Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

China Petroleum & Chemical / Technical Analysis

<ul>
<li>In last week's Int'l Compass (Jan. 27) we highlighted that the broad global indexes were breaking down, but that we were watching for potential false breakdowns.</li>
<li>We are now getting those false breakdowns as major levels have been reclaimed; we view this as a net positive.</li>
<li>We continue to see select areas that are attractive (namely cyclical value and defensive Sectors) and we expect markets to remain mixed.</li>
</ul>


In last week's Int'l Compass (Jan. 27) we highlighted that the broad global indexes were breaking down, but that we were watching for potential false breakdowns.
We are now getting those false breakdowns as major levels have been reclaimed; we view this as a net positive.
We continue to see select areas that are attractive (namely cyclical value and defensive Sectors) and we expect markets to remain mixed.


False Breakdowns on Global MSCI Indexes as the US Dollar Weakens; Ideas Within Energy & Financials

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Shareholder activism is on the rise in India. Institutional shareholders are making their vote count. Proxy advisor firms are also playing a role in guiding institutions to leverage their voting rights prudently. Over the past few months, we saw several instances of activism, mostly through adverse voting and complaining on public forums like earnings call. In a couple of cases, large shareholders (&gt;10% ownership) have also used their rights under Companies Act to call an extraordinary general meeting (EGM) to push for change of board and management.
In our detailed insight below, we discuss many such instances that transpired over the past few months. We also discuss our key takeaways for the Indian markets from this uprising activism.

Shareholder activism is on the rise in India. Institutional shareholders are making their vote count. Proxy advisor firms are also playing a role in guiding institutions to leverage their voting rights prudently. Over the past few months, we saw several instances of activism, mostly through adverse voting and complaining on public forums like earnings call. In a couple of cases, large shareholders (&gt;10% ownership) have also used their rights under Companies Act to call an extraordinary general meeting (EGM) to push for change of board and management.
In our detailed insight below, we discuss many such instances that transpired over the past few months. We also discuss our key takeaways for the Indian markets from this uprising activism.

The Rise of Shareholder Activism in India

Specialist in Indian Banking and Economic Research

Hemindra Hazari

The <a href="https://www.smartkarma.com/entities/idfc-ltd" target="_blank" data-smartkarma-citation="entities:518:1" rel="noopener">IDFC Ltd (IDFC IN)</a> ’s board of directors’ decision to <a href="https://www.idfc.com/pdf/IDFCLettertoSEOutcome25052021.pdf" target="_blank" rel="noopener">reclassify</a> Vinod Rai, hitherto independent director, as a non-independent non-executive director provides a backdoor entry for all those independent directors whom founders/promoters and executive management want to retain after the mandated two consecutive terms. In the critical financial sector there is a reason why regulators stipulate maximum continuous tenures for auditors and independent directors. The purpose is to prevent excessive proximity to the promoters/executive management. It is surprising that not only does the IDFC board fail to comprehend this basic principle, but that Vinod Rai himself is willing to compromise his “independence” and stature to continue on the IDFC board on such terms.It is equally surprising that the IDFC, which in its FY2021 annual report describes itself as being “renowned for exemplary governance”, declined to inform the stock exchanges of Vinod Rai’s resignation, and failed to upload his resignation letter on the grounds that this stipulation would be effective from January 1, 2022. Pertinently, when two of Zee Entertainment’s directors resigned on September 13, 2021, the firm <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/52a91184-ea90-4412-bf35-9e2998867d22.pdf" target="_blank" rel="noopener">promptly disclosed</a> this to the exchanges. While IDFC claims to practice “exemplary” governance standards, in reality it is barely conforming to the stipulated minimum.Apparently, for IDFC, the 73-year old Vinod Rai is indispensable, and he has to be retained on the board at all costs. Indeed, Rai’s public pronouncement on the recent <a href="https://www.idfc.com/pdf/Transcript-of-IDFC-Ltd_Pre-AGM-Call_14Sep2021.pdf" target="_blank" rel="noopener">conference call</a>  suggests that he plays an executive role in the company.There is no explicit legal requirement which prohibits a person from continuing on the board as a non-independent director after his/her mandated two consecutive terms as independent director. However, the underlying principle of independence would have required an independent director gracefully leave the board after the mandated two consecutive terms. That Vinod Rai is willing to continue as a non-independent director on IDFC, with the support of the executive, raises suspicions about the extent of his “independence” when he was an independent director from <a href="https://www.idfc.com/pdf/apptofdirectorNSEBSe.pdf" target="_blank" rel="noopener">2015</a>  to <a href="https://www.idfc.com/pdf/IDFCLettertoSEOutcome25052021.pdf" target="_blank" rel="noopener">May 2021</a>  .That a prominent company with significant institutional ownership declines to disclose the resignation of its independent director to the exchanges and seamlessly reclassifies its independent director as a non-executive non-independent director is an indication of poor standards of corporate governance.  Far from being “exemplary”, it has devised a method of subverting governance for all those companies who would want to continue with compromised independent directors after their mandated tenures as independent directors are over.

The IDFC Ltd (IDFC IN) ’s board of directors’ decision to reclassify Vinod Rai, hitherto independent director, as a non-independent non-executive director provides a backdoor entry for all those independent directors whom founders/promoters and executive management want to retain after the mandated two consecutive terms. In the critical financial sector there is a reason why regulators stipulate maximum continuous tenures for auditors and independent directors. The purpose is to prevent excessive proximity to the promoters/executive management. It is surprising that not only does the IDFC board fail to comprehend this basic principle, but that Vinod Rai himself is willing to compromise his “independence” and stature to continue on the IDFC board on such terms.It is equally surprising that the IDFC, which in its FY2021 annual report describes itself as being “renowned for exemplary governance”, declined to inform the stock exchanges of Vinod Rai’s resignation, and failed to upload his resignation letter on the grounds that this stipulation would be effective from January 1, 2022. Pertinently, when two of Zee Entertainment’s directors resigned on September 13, 2021, the firm promptly disclosed this to the exchanges. While IDFC claims to practice “exemplary” governance standards, in reality it is barely conforming to the stipulated minimum.Apparently, for IDFC, the 73-year old Vinod Rai is indispensable, and he has to be retained on the board at all costs. Indeed, Rai’s public pronouncement on the recent conference call  suggests that he plays an executive role in the company.There is no explicit legal requirement which prohibits a person from continuing on the board as a non-independent director after his/her mandated two consecutive terms as independent director. However, the underlying principle of independence would have required an independent director gracefully leave the board after the mandated two consecutive terms. That Vinod Rai is willing to continue as a non-independent director on IDFC, with the support of the executive, raises suspicions about the extent of his “independence” when he was an independent director from 2015  to May 2021  .That a prominent company with significant institutional ownership declines to disclose the resignation of its independent director to the exchanges and seamlessly reclassifies its independent director as a non-executive non-independent director is an indication of poor standards of corporate governance.  Far from being “exemplary”, it has devised a method of subverting governance for all those companies who would want to continue with compromised independent directors after their mandated tenures as independent directors are over.

Vinod Rai Re-Enters the IDFC Board Through the Backdoor Highlighting “Exemplary” Governance

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary deferment or postponement on dividends, as economies reopen and recover.  Their reinstatement will only be an additional positive delta alongside likely lower credit costs. In Asia, there are many banks where yields are over 9% and where capital levels are high, suggesting dividends can remain in place and where many banks, have not deferred, or postponed dividends. When we remember that dividend restrictions were imposed in the more dire days of shutdown, well before the sharp recovery seen in many economies, it makes it even less likely that these restrictions will remain in place for long. And many banks in Asia, continue to pay dividends as normal.

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary deferment or postponement on dividends, as economies reopen and recover.  Their reinstatement will only be an additional positive delta alongside likely lower credit costs. In Asia, there are many banks where yields are over 9% and where capital levels are high, suggesting dividends can remain in place and where many banks, have not deferred, or postponed dividends. When we remember that dividend restrictions were imposed in the more dire days of shutdown, well before the sharp recovery seen in many economies, it makes it even less likely that these restrictions will remain in place for long. And many banks in Asia, continue to pay dividends as normal.  

Indian Accounting Research Analyst, Trudence Capital Advisors

Nitin Mangal

Indian Accounting Research Analyst

<a href="https://www.smartkarma.com/entities/vodafone-idea-ltd" target="_blank" data-smartkarma-citation="entities:15678:1" rel="noopener">Vodafone Idea (IDEA IN)</a> has been under some significant hardships for quite a while. Since the telecom market disruption caused by Reliance Jio, the company has not been able to walk steadily as it continued reporting operational losses. Further, India's telecom sector has been facing heavy duress ever since the Hon'ble Supreme Court's verdict which upheld the definition of Adjusted Gross Revenues (AGR). The adjusted AGR meant that the telecom operators were liable to pay more than INR 1 trillion to the government as revenue dues by January 24.Lastly, Franklin Templeton's measure to mark down its exposure to the company's debt securities to zero shall be a final nail in the coffin.In the report below, we discuss the highlights and see who faces the maximum heat arising out from the saga.

Vodafone Idea (IDEA IN) has been under some significant hardships for quite a while. Since the telecom market disruption caused by Reliance Jio, the company has not been able to walk steadily as it continued reporting operational losses. Further, India's telecom sector has been facing heavy duress ever since the Hon'ble Supreme Court's verdict which upheld the definition of Adjusted Gross Revenues (AGR). The adjusted AGR meant that the telecom operators were liable to pay more than INR 1 trillion to the government as revenue dues by January 24.Lastly, Franklin Templeton's measure to mark down its exposure to the company's debt securities to zero shall be a final nail in the coffin.In the report below, we discuss the highlights and see who faces the maximum heat arising out from the saga.

Vodafone Idea Ltd- Telco's Debt Bomb Ticking Fast and Louder

India

IDFC Limited offers infrastructure project financing services.  The Company primarily finances energy, telecommunications, and transportation projects.

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IDFC Ltd (IDFC IN)

False Breakdowns on Global MSCI Indexes as the US Dollar Weakens; Ideas Within Energy & Financials

Global sovereign bond yields remain on an upward trajectory, with 10-year yields hitting multi-year highs this week in many countries; we expect...

Vermilion Research

The Rise of Shareholder Activism in India

Shareholder activism is on the rise in India with several recent instances where investors have raised concerns through voting rights and EGMs as...

Ankit Agrawal, CFA

Vinod Rai Re-Enters the IDFC Board Through the Backdoor Highlighting “Exemplary” Governance

The present case may become known in the future as the “Rai loophole”, showing the way for other firms to continue with compromised ‘independent’...

Hemindra Hazari

Asia Banks – Oversized Dividends

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary...

Daniel Tabbush

Vodafone Idea Ltd- Telco's Debt Bomb Ticking Fast and Louder

Vodafone Idea (IDEA IN) has been under some significant hardships for quite a while. Since the telecom market disruption caused by Reliance Jio,...

Nitin Mangal

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