Midnight News Update – Sep 05th 2017
CRISIL has lowered India’s GDP forecast for the fiscal year 2017-18 to 7% as an outcome of GST hiccups and the lag effect of demonetization. Earlier, CRISIL had estimated full year growth at 7.4% for the current fiscal. It may be recollected that quarterly GDP for June 2017 had fallen sharply to 5.7% while the GVA had fallen to 5.6% pegging India’s GDP growth at least 100 bps below that of China. CRISIL also expects the manufacturing sector to continue to be under pressure as it takes time to adjust to the post-GST scenario. However, services growth is likely to pick up in the current fiscal.
ONGC has sought shareholder approval to raise $4 billion (Rs.26,000 crore) via the debt route. This will be used to fund acquisitions and capital expenditure during the year. Part of these funds will also be used for the acquisition of the 51.1% stake in HPCL, which had been mooted by the government. However, ONGC is yet to firm up whether the funds will be raised in dollars or in rupee denominations. ONGC also has massive capital expenditure plans and proposes to invest nearly $5 billion in developing its natural gas fields along the eastern coast of India, principally in the KG Basin.
With North Korea refusing to listen to the US threats, the situation appears to be worsening on the geopolitical front. North Korea has become the latest entrant into the nuclear club and also boasts of H-Bomb capabilities. While the dollar weakened sharply, the big beneficiary of this geopolitical uncertainty was gold. In the global spot market, gold touched a 1-year high of $1339/oz and that was clearly led by the uncertainty surrounding the North Korean conflict. In the current year alone, price of gold is up by over 16% and has emerged as one of the better performing asset classes along with equities.
Adani may write off its entire investment in the Mundra Power Plant after the Supreme Court prohibited the imposition of additional tariff to compensate for the higher price of Indonesian coal. After having invested nearly Rs.6000 crore in the project, Adani group will now transfer the 4620 MW plant to its newly created subsidiary for a sum of Rs.106 crore. The problem is that the Mundra Power Plant accounts for nearly 50% of the total debt of Rs.50,000 in the books of the Adani group. Adani Power had to write off the Rs.4300 crore it had claimed a compensatory tariffs, leading to equity dilution.
One of the most high profile investors in Australia, AMP Capital, has turned hugely sceptical on equities as an asset class. Nader Naemi, who manages $110 billion at AMP, is sitting on cash to the tune of 30%, has taken big positions in gold and is short on emerging markets. Naemi is expecting a sharp reaction from the US and South Korea to the testing of the H-Bomb by North Korea and expects the markets to tumble sharply in the aftermath. He expects the North Korean crisis to eventually bring down the global bull market in equities. The call by Naemi is surely a brave one because 22 out of the 24 emerging markets across the world have outperformed the global indices in 2017. Naemi is extremely sceptical of the growing volatility as indicated by the sharp rise in VIX across markets.
After SBI and ICICI Bank, the RBI has now declared HDFC Bank also as “Too Big to Fail.” HDFC Bank has always been valued at a steep premium over ICICI Bank but has of late also overtaken ICICI Bank on balance sheet size. HDFC Bank’s market is more than twice that of ICICI Bank and is valued at more than ICICI Bank and SBI combined. The idea of classifying a bank as TBTF is to indicate that any failure of that bank could have larger systemic implications of the kind we saw across the US and Europe in the aftermath of the sub-prime crisis in 2008. TBTF banks have to set aside additional Tier 1 capital.
