SBI was largely responsible for the Nifty weakness on Friday after it announced disappointing results for the first quarter. SBI reported the third consecutive quarterly loss; this time of Rs.4800 crore as the bank decided to front end the investment write-offs in the light of rising bonds yields. The good news for the markets could be that FPIs have infused Rs.8500 crore in 8 sessions in August 2018. The sentiments of the foreign investors appears to have shifted after the RBI announced a front-ending of rate hikes in its August policy and the Fed maintained status quo on rates. That is a positive cue for markets.
The problems for Turkey appear to compounding and the contagion now looks to spread. The Turkish Lira fell by 17% on Friday sending hitters among most emerging markets after the US threatened sanctions against Turkey over the arrest of an American pastor. Turkey is a $1 trillion economy and hence significant by any measure. But the bigger worry is the huge dollar debt on Turkey’s books, especially after the Turkish Lira cracked 43% since Jan-2018. The weakness in the Lira has almost pushed a chunk of its dollar denominated loans close to bankruptcy, and it could be as bad as Russia in 1998.
Like Mr. Tyagi mentioned in earlier SEBI board meetings, SEBI appears committed to target Total Expense Ratio (TER) of MFs to reduce investor costs. TER is imposed on a proportionate basis on fund NAVs and debited on a daily basis. Equity funds in India have survived on the back of weak index fund performance. While the mutual fund inflows have improved substantially in the last few years with over $1 billion collected per month on equity SIPs, a quicker expansion of the mutual fund cult, according to SEBI, will require costs to come down much further from current levels. That may be the challenge!
Adani appears to lead the pack of beneficiaries of the city gas auctions conducted by the government. Adani Group bagged licenses to retail gas in 21 cities across India in the latest round of bidding. While Adani will supply gas individually in 13 cities, the other 8 cities will be done in JV with IOCL. Other big winners in the gas auctions included Bharat Petroleum and Torrent Gas. The thrust on use of natural piped gas is a big move by the current government to move towards more sustainable and environment friend modes of fuel supply; for industry and for households.
India may lose the Iran initiative to China. India could end up taking a big hit on US sanctions on Iran. Iran exports 23% of its oil to India only below China at 26%. Iran is a reliable global source of cheap crude and that is likely to hit the cost of India’s average crude basket. This time around, the sanctions cover distillates also. China has refused to toe the US line but India could see higher costs due to sanctions. China could end up being the big beneficiary of the Iran sanctions put by the US. With France’s Total SA walking out of the project post the US sanctions on Iran, China National Petroleum (CNPC) proposes to increase its stake in the South Pars Gas Field to 51%. CNPC currently holds a 30% stake in the field and China has already refused to abide by US sanctions on Iran.
The saga of robust gross refining margins appears to continue for the Indian refining sector. After BPCL and HPCL announced robust quarterly results, Indian Oil reported 50% growth in net profits at Rs.6,830 crore for Q1 The big boost to profitability came due to a sharp rise in the gross refining margins (GRM) to $10.21/barrel from a low of $4.32/barrel last year. IOCL benefited from higher crude prices just like the other 2 downstream players. The big challenge for IOCL will now be to maintain these GRM levels, if oil prices become too volatile. That is a risk with the geopolitical situation worsening by the day.
