There is some positive news from the private equity flows front. In fact, PE/VC flows into India in the month of August were up 13% at $4.4 billion. The sharp rise in PE / VC flows was largely driven by the realty and infrastructure sector which accounted for 35% of all flows in the month. There were a total of 16 large deals in excess of $100 million ticket size. The big ticket deals alone accounted for over 80% of the total flows from PE and VC funds. Interestingly, IT and ecommerce are no longer the preferred sectors for VCs. However, average ticket size was much higher in July.
Moody’s has warned that the floating benchmark could be credit negative for Indian banks, considering that it could have a negative impact on spreads. These external benchmarks will impel the banks to pass on the entire quantum of rate cut to the borrower. The recently announced floating rate benchmark for banks will be effective from October 01st and the new rule would apply to retail and SME loans. Out of the 110 bps rate cut in the last one year, banks have only passed on part of the cut. This new benchmark will force banks to pass a greater share and that could narrow the net interest margins (NIMs).
The Essel group has met part of its debt repayment to NBFCs and Mutual funds as the MFs got nearly 50% of their dues on the FMPs impacted by Essel group bonds. However, it has only honoured 50% of its standstill agreement with the mutual funds. The standstill agreement is valid till September 30th and till that time the MFs will not sell pledged shares of the Essel group to recover their dues. Essel hopes to sell additional stake in Zee and also monetize part of its group infrastructure assets. The only risk for MFs is that they may end up a Catch-22 situation if Zee prices start crashing in between.
Even as the Sensex and Nifty are under pressure, the real damage has happened in the Mid cap and small cap stocks in FY20. According to a report in ET, small and mid cap indices have corrected by more than 15% during the current fiscal as the liquidity crunch and the higher cost of funds has continued to hit these stocks. The slowdown in consumption has also taken its toll on these stocks. The mid cap index had touched a 52-week low in late August. Smaller companies have borne the brunt of trader offloading as most market players are trying to play it safe by sticking to the tried and tested names.
US stocks opened weak on Tuesday after weak growth cues came from China. In the last few days, China has seen a slowdown in its industrial growth as well as a sharp weakness in its exports as well as overall trade. Recently, China took up a $126 billion stimulus by cutting the Bank Reserve Ratio and has more stimulus plans chalked out. NASDAQ displayed weakness on global concerns. Meanwhile, the price of Brent Crude spurted 152 bps to $63.54/bbl on supply cut expectations. Oil prices touched a 6-week high after Prince Abdulaziz took charge as Energy Minister of Saudi Arabia. Prince Abdulaziz is an oil price hawk and has been insisting on aggressive supply cuts to push oil prices higher. Markets expect OPEC and other supporting nations like Russia, Kazakhstan and Mexico to agree to bigger supply cuts.
The problems don’t seem to be ending for Indian telecom companies. Indian telecom companies will have to shell out additional Rs.41,000 crore as spectrum fees in the coming fiscal in the form of additional spectrum usage charges. The dispute is over the definition of annual gross revenues (AGR). Telecom companies interpret it to be only core services while TRAI defines it as all revenues. Bharti and Vodafone will pay 85% of this amount. This is likely to put additional pressure on the telcos that are already plagued by falling ARPUs, hard competition from Reliance Jio and thinning margins.
