The 2G verdict last week by the CBI court exonerating the accused has opened up a new set of problems for the government. After Loop and Videocon, now STel, owned by Sivasankaran, is planning to seek compensation for losses due to cancellation of license. It may be recollected that post the CAG report which highlighted the Rs.176,000 crore presumptive loss, the Supreme Court had cancelled all the 122 licenses. STel proposes to file a petition against the Department of Telecom for causing a huge loss to them. In fact, Videocon proposes to claim Rs.10,000 crore compensation from the government.

With bond yields for the benchmark 10-year G-Sec rising by nearly 100 basis points, the banks are having a new worry that the RBI may put off any rate cuts for now. The RBI in its last policy had already hinted that the rate cut cycle may be over and had warned markets to even be prepared for a rate hike if the US Fed turned aggressive. That had resulted in the 10-year G-Sec yield moving up sharply. The RBI cut rates by 200 basis points between Jan-2015 and Dec-2017. With yields at elevated levels, any rate cut will mean a clear risk of portfolio outflows, a situation the RBI would strictly want to avoid.

According to J P Morgan, the big trigger for markets from here on could be the quarterly results and the coming quarterly will have to really punch above its weight if the markets need to get a boost. According to JPM, the market rally on the Nifty was driven by flow of liquidity and the dovish policy adopted by central banks. However, both these are threatening to come to an end and that could have serious repercussions for the Indian markets. According to JPM, India is already quoting at 19X valuations and that hardly leaves any margin of safety. Hence everything will only predicate on quarterly results.

Foreign portfolio investors have already sold Rs.7300 crore in equity during the month of December and we could see some more selling ahead of the expiry. FPIs have been cautious for the last few months after it became clear that the US could hike rate quite aggressively in 2018. Of course, November did see some positive flows after the Moody’s downgrade but that was always going to be hard to sustain. FPIs are already worried about delays in a turnaround in the capital cycle and the tepid GDP growth. Both GST and demonetization appear to have taken a toll on the economy and FIIs are wary!

There could be a major shake-up happening in the Indian oil sector. GAIL was always a priced asset among the PSU and now both BPCL and IOCL have expressed interest in acquiring a stake in GAIL. However, it appears that GAIL may be keen to get merged with ONGC considering its natural synergies. In the last Budget, Jaitley had spoken about the need to create oil conglomerates like in the US and Europe spanning the complete range of activities including extraction, refining, marketing, natural gas, transportation and petrochemicals. Indian hydrocarbon companies were still undercapitalized and the need of the hour was mega mergers. GAIL is of the view that ONGC already has an exposure in gas and therefore gas transport will be a logical extension. Government stake in GAIL is worth Rs.47,000 crore.

As part of its plan to raise more resources through divestment and to reduce the government’s role in business, a few more profitable PSU businesses may be put on the block in the next 1 year. This will be accompanied by the simultaneous sale of sick and loss-making units too. The government has a full year divestment target of Rs.72,500 crore and it has already achieved 75% of its target. If the GAIL or HPCL deal happens during this fiscal year then the government could well exceed its divestment target for this year. The big challenge will be the strategic sale of massive loss makers like Air India!