There may finally be some real progress on the IL&FS probe as the SEBI widens its probe into the role of rating agencies in the fall of IL&FS. The regulator has expanded its probe after the investigation agencies pointed out to the alleged link between employees of IL&FS and the rating agencies in ensuring good ratings even when the financial condition was fast deteriorating. Already, the CEOs of two leading rating agencies, ICRA and CARE, have been asked to proceed on leave over their alleged involvement in IL&FS ratings and this has been done to ensure that the integrity of the probe is not impacted in any way.
The opposing tweets on the Fed rate action continued on Friday after Eric Rosengren of the Boston Federal Reserve objected to the Fed rate cut even as Trump criticizes Fed stance. A new dimension to the Fed rate cuts came up ahead of the July 31st meet as Eric Rosengren of the Boston Fed objected to rate cuts on the grounds that growth data did not suggest the need for a rate cut. CME FEDWATCH has been assigning a 50% probability to a 50 bps rate cut, which is quite aggressive. Meanwhile, Trump has reiterated his strident criticism of the Fed for again dragging its feet on rate cuts.
There could be some hope for the Jet resolution process, although Jet itself does not inspire too much optimism. The Insolvency Administrator has finally invited resolution plans for saving Jet Airways but markets are sceptical about the value still left in the company at this point of time. Out of 124 aircraft, only 14 aircraft are left after repossession by lessors. Then there is a 51% stake in Jet Privilege and some real estate properties against an overall debt burden of Rs.25,000 crore. Since the Essar case, the discretion of the Committee of Creditors has been curtailed. That could be the challenge to resolution!
As the old wisdom goes; when in crisis turn to gold. The NBFC liquidity crisis has resulted in a boost for gold loans. With rising loan failures and in the midst of a liquidity crisis facing the NBFCs, an increasing number of lenders and borrowers prefer the gold loans route. Such gold loans are secured by the pledge of gold and, with rising gold prices it seems to be a relatively safer game. Also gold enables easy refinance from banks. For customers, there is already a $1 trillion stash of gold in Indian homes which is estimated to be holding an overall collection of 22,000 tonnes of gold in various forms.
Foreign investors continue to remain bullish on debt but bearish on equities as they withdrew Rs.7700 crore from equities in 3 weeks of July. The equity selling sharpened post the Union Budget which imposed super rich tax on FPIs structured as trusts. There are also domestic macro and global concerns over oil prices globally and the earnings performance of banks, autos and FMCG domestically. In these challenging circumstances, the Nifty cracked closer to the 11,400 mark on domestic earnings worries. There were market concerns about the earnings coming from the auto and FMCG sector where the maximum stress is expected. The sentiments of rate sensitives took a hit after some private sector banks announced either higher gross NPAs or higher spillages for the June quarter. Oil also holds the key.
The monsoon menace is not over yet as deficient rainfall could be looming over half of Indian sub-continent, according to a warning issued by the IMD. The Met Department has warned that with the rainfall continuing to be deficient by 20% even in July, there could be rainfall deficiency in nearly 50% of the sub-continent. While July did try and make up for weak rains in June, it was not sufficient according to IMD and also the sowing season may have been negatively impacted. One needs to wait for the Kharif impact of this, which is normally negative in a dry year.
