The Board of HDFC Bank approved the sale of shares to the tune of Rs.24,000 crore. Nearly 1/3rd of this will be a placement to the parent company, HDFC, in the form of a preferential allotment. The balance will be either through placement of shares to QIBs or through an ADR issue. HDFC bank currently has a capital adequacy ratio of 15.1 and this issue will take the capital adequacy ratio closer to 18%. This will also help the parent HDFC maintain its stake in the company post the capital raising. HDFC Bank is keeping its war chest ready ahead of an expected pick-up in economy activity and manufacturing.
In what could be an emerging worry for Bharti Airtel, Tanzanian government has claimed that Bharti’s local unit actual belonged to the Tanzanian government. It may be recollected that the peak of the bull market in 2007, Bharti had invested in the telecom space in Africa. It did fit well into Airtel’s strategy because it meant that Airtel would get a natural hedge against price wars in the Indian sub-continent. However, African governments have been trying to regain control of some of the telecom companies and Bharti has interests in at least 15 such territories in Sub-Saharan Africa.
The Republican controlled US House of Representatives finally gave an approval to the tax bill, after it had already passed through the Senate. The sweeping $1.5 trillion bill will now be sent to Trump for his signature, which he is likely to do before Christmas this year. The bill is likely to slash corporate taxes and taxes for the wealthy while the middle class will only get some minor relief. However, Wall Street was subdued while most Asian markets were weak. While there is enthusiasm on the passage of the bill, it is likely to mark a huge increase in the fiscal deficit for the US government in the coming years.
RBI initiated prompt corrective action (PCA) against Bank of India leading to its stock price correcting sharply. It may be recollected that PCA applies to banks that are under high stress and PCA will include restrictions on capital spending, hiring and also on dividend payouts to shareholders. Earlier IDBI and Oriental Bank of Commerce had been referred to PCA for unsustainable NPAs. While BOI had net NPAs of 12.6% its net NPAs were fairly more comfortable at 6.47%. Bank of India becomes the ninth bank to be referred to the PCA by the Reserve Bank of India and is likely to put the prices under pressure.
The minutes of the Monetary Policy Committee (MPC) discussions were released on Wednesday. Clearly, five of the six members were in favour of a status quo on rates, with only Dr. Dholakia being in favour of a rate cut. In fact, Dr. Urjit Patel has highlighted 3 key risks to inflation in the coming months. Firstly, there will be pressure coming in from higher food prices. Secondly, higher and base metal prices is likely to result in higher input costs for Indian corporates, most of which will have to be passed on. Thirdly, there are also concerns over fiscal slippages and lower rates could only add to the consumption and spending binge. The MPC was broadly concerned about low growth in manufacturing but the inflation risks at this were point of time were too elevated to justify a rate cut.
Russian oil has moved in to supply aggressively to India and help India reduce its dependence on the Middle East. During the April-October period, Indian refiners purchased 2.5 million tonnes of crude from Russia compared to just 0.60 million tonnes of crude in the year ago period. India currently imports nearly 80% of its crude requirement and Russia has improved from being 21st largest exporter of crude to India to being the 11th. In the process, it has also overtaken Qatar. India still gets nearly 70% of its supply from the Middle East. Kochi and Paradip refineries could further boost demand.
