The Nifty bounced back

The Nifty bounced back on the SBI support for NBFCs, but global markets have taken deep cuts on Thursday. Rate-sensitive sectors like banks, NBFCs, automobiles and really drove the market higher on Wednesday. The Nifty rallied by close to 160 points on the back of rate sensitive stocks even as the INR continued to remain under pressure. INR gained marginally to 74.218/$ while 10-year bond yields tapered to 8.03%. While the rupee did show some signs of holding up, the overhang of FPI selling continues. The RBI decision to maintain status quo on rates also did not go down too well.

Finally, India is seeing some tapering of gold imports which is likely to be a relief for the balance of trade. India’s gold imports were down 14% in the month of September on a YOY basis. The fall in demand for gold stemmed from a weaker rupee which made the precious metal expensive in rupee terms. India is the second largest market for the precious metal after China. The 15% weakness in the rupee in the current year has played its part. One reason for the weak gold import demand is also the huge inventories that jewellers were carrying from August when imports were at the peak.

Dow and other global markets cracked in early trades on Thursday. Weak China and strong treasury yields spooked global markets. The crash in US markets was led by tech stocks. With the Chinese government announcing a stimulus, it amounts to a clear admission of an economic slowdown in China in the aftermath of the trade war. The US Treasury bond yields at 3.22% represent a 7-year high and that is reducing the attractiveness of equity investing in risk-adjusted terms. European markets are jittery over Italy’s defiance to its austerity program. SGX Nifty is already down 200 points.

In a respite for aviation companies, the government has cut excise duty on ATF from 14% to 11%. The reduction in excise duty on ATF will lead to revenue loss for the government but it is likely to come as a boon for aviation companies. For airlines, ATF prices account for over 60% of the operating cost. Most airlines are squeezed by higher fuel costs on the one side and lower fares due to competition. Last month, the government had raised import duties on Aviation Turbine Fuel (ATF). Of course, the weak dollar continues to be a big cost adder for the aviation companies.

In a proactive move, the ICAI has sought an explanation from the auditors in the IL&FS case. ICAI confirmed that it had issued notices to the statutory auditors of IL&FS for the last few years to explain how such a major crisis was entirely overlooked. In the past, auditors have come under flak and this had also resulted in a dispute between the ICAI and SEBI; both statutory bodies. This time around the ICAI has been proactive in ordering an explanation from the auditors. Auditors and rating agencies have come under a lot of flak for acting too late on such critical issues. The IL&FS case is not the first instance but even in previous cases like Satyam, PC Jewellers, Vakrangee and Manpasand Beverages, the concern was the delayed action by auditors. In most cases, the action was after the damage was done.

In a new worry for private banks, they may have to shell out Rs.15,000 crore as GST on free services. This GST has specifically been levied on free services provided to customers who maintain the minimum required balance in their accounts. Banks have been asked to pay this tax retrospectively for the last five years. While the liability itself is Rs.15,000 crore, it could go as high as Rs.35,000 crore if the interest and the penalty are also added up. The maximum GST liability of Rs.6,500 crore is on HDFC bank followed by ICICI Bank at Rs.3,500 crore and Axis at Rs.2,500 crore. Banks are likely to dispute these charges.

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