Midnight News Update – Nov 13th 2017
In the aftermath of stringent SEBI regulations pertaining to P-Notes, the total value of P-Notes fell to an 8-year low of Rs.123,000 crore. P-Notes are a means for foreign investors to indirectly participate in the Indian markets without registering themselves as FPIs. This is the lowest level of P-Notes since August 2009. A couple of months back, the regulator came down heavily on derivative exposure via the P-Note route. One of the major concerns that SEBI had about P-Notes was that the final beneficiary was not known in most cases and therefore it could be used as a means of round-tripping of funds.
For the month of September, the RBI remained a net buyer of US Dollars to the tune of $1.3 billion. Normally, the RBI purchases Dollars when it wants to prevent the Indian Rupee from appreciating beyond a level. A strong rupee is injurious to exports and India has already been facing slow growth in exports over the last few months even as imports were picking up at a much quicker rate. This followed a net buying of USD worth $3.4 billion by the RBI in August. The last 3 months has seen the rupee weaken back to the 65-66 band; largely on the back of consistent dollar buying by the RBI.
For the second quarter ended September 2017 Britannia reported an 11.5% increase in net profits to Rs.261 crore. Total income increased at a faster rate compared to expenses by nearly 100 points resulting in a growth in net profits. Britannia has created a niche for itself in the high-end biscuit market and is a virtual market leader in the niche segment with champion products like Good Day. The sharp growth in top-line also reflects a recovery after the company had seen some pressure in the previous quarters on the back of the demonetization which had hit consumer demand across India.
Larsen & Toubro, India’s largest EPC player reported a 27% jump in Q2 net profits to Rs.1820 crore. For the first half of the year, the company reported 9% growth in fresh orders to Rs.55,100 crore. Net revenues for the quarter was up by 6% at Rs.26,477 crore. There has been a distinct improvement in the net margins of the company and that has also been reflected in stock prices. However, the company is still awaiting a clear signal of a recovery in the capital investment cycle. Typically, companies like L&T benefit the most when the capital investment cycle turns around.
The Gujarat based Adani group may be close to acquiring the power business of the ADAG group in Mumbai. Reliance Infrastructure runs the profitable power generation and supply business in Mumbai which it inherited when it took over BSES in the mid 2000s. The enterprise value of the power business of Reliance Infrastructure has been estimated to be at around Rs.14,000 crore ($2.2 billion). Reliance Infrastructure has already announced that it plans to focus purely on the roads and infrastructure business and get out of power altogether with the regulatory environment getting extremely difficult. Reliance Infrastructure currently has a debt of Rs.20,000 crore and this sale will allow the company to reduce its debt by nearly 70%. It would be interesting to see Adani’s plan for the power business.
With Oil getting close to the $65/bbl mark, many traders are beginning to bet on oil crossing the $80/bbl mark by Christmas when the demand for heating oil also picks up steam. If the option contracts are any indication, nearly 50,000 contracts have traded at a strike price wherein the trade will be profitable only if the price of oil crosses $80/bbl. Since most of these contracts will expire on December 21st, the traders are surely expecting a strike spike in oil prices. The growing tensions between Saudi Arabia and Iran as well as between Saudi Arabia and Yemen are likely to trigger this sharp rise in the price of oil.
