IDFC Bank and the Biyani owned Capital First announced a merger in the swap ratio of 139:10. Shareholders of Capital First will get 139 shares of IDFC Bank for every 10 shares of Capital First that they own. Vaidyanathan will take over as the CEO of the merged entity while Rajiv Lall will continue as the executive chairman. It may be recollected that earlier IDFC Bank had tried a similar deal with Shriram Finance which had fallen through. It needs to be seen how the RBI would react to the deal as this literally offers a back-door entry into banking for the Kishor Biyani group.
The finance minister has had a high level meeting with banks on the subject of stressed power sector loans. This review also includes power projects of large players like Tata Power and Adani Power which are also having stressed projects. For Tata Power the big thorn in the flesh is its Mundra Project where it has accumulated losses of Rs.6500 crore and the entire capital has been wiped out. The company sits on a debt pile of Rs.10,200 crore and calls for an urgent restructuring of debt. Lenders have already stopped further disbursal of loans for Tata Power. Power is expected to be the next big NPA challenge.
For the quarter ended December 2017, the net profits of Infosys were higher by 38% at Rs.5100 crore. However, this figure includes a huge one-time tax refund in the US and hence may not be strictly comparable. The tax reversal of Rs.1432 crore accounted for almost the entire outperformance by Infosys profits over street estimates. Revenues for the quarter expanded by 1.3% even as operating profit margin expanded by 10 basis points to 24.3%. Infosys has maintained its sales growth forecast of 6.5%-7.5%, although the street would have liked to see a slightly more aggressive number.
Globally, investors are raising their bets on commodities as oil has just topped $70/bbl in the previous week. While the price of industrial metals is up by over 50% in 2017, Brent crude has also touched a 3 year high of $70/bbl. With robust demand from China and restrictions in metal supply, the prices of these commodities are expected to remain robust in the coming year too. Additionally, the return to growth in the US, Europe and Japan as well as the spill over effect of US tax cuts, is expected to keep the demand for commodities buoyant. That is, of course, assuming that China does not show a slowdown.
CPI inflation for the month of December came in at 5.22%, largely along expected lines. However, the worry is that this inflation is a full 122 basis points above the RBI comfort level of 4%. The MPC had been largely correct in adopting a cautious approach towards rate cuts. The rise in food prices as well as higher prices of oil has kept inflation buoyant. Not only does this rule out any chances of rate cuts; it in fact opens the doors for the RBI to hike rates in tune with higher inflation. The big positive surprise came from the IIP front which grew by 8.4% for the month of November. The biggest boost came from manufacturing and one could also see a visible turnaround in the capital cycle. However, there is also a base effect at play here as November 2016 was the month of demonetization.
With most of the macro data out of the way, the big trigger in the coming week could come from quarterly results and budgetary expectations. Interestingly, neither the rising price of crude nor the lower GDP forecast has really managed to dampen the spirits of the market. CPI inflation has been on expected lines while the IIP growth and the exports growth have been very positive. The coming week will see a series of big results announcement. Reliance Industries, Kotak Mahindra, Yes Bank, Bharti Airtel and HDFC Bank are some of the key companies to announce results in the coming week.
