Specialist in Indian Banking and Economic Research

Hemindra Hazari

The Securities and Exchange Board of India (SEBI)’s <a href="https://www.sebi.gov.in/enforcement/orders/aug-2021/order-in-the-matter-of-kotak-mahindra-asset-management-company-ltd-_52130.html" target="_blank" rel="noopener">order</a>  penalising Kotak Mahindra Mutual Fund (Kotak MF), a subsidiary of <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> (KMB) provides an in-depth insight normally unavailable to the public on how imprudently investment decisions are taken by so called professionals in marquee firms who are managing public funds in a fiduciary capacity. The indictment by SEBI shows Kotak MF in a poor light and also casts a spot light on Kotak Mahindra AMC's high profile chairman, Uday Kotak who is also founder-CEO, KMB.Even though investors ultimately (after some delay) recovered their funds, the SEBI order exposes the unprofessional conduct of the concerned debt fund managers and the Investment Committee (IC), in Kotak MF in investing in dubious debt instruments of companies which had no financial ability to pay back the principal and where equity shares was the only security. That such a high-risk transaction conformed to the investment policy of  Kotak MF is a cause for significant concern for all debt investors of Kotak mutual fund schemes. In a shocking revelation, thoroughly exposing Kotak MF’s Investment Policy, the SEBI order <a href="https://www.sebi.gov.in/enforcement/orders/aug-2021/order-in-the-matter-of-kotak-mahindra-asset-management-company-ltd-_52130.html" target="_blank" rel="noopener">notes</a>  that the company’s IC on March 7, and May 18, 2016 was <blockquote>not aware of the issuer entity even on the date of approving the proposal to invest in the ZCNCDs [zero coupon non-convertible debentures]. (para 40, p. 34) </blockquote>Such was the professionalism on Kotak MF’s IC that they approved an investment in a corporate entity whose identity they did not know and consequently had no clue about its financials. They did so as documented in its approval note solely on the belief that,<blockquote>repayment of our exposures will, in all probability, be funded through a refinance. We take comfort from the reputation and track record of Essel Group in general and fundamentals, liquidity and performance of Zee shares. (ibid)</blockquote>Although KMB has historically reported strong asset quality, an added concern is that Kotak AMC is a subsidiary of the bank and when Kotak MF  follows such appalling credit appraisal/underwriting practices under its chairman Uday Kotak, can the bank where Kotak is the founder-CEO also be following similar practices where belief overrides financial fundamentals and where the decision-makers invest blindly?The SEBI order is an eye-opener in how investment decisions are taken at mutual funds and as Uday Kotak is the chairman of Kotak AMC, regulators especially, SEBI and the Reserve Bank of India should consider whether such conduct conforms to the fit and proper criteria for managing public money in a fiduciary capacity.

The Securities and Exchange Board of India (SEBI)’s order  penalising Kotak Mahindra Mutual Fund (Kotak MF), a subsidiary of Kotak Mahindra Bank (KMB IN) (KMB) provides an in-depth insight normally unavailable to the public on how imprudently investment decisions are taken by so called professionals in marquee firms who are managing public funds in a fiduciary capacity. The indictment by SEBI shows Kotak MF in a poor light and also casts a spot light on Kotak Mahindra AMC's high profile chairman, Uday Kotak who is also founder-CEO, KMB.Even though investors ultimately (after some delay) recovered their funds, the SEBI order exposes the unprofessional conduct of the concerned debt fund managers and the Investment Committee (IC), in Kotak MF in investing in dubious debt instruments of companies which had no financial ability to pay back the principal and where equity shares was the only security. That such a high-risk transaction conformed to the investment policy of  Kotak MF is a cause for significant concern for all debt investors of Kotak mutual fund schemes. In a shocking revelation, thoroughly exposing Kotak MF’s Investment Policy, the SEBI order notes  that the company’s IC on March 7, and May 18, 2016 was not aware of the issuer entity even on the date of approving the proposal to invest in the ZCNCDs [zero coupon non-convertible debentures]. (para 40, p. 34) Such was the professionalism on Kotak MF’s IC that they approved an investment in a corporate entity whose identity they did not know and consequently had no clue about its financials. They did so as documented in its approval note solely on the belief that,repayment of our exposures will, in all probability, be funded through a refinance. We take comfort from the reputation and track record of Essel Group in general and fundamentals, liquidity and performance of Zee shares. (ibid)Although KMB has historically reported strong asset quality, an added concern is that Kotak AMC is a subsidiary of the bank and when Kotak MF  follows such appalling credit appraisal/underwriting practices under its chairman Uday Kotak, can the bank where Kotak is the founder-CEO also be following similar practices where belief overrides financial fundamentals and where the decision-makers invest blindly?The SEBI order is an eye-opener in how investment decisions are taken at mutual funds and as Uday Kotak is the chairman of Kotak AMC, regulators especially, SEBI and the Reserve Bank of India should consider whether such conduct conforms to the fit and proper criteria for managing public money in a fiduciary capacity.  

SEBI Exposes Kotak Mahindra Mutual Fund’s Policy of Investing Blindly

External broker reports(aggregated public sources), Ashika Research

Ashika Research

External broker reports(aggregated public sources)

Equity Bottom-Up

Zee Entertainment Enterprises / Equity Bottom-Up

<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Ashika - Stock Picks - Zee Entertainment Enterprises Ltd. - July 2021

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices <a href="https://www.niftyindices.com/Press_Release/ind_prs20082020.pdf" target="_blank" rel="noopener">announced</a> the results of the September index review for the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a>. The rebalance will be effective after the close of trading on 24 September and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.There were three candidates eligible for inclusion and exclusion but the IMSC picked just two: <a href="https://www.smartkarma.com/entities/divi-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:4871:1" rel="noopener">Divi'S Laboratories (DIVI IN)</a> and <a href="https://www.smartkarma.com/entities/sbi-life-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:25899:1" rel="noopener">SBI Life Insurance (SBILIFE IN)</a> were included, while <a href="https://www.smartkarma.com/entities/bharti-infratel-ltd" target="_blank" data-smartkarma-citation="entities:8922:1" rel="noopener">Bharti Infratel (BHIN IN)</a> and <a href="https://www.smartkarma.com/entities/zee-entertainment-enterprises-limited" target="_blank" data-smartkarma-citation="entities:19466:1" rel="noopener">Zee Entertainment Enterprises (Z IN)</a> were excluded.In terms of ADV to trade, the biggest impact is on <a href="https://www.smartkarma.com/entities/sbi-life-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:25899:1" rel="noopener">SBI Life Insurance (SBILIFE IN)</a> followed by <a href="https://www.smartkarma.com/entities/bharti-infratel-ltd" target="_blank" data-smartkarma-citation="entities:8922:1" rel="noopener">Bharti Infratel (BHIN IN)</a> and <a href="https://www.smartkarma.com/entities/divi-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:4871:1" rel="noopener">Divi'S Laboratories (DIVI IN)</a>.These changes are in addition to the adhoc change last month where <a href="https://www.smartkarma.com/entities/hdfc-standard-life-insurance" target="_blank" data-smartkarma-citation="entities:26004:1" rel="noopener">HDFC Standard Life Insurance (HDFCLIFE IN)</a> was added and <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> was excluded following the delisting proposal for Vedanta.

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the September index review for the NIFTY Index (NIFTY INDEX). The rebalance will be effective after the close of trading on 24 September and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.There were three candidates eligible for inclusion and exclusion but the IMSC picked just two: Divi'S Laboratories (DIVI IN) and SBI Life Insurance (SBILIFE IN) were included, while Bharti Infratel (BHIN IN) and Zee Entertainment Enterprises (Z IN) were excluded.In terms of ADV to trade, the biggest impact is on SBI Life Insurance (SBILIFE IN) followed by Bharti Infratel (BHIN IN) and Divi'S Laboratories (DIVI IN).These changes are in addition to the adhoc change last month where HDFC Standard Life Insurance (HDFCLIFE IN) was added and Vedanta Ltd (VEDL IN) was excluded following the delisting proposal for Vedanta.

NIFTY50 Index Rebalance - SBI Life Could Outperform on Index Inclusion

On 2 July, the Index Maintenance Sub-Committee (IMSC) of NSE Indices Limited made an ad-hoc change to the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> excluding <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> and including <a href="https://www.smartkarma.com/entities/hdfc-standard-life-insurance" target="_blank" data-smartkarma-citation="entities:26004:1" rel="noopener">HDFC Standard Life Insurance (HDFCLIFE IN)</a> with effect from the close of business on 30 July to coincide with the Futures &amp; Options (F&amp;O) expiry.The change was made due to <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a>'s proposed voluntary delisting and <a href="https://www.smartkarma.com/entities/hdfc-standard-life-insurance" target="_blank" data-smartkarma-citation="entities:26004:1" rel="noopener">HDFC Standard Life Insurance (HDFCLIFE IN)</a> was the highest ranked non-constituent eligible for inclusion in the index.<a href="https://www.smartkarma.com/entities/hdfc-standard-life-insurance" target="_blank" data-smartkarma-citation="entities:26004:1" rel="noopener">HDFC Standard Life Insurance (HDFCLIFE IN)</a> has rallied 34% from our first <a href="https://www.smartkarma.com/insights/nifty50-rebalance-preview-early-trade-ideas" target="_blank" rel="noopener">Insight</a> on its potential inclusion in the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> at the September index review and has outperformed its peers over the period. With the stock now trading expensive relative to its peers, we recommend using the passive flow at the close tomorrow, which we estimate at around 20m shares to buy, to switch out of the stock and into its peers <a href="https://www.smartkarma.com/entities/sbi-life-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:25899:1" rel="noopener">SBI Life Insurance (SBILIFE IN)</a> and <a href="https://www.smartkarma.com/entities/icici-prudential-life-insurance" target="_blank" data-smartkarma-citation="entities:23608:1" rel="noopener">ICICI Prudential Life Insurance (IPRU IN)</a>.

On 2 July, the Index Maintenance Sub-Committee (IMSC) of NSE Indices Limited made an ad-hoc change to the NIFTY Index (NIFTY INDEX) excluding Vedanta Ltd (VEDL IN) and including HDFC Standard Life Insurance (HDFCLIFE IN) with effect from the close of business on 30 July to coincide with the Futures &amp; Options (F&amp;O) expiry.The change was made due to Vedanta Ltd (VEDL IN)'s proposed voluntary delisting and HDFC Standard Life Insurance (HDFCLIFE IN) was the highest ranked non-constituent eligible for inclusion in the index.HDFC Standard Life Insurance (HDFCLIFE IN) has rallied 34% from our first Insight on its potential inclusion in the NIFTY Index (NIFTY INDEX) at the September index review and has outperformed its peers over the period. With the stock now trading expensive relative to its peers, we recommend using the passive flow at the close tomorrow, which we estimate at around 20m shares to buy, to switch out of the stock and into its peers SBI Life Insurance (SBILIFE IN) and ICICI Prudential Life Insurance (IPRU IN).

NIFTY50 Index Rebalance - HDFC Life at All Time High On Inclusion, Time to Switch

India

Zee Entertainment Enterprises Limited operates as an entertainment company. The Company produces and develops films, serials, game shows, and children's programs. Zee also produces and exports entertainment software for transmission on its ZEE TV channel. Zee Entertainment Enterprises serves customers in India.

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Zee Entertainment Enterprises (Z IN)

SEBI Exposes Kotak Mahindra Mutual Fund’s Policy of Investing Blindly

When Kotak MF follows poor underwriting under its chairman Uday Kotak, can KMB also be following similar practices where belief overrides...

Hemindra Hazari

Ashika - Stock Picks - Zee Entertainment Enterprises Ltd. - July 2021

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general...

Ashika Research

Ashika - Stock Picks - Zee Entertainment Enterprises Ltd. - July 2021

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general...

Ashika Research

NIFTY50 Index Rebalance - SBI Life Could Outperform on Index Inclusion

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the September index review for the NIFTY Index...

Brian Freitas

NIFTY50 Index Rebalance - HDFC Life at All Time High On Inclusion, Time to Switch

On 2 July, the Index Maintenance Sub-Committee (IMSC) of NSE Indices Limited made an ad-hoc change to the NIFTY Index (NIFTY...

Brian Freitas

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