Weakness returned to markets last week after some signs of a bounce. The Nifty lost more than 300 points in the last 2 trading days. Globally, higher bond yields and a global trade war weighed on the markets. Chinese Q3 GDP growth at a 9-year low of 6.5% was also a worry. The Supertech downgrade continued to create problems for NBFC stocks. In the meanwhile, FPI selling in October has been really bad with equities to the tune of Rs.20,000 crore and bonds to the tune of Rs.12,000 crore being sold in three weeks time. Weak rupee, higher US yields, trade war and valuation concerns were the key factors.
RBI has hinted at a calibrated approach to further rate hikes in its MPC minutes. MPC minutes clearly hint at a waiting period before further rate hikes. The MPC minutes announced on Friday focused on the RBI’s accent on inflation as a key determinant of future rates trajectory. The MPC also justified the status quo in October considering that the impact of the first two rate hikes was yet to be assessed. The vote was 5-1 in favour of a status quo with only Mr. Chetan Ghate voting for a rate hike. While the the chances of a December rate hike may be open, the RBI may wait for clear evidence from data.
Even in a touch market, HDFC Bank has continued to flatter the street. HDFC Bank reported 21% growth in revenues and net profits for Q2. It managed to sustain its above-20% growth in revenues and profits even as the gross NPAs went up marginally from 1.26% to 1.33% on a YOY basis. The frenetic capital raising activity helped the bank to shore up its capital adequacy ratio from 15% to 17.1%. The bank also showed above 20% growth in net interest income (NII) as well as in its quantum of CASA deposits. In the midst of the financial market turmoil, the stock has also corrected sharply from higher levels.
Even as defaults came back to haunt real estate lenders, Piramal Group has refuted rumours of loan default by Lodha and Vatika. Piramal Capital has denied rumours of default on loans extended to Lodha group and Vatika group for their real estate projects. The rumours gained currency on Friday after the stock corrected by nearly 10%. Ajay Piramal has clarified that Piramal Capital did not have any exposure to troubled groups like Aristo, Nahar and Supertech and Lodha and Vatika had never defaulted. Most NBFC and HFC stocks continued to look extremely vulnerable on Friday.
After hovering around the $400 billion mark for quite some time, the forex chest of the RBI actually dipped decisively below the mark after a very long time. RBI forex reserves fell by $5.14 billion in the week to 12th October. This signifies the worst fall in the reserves in the last 7 years and the reserves have now settled decisively below the $400 billion mark at around $394 billion. It is reported by RBI that nearly $16 billion worth of US treasuries were also sold during the period to shore up the value of the rupee. The RBI may have a choice between NRI deposits and rate hikes to combat the forex challenge. RBI reserves are now just about sufficient to cover 9 months of imports and that puts Indian macros at a disadvantage vis-à-vis other BRIC countries which are better off on this ratio.
Even as the trade war heats up, there appears to be a major WTO showdown brewing between the 3 major trading blocs of the US, China and the EU. The three trading blocks have refused to yield any ground on tariffs and that means there could be a clear showdown in the WTO. The ball was set rolling by the US which imposed unilateral import tariffs on the EU and China. China has already retaliated to these tariffs and there may be clear attempts to test the neutrality of the WTO. Trump has been a strong anti-WTO proponent and this could really test the relevance of the WTO in the current juncture.
