Nifty once again dipped below the 11,000 mark on Thursday as F&O expiry saw positions in financials being unwound. Nifty got jittery after Fed rate hike of 25 basis points. The markets reacted in a jittery manner to the liquidity crunch likely to be created by lower accommodation by the Fed. The markets are also betting on a likely 25 bps hike by the RBI in October. The big hit was on financials and rate sensitives like NBFCs, automobile companies and realty. INR strengthened marginally to 72.596/$ while 10-year bond yields fell to 8.03%. Bond yields weakened on steps taken by RBI to improve liquidity.
The capital market regulator is not taking any chances this time around. SEBI has asked mutual funds to disclose NBFC exposure; especially to DHFL & Indiabulls bonds. SEBI has asked all the mutual funds to disclose the extent of their exposure to equity and bonds of DHFL and Indiabulls Housing Finance. These two stocks have been under tremendous pressure due to the fiasco at IL&FS on bond downgrade worries. In fact, SEBI is concerned because mutual funds have substantial exposure in their bond portfolios to paper issued by NBFCs and housing finance companies.
Yes Bank goes on the defensive and denied any window dressing of corporate accounts to hide NPAs. Even as the stock started tanking, rumours flew thick and fast about hidden NPAs in Yes Bank. The bank reported Gross NPAs of 1.3% and net NPAs of 0.59% as of end of June. Most analysts believe that such a level of NPAs is not possible in a book that is predominantly corporate. Even as the company denied these allegations, Yes Bank tanked sharply losing nearly 50% in 1 quarter. It has been one of the worst performing banking stocks since the RBI refused to extend Rana Kapoor’s tenure as CEO.
Problems for Jet Airways seem to have compounded. Jet Airways shares tumbled by 5% after the company delayed salaries of pilots. There was actually a double whammy for Jet Airways. On the day the news of Jet deferring pilot salaries came out, there was another shock in the form of higher import duties on Aviation Turbine Fuel (ATF), which was hiked by Rs.2000/KL. In an industry squeezed by higher fuel costs and stiff competition, this will only aggravate the profitability and liquidity further. Jet already has a problem of a much lower RASK compared to Indigo.
The Aadhar verdict may look innocuous but it may have queered the pitch for Fintech and new age banks. In the last couple of years, a host of Fintech companies and traditional banks had leveraged on this facility extensively to expand their client base. If the Supreme Court ruling on Aadhar is anything to go by, it will no longer be mandatory for telecom connections and for bank account opening. While Aadhar will continue to be mandatory for income tax filing, it will not be required for banks. Many Fintech and new age banks grew on the back of Aadhar authentication in last couple of years. Their costs could go up sharply. That could be the immediate worry for some of the new age banks that were largely relying on Aadhar based authentication to creation a massive online banking franchise.
Government and RBI to finalize borrowing calendar for Q2 on 28th September. The borrowing calendar is a critical input for the bond markets and the RBI had actually soothed the markets by announcing a lower borrowing target in the first half. The government will have to announce its borrowing time table keeping in mind the 3.3% fiscal deficit target. The government is expected to borrow a larger sum from the National Social Security Fund (NSSF). A lower than expected borrowing calendar may be the much needed signal for the interest rates in the market to gradually taper lower.
