Midnight News Update – Oct 16th 2017
Stocks across Asia have advanced in early trades on Monday after US inflation came in higher than anticipated. Most stocks across Japan, Australia and South Korea are trading at their highest level since the year 2007. However, the inflation number continues to remain below the 2% mark. The indications at the current point are that the Fed may choose to defer its December rate hike to next year. The only problem for Yellen may be that with short term yields rising and long term yields weak, the US is gradually moving towards an inverted yield curve, a signal of an impending recession.
IndusInd Bank formally sealed its merger deal with Bharat Financial, one of India’s leading microfinance companies. The merger intent was announced to the stock exchanges nearly a month ago. The merger scheme will contemplate the winding up of Bharat Financial by issuing 639 shares of IndusInd Bank to shareholders of Bharat Financial for every 1000 shares held. While Bharat Financial gets the benefit of a larger balance sheet, for IndusInd this is an easy access to the fast growing rural and semi-urban market which is where Bharat Financial has deep penetration.
The sales growth for D-Mart for the September quarter has come down from 35.7% to 26% raising serious questions over its valuation metrics. The company has taken a big hit on the imposition of GST in the month of July this year. Net profits were up by 65% largely due to the contribution of other income. But there are already concerns over the valuation of the stock. The company is currently trading at 101 times earnings and that would largely limit the potential. The stock listed less than a year back and has already multiplied four times is original issue price. Its EBITDA margin is around 9%.
With RIL giving up its Myanmar oil block, the company has completed the exit of all its international hydrocarbon blocks. It currently holds only 2 blocks in the US for Shale extraction. RIL had invested a total of $9 billion in these oil blocks but were earning negative returns on these blocks due to the weak oil prices prevailing across the world. Till date, RIL has already exited global blocks across Yemen, Peru, Oman, Myanmar, Australia, Colombia, East Timor and Kurdistan. In India, RIL still holds substantial interest in the KG Basin in Andhra and the Panna/Mukta and Tapti fields.
Christine Lagarde of the IMF has confirmed that despite the short term interruptions, the Indian economy appears to be on a solid footing. She expects the moves like GST implementation, RERA and the demonetization to drive growth in the medium to long term as any structural issues are likely to get resolved. The underlying advantages like control over black money, the shift to digital money, the shift to a single national market and a more regulated real estate sector will be long term positives for the economy. However, the IMF has cautioned that while the government has done well to keep fiscal deficit in check, it must persist with this discipline and not give in to the temptation of pump priming the economy through a fiscal stimulus. Demographics could be the big advantage, according to the IMF.
According to the Centre for Asia Pacific Aviation (CAPA) India may require nearly $45 billion to upgrade its massive airports infrastructure to Asian standards. This investment will have to be phased till 2030. The current capacity of the Indian airports is to handle up to 3 crore passengers per annum and that is likely to saturate in the next 5 years. However, this will increase to 4.5 crore once the current expansions underway will be completed. Indian aviation has been growth at a steady rate of 20% and that is likely to keep demand for airport infrastructure buoyant for many years to come.
