The weekend FM conference was less of high octane announcements and more of the feel-good factor. In fact, Nirmala Sitharaman dismissed concerns over liquidity crisis in banking, NBFCs and MFIs. After her elaborate meeting with private bankers and heads of financial institutions, Nirmala Sitharaman almost dismissed concerns over liquidity. She added that banks had adequate liquidity and could also offer adequate support to solvent NBFCs. On the automobile sector, the finance minister underlined that it was more of a cyclical problem and less of a structural issue for the industry.
The SEBI Chief, Ashok Tyagi, has underlined that Indian mutual funds cannot sign standstill agreements. The SEBI Chief reiterated in no uncertain terms that standstill agreements between the mutual funds and bond issuers were not covered under the SEBI Mutual Fund regulations. According to Tyagi, the new framework under which any extension of payment deadline on debt funds will be considered a default and fund managers will have to report the valuation impact on the MF schemes. The current inter credit agreement (ICA) will be applicable to mutual funds only if they have side-pocketed the assets.
Markets were caught between domestic enthusiasm and global caution. Sensex bounced but Wall Street wary on Trump impeachment prospects. The Indian markets showed a sharp bounce on F&O expiry day but the Trump impeachment prospects led to panic across global markets. Trump had already warned in a tweet that any impeachment motion would lead to chaos in global equity markets. The declines far outnumbered the advances on the New York Stock Exchange as well as on the NASDAQ Stock Exchange! In addition to the BREXIT uncertainty, this has added a new dimension to global risk.
The uncertainty in equity and bond markets extended to oil too. Brent crude continued to be under pressure on impeachment worries. Brent crude prices have been lower since Wednesday on the back of Saudi Aramco confirming that it had touched 100% production earlier than anticipated. However, the uncertainty over Trump’s impeachment led to long positions being covered leading oil closer to $62/bbl. Oil had touched a peak of $71.90/bbl in the previous week after the drone attacks on Aramco facilities. The global slowdown continues to be a major issue in determining the oil price trajectory.
In the last few weeks, the currency has played a key role in market movements. A lot of money has been flowing into the Indian equity and bond markets and much of that can be explained by the rupee carry trade. The strong rupee is adding to FPI returns over and above the attractive real returns that they are getting in India. That is one of the reasons fuelling the flow of FPI money into Indian the Indian bond markets. At the same time, the bearish bets on Asian currencies have also reduced as China and the US progress on trade talks. Currency traders are covering their short positions on Asian currencies after Trump had tweeted that the trade deal could happen sooner than expected. However, the impeachment will be a decisive issue at this point even as shorts are squeezed out.
Sugar may not be as sweet as the previous years for the Indian business scenario. Sugar exports struggling despite export subsidies offered to sugar mills. The latest sugar season has been a tough one for the government and the sugar mills. Most sugar mills have already been struggling to sell sugar at higher prices because the government has increased the MSP on sugarcane. The government export subsidies are also not working at this price and experts aver that the price will have to go up in the market even if subsidies have to work. But the global sugar supply glut remains an overhang.
