The US Fed on Wednesday raised the Fed Funds rates by 25 basis points to the range of 175-200 basis points. This is the 7th rate hike by the Fed since Jan 2016. US markets reacted negatively to the Fed announcement since the outlook on inflation and interest rates were quite hawkish. The Fed painted the possibility of inflation going up well above the 2% mark and also hinted that the Fed may now veer towards a total of 4 rate hikes this year instead of 3. Fed has projected inflation being in the range of 2.1-2.2% all the way to the year 2020. There could be another 3 rate hikes in 2019.
An important announcement is expected by Trump on Thursday pertaining to tariffs on Chinese trade. This is likely to impact nearly hundreds of dollars of trade with China. In the first round, Trump is expected to target Chinese goods worth $50 billion across some 1300 product categories. The actual tariffs could take effect as early as Friday via the publication of a Federal Register notice. However, Trump has reserved the right to delay the tariffs by 180 days if the US government feels that trade negotiations with China are progressing in a satisfactory way.
The current account deficit (CAD) widened to $13 billion on YOY basis. Or 1.9% of GDP in the fourth quarter ended March 2018. This is lower than the 2.1% CAD that we saw in the quarter ended December 2017. In fact, most analysts are expecting the CAD to widen to about 2.4% of GDP by 2019, which could have negative repercussions for the INR and for the external rating of India. The higher CAD was largely driven by the higher trade deficit which has remained elevated due to higher prices of crude oil in the global market. Brent Crude is hovering around $76/bbl after touching a peak of $80/bbl.
Thyssen and Tata Steel could change the terms of the deal between them. This is likely to give Thyssen a bigger share of the earnings of the joint entity. Thyssen Krupp has been hinting at a better deal after the profits of Tata Steel Europe saw a sharp fall. Ironically, while Thyssen is seeing a sharp rise in its profits, Tata Europe is seeing a fall in its profits. Two of the largest shareholders of Thyssen had been insisting on a more equitable deal as the original deal would lead to more revenues and profits from Thyssen rather than Tata Europe. According to sources, Tata may be agreeable to the deal.
After the failed attempt to sell a stake in Air India, the government is now considering the possibility of listing the company through the bourses. The government is of the view that selling shares to the public through the IPO market will not only enable a stake sale but can also simultaneously help raise funds for the company. The government is considering a combination of an IPO and an offer for sale, wherein the government will gradually dilute its stake in the airline. Last month, the government had received around 160 queries for a strategic 76% stake in Air India but it had not translated into any expression of interest. The government will re-examine the clause that requires the government to necessarily retail a 24% stake in the national carrier.
HDFC Bank has received cabinet nod for Rs.24,000 crore FDI. HDFC Bank currently has a foreign holding of 72.78% and even if you consider this dilution it will be within the stipulated 74% mark. The investment will be subject to approvals. Currently, banks are allowed to have 49% FDI through the automatic route and can go up to 74% subject to cabinet approvals. HDFC Bank has already emerged as the largest private bank in India with its asset book outclassing ICICI Bank by a huge margin. The funds will be used to increase its capital adequacy and also shore up its asset book.
