From the beginning, the Reserve Bank had not been too pleased about the special status on disclosure accorded to IL&FS. Now the RBI has demanded mandatory disclosure of overall bank exposure to IL&FS group and has instructed all banks and financial institutions to submit details of their exposure to IL&FS group; both direct and indirect. This is in response to the NCLT order dated February 25th which prevents the disclosure of any details pertaining to IL&FS without the prior consent of the relevant authorities. RBI wants the banks to make adequate provisions for their exposure to the IL&FS group.
The dollar swap appears to be weakening the Indian rupee as it fell to 69.87/$ on Wednesday. The 3-year dollar swap auction by the RBI on Tuesday worth $5 billion had received hefty bids despite aggressive pricing. The 3-year swap had priced the forward dollar at above Rs.78 in 3 years leading to a rise in the forward premium in the market and a weakening of the rupee. Oil prices at a 6-month high also put pressure on the rupee as US stockpiles did little to dent Brent. The dollar swap auctions were designed to keep the rupee from appreciating too much as it clearly hurt exporters.
After the success of the Embassy REITS offer, there seems to be a new grown enthusiasm on the market potential. JLL estimates that India could offer 294 million square feet of potential for REITs business and the total REIT potential could be as high as $35 billion and likely to expand further. JLL has pointed to higher transparency and more progressive legislation to be at the heart of the matter. India’s first REIT, Embassy Group, has a portfolio of 32.6 million square feet and could be big source of earnings for the company. Bengaluru will be on top of REIT league followed by Mumbai, Pune and Delhi/NCR.
After the lull and a 3-day fall, there was a storm in the Sensex as it recovered 500 out of the 700 points lost by the markets in previous 3 days. With crude prices stabilizing and the RBI committing to infuse another Rs.25,000 crore in the form of liquidity support in May, the equity markets celebrated the fall in bond yields. The A/D ratio of the Nifty was extremely strong at 42:8. All the sectors gained during the day, except the auto pack, which remained under considerable pressure due to top line worries, according to analysts. Fourth quarterly results have been satisfactory so far.
Cash market volumes in equity trading plummet sharply in FY-19. Indian equity brokers saw a sharp decline in the cash market volumes from 7.7% of the total mix in 2013 to just 2.2% of the total mix in 2019. This has been weighing on the margins of brokers. Meanwhile, the share of F&O in the product mix has gone up from 76% to 88% during the same period. According to BS, while volumes have taken a hit on account of a shift in trader preferences, the pricing was also hit due to stiff competition and pressure from discount brokers. Most discount brokers have been offering zero cost broking in the cash markets and that is where they were taking the retail clients away. In fact, discount broker Zerodha has already emerged as the broker with the larger registered client base, beating ICICI Direct.
As Brent Crude Oil stayed at near 6-month high Saudi Arabia returned to budget surplus for the first time since 2014. In fact, Saudi Arabia requires an average price of $75/bbl to maintain a comfortable budget surplus to finance government projects. Brent Crude closed the day at $74.57/bbl despite the rise in US stockpiles. Markets are worried that any stockpiles may be just about sufficient to make up the loss of supply from Iran, Libya and Venezuela. Refinery utilization rates stand at over 90%. Since 2014, Saudi Arabia has been eating away at its forex reserves to keep the budget in balance.
