Weekly Capsule (Jun 12 – Jun 16) and Impact Analysis
| Major News Item | Impact Analysis |
| Ø FOMC raises Fed rates by 25 basis points to the range of 100-125 bps | Ø The hike in rates is in tune with the Fed guidance of 3 rate hikes in 2017 followed by 3 in year 2018
Ø The Fed has also guided about the likely timetable for the tapering of the bond portfolio, which will be calibrated
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| Ø Trade deficit for the month of May 2017 came in at $13 billion | Ø The import growth at 33% was sharply higher than the exports growth of 8.3% leading to this divergence
Ø With imports rising sharply, the import coverage of forex reserves has come down from 12 months to 9 months
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| Ø Pharma industry instructed to adhere to the GST anti-profiteering clause | Ø The clause calls for any reduction in tax rates to be passed on fully to the end customer for all pharmaceuticals
Ø Additionally, any hike in tax impact above 10% due to GST will have to be absorbed by the company and not passed on
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| Ø India expects a sharply higher pace of growth in the steel sector | Ø Steel output for 2017-21 likely to grow at 8.9% per annum compared to just 2.9% for the 2012-16 period
Ø India has already become a net exporter of steel and its total capacity is likely to increase to 129 million tonnes by 2021
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| Ø IIP for April 2017 came in at 3.1% as compared to 3.8% in March 2017 | Ø The lower growth was driven by weak manufacturing growth which constitutes nearly 75% of the overall IIP
Ø The good news is that the pain of demonetization seems to be over as IIP settles in a higher orbit above 3%
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| Ø May CPI inflation came in at a 5-year low of 2.18%, WPI inflation at 2.17% | Ø The weak inflation was driven by negative food inflation which impacted the CPI and the WPI negatively
Ø With CPI well below the RBI’s reduced guidance, it does open the gates for rate cuts in the August policy
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| Ø Brent crude prices slipped to the $46/bbl mark on supply worries | Ø US record stockpiling and rising US shale output is spooking oil markets as is the GCC embargo imposed on Qatar
Ø The OPEC has reduced its daily crude supply by 1.8 million bpd, but that is hardly having any impact on prices
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| Ø RBI names 12 defaulting companies and initiates IBC proceedings | Ø These 12 names including Bhushan, Amtek, Essar and Monnet owe over Rs.200,000 crore to the Indian banks
Ø They will have a maximum of 270 days for a resolution failing which insolvency proceedings will be initiated against them
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| Ø SEBI outlined a broad framework for commodity options trading | Ø To being with, it will only be permitted on 1 commodity per exchange and will have commodity futures as underlying
Ø The MCX has confirmed that it will be ready to launch commodity options in the next 3-4 months time
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| Ø RBI may relax the NPA definition for the SME sector in India | Ø Currently the NPA definition is 90 days and any delay beyond that is leading to classification as NPAs
Ø Most SMEs suffer from negative payment cycles and the NPA classification results in their credit lines being snapped |
| Ø RBI extends the Prompt Corrective Action (PCA) to Central Bank of India | Ø Central Bank of India has net NPAs of 10.2% of the loan book which makes it a second level PCA candidate
Ø Now the banks will face restrictions on employee costs, top management compensation and branch expansion
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| Ø India may have to walk a diplomatic tightrope in the Qatar case | Ø India is one of the major exporter of engineering goods to Qatar and those shipments have been impacted
Ø However, Saudi Arabia and UAE, are major business partners for India and hence Qatar becomes a tightrope
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| Ø ED files its charge sheet against Vijay Mallya under the PMLA | Ø The PMLA case came just one day after the Westminster Court had given bail to Vijay Mallya
Ø Normally, UK extradites its citizens only in cases of very grave crimes against humanity and nor for financial peccadillo
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| Ø SEBI issues comprehensive norms for margin trading | Ø The regulator has covered detailed guidelines covering eligibility requirements for brokers and disclosure norms
Ø Most importantly, SEBI has explicitly focused on the Chinese Walls between client accounts and with the prop account
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| Ø SEBI calls upon rating agencies to improve debt monitoring | Ø SEBI is of the view that in case of RCOM and earlier in Amtek case, the rating agencies delayed the downgrade
Ø SEBI has called for an early warning system including early availability of default data, which is getting delayed now
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| Ø RBI is also seriously considering merging banks for synergy | Ø Large banks like BOB, PNB, Canara Bank and BOI have been identified for considering a possible merger
Ø Smaller regional banks like Syndicate Bank and Vijaya Bank have already called on RBI to consider merging them
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| Ø PFC to raise Rs.18,000 crore via the issue of Section 54EC bonds | Ø These bonds are eligible for capital gains tax exemption if the proceeds are reinvested in these bonds
Ø PFC has an annual fund raising target of Rs.70,000 crore and the 54EC bonds will constitute a key component
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| Ø Mutual fund exposure to IT stocks is at an all time low | Ø According to Morningstar, while Infosys and TECHM have seen buying, overall IT stocks have failed to elicit interest
Ø IT stocks have been hit by weak IT spending, stringent visa regulations in the US and weak growth
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| Ø Deloitte Audit report confirms that NSE was aware of flaws in the algo system | Ø The algo system was misused by some brokers to get priority access to the trading server
Ø According to the Audit Report, NSE was aware of the same but did not do anything about that
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| Ø Credit Suisse raises serious doubts about corporate debt repayment | Ø While power has only 70% interest coverage, telecom and steel have only 55% interest coverage
Ø This raises serious questions over the ability of these sectors to service their interest and principal outstanding
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| Ø BP and RIL to invest $6 billion to revive oil extraction in KG Basin | Ø The freedom to price oil and natural gas could be a key driver for the revival of this segment
Ø Earlier, the oil minister had invited BP and RIL to invest in marketing and retailing of oil in India |
