Core sector consisting of 8 core sectors of the economy grew at 5.3% for the month of February 2018. This growth was largely driven by a robust performance by refinery products, fertilizers and cement. This is a sharp improvement from a 0.6% growth in the month of January this year. While refining and fertilisers grew by 7.8% and 5.3% respectively, it was cement that stole the show with a 22.9% growth in the month of February. Steel, which was a major driver in the last 1 year, saw growth temper down to just 5%. The core sector accounts for over 40% of the IIP and hence is a key lead indicator.
The trade war between the US and China escalated after China imposed retaliatory tariffs on US imports. Trump going aggressively after Amazon also did not help matters as the Dow slid by over 550 points due to the combined impact of these two factors. In fact, China pushed up tariffs on 128 US products to 25% in a late Sunday announcement. With heavyweights like Facebook also under pressure, the Dow felt the impact of heavy selling on IT stocks. The dollar also weakened after the imposition of Chinese tariffs. The entire story began with US imposing tariffs on $50 billion of Chinese imports.
With the corporate governance questions over ICICI Bank hotting up, the stock tanked by over 6% on Monday and the stock may be now vulnerable to a lot more selling in the days to come. The sharp rise in selling on the stock with high volumes indicated that some large institutions were getting bearish on the stock. The stock came under the scanner after a whistle blower had alleged that the loan to Videocon worth Rs.3250 crore that had gone bad was actually part of a deal to benefit the relatives of the CEO. ICICI is yet to give a convincing response to the allegations till date.
Numetal, Arcelor Mittal and Vedanta have submitted fresh bids for Essar Steel, which is one of the largest companies currently under bankruptcy proceedings with the NCLT. Lenders had called for a fresh round of bidding by the potential suitors before taking a final call. Bids were Numetal and Arcelor were rejected and Numetal has bid in a new Avatar along with JSW Steel. In fact, JSW had aggressively bid for Bhushan Steel which it eventually lost out to Tata Steel. Vedanta has already won the bid for Electrosteel and it manages Essar then it could become a formidable name in Steel in India.
With the banks struggling under the twin pressures of rising NPAs and bond losses, the RBI has stepped in to make the job a tad easier for the banks. In fact, RBI has allowed the banks to spread their mark to market (MTM) hit on the bond portfolio across 4 quarters instead of taking all the hit in one quarter itself. It may be recollected that bonds yields of the 10-year benchmark have gone up by over 130 basis points since August last year although the yields did ease a little bit after the government announced a reduced H1 borrowing program. Considering that the risks of higher inflation and higher fiscal deficit remain elevated, the RBI has offered this spread to reduce the burden on banks. However, banks will have to make suitable disclosures in their notes about the full extent of the losses.
Even as GlaxoSmithKline PLC is look to fund its $13 billion buyout of Novartis’s 36.5% stake in the consumer healthcare JV, it has zeroed in on hiving off its India consumer health subsidiary. There could be two key reasons. Firstly, this is in line with the British parent’s overall plan to focus only on pharmaceuticals and exit healthcare altogether. Secondly, the sales at its consumer health subsidiary have stagnated for the last 3 years and Glaxo does not see much traction there. Glaxo’s Boost and Horlicks are facing intense competition from Abbot’s Pediasure.
