RBI Monetary policy will be announced on Thursday with the general consensus being that the RBI will cut rates by 25 basis points. The repo rates are currently at a level of 5.15% and it is expected that the RBI will cut the rates to the 4.90% level. This is likely to be driven by weak GDP numbers and negative growth in high-frequency indicators like the IIP and core sector over the last two months. However, the RBI will also have to be cautious considering that the repo rates are already down 135 basis points since January 2019 and 285 points since January 2015. We may see a greater focus on rate transmission.
In the Karvy case, the Securities Appellate Tribunal (SAT) has refused relief to Bajaj Finance and the other banks that had lent to Karvy against the pledge of shares of their customers. On 02nd December the exchanges had suspended the membership of Karvy Stock Broking and SEBI had simultaneously instructed NSDL to reverse all the share pledges and credit the shares to the client account. Bajaj Finance, which had lent Rs.300 crore to Karvy against these shares, had approached SAT over this decision. While refusing relief, SAT has asked SEBI to give its final decision by December 06.
To sort out the AGR dues payable to the government, Bharti Airtel will be raising a total of $3 billion via placement of bonds with qualified institutional players (QIP). These QIPs have already given $2 billion and will be infusing another $1 billion into Airtel. It may be recollected that the Supreme Court had upheld the decision of the DOT to ask Bharti Airtel and Vodafone to pay the overdue AGR charges running into nearly Rs.70,000 crore between the two of them. This includes the dispute over adjusted gross revenue on which the sharing formula was applied. Airtel has written off the sum in Q2.
Oil prices rose sharply by over 3% on Wednesday ahead of the crucial OPEC meeting. Saudi Arabia has been pushing the other OPEC members and Russia to increase their supply cuts from 1.2 million bpd to 1.6 million bpd. This is expected to help hold the oil prices closer to $70/bbl in the international Brent market. In addition, falling US stockpiles also contributed to the rise in oil prices. Saudi Arabia has been keen to hold oil prices at closer $70/bbl so that post listing the Aramco IPO is able to garner a valuation of closer to $2 trillion. The IPO of Aramco had priced the IPO at a valuation of $1.71 trillion.
It has been a quarter of record losses with Bharti Airtel, Vodafone Idea and RCOM posting net losses in excess of Rs.100,000 crore in the second quarter of fiscal 2019-20. On these lines, another big shocker has come from IL&FS, which reported a net loss of Rs.22,527 crore. It may be recollected that the company had made a series of defaults last year leading to its management being dismissed and an outside management under Uday Kotak being appointed. IL&FS also posed a systemic risk to Indian financial system due to its bank and other borrowings to the tune of $15 billion. Total revenues of IL&FS more than halved to Rs.824 crore for the year while its assets were down by 82% YOY. It also reported a negative net worth of Rs.16,935 crore for the full year 2018-19. There may be more write-offs.
SBI is likely to divest its 8.25% stake in the UTI AMC and this may be part of the offer for sale that the company could do to list UTI AMC in the stock market. Other banks like BOB and PNB, which have a stake in UTI AMC are also likely to follow suit. RBI has asked banks to exit all the non-core businesses. This will not only focus their energies on banking but also help to monetize the hidden assets in their balance sheets more effectively. UTI AMC is likely to be the third AMC to list after HDFC AMC and Nippon AMC. Currently, AMCs are getting solid valuations in the stock markets due to scarcity factor.
