The all-important board meeting of the RBI has slated on Monday 19th November. Autonomy of the RBI has been a major bone of contention and two decision points will be keenly awaited. The RBI has been asked by the government to loosen up credit purse strings to NBFCs and to allow PCA banks to lend is awaiting an RBI response. Also, the government has been demanding Rs.3,60,000 out of the RBI reserves, something the RBI has been averse to approving. Whether the RBI and the government come to an agreement or the discord deepens remains to be seen.
RBI was a net seller in dollars to the tune of $18.66 billion in the first six months of the fiscal year. This is only the spot selling and the actual selling in derivatives was actually much larger. A dollar reduction happens when the RBI is forced to sell dollars in the spot market to increase the supply of dollars in the system to support the exchange rate. The RBI is currently supporting the rupee at around 74/$ through a mix of spot selling and futures selling of the dollar. In the past 6 months, the forex reserves of the RBI have also fallen steeply from $427 billion to the current level of $393 billion.
Losses of the PSU banks widened nearly 3.5 times in the second quarter of the current fiscal. The losses in the latest quarter on a cumulative basis was nearly $2 billion (14,716 crores), which is actually lower than the losses of over Rs.16,614 crore reported in the first quarter. Higher provisioning for NPAS has been the main reason for these sharply higher losses. Most PSBs have reported losses and for the PCA banks, it has been a double whammy as they are not even permitted to do fresh lending. PNB had posted the single biggest loss this quarter at Rs.4532 crore as NPAs continued to haunt the bank.
JSW Steel is looking to invest Rs.5000 crore to expand its downstream manufacturing capacity. Additionally, the company will also be looking to purchase any stressed downstream assets under the NCLT process. This is part of the total investment of Rs.45,000 crore that JSW Steel is planning in the states of Karnataka and Maharashtra. Downstream products are considered more value-added and hence this will help them tweak their product mix favorably. Most steel companies in India have been expanding capacity aggressively to capitalize on the tripling of steel demand by 2030.
PSU results present a mixed picture during the week. Mining and metal companies continued to flatter the street in the second quarter. Let us look at Coal India and NALCO, two PSU players in the commodity space. Coal reported an eight-fold increase in profits to Rs.3085 crore in the second quarter. The street is already expecting another bumper dividend on the back of such a sharp rise in profits in this quarter. NALCO saw profits more than doubling to Rs.510 crore in the second quarter as higher volume off taking and better price realizations helped the company to post healthy results. AT the same time, Allahabad Bank saw losses widening to Rs.1823 crore in the second quarter as the overhang of NPAs continued to haunt the market. PSBs remain the big drag on the government space.
Even as Beijing was hoping for some reconciliation from the US, vice president Mike Pence made matters worse by upping the attack on China. At a recent summit speech, Pence called for all countries to boycott too much of dependence on China either for infrastructure, loans or for project implementation. This upping the ante is not great news for China and for Asia which is looking to export its way out of trouble. There have been major hopes of a trade deal between the US and China when the G-20 nations meet in Argentina a few weeks later. That road looks a lot tougher now.
