Kotak The Double Agent?

Tale of the Tape 

Howdy folks!

Nifty and Sensex ended at record highs, up +0.5% each. Midcaps and Smallcaps followed in suit, ending higher by +0.3% apiece. The advance-decline ratio ended in favour of the bulls (3:2).

Most sectors ended in the green. Auto (+2.2%), Pharma (+1.6%) and PSU Banks (+1.3%) saw the most buying. IT (-0.2%) and Oil & Gas (-0.2%) witnessed minor cuts.

Hindenburg is trying to use Kotak Mahindra Bank as a shield in its war with SEBI. Will it work? Check out our top story below.

SEBI is planning to shake up the derivatives space and it may not be good news for everybody.  More details below.

Maruti Suzuki (+7%) was the top Nifty gainer after the Uttar Pradesh govt waived registration fees on hybrid cars. PS - this is a major boost for its Grand Vitara and Invicto models!

Rice stocks soared after reports said the GOI could ease export curbs. LT Foods, KRBL and Kohinoor gained between +6% and +10%.

Emami (+4%) hit a new 52-week high. Global brokerage firm Citi sees a +16% upside from current levels.

CESC rallied +10% intraday after hiking power tariffs by 5.7% and levying a new fuel adjustment charge.

Bombay Burmah Trading (17%) was the top NSE 500 gainer. PS - reports say tea prices are likely to rise during erratic heatwave and rain weather patterns.

PC Jeweller was locked in a +10% upper circuit for a second day after 19 lakh shares traded hands in a block deal; the buyers and sellers were not immediately known.

Here are the closing prints:







Bank Nifty



The Kotak Angle in Adani vs Hindenburg

Hindenburg is back in the spotlight, not with a short-seller attack but instead pointing a big red finger at Kotak Mahindra Bank. ICYMI - an FPI fund owned by the bank has been hit with a SEBI show-cause notice over the role it played in the Hindenburg-Adani affair. This is rough news for a lender already struggling with its own issues. But you can’t wish away regulators. Here’s what’s at stake.

First, a little breakdown: How did Kotak get dragged into this mess? Well, SEBI’s probe shows that when Hindenburg shorted Adani stock, it used a middleman, a hedge fund manager named Mark Kingdon. Kingdon in turn used a Mauritius-based subsidiary of Kotak Mahindra Bank for some of the Indian market transactions.

With SEBI breathing down Hindenburg’s neck, the short-seller has pointed a finger at Kotak in return: “We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace.”

Why is Hindenburg trying to throw Kotak under the bus if it was a partner in the short-seller attack? It’s basically trying to show that SEBI is being unfair: that the regulator is choosing to go after foreign fish that it technically has no jurisdiction over, but is ignoring Indian players that it can actually censure. But what Hindenburg has actually done is muddy the debate around the whole issue. PS - Adani is probably loving this.

That said, there’s nothing to show that Kotak did anything wrong. The bank says it has no idea of the arrangement between Kingdon and Hindenburg. It also says all KYC rules were followed. If Kotak is able to prove everything was done by the book and it didn’t act in active collusion with Hindenburg, experts say it will walk away with no problem.

TL;DR: This is a regulatory headache Kotak does NOT need, but it should be fine. Also, SEBI’s decision to go full wide net here will also likely make Indian investment firms wary of taking on some foreign clients.


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“The End” For Retail Traders in F&O

SEBI is planning to shake up the derivatives space and it may not be good news for everybody. Media reports today say that a regulatory panel is planning BIG moves that could curb India’s crazy F&O trading. Let’s get right into it.

FYI - Moneycontrol reports that the SEBI committee on derivatives has proposed a bunch of things including:

  • Increasing the minimum lot size to Rs 20-30 lakh vs Rs 5 lakh currently.

  • Restricting weekly options to only one expiry per stock exchange per week.

  • A bunch of smaller steps including fewer strike prices, higher margin requirements closer to expiry and upfront collection of optimum premiums from buyers.

Increasing contract sizes and reducing it to only one expiry per week are obvious moves. The first step will reduce the number of small ticket traders -- aka the millions of young Indians who are using any extra pocket money and even their savings to gamble. Limiting the number of weekly expires also narrows the playing field, which is again good for reducing froth.

Now, none of this is confirmed yet. But it’s clear that SEBI has been thinking this way. A few weeks ago, regulator chief Madhabi Puri Buch said she would be open to taking derivative products off the shelf and that she doesn’t view anything that reduces trading turnover as regressive.

Yes, the case can be made that this sets a precedent for a regulator deciding who the ‘average investor should look like’, which isn’t a great thing. Investing should be democratized, but not at the cost of someone losing their entire savings. Let’s see how this goes.

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