It was a difficult day in the equity markets. The Nifty and Sensex lose over 1% on China PMI contraction worries. China’s manufacturing PMI falling below the 50 mark signalling contraction in output. There was a negative advance/decline ratio of 9:41 on the Nifty. Auto and metal sector were the worst hit. Autos bore the brunt of weak December sales numbers while metals reacted to negative growth cues from China. In the meanwhile, the rupee weakened by 106 bps to 70.17/$, on concerns over Yuan weakness. There was a rush from importers and banks to hedge dollar related exposures.
Oil was back in the boil, but it could be extremely brief. Brent Crude was up by 3.77% at $55.83/bbl on hopes that the trade war would get sorted. The sharp rise in crude oil prices was largely led by expectations that the trade war would be sorted out and that supply cuts by OPEC and Russia might work. However, the latest PMI data coming from China may be quite disheartening because a contraction in China is not good news for oil demand. US shale output is at record highs and that should keep the glut going in the oil markets. Oil prices could again face pressure at higher levels.
The RBI governor is persisting on his priority of giving a boost to the MSMEs. Former SEBI Chairman, U K Sinha, will be heading the RBI panel on MSME revival. Sinha will head an 8 member committed to suggest ways to the RBI to revive the fortunes of the MSME segment. This segment had taken a big hit in the last two years on the back of demonetization and the implementation of GST. The Committee will also review the current institutional framework to support MSMEs. MSMEs account for a chunk of the all India GDP and are also the largest providers of jobs, making them a sensitive subject.
The first big 3-way banking merger got cleared on Wednesday. The Union Cabinet has given the nod for the merger of BOB, Vijaya and Dena Bank. The merger is likely to be completed by April 01st and it will create an Rs.10.44 trillion banking giant; next only to SBI and HDFC Bank. While BOB will be the transferee bank, Vijaya and Dena will be the transferor banks in this deal. Shareholders of Vijaya Bank will get 402 shares of BOB for every 1000 shares held while Dena Bank shareholder will get shares of BOB in the ratio of 110:1000. Dena and Vijaya will cease to exist from the effective merger date.
The problems for the Euro may be escalating with the first major default in Italy. The tenth largest bank in Italy, Carige Bank, has run into a liquidity crunch. ECB has called in administrators to bail out Italy’s Carige Bank. At a time when the Italian economy continued to be the single big threat to the EU and the Euro, the recent failure of Carige Bank will put the focus back on the fragility of the Italian economy. Carige is Italy’s 10th largest bank with a huge exposure to bonds. The bank needs to urgently shed bad loans, strengthen its capital base and also look for merger partners. Most Italian banks have a huge exposure to Italian government debt and that makes them automatically vulnerable because any decision by Italy to walk out off the Euro could trigger defaults by Italian banks.
Chairperson of the Hero Moto Group has called for rationalization of GST tariffs on two wheelers. Pawan Munjal has called for reduction of GST on two wheelers. Munjal called on the GST Council to reduce the GST on motorcycles and two wheelers from 28% to 18%. Munjal’s argument was that the 28% GST bracket was only reserved for sin products and items of luxury consumption. Two wheelers did not represent either category, making a case for GST reduction. Two wheelers have been a proxy for retail and rural demand but have been hit in the last few months due to high incidence of tariffs.
