The markets bounced back sharply on Friday on a mix of global cues and domestic buying support. Nifty bounced sharply by 125 points on Friday to settle at 10,714. Even the Sensex was up by 380 points. The buying was led by oil counters and metal counters with Reliance Industries a key contributor to the index. The INR bounced back by over 62 paisa on Friday and that took the rupee to 68.52 marks. There was visible RBI support for the INR at the 69 level. Tapering of global crude oil prices also helped the Nifty and the Sensex gain on Friday.
The ongoing tiff between Tata Steel and Thyssen Krupp may finally have come to an end with the signing of a 50:50 joint venture. Thyssen works were of the view that the original swap ratio was loaded in favour of Tata Steel. With Tata Steel and Thyssen Krupp signing a 50:50 JV Agreement, most concerns have been laid to rest. The Thyssen deal was one of the major source of difference between the Tatas and Cyrus Mistry which eventually led to the expulsion of Mr. Mistry from Tata Sons. This deal will make the Tata-Thyssen JV the second largest steel producer in Europe after Arcelor Mittal.
While the synergies of the LIC-IDBI Bank deal are still not clear, the IRDA has approved the deal paving the way for the government to sell its stake in IDBI Bank to LIC. For the insurance major, this is an entry into the banking sector in India although it comes with a very large basket of NPAs. However, the bigger concern is with respect to the interests of policyholders of LIC. Typically, insurance companies have a very low capital base (in case of LIC it is just Rs.100 crore). The big money is policy holder funds and that can be really compromised on totally unrelated acquisitions.
After overtaking Vodafone in terms of number of subscribers, Reliance Jio has emerged as the second largest telecom service provider in India. Jio has already shown the fastest growth in rural telephony with 41% of its market in rural areas. Now RIL is to acquire Radisys of the US for $74 million. Radisys is a company that is focused on 5G telephony and Internet of Things (IOT), which will offer a perfect synergy for Reliance Jio’s future plans in India. Obviously, Reliance Jio is not taking things lying down and is going all out to dominate the voice and data market in the Indian telecom industry.
There have been some worries for the Indian economy on the FDI and the FPI front in the last one year. Foreign Direct Investment (FDI) growth rate has hit a 5-year low in the year 2017-18. FDI represents the long term money that comes into industries and services companies in India. This is opposed to FPI money which is regarded as hot money. FDI for 2017-18 grew by just 3% to $44.85 billion for the fiscal year. Over the last couple of years, India has overtaken China to become the largest FDI recipient. During the first half of 2018, India has also seen very aggressive selling by FPIs to the tune of Rs.8,000 crore. Nearly 85% of the selling by FPIs was in bonds with the balance 15% being in equities. The run on debt has been largely driven by factors like weak rupee, higher oil prices, Fed rates etc.
In the regulatory turf, difference of jurisdiction is quite common. The latest pertain to statutory auditors where SEBI and MCA may be having some differences over regulating statutory auditors. Regulation of auditors comes under MCA but SEBI has been increasingly holding auditors accountable for lapses in audit, when it has had larger repercussions on shareholder wealth. This has been necessitated after cases like Satyam in the past and the recent cases of PNB in the Nirav Modi case have shown some serious lapses in the rigor of audit done. SEBI has been calling for greater auditor accountability.
