Even as Aramco kicks off its IPO process, its IPO valuation estimates see wide variations. Most global investors are still in the dark about Saudi Aramco valuation and are still confused about the likely value of Aramco. With the IPO process kicking off on November 09th, investors are getting an array of valuations ranging from $1.2 trillion to $2.3 trillion. While Aramco is the most profitable company in the world, most brokers and investment bankers are not buying Prince Salman’s demand for $2 trillion valuation. For now it is a toss-up and the investment bankers may have to strike a delicate balance!
It looks like Indians have stopped splurging on gold and that is proving good for the Indian trade balance. India’s October gold imports fell by 33% to 38 tonnes against 57 tonnes in October 2018. Gold imports were down sharply and that has been driving the rupee up. The sharp fall in gold imports in the month of October is attributed by traders to the sharp spike in price. Gold prices in India are already at historic highs despite global prices still 20% below the 2011 peaks. This led to weak festival demand for gold and jewellery, especially in the light of the consumption slowdown and near term uncertainty.
Even in the midst of rich valuations, there is a flight to buy these AMC stocks as investors clamber for quality. Mutual Fund AMC stocks rally sharply in the last two months on growth hopes. According to a report in BS, the two listed AMCs viz. Nippon AMC and HDFC AMC had rallied 15-30% in the last 2 months on the back of some structural advantages. Both the stocks have convincingly outperformed the benchmark Nifty. The report states that greater level of financialization of savings and bigger participation of retail investors were the driving factors. UTI could be the next AMC to be listed.
Bank credit is facing strain and that is virtually across the board. Rating agency, ICRA, sees bank credit growth in FY20 falling from 13.3% to 8.5%. ICRA attributes this sharp fall in credit growth to weak incremental credit in the first half of the current fiscal. The recent changes in mutual fund regulations are also likely to keep the credit markets tight. Recent data put out by the RBI revealed that the contraction in industrial credit more than offset the growth in credit to the retail sector. Appetite for credit is also lower this year and most companies are putting off investment plans to next year.
Even as the Sensex scaled the 40,300 mark, the Nifty was less than 50 points shy of the 12,000 level. The buoyancy in the market was largely led by metals which rallied on hopes of a trade truce between the US and China as well as a China stimulus. The rupee touched a 5-week high led by the Rrs.16,500 crore FPI inflows in October as well as 33% fall in gold imports during the month. Meanwhile, India decided not to join the RCEP trade deal with other ASEAN nations. India walked out of the China-backed RCEP trade deal even as 15 nations are willing to sign on. The Regional Comprehensive Economic Partnership (RCEP) was elaborately debated at Bangkok but India had its reservations about ceding too much space to China. The decision to not participate in RCEP deal was to protect interests of farmers and services.
Oil prices appear to have got a new lease of life after the Aramco IPO announcement. Brent Crude rallied more than 150 bps to $62.60/bbl on trade truce hopes. It was a double benefit for oil prices as Brent continued its rally of Friday well into Monday. It has gained more than $4/bbl in less than 2 days of trading. Oil prices moved up on the back of a trade truce likely soon as well as hope of a major stimulus from China to revive growth in GDP. The Saudi Aramco IPO plans are likely to keep the price of crude oil buoyant, at least till the IPO. The only risk to oil prices appears to be an economic slowdown.
