The Monetary Policy Committee (MPC) meeting will conclude and the fifty monetary policy for the year will be announced in the afternoon. The market consensus is that the RBI will maintain status quo on repo rates and leave it at the current level of 6.50%. The inflation level has come down to 3.31% and the immediate risk of currency weakness has also waned. In addition, the US Fed chair has also hinted at a more dovish approach to monetary policy. The current monetary policy announcement is likely to focus more on liquidity than on rate setting, considering the growth challenges.
In a temporary reverse for Theresa May, the UK Government lost the vote on BREXIT by 321 to 299 votes giving more powers to the UK parliament. Effectively, May’s current exit deal has been rejected by the British Parliament. May had been threatening the house that if they did not vote on the deal then she may be forced to just exit the EU without any deal, which will mean a sharp correction of the UK Pound. With the vote being lost, May will not have much of an option but to give more powers to the Parliament on the BREXIT process and it could actually get prolonged adding to the uncertainty.
Kesoram Industries of the Birla group will demerge its tyre unit into a separate unit. Currently, tyres account for 39% of the total turnover and the shareholders of Kesoram will be issued 1 share of the demerged Birla Tyres for every share of Kesoram held by them. Out of the total debt of Rs.3500 crore, nearly Rs.1000 crore of debt will also be transferred into the new entity. With the tyre business demerged, only the cement business will be left with Kesoram Industries. The company expects a finer valuation point from this demerger as the two businesses come under separate managements.
Rating agency, Fitch, has maintained its negative outlook for Indian banks considering that these banks will require nearly $38 billion to meet their Basel III capital standards, which will be a real task considering their current financial position. This $38 billion capitalization will not only allow them to meet the Basel III capital needs but also cover 65% of their NPAs and also leave some surplus for future growth. That means the government will have to infuse $11 billion as capital into the banks and another $6 billion will have to be infused in the form of asset sales.
Oil prices may be headed higher once again with Saudi Arabia and Russia hinting at supply cuts. The OPEC meets on 06th December and they will be taking a final call on supply cuts during the meeting. Many members like Iran are averse to supply cuts as they are up against an unlikely scenario where sanctions could come back to haunt them at any point of time. Brent Crude had fallen sharply from $86/bbl to $58/bbl in the last two months before stabilizing above the $60/mark. The oil market is currently oversupplied and there are fears that the trade war could lead to a slowdown in growth in the world economy. Prices also got a boost after Canada’s Alberta province announced its decision to cut crude oil production by 325,000 barrels per day. The final word will have to await the OPEC meet.
Emerging markets may have disappointed on growth in profits on the back of high input costs but valuations may have turned salivatingly attractive in these EM stocks. The EM has total market cap of $11 trillion and they are currently available at the cheapest valuation since the financial crisis of 2008. Of course, we are considering the valuations adjusted for the depreciation in the local currency because most of the EM currencies have lost tremendously against the US dollar in the last one year. For 2019, flat earnings, attractive valuations and low volatility may be the big story for FPIs.
