If you were wondering why the PSU banks cracked by more than 2.5% on Wednesday, the reason was the SC order on RBI circular to delay NCLT resolution. Moody’s has already warned that the move could be credit negative for banks as the promoters will now get more justification to delay the insolvency process. The markets are already estimating that promoters with stressed debts to the tune of $70 billion could be the beneficiaries of this move. Whether banks eventually revert to restructuring loans, remains to be seen. Restructuring had actually triggered the NPA crisis in the first place.
It now looks like the banks and other lenders to IL&FS Financial services may not really get anything out of it after it reported Gross NPAs in excess of 90%. Ever since the IL&FS crisis broke out, there have been concerns that the NPA hit could be much larger than anticipated. This has just underlined these concerns. Ironically, gross NPAs were just 5% exactly one year ago. IL&FS has bank borrowings to the tune of over Rs.90,000 crore and it remains to be seen what happens to the fate of these loans. Banks may have to prepare for the worst and it remains to be seen if they take the hit in this quarter.
IMF has warned that escalating US-China tensions could hit manufacturing jobs. IMF expects that if the trade war continued then a lot of manufacturing from the US could shift to Mexico and Canada creating huge jobs losses in the US. China has already retaliated with tariffs on US agri exports and that is pinching Trump in key states. China depends on the US for its trade surplus and higher tariffs will mean a hit on Chinese exports. Jobs are already being lost in China and the impact is visible in lower growth traction in China as well as weaker exports performance, despite the stimulus.
The uncertainty over the monetary policy and the negative monsoon report by the SKYMET led to the Sensex closing below the 39,000 mark erasing over 400 points of early gains. The big dampener for the stock markets in the second half of the day came in the form of the SKYMET report which estimates that monsoons could be below average due to the El Nino effect. That had a negative impact on the market as the Nifty closed with an unfavourable A/D ratio of 11:39. Markets were also worried about the SC ruling which is expected to delay NPA resolution. Profit booking was visible in PSU banks and oil stocks.
Higher cost of funds is now beginning to hit NBFCs as well as borrowing corporates. Now NBFCs have begun to tap retail NCDs to diversify their lending resource base. Since the money market crisis, most of the NBFCs are finding it hard to raise money from banks as well as their traditional favourite mutual funds. SEBI has become more stringent in asset quality of debt and MFs are taking no chances. NBFCs have seen the cost of funds go up by 100 to 125 basis points. At the same time, Indian companies are also feeling feel the squeeze between low inflation and high interest rates with real rate of interest above 4%. Inflation has fallen sharply, but yields continue to be relatively high. RBI is expected to cut rates on 04th April but transmission continues to be a major challenge.
It now looks like the UK has limited options other than putting the deal through before April 12th. EU has warned that customs controls will kick in immediately after BREXIT in the event of a no-deal BREXIT. UK exports a variety of products from cars to farm products to EU nations, which remains UK’s largest market. The additional checks would now apply to incoming goods from the UK as well as people travelling to EU region. Ireland will stay in the EU. The big challenge for the UK is that the vote over the deal has already been defeated thrice and shows no signs of any reconciliation.
