In a move that largely surprising move, SEBI fined ICRA and CARE Rs.25 lakhs each for lack of due diligence in the case of IL&FS. It may be recollected that rating agencies had given AAA rating to IL&FS just before the company made huge defaults on its loans. Eventually, it did emerge that some of the officials of rating agencies had been in cahoots with the top management of IL&FS and such ratings had been managed to the detriment of investors and shareholders. The penalty has been levied under Section 15HB of the SEBI Act and both agencies have been given 45 days to pay up the amount.
For the first time in its history, the NASDAQ index scaled the 9000 mark. In the previous rally in 2000, the NASDAQ index had scaled a peak of 5000 but it had taken them another 16 years to reclaim that peak. The second round of rally on the NASDAQ has come in the last 3 years. With record online sales during the festive season, the uptrend in the NASDAQ was clearly led by Amazon. The optimism over an imminent Phase 1 trade deal also turned the sentiments in the exchange positive. NASDAQ has been an OTC exchange that specializes in listing technology and new age stocks in the US.
Prices in the Brent Crude market scaled above the $68/bbl mark on Thursday. The price of oil has rallied nearly 11% in the last one month. Two factors have primarily driven oil higher. Firstly, the optimism over the trade deal between the US and China has pulled up demand for crude oil and that is pushing prices. In addition, the OPEC has increased its supply cuts from 1.2 million bpd to 1.7 million bpd and that is keeping the global oil markets undersupplied. The sharp spike in oil prices has allowed Aramco to get a good valuation post its IPO but does carry the risk that India’s current account deficit could swell.
RBI will conduct the second round of Operation Twist on Monday 30 December. The operation twist involves buying long duration bonds and selling short duration bonds so that the yield gap between the short end bonds and the long end bonds can be regulated and the yield curve shape can be maintained. This has helped banks and government securities investors in the last one week as this move has led to the bond yields on the benchmark coming down sharply. This has helped bond holders to book profits. This was necessitated after the RBI chose to maintain status quo on rates in its December policy.
India has seen a fivefold jump in the issue of dollar bonds largely aided by low interest yields in the US after the US Fed once again decided to adopt an easy money policy in the last one year. Dollar bonds entail liability in US dollars. Indian borrowers took in $23.6 billion during the year 2019 as lower rated borrowers found it much easier to raise funds in the global market than in the Indian market. The dollar borrowing was concentrated in specific sectors like infrastructure, power, NBFCs and metals. These companies found it really tough to raise funds in India due to lending constraints for banks. The only risk that you run in such bond issues is that it leads to a rise in dollar denominated liability and can result in pressure on the rupee value and sovereign ratings, when such repayments get bunched.
With the singular aim of pushing through the sale of Air India in the next few months, the government is expected to announce 100% FDI in aviation sector in its Union Budget announcement. Currently, the aviation sector only supports 49% FDI in India. This 100% FDI will allow global aviation players to also participate in the Air India divestment and most of these players insist on majority control. However, the government may be up against a more immediate problem as the Air India employee union has threatened to go on an indefinite strike to protest against the proposed divestment of Air India.
