RBI relaxation is likely to provide relief of Rs.35,000 crore to the government of India. In the meeting with the finance ministry on 19th November, the RBI decided to defer the full implementation of the “Capital Conservation Buffer” prescribed under the Basel-III rules. This will free up capital to the tune of Rs.37,000 crore and allow additional credit creation to the tune of Rs.3,70,000 crore. However, Moody’s has cautioned that this decision by the RBI could be credit negative for the PSU banks. RBI had also agreed to restructure stressed loans to the MSME sector to the tune of Rs.25 crore.
After a gap of almost one year, z returned to the Masala Bond market by issuing offshore rupee bonds to the tune of $70 million. The Masala Bonds are rupee bonds issued abroad which are free from foreign currency risk for the issuer and creates a market for rupee bonds. The INR had rebounded in recent weeks after the government had relaxed taxation on overseas borrowings. HDFC issued these masala bonds at a yield of 8.75%, sharply higher than the 6.73% at which the company had issued these bonds in the previous year. But, that is understandable with rising yields and falling rupee.
In the midst of threats of a rating cut by rating agencies, Bharti has decided to go ahead and raise up to $2 billion in loans from banks. The money was raised via a consortium of around 12 lenders and gives the telecom company the ammunition to fight the competitive price war triggered by Reliance Jio. Bharti is already at the lowest Investment grade rating of Ba3 and is very likely to be downgraded to Junk status. The loans were given at an all-in cost of 110 basis points above the LIBOR. Bharti had seen a sharp fall in its ARPUs in the latest quarter as the price war continued unabated in India.
Kotak Investments, Singapore based Cube Highways and L&T Infrastructure have expressed interest in Jaypee Infratech. The company is currently undergoing bankruptcy proceedings in the NCLT. Suraksha Group had initially made a bid of Rs.7000 crore for Jaypee Infratech which had been turned down by the Committee of Creditors. Jaypee Infra has many housing projects stuck in Noida and Greater Noida. Among the bidders, L&T Infrastructure is the only company that has expressed interest in taking a stake in the 165 km Yamuna Expressway. Jaypee has outstanding debt of Rs.9800 crore.
Goldman Sachs sees double digit returns in emerging markets in the year 2019. Most emerging markets had tumbled in 2018 in the midst of a weakening local currency, Chinese impact of the trade war and heavy institutional selling. Emerging stocks gave 12.1% returns in 2016 and 37.8% returns in 2017 but the year 2018 has so far yielded negative returns of -14%. Goldman expects most Asian economies to outperform the Latin American economies. In terms of currencies, Goldman expects a rear beta opportunity in currencies like the Mexican Peso, South African Rand and Colombian Peso. However, Goldman continues to be cautious on the Argentine Peso and the Turkish Lira. Goldman expects the focus of bonds to be more on quality rather than on yields.
Brent crude cracked sharply to $63/bbl and it has fallen by nearly $23 since touching a high of $86 in September. This has been a very sharp fall after the US sanctions on Iran almost became meaningless after the US granted exemptions from sanctions to most of the key importers from Iran. In the meanwhile, the OPEC and Russia have decided to consider supply cuts to put a floor on prices, but markets fear that it may not happen. In fact, the fear is that the OPEC nations may actually look to increase supply to record levels. This fear is evident in downside risk measures at all time high.
