Nifty bounced back sharply on Tuesday with outperformance from pharma sector. The concerns over the Turkish Lira looked overdone after Sun Pharma led a revival in the Nifty on Tuesday. The market reopens on 16th after a day’s holiday for Independence Day. This happened even as stocks tumbled across the world, especially in emerging markets. With dollar hitting a 13-month high and Yuan falling nearly 1%, emerging markets across the world corrected sharply on Wednesday. Yuan touched an 18-month low. A weak China is worrisome as it remains the biggest engine of global growth in GDP terms.
Qatar has pledged to invest $15 billion to bail out Turkey from its economic woes. Turkey is currently grappling with a Lira crisis, after it corrected more than 50% since the beginning of 2018. It is also engaged in a trade war with its old-time NATO ally, the US. The immediate challenge for Turkey is to service its dollar debt. The impact is visible on commodity prices. Turkish crisis has led to a sharp fall in the price of copper, which plunged below $6000/metric ton after the combination of the Lira crisis and the trade war stand-off with China soured sentiments of industrial and precious metals.
SEBI may look at framework for timely disclosure of loan defaults. This has long been in the making after it faced embarrassments in the case of the PNB fraud where a $2 billion default remained hidden from the regulators in the absence of a timely warning system. SEBI has repeatedly pointed instances in the past where companies and rating agencies have failed to highlight loan defaults on time. A few years earlier, delay had also caused an embarrassment in case of Amtek. In this case, the loan default had been disclosed later in the date leading to a sudden downgrade by CARE and a crash in bond prices.
RBI has put nearly 200 stressed accounts under the regulatory scanner. These are the major borrower accounts that have been under NPA pressure for a long time. With the bad loans in the banking system at over 11% on an average, the RBI is not taking chances and wants to ensure that debt recasts, loan provisioning and asset classification have been done according to proper norms. RBI also wants to pre-empt any under-reporting of NPAs. In fact, the loan recasting was where most of the problems had started and that has come home to roost in most cases.
India’s immediate worries step from the rising trade deficit. In fact trade deficit touched a 5-year high of $18.02 billion for July 2018. The rise in trade was despite a 14.3% growth in exports. While this is partially explained by the 57% rise in the oil import bill, there was also a 41% growth in the gold import bill during July 2018. Gold imports are worrying because they weaken the INR without any concomitant benefit in terms of productive implications. The INR is already at Rs.70/$ and this rising trade deficit is likely to put more pressure on the INR. The current account deficit (CAD), at this rate, could scale 3% of GDP by end of the year. The more immediate concern could be pressure on the forex reserves which may now be less than 9 months of imports after depleting by over $23 billion in the last couple of months.
IDBI Bank reported 7th consecutive quarterly loss with Gross NPAs above 30%. The bank reported a net loss of Rs.2,410 crore in the June quarter but the big challenge was the Gross NPAS above 30% and an extremely low coverage ratio. IDBI Bank CEO has admitted that the bank had just met the capital requirements but may face a shortfall in the coming year. It may be recollected that earlier last month, the government had agreed to sell a majority stake in IDBI Bank to LIC. While LIC surely gets a banking license, it remains to be seen, how it handles the massive NPAs, which are over 30% now.
