Midnight News Update – Jun 14th 2017
In a crucial move, HDFC Bank market capitalization surged past that of Reliance Industries as HDFC Bank emerged as the second most valuable Indian company after TCS. At Rs.432,000 crore the market cap of HDFC Bank is marginally above that of RIL. However, it still has some way to go before catching up with the market cap of TCS at Rs.485,000 crore. The stock of HDFC Bank recently touched a 52-week high, but it is still quoting at valuations that are substantially cheaper than the peak valuations seen in the peak of the 2007 bull market. At around 5-times book value, HDFC Bank remains one of the most richly valued.
A month after the SEBI Board meet formally ratified the launch of commodity options the regulator today issued a broad framework for commodity options. To begin with, commodity options will only be permitted on one commodity which is heavily traded on the futures market. For an underlying commodity to qualify for options trading, the average daily turnover in futures must be at least Rs.200 crore in case of agri-commodities and Rs.1000 crore in case of non-agri commodities. Currently, while the NCDEX dominates the agri trading space, it is MCX which has leadership in precious metals.
In what could come as a major relief for the Indian banking sector and the corporate sector, the RBI is seriously considering extending the definition of NPA beyond 90 days, especially in case of small and medium enterprises (SMEs). Many of the SMEs were negatively hit by the demonetization and they had been lobbying with the RBI for more lenient terms. Most SMEs get delayed payments and the moment their loan crosses the 90-day limit their lines of credit are severed. This creates a major operational risk for these SMEs. The government has, through legislation, given far-reaching powers to the RBI.
Verizon will finally take over Yahoo in a deal valued at $4.5 billion. Once a bellwether of the technology boom in the late nineties, Yahoo gradually lost out to newer entrants like Google, Facebook, Twitter and Amazon as Yahoo failed to create a core competency in any area. While Google dominated search and Amazon dominated the online shopping experience, the social media was literally dominated by players like Facebook, Twitter and Instagram. Somewhere along the way, Yahoo had simply lost the plot. Verizon will look to combine the power of Yahoo and AOL to make mark in online advertising.
The board of Mahindra & Mahindra has approved the sale of its stake in Mahindra Logistics. The justification for this sale are not far to seek. Logistics companies in India are likely to see a re-rating as GST opens up a massive opportunity for these companies. Currently, most of the large logistics companies in India are predominantly driving their distribution network based on the inter-state tax structure. However, with the implementation of GST effective July 01st, it will be a case of one-nation one-tax. That means the logistics and distribution networks of large Indian companies with a pan-India presence will be driven more by business considerations rather than by taxes. This is likely to open up a vast market opportunity for logistics companies in the form of implementation and consultancy.
According to a recent report by Nomura, nearly 65% of the agricultural debt of Rs.9.5 trillion ($150 billion) may have to be waived off considering the magnitude of the agrarian crisis in India. Most of these will be from states that will be going to polls in the coming two years and also ahead of the central elections scheduled in 2019. Telangana had taken the lead in waiving off farmer loans followed by UP. Now Maharashtra has also ensured the waiver of loans taken by small and marginal farmers. This could be a big burden for Indian banks on top of their existing stressed assets problem.
The RBI, as per its promise, has identified 12 large stressed accounts for initiating insolvency proceedings. All corporate groups with loans in excess of Rs.5000 crore and having nearly 60% of these loans as NPAs will qualify for being included under the insolvency code. While the actual names of these 12 accounts are not yet out, it is expected to include names like Bhushan Group, Alok Industries, Electrosteel, IVRCL group, Sterling Biotech and Moser Baer. While the RBI is looking to relax the 90-day limit for NPAs, the Insolvency and Bankruptcy Code (IBC) is the quickest way to address the NPA issue.
Reliance Jio added the maximum number of customers among the telecom players but the data is not available on who many of these customers were genuinely active. Jio is said to have added 3.87 million subscribers in the month of April and Jio was already the fastest to touch a customer base of 100 million in less than 6 months. While the industry average of active customers is nearly 87%, Jio has an active customer base of just 71%. Larger players like Idea, Bharti Airtel and Vodafone have an active customer ratio in excess of 90%. Bharti added 3 million subscribers, while Idea and Vodafone were much lower.
US markets appeared to be slightly nervous ahead of the crucial Fed meet which commenced on 13th of June. The actual decision of the Fed will be out only on the 14th evening, which means the Indian markets will react to it only on 15th of June. Even as the Fed is projected to raise rates by another 25 basis points on 14th Jun, the bond yields did not show any sharp appreciation as the yield hike was almost factored in. Over the last couple of days, the tech shares have been weakening on fears that if the rates are hiked then the dollar could get stronger, which will be negative for the competitiveness of the US IT companies. The ECB in its recent meeting also indicated that it had touched the end of the rate cut cycle, which should encourage the US Fed to also go ahead with a rate hike.
