It was an unlikely day

It was an unlikely day of volatility and a positive close. Nifty shows a smart 100 points bounce on Tuesday. The real story was the A/D ratio which strongly skewed in favour of the advances in the ratio of 7:3. The Nifty benefited from a bounce in banks and rate sensitive stocks. In the last 2 weeks, the Sensex lost over 2000 points wiping out 50% of the gains since January 2018. This makes September the worst month for the Sensex in the last 30 months. New Zealand has replaced India as the best performing equity market for the current calendar year, after the recent crash in Indian markets.

Finally, Trump looks like having his way with India on the Iran oil issue. India is to cut imports of Iranian oil to Zero by November. India is likely to give up on its largest and most economical oil supplier to please Donald Trump. With the sanction coming into effect in November, India plans to wind down its Iranian oil imports to zero by that time. India alone accounts for nearly 25% of Iran’s oil exports and it will hurt more because Japan, Korea and the EU nations will also be stopping Iranian oil imports from November. India needs to figure how it will make good the loss of oil from Iran.

After the crash, Yes Bank appears to be moving rapidly. The bank has formed a search panel to identify successor for Rana Kapoor. After the severe beating that the stock took on the back of a spate of downgrades, Yes Bank showed some semblance of normalcy after the bank formed a panel to look for a successor. Rana Kapoor has been only given an extension till Jan-2019 post which he will have to step down. The Yes Bank board is also separately applying to the RBI to give a term extension to Rana Kapoor considering the state flux that the bank finds itself in currently.

The beleaguered IL&FS may have found a unique way of staying solvent for now. IL&FS and 40 group companies have moved NCLT seeking relief. Faced by a spate of defaults on a daily basis, IL&FS and 40 of its group companies have knocked on the doors of NCLT for relief under Section 230 of the Companies Act. This will give them more time to sort out the issue. This section gives powers to compromise or enter into an arrangement with creditors. Both LIC and Japanese ORIX, the major shareholders, agreed to hike their stake in IL&FS, which should provide some short term relief.

It looks like the days of dear oil are back. Brent Crude was sharply higher at $81.99/bbl, very close to its 2014 highs. Brent Crude touched a high of $82.55/bbl on Tuesday before settling around the $82 mark. Trump’s reiteration of his decision to impose sanctions on Iran literally spooked the oil markets. Also, OPEC nations have ignored Trump’s calls to increase oil output. The only hope for lower oil prices is if the trade war genuinely leads to a slowdown in global trade and commerce. On Tuesday, the INR weakened marginally to 72.695/$ while 10-year bond yields flat at 8.13%. The rupee was also volatile in early trades but RBI support at around the 73/$ continued. But the real risk of higher CAD due to a sharply higher trade deficit still remains in the light a sharp rally in Brent Crude.

Bond markets call for RBI to step up the pace of liquidity infusion after a disappointing attempt by the RBI yesterday. Markets were largely disappointed by the infusion of a mere Rs.10,000 crore via open market operations. According to bond dealers, the current liquidity deficit is closer to Rs.150,000 crore due to factors like currency intervention and advance tax payments. The RBI will have to inject nearly Rs.280,000 crore by March 2019 to keep the liquidity in balance in the money markets. The liquidity tightness has already resulted in call rates and CP rates shooting up sharply in the last few days.

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