The Karnataka election results threw up a split verdict with the BJP falling around 8 seats short of the absolute majority mark. To complicate matters further, the Congress party with 78 seats has agreed to support the JD(S) with 37 seats making it a total of 115 seats for the combination. While Kumaraswamy of the JD(S) will be the chief minister, the Congress will nominate a deputy CM. Whether the largest party (BJP) is called to prove its majority or the majority post-poll alliance is called to prove their mandate on the floor of the house, will largely predicate on the governor, Mr. Vajubhai Vala.
Beleaguered PNB posted a record loss of Rs.13,416 crore for the fourth quarter ended March 2018. Interestingly, this $2 billion dollar loss posted by PNB only provides for half of the Nirav Modi induced loss. The balance loss is more due to the RBI’s stringent new framework. Provisions for the quarter went up fourfold to over Rs.20,350 crore. Gross NPA ratio for PNB stood at 18.38% and that will make it the most vulnerable large bank. Overall, PSBs have seen back breaking rise in NPAs and huge losses in the fourth quarter ended March 2018.
Higher crude oil prices during the month of April led to the merchandise trade deficit widening to $13.9 billion. While exports did show a 5.17% growth, the real worry was the 4.6% rise in imports to $39.63 billion. Exports for the month stood at $25.91 billion. This sharp rise in the trade deficit is despite the fall in imports of gold and precious stones. In short, this import surge is purely on the back of higher oil prices. That is hardly surprising, with crude oil crossing $77/bbl in the Brent Market. The reaction was also visible in the currency market as the INR weakened to Rs.68.10/$ on dollar buying.
Most Asian stocks have come under pressure with the US treasury yields on the 10-year benchmark crossing the 3.07% mark. For a long time the level of 3% on yields was considered to be the outer limit which also stands breached now. The bond yields appear to be indicating a more hawkish Fed going ahead and that explains why emerging markets are not too excited. The treasury yields represent the highest level since 2011 and normally that is a level that has triggered selling in equities due to the relative attractiveness of debt vis-à-vis equities. Mystery around North Korea deal has widened.
Eriksson of Sweden has just about won the plea to push RCOM into bankruptcy. RCOM had struck a deal with the Reliance Jio group to sell all its licenses, bandwidth and telecom business. However, the deal had run into trouble when Ericsson sought a stay to prevent RCOM from selling out without settling its legitimate dues. While the Ericsson claim is just about $170 million, it has the potential to jeopardize the entire $3.7 billion deal that RCOM has struck with Reliance Jio. The decision means that RCOM could be placed under a court-appointed resolution professional that will have 270 days to work out a debt recast plan. RCOM has total debt burden of $7 billion and part of the proceeds of the sale to Jio will be used to settle these loans to banks and financial institutions.
Pharmaceuticals major, Lupin, posted a surprise loss in the March quarter due to a one-time hit on its books. For the quarter ended March 2018, Lupin reported a loss of Rs.-783 crore compared to a profit of Rs.380 crore last year. The company took a one-time charge of Rs.1464 crore pertaining to the Gavis group acquisition. Revenues for the quarter were down by 5.2% at Rs.4033 crore. The operating profits of the company fell by 14.2% even as the OPM came in lower at 17.6%. Lupin stock has been under tremendous pressure in the last couple of years and has corrected more than 70% from its peak.
