The year 2017 saw a deluge of debt flows from FPIs. Nearly Rs.150,000 crore flowed into Indian debt in the full year even as FPI investments in equity remained tepid on valuation concerns. High yields and a signal from the RBI of a likely end of the rate cut cycle has been positive for the debt markets to sustain the yield spread with developed markets. A strong rupee has further added to the attractiveness of dollar returns for FPI investments in debt paper. This is the best year for debt inflows since 2014. However, the worry is that once US Fed starts hiking rates, there could be risk-off buying by FPIs.
The coming week is likely to be dominated by financial data flows. Apart from the key results of Infosys and TCS, the macroeconomic data in the form of CPI and IIP numbers will also be announced. The markets were slightly disappointed with the first advance estimate for full year GDP growth at 6.5%, which has been consistently falling over the last 2 years. The Sensex and the Nifty are already trading at all-time highs and these data flows will largely drive the sentiments in the market. The quarterly numbers of Infosys will be specially watched as the new CEO, Salil Parekh, has just taken charge.
A report put out by Kotak Institutional Equities expects the December quarter to be slightly weak for banks but fairly positive for the NBFCs. Loan loss provisions are likely to be elevated in the coming year. Banks are also expected to be hit by lower treasury income as yields have gone up quite sharply by about 80 basis points in the last 6 months and that impact is likely to show up. NBFCs are likely to, however, delivery growth in the region of 30-50% in the third quarter. The government has recently secured parliamentary approval for the massive bank recapitalization program to the tune of $12 billion.
In what is likely to be a major relief for the bank NPA recovery process, the government has decided to ease the Minimum Alternate Tax (MAT) norms for companies under insolvency proceedings. For the purpose of levy of MAT under Section 115JV of the Income Tax Act, the government will allow for the total amount of loss brought forward to be reduced from book profits and this will include the unabsorbed depreciation. Many potential investors and banks had expressed concerns to the government about the current norms which only allow the lower of the two figures.
At a time when the Dow Jones index has touched historic highs and Trump has been boasting about his Midas touch in shareholder value creation, there is a silent value destruction that is happening to the value of the dollar. For the calendar year 2017, the US Dollar lost 10% versus the Euro and nearly 5.5% versus the Renminbi. The Dollar was actually the second worst performer among the hard currencies in the world. The phenomenon was explained in a paper by Barry Eichengreen (author of the book “Exorbitant Privilege”). According to Eichengreen, the America First policy of Trump has eroded the attractiveness of the dollar as a reserve currency since a large part of the attractiveness of the dollar came from it being a trade benchmark. For now China appears to be taking over that role!
Even as we talk about the rise in online sales in India, Patanjali is planning a massive push into the online space. In fact Patanjali is expected to enter into agreements with the likes of Amazon, Flipkart, Paytm, Big Basket, Grofers and Snapdeal to give a big push to its online interface with customers. The company which made a public launch just a couple of years back has already crossed Rs.10,500 crore in annual sales and is expected to double its sales this year. Already, Patanjali is giving other established FMCG players a run for their money and this online foray will make the space a little more competitive.
