Nifty lost 65 basis points to 11,355 levels on Monday on currency pressures. The pressure on the Nifty came from a weak Turkish Lira which led to a 1.6% correction in the Indian rupee. The worst hit were the oil stocks followed by the banking stocks even as IT stocks managed to hold ground. Among the global markets, the Turkish jitters are felt across Asia and Europe with only the NASDAQ holding in positive territory in the midst of this entire crisis. Markets were jittery right from the opening and the pressure of the Lira is likely to get transmitted emerging markets this week.
There was good news on the retail inflation front. July CPI inflation came in sharply lower at 4.17%, sharply lower than the near-5% inflation recorded in June 2018. The fall in retail inflation was led by a fall in core inflation. MOSPI has estimated the impact of MSP on CPI inflation at 7 bps. That could be the good news because the worry was that the higher MSP could be the real reason for inflation. With core inflation under control and oil likely to remain in a range, the inflation could stay subdued in the coming months. That virtually gives the comfort of no more rate hikes in this year by the RBI.
Indian Rupee cracked by 1.6% in a single day to close at Rs.69.92/$. The weakness was seen across the emerging market currencies in response to the sharp 15% fall in the Turkish Lira on Friday. Indian currency markets saw a rush of importers and banks to cover their dollar positions as central bank support around the 69/$ level was missing in trading. Turkish Lira led the global currency contagion in world markets. Emerging market currencies across the board took a hit after the Turkish Lira crash. While the Turkish Lira sank by 11%, the South African Rand weakened 9% and the Mexican Peso 2.5%.
Tata Steel flattered the street although the analysts, as usual had got their estimates wrong. Tata Steel reported 100% growth in net profits at Rs.1952 crore for Q1. While the revenues grew by 20%, the EBITDA was almost flat on a YOY basis. Tata Steel saw good traction on its domestic as well as its European business in the quarter. This profit includes the consolidation of Bhushan Steel during the quarter. Most of the steel companies are benefiting from protectionist policies, higher steel prices and the prospects of a massive surge in steel in demand in India over the next decade.
If you really want to gauge the problems of the telecom industry, you need to take a more perspective view of the telecom space. The damage in the last 3 years has been huge. Telecom profit halved in the last 3 years even as margins dropped by nearly 1000 basis points. Remember, a 10% drop in margins is huge by any standards. While competition was always the challenge in the telecom space, the completion has become more acute after the entry of Jio. The fall in profits was across Bharti, Vodafone and Idea. The biggest casualty of this fall has been that the Average Realization per Unit (ARPU) is down sharply. In fact, the ARPUs of Bharti has fallen from a high of Rs.170 couple of years back to a low of just about Rs.110 in the latest quarter. Obviously, profits and loan repayments could be under pressure!
Even as the disputes around oil are building up globally, OPEC has downsized oil demand estimates for the full year 2019. OPEC has estimated daily demand for the full year at 32.05 million bpd, nearly 130,000 lower than the previous forecast. Saudi Arabia has already cut supply to avoid a return to oversupply situation. The OPEC expects that the global trade war is likely to take its toll on global demand for oil, especially from China which is the worst hit by the trade sanctions. This could lead to demand contraction and that has been one of the reasons why oil prices have been weak of late.
