FMCG stocks have shown a recovery from the lows of October although they are still 9% below the highs seen in August. The rise in the FMCG index is largely driven by a fall in input costs as the price of oil has again retreated from $86/bbl to a low of $59/bbl. Crude is a major input cost for FMCG companies and this has had a positive impact on the price performance of FMCG stocks. The FMCG index has managed to outperform compared to the Nifty. Also, the valuation concerns surrounding the FMCG stocks in the early part of August are now substantially addressed and that has also worked in their favor.
With a view to reducing the pressure on the rupee, the RBI reduced the hedging requirements for External Commercial Borrowings (ECB) holders from 100% to 70% for maturities of between 3 to 5 years. Hedging was adding substantially to the total cost of the borrowers. This will reduce the borrowing costs for the foreign currency borrowers and also put less pressure on the rupee. The rupee had touched a low of 75/$ but has subsequently recovered to a level of close to 71/$ as the FII outflows abated and the pressure of import hedging came down. ECB relaxation will help in that direction.
The World Trade Organization (WTO) expects the global trade to weaken in the Oct-Dec quarter. This additional moderation is likely to be driven by the fall in exports across the globe. This was reported in the Global Trade Outlook put out by the WTO. The fall in world trade was triggered by the rising trade tensions between the US and China after the US had imposed a series of sanctions on China to reduce its substantial trade deficit with China. The US runs a trade deficit of over $600 billion with China and has imposed tariffs on Chinese imports to which China has retaliated leading to a trade war.
RCOM has affirmed that its asset sale plan to Reliance Jio was at stake after the Rs.2900 crore demands put on them. The government had refused to approve the sale of RCOM spectrum to Jio unless the other party was willing to furnish a bank guarantee to that effect. This would put at risk most of the debt repayments that RCOM had committed to the lenders. The government had made a demand of Rs.2900 crore towards spectrum charges for which it wanted Jio to provide a guarantee before approving the sale. RCOM had argued that if the deal fell through, then banks may not get back loans.
The government has committed its next tranche of Rs.42,000 crore of capital infusion into state-owned banks by the 15th of December. This is the last tranche of the total recapitalization of Rs.2.11 trillion that the government had announced in the previous year. This would complete the entire recapitalization outlay commitment made by the government to the PSU banks. There is still another Rs.1.35 trillion that will come by way of issue of recapitalization bond which is more of an accounting entry. While the RBI has delayed the meeting of the capital conservation buffer of 2.5% for banks by one year, the government decided not to delay the recapitalization of the banks. Also, a total of five banks may be pulled out of PCA if everything goes through well and may be permitted to lend once again.
With the press rife with the explosive revelations of a Yes Bank family firm funded by mutual funds, Rana Kapoor has repaid Rs.400 crore to two mutual funds which had purchased bonds of a private company which the Kapoor family was using as their holding company for the stake in the group. This money had been raised by pledging shares of the private entity to these mutual funds. Indian funds have seen rapid inflows in the last few years but lacked quality paper to invest in. This has led to many mutual funds investing in bonds of companies that are not listed leading to the latest controversy.
