The negative trend on the Nifty continued for the 3rd successive day with the Nifty correcting below the 10,150 mark on negative global cues. Global cues continued to be negative as IT and pharma stocks were the worst hit. The worry over the trade war has been compounded by the recent noises coming from Italy, which is sitting on an unsustainable debt burden of almost $2.27 trillion. After the disappointing results, Asian Paints was the major loser as it corrected sharply in the light of rising input costs and falling OPMs. Banks and NBFCs remain vulnerable in the market.
Too much supply combined with demand concerns led Brent Crude sharply down on Tuesday. Brent Crude slumped by 5% in a single day as the sharp cuts in Wall Street raised some serious questions over oil demand even as the assurance of supply coming from Saudi Arabia dampened oil prices in the market. The concern was whether Saudi Arabia and Russia would be able to fill in the gap once Iranian sanctions come into place. Excess supply worries and weak demand took Brent 4.5% down to $76.24/bbl. Brent had recently touched a high of $86/bbl raising fears of the $100/bbl level.
Arcelor Mittal to sweeten its bid for Essar Steel. Apart from the committed infusion of Rs.42,000 crore, Arcelor Mittal has also agreed to infuse an additional Rs.8,000 crore towards capital expenditure in the steel plant. The Committee of Creditors (COC) of Essar Steel will be voting on this revised bid on 24th October. As per the current regulations a minimum of 66% of the lenders will have to approve in the vote. Arcelor Mittal is already the highest bidder for Essar Steel and this higher infusion will most likely discourage Vedanta from putting in a higher bid for Essar Steel.
Forex losses pulled down the profits of Adani Ports by 39% drop for the second quarter. Adani Ports’ net profits for the Q2 fell to Rs.606 crore driven down by forex losses of Rs.570 crore in the quarter. If the forex losses were excluded or normalized, then the actual profit growth would have sustained for the company. Adani Ports is all set to achieve its target of 200 million tonnes of cargo volumes in the fiscal year ending March 2019. Adani runs the busiest port of Mundra in the coastal town of Kutch and has been a steady outperformer in the last 1 year.
There may be bad news for the EU and especially the Euro as the central currency of the European market. In a departure from the normal practice, the EU rejected Italy’s draft budget worsening the crisis in the Euro. The European Commission rejected the draft Italian budget proposal as it brazenly flouted all EU norms on public spending. Italy now has to submit a fresh plan or risk disciplinary action. After Greece, Italy may be the next economy to almost push the Euro to the brink. The only worry is that Italian banks have huge exposures to the $2.27 trillion Italian bond markets and that could snowball. In the past, other countries like France, Spain, Portugal and Greece have had this problem of their macros not in sync with the common currencies, but they had managed to rectify the problem.
Even within the NBFC space, Bajaj Finance may still have reasons to smile about. Bajaj Finance flattered the street with a 54% jump in net profits at Rs.923 crore. The healthy growth in profits came on the back of a 42% growth in the net interest income (NII). Unlike other NBFCs, Bajaj Finance borrows and lends at the short end of the market and hence does not run a real ALM risk at this point of time. There has been an increase in Gross NPAs from 1.39% to 1.49% in the last one year. The stock has corrected 30% from its peak prices. Quite a few brokers have upgraded the stock after these results.
