After the sharp correction on Monday, the index recouped almost all its losses as it scaled past the 11,000 mark. The Nifty was led by a rally in oil companies as well as short covering short covering. Nifty closed at 11,008 as weaker Brent Crude prices resulted in a relief rally in downstream oil companies like IOC, HPCL and BPCL. With the US putting pressure on the OPEC and Russia to increase production, the demand supply balance is once against likely to tilt in favour of supply. The price of Brent has already corrected by more than 10% from its peak seen in late June 2018 of close to $80/bbl.
Finally, the PSU banks had some reason to cheer after the government promised to infuse funds into PSBs to help them shore up their balance sheets. PSU banks were impressed by the Rs.20,000 crore fund infusion plan of Rs.10,000 crore, even as PNB would be getting a chunk of the infusion as it looks to pay off its upcoming loans. PSU banks including BOB, OBC, BOI, Canara Bank Allahabad Bank, PNB and Syndicate Bank gained between 4-6% after the government move. Banking PSUs badly required capital infusion to bolster their capital base and also to enable them to create a lending book.
In one of the biggest debt funding efforts, Tata Steel proposes to raise $3 billion in foreign loans. The purpose of this loan is to use the funds to pay off its high cost loans ahead of its European operations merger with Thyssen Krupp of Germany. Tatas are negotiating with 6 banks currently. Tata Steel has finally got a deal with Thyssen Krupp for its British plant and it will now be able to focus its attention more on the domestic market. Domestic steel demand is likely to grow three-fold from current levels by the year 2030 and most Indian steel companies are bracing themselves for that.
For a very long time, Ashok Leyland numbers have been instructive and also representative of the turnaround in the construction and heavy vehicles sector. The stock gained sharply on Tuesday after reporting a 233% rise in Q1 profits. The top-line growth of 37% was largely driven by the government’s infrastructure push which resulted in higher sales of Tippers and MAVs. Export sales for Q1 were up by 24%. The infrastructure thrust in the last few quarters has been clearly paying rich dividends for Ashok Leyland. It has seen good traction on its construction equipment and its HCV business.
In what could be a harbinger of shifting global equations, Japan and EU have signed a free trade pact over Trump trade worries. Both Japan and the EU are major exporters to the US and have been roiled by the punitive tariffs imposed by Trump on imports. While China was the obvious target, the last G7 meet was clear indication that US planned to go its own way. This could be a signal of shifting global equations as Trump has distanced its traditional allies like EU and Canada with his hard-line approach to imposition of steep import duties. For India, this could present a very piquant situation with 3 distinct blocs emerging in world trade consisting of the US, EU/Japan and China. How and where India allies itself in the world trading stakes will be a test of its trading status and of its diplomatic skills.
IDBI Bank has sought government nod to bring LIC on board as a promoter. LIC has expressed interest to acquire 51% stake in IDBI Bank and was also willing to make an open offer for the same. LIC will have to infuse over Rs.20,000 crore for a 51% stake. The original plan was to just take over the government stake to help them meet the divestment targets. Interestingly, IRDA had approved the taking over of a bank by an insurance company very fast, something that is not the norm with IRDA. LIC gets access to a banking business, which it always had plans to capitalize on.
