The mega merger of PSU banks really failed to impress the markets as the NSE PSU Banking Index plunged nearly 5% in the aftermath of the mega merger. The decision by the government to shrink 10 banks into 4 banks did not go down too well with the stock markets. Firstly, markets are sceptical if this would really make these banks more efficient. Secondly, investors were not happy with bank unions and the finance minister giving assurances of no job losses. That would largely negate the positive impact of rationalization through mergers as cost cutting is one of the major driving factors for the merger.
In one more step to create a robust secondary market for corporate loans, the RBI Task Force made big ticket recommendations to ease credit market. In the aftermath of the credit crunch caused by the collapse of IL&FS, the RBI appointed task force has announced measures to create a credible secondary market for corporate loans. FPIs will be allowed to directly participate in distressed loans, within prudent limits. The Task Force has also recommended easing documentation and allowing MFs and Insurers to participate in this market. This will broaden and deepened the corporate loans market.
It was a kind of Black Tuesday for the equity markets as the Sensex cracked by 770 points; the worst single-day correction in 11 months. The stock markets wiped out nearly Rs.255,000 crore worth of wealth from the capital markets in a single day as both the Nifty and the Sensex fell vertically. The A/D ratio of 2:48 on the Nifty said it all. The slowdown in GDP, core sector, auto numbers and the PMI Manufacturing triggered the sharp fall in the indices. Widening trade rift globally and a weak rupee also took its toll on the markets. There were new dimensions being added to the BREXIT issue.
The options appear to be limited for the airline Jet Airways as it failed to find more suitors despite optimism displayed by SBI, the largest lender and now majority owner. The Jet Airways sale failed to elicit any response beyond the initial 3 EOIs and the last date is unlikely to be extended beyond August 31st. Avantulo of Panama, RA Creator of Russia and Synergy Group of Latin America are the 3 EOIs submitted till date, according to a report in Business Standard. Anil Agarwal owned, Volcan, had walked out of the deal. Jet had shut operations on April 17 this year after fund flows ceased.
Global turmoil is back to haunt markets. Trump urged China not to drag its feet on the subject of trade talks even as he increased tariffs on Chinese imports by 5%. While China partially retaliated, both China and the US have kept the door open for trade talks. Trump has accused China of consistently sabotaging trade talks resulting in the failure of talks in the past. However, China has refused to discuss security issues and issues pertaining to Intellectual Property. In another global shift, British PM, Boris Johnson, loses majority in the House of Commons after Philip Lee defected to join the Liberal Democrats. Labour party has called for an emergency session of Parliament to discuss BREXIT deal. Analysts estimate that fresh elections could bring Johnson back but would not change the BREXIT status.
Reacting to the global slowdown worries, Brent crude fell by 100 bps to $58/bbl mark. The fall was accentuated by weak US manufacturing data. The price of Brent Crude touched an intraday low of $57.23/bbl before bouncing in the second half but the undertone remained weak. The US manufacturing came in weaker than expected even as the trade war threatened to deepen with both the US and China sticking to their guns. The fall in crude prices was led by the WTI, before late short covering allowed oil prices to settle higher. Middle East situation remained volatile.
