Changes in STT on options announced in the Union Budget in July will take effect from September 01st 2019. An important announcement for option buyers was made in the Union Budget 2019 wherein the STT on ITM expiring options was rationalized at 0.125% on the extent of moneyness of the option only. In the past, the securities transaction tax (STT) was charged at 0.125% of the notional value. This will also ensure that options don’t trade at deep discounts to intrinsic value on the expiry day. Also this will encourage letting options to expire where the traders do not want to add the brokerage costs.
The minutes of the MPC were made public on Wednesday, 15 days after the monetary policy announcement. The Monetary Policy Committee minutes reveal the justification behind 35 bps rate cut. While it was known that 4 out of 6 members had voted for 35 bps rate cut, the minutes made public on 21st August reveal better insights. The RBI governor had specifically favoured a higher rate cut considering the weakening growth impulses. Das had also underlined the importance of reducing rates sharply in the light of the high real interest rates prevailing in India, offering unnecessary arbitrage.
In its board meeting on August 21st, the SEBI board clears easier entry norms for Foreign Portfolio Investors. In a slew of measures to placate the FPIs in the aftermath of the higher surcharge, SEBI announced a largely simplified KYC process for FPIs. In addition, FPIs will also be allowed to do off-market transfers; which was hitherto not permitted. SEBI has also laid out a plan to reduce the number of FPI categories from 3 to 2. Entities established in IFSC would be given the status of deemed FPIs. This should partially placate the foreign investors, although the FPI tax will still be a major issue.
The IMD has confirmed that the Indian monsoons were above average for the fourth week in succession. According to a report from the Met Department, rains have been above the long period average (LPA) for the fourth week in succession with the only downside risk being the heavy flooding in many areas despite the delayed monsoons. In fact, the rice growing Northwest region received nearly 63% above average rains. This has taken full season rains to 2% above the season LPA. However, the impact of the delayed onset of rains may be actually known only when the Kharif output comes in.
It was a case of the humble biscuit beating down the Nifty and Sensex on Wednesday. While there was a mix of factors including higher oil prices that drove markets lower, the actual negative impact came from Parle Products warning that it may lay off up to 10,000 workers. Parle caters to the mass market in urban and rural India and acts as a lead indicator of the willingness of people to spend. It could also have larger implications for retail loan delinquencies. Meanwhile, IMF has cautioned countries against aggressive rate cuts and currency intervention as such practices has the effect of distorting the structure of the global financial markets. The International Monetary Fund has warned countries that cutting rates beyond a point was leading to the negative yield syndrome.
Brent Crude stronger and sustains above the $60/bbl mark on Wednesday. In fact, Brent crude inched closer to the $61/bbl mark as larger than expected US drawdown of inventories led to a sharp rise in crude prices. Oil prices also moved up on worries over the emerging geopolitical situation in the Middle East. Houthi rebels have been attacking Saudi facilities while the Hormuz stand-off continues. In between, the OPEC also stands ready to cut output if required. The OPEC has informally decided in its last meeting that OPEC plus Russia would be willing to cut supply further to stabilize prices.
