by admin | May 25, 2021 | Opinions
Uday Kotak
By Amit Kapoor,
Last week, Uday Kotak of Kotak Mahindra Bank had a warning about the stock markets entering a possible bubble. According to him, Indians are investing massive amounts of savings into “a few hundred stocks” of firms whose governance standards are questionable. The Bombay Stock Exchange (BSE) Sensex rose almost 28 percent in 2017 and the rally has continued in the new year. It is trading at prices that are over 26 times their underlying average earning per share. Even Uday Kotaks warning was not enough to break the general market trend (although mid-caps did face a correction soon after the red flag was raised, but other sectors more than compensated for it).
To put things in perspective, it must be pointed out that Reserve Bank of India (RBI) data shows that the pattern of household savings has drastically changed over the last year. In the decade-and-a-half between 2000-01 and 2015-16, household investment in shares averaged around Rs 226 billion and peaked at Rs 743 billion just before the crisis in 2007-08. However, in 2016-17, it jumped to a historical high of Rs 1,825 billion.
Demonetisation can be said to be the immediate trigger. Since holding cash is now seen as a risk, households have been looking at new avenues of parking their money. Even bank deposits have witnessed an abrupt jump over the last financial year. After gradually rising from Rs 1,000 billion to Rs 6,220 billion between 2000-01 and 2015-16, bank deposits almost reached Rs 11,000 billion in 2016-17.
So, the bottom line is that the average Indian saver is getting more and more invested into the stock market and so any significant downturns will have far-reaching implications. Therefore, Uday Kotak’s warnings need serious consideration and even more so because there are multiple global factors that can put an end to the bull markets.
First, the global economy began witnessing its first signs of recovery last year after the 2008 financial crisis. As a response to the crisis, central banks all over the world had began a policy of quantitative easing that pumped excess liquidity into global markets. The gains from this policy are debatable but the money found its way into financial assets and bloated their prices. Therefore, despite a lack of positive economic news and unexpected political changes throughout the world, equity markets continued to show an upward trend.
However, as economies continue to show signs of revival the quantitative easing policies will slowly come to an end and excess liquidity will be rolled back by central banks. The US Federal Reserve is already doing so, and other major economies will soon follow suit. This money will be withdrawn from the global equity markets which will, therefore, face an inevitable correction.
Second, the flip side of a change in liquidity is the interest rate level. In pursuit of the policy of quantitative easing, central banks in the advanced economies have reduced interest rates to rock bottom levels with Japan even going into sub-zero levels. However, as the liquidity taps are closed, interest rates will be raised to pre-crisis levels. If there are no recessionary signals this year, the US might raise interest rates three times to about 2 percent. This will be another strong reason for money to flow out of global equity markets into the safer havens of US bonds. Such trends will not be good news for investors in the Indian stock market.
Third, there are fears that the American dollar might become weak as China has indicated an inclination towards curtailing its purchases of US government bonds. Since China is the single-biggest foreign holder of US debt, a slowdown in its purchases would imply higher bond yields and a weaker dollar. This would result in a flight of capital to safety out of world markets, including that of India.
Finally, crude oil prices are expected to be high this year with the unrest in the Middle East. Prices are already above $60 a barrel and will continue its upward trend as the oil cartel tightens the market supply and US output of shale oil slows. Since oil prices are the leading drivers of inflation in the world, and especially in India, interest rates will also have to be raised commensurately. These two factors — inflation and rising interest rates — are highly inimical to company earnings and, hence, will have a significant negative impact on the markets.
There are numerous global factors that are poised to bring an end to the bull run in the stock markets and considering the fact that, historically, high levels of household savings have been invested in it, a forewarning is due so that investors are not caught unawares and overexposed. It is better to form bear market plans now when investors have ample time and a clear head.
(Amit Kapoor is chair, Institute for Competitiveness, India. He can be contacted at amit.kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, researcher at Institute for Competitiveness has contributed to the article.)
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate Buzz, Economy, Markets, News
New Delhi/Mumbai/Chennai/Kolkata : Banking operations across the country were hit on Tuesday as over 10 lakh bank employees in more than 1,30,000 branches pan-India struck work — protesting against reforms in the banking sector among other issues — thereby affecting cheque-clearing activity. However, private lenders like ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank functioned normally.
An official of the United Forum of Bank Unions (UFBU) — the umbrella body of nine unions which has given the strike call — said “over 10 lakh bank employees spread in more than 1,30,000 branches across the country struck work hitting cheque-clearing activity”.
Most public sector bank branches visited by IANS correspondents had their shutters down.
Banking operations in Tamil Nadu were affected with around 55,000 bankers striking work pressing for their demands, said a report from Chennai citing a top All India Bank Employees’ Association (AIBEA) leader.
“The strike is a huge success. It is a dawn-to-dusk strike as cheque clearing operations start at 6 a.m. Bankers working in around 10,300 branches struck work protesting the policies towards the sector,” AIBEA General Secretary C.H. Venkatachalam told IANS.
Venkatachalam said around 12 lakh financial instruments valued at around Rs 7,300 crore could not be cleared.
Government treasury transactions were impacted. Foreign exchange transactions, import and export bill transactions and sanction of loans, among others, were also affected.
In most of the places, clearing operations, particularly outward clearing, was seriously affected.
Around 42,000 bank employees and officers from Maharashtra joined their colleagues in the daylong nationwide strike, with plans to intensify the agitation, a top official said.
“The strike was a total success in Maharashtra. No banking transactions could be carried out in any bank branches, cheques clearing operations were completely paralysed. Bank ATMs which worked for a couple of hours initially also could not dispense cash later,” said UFBU Convenor Devidas Tuljapurkar.
The strike hit around 42,000 branches of 22 public sector banks including the monolithic State Bank Of India and IDBI, 18 old generation banks, eight foreign banks and 56 Regional Rural Banks in Mumbai and Maharashtra, said AIBEA leader Vishwas Utagi.
Tuljapurkar said the strike was to oppose banks privatisation, banks consolidation and for initiating tough measures against big corporate loan defaulters, besides opposing the increase in service charges and reduction in interest rates on saving accounts by banks, which is an attempt to shift the burden of big loan defaulters onto the common masses.
Several thousand bank employees staged a rally at Azad Maidan in Mumbai which was addressed by leaders of UFBU and its nine affiliated unions.
Discussing plans to intensify the agitation, Tuljapurkar said the bank staffers will now join a march to Parliament on September 15, followed by another two days’ strike in late October-early November.
The strike comes after the talks between UFBU on one side and Indian Banks’ Association, Chief Labour Commissioner and Department of Financial Services (DFS) failed on Friday.
“All India State Bank Officers’ Federation and All India State Bank of India Staff Federation, being part of the UFBU, will participate in the strike. It is likely that our bank will also be impacted by the strike,” State Bank of India (SBI) earlier said in a regulatory filing in the BSE.
Among the 17-point charter of union demands, the main relates to the government’s denial of adequate capital to public sector banks, thus creating conditions for privatisation, an AIBEA statement said on Tuesday.
“The one-day banking strike has been successful as close to 9,500 ATMs and around 3,000 branches are closed with 70,000-100,000 bank employees participating in the protest in West Bengal,” AIBEA’s (West Bengal) General Secretary Rajen Nagar said in Kolkata.
All India Bank Officers’ Association’s (West Bengal) General Secretary Sanjay Das said employees and officers from cooperative and grameen banks including regional rural banks also participated in the strike and private banks’ branches were mostly closed as their employees supported unions’ demand.
“The strike is 100 per cent successful. Bank employees and officers are conducting demonstration in front of banks’ branches and ATMs,” Das said.
Thousands of employees of state-run banks began day-long strike in cities and towns across Karnataka, affecting cash and other transactions for the day, said a report from Bengaluru.
“We have received an overwhelming response from all our members for the strike call in support of our demands, including our opposition to the merger of state-run banks,” state AIBOC General Secretary A.N.K. Murthy told IANS.
In Bengaluru, hundreds of employees of various banks took out a rally and staged demonstrations protesting against the government’s proposal to merge their banks.
Private banks, including ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra, however, opened for business as usual
Banking services were badly affected in the Left-ruled Tripura on Tuesday as most of the major banks remained closed due to the nation-wide employees’ strike.
The striking employees were also demanding compensation to employees for extra work done on account of demonetisation of high value currencies, and booking loan defaulters.
According to Nikhil Das, a leader of the striking employees, around 3,000 bank employees belonging to about 414 branches of 15 nationalised, regional, rural and cooperative banks in the northeastern state took part in the strike in Tripura.
While banking operations across Kerala were hit by Tuesday’s strike, new generation banks were reported to be functioning normally. There were sizeable crowds in front of many ATMs and at some of these, the cash finished by noon. The worst affected were cheque clearing operations.
—IANS
by admin | May 25, 2021 | Business, Large Enterprise
Chennai : (IANS) India’s central bank, the RBI on Wednesday said that the restrictions placed on the purchase of Kotak Mahindra Bank Ltd’s shares are withdrawn immediately.
The Reserve Bank of India (RBI), in a statement, said the aggregate share holdings by global depository receipts (GDR)/American depository receipts (ADR)/foreign direct investment (FDI)/foreign institutional investors (FIIs)/registered foreign portfolios investors (RFPIs)/NRIs/Persons of Indian Origin (PIOs) under portfolio investment scheme in Kotak Mahindra Bank Ltd. has gone below the prescribed limit.
The Reserve Bank has notified this under the Foreign Exchange Management Act (FEMA).
