Sensex shrinks 535 points while Franklin Templeton decision shocks investors

Sensex shrinks 535 points while Franklin Templeton decision shocks investors

  •  
  •  
  •  
  •  
  •  
  •  
  •  

Indian equity benchmarks Sensex and Nifty closed bearish today, following global peers that fell into red territory after reports that raised doubts about progress in the development of drugs to treat the novel coronavirus. 

Sensex closed 535 points or 1.68 per cent lower at 31,327 and NSE 50-share index Nifty closed 159 points or 1.71 per cent lower at 9,154.

The top Sensex laggards were Bajaj Finance that fell  9 per cent  and IndusInd Bank that slipped over 6.5 per cent while HDFC slipped 5 per cent and HDFC Bank closed nearly 2 per cent lower. On the upside, Reliance Industries was the lead gainer, adding over 3 per cent.

MSCI’s All Country World Index that follows stocks across 49 countries, was down 0.5 per cent and heading for its worst week in three, while MSCI’s broadest index of Asia-Pacific shares outside Japan shrank 0.9 per cent.

US stock futures, the S&P 500 e-minis, slipped 0.56 per cent whileEuro Stoxx 50 futures shed 2.23 per cent, German DAX futures was down 2.19 per cent and FTSE futures fell 1.36 per cent.

Meanwhile, Financial Times reported on Thursday that Gilead Sciences’ antiviral drug remdesivir flopped in its first clinical trials, citing documents published accidentally by the World Health Organization. The randomised trials were testing the drug’s efficacy in treating the coronavirus. The pharma company’s failure is viewed as a step back in the race to treat the virus. 

Back home, in the first instance of a fund house shutting debt schemes due to the coronavirus pandemic, Franklin Templeton Mutual Fund has closed six of its open-ended debt schemes, with effect from April 23,  locking in Rs 30,800 crore of investors’ money. 

To put it simply, any transactions carried out after April 23 will not be processed while the money of existing investors  will remain locked in these funds until maturity.

Citing lack of liquidity in the debt market and redemption pressure in these yield-oriented schemes caused by the Covid-19 pandemic, Franklin Templeton said in a statement released late Thursday:”The decision has been taken in order to protect value for investors via a managed sale of the portfolio”.

The US-based fund house’s move comes at a time when the rapidly-spreading coronavirus (COVID-19) pandemic continues to hammer world markets. 

Although Franklin has not announced details on how it will proceed with winding up of the schemes, it promised to announce the net asset value of the schemes daily. 

Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund are the six yield-oriented schemes in which investments have been stopped since yesterday 

For high networth individuals, this comes as a shock as corporate and retail investors usually invest in debt funds as part of their high income asset allocation due to higher returns offered by such funds as compared to bank deposits and easy liquidity.

Market participants are also worried that the Franklin news will have far-reaching implications for the country’s mutual funds industry as well as have a spill-over effect on other debt schemes, equity markets.

Franklin, however, has clarified that all other funds managed by Franklin Templeton Mutual Fund in India – equity, debt and hybrid – are unaffected by this decision.

In an assurance to investors, the Association of Mutual Funds of India (AMFI) said that majority of Fixed Income Mutual Funds AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations and hence, investors should remain invested in mutual funds to create wealth over the long term.