Midnight News Update – Jul 19th 2017
The Sensex and the Nifty fell sharply on Tuesday with ITC leading the fall among the heavyweights. With a higher cess imposed on ITC, the stock lost nearly 13% leading to the sharp fall in the stock. Most of the large brokerages have downgraded the stock due to the price impact. In fact, the ITC stock lost 7 months of gains in one single day. Apart from the ITC stock, the other major heavyweight that contributed to the fall was Reliance Industries which is now subject to a fine of $3 billion along with BP on its gas fields. In fact, the RIL market cap fell below the Rs.5 trillion marks, a level it had scaled on Monday.
FMCG bellwether, Hindustan Unilever, reported a 9% rise in net profits and a 4.8% increase in its total revenues. The slightly cautious sentiment could be attributed to the implementation of GST which had forced a lot of businesses to go slow on production and focus more on inventory disposal. The good news was that the EBITDA margins of HUVR expanded by 160 basis points, which is in line with the long term goal set by the company’s British parent. The volume growth may be slightly misleading due to the GST effect and hence it would be better to evaluate the volumes in the next quarter.
SEBI has called upon all the banks to disclose the bad loan divergence to the stock exchanges. Bad loan divergence is the gap between the RBI stipulated NPAs for a bank and what the bank reports. In fact, banks like ICICI Bank, Axis Bank and Yes Bank had reported fairly large divergence. Currently, the divergence is known only when the RBI discloses the same but now the regulator wants the banks to disclose the matter directly to the exchanges as it is price sensitive information. Currently, banks have to disclose the divergence only if it exceeds 15% and not otherwise.
In what could be a major embarrassment for Donald Trump, two more Republicans announced their opposition to the new healthcare plan. Scrapping Obamacare and replacing it with his own version of healthcare was one of the election promises of Trump. With the Trump version of healthcare reform now as good as trashed, investors are getting worried about his seriousness in pushing through larger economic reforms like tax cuts and tax spending. Markets across Europe fell sharply and gold saw a sharp rally as global uncertainty got a lift. The dollar has corrected sharply on Tuesday.
According to rating agency, India Ratings, banks are likely to take a minimum hit of Rs.18,000 crore on the 12 NPA accounts that have been forwarded to the NCLT for possible initiation of bankruptcy proceedings. Including some marquee names like Videocon, Amtek Auto, Essar Steel, Bhushan and Electrosteel; these companies will first attempt a resolution with the bankers failing which they will be referred for insolvency proceedings. RBI has already indicated that accounts that are referred under the IBC will have to carry 50% provisioning. This would required an additional Rs.18,000 crore in the form of provisions. The question is whether the banks have the requisite capital to absorb provisions of this magnitude. RBI may look at recapitalization bonds to help infuse funds into the banks.
According to Nomura, roads could be the next big $100 billion opportunity for India. Spending on highways is expecting to double to $100 billion in the next 3 years as the government attempts a massive thrust to infrastructure. Currently, national highways constitute 5% of the total road area of India but they move nearly 80% of the cargo. Since the current NDA government assumed power, there has been a sharp improvement in the number of KM of roads completed daily. This could have strong downstream impact for road construction companies, toll-ways, cement companies etc.
