Midnight News Update – Aug 07th 2017
Globally acclaimed investor, Mark Mobius, expects the Nifty to double over the next 3 years due to extremely supportive macros and very attractive valuations. Mobius believes that the combination of high growth rates and low interest rates will form a sweet spot combination to take the Nifty higher. Mobius also expects a surge in global portfolio flows into India due to strong growth and a strong rupee. But the big trigger according to Mobius is that there could be a substantive shift in investments in favour of equities and at the cost of other asset classes. That could be the game changer.
Nearly 12 PSU banks in India are currently firming up plans to raise funds through IPOs in the next few months. PNB, Bank of India and Indian Bank are among the banks that have firmed up plans to raise money via the IPO route. To meet with the Basel III guidelines, Indian PSU banks will have to raise nearly Rs.110,000 crore in addition to the government support. With high level of NPAs and negligible loan growth, most PSU banks are struggling to remain profitable at a time when private banks are breathing down their neck. Most of these IPO could be closed out before the end of this fiscal.
In the first four trading days of August 2017, the FIIs have poured in nearly Rs.5000 crore into debt. FIIs have already invested Rs.120,000 crore into debt in the first 7 months of this calendar year. This has more than made up for the intermittent sale in equities. While FIIs have been concerned about high valuations in equities, for debt investments the RBI refusal to shift its stance to accommodative is seen as positive. On the one hand, India still retains an attractive spread on its bonds over the US 10-year benchmark and on the other the dividends of a strong rupee are also accruing to FIIs.
Indian Oil Corporation has chalked out detailed plans to double its refining capacity by the year 2030 up to 150 million tonnes. Currently, IOC has a refining capacity of 80 million tonnes of crude oil. This will be achieved through a mix of Greenfield and Brownfield expansion. Currently, the ownership structure of these oil companies is in a state of flux. Arun Jaitley had hinted at creating an oil conglomerate by combining oil companies across downstream and upstream to create mammoth oil companies that will be globally competitive and also have the balance sheet size for global acquisitions.
Inflation across emerging markets (EM) has touched an 8 year low. If you leave out the recession of 2009, the current inflation rate at 3.1% average across emerging markets is the lowest in 8 years. This has been largely driven by weak oil prices and a contraction in prices of commodities across the board. With inflation touching new lows across EMs, most of these economies may be seeing lower interest rates and that will be positive for bond prices. India has seen inflation consistently low due to a mix of surplus agricultural production and weak oil prices. In India, the monthly CPI inflation has fallen to 1.5% while the food inflation has moved into negative territory. The big positive is that low inflation will create a booster effect on real GDP as the deflator will be more favourable for high real growth rates.
Even as the world struggles to bring North Korea to the negotiating table, China has expressed hope that UN sanctions will be instrumental in pushing North Korea to a corner. Over the last few months, North Korea has been regularly conducting tests of its nuclear warheads and its ICBM missiles and appears to have improved on its technology substantially. The US has already issued warnings to North Korea but to no avail. Analysts believe that North Korea may have progressed too much on nuclear technology for sanctions to make a difference. Negotiations may be the only way out.
