It was a hectic day for global markets a day after the RBI hiked rates by 25 basis points. The Euro strengthened to a 3-week high after the ECB indicated that the stimulus unwinding may start sooner than anticipated. In the meanwhile, Turkey set the tone for emerging markets with a 125 basis points rate hike. Oil prices, which been on a downtrend since the US warned OPEC and Russia on supplies, suddenly bounced back after it became clear that Venezuela’s exports were likely to fall sharply. After touching a low of $73/bbl, Brent bounced back to above the $76/bbl on Thursday.
Indian banks may be staring at losses of Rs.6000 crore on their state government bonds portfolio. In case of central government bonds, the RBI has allowed the banks to defray their bond losses over four quarters but state government bonds are outside this exemption. The loss will be acute in case of those PSU banks that have a large exposure to state government bonds. Many banks have preferred state government bonds considering the positive yield spread on these bonds. While the benchmark yield in India is still below 8%, the state benchmark yield has already touched a level of 8.45%.
With Chanda Kochhar proceeding on long leave effective June 01st; it was always clear that it would be end game for high profile CEO of ICICI Bank. Now the bank is worried about the reputational and business damage as a result of the incident and has approached SEBI for a consent closure of the case. Under a consent closure, the accused party pays a penalty without admitting or denying the accusations levelled. It is not clear if the regulator will accede to the request as it had refused the consent closure in the case of NSE. Like in NSE, even in case of ICICI Bank, there is larger trust issues involved.
Bharti Group has sold its 6% Future Retail stake in the open market at a consideration of Rs.1697 crore. Nearly 3 crore shares were offloaded at an average price of Rs.560/share. The deal was done through its offshoot Cedar. As of March 2018, the fund held nearly 9.23% stake in Future retail and it has disposed nearly 2.3rd of its holdings. Bharti has been currently looking to monetize its assets so as to reduce its debt and also to create a war chest to take on the predatory intentions of Reliance Jio. Bharti is also looking to monetize its African assets through an international IPO.
Motilal sees tremendous investment opportunity in the Indian aviation sector from the next 15 years perspective. According to Motilal Oswal, the key to growth of the aviation sector is a favourable policy framework, which is something the government will have to provide. Raamdeo drew an analogy with the Y2K problem in 1999 which propelled the Indian IT industry to the big league. According to Raamdeo, higher crude prices will force Indian aviation companies to rethink their current business models and make it more fleet-footed. The Indian aviation demand has been growing at over 20% per annum and with the lowest aviation penetration, the Indian market is ripe to be tapped. In fact, aviation is expected to be the best proxy for the Indian consumer story in the next decade or so.
In what could be a crucial meeting, Finance Minister Piyush Goyal will be meeting the heads of PSU Banks on Friday in the aftermath of the RBI policy announcement on 6th June. Apart from the recent spate of frauds, the finance minister will also be discussing about progress on the NPA recovery front and the NCLT front. Most PSU banks have posted huge losses in the fourth quarter cumulating to over Rs.50,000 crore. The gross NPAs are already well above 12% and the power sector losses are yet to manifest. The discussion will also centre around impact on bond portfolios due to the rate hike.
