With the combination of Coronavirus and the Yes Bank moratorium battering the Indian markets, six out of the top 10 stocks lose Rrs.95,432 crore in market capitalization during the week. Reliance lose Rs.37,144 crore in value during the week and has now lost nearly Rs.220,000 crore in value from its recent peak. HDFC Bank also lost Rs.23,435 crore during the week and its market cap has now fallen well below the $90 billion mark. HDFC and Bharti Airtel were among the other losers. The big gainer during the week was TCS which gained a whopping Rs.43,884 crore as stocks took a flight to safety.
In the last few months, there have been calls for SEBI to intervene in the consistent defaults by NBFCs on their secured debentures. Now SEBI has come out with a new set of norms to protect the interests of secured debenture holders. As per a consultative paper, NBFCs will now be required to create a separate charge on assets to assure the investors that these debentures were actually secured. It has to be an identified charge on assets. However, the new rules would only be applicable to future debenture and not to existing debentures. The regulator will take a final call after March 17th post comments.
The Coronavirus has surely had a deep impact on Chinese trade as is evident from the latest numbers. China’s imports and exports contracted sharply in the months of January and February 2020. China’s GDP growth is already expected to have touched the lowest level since 1990. While imports fell 4% for Jan-Feb, the exports were down by a whopping 17.2% on a YOY basis. This has created tremendous pressure on global supply chains. Even India has been hit in sectors like electronics, pharmaceuticals and auto; which are heavily dependent on China. India’s crucial Feb trade data is expected during the week.
IndusInd Bank defers its plan to raise funds via AT1 bonds. The Additional Tier 1 bonds are perpetual bonds that are treated as equity capital for the purpose of adherence to Basel norms. However, the pitch has been queered after the Yes Bank moratorium. In the case of Yes Bank, the RBI has written down its AT1 bonds to the tune of Rs.9300 crore to zero value. That means; the investors will get nothing out of their investments. Mutual funds who hold AT1 bonds worth Rs.2800 crore are writing own the values to zero. This move will drastically impact the appetite for AT1 bonds among institutions.
With the RBI cutting down the value of AT1 bonds to zero, mutual funds like UTI, Nippon Fund and PGIM are writing down their entire debt exposure and transferring the bonds to a side-pocketed fund. This will ensure that the distressed assets do not damage the NAVs of the core fund. This was necessitated after ICRA downgraded the bonds of Yes Bank to “D”, indicating below investment grade. At the time, the funds will freeze further subscriptions and redemptions in the schemes effective immediately to avoid any sort of trading in and out of these funds. In December 2018, SEBI had permitted debt funds to side-pocket such stressed assets in the aftermath of defaults by IL&FS and Dewan Housing. In the last two years, there have been repeated cases of debt funds being forced to write off default cases.
With the OPEC supply pact virtually collapsing, Saudi Arabia may be looking at massive price cuts for all its customers. During the latest meeting of OPEC and Russia at Vienna, Saudi Arabia had proposed cutting crude oil supply by 150,000 barrels per day. However, Russia was not open to such a major cut as they felt such a move would benefit the US by supporting prices. With the deal falling through, Saudi Arabia may not have much of a choice other than to cut the prices. The primary focus for Saudi Arabia and the rest of OPEC would be to maintain market share even if it meant lower price realizations.
