto plunged 9 per cent, while that of its subsidiary Castex Technologies lost 5 per cent on Thursday after market regulator Sebi began a probe into alleged manipulation of the latter’s stock price.

Sebi has begun a probe into alleged share price manipulation at Castex Technologies through forced conversion of foreign bonds.

Reacting to the development, shares of Castex fell 5 per cent and got locked in a lower circuit limit. The stock had also dropped nearly 5 per cent to close at Rs 42.45 on the BSE on Wednesday.

Amtek Auto counter also saw huge selling as the stock opened on a weak note at Rs 28, then fell 8.86 per cent to an intra-day low of Rs 27.75.

Over the last one month, Amtek Auto stock has tumbled over 80 per cent.

Sources said Sebi is seriously looking into the matter following allegations by some bondholders that efforts are being made to manipulate the share price of Castex
Technologies by forcibly asking investors to convert their bonds.

In the wake of these complaints, the watchdog has started a probe into the issue, they added.

On July 31, Castex Technologies informed the BSE that its board of directors has decided to mandatorily convert all the outstanding bonds of $80.80 million out of FCCB (Foreign Currency Convertible Bond) issue of $130 million.

The date for conversion of bond into equity shares, would be September 10, 2015, it had said.

Auto component maker Amtek is grappling with financial issues and its shares have also taken a beating in the recent weeks, while exposure to its bonds have created ripple effects in the mutual funds and other market segments as well.