Midnight News Update – Jul 12th 2017
The UP government became the first state government in India to make a provision of Rs.36,000 crore for the farm waiver bill via debt redemption. This is roughly 10% of the total UP budget of Rs.384,000 crore. The total budget allocation is 11% higher than last year. Waiver of farm loans was a promise made by the UP government ahead of the state elections. After 2 successive droughts, Indian farmers have been under severe distress and the farm loan waiver was meant to alleviate their sufferings. Other states like Maharashtra and Karnataka have also followed suit on waiving off farmer loans.
IndusInd, normally one of the early result announcers among Indian corporates, announced a 27% growth in profits for the June quarter at Rs.837 crore. Net interest income was up by 31% for the quarter and IndusInd has managed to sustain above average growth in banking successive for the last many quarters. Gross NPAs were however slightly higher moving up from 0.93% to 1.09% even as net NPAs moved up marginally from 0.39% to 0.44%. Quality of assets of IndusInd continues to be among the best in the private banking space along with HDFC Bank, Kotak Bank and Yes Bank.
Jamie Dimon of J P Morgan, and one of the most influential voices in the global financial markets, has warned that the negative impact of an unwinding of QE may be much worse than anticipated. The Fed in its last review of minutes had amply indicated that the taper of the bond portfolio may start within the next couple of months. This will result in a sudden tightening of liquidity even as the Fed has promised to keep the entire taper process calibrated. Between the Fed, BOJ, ECB and the BOE, they hold nearly $14 trillion worth of bonds, surely something for the markets to worry about!
According to Goldman Sachs, unless the OPEC manages to cut the output in a big way, crude is likely to slip below the $40/bbl mark. Currently, the OPEC has cut output by 1.2 million bpd while Russia and Mexico have cut output by 0.6 million bpd taking the total output cut to 1.8 million bpd. However, Russia has ruled out the possibility of any further rate cuts from its side. With record oil supply coming from the US, Libya and Nigeria, oil prices have been slipping despite the OPEC cuts. Earlier Goldman had admitted that it had got its oil call wrong and had not factored higher US supply after the OPEC cuts.
Ambit Capital became, perhaps, the first brokerage house in India to make a transparent disclosure of all its calls that went wrong during the year. In a note to shareholders, Ambit admitted that it had overestimated the impact of demonetization and the eventual impact of the exercise on GDP was much lower than anticipated. So much so, that the markets could easily take it along it its stride! Apart from getting its major macro call wrong, Ambit also got most of its micro calls badly off target. Ambit admitted that it had failed to factor in the resilience of stocks like Bajaj Finance, Britannia and L&T and had gone totally awry on these short calls. The brokerage also got its short calls on Maruti and the banking sector awfully wrong. Above all, Ambit also made a mess of its IPO ideas as it ended up looking sheepish on its IPO avoid calls on Dilip Buildcon and RBL Bank; both of which doubled post listing!
US markets were largely insipid ahead of Janet Yellen’s testimony in front of the Congress as well as the first flow of Q2 results of US companies. The dollar marginally strengthened versus the Yen but the indices were flat with a negative bias. Most US and European stocks were tepid due to Brent Crude getting closer to the $45/bbl mark. Most US analysts who were betting heavily on Trump’s tax cuts and his infrastructure spending program are now reconciling themselves and assigning lower probability to these events. All eyes will be on the global central banks to judge their trajectory of rates and the taper.
