With the exit polls indicating a strong performance by the Congress in Rajasthan, Chhattisgarh and Madhya Pradesh, the markets are likely to react negatively on 10th December. The markets would prefer a better showing by the BJP as it would hint at a continuation of the reforms process. However, the exit polls indicate otherwise. While we may still have to wait for the final results to come in 11th December, there is likely to be a rush to protect positions on the downside with put options and short futures. Expect pressure on the markets on Tuesday on the back of exit polls outcome.
With the government planning to sell its 52.6% stake in REC to PFC, the issue of an open offer to shareholders is back. However, it looks like PFC will not be making the open offer to shareholders of REC, as required by the SAST rules. Even in the past, the government had exempted such acquisitions from making an open offer. In other words, REC will continue to be a separate listed company and the only thing that will change is the ownership as REC will now become a subsidiary of PFC. This move is intended more to help the government meet its full year divestment target of Rs.80,000 crore.
OPEC decision to fix oil supply at 1.20 million barrels per day has come as a surprise and is nearly 2 lakh barrels more than was originally anticipated. Under the new formula, the OPEC will cut 0.80 million bpd while non-OPEC nations like Russia, Mexico and Kazakhstan will cut another 0.40 million bpd. The price of Brent crude reacted positively in the aftermath of the news moving up by nearly 6% in late trades on Friday. It may be recollected that oil demand has already crossed 100 million bpd and this supply cut will only widen the gap and put further upward pressure on crude prices.
Even as flows into equity funds slowed in November, liquid funds were back in the reckoning with close to $20 billion poured into liquid funds. After the IL&FS fiasco, most investors had withdrawn funds from the liquid funds fearing a tight liquid situation. However, with the help of RBI liquidity infusion and lending support for NBFCs from PSU banks, the worst of the liquidity crisis is tided over. That is evident in the sharp rise in liquid fund inflows. Equity inflows took a big hit on the back of weak market sentiments, too much volatility, liquidity worries and the spectre of IL&FS.
SEBI proposes some key changes to the capital market regulation front. Firstly, housing finance companies will have lesser requirement for pledge disclosure for the time being. Secondly, the SEBI will also permit cancellation of offer for sale on the first day itself if the non-retail appetite is too tepid. Thirdly, in an interesting move, SEBI is also likely to permit mutual funds to side-pocket its portfolio, which refers to segregating its distressed debt from the regular debt so that the returns of the fund are not overly damaged. In addition, SEBI also proposes to tighten the insider trading norms by making all promoter group companies being made to disclose any transaction worth more than Rs.10 lakhs. These items are likely to be taken up for discussion in the SEBI board meeting this week.
With the US yield curve inverting; there has been a virtual sell off in the US markets. Incidentally, the US markets have lost value to the tune of $1 trillion in the first week of December on the back of aggressive selling and lightening of positions. An inverted yield curve is indicative of an impending recession and that is leading to market panic at this point of time. The recession was always a threat in the light of the ongoing trade war between the US and China. In fact, some of the marquee names that triggered the rally, like Apple and Amazon, have lost over 30% market cap from their peak levels.
