In a surprising move Moody’s downgraded India’s sovereign rating to Baa3 from Baa2, citing worsening fiscal situation and major challenges to growth in the coming quarters. Baa3 is the lowest investment grade and is just one notch above Junk Status. This applies to India’s long term foreign currency and domestic currency ratings. Ironically, in November 2017, Moody’s was the only international rating agency to upgrade India ratings from Baa3 to Baa2, while S&P and Fitch had opted for status quo. This could have an impact on the cost of foreign currency borrowings for Indian companies.

Reliance Industries rights issue got fully subscribed 2 days ahead of the closure of the issue. As of the close of Monday 01 June, the rights issue had already been oversubscribed by 1.1 times. While the Ambani family holds close to 50% in Reliance Industries, it also has a large family of shareholders which includes nearly 26 lakh retail shareholders and over 1700 domestic and foreign instituti9onal investors. One reason for the success of the rights issue is that the rights price of Rs.1257 is at a steep discount of the current market price of Rs.1520. RIL has been one of the star performers in CY2020.

Uday Kotak will be selling Kotak Bank shares from his portfolio to the tune of $919 million in an effort to reduce his stake close to the statutory level of 26% as stipulated by the RBI. This stake sale will be undertaken at a price range of Rs.1215 to Rs.1240 and will reduce his stake from 28.93% to 26.1%. The target was to reduce the stake to 26% by end of July 2020. Now, Kotak cannot sell further shares for a period of 2 months due to conditions in the term sheet. Just last week, the bank had raised close to $1 billion through QIP placement to INVESCO Oppenheimer, Canada Pensions and ICICI Pru AMC.

Just ahead of the Kharif season, the government hiked the minimum support price (MSP) on a slew of Kharif crops. The average price spike was around 50% for most of the summer crops. It may be recollected that in the Union Budget 2017, the Finance Minister had announced that MSP would be set at a premium to the cost of cultivation. This ensured that farmers got a profitable price for their produce. The announcement of the MSP hike has been timed with the onset of the monsoons and the IMD estimates pegging monsoons at 102% of long period average (LPA) for the 2020 monsoon season.

Early data flows from AMFI showed a sharp spike in flows into debt funds in the month of May 2020. The total flows into debt funds in May stood at Rs.94,224 crore as compared to Rs.43,431 crore in April. The net AUM of debt funds already stood at Rs.7.44 trillion as of the end of April and the sharply higher net flow in May would have resulted in the AUMs scaling higher by over 12%. For the month of May, credit risk funds saw a further drop in AUM of Rs.5200 crore indicating that post the Templeton fiasco, the investors continue to exit credit risk funds. Medium duration funds also saw outflows in May. Most of the other low risk categories like money market funds, corporate bond funds and bank & PSU funds saw sharp inflows during the month of May 2020. Liquidity has been driving debt fund flows.

OPEC and Russia may look to extend supply cuts by another couple of months to ensure that the market oversupply is absorbed and pricing becomes more balanced. In April 2020, OPEC and Russia decided to cut crude output by 9.7 million bpd, accounting for about 10% of output. That was to take care of the demand crash. However, with economies opening up and demand for oil likely to come back to normal levels, OPEC and Russia should be in a position to ensure that there is enough storage space available globally to avoid another price crash. There has also been a sharp fall in shale output in Canada and US.