Nifty Bank at new high; helps indices recover on volatile day The 12-share Nifty Bank index gained 1.3% on Wednesday to end at a record closing high of 41,405. The index is up 13.1% in the last one year. The gains in banking scrips helped the market in recovering the lost ground, with Sensex rebounding more than 1,200 points from the early lows to settle at 60,346.97 points. The recovery in the benchmarks was led by IndusInd Bank, SBI, Kotak Mahindra Bank, ICICI Bank and HDFC Bank. Over the past two years, Indian bank stocks have returned to average valuations as the economy improved. Stocks that were not pricing in credit cost normalisation did well and drove the first leg of re-rating. This was helped by strong improvement in India banks’ balance sheets over the past five years despite the Covid crisis. The next leg of re-rating should be driven by loan growth acceleration. “Strong balance sheets, lessening macro concerns, and improving capacity utilisation set the stage for a capex up-cycle in FY24-25, which we think could drive a second leg of re-rating at Indian banks,” said Morgan Stanley in a recent report. The foreign brokerage has raised its estimates and price targets for banks, and prefers banks with liquidity/liability franchises that appear best placed to deliver profitable revenue growth. Also Read: Sensex, Nifty snap 4-day gaining streak, Bank Nifty hits record closing high; check support for F&O expiry day “Unlike in past cycles, we believe retail deposit competitive intensity will be high, and ability to gain deposit market share will be key. Large banks with higher liquidity and ability to gain deposit market share are best placed to capitalise,” the brokerage said. According to Deepak Jasani, head of retail research at HDFC Securities, banks are on a good wicket on the back of good credit growth, stronger balance sheets and abating macro-economic concerns. “If India sovereign bonds get included in global bond indices, then foreigners will come here to buy government securities driving down yields and pushing up prices. Banks are holding a large portfolio of G-secs and they can book mark-to-market (MTM) gains on them. Credit Suisse expects Indian banks to see strong NIM (net interest margin) improvement over the coming quarters, on the large share of floating-rate loans and an increasing share of loans linked to external benchmarks, which have increased 140-190 bps over the past six months, even as retail deposit costs have increased by 40-90 bps. “We increase our NIM estimates for FY23E by 20-30 bps for the larger banks. While a large part of the increase in NIMs is driven by the benefit of rising rates and shift to external benchmarks, banks are also benefiting from the mix change, as loan growth has been led by retail and SME segments versus lower-yielding corporate loans. Also, within retail, unsecured loans have seen strong growth trends,” the brokerage said. Net interest margin is a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders, relative to the amount of their assets. The Nifty IT index, meanwhile, continued to remain under pressure and corrected another 3.4% on Wednesday. With geopolitical uncertainties, and recession fear, Indian IT stocks have corrected by 20-40% in H1CY22. Despite correction, companies are still trading at a premium to long-term average multiple, according to experts. “Spending on IT may take a back seat in developed economies particularly in Europe where the current energy crisis and inflation may tip several economies into recession,” said Jasani.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.