The Dow Jones and other indices hit lower circuit on Monday for the first time since 1997 as it cracked 7% on opening. The Dow closed over 2000 points lower on Monday, cracking close to 8% in a single day. The NASDAQ was also down by almost 7% as most of the frontline technology stocks fell by 5-10%. The worst hit were the oil stocks as they fell close to 20% in most cases due to the sharp 25% fall in oil prices in a single day. The combination of the oil price crash and the spread of the Coronavirus led to the fall in Dow. With the fall on Monday, the US markets have corrected 20% in less than a month.
Axis Trustees has moved the court against the decision to fully cancel the AT1 bonds. As part of the restructuring of Yes Bank, RBI decided to cancel the outstanding Rs.10,800 crore worth of Additional Tier 1 bonds (AT1). With mutual funds holding more than 30% of these bonds, Axis is representing the interests of a number of such aggrieved parties. The AT1 bonds are perpetual bonds (quasi equity) and are eligible to be written off if the issuer falls into a crisis. However, Axis Trustees have argued that AT1 bonds cannot be written off unless the equity of Yes Bank is written down first.
Reliance Industries has lost nearly 25% from its peak price with nearly 13% loss happening on 09 March itself. It has seen more than Rs.250,000 crore of market cap being wiped out in a short span of time. RIL was one of the worst hit by the 25% fall in crude oil prices on 09 March after the Saudi-Russia oil supply pact failed to take off the ground. RIL tends to lose when oil prices fall as it means lower inventory valuation as well as lower gross refining margins. Between the launch of Jio in late 2016 and early 2020, Reliance Industries had gained nearly 200% on a combination of healthy GRMs and telecom growth.
Bond yield on the Indian 10-year benchmark bonds slipped below the 6% mark for the first time in more than 11 years. The last time it happened was in the immediate aftermath of the Lehmann crisis when central banks across the world had synchronized rate cuts. The bond yields have fallen close to 100 bps in the last 15 days after the US bond yields fell sharply below the 1% mark. For the first time in history, even US bond yields of 30-year maturity trades below 1%. The sharp fall in bond yields in India could be a hint of an imminent rate cut after the US Fed cut rates by 50 bps in early March.
With the stock markets, bond markets and the oil markets in the midst of a crisis; Indian government’s revenue chasing plans have also taken a hit. For example, the government is not insisting on the speedy payment of AGR due any longer. It has decided to now take 6 months to fully evaluate and close out the AGR issue. Clearly, it does not want to put too much pressure on telcos at a time when the financial markets are already in a state of turmoil. Secondly, the BPCL divestment may also be put off for some time. Earlier this month, the government had announced that it would invite EOIs for BPCL stake to hive off its entire 52.8% stake in BPCL. However, considering the sharp fall in oil prices, the government is concerned about the impact of weak oil prices on the gross refining margins of BPCL.
The Congress may be having the next crisis building up in the state of Madhya Pradesh with Kamal Nath and Scindia haggling over the post of State Congress President. A group of Madhya Pradesh ministers with loyalties to Scindia have flown to Bengaluru for Parleys with the BJP. The Congress has a wafer-thin majority in the MP state assembly and that makes their disgruntled MPs vulnerable. The Congress factions with loyalties to Scindia have been unhappy for quite some time as many of them had been sidelined when Kamal Nath formed the government. The next few days may be interesting.
