In the aftermath of the Nirav Modi fiasco and the PNB fraud case, both banking stocks and diamond stocks came under a lot of pressure in the markets. The panic spread to companies like other diamond jewellers like Gitanjali Gems, which was locked in lower circuit. While PNB was the worst hit, other PSU banks also took a hit on fears that there could be a spill over impact of the LOUs issued by PNB. Apart from being named in the CBI first information report, Mehul Choksi also happens to be the maternal uncle of Nirav Modi. The sharing of liability among the banks is yet not clear.

The trade deficit for the month of January 2018 surged to a high of $16.3 billion. Export growth for the month was quite tepid at 9.07% while imports grew at 26.1%. The monthly import bill has crossed $40 billion and the total annual import bill could cross $500 billion leaving the forex reserves just sufficient to cover around 10 months of imports. Oil imports were up by 42% on a YOY basis, which can be largely attributed to the sharply higher prices of crude oil. India depends on imports for 85% of its oil requirements and hence global crude prices have a big bearing. Gold imports were also a worry.

In the US there have been some smart money hedge fund managers who have been exiting the FAANG stocks. FAANG consists of Facebook, Amazon, Apple, Netflix and Google and they represent the new age technology companies which have emerged in the last 20 years into market behemoths. Large hedge funds like Coatue and Tiger Global have been selling out of shares like Apple and Netflix after a very strong rally which took the NASDAQ to all time highs. There have been some valuation concerns over these FAANG stocks as in some cases the valuations appeared to have sharply overtaken earnings.

In a new twist to the SGX Nifty saga, the Singapore Exchange has stated that it can offer Nifty options to clients for the next 18 months. This is after the Indian exchanges terminated the data sharing pact with the global exchanges. The SGX currently offers Nifty futures, Nifty options and MSCI futures. The whole controversy snowballed when SGX announced its readiness to offer single stock futures on Indian stocks. As per the pact, NSE is required to give SGX a 6-months notice and will have to support all contracts till the last day. Options can be effectively offered by SGX till September 2019.

A day after it emerged that PNB staff had issued fraudulent Letters of Understanding (LOU); it is not clear where the onus will finally lie. While PNB issued the LOU, the actual lending has been undertaken by other banks including Allahabad Bank and Axis Bank. Three companies linked to Nirav Modi had raised short term credit through this fraudulent mechanism. The PNB official statement appears to be an attempt to spread the blame, although it must be said that other banks too can be accused of failure to do proper due diligence before advancing loans. However, PNB’s liability may arise from the fact that the funds were not directly transferred to the client but to the Nostro account of PNB. These fraudulent transactions were routed through the Hong Kong branches of Indian banks.

According to a Bloomberg survey, the Fed could step up its pace of rate hikes during the year. It is estimated that the Fed may opt for 4 rate hikes instead of 3 and the first rate hike may happen as early as March 2018. The upper end of the Fed rate range is currently at 1.5% and we could end the year at 2.5% if the Fed has its way. The sharp rise in inflation and the $300 billion spending bill could be added justifications for the Fed to go aggressive on rate hikes. The tax cuts are also likely to trigger a boom in consumption and investment giving the Fed one more reason for a hawkish stance.