For now it looks like the BREXIT deal is done and dusted; sans the requisite approvals. BREXIT deal has been signed between UK and EU and now starts the actual divorce. EU’s Jean Claude Juncker announced that 27 EU members had endorsed the BREXIT deal, although they were unhappy to see UK leave the EU. Donald Tusk of the EC also added that Britain would also be welcome to return to the EU. While the EU Parliament will vote on Saturday, the bigger challenge for Johnson would be to push it through the UK House, where Labour wants a delay. Johnson is keen to conclude the exit on October 31st.
If you are looking for reasons for the slowdown, then it is probably lying in rural India. FMCG industry in India may have seen the worst rural growth in 7 years. At a time when growth is already under pressure and rural inflation has been consistently lagging urban inflation, it is hardly surprising that FMCG companies are seeing their biggest pain points coming from rural areas. According to a report in the Hindu, the FMCG rural growth which used to be twice the urban growth has now become half the urban growth and that explains the FMCG challenge. Agri distress has taken a deep toll on rural demand.
Even the mutual funds are now playing it safe as mutual fund holdings in private sector banks hit an all-time record. The exposure of Indian mutual funds to private banks rose to a record 20.8% in September 2019 as against just 16.1% a year ago. This is a clear flight to safety, according to a report in the ET. According to the report, HDFC Bank and ICICI Bank were among the largest shareholdings of MFs. Private Banks already having a huge 26.3% weightage in the Nifty and 21.2% in the BSE 200 index. Even within the private banking space, the MFs are just sticking to the tried tested names in private banking.
Sensex rallies by over 450 points on the back of BREXIT agreement euphoria. With the EU and the UK signing a preliminary BREXIT agreement, the Indian stock markets rallied sharply on Thursday. The Sensex closed above the psychological 39,000 mark even as the Nifty was almost at 11,600. The rally has now entered the sixth day. Global markets also reacted positively to the BREXIT deal news, although it still needs to be passed through EU and British Parliament. For now the uncertainty is surely over and it looks like the UK’s exit from the EU could be more organized instead of being outright chaotic.
The Brent Crude rally on Thursday was sharp although it did stop below the psychological level of $60/bbl. The rally in oil came on the back of sharp US draw-downs for the latest week. The BREXIT deal also favoured oil prices. However, the stockpiles continued to increase and that capped oil prices. In addition, there is also the overhang of the ongoing US-China trade war. Meanwhile, the big news in global oil is that Saudi Aramco IPO will go ahead soon and value the company at close to a record $2 trillion. That will make it the most valuable company in history. Saudi Arabia plans to give easy loans to locals to locals to buy shares and also encourage wealthy Saudi Arabians to use their savings abroad to invest in the IPO. It will be the largest IPO ever and entail investing banking fees of $450 million.
DHFL non-bank lenders engage creditor’s panel for resolution. When DHFL went into a crunch with Rs.1 trillion outstanding, the problem was that DHFL had massive borrowings from NBFCs and mutual funds. These were not part of the Creditor Panel and added a new dimension to the problem. However non-banks have found a place in the negotiating table as these are extremely powerful names like LIC, IFC and EPFO. Two MFs have also proceeded legally. However, this could really set a precedent of having larger involvement of stakeholders rather than just letting the banks decide the allocation.
