Mid Night News update – 23rd Jan 2017

Midnight News Update – Jan 23rd 2017

Donald Trump’s “Buy American, hire American” pledge has virtually spooked the Indian industry. The IT industry relies heavily on US customers to boost its fortunes and the US continues to be the most lucrative market for Indian IT. Recent proposals like higher visa fees, restrictions on number of H1-B visas, minimum wage requirement and the border tax have all bothered the Indian IT industry. The $150 billion IT industry in India is already feeling the pressure as prices of even the leading IT companies have faced a sharp correction on the back of Trump talk.

BSE’s Rs.1243 crore IPO will hit the markets on 23rd January 2017. The IPO is likely to be priced at Rs.805-806/share and will be way of an offer-for-sale (OFS). NSE will also hitting the market with its Rs.10,000 crore IPO later this year and is planning a simultaneous listing in India and abroad. Indian exchanges are not allowed to self list as per extant SEBI regulations. BSE is the world’s largest exchange by number of listed companies and is the 10th largest in terms of market capitalization.

Veteran banker, K V Kamath, has expressed the view that despite the global turmoil in the aftermath of Trump, India may not be overly affected. India, according to Kamath, is still an inward looking economy that is built on the strength on domestic demand and domestic consumption. This will keep the Indian economy largely immune from the global worries. He also adds that the demonetization exercise will only be a minor blip on growth and the secular story is still intact. In fact, the demonetization may actually act as a fillip to the pace of digitization of financial services in India.

FPIs have continued to be net sellers in the month of January 2017. They have already pulled out Rs.5100 crore from Indian markets in the first 3 weeks of January. This takes the total net outflow to nearly Rs.77,000 crore ($12 billion) for the Oct-Dec quarter. This is inclusive of outflows in equity and debt. There are a few key factors responsible for this outflow. Firstly, there is the prospect of higher growth and quicker rate hikes in the US. Secondly, there are genuine concerns over growth in top-line and bottom-line of Indian companies. Lastly, demonetization has put pressure on liquidity and that has raised doubts over the near-term visibility of growth in Indian consumer-facing sectors.

In a scathing attack on the US, Alibaba founder Jackie Ma, has blamed expensive American wars over the last 20 years for the current economic crisis. Reacting to Trump blaming China for the economic ills of the US, Ma pointed out that the US had splurged nearly $14 trillion waging pointless wars in countries like Afghanistan, Iraq and Syria. According to Ma, the trade relationship is weighted in favour of China as she is able to produce quality goods at a much lower cost. In fact, that is the reason most US companies have themselves preferred to manufacture in China rather than in the US. According to Ma, it was America’s decision 30 years to leave low-skilled jobs to foreigners and most US companies have also benefited substantially from the same.

CRISIL has cautioned not get too enthusiastic about the sharp rise in IIP for November. It may be recollected that the IIP had spurted to 5.7% for the month of November at a time when most experts were expecting the IIP growth to falter due to the impact of demonetization. This spurt was all the more surprising because IIP had fallen by -3.4% in Sept 2016 and by -1.8% in Oct 2016. According to CRISIL, the sharp spurt in growth was more an outcome of the base effect and the impact on auto and realty numbers reflects the real impact of demonetization.

For the first 9 months of 2016-17 (Apr-Dec) gold imports shrunk by 32% to a level of $17.7 billion. This is likely to have a positive impact on the current account deficit (CAD). While this can be partially explained by the lower prices of gold, one reason could also be the cash crunch caused by the demonetization exercise which stressed liquidity in the system in the months of November and December. In fact, gold imports in the month of December 2016 were down by 50% compared to the corresponding period last year. Lower gold imports are a major boon for the Indian economy as precious forex resources do not get used up in importing an unproductive asset like gold.

After realty and auto, the note ban could hit the quarterly earnings of FMCG companies. Early estimates have shown a clear fall in footfalls at FMCG stores across the country. The stress was more visible in the rural areas and that makes the problem more pronounced as Indian FMCG companies like ITC and HUVR are heavily dependent on the rural market for sustaining their growth. According to analysts, the stables may not have been affected but consumer discretionary demand has been hit. In cases where demand could be postponed, it has been done. Analysts are expecting the FMCG companies to report 1% lower top-line and 2% lower profits for the third quarter.

Vedanta is lining up mega investment plans of nearly $10 billion in its various business lines including oil, zinc, iron ore and copper. Vedanta chairman, Anil Agarwal, is optimistic about the prospects of the commodities in the coming year and expects commodity prices to rise by 10-15% in the year 2017. According to Agarwal, China’s $900 billion investment and infrastructure and Trump’s much touted $1 trillion investment in infrastructure will drive demand for commodities.

Banks have decided to give a push to restructuring of its stressed steel accounts. Essar Steel and Bhushan Steel are among the key stressed steel accounts that are under deliberation. Most of the steel companies will not qualify for the S4A scheme as the condition of at least 50% of the debt being sustainable is unlikely to be met. Hence the IBA has undertaken negotiations outside of this ambit. One of the ways to do it will be to a deep restructuring where part of the loan is converted into equity and quasi equity issuing equity-linked instruments.

In a surprise move, the Saudi Arabia oil minister has indicated that the kingdom may not be keen to continue with the supply cuts once the 6-month time frame expires. During the last OPEC meet on November 30th, the decision to cut oil production by 1.8 million bpd was taken. Of this, 1.2 million bpd came from OPEC while 0.6 million bpd came from friendly non-OPEC nations like Russia and Mexico.

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