In a move that took global markets by surprise, the US Federal Reserve cut the Fed rates by 50 basis points in one stroke. This reduces the effective Fed Funds rate range from 1.50%-1.75% to 1.00%-1.25%. This move, according to the Federal Reserve, was necessitated by the sudden fall in global growth due to the lag effect of the Chinese Coronavirus. The CME Fedwatch had already hinted at a 100% probability of a 25 bps rate cut in March but the speed and suddenness took markets by surprise. However, equity markets were not impressed with the Dow plunging post the Fed rate cut.
Oil prices jumped for the second day in succession and was largely aided by the US Fed rate cut on Tuesday. On Monday, OPEC announced that it would go ahead with an additional 1 million bpd of supply cuts even if Russia refused to participate. Over the last 3 years, Russia and OPEC have been coordinating supply cuts so as to keep prices above a profitable threshold. Over the last couple of months, the price of Brent Crude had fallen from $68/bbl to $51/bbl after the Chinese pandemic threatened to slow growth. China accounts for 13% of world oil demand; and that had fallen by 20% in last few months.
After the tremendous success of the IRCTC IPO, the Indian Railways is looking to monetize more of its assets. Now the Indian Railway Finance Corporation (IRFC) has got SEBI approval for its proposed IPO. The IPO will entail a fresh issue of 93.8 crore shares an offer-for-sale (OFS) worth Rs.46.9 core shares. The net proceeds of the fresh issue component of the IPO will be utilized by the IRFC to augmenting its equity capital base and to meet future capital adequacy requirements arising from growth in business. IRFC basically specializes in financing the rolling stock and is an arm of the Indian Railways.
One positive outcome of the sharp spike in gold prices has been that gold imports have fallen sharply. In fact, the consumption for the month of February fell to 46 tonnes from a high of 77.64 tonnes a year ago. Demand for gold had been robust in the first half off February but then the demand tapered as prices crossed Rs.43,500/10 grams in the Indian market. However, the WGC has pointed that this weak gold imports is a common phenomenon in the month of February. Most central banks frown upon gold imports as it dissipates precious foreign exchange, even as scores of NBFCs struggle in India.
The board of SBI, the largest bank in the lending consortium for RCOM, has approved the resolution plan for the lenders of RCOM. Lenders will get around Rs.23,000 crore as against secured debts in excess of Rs.33,000 crore. However, the NCLT has received total claims for RCOM to the tune of Rs.49,000 crore and this includes the operating creditors also. The process was to be completed by the 10th of January but had to be postponed after the COC asked for an extension of credit. The insolvency petition against RCOM got triggered after the Swedish company, Ericsson, could not recover its dues from RCOM. In the past, RCOM had tried to separately sell the group assets to a wide array of customers including Reliance Jio but the deal did not go through. This should bring a long drawn battle to a close.
The Dow Jones cracked sharply on Tuesday despite the Fed cutting rates by 50 bps late on Tuesday. Ironically, the Dow had rallied 500 points into the positive after rate cut announcement but dipped more than 1200 points from that level to close with losses of 732 points on Tuesday. The US markets have not seen this kind of sustained sell-off in the markets since 2008. The markets interpreted the 50 bps cut as a desperate move and an affirmation of the fact that the slowdown was much deeper than expected. Steep valuations on the Dow and the NASDAQ have also not helped matters for US markets.
