This could be the first of a round of mergers among PSU banks. Government triggered the process by proposing the merger of BOB, Vijaya Bank and Dena Bank. The idea of the merger is to make Indian PSU banks more scalable and competitive with a larger balance sheet. Also, the merger is likely to lead to efficiencies in branch networks, rationalization of costs and centralization of treasury operations. However, it is still not clear how it will impact the NPAs of the PSU banking system which is showing no signs of bottoming out. But for the smaller banks, this should be a better option.
Nifty fell by (-138) points on Monday to 11,378. Markets expressed disappointment on a number of fronts. Firstly, the Goldman Sachs downgrade of India to “Market Weight” dampened the sentiments. In addition, the weekend rupee package was quite tepid and Trump’s threat of a trade war with China is making emerging markets across Asia jittery. The rupee again came under attack after the disappointment of the rupee package which did not talk about any NRI deposit scheme. However, bond yields tapered on the back of lower CPI and WPI inflation and government decision to conduct OMOs.
With time running out for the beleaguered company, IL&FS has approached the government after key shareholders rejected the bailout plan. IL&FS has sought the intervention of the government to bail out the company which is currently under tremendous liquidity strain. It immediately needs a line of credit of Rs.4,000 crore to see through its commitments. LIC, the largest shareholder in IL&FS, had rejected a bailout package for the beleaguered infra financer. IL&FS currently has a liquidity shortfall of $500 million and its $12.5 billion debt is already close to Junk status.
India may cross its direct tax collection target of Rs.11.5 trillion for FY-2019. The government is likely to better its target for the current fiscal, which is already 14.3% higher than the previous year target. In fact, the previous year had also seen a sharp 18% growth in direct tax collections. The government also got a big boost to its revenues after it received close to Rs.7,500 crore from the Flipkart / Wal-Mart deal. It is still, however, doubtful if the government will be able to meet its commitments under the FRBM or whether it will let the fiscal deficit slip once again. 2019 is also an election year.
Goldman Sachs downgrades Indian equities to “Market Weight”. This is the first time in the last 4 years that Goldman Sachs has downgraded its India exposure. The downgrade had its impact on the Indian markets on Monday. Goldman has pointed at the vulnerable rupee and valuation worries on most sectors as the key drivers of the downgrade to “Market Weight”. However, Goldman continues to remain positive on the Indian growth story. From an FPI sentiment point of view this will be seen as a negative because Goldman is one of the largest institutional investors in India. It was one of the reasons for the sharp fall in the markets on Monday. It now remains to be seen if the downgrade is a one-off event or whether other global funds will also join in this downgrade game.
SEBI permits companies to announce IPO price band just 2 days in advance. This is a sharp departure from the current practice where the price band for the IPO has to be announced at least 5 days in advance. Even financial disclosures will now have to be made only for 3 years as against the earlier stipulation of 5 years. By cutting the announcement date by 3 days, issuers will be able to price the IPOs more realistically as they get closer to the issue date. This is part of the SEBI attempt to simplify the IPO process to the extent possible so that IPOs can go through more smoothly and realistically.
