Midnight News Update –Nov 27th 2017
The coming week is likely to be driven by 3 key events and announcements. The F&O expiry falls on the last day of the month and that will evidence how much of the positions are being carried forward to the next money. Then there is the all-important GDP data that will be announced on November 30th for the quarter ended September 2017. After the disappointing 5.3% performance in the June quarter, this quarter will be crucial since the IIP numbers have shown green-shoots of recovery. Thirdly, there is also the all-important Infosys buyback which will be a measure the shareholder confidence in IT.
The government is proposing to constitute a Price Stabilization fund (PSF) to regulate the price of onions in India. The prices of onions have shot up in the recent past to a high of Rs.60-70/kg in some areas. The government is worried on two fronts. Firstly, a sharp price rise in onions could push up the food component of CPI inflation. That may lead to bond yields going up and that is not great news for banks as they go into recapitalization. Secondly, onions are politically sensitive and the government would not be keen to see these shoot up in the midst of crucial state elections.
The week after Moody’s generously raised the ratings of India one notch higher, S&P has refrained from hiking the ratings and have preferred to maintain status quo on India’s ratings. S&P has cited two key reasons for the decisions. Firstly, in the light of the defaults by companies like RCOM, S&P does see renewed risk perception in Indian debt as it continues to be susceptible to rising inflation. Secondly, S&P has raised concerns over India’s low levels of per capita income, which does seem incongruous as countries like Indonesia were upgraded when they were at much lower levels of per capita income.
A day after the IBC amendment was passed by ordinance, the reactions have been mixed. Many investment bankers and auditors have pointed out that this move to keep defaulting promoters out of the bidding may hamper the process of IBC. The amendment to the IBC has almost made it impossible for existing promoters to buy back the assets of their own companies. However, people like Rajnish Kumar of SBI have strongly supported this move. Kumar’s contention is that unscrupulous promoters must be prevented from taking banks for a ride and buying back their own projects at steep discounts.
ONGC has expressed its desire for higher prices of gas for its Kutch and KG Basin discoveries. Companies like Reliance and ONGC have fairly vast reserves in the KG basin. However, the price of gas has been non-remunerative or the gas producers. That is the reason neither ONGC nor RIL has been too enthusiastic about bringing this gas into the market. Recently, the government had changed the formula for pricing gas that is discovered in difficult areas but that still leaves a lot of gas priced at very unremunerative prices. In India, gas has been identified as the next big thing in fuel as it is more environment friendly compared to petrol and diesel. However, the freedom to price gas is yet to be fully taken up. Higher gas supply will be a big boon fo0r gas-fired plants that generate power and manufacture fertilizers.
Hindustan Aeronautics Ltd. (HAL) based out of Bengaluru could be the next disinvestment story for the Indian government. HAL is a major supplier of aeronautic systems and products to the Indian armed forces. While dates are not finalized, the chairman Mr. Suvernu Raju has confirmed that all the approvals pertaining to the IPO are already done. Defence and related stocks have been in the limelight in India after the Modi government indicated its intent to increase the in-sourcing of defence contracts to Indian manufacturers. Apart from BEL and BEML, HAL could be the big beneficiary of this indigenization.
