Iran sanctions did make the Nifty and Sensex panic and end marginally lower on Monday

Despite exemptions, the Iran sanctions did make the Nifty and Sensex panic and end marginally lower on Monday. The advance/decline ratio was almost neutral. The negative pressure came from the Iran sanctions going effective as well as the uncertainty over the US mid-term elections and the US Fed meet this week. The Rupee weakened by 95 bps to 73.128/$ on Monday on Iran sanctions worries and almost gave up most of the gains of Friday. There was also heavy demand for dollars ahead of a truncated trading weak. It remains to be seen if the RBI will continue to support the rupee around the 74/$ mark.

TCS may find itself in a piquant situation of a different kind. TCS may have to go on trial in the US over alleged racial discrimination. India’s largest IT Company, TCS, has been asked to explain to the California court as to why American workers at TCS were 13 times more likely to be fired than others. TCS had sharply increased its recruitment of Americans when the H1 visa issues first began in the US. This case will also throw the spotlight on the work Visa programs that are used to bring Indians to the US on projects. This is a delicate issue and will have to be dealt with carefully.

It looks like happy days are here again for SBI as India’s largest bank reported Rs.945 crore net profits in Q2. This is the first profit after 3 consecutive quarters of losses. SBI was the index heavyweight to gain the most on Monday on a return to profits after four quarters. Profits were lower than the previous year but were substantially higher than the street estimates. On the positive side, there was a fall in the Gross NPAs below the 10% mark and its provisions halved while its net interest margin (NIM) expanded during the quarter. There are signs of NPAS bottoming out and some bid dividends from NCLT.

The JLR China worries are now beginning to show on the ratings of Tata Motors. S&P placed Tata Motors long term rating on “Credit Watch”. The decision to place Tata Motors long term rating in “BB” category shows negative outlook, especially after the disappointing results in this quarter. The stock has already corrected over 70% from its peak price. The losses at Tata Motors are being led by its largest and most profitable arm which is Jaguar Land Rover. JLR has taken a hit on weak Chinese demand although it remains to be seen if the slowdown is structural or related more to the US trade war.

The Iran sanctions did go effective from Monday but it was a largely diluted version. Most of the large oil buyers from Iran like China, India, Japan and Korea were exempted. The US agreed to grant exemptions to 8 nations including India which will mean these nations can continue to buy oil from Iran. The other 7 exempted nations are Korea, Japan, China, Turkey, Italy, Taiwan and Greece. While India and China are likely to continue buying oil from Iran, US allies like Japan and Korea may have second thoughts. Iran used to contribute 2.5 million barrels per day to the global oil market and that may not really be impacted now. However, these exemptions will be temporary and the US virtually reserves the right to convert these into full fledged sanctions. So, the Damocles Sword hangs on.

There are some green shoots of recover from the services sector. India’s services PMI rises to 3-month high of 52.2 in October. The Purchase Manager Index captures the flow of activity in the manufacturing and services sector separately. The level of 52.2 is the highest since July and any number above 50 indicates expansion, although it is the momentum of expansion that really matters. The rise in Services PMI was an outcome of improved order flows, broader client bases and fruitful advertising. Services PMI had dipped sharply in the aftermath of demonetization in November 2016.

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