It was a day when the Nifty and Sensex took a sharp hit but Wall Street ended higher on Tuesday. On a day when the Sensex corrected close to 650 points, the Dow and the NASDAQ ended in the positive. The difference was in the Saudi announcement that production had been fully restored by Aramco. This created positive sentiments in the US markets, which had been worried about the fallout of the drone attacks on Saudi facilities. Indian markets are likely to react on Wednesday and one can even expect a gap up opening in the Indian markets when stocks commence trading on Wednesday.
As FPIs continue to sell Indian equities, it is time to sell the India story and this pitch will be made by no less a person than the SEBI chief, Mr. Tyagi. He will present the India story to global investors in the US.In the midst of bearish market conditions, the SEBI Chief is expected to meet the top global fund managers in the US during September. Foreign Portfolio Investors (FPIs) have already pulled out $5 billion since the beginning of August and FPIs have been sellers on most days. SEBI had recently made changes to the FPI framework to simplify the process and also exempted them from FPI tax.
With the government in a tight position on liquidity, the immediate effort is going to be on monetizing its assets across the infrastructure spectrum. Niti Aayog CEO assured markets of spate of asset monetization programs. Amitabh Kant of the Niti Aayog said the government would shortly be announcing a spate of plans to monetize its assets like roads, airports, power transmission and shipping terminals through private participation. Kant also assured investors that this would require a lot of asset recycling efforts, which they were planning over the next few months to make assets saleable.
Finally, Indian MF fees are falling to global standards and the gap between equity and debt is also widening. In a report, Morningstar noted that the recent measures by SEBI to reduce the TER of Indian mutual funds appear to have helped. The median cost of investing in a debt fund had fallen to 0.54% while the median cost of investing in equity funds was 1.78%. This could also be attributed to an increasing number of investors opting for the direct route, which entails lower TERs to investors. Mutual fund costs of active funds have been a major challenge for SEBI in protecting investor interests.
Brent crude falls 6.5% on Saudi Arabia restoring oil production post drone attacks. After touching a peak of $71.95/bbl on Monday, oil prices fell sharply on Tuesday after Saudi Arabia confirmed that they had restored the entire production back to previous levels. On Monday, crude had ended almost 15% higher after the Houthi rebels had allegedly launched attacks on Saudi Aramco oil facilities. Meanwhile, the US added to Middle East tensions after it affirmed that the missile attacks came from the South West part of Iran. The US and Saudi Arabia have long accused Iran of providing financial and logistical support to the Houthi rebels fighting against Saudi Arabia in Yemen. The sharp fall in the oil prices will be a big boost for the Indian markets which has a huge crude oil component in its trade deficit.
The US Treasuries rallied sharply on Tuesday ahead of the outcome of the FOMC meet, which will conclude on Wednesday. The broad consensus was for a 25 bps rate cut, although the FOMC members are deeply divided over the cut. Experts believe that the Fed may pause after this rate cut and the CME Fedwatch has also been hinting at a similar trend in US Fed rates. Global markets have been betting on a series of rate cuts by the US Fed but that may not happen if the growth data in the US continues to improve. The next few Fed meetings could be a lot more interesting.
