The global sentiments appear to be buoyant at Wall Street edged higher on the back of a rally in energy shares. US markets opened on a positive note ahead of an eventful week which includes the Fed Policy announcement and progress in the US-China trade war. The dollar had taken a beating overnight on weak data. However, upstream oil companies gained on higher crude price expectations and refining companies also gained from expectations of better refining margins. However, technology stocks on the NASDAQ did see some pressure but was largely made up by the rally in oil companies.
Indian hotel companies are betting heavily on better occupancy rates in fiscal 2020. Hotels are extremely positive on lack of fresh capacity and a sharp rise in business travel in the coming year. This is likely to improve profits and margins of hotel companies. The OPM of the hotel industry has fallen sharply from 40% a decade back to just about 25% currently. However, a pick-up in occupancy is likely to improve room realizations and also profit margins. Ironically, it is in these bullish times that the Leela group of properties is being sold to Brookfield on a slump sale basis.
With a new innovative product in town, the RBI officials met bankers over the new dollar swap tool to manage liquidity. The RBI’s first round of dollar swap worth $5 billion is expected to hit markets on March 26th. The RBI sought feedback from bankers as the tool will absorb dollars from banks and infuse rupee liquidity into the system. This is expected to be more effective than a rate cut, where transmission has been poor. Dollar swaps will be a back-to-back deal with a 3-year sell-back option for banks. While dollar swaps will infuse rupee liquidity, they are also expected to stem the rise in the rupee.
Software lobbying body, NASSCOM, has projected a 9.1% growth for IT Services sector in FY19-20. NASSCOM has made aggressive projections for the IT services sector for the next fiscal, which is likely to be largely driven by demand for digital solutions. According to NASSCOM, the concept of digital projects had started evolving into large enterprise-level implementations. However, NASSCOM expects the BFSI segment to remain under pressure. Margins are expected to fall in FY20. Most large IT players have aggressively built up their digital capacity and TCS gets over 20% of revenues from digital.
Rally in Nifty stocks continued as the index rose for the sixth straight session supported by oil stocks. While the market gains may have been smaller, the A/D ratio continued to remain healthy at 31:19. The rally in the Nifty was driven by oil refining stocks after news that the gross refining margins may move up in the quarter. FIIs continued to be net buyers and the rupee strengthened leading to weakness in tech stocks. Auto stocks took a hit on fears of weak fourth-quarter sales numbers. Venezuela may divert its US-bound oil to Russia and other nations. Venezuelan oil could come back into the global market Russia and that could depress oil prices. Currently, Venezuela is under sanctions from the US and Europe in an effort to upstage President Nicolas Maduro. Russia and China have been averse to the sanctions.
The Essar Steel case may finally come to an end with the NCLT Appellate Tribunal ruling in favor of Arcelor Mittal’s Rs.42,000 crore bid for Essar Steel. In addition, Arcelor will also invest Rs.7500 crore in the operations of the company. Repeated efforts by the Essar promoters to retain their stake in the steel company proved futile. Essar Steel will be the largest case dealt by NCLT to date. It may be recollected that the Ruias had made a subsequent bid to retain control of Essar with an Rs.54,389 crore offer, which was struck down by the NCLT as being against the spirit of the Bankruptcy Code.
