Valuation worries hit companies across the board ranging from Bajaj Finance to Zee and IndusInd Bank. HDFC twins closed the day below the psychological 200 DMA mark. HDFC AMC and Reliance Nippon AMC lost heavily on lower TER worries. All markets were shut on Thursday due to Muharram. Rupee strengthened 80 bps to 72.383/$ and 10 year bond yields closed lower at 8.07%. The rupee started week on Wednesday but gained strength in the latter half of the day after clear RBI intervention was visible in the currency markets. However an escalating current account deficit (CAD) is an overhang.
The big event in the coming week will be the Fed meet on 26th September. All eyes will be on the Fed meet next week for rate hike signals. In a volatile global environment, a rate hike by the US Fed will have repercussions across global markets. Most EMs may be forced to either increase the rates or let their currencies depreciate further. The CME Fed Watch Tool (based on fed futures probabilities) is already indicating a 94.5% probability of a 25 basis points rate hike in the US Fed meet. Growth in GDP, higher inflation and lower unemployment; hint at a strong likelihood of a Fed rate hike.
The global oil market once again came under pressure on Thursday. Brent crude closes in on $80/bbl, even as Trump calls for supply push. The US sanctions on Iran appears to be taking its toll as the Brent crude again moved closer to the $80/bbl mark. Trump has been consistently calling for OPEC nations to increase their supply, which has not been happening ahead of the US sanctions on Iran taking effect from November onwards. High oil prices are not great news for India’s rising trade and current account deficit. CAD is expected to cross the 3% mark by the end of this year.
There is not great news for Tata Motors on the rating front. Fitch has revised Tata Motors rating outlook to “Negative”. This is virtually a downgrade of Tata Motors from “Stable” to “Negative”. This revision of rating was sparked on expectations of negative free cash flows (FCF) for the next two fiscal years 2019 and 2020. The negative cash flows are likely to be triggered by upward revision of capital expenditure by Jaguar Land Rover. Currently, BREXIT is a major overhang for JLR and the CEO of JLR has already hinted at much larger relocation costs if BREXIT was to actually take shape soon.
A day after the merger of BOB, Dena Bank and Vijaya Bank, rumours were flying thick and fast about the next prospective candidates for a merger. The government is keen to reduce the PSU banks from the current level of 21 banks. In the meanwhile, SBI chairman is not in favour of merging other PSU banks into SBI. Chairman Rajnish Kumar has underscored that the bank may still take another two years to fully consolidate the benefits of its merger with its subsidiaries as well as the Bharatiya Mahila Bank. Hence, at this point it may not be the right candidate to be party to further mergers. This statement came in the light of the government proposal to merge BOB, Vijaya Bank and Dena Bank. SBI has NPAs in excess of Rs.1 trillion in its books and may be wary of any NPA additions at this point.
It looks like the momentum on strategic sale of Air India is finally gaining momentum. Government has identified 12 companies in all for strategic sale. After a periodic lull, the government is back to focusing on strategic sale of assets. This list includes four subsidiaries of Air India, essentially in the services catering to Air India. In addition, the government will also look to divest Air India House in New Delhi, Air India complex in Santa Cruz (34,125 square feet), other leased and owned properties of AI and a few hangars. Government sees a huge opportunity to monetize deep assets of Air India.
