Midnight News Update – Sep 13th 2017
The CPI inflation for the month of August 2017 came in almost 100 basis points higher at 3.36%. This brings the retail inflation very close to the RBI comfort level of 4% and the RBI-MPC was perhaps right in being cautious about begin aggressive on rate cuts. The big trigger has been a sharp rise in food inflation. While pulses inflation continued to remain in negative territory, vegetable inflation has jumped back into positive territory. Also, the restrictions on imports and the MSP on select food items have been instrumental in reviving food inflation back to higher levels.
The Index of Industrial production for July 2017 came in at 1.2% slightly better than the weak IIP growth in the month of June. The weakness in IIP growth was largely driven by manufacturing which was almost flat, despite the positive performance coming from mining and electricity. There have been two key triggers for weak IIP. While the lag effect of demonetization has been instrumental in constricting capital spending, the GST has also resulted in a greater focus on inventory dilution and less on production. As usual, the steel sector led the growth in IIP apart from mining and electricity.
A sharp fall in OPEC output has led oil prices higher despite the impact of Hurricane IRMA off the coast of the US. With most refiners off the Texas Coast discontinuing operations, there is a glut in the crude market which had taken oil prices down. However, the recent OPEC data has resulted in a bounce in oil prices. While Brent Crude is trading around $54/bbl, the US based WTI is trading at a tad above $48/bbl. In fact OPEC nations and Russia have already been considering the possibility of a shock cut in oil production to ensure that prices of oil stay above the $50 mark.
Tata Motors global sales were up by 9% in the month of August with JLR putting up a commendable performance in the month. Globally, the growth in commercial vehicles (CV) sales was much quicker than the passenger cars segment. Tata Motors had taken a hit due to a weak Pound in the light of the BREXIT decisions. In the domestic market, Tata Motors showed some signs of improvement with a pick-up in the CV and the passenger cars space. In fact, developing the passenger cars segment and reviving its leadership position is one of the focus areas of Tata Sons under the leadership of Chandra.
According to a report by Fitch, Indian banks may require up to $65 billion of additional capital to meet up to the Basel III standards. These norms will kick in from 2019 onwards. This figure was originally $90 billion; but rationalization of assets and weak credit growth has reduced the capital requirement for Indian banks. The big worry for PSU banks remains the Gross NPAs which has crossed the 12.3% mark for the fiscal year 2016-17. The measures like NCLT reference and restructuring are well intended by are likely to take much more time to give results. In fact, there are stressed banks like IDBI where the Gross NPA level is above 20%. The government will only infuse another $3 billion which is left out of its committed $11 billion. The challenge for banks is to raise the balance through the capital markets.
The exit of Tata Steel from the British Steel Pension scheme will be a major positive for the company going ahead. That euphoria is already reflected in the price of the stock. This deal will pave the way for the eventual merger with Germany’s Thyssen Krupp, which is one of Europe’s largest steel makers. Under the terms of the pension separation, Tata Steel has paid $725 million and 33% equity to the trustee of the scheme. While it will have an impact on the financials of the company, the end of uncertainty is, at the very least, good news for the company.
