In this edition, we talk about the CBI’s FIRs on a Biocon executive and Dewan Housing’s Wadhawan brothers. We also talk about the RBI move that has worried fintech companies and the SEBI decisions that affect mutual funds.
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Over the past few days, southwest monsoon has continued to advance across most of the country. That’s good news for farmers and people scorched by this summer’s record-high temperatures, although floods have ravaged Assam.
But we are not here to talk about rainfall alone. As we write this weekly newsletter, there is a cloud hanging over Mumbai amid a tussle for power to control Maharashtra’s destiny. And in the corporate world this week, a dark cloud engulfed the company founded by India’s most famous woman entrepreneur.
India’s chief probe agency, the Central Bureau of Investigation (CBI), this week booked an executive of pharmaceutical and biotech major Biocon’s subsidiary Biocon Biologics on bribery allegations. This could turn out to be extremely embarrassing for Kiran Mazumdar-Shaw, Biocon’s founder and chairwoman.
The CBI has alleged that senior officials of the Central Drugs Standard Control Organisation—India’s pharmaceuticals regulator—colluded with executives of Biocon Biologics to waive the phase-3 clinical trial of the Insulin Aspart injection. The CBI also alleged that these officials “manipulated” the minutes of a subject expert committee meeting, causing “substantial wrongful gain” to the company.
The CBI arrested five people in connection with this case. These include India’s joint drugs controller Eswara Reddy and L Praveen Kumar, associate vice-president and head of national regulatory affairs at Biocon Biologics.
The allegations come less than four months after Biocon Biologics struck its biggest acquisition, buying the biosimilars assets of US-based Viatris for $3.335 billion, or more than Rs 26,000 crore at current exchange rates. The cash-and-stock deal also bumped up the valuation of Biocon Biologics to $7.75 billion, or more than Rs 60,000 crore. This is a jump of around 60% within six months and higher than Biocon’s own valuation of less than Rs 40,000 crore.
Mazumdar-Shaw and Biocon have, expectedly, denied all allegations of bribery. But they may be in for a long investigative and legal battle ahead. Also, they will need to work even harder, to wash this stain off.
DHFL’s house of cards
The CBI this week also filed an FIR against the brothers Kapil Wadhawan and Dheeraj Wadhawan, the erstwhile promoters of Dewan Housing Finance Corp Ltd (DHFL). Dewan Housing was one of India’s biggest mortgage lenders until a few years ago, before going bankrupt in late 2019. Last year, it was acquired by Piramal Group.
The CBI has alleged that the Wadhawan brothers cheated a consortium of 17 banks led by the government-owned Union Bank of India to the tune of Rs 34,615 crore. This makes it the biggest banking fraud probed by the agency till date. At this size, the DHFL case has now dwarfed the infamous Rs 23,000 crore ABG Shipyard fraud case.
The latest case compounds the woes of the Wadhawan brothers, who are also being probed by the CBI in connection with alleged corruption involving Yes Bank founder Rana Kapoor. Even the Enforcement Directorate has been probing Kapoor and the Wadhawans, who are accused of siphoning off funds through suspicious transactions.
Cloud over fintechs
While India’s principal probe agency was all action in the week gone by, the country’s capital markets and banking regulators were equally busy.
The Reserve Bank of India (RBI) issued a diktat that could significantly impact fintech companies. India’s central bank disallowed non-bank wallets and prepaid cards from loading credit lines into these platforms.
The diktat by the banking regulator is being seen as an effort to clamp down on card-based fintech firms operating as neo-banks who have tied up with banks to offer credit lines. As per the prevalent RBI guidelines, pre-paid instruments can be loaded using cash, bank accounts, credit and debit cards—but not via credit lines.
While the decision will benefit banks and NBFCs, it could affect a large number of fintech companies such as EarlySalary, Jupiter, KreditBee, LazyPay, Slice, Uni Cards, and Ola Postpaid.
SEBI and mutual funds
The Securities and Exchange Board of India (SEBI) made two decisions this week that affect the mutual fund industry. In the first decision, the regulator allowed mutual funds to accept fresh money into the schemes that invest in overseas stocks. The move comes after it barred fresh investments by MFs in overseas stocks in February.
The latest decision prompted some fund houses to reopen their schemes, either for SIPs or lump sum investments.
However, many investors still may not benefit much even though most international schemes are deep in the red. This is because SEBI has retained the overall industry-wide limit of investments in overseas stocks at $7 billion.
In another decision, SEBI barred asset management companies from offering bundled insurance products with their mutual fund schemes. This will impact systematic investment plan (SIP) schemes that combined investments with insurance, such as ICICI Prudential MF’s SIP Plus, Nippon India’s SIP Insure, Aditya Birla Sun Life’s Century SIP and PGIM’s Smart SIP.
Axis of trouble
Meanwhile, Viresh Joshi, the former dealer and fund manager at Axis Mutual Fund who was sacked following allegations of unethical conduct, has sued the fund house for wrongful termination. He also demanded Rs 54 crore in damages. These damages are over and above the Rs 26.5 lakh he is seeking as compensation from Axis MF.
Joshi has claimed that the termination notice has no legal effect and is a breach of contractual obligations. Joshi was sacked on multiple grounds. These include unwillingness to cooperate during the company’s investigation and explain the source of his income and assets, and for front-running, an illegal practice where a broker or a fund manager uses their position to take advantage of movements in prices of shares or debt instruments.
Market Wrap
The Indian stock markets finally ended the week in the green, although analysts feel things could get much worse before they get any better. The BSE Sensex and the NSE Nifty 50 gained about 2.7% each.
Among the Nifty 50 heavyweights, Hero MotoCorp and Eicher Motors were both up more than 10%. Maruti Suzuki, India’s biggest carmaker, ended the week nearly 8.8% in the green, while Mahindra & Mahindra made its investors richer by 7.5%. Tata Motors and Bajaj Auto were up 5% each.
Other Nifty 50 counters that lifted the benchmark index were FMCG major Hindustan Unilever, which was up nearly 9%, as well as Tata Consultancy Services, HDFC, Asian Paints, Ultratech Cement, Titan, HDFC Bank, and Sun Pharma.
While auto, FMCG and pharma stocks had a good week, metals and energy stocks ended the week in the red.
While Anil Agarwal’s Vedanta lost more than 16% of its value, Tata Steel was down 6%. GAIL India ended the week nearly 4.7% in the red, while Mukesh Ambani-led Reliance Industries was down by 3.5%.
Other energy and metal stocks that lost ground this week include Hindalco, NTPC, Coal India, and ONGC.
Other Headlines
- Twitter board endorses Elon Musk’s $44 billion buyout deal
- Kellogg splitting into three independent businesses
- Uber likely explored a sale of Indian ride-hailing arm
- India facing ‘probably the most difficult economic situation’, says HUL chairman
- Inflation likely to stay above 6% until December, says RBI governor Shaktikanta Das
- Skincare startup Mamaearth targets $3 billion valuation in 2023 IPO
- Spandana Sphoorty resolves disputes with former MD Padmaja Gangireddy amicably
- Allsec Technologies to merge with Quess Corp in all-stock deal
The Week Ahead
- S&P Global will release results of its monthly Purchasing Managers’ Index for the manufacturing sector.
- The monsoon’s progress will be keenly watched next week, as it gives an indication of crop output.
- But all eyes and ears for the next few days will be on the political drama going on in Maharashtra.
Until next week, happy investing!
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