Rupee has lost (-9.84%) YTD and emerged as the worst performing Asian currency with the Philippine Peso at (-6.6%) slightly better. Apart from the dollar strength and the Yuan worry, the INR has also taken a hit due to rising trade deficit and the current account deficit (CAD). India’s CAD may worsen to (-2.8%), warns Nomura. The biggest challenge for the Indian economy in the current fiscal could be the negative basic BOP (current account + net FDI). The CAD was at a level of -1.9% during the fiscal year 2017-18. India’s forex reserves had recently dipped below the psychological $400 billion mark.
Higher crude prices appear to have helped out ONGC. Now, ONGC may not be required to sell its stake in IOC and GAIL to fund its buyout of HPCL. ONGC had taken a loan of Rs.24,800 crore to fund the buyout of government stake in HPCL. While the original plan was to hive off its stake in IOC and GAIL, the sharp cash flow generation has given ONGC the confidence to repay the loan with internal resources itself. In fact, ONGC has already repaid one-third of the total loan taken for this purpose and is confident of meeting this outflow from its internal cash flows. So ONGC may hold on to other crown jewels.
There appears to be no let-up in the NSE co-location case. Now SEBI has alleged abetment of top NSE officials in the algo / co-location fiasco. The investigations have clearly point out that the nature and magnitude of the scam could not have been done without connivance at the highest levels. SEBI has accused senior officials of facilitating the unfair access to price data that was made available to select brokers like OPG. The millisecond advantage allowed OPG to build up substantial volumes with an unfair advantage over other brokers. Senior officials like Ravi Narain and Chitra have been named by SEBI.
The biggest ecommerce deal in India just got through. Wal-Mart completed its $16 billion acquisition of Flipkart stake. Flipkart promoters and early stage investors have sold a majority 77% stake to Wal-Mart for $16 billion. This is likely to be their best insurance against the escalating completion from Amazon. Wal-Mart will now be up against Amazon and the Reliance group in the Indian ecommerce market. The big challenge for both Amazon and Wal-Mart could be the fact that Reliance, being a domestic company, will be permitted to maintain its India inventory within the country itself.
The oil situation in the OPEC is taking a curious turn now. Iran objected to other OPEC members taking over its share of crude output. Iran is the third largest producer of oil in the OPEC after Saudi Arabia and Iraq and supplies over 4.5 million bpd. With the US sanctions on Iran kicking in from November this year, Iran may be running out of time. While its biggest market, China, continues to stand by Iran, its second largest market, India, has already decided to stand up to the US and may replace its Iranian oil supplies. Saudi Arabia had promised to make good the supply shortfall after the US started prodding allies to reduce their oil imports from Iran to Zero. Saudi and Iran are involved in proxy wars in Syria and Yemen currently and have also been traditionally battling to establish supremacy in the Middle East.
When it comes to aviation has impressed on growth as Asia’s second largest aviation market. Indian aviation market grew at the fastest clip in the month of May 2018 in APAC region at 13.3% followed by 8.3 for China and 8.1% for South Korea. Developed markets like Japan and Australia grew at less than 3%. This opens up a huge need to invest in new aircraft, although ATF prices remain a major concern for airlines in India. Currently Indian aviation companies are caught between the twin challenges of rising fuel costs and diminishing spreads due to intense competition in the aviation sector.
