It was a virtual carnage across the US and European markets on 12th March. The Dow was down nearly 8% in mid day trades while the NASDAQ was down by nearly 7%. But the real carnage was visible in the UK, French and German markets where the indices were down by over 12% each. The early trends of the SGX Nifty are indicating a 7% fall to 8850 levels and that would imply a correction of nearly 27% in the Nifty in just about a month. The US Dow is already down over 30% in a span of just one month. With little respite from the Coronavirus, global markets appear to be firmly in bear territory.
SBI has cleared an investment of Rs.7250 crore to take a 49% stake in Yes Bank. During the day, there were indications that other private banks may also chip in for Yes Bank but there have not been any confirmations yet. If SBI is willing to take 49% of the equity capital of Yes Bank, then the government may look to get PE investors to infuse the balance capital. It is estimated that Yes Bank may require close to Rs.20,000 crore if it has to be revived. However, markets have literally punished SBI as the prices have cracked nearly 25% post the announcement of a stake buy in Yes Bank.
One of the big advantages of weak oil prices is that the current account deficit (CAD) has come down sharply to just 0.2% of GDP in the third quarter. The CAD was as high as 2.7% in the third quarter of the previous year. It has been largely thanks to weak oil prices and imports falling much faster than exports. While the trade deficit came down sharply, the net services receipts were up sharply during the period. Even private remittances have been growing at a much faster clip. The third quarter also saw a $21.6 billion accretion to the forex reserves chest. This should help the rupee to stabilize and protect ratings.
The one month visa suspension by the government of India to deal with the Coronavirus syndrome is likely to impact the travel, tourism and aviation sector with losses to the extent of Rs.8500 crore. These are preliminary estimates and the actual losses (if you add up the concomitant losses to the economy) could be a multiple of that. Most of the industry bodies see huge job losses as a result. The virus scare has led to companies cancelling seminars, conferences and trade shows to avoid any health risk. Tourists have cancelled foreign tours by the dozen causing huge losses to the tourism / aviation sectors.
India’s retail inflation for the month of February moderated by nearly 100 basis points to 6.58%. This is the first instance in the current fiscal year when the trend of rising inflation has been snapped. The fall in inflation was largely led by a 280 bps fall in food inflation as a bumper Rabi output led to tapering of prices. However, core inflation remains at elevated levels. While inflation is still above the RBI outer limit of 6%, the government may use the inflation trajectory to cut rates. The IIP growth for January also came in better at 2% with a boost to mining and electricity. Even manufacturing saw some traction in the month of January, although the overall IIP for the current fiscal so far is not even 0.50%. While IIP is yet to pick up momentum, there has been positive cues coming from PMI manufacturing and services.
The NSE facilitated the single largest debt issue by an INIVIT (Infrastructure Investment Trust). The INVIT issue was done by Larsen & Toubro on the NSE EBP platform to finance the road assets acquisition of Sadbhav Engineering. The L&T sponsored INVIT allotted bonds to the tune of Rs.1675 crore and these bonds will carry a coupon of 9.04% and will mature after 18 years in 2038. This will be a landmark deal as it will set the tone for many more such infrastructure companies to monetize their asset portfolios to reduce their asset base and improve the ROI. SEBI had recently raised the leverage from 49% to 70%.
