The Bimal Jalan panel report is finally out and the RBI has approved Rs.176,000 crore capital transfer bonanza for the Indian government. In a decision that has been under some degree of dispute in the last few months, the RBI approved the transfer of Rs.176,000 crore as dividends to the government during fiscal 2019-20. A sum of Rs.28,000 crore has already been transferred this fiscal and the balance Rs.148,000 crore will be done by March. The total transfer this fiscal will be 2.6 times the previous year’s transfer of Rs.68,000 crore. This includes the RBI surplus this year and its excess reserves.
The Sensex and the Nifty rallied sharply on Monday on the back of the stimulus package which ended up giving an Rs.241,000 crore boost to the market capitalization. There was aggressive short covering in the F&O market ahead of the expiry on Thursday. Positive cues from the G-7 Summit and Trump announcing China’s intentions to return to the negotiating table also helped improve the market sentiments. Nifty A/D ratio was at 37:13. The stimulus package announced by Nirmala Sitharaman announced on Friday covered the FPI tax issue, reviving the auto sector and de-clogging the financial markets.
The news is not too great on the steel front with steel demand set for its slowest growth in 3 years on economic slowdown worries. According to a report by ICRA, steel demand was likely to grow at less than 6% this fiscal making it the worst year since the 3.1% growth in fiscal 2016-17. Most of the large steel companies have seen their profits fall sharply in the latest quarter due to demand and pricing concerns. The NSE metal index is already down by 30% since the beginning of this year and China is adding to the problems with its economic slowdown and a deliberately weaker Chinese Yuan.
Indian Rupee closed beyond the Rs.72/$ mark despite the sharp rally in equities. On a day when the Sensex and Nifty rallied above their psychological resistance levels, the INR continued to weaken. It has already weakened over 6% in August. The trigger for the rupee weakness on Monday came from the sharp drop in the Chinese Yuan which touched an 11-year low of CNY7.143/$. This Yuan devaluation hit most EM currencies including the INR. In fact, the Indian rupee actually weakened to a 9-month low and it is already the worst performing currency in the current calendar year.
Talks of China and the US restarting trade talks had a positive impact on markets. A statement from Trump that China had been calling him up for restarting the trade deal talks helped. According to Trump, China was keen on trade talks due to the damage the trade war was causing to the Chinese economy. China was, however, more circumspect and just indicated they would be open to talks on a no-commitment basis. Meanwhile, the uncertainty pushed gold prices sharply higher on risk-off trade. Gold prices in India scaled an all-time record of Rs.40,000/10 while global gold prices scaled closer to $1600/oz. The recent volatility in equities, consistent weakening of currencies and nearly $16 trillion of negative-yield debt had resulted in a spurt in demand for gold globally.
Brent Crude falls over 90 bps on Monday as G7 bats for end to Iran stand-off. Even as crude appreciated in early trades on US-China trade war resolution optimism, a new trend emerged at the G-7 Summit in France with Emmanuel Macron trying to get the US and Iran closer together. France has been pushing to allow Iran back into the oil supply market to maintain price equilibrium. By late evening, the price of Brent had fallen below the $59/bbl mark. The price of Brent crude varied in a broad range of nearly $2.50/bbl during the day as diverse cues came from Iran and from China.
