Altico default has created a new set of problems for UTI MF and RNAM with their large exposures to the debt of Altico. Both UTI MF and RNAM, with substantial exposure to Altico, have side pocketed their exposure to Altico. The UTI High Risk Fund has a 5.9% exposure to Altico worth Rs.200 crore. Side pocketing ensures that the core fund is not impacted and prevents distress buying by traders at the cost of existing unit holders. Altico defaulted on its ECBs to Mashreq Bank which led to downgrade to “Junk” status. Altico is predominantly a lender to the real estate sector, which is under a lot of stress.
The trade deficit for August was flat over July but sharply lower than the figure last year. Lower crude oil prices during the month of August led to imports falling by 13% on a YOY basis. However, exports also fell by 6% largely negating the impact of the import fall. The trade deficit was virtually flat on a sequential basis at $13.5 billion. The fall in exports and imports is indicative of a larger trade slowdown triggered by trade war concerns and a slowdown in the Chinese economy. At the current run rate, the full year trade deficit appears closer to $160 billion compared to $200 billion last year.
Geopolitical risk is back in the Middle East with drone attacks on Saudi Aramco oil facilities put the Brent crude outlook at risk. Even as oil was battling between Iranian sanctions easing and the thawing of trade war, the Houthi rebels of Yemen launched a series of attacks on Saudi Aramco’s oil facilities. This has impelled Saudi Arabia to cut nearly half of its production temporarily. Brent closed the week at $60.20/bbl but this sudden supply crunch could be a key factor in oil prices in the coming week. While experts are divided over the price impact, traders concur that it could impact oil prices by 4-5%.
The RBI appointed Committee headed by the deputy governor, M K Jain, suggested major sops for giving a boost to agriculture sector. The RBI group proposed revisions to priority sector lending norms to assist marginal farmers. The Committee has also suggested extending the formal lending to 60% of the marginal farmers not covered right now. The Committee also proposed to digitize all land records and the creation of a nodal policy body for agriculture on the lines of the GST Council. The main focus is on quick measures to ensure that farm incomes are increased significantly in the next 3 years.
In a bid to boost GDP and IIP growth, Nirmala Sitharaman announced Rs.10,000 crore fund to provide last-mile funding for unfinished housing projects catering to the middle class. Government also offered an Rs.50,000 crore package to boost exports and also promised to introduce electronic processing of all export GST input tax credits (ITC) to ensure smooth working capital management. Stock Market had apparently anticipated this on Friday as late short covering was visible ahead of FM’s weekend reforms package. The short covering was visible in banking and auto stocks which were supposed to be the big beneficiaries of the reforms package. Nifty managed to close above the psychological 11,000 mark in the previous week and the announcements on realty and exports should have an impact.
A Bloomberg survey of economists bets on another 25 bps cut by the US Fed. Even as the US FOMC meets on 17th and 18th of September, the latest Bloomberg Survey is already betting on a 25 bps rate cut. Economists believe that the rate cut becomes almost inevitable after the ECB cut rates by 10 bps to (-0.50%) and also launched a €20 billion QE per month. Trump has already been insisting on cutting US rates into negative territory, like the Europe and Japan. The US Fed would not want to risk financial divergence and may choose to cut by 25 bps as hinted by the CME Fedwatch indicator.
