In this edition, we talk about why the RBI held repo rates steady for the eighth time and what it means for the Indian economy. We also talk about SEBI’s new regulations for IPO-bound companies, its warning to ICICI Bank and a never-ending feud in a business family.
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The key to happiness, many people say, is to keep expectations low. The key to everything one wants in life, many others say, is to keep expectations high.
That’s confusing, no? But why are we talking about expectations? Well, because the week gone by has offered a good lesson on managing our expectations.
First, the expected. A couple of months ago we had said that India’s central bank had become adept in the art of masterly inactivity. On Friday, it again proved us right and kept its key interest rates unchanged for the eighth time on the trot while saying that its focus remained on ‘withdrawal of accommodation’.
This was, however, not a unanimous decision. Two of the six members of the Reserve Bank of India’s Monetary Policy Committee—Ashima Goyal and Jayanth Varma—voted to reduce the repo rate by 25 basis points and change the stance to neutral. This means that we will have to wait longer for our loan EMIs to come down and that we can enjoy high interest rates on our deposits a little while longer.
Even as it held firm on the lending rates at the MPC’s bi-monthly meeting, the RBI had some good things to say about India’s growth prospects. For FY25, the central bank projected a real Gross Domestic Product (GDP) of 7.2% as against an earlier estimate of 7%.
RBI Governor Shaktikanta Das said that a forecast of above-normal monsoon is expected to boost production of kharif crops such as rice. Private consumption is recovering with steady discretionary spending in urban areas, Das added.
Das also said that the RBI remains vigilant to outside risks to inflation, particularly food inflation, and that the central bank was committed to bringing inflation back to the target of 4% on a durable basis.
Away from these positive cues, however, Das also pointed to some risks. “There can be a liquidity or rollover risks if the gap between credit growth rate and deposit growth rate increases,” he said.
But none of these risks are likely to impact India’s fiscal stability. He said that the RBI engages with outliers wherever they are identified. Out of the 9,500 shadow banks, actions have been taken against only three and a similar trend observed in the banking sector, he said. He reassured that there isn’t a widespread deficiency in the system and that many instances of deficiencies have been addressed through constructive engagement with the concerned entities.
Promoter pullup
While the banking regulator chose status quo on key rates, the stock market regulator wasn’t sitting quietly. The Securities and Exchange Board of India (SEBI) has put in place regulations that have led to stock exchanges expanding the definition of promoters for companies looking to float initial public offerings, according to a news report.
According to the current SEBI norms, a promoter is someone who controls the affairs of the company or can appoint a majority of directors or is named as such in an offer document. Earlier, founders holding 25% were deemed as promoters by virtue of having negative control and the power to block special resolutions.
For the past year or so, SEBI has been insisting that founders of IPO-bound companies holding 10% or more classify themselves as promoters. But it has yet to introduce any amending regulations to put this view into practice.
So, what do the new guidelines say? According to The Hindu Business Line newspaper, the new guidelines now go a step further and say that founders collectively holding 10% will all be promoters if they are key managerial personnel (KMP) or a director in the company. In effect, a founder will be classified as a promoter, even if he or she holds just 1% and the above two conditions are met.
Even the immediate relative of the promoter will have to be classified as a promoter if she/he is on the company board or a KMP. Immediate relatives who hold 10% or more in the company, directly or indirectly, will also be deemed promoters, the report said.
Moreover, once considered part of the promoter group, the present regulations do not provide for easy declassification as a public shareholder, the report added.
ICICI under lens
The market regulator has been doing more than just framing new regulations. This week, SEBI issued an administrative warning to ICICI Bank on the outreach undertaken by it regarding the delisting of its unit ICICI Securities (I-Sec).
SEBI said it received several complaints from shareholders of I-Sec alleging that they have received multiple calls and messages from bank officials to vote in favour of the delisting scheme.
“You are, therefore, warned to be careful in future and improve your compliance standards to avoid recurrence of such instances, failing which action may be initiated in accordance with the provisions of SEBI Act, 1992 and the Rules and Regulations framed thereunder,” SEBI warned the bank.
SEBI noted that the bank submitted the outreach programme was undertaken to explain the scheme and maximise shareholders’ participation. However, it said that based on the examination of the investor complaints, it observed that some bank officials made repeated calls to shareholders and even asked for screenshots of voting.
“There was a clear conflict of interest as your bank is the promoter with more than 74% shareholding in I-Sec and an interested party in the transaction. The heightened outreach programme on the last day of voting citing holidays/weekend appears inappropriate,” SEBI said and asked the bank to examine the complaints for any violations of guidelines of the outreach programme by the officials and take action against them as it may deem fit.
Family feud
Even as the Godrej family recently managed to divide its businesses amicably, a long-standing feud in a prominent business family could blow up. An ongoing feud among the late KK Modi’s family over the distribution of his Rs 11,000 crore inheritance has intensified. The personal security officer (PSO) of Godfrey Phillips Chairperson and Managing Director Bina Modi is learnt to have filed a counter complaint against the company’s Executive Director Samir Modi.
This comes after Samir Modi reportedly lodged an FIR against his mother, Bina Modi, alleging that she orchestrated an assault on him through her PSO on May 30 when he attempted to enter a scheduled board meeting.
The PSO’s complaint lodged on May 31 claims that Samir Modi tried to force his way into an audit meeting for which he was not invited. He has also alleged physical assault in his complaint.
Meanwhile, former IPL Chairman Lalit Modi has been batting for his brother Samir Modi. In a post on X on Monday, he said, “We will make sure justice prevails.” He added that he is constantly worried about the safety of his brother Samir Modi in his post.
In another social media post accompanied by pictures on Saturday, he also stated that he was “heartbroken” to see the condition of his brother. He also stated that “all board members” are guilty of the heinous crime while making accusations against his mother.
While Godfrey Phillips is the flagship company of the group, other companies in the inheritance include Infofil, Modicare, and Colorbar.
Market Wrap
To say that this was one of the most tumultuous weeks in the Indian stock markets in recent memory, would be an understatement. While the markets rose sharply on Monday following exit poll results that showed a two thirds majority for the NDA, it fell even more sharply the following day after the BJP failed to secure a majority on its own.
But in the following three days, the markets recovered sharply as it became clear that Prime Minister Narendra Modi was set to return to power for a third term. Overall, while the Sensex ended the last five trading sessions up just under 0.5%, the broader Nifty was up just short of 0.2%.
Nifty stocks that gained the most over the past week included Shriram Finance, Mahindra & Mahindra, Hindustan Unilever, Hero Motocorp and Wipro. Counters that ended the week in the red included Bharat Petroleum, ONGC, Hindalco, Larsen & Toubro and PowerGrid.
Other Headlines
- Narendra Modi set to become India’s prime minister for a third term
- Goldman Sachs says India’s macro stability intact despite Modi’s reduced majority
- Reliance Industries to build global economic hub in Navi Mumbai
- ReNew Energy reports multi-fold growth in net profit to Rs 61 crore in Q4 FY24
- Nisaba Godrej quits VIP Industries board citing differences on accountability, succession
- Amazon set to acquire streaming service MX Player
- NCLT approves Vistara’s merger with Air India
- Tata Motors to incorporate new subsidiary to house commercial vehicle business
- Kalyan Jewellers buys remaining 15% stake in online jewellery retailer Candere
That’s it for this week! Until next week, happy investing!
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