The Nifty and the Sensex celebrated the dovish talks of Jerome Powell with a strong rally as the Nifty settled above the 10,850 marks. The markets also expressed optimism ahead of the G-20 Summit where Xi and Trump are expected to meet and reduce the intensity of the trade war. The rupee has also shown signs of stabilizing better than the 70/$ mark even as GDP data has shown promise in the new calculations put out by the government. A lot will now depend on how the Summit pans out and the all-important OPEC meeting on December 06th when a supply cut decision could be taken.
On the subject of supply cuts on crude oil, the prices of Brent Crude moved up by about 2% after Russia indicated that they would be open to supply cuts in tandem with OPEC when it meets on December 06th. In a recent couple of months, the price of Brent crude dropped from $86/bbl to $58/bbl after the Iran sanctions got substantially diluted, US shale stockpiles rose and a trade war threatened to slow down growth raising concerns for global oil demand. After the Russia hint, the crude rose by 2% and the last time it was Russian cooperation that had led to a sharp spike in oil prices.
Forget about Air India, ICRA has now estimated that the three listed airlines; Jet Airways, Indigo and Spice Jet will require nearly Rs.35,000 crore of capital support in the next four years. At the current juncture, the three listed airlines are bleeding to the extent of nearly Rs.20 crore per day which is hardly a sustainable scenario. On the one hand the ATF prices are sharply higher and on the other hand, the stiff competition in the Indian market is pushing prices down sharply. As a result, the yields have dropped sharply and all airlines are operating on the negative spread between RASK and CASK.
The issue of payment of retrospective of GST on free services provided by the banks could come as a big blow to banking companies. Most banks offer free services like unlimited ATM access, free statements, free cheque book facilities etc for customers who are premium in nature. However, the GST Council had asked the banks to pay GST on such charges since the costs were recovered indirectly from the customers. While the IBA had appealed to the prime minister on this subject, the same has been rejected. The downside is that this may just end up adding to the cost burden on customers overall.
Jaguar Land Rover, part of the Tata Motors group, had decided to shut production at its UK Engine plant. This is a temporary shutdown in production to adjust its production output to the demand in the market. This 2-week shutdown will be implemented during the Christmas although the staff wages will continue for this period. The move is symptomatic of larger challenges that JLR is currently facing in the global environment. There is a huge uncertainty over BREXIT, a sharp decline in diesel car demand and also the worries over a slowdown in Chinese demand. For long, China has been one of the largest incremental growth markets for JLR. This move will result in operational efficiencies for JLR and will be the key to long-term success of the JLR strategy. That could have implications for Tata Motors stock price.
RBI has reduced the minimum holding period for securitization of loan portfolios. The minimum holding period for NBFCs originating such loans will be reduced to 6 months from the current one year. These revised rules will only apply to loans above the maturity profile of 5 years. This will specifically help home finance companies that have a longer profile. However, the minimum retention for such assignment transactions has been raised from 10% to 20% to ensure that the NBFCs have more skin in the game. This is likely to encourage NBFCs to securitize their loan portfolios more actively.
