In the light of the IL&FS and the DHFL fiasco, SEBI has gone ahead and tightened the credit rating norms applicable in India. SEBI has prescribed enhanced disclosure norms for rating agencies after a slew of downgrades, especially in the NBFC sector. SEBI has asked rating agencies to evolve a uniform benchmark to estimate “Probability of Default” for each rating category. SEBI has also asked rating agencies to disclose operating and financial shifts that could trigger a rating downgrade. Rating agencies have been in the eye of the storm for being reactive rather than proactive in case of IL&FS and DHFL.
The primary challenge for the new finance minister will be restoring a sense of order to the financial sector. Nirmala Sitharaman discussed liquidity and NPAs with top bankers on Thursday. Ahead of the Union Budget, one of the key items in the agenda was the creation of a dedicated liquidity window for NBFCs as well as additional capital infusion support for PSU banks. The meeting also reviewed the progress on NPA recoveries and the interest rates on small savings. Bankers are expecting major reforms for the banking and NBFC space in the full Union Budget in July, especially on the NBFC front.
This time the government is relying heavily on spectrum auctions to boost revenues. This is expected to come from $84 billion worth of spectrum auctions. Even as telecom carriers continue to feel the pressure of a price war, the government has set a steep revenue target from airwaves auction in 2019. The government plans to sell nearly 8600 MHz of telecom airwaves this year across multiple frequency bands. TRAI had suggested to lower price bands on certain telecom airwaves to make them more viable. With 22% full year fiscal deficit touched in April, the government needs a revenue boost badly.
Brent Crude gained over 100 bps on Gulf of Oman tanker attacks, although the source of the attacks is still not confirmed. Brent Crude prices were highly volatile on Thursday. Oil prices, at one point, were up nearly 4% after a sharp fall in inventories. However, the real boost to oil prices came when 2 oil tankers were attacked and left adrift near the Gulf of Oman. The geopolitical risk took Brent above $63 before it subsided closer to the $61/bbl mark. The US has accused Iran of being responsible for the attacks, although Iran has repeatedly denied any involvement in these incidents.
Emerging markets entering dangerous space, says Societe Generale with specific reference to the macroeconomic vulnerabilities of most EMs across Asia, Eastern Europe and Latin America. According to SocGen, emerging markets (including India and China) may be more vulnerable to softer growth and even the risk of recession. According to SocGen, this phase could be marked by sharp bouts of volatility in the capital markets and currencies, with the two interplaying often. SocGen is currently advising caution on holding Emerging Market (EM) assets. Most EM currencies in the last one year have shown a lot of vulnerability due to dollar strength. The situation is also reminiscent of 2015 when a currency war triggered by China had led to deep cuts across Asia. There are concerns over valuations too.
The National Company Law Tribunal (NCLT) adjourns hearing on Jet Airways to June 20th. Two companies, to whom Jet Airways owes a total of Rs.10 crore, have dragged Jet to the NCLT seeking bankruptcy proceedings. According to a report in the Economic Times, Jet Airways has bank loans of Rs.8000 crore. In addition, it has vendor dues of Rs.10,000 crore, unpaid salaries of Rs.3,000 crore and accumulated losses of Rs.13,000 crore. Jet ceased operations on April 17th this year and with each passing day the prospects of any recoveries are gradually diminishing.
