In this edition, we talk about the sudden change of guard at TCS. We also talk about the collapse of two US banks—SVB and Signature Bank—and the perilous state of affairs at Credit Suisse as well as new disclosure norms India has put in place for foreign portfolio investors.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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Rajesh Gopinathan had never prepared a CV after his campus placement. He had also never tendered a resignation, until last week, when he quit as the chief executive officer of Tata Consultancy Services (TCS), India’s largest IT company.
The 52-year-old Gopinathan had spent 22 years at TCS, was given the top job in January 2017, and his resignation was unexpected as he had been reappointed for another five-year term in March 2022. On top of that, it comes at a time when the IT major is going through a tough phase as tech spending slows and it faces challenges across some of its key markets like Russia following Moscow’s invasion of Ukraine last year.
TCS named its president and global financial services head K Krithivasan as the CEO-designate, effective March 16, and said he would take over as CEO and managing director in the next financial year, which begins on April 1. Krithivasan joined TCS in 1989 and has held various leadership roles at the company.
Incidentally, while the outgoing CEO was one of the youngest to have been given the mantle, at 59, Kirthivasan is perhaps the oldest. TCS has a retirement age of 65, so he still has six years to deliver. As for Gopinathan, he will certainly want to get ready for a new innings after a much-deserved break. And for that, he may want to brush up on his CV. There’s always a first time for everything!
Deep in the Valley
We have been hearing of an impending global recession for a while now. We can’t be sure if we are already in its throes, but if the events of the past week are anything to go by, it certainly looks like we may be witnessing a trailer or a prelude to what may be in the offing.
Silicon Valley Bank (SVB), a key lender to startups across the US and the rest of the world, including, of course, India, went belly up last week. This comes as central banks across the world have been tightening monetary policy as inflation spiralled out of control because of the Ukraine war.
SVB, you see, had benefited significantly in the COVID-induced era of easy monetary policy and once the purse strings were tightened, all the venture capital money backing some of its wealthiest clients started drying up and they began withdrawing their deposits from the bank.
While the pandemic forced central banks like the US Federal Reserve to pump money to keep their respective economies running, the Ukraine war led to a spike in global inflation, forcing these central banks to raise interest rates and to pull back.
The situation became dire for SVB on March 8 when venture capitalist Peter Thiel reportedly decided to withdraw his fund’s money. By March 10, the bank was declared bankrupt, forcing the US Federal Deposit Insurance Corporation (FDIC) to step in. While the FDIC has promised that depositor interests will be protected, they will get their money back only once it manages to sell all of the bank’s assets.
Following the SVB rout, another lender—Signature Bank—also failed, setting off fears that a 2008-like financial meltdown may again be in the offing.
This twin collapse could potentially set off a domino effect chain reaction. Little wonder, then that, to avert another collapse of this magnitude, big name financial services firms like JPMorgan Chase and Goldman Sachs have joined nine other banks to provide a $30 billion bailout rescue package to First Republic. The package is jointly formed to prevent the California-based bank from becoming the third bank to fail in less than a week and head off a broader crisis in the banking sector. Notably, First Republic caters to the need of a similar clientele as SVB.
And what, if any, has been the impact on India? Not particularly significant thus far, except for some Indian startups that had deposits with SVB. But this may be early days yet, so brace for potential impact.
Swiss storm
Meanwhile, one of Europe’s oldest banks is going through an existential crisis. Credit Suisse, the Swiss banking behemoth, survived two World Wars, the US-Soviet cold war, multiple global recessions, and oil shocks.
But this time, it needed a generous helping hand—worth $54 billion—from the Swiss National Bank, which extended a liquidity lifeline to the embattled lender after its share price plunged to an all-time low this week. It made Credit Suisse the first major bank to receive such an intervention since the 2008 global financial crisis.
But Credit Suisse should have seen the writing on the wall a long time ago as it has been battling years of investment banking underperformance and a whole host of scandals and risk management failures.
The Swiss lender is undergoing a strategic overhaul to address these long-standing pain points. Ulrich Koerner took over as chief executive officer from Thomas Gottstein in July, as a below-par investment bank performance and never-ending litigation provisions continued to impact profits.
Gottstein took office in early 2020 following the exit of Tidjane Thiam in the wake of a spying scandal, in which former wealth management boss Iqbal Khan was tailed by private contractors allegedly at the direction of former chief operating officer Pierre-Olivier Bouee. The corporate potboiler of a story also saw the suicide of a private investigator and the resignations of a slew of executives.
Doesn’t this plot sound like it has the trappings of a Netflix docu-drama? You bet the folks at the streaming service are on to something!
Eyes on FPIs
While financial institutions in the US and across the pond in Europe may be paying for their past mistakes, India, it appears, wants to play it safe and take no chances when it comes to investments from foreign shores.
The government has put in place stringent disclosure norms for money coming into India from foreign funds. Foreign portfolio investors (FPIs) trading on Indian stock exchanges will have to follow sterner disclosure rules.
The government, in a notification issued on Wednesday, said that offshore funds will have to inform their custodians within seven working days of any direct or indirect change in their control, ownership, and structure. This is significant as India has been looking at ways to curb the menace of money laundering. But will the new laws go far enough? That, only time will tell.
Market Wrap
If you are a no-nothing investor pumping money into index funds or large cap ones, chances are that your weekly returns haven’t been looking so good over the last few months. That is because the indices have been losing ground. The last five trading days saw the 30-share BSE Sensex and the broader 50-stock Nifty lose about 1.9%.
Over the past year, the Nifty has fallen nearly 1.4% while the Sensex’s decline has been a tad lower.
Stocks of banks and non-banking finance companies lost the most ground this week. IndusInd Bank dropped 11% drop while State Bank of India fell about 4%. Automakers Eicher, Tata Motors, Mahindra & Mahindra, Maruti Suzuki and Hero MotoCorp were in the red, too, as were tech stocks TCS, Wipro and Infosys. Other blue-chips that ended the week in the red were Reliance Industries and Hindalco.
Among the shares that gained ground this week were Bharat Petroleum, Tech Mahindra, Titan, Power Grid Corp of India and Nestle. Others that were in the green included Larsen & Toubro, Asian Paints and Britannia Industries.
Other headlines
- Centre may defer IDBI Bank’s $4-billion privatization plan
- Retail inflation eases to 6.44%, WPI inflation falls to 3.85% in February
- Vedanta repays $100 million to Standard Chartered Bank
- Patanjali Ayurved to bring another FPO for Patanjali Foods after SEBI freezes promoter stake
- Kishore Biyani withdraws resignation as Future Retail executive chairman
- Apple supplier Foxconn plans $200 million factory in India
- Malaysia’s Petronas offers $460 million for stake in NTPCs renewable energy arm
- European Central Bank sticks to planned 50-bps rate hike despite banking turmoil
- Apple supplier Foxconn plans $200 million factory in India
- Bitcoin hits highest level since June 2022
- Walmart invests $200 mn more into Flipkart unit PhonePe
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
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