Midnight News Update – Nov 07th 2017
Even as the Saudi regime undertook an unprecedented purge, Brent Crude touched a 30-month high of $62.49/bbl. As Prince Salman went about consolidating his hold over the Saudi empire, there is a concern that Saudi Arabia may start withdrawing some of its investments in other countries leading to a sell-off in assets. Later this week, the OPEC is also like to take call on extending the time frame for supply cuts and also explore the possibility of a hike in the supply quota from 1.8 million bpd. With global demand rising and Aramco IPO coming soon, oil prices could remain elevated.
In a significant move, Moody’s has upgraded the outlook for Bank of India, Union Bank and OBC from negative to stable. This has been an immediate reaction to the government’s proposal to infuse nearly Rs.235,000 crore of fresh capital into banks, which will be predominated by the issue of recapitalization bonds. According to Moody’s the additional capital will allow the banks to take accelerated provisioning of their stressed assets and will also improve their capacity to take haircuts for speedy resolution. PSU banks have seen an across-the-board re-rating after the recapitalization announcement.
Private equity firm, Everstone, will buy Kenstar from Videocon after Crompton Greaves backed out in the last minute citing valuation concerns. The Videocon group is sitting on a massive pile of debt to the tune of Rs.43,000 crore and this sale of Kenstar is one more step towards downsizing its debt. The stock has lost nearly 90% of its value in the last 1 year. Kenstar makes white goods like refrigerators, washing machines and ACs as well as kitchen equipment. This marks Everstone’s second buy in India after buying out the Modern Bread division from Hindustan Unilever in the year 2016.
In the aftermath of the note ban, the government has picked up over 20,000 income-tax returns for a detailed scrutiny over the next few days. These are the IT returns where the government suspects a genuine discrepancy between the income levels before and after demonetization. For these assessees this will entail submission of mountains of documents to refute the charge made against them. Post demonetization, the government had found suspicious transactions in nearly 17 lakh accounts and they were linked to the tax returns through the PAN back-end relation before these notices were sent out.
Higher oil prices in the Brent market are silently pushing up the 10-year benchmark yields in India. Higher oil prices are once against raising the spectre of higher CPI inflation. Oil, considering it strong externalities and indirect impact tends to have a multiplier impact on inflation. Since August this year, the 10-year bond yields have moved up sharply by nearly 50 basis points from 6.40% to 6.90% and if oil hardens further than these yields could creep closer to the 7% mark. With the RBI maintaining status quo on repo rates at 6% in its October policy meeting, these bonds are looking attractive to investors considering the 90 bps spread available. In fact, one of the key reasons for the FII interest in India debt has been the high spread as well as a fairly stable rupee combined with low inflation.
Seshagiri Rao, CFO of JSW Steel, is confident of input costs for steel companies coming down sharply in the next few quarters. Steel companies have been making hay with sharp pick-up in global demand following a revival in Chinese growth and expectations of a massive infrastructure boost from the US. The global steel demand is likely to grow by 7% with Chinese steel demand growing by 12.4%. Over the last few months the prices of both the key inputs for steel viz. iron ore and coking coal, have seen a 100% appreciation. Rao expects the net realizations to improve in the coming quarters.
