After rallying for the last two weeks, bond yields on the benchmark 10-year bond, eased lower on Finance Minister’s call for rate cuts. In fact, on Monday the 10 year benchmark bond yields fell sharply after the finance minister, Nirmala Sitharaman, called upon the RBI to cut rates aggressively to boost GDP growth. Markets are still split between a 25 bps and a 50 bps rate cut possibility and will have to await Fed action. The FM’s assurance on the issue of sovereign bonds also helped to reduce the yield pressure on bonds. There have been whispers that the PMO wants a review of sovereign bonds.
There could be good news coming in from the renewable energy front. India’s renewable energy cost is the lowest in Asia-Pacific according to Wood Mackenzie. One of the world’s leading energy consultancies, Wood Mackenzie, has highlighted that India’s cost of generating solar power at $38/MWH (mega watt hour) is not only the lowest in the APAC region but also 14% cheaper than the price at which India produces thermal energy using coal. India is already the second largest power market in the APAC region with installed capacity of 421 GW. That is a good case to shift power mix.
Crude continued to remain caught between geopolitical risk and a global growth slowdown on lack of clarity over US-China trade talks. Oil prices were down in early trades on fears that the US-China talks may not yield much. However, oil prices did pick up in the second half on hopes that an aggressive rate cut by the Fed would weaken the dollar and give a boost to oil prices. Lower interest rates are also expected to reduce the borrowing cost for crude oil carry traders. The situation in the Middle East has continued to remain tense with Iran continuing to hold on the two British tankers in the Persian Gulf.
Indian mutual fund and insurance companies may be finally making their presence felt in the equity investment sweepstakes. Domestic institutions narrowed the gap with FPIs in stake in listed companies. If the FPIs have been undisputed rulers of institutional equity ownership in India since the 1990s, that may just about be changing; or at least narrowing. Total ownership of DIIs in Indian equity stood at Rs.20.42 trillion as against the total FPI holding of Rs.29.36 trillion. DIIs now own nearly 13.8% of Indian equity capital. The gap between DIIs and FPIs in Indian equity ownership is the lowest in last 15 years.
The sell-off on the street has been much wider than just the large caps even as Dalal Street lost Rs.1.36 trillion on Monday as 400 stocks touch 52-week lows. The Sensex has now lost nearly 2500 point since the peak touched on Budget day. While autos and metals took the brunt of the correction, the mid caps were also badly hit as is evident from over 400 stocks touching their annual lows on Monday. Meanwhile, Moody’s warned of a serious impact of slowdown and NBFC crisis on Indian banks despite signs of bottoming out of the NPA cycle. The combination of a GDP slowdown and weak NBFC balance sheets could pose a major risk to Indian banks. NBFCs not only act as the last mile channels for banks but most banks have also been purchasing portfolios from NBFCs to meet priority sector targets.
UK talks tough on BREXIT leading to the GBP tumbling to a 28-month low. Just as he had promised, Boris Johnson has taken a tough stand in the BREXIT negotiations with the EU; just that the currency markets are not impressed. Boris called for a no-deal BREXIT if EU was unwilling to negotiate further. The GBP cracked from 1.50/$ to as low as 1.22/$ during the day. The Indian rupee also strengthened versus the GBP and inched closer to the Rs.84/GBP mark. Boris Johnson has time till October 31st to negotiate a trade deal, failing which Britain will have to reconcile to a no-deal BREXIT with all the uncertainties.
