Weekly Capsule (Aug 14 – Aug 18) and Impact Analysis
| Major News Item | Impact Analysis |
| Ø The MPC minutes indicate a clear shift towards a dovish stance by RBI | Ø Five out of the six members of the MPC were in favour of cutting rates with 1 member even suggesting a 50 bps cut
Ø The MPC has admitted to overestimating inflation and so the monetary stance could now shift back to accommodative
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| Ø US dollar weakened after the Trump Business Council was disbanded | Ø The council was disbanded after high profile resignations in the aftermath of a racist stance taken by Trump
Ø With the winding up of the council, investors are raising serious doubts over the economic promises of Trump
|
| Ø Terrorism returned to Europe with an attack in the tourist spot of Barcelona | Ø This is one more in the long list of terrorist attacks across European nations like France, Belgium, Spain and UK
Ø This attack is likely to make these countries more cagey with respect to accepting immigrants from Africa and Middle East
|
| Ø Vishal Sikka steps down from the position of MD & CEO of Infosys | Ø The current CEO has been at loggerheads with the original founders of Infosys, especially Mr. Narayanamurthy
Ø Murthy had serious reservations on the subject of executive compensation and corporate governance standards
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| Ø Gold imports likely to surge by 33% to 750 billion tons in 2017 | Ø Gold imports are rising by nearly 100% each month as jewellers are making up for lost time after the jewellers’ strike
Ø Gold imports put pressure on the RBI as it entails imports of unproductive goods with no downstream applications
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| Ø Fed Presidents are increasingly hinting at a more dovish approach to rates | Ø Robert Kaplan and Neil Kashkari, 2 high profile Fed presidents, are strongly in favour of flat to lower Fed rates
Ø Their view is that the outlook for growth and inflation do not justify committing to a hawkish approach to rates
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| Ø Jindal Energy to launch electric car in India by 2020 | Ø Electric cars are yet to take off in a big way but the demand is expected to grow 40-fold by 2030
Ø Electric cars are considered to be the biggest threat factor for demand for fossil fuels and oil prices in future
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| Ø CPI inflation came in higher at 2.36% and WPI inflation at 1.88% | Ø The 90 bps bounce in retail inflation was driven by higher vegetable prices, especially tomatoes
Ø WPI inflation bouncing back from lower levels is indicative that economy is unlikely to see a slowdown
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| Ø India gets its first oil import consignment of shale oil from the US | Ø With Saudi Arabia cutting oil supplies to Asia, India is increasingly looking to the US to supply crude
Ø The cost of US shale is working out cheaper than the crude that India was traditionally sourcing from West Asia
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| Ø Trade data for July 2017 hinted at a merchandise deficit of $11.45 bn | Ø With the growth in imports falling, the trade deficit has marginally improved in the month of July
Ø However the immediate challenge is that exports of goods and services are almost static due to a strong INR |
| Ø US ups its ante at the all important NAFTA trade talks | Ø US has sought greater concessions from Mexico and Canada to reduce the trade deficit which is up 4 times since NAFTA
Ø In his election speech, Trump had promised to walk out of unfavourable trade agreements and NAFTA could be next
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| Ø SEBI approved the buyback proposal put up by Infosys | Ø The $2 billion buyback proposal took time for approval as it also involved buyback for the ADRs of Infosys
Ø The ADRs can now be converted into local shares and then tendered for the buyback. Price is yet to be decided.
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| Ø SEBI exempts stakes in distressed companies from open offers | Ø This was a much needed exemption from the Takeover Code which will enable banks to easily take over stressed assets
Ø An open offer to the existing shareholders would have added substantially to the cost of the buyout and made it unviable
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| Ø Government announces New Metro Policy with PPP condition | Ø All fresh metro related projects will now have to be necessarily on Public Private Partnership (PPP) basis only
Ø This will open a huge window of opportunity for companies like Reliance Infra that are aggressive in this space
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| Ø More banks follow the savings rate cut bandwagon after SBI | Ø Banks like HDFC Bank, Axis Bank, PNB, BOB and Axis Bank have all gone ahead and cut savings rates by 50 bps
Ø This was necessitated as the rapid rise in deposits after the note ban, did not see proportionate rise in loan growth
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| Ø Base metals could rally further says a report by SocGen | Ø Most base metals have rallied by 15% this year and could rally further by December this year
Ø A sharp pick-up in growth in EU and rising Chinese demand for base metals is propelling this rise in prices
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| Ø Tatas sever all business relations with the Shapoorji Pallonji group | Ø This decision came in the light of the removal of Cyrus Mistry from the post of Chairman of Tata Sons last year
Ø The SP group has been a beneficiary of lucrative construction contracts from the Tatas over the last many years
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| Ø Goldman Sachs warns of high yield trap in emerging markets (EM) debt paper | Ø Most money managers have been targeting higher rated junk notes in EMs in search of higher yields
Ø Goldman Sachs feels that this could be a dangerous strategy especially if flows suddenly turn risk-off
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| Ø Tomatoes may be emerging as the new worry for CPI inflation | Ø At Rs.100 per kg, tomatoes were singularly responsible for inflation rising by 90 basis points in July 2017
Ø It is indicative of a larger challenge as nearly 16% of tomatoes were wasted due to poor transport and cold storage
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| Ø BSE and NSE to suspend trading in United Brewery Holdings (UBH) | Ø The suspension is due to non-compliance and non-payment of fines for two years. Mallya’s stake has also been frozen
Ø The Indian banks have been trying to recover a sum of $1.3 billion which he owes to banks via Kingfisher Airlines
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| Ø Promoters to offload up to 15% stake in HDFC Life as part of the IPO | Ø Standard life will offload 5.43% while HDFC will offload 9.57% stake in HDFC Life as part of the IPO
Ø HDFC has pushed ahead with the IPO after the proposed merger with Max Life was called off due to IRDA objections |
