Almost along expected lines, the US Federal Reserve decided to keep rates steady and did not move the rates. Speaking on the occasion, Jerome Powell underlined that any rate hike was virtually ruled out unless there was a persistent rise in inflation. Otherwise, Power made it clear that rate hikes were unlikely for the time being. At the same time, the Fed also hinted that any rate cuts were unlikely after 3 rate cuts during the current year had pulled rates substantially lower. In response the US dollar weakened sharply to a 4-month low as it reacted to the limited possibility of future rate hikes.
RBI governor, Sakthikanta Das, met with the heads of PSU banks with a two point agenda; addressing the issue of stressed assets and improving transmission. Bad assets at close to Rs.9.5 trillion continue to be a problem for PSU banks, although this may have been substantially provided for. The second challenge is transmission with banks having transmitted just about 50 bps out of the 135 bps rate effected by the RBI despite shifting to external benchmarking. The RBI has also requested the government to cut the rates on small savings so that the transmission does not get distorted.
The world’s largest oil company and also the most valuable company, Saudi Aramco, finally listed on Wednesday. Saudi Aramco listed at a 10% premium on the stock exchanges on the back of robust demand for institutions and retail investors during the recently concluded IPO. The IPO had been issued at a valuation of $1.71 trillion and after the first day of listing, the stock was valued at $1.88 trillion. At the current market cap, it is more than 50% more valuable than companies like Microsoft or Amazon. The Saudi Government had originally targeted an overall valuation of $2 trillion for Aramco.
After Bajaj Finance, Axis Bank has become the next bank to move the Securities Appellate Tribunal over the Karvy share pledge issue. Some financers like Bajaj Finance, ICICI Bank, Axis Bank and HDFC Bank had extended to loans to Karvy against shares; which it turned out were not owned by Karvy but belonged to investors. SEBI instructed NSDL and CDSL to reverse these transactions as a result of which the lenders were left with unsecured loans in their books. Axis Bank has made NSDL, CDSL and SEBI a respondent to this case. The matter is likely to be heard on 12th December by the SAT.
Asian Development Bank (ADB) has scaled down India’s full year growth forecast from 6.5% to 5.1% as GDP growth has been showing loss of traction for the fiscal year 2019-20. Earlier, the RBI had already downsized the full year growth to 5% as part of its monetary policy announcement. In the first two quarters, the annualized growth implied is just about 4.75%. That means if the economy grows at around 5.3% in the last two quarters, the best case scenario is 5% growth for the full year. The third quarter already looks doubtful after the high frequency indicators like IIP and core sector growth hinting at a clearly slippage in momentum. While the corporate tax cuts announced in September have been instrumental in improving profits, the top line continues to remain under pressure for India Inc.
UK goes into its all-important elections on 12th December and that is likely to leave a deep imprint on global markets and especially the currency markets. Till about a couple of weeks, Boris Johnson of the Conservative Party had a clear lead in the election. However, the polls indicate that in the last couple of weeks the gap between the Conservatives and Labour has substantially narrowed. That has spooked markets as the general expectation was that the Tories would come back to power and push through BREXIT by January 31st 2020. A stronger Labour presence would only complicate matters for BREXIT.
