Midnight News Update – Oct 27th 2017
The Nifty and the Sensex closed the F&O series at record levels even as nearly 65% of the overall F&O positions got rolled over. There was short covering visible in PSU banks although the rally appears to have taken a break. However, the positive impact of PSU banking support tended to spill off on other PSU companies with BHEL and SAIL showing a sharp appreciation in the last couple of days. The markets will commence the November series from Friday at a new high and a lot will depend on how domestic and global factors pan out in support of the market.
Yes Bank showed a 20% growth in profits but the real problem lay in the RBI once again pulling up Yes Bank for under-reporting of NPAs. This has led to a surge in NPAs with the Gross NPAs of the bank nearly doubling on a QOQ basis from 0.92% to 1.82%. Over the last 1 year, this represents a 4-fold jump in the gross NPAs. The divergence ratio is 3:1 in case of Gross NPAs and it is nearly 5:1 in case of net NPAs. Some of the private banks like ICICI Bank, Axis and Yes Bank have been pulled up for this divergence. This quarter even HDFC Bank was pulled up by the RBI for under-reporting NPAs.
The first signs of a European stimulus exit were visible today when the ECB decided to reduce its monthly bond purchases from next year onwards. Till date, the ECB has also bought back $2.5 trillion worth of bonds in a bid to raise inflation and stoke growth. However, the ECB has chosen to be cautious and decided to take the actual call on cutting the stimulus after seeing the data flows. The US also has already embarked on this stimulus reduction program but it is still awaiting ECB participation to avoid the risks of monetary divergence. This could risk liquidity tightness across the world.
Saudi Crown Prince Mohammed Bin Salman has backed the extension of supply cuts of crude oil by the OPEC and its friendly partners. While the existing supply cuts will continue till March 2018, the actual cuts could be extended all the way to December 2018 to keep the Brent Crude prices at a buoyant level. It is expected that if the OPEC reiterates its decision to extend the cuts and also increase the quantum of cuts the price of Brent Crude could actually cross the $60/bbl mark. A lot will, of course, depend on the way US shale is able to spoil the game by dumping shale supplies in the market.
Reliance Industries and its partner BP PLC have submitted a detailed plan to the Directorate General of Hydrocarbons (DGH) to bring India’s deepest gas discovery to production by 2022. This will entail an investment of nearly $2.50 billion. This will take the RIL-BP total commitment to nearly $5.5 billion for 3 sets of discovering in the KG-D6 block. They have already submitted a proposal worth $1.4 billion to develop 6 satellite fields too. Both RIL and BP are heavily betting that the big shift in the next few years will be the trend towards greater use of gas as a firing fuel, especially in plants producing power and fertilizers. The interest in deep gas is back after the government had rationalized its gas pricing policy to make more conducive to reward companies for the higher risk in deep gas discoveries.
Fitch, while lauding the bank recapitalization plan has also cautioned that this will make the fiscal deficit target hard to meet. For the time being, the total impact on the fiscal deficit will be to the tune of Rs.18,000 crore which will be the government’s additional capital contribution. Recapitalization bonds will be either issued directly or by an agency. Either ways, it will still be a contingent liability for the government. The total recapitalization outlay of $21 billion is equivalent to 0.9% of GDP and that will take the fiscal deficit from 3.2% of GDP to 4.1% of GDP. That could be the ratings worry!
