The bear attack continued on Thursday and is likely to leave markets bruised this week. Nifty cracked 259 points and Sensex lost over 806 points on Thursday. The correction in the markets was triggered by the sharp rise in the price of crude oil beyond the $86/bbl mark. The rupee also weakened close to the 74/$ mark and the MPC meet that began today is expected to announce a rate hike tomorrow. But the big trigger for the fall came from oil stocks after the government decided to impose a Re.1 subsidy on OMCs to cut petrol prices. Valuation concerns continue to haunt the markets.
Oil pricing is back to square one; or is it? That appears to be the question. For downstream OMCs, it appears to be back to the bad old subsidy days. The government on Thursday announced a Rs.2.50 cut in the price of fuel. Of this cut, Rs.1.50 will come in the form of lower excise duty by the center while Re.1 will be borne by the OMCs as a subsidy. In addition, states have been asked to contribute their part of a Rs.2.50 reduction in taxes, which BJP ruled states have done. HPCL, BPCL, and IOC crashed by nearly 20% on subsidy worries. The cuts could get deeper in the coming day.
One of the original women to break the glass ceiling in corporate India, Chanda Kochhar, has decided to call it a day as she resigned from the board of all group companies of ICICI Bank. The final outcome was never in doubt after she was asked to go on long leave. In a quick move, Chanda Kochhar has decided to put in her papers and move out of all the group boards of ICICI. While the details of the Srikrishna commission are still not out, it was apparently a mutually palatable decision considering the sensitivity of the allegations. The stock was up by 4%. Sandeep Bakshi will take over as the CEO of the bank.
For the stakeholders in IL&FS could be that the new board has already embarked on its job. Even as the SFIO probe is on, the new board headed by Uday Kotak has embarked on its strategy. While Kotak will be the non-executive chairman on the board, Vineet Nayyar will be the Vice Chairman and MD. The board also formed 4 key committees to oversee key functions. The new board will submit a detailed revival plan for the company by 31st October. The big challenge for the board will be to monetize the deep infrastructure assets of the company without too many losses or haircuts.
INR weakened in response to weak macros and consistent FII selling. INR weakened 33 bps to 73.584/$ while 10-year bond yields hardened to 8.16%. INR dipped close to the 74/$ mark before it turned around on selective buying support from the RBI. The INR remained under pressure after the Brent crude price crossed the $86/bbl mark on supply concerns. This is expected to push imported inflation and widen the trade deficit. The CAD is expected to move closer to 3% of GDP by year-end. FPIs sold close to $1 billion in equities in the last 4 trading sessions. FPI selling really sharpened in the first 3 trading days of October with FPIs selling close to $800 million net. Apart from the IL&FS and bond market worries, the FPIs are also worried about higher crude prices and a weaker rupee.
After a frenetic bull rally, the US markets are finally responding to the rising bond yields. Dow and NASDAQ slid after yields on US Treasuries crossed the 3.2% mark. There were sharp cracks of over 1% on the NASDAQ and the Dow Jones index after the US benchmark yields crossed the 3.2% mark indicating clear hawkishness on the road ahead. The sharply higher bond yields resulted in re-pricing of asset risks. The impact of the rise in US treasury yields was felt most by equities in emerging markets. The US markets have been in the midst of one of the most frenetic rallies in the Dow and the NASDAQ.
