Four days after the Union Budget 2018, the overhang of the LTCG continues. The Sensex touched a 3-week low on Monday even as the equity indices fell for the fifth day in a row. Banks and capital goods took the worst hit while auto appeared to hold up the markets on the back of robust monthly numbers. However, the carnage was nowhere close to what was witnessed on Friday with the mid cap indices bouncing back sharply from lower levels. It is just not about the LTCG tax but also about rising bond yields globally as well as the risk of a hawkish commentary from the RBI in its policy this week.
Janet Yellen made way for Jerome Powell as the next chairperson of the US Federal Reserve, probably the most powerful monetary position in the world. Unlike Bernanke and Yellen who inherited shaky economies, Powell inherits an economy that is showing robust growth of close to 2.7% annualized, inflation is coming back to the 2% level and unemployment is at an all-time low. Powell will have to take a decision on 3 hikes versus 4 hikes in this calendar year. More importantly, he will have to bite the bullet on unwinding of the massive $4.5 trillion bond portfolio of the Fed.
ONGC’s ambitious exploration project off the Krishna Godavari Basin is likely to get a delayed start by almost one year. The first gas production will happen only in the first half of 2020. ONGC is yet to complete tendering for equipment for the $5 billion exploration project. Production from KG basin is critical if Modi’s dream of self sufficiency in oil has to be achieved. Most of ONGC’s fields are outdated and it badly needs fresh and renewed fields to keep its turnstiles ticking. India is already running up a trade deficit of $15 billion per month and really cannot afford to go much higher.
The Supreme Court refused to pass a stay order on bidding process for the assets of Jaypee Infratech. The company is currently undergoing resolution under the IBC. The stay had been sought by nearly 32,000 homebuyers who feared that they may lose their apartments if the IBC was brought into the picture. Jaypee group has already been instructed to deposit Rs.2000 crore to protect the interests of the homebuyers. There is already a stay on the directors and family members of the promoters selling any assets till this case is resolved to the satisfaction of all parties.
Tata Motors announced its December quarter results on Monday but the JLR numbers slightly missed estimates. Net profits jumped by nearly 13 times at Rs.1198 crore while revenues were up by 16% in the third quarter at Rs.74,200 crore. Interestingly, the operating profit margins (OPM) expanded by 420 basis points to 11.70%. However, the weaker profits were largely due to a meagre 3.5% growth in deliveries at JLR, which contributes over 85% of the profitability of Tata Motors. JLR OPMs contracted as the company offered sizable discounts to clear inventories of older models. The Tata Motors stand alone operations are en route to a turnaround as Tata Motors has almost caught up with Mahindra in terms of monthly off-take of passenger cars. Tata Motors is down nearly 35% from its peak price.
Former finance minister, Chidambaram, has flagged off the macroeconomic risks of higher revenue deficits which apparently matter more than the fiscal deficit number. Mr. Chidambaram’s contention is that higher borrowings are being used to up to bridge the revenue shortfall rather than in productive investments. Chidambaram also feels that by transferring the liability in the books of ONGC (for the purchase of stake in HPCL), the government may have actually under-reported its borrowings. For the current year the revenue deficit is likely to touch 2.6% against the earlier estimate of 1.9%.
