The year 2017 appeared to be the year of the emerging markets with FPIs infusing nearly $235 billion into emerging market assets in the full year. This is almost 50% higher than the emerging market allocation in the previous calendar year. Nearly 75% of the inflows came into emerging market debt as relatively higher interest rates and a weak dollar helped these FPIs to realize more healthy gains on their emerging market portfolios. The year 2018 will be a testing year for EM flows as the US is poised to hike Fed rates by nearly 75-100 basis points during the current calendar year.
In a massive fund raising exercise, SBI is likely to raise nearly $2 billion through the issue of overseas bonds. While the fund raising will be completed in the next financial year, the bank is yet to decide whether the borrowings will be in US dollars or other hard currencies. The coming year is likely to see the benefits of the NCLT resolution trickling down. Also, most of the bad assets are already written off and that means the coming year will focus on actually banks writing back recoveries. The fund raising by SBI is intended to build its war chest once the corporate lending cycle picks up once again.
Two of the world’s largest asset managers, PIMCO and Citi, have just sounded the alarm bells that the markets may be getting too complacent about the global economic outlook. It may recollected that equity markets across many countries touched life-time highs towards the end of 2017 and that trend has got more pronounced in the first week of January. Apart from the geopolitical worries, PIMCO and Citi also cite possibly higher inflation and liquidity unwinding by central banks to be key risks. With monetary kill over the last 9 years, central banks are now keen to get out of the liquidity glut.
The government of India is looking to raise nearly Rs.750 crore through the sale of 1.5% stake in NMDC via an offer for sale. The offer starts on 9th January and will be open for 2 days. It will have also have a small greenshoe option of 1.5%. The floor price has been set at Rs.153.50 while the retail investors will get to bid at 5% discount to the floor price. The government had set a divestment target of Rs.72,500 for the year of which Rs.52,500 has already been raised. Of course, the proposed strategic sale of behemoths like Air India is still hanging fire and may probably materialize only in the next fiscal.
According to study done by Bloomberg, bonds may have emerged as an attractive option to equities in India, especially after the recent spike in 10-year bond yields. This is more so because the earnings yield of the Nifty companies has been consistently falling as the earnings have failed to keep pace with the price movements. In the last 2 months, the earnings yield on bonds has risen sharply while the earnings yield on equities has actually fallen. In the last 1 year, the yield on 10-year G-Sec bonds is up by 90 basis points to 7.40%. One way to interpret this would be that equities are richly valued and bonds are relatively cheaper. The other way to look at this dichotomy is that this could be indicative of the break down in correlation between global growth and India’s GDP growth.
GVK Power has signed a definitive agreement to develop the Navi Mumbai international airport near Mumbai. The project had been held up for over 20 years due to problems pertaining to land acquisition and other environmental concerns. GVK already operates the Mumbai airport. GVK holds 74% stake in the Navi Mumbai airport through its subsidiary, MIAL. The initial concession period for GVK is 30 years which can be subsequently enhanced by another 10 years. GVK had developed the Mumbai airport to international standards in the last 10 years and it is also an award-winning airport project.
