Month: September 2024

Key Changes for Indian Stock Market Investors Effective October 2024

As Indian markets maintain their upward trend, several crucial regulatory changes will take effect in October, which could influence investors’ strategies and profitability. These changes include revised transaction fees by major stock exchanges, a hike in the Securities Transaction Tax (STT) on futures and options (F&O) trading, and updated rules for share buybacks.

1. NSE and BSE Transaction Fee Revisions
Both the NSE and BSE have announced adjustments to their transaction fees, following the Securities and Exchange Board of India’s (SEBI) directive to adopt a uniform fee structure across market institutions. The key revisions are:
– BSE: For options contracts on Sensex and Bankex, the transaction fee will be Rs 3,250 per crore of premium turnover. Fees for other equity derivatives remain unchanged.
– NSE: The cash market will see a fee of Rs 2.97 per lakh of traded value, while equity futures will incur Rs 1.73 per lakh of traded value. For equity options, the fee will be Rs 35.03 per lakh of premium value. In currency derivatives, futures will be charged Rs 0.35 per lakh of traded value, and options will incur Rs 31.10 per lakh of premium value.

2. STT Hike on F&O Trading
In line with announcements made earlier in the year, the Securities Transaction Tax (STT) will increase for futures and options trading:
– Futures: The STT will rise from 0.0125% to 0.02%.
– Options: The STT will increase from 0.0625% to 0.1%.

 3. New Taxation Rules for Share Buybacks
From October, income earned from share buybacks will be taxed in the hands of shareholders, similar to dividends. The tax will be calculated based on the individual’s applicable income tax slab, shifting the tax burden from companies to shareholders.

These changes are expected to increase the cost of trading and affect overall profitability, particularly for those involved in high-frequency trading or derivatives. Investors should assess the impact of these revisions on their strategies going forward.

The Securities and Exchange Board of India (Sebi) is scheduled to hold a crucial board meeting on Monday, marking the first gathering since chairperson Madhabi Puri Buch faced allegations of conflict of interest. These accusations were raised by US-based Hindenburg Research and India’s Congress party. While the conflict of interest allegations and issues related to a withdrawn press release on employee matters are not officially on the meeting’s agenda, they may be informally discussed, according to insiders. One source noted that significant events involving the institution or its board members since the last meeting on June 27 must be addressed.

Between the last board meeting and the upcoming one on September 30, Sebi employees had complained to the finance ministry about what they described as a “toxic work culture.” Initially, Sebi attributed the unrest among employees to external forces but retracted this statement after staff protests.

During this period, Hindenburg Research accused Buch and her husband of having investments in offshore funds controlled by Vinod Adani, brother of Adani Group chairman Gautam Adani. These funds were allegedly used for stock manipulation within the Adani Group’s listed entities. It was also alleged that Sebi had modified rules related to real estate investment trusts (REITs) in a way that favored Blackstone, where Buch’s husband served as a senior advisor.

The Congress party further accused Buch of trading in listed securities, including selling employee stock options from her previous employer, ICICI Bank, during her tenure at Sebi. They also claimed she earned money through her advisory firm, which offered consultancy services to listed companies, thereby violating Sebi’s conflict of interest policy.

Both Buch and Sebi have denied these allegations, but the board has yet to express its stance. The board includes eight members: Buch, four whole-time members from Sebi, and three part-time nominees from the finance ministry, corporate affairs ministry, and the Reserve Bank of India.

This meeting will be the first for Deepti Gaur Mukerjee, the new corporate affairs secretary, and the last for M Rajeshwar Rao, the deputy RBI governor, who retires next month. External members may press for a discussion on the allegations against Buch, though it is uncertain whether these discussions would be formally recorded. The outcome of this meeting could shape Buch’s future as Sebi’s chairperson.

The board is also expected to address several proposals, including relaxing norms for rights issuances, introducing a new asset class, and implementing “mutual fund-lite” regulations for passive funds. The new asset class is intended to fill the gap between mutual funds and portfolio management services, allowing investments between ₹10 lakh and ₹50 lakh. Sebi is also considering tightening futures and options (F&O) trading rules, although this proposal may not require board approval, as it does not involve amendments to existing regulations like the SECC or the Securities Contract Regulation Act. Sebi has not responded to inquiries regarding Monday’s board meeting.

Promoters are seizing the opportunity presented by the ongoing market rally, selling shares worth over ₹40,000 crore across approximately 180 companies through open market transactions in the September quarter alone. This trend suggests that current valuations are compelling enough for owners to lock in profits by reducing their stakes. The significant surge in promoter offloading highlights the buoyant market conditions that have encouraged many to capitalize on the favorable pricing.

Year-to-date, promoters have sold shares worth more than ₹1 lakh crore through secondary market transactions, more than double the total for the entire year of 2023, which stood at ₹48,000 crore. This dramatic increase reflects the aggressive approach promoters are taking in response to high valuations. To put these numbers in perspective, the total value of promoter sales in 2022 was ₹25,400 crore, while in 2021 it was ₹54,500 crore.

The substantial rise in promoter share sales signals confidence in the current market environment and a strategic decision to unlock value from their holdings. Companies such as InterGlobe Aviation, Ambuja Cements, and Patanjali Foods are among the prominent names where significant promoter selling has been observed, underscoring the broad-based nature of this trend. The scale of these transactions also highlights the liquidity available in the market, enabling promoters to execute large sales without significantly impacting share prices.

Hyundai Motor India Ltd, the most successful foreign automaker in a market where others have struggled, has reportedly received approval from the Securities and Exchange Board of India for its initial public offering (IPO), poised to be the largest in the country’s history. Hyundai, India’s second-largest carmaker behind Maruti Suzuki, aims to raise at least $3 billion (around ₹25,000 crore) through the IPO, valuing the company at approximately $18 billion (around ₹1.5 lakh crore).

Currently, the largest IPO in India is the ₹21,008 crore public issue of LIC, launched in May 2022. Hyundai’s IPO will be an offer for sale (OFS) of up to 142 million shares, or a 17.5% stake, by its South Korean parent, Hyundai Motor Company.

Where Hyundai Stands

Hyundai offers investors the chance to buy into a highly profitable passenger vehicle manufacturer, particularly at a time when auto companies are outperforming on the stock market. India is Hyundai’s third-largest revenue generator globally, after the U.S. and South Korea. The company has already invested $5 billion in India and plans to inject an additional $4 billion over the next decade.

Since entering India in 1996, Hyundai has thrived in a market where companies like Ford and General Motors struggled, largely due to its affordable hatchbacks like the Santro. As consumer preferences evolved, Hyundai shifted focus and launched its first locally-made SUV, the Creta, in 2015. The Creta became a significant success, driving much of Hyundai’s profits.

Currently, 66% of Hyundai’s domestic sales come from SUVs, outpacing the industry average. This shift has pushed its operating profit margins higher, reaching 9.5% in FY24 from an average of 7% over FY16-23. However, a 100-basis point increase in royalty could flatten earnings per share (EPS) over FY24-25, according to an ET Prime report. The same report estimates Hyundai’s EPS at ₹72 per share for the nine months of FY24.

If Hyundai is valued at the same forward multiple as Maruti Suzuki (26x FY25 EPS), the company could be worth around ₹1,950. However, considering Hyundai’s superior free cash flows compared to Maruti, it might be valued at a premium. Pricing the 142 million shares at ₹2,000 each could see the IPO raise as much as ₹28,000 crore.

Despite this, Hyundai’s volume growth (both domestic and exports) has been slow, at a compound annual growth rate (CAGR) of just 2.4% between FY14-24. Domestic sales grew at a CAGR of 4.9%, while exports declined by 3.5%. Hyundai has also lagged behind Maruti Suzuki in both volume and revenue growth during this period.

Hyundai’s monthly sales have remained steady since the launch of its small SUV, the Exter, in July 2023. Its next major product, the Creta EV, is scheduled for release in the last quarter of FY25.

Future Outlook

Hyundai has increased its annual production capacity at its Chennai plant to 824,000 units as of March 2023. The company’s new Talegaon plant, acquired from General Motors, will add another 170,000 units in its first phase, raising Hyundai’s total capacity to 994,000 units by FY27.

India is a critical market for Hyundai. As CEO Un Soo Kim stated earlier this year, expanding manufacturing capacity is key to Hyundai’s long-term growth in the country. The IPO will help Hyundai’s parent company execute its strategy of making India a key export hub while also gaining market share in the domestic market.

With the Talegaon plant expected to begin production in FY26, Hyundai plans to use some of the IPO proceeds to boost capacity across its plants in Tamil Nadu and Maharashtra. This includes developing affordable electric vehicles over the next decade, positioning the company to compete with market leader Maruti Suzuki, which is investing $5 billion to double its production capacity by 2031.

Hyundai also plans to regain market share from its growing domestic rivals by launching new SUVs and expanding its EV lineup. The rollout will begin with its first India-made electric vehicle next year and continue with at least two gasoline-powered models by 2026.

As Hyundai shifts towards more premium vehicles, it has seen profit margins rise, but at the cost of market share. Its India market share has dropped from 17.5% to 14.6% in the past four years, while competitors like Tata Motors and Mahindra & Mahindra have made gains. Despite this, Hyundai remains committed to its strategy of selling higher-priced vehicles to boost margins, even as it balances shareholder expectations around market share growth.

The company’s ambitious EV strategy includes launching five new electric vehicles in India by 2030, with plans to transform the country into a regional EV export hub. This aligns with Hyundai’s broader global goal of boosting sales by 30% by 2030, particularly as its market share declines in China and its home market, South Korea.

New Delhi: The government has identified 300 legal provisions for potential decriminalization through interministerial consultations, aiming to reduce the compliance burden under Jan Vishwas 2.0. This move is expected to provide a significant boost to the manufacturing sector, according to Commerce and Industry Minister Piyush Goyal.

With the Make in India initiative marking its tenth anniversary on Wednesday, Goyal clarified that the programme was not built on a China-plus-one strategy or an “Anywhere-but-China” policy. Instead, it was designed with a vision to bring manufacturing to India, create jobs, and foster entrepreneurial opportunities.

The Make in India initiative, launched on September 25, 2014, was aimed at facilitating investment, building world-class infrastructure, and transforming India into a hub for manufacturing, design, and innovation. “At that time, there was no China-plus-one strategy or anti-China sentiment. We’ve achieved success despite two wars and two years lost to COVID,” Goyal said.

Highlighting the government’s zero tolerance for corruption, the minister noted that this stance has played a crucial role in attracting record levels of foreign direct investment (FDI) year after year. However, Goyal ruled out any immediate changes to India’s FDI policy.

In the ten years up to FY24, FDI inflows more than doubled to $667 billion, compared to $304 billion in the previous decade (FY05-14), with over 90% of these inflows received through the automatic route. “The culture to attract and promote manufacturing in India is now firmly established. It’s a big win,” Goyal said, adding that production-linked incentive (PLI) schemes have provided a boost to 14 key sectors. “Our ambition is for every electronic device to contain a Make in India component.”

Entrepreneurial Spirit and Industrial Growth

Goyal also emphasized the need for greater entrepreneurial action among the youth to further the Make in India initiative. “In the coming days, we will focus on outreach to the youth of India, offering opportunities and helping them turn their ideas into reality. We will collaborate with the education and skill development ministries to support young entrepreneurs in their journey,” Goyal said.

He acknowledged that India would need to accelerate its growth to raise manufacturing’s contribution to 25% of GDP. “We are the fastest-growing economy in the world. To maintain that pace, we need significant growth in manufacturing. Our goal is to achieve 25% of GDP from manufacturing, which will require growing at one and a half times the rate of economic growth,” he added. Currently, manufacturing accounts for around 17% of India’s GDP.

“Our vision is that by 2047, during the Amrit Kaal, India will emerge as a manufacturing powerhouse,” Goyal said. He further noted that the government is actively engaging with both local and international investors. “It is incredible to witness the enthusiasm and speed at which large investments are being made,” he remarked.

Key initiatives such as the National Logistics Policy, the national single window system, and the Jan Vishwas (Amendment of Provisions) law, which decriminalizes 183 provisions across 42 legislations, have played a crucial role in promoting the “Vocal for Local” agenda.

“Make in India is a continuous journey. You can expect several new initiatives soon. Our focus is on taking significant steps to encourage entrepreneurship, investment, and startups. Traditional sectors such as handicrafts, handloom, and textiles will also receive a boost,” Goyal concluded.

As algorithms outpace human traders in the high-stakes derivatives market, FIIs and proprietary traders collectively generated approximately ₹59,000 crore in profits during FY24, according to a recent SEBI study.

Proprietary traders using algorithms earned around ₹32,000 crore, while algorithm-backed FIIs made ₹26,900 crore over the same period.

‘The majority of profits for FPIs and proprietary traders were generated by algorithmic entities,’ the SEBI report noted. ‘In FY24, 97% of FPI profits and 96% of proprietary trader profits came from these algo entities.

Ford Motor Co. is shifting gears with its return to India after a three-year hiatus, focusing on producing electric vehicles (EVs) for global markets as the company adjusts its strategy in response to changes in demand and technology, a person familiar with the company’s strategy said.

This shift marks a departure from Ford’s operations in India before its exit in September 2021, which had primarily focused on local sales of internal combustion engine (ICE) vehicles. Although EVs are now the company’s priority, it remains open to importing completely built-up or completely knocked-down kits of ICE vehicles in “limited batches” once it restarts its domestic business.

Ford exited the Indian market after struggling to stay competitive. During that stint, the company had built a significant presence in the ICE vehicle segment with models such as the Figo, EcoSport, Endeavour, and Aspire. It operated a manufacturing facility in Sanand, Gujarat, which was sold to Tata Motors in 2022, and another in Maraimalai Nagar, near Chennai, which was shut down in July 2022. After the shutdown, operations were reduced to producing parts to support existing Ford vehicle owners in India.

However, as the global automotive market shifts towards EVs, Ford is positioning itself for the future.

“Ford has realised that 2025 will be the turning point for the EV market in India,” said the person cited earlier. “Building petrol or diesel vehicles will not be a profitable venture anymore, which is why Ford is revamping its Chennai plant to create a dedicated assembly line for battery-driven models. This shift marks a significant departure from Ford’s earlier focus on traditional ICE vehicles.”

As part of its re-entry strategy, Ford has submitted a letter of intent to the Tamil Nadu government, expressing its intention to repurpose the Chennai plant primarily for export. This announcement followed a meeting between Ford leadership and Tamil Nadu Chief Minister MK Stalin during his recent visit to the US. Discussions focused on reviving operations at the Chennai facility, which has an annual capacity of 200,000 vehicles and 340,000 engines.

“Once the supplier base is ready, the company will start producing electric cars from its Chennai facility, exporting them to global markets via nearby ports. In the next phase, Ford plans to introduce these vehicles to the domestic Indian market,” the source explained.

When contacted, the official spokesperson of Ford Motor India said, “Further information about the type of manufacturing and other details will be disclosed in due course, and we would prefer not to comment on the speculations.”

A recent company press release confirmed that the Chennai facility would be “repurposed” to focus on manufacturing for export as part of Ford’s global Ford+ growth plan. “This step underscores our continued commitment to India, as we aim to leverage Tamil Nadu’s manufacturing expertise to serve new global markets,” said Kay Hart, president of Ford International Markets Group, in the official statement.

Ford’s exit from India in 2021 was widely seen as a major misstep, given the country’s standing as the world’s third-largest automotive market. However, industry experts believe Ford’s decision to return with a focus on electric vehicles is a carefully considered move that could position the company for long-term success.

“Ford’s re-entry into India is a calculated and necessary move,” said Puneet Gupta, director at S&P Global Mobility. “The company needs to reinvest and replan its strategy for this Phase 3.0 in India. During its earlier stint, Ford was one of the few OEMs (original equipment manufacturers) that mastered localisation, offering highly competitive products like the Figo, EcoSport, and Aspire. With one of the largest R&D centres in India and the country’s strong IT capabilities, Ford is well-positioned to execute its new BEV strategy.”

While the high level of indigenisation did help Ford make some inroads into the domestic market, it was not enough by the standards of its Dearborn, Michigan headquarters. The rapidly evolving automotive landscape, particularly the rise of EVs, demands a new approach, and Ford is shifting its focus to electric mobility to reestablish itself.

The company’s decision to focus on BEVs is also tied to its larger global goals for sustainability. Ford has set a target to achieve carbon neutrality globally by 2050, covering its vehicles, operations, and supply chain. As part of this effort, the company is working to electrify its entire vehicle lineup, reduce carbon emissions from manufacturing plants, and transition to renewable energy sources across all its facilities by 2035. Additionally, Ford is working closely with suppliers to ensure they meet stringent environmental standards, making the entire supply chain more sustainable.

In terms of employment, Ford currently has 12,000 individuals working in its Global Business Operations in Tamil Nadu, with plans to add between 2,500 and 3,000 more jobs over the next three years. The company’s presence in India is significant, representing its second-largest salaried workforce globally. With the new focus on BEVs, Ford’s Chennai operations are expected to play a vital role in both the local economy and export markets.

Although Ford’s immediate focus is on exports, its long-term plans include introducing BEVs in the domestic market. India is expected to become one of the fastest-growing markets for EVs, driven by government incentives for clean energy and increasing consumer awareness of environmental issues.

By focusing on exports in the short term, Ford is taking a cautious but strategic approach. Building a strong supply chain and production base before entering the domestic market allows the company to avoid the pitfalls it encountered in the past. This methodical approach could position Ford to deliver high-quality, competitive BEVs to both global and Indian consumers.

As Ford prepares for this new chapter in India, its strategy reflects the changing dynamics of the automotive industry and the growing importance of EVs. If successfully executed, Ford’s India re-entry could mark a significant shift, both for the company and for the future of EVs in the country.

Stolen Star Health Customer Data Leaked via Telegram Chatbots

Stolen customer data, including medical reports from India’s largest health insurer, Star Health, has been made publicly accessible via chatbots on Telegram. This leak comes just weeks after Telegram’s founder, Pavel Durov, was accused of allowing the messenger app to facilitate criminal activities.

The creator of the chatbots, who goes by the alias xenZen, told a security researcher—who later informed Reuters—that private details of millions of people were available for sale, with sample data accessible through the chatbots.

Star Health’s Response

Star Health and Allied Insurance, whose market capitalization exceeds $4 billion, acknowledged the issue in a statement to Reuters. The company reported the alleged unauthorized data access to local authorities. However, Star Health’s initial assessment indicated “no widespread compromise” and stated that “sensitive customer data remains secure.”

Despite these assurances, Reuters was able to download policy and claims documents via the chatbots. The leaked documents featured personal details such as names, phone numbers, addresses, tax information, ID card copies, medical test results, and diagnoses.

Telegram’s Role in Data Leaks

Telegram has become one of the world’s largest messaging apps, with 900 million active monthly users. One key feature contributing to its success is the ability for users to create custom chatbots. However, this same feature has been exploited by criminals, raising concerns about the app’s content moderation and security features.

The arrest of Telegram’s Russian-born founder, Pavel Durov, in France last month has intensified scrutiny of the platform. While Durov and Telegram deny any wrongdoing, they are working to address the criticism surrounding their platform’s potential for abuse by criminals.

Operation of the Star Health Chatbots

The Star Health chatbots were identified by UK-based security researcher Jason Parker, who found that they had been operational since at least August 6, 2024. Posing as a potential buyer, Parker engaged with a user under the alias xenZen on a hacker forum. XenZen claimed to have created the chatbots and to possess 7.24 terabytes of data related to over 31 million Star Health customers. While some of the data was provided for free via the chatbots on a random, piecemeal basis, larger bulk data sets were available for sale.

Reuters was unable to independently verify xenZen’s claims or determine how the chatbot creator had obtained the data. In an email to Reuters, xenZen confirmed they were in discussions with buyers but did not disclose any further details.

Telegram’s Response and Subsequent Chatbot Removal

During their investigation, Reuters downloaded more than 1,500 files from the chatbots, with some documents dated as recently as July 2024. The chatbot’s welcome message even warned users that if the bot were taken down, another would become available within hours.

On September 16, Reuters shared details of the chatbots with Telegram. Within 24 hours, the company’s spokesperson, Remi Vaughn, confirmed that the chatbots had been “taken down.” Vaughn further emphasized that “the sharing of private information on Telegram is expressly forbidden” and that the platform uses AI tools, user reports, and proactive monitoring to remove millions of pieces of harmful content daily. Despite this, new chatbots offering Star Health data have since reappeared.

Star Health’s Investigation

Star Health revealed that an unidentified individual had contacted the company on August 13, claiming to have accessed some of its data. The insurer promptly reported the matter to the cybercrime department in Tamil Nadu, where the company is based, as well as to the federal cybersecurity agency, CERT-In.

In an August 14 stock exchange filing, Star Health, India’s largest standalone health insurance provider, disclosed that it was investigating an alleged breach of “a few claims data.” The company reiterated its commitment to customer privacy and its collaboration with law enforcement to address the criminal activity.

Impact on Customers

Telegram allows users to store and share large amounts of data behind anonymous accounts and enables the creation of chatbots to automatically distribute content. In this case, two chatbots were distributing Star Health data—one offering claim documents in PDF format and the other providing up to 20 samples from a database of 31.2 million records, which included policy numbers, names, and even body mass index information.

Among the leaked documents, Reuters found records related to the treatment of a one-year-old girl, the daughter of policyholder Sandeep TS, at a hospital in Kerala. Sandeep confirmed the documents’ authenticity and expressed concern, stating, “It sounds concerning. Do you know how this can affect me?” He also noted that Star Health had not notified him of any data breach.

Another policyholder, Pankaj Subhash Malhotra, whose claim data—including ultrasound results, illness details, and copies of his federal tax and national ID cards—was also leaked, confirmed the accuracy of the documents. Like Sandeep, he was not informed of any security breach.

Broader Implications of Telegram-Based Data Leaks

The use of Telegram chatbots for selling stolen data is not an isolated incident. A survey conducted by NordVPN at the end of 2022 revealed that of five million people whose data was sold via chatbots, 12% were from India, making it the largest group of victims.

According to NordVPN cybersecurity expert Adrianus Warmenhoven, “The fact that sensitive data is available via Telegram is natural because Telegram is an easy-to-use storefront. It has become a convenient method for criminals to interact.”

This incident underscores the challenges Indian companies face in securing sensitive data, especially in the digital age where platforms like Telegram are increasingly being used for illicit activities.

After enduring more than two years of currency struggles, Asia’s central banks may finally see some relief as the Federal Reserve prepares to cut interest rates by a quarter-point on Wednesday. However, the path forward for the region’s monetary policy could be uneven.

Lower rates in the US create room for central banks from Jakarta to Seoul and Mumbai to follow suit with their own cuts. The possibility of the Fed initiating a regional rate-cutting cycle has drawn investors, leading to increased investment in Asian debt and equities, which has, in turn, bolstered the region’s currencies.

The key question now for Asia’s central banks is how much, if at all, they should cut rates in the coming months. Some, like India and the Philippines, face inflation risks, while others, such as South Korea, may focus on financial stability.

“It would be a mistake to assume that the region’s policymakers are eager to begin easing monetary policy,” said Brian Tan, a senior regional economist at Barclays Plc. “It’s not clear that the economy is in dire need of easing or that policymakers need to act immediately.”

This week could provide clarity, with central banks in China, Taiwan, and Japan expected to maintain their rates. There is, however, a possibility of a cut in Indonesia. Following them, the Reserve Bank of Australia is set to make its decision on September 24, with expectations that it will also keep rates unchanged.

China has strongly advised its carmakers to ensure that advanced electric vehicle (EV) technology remains within the country, according to people familiar with the matter. This comes even as Chinese automakers are building factories worldwide to circumvent punitive tariffs on Chinese exports.

Beijing is encouraging automakers to export so-called knock-down kits to their overseas plants, the sources said. These kits involve producing key vehicle components domestically before sending them for final assembly in the destination market.

In a July meeting, China’s Ministry of Commerce gathered with more than a dozen automakers. During the meeting, they were advised not to make any auto-related investments in India, according to those familiar with the discussions. This move is seen as another effort to safeguard China’s EV industry expertise and mitigate regulatory risks.

Additionally, automakers looking to invest in Turkey are required to first notify the Ministry of Industry and Information Technology, which oversees China’s EV sector, as well as the local Chinese embassy in Turkey.

These instructions coincide with major Chinese companies like BYD Co. and Chery Automobile Co. moving forward with plans to establish factories in countries from Spain to Thailand and Hungary, as their innovative and cost-effective EVs gain traction in global markets.