The stock of ONGC tanked by 11%

The stock of ONGC tanked by 11% on Thursday on the back of the proposed windfall tax proposed by the government of India. With the sharply higher price of crude oil in international markets, the domestic price of petrol and diesel has also gone up sharply. With elections looming in the horizon, the government cannot afford to let prices of fuel go up further. The only option that it is now considering is a cess on oil producers. The cess will kick in the movement Brent Crude crosses $70/bbl. In a way, this will take away some of the profits that upstream companies earn from higher oil prices.

HSBC has warned that India, like many other emerging markets, will have to brace itself for increased FPI outflows. While the inflation situation in India is nowhere close to Turkey or other Latin American nations, the risks are there according to HSBC. In the last one year, the macros have moved against the rupee. Inflation has been rising, the trade deficit has been widening and the current account deficit (CAD) has topped 2% of GDP. FPIs have been consistent sellers in equity and debt and HSBC feels that this trend could accentuate in India in the next 3-4 months. Watch out for FII selling!

The hype built around the meeting with Kim Jong Un of Korea dissipated after the talks collapsed. In fact, Trump ended up declaring America’s readiness to take military action against North Korea if required. The fracas began after North Korea sent out a strongly worded letter after the US had accused North Korea of allying with Libya. Stocks across Asia and other parts declined after the fragile hopes of a rapprochement failed. Trump has not ruled out meeting with Kim in Singapore next month, but for now the geopolitical risk is back in the forefront.

Debt outflows in the month of May 2018 have been the highest in the last 17 months. Foreign investors have sold debt paper to the tune of Rs.29,000 crore since January of which Rs.18,229 crore was sold in the month of May itself. In technical parlance this is called risk-off selling when the interest rate differential falls to an extent where global investors prefer the stability of hard currency debt. More so, since the INR has weakened near to its all-time low. A weak rupee accentuates the problem of low bond spreads as the weak rupee takes away a large chunk of the spread.

It could be the ultimate example of an irony. Goldman Sachs, which has spent millions of dollars ramping up its algorithms and high frequency trading engines has come out with a contrarian perspective. Goldman has referred to HFT traders as a threat to natural markets as they understood the price of everything but the value of nothing. According to Goldman, the increasing use of algorithmic trading may be making the markets a lot more fragile. While fat-finger trades and flash crashes have occurred in the past, the big worry that Goldman has expressed is that a Black Swan event my lead to the vanishing of HFT liquidity and that will substantially add to the risk of the market. The eventual impact of the HFT driven crash could be a lot more geometric that one can imagine.

In the last 1 year, the market cap of Netflix has increased by 150% making it the most valuable media stock in the US. Netflix has just surpassed Walt Disney in terms of market capitalization. Netflix built its fortunes around video streaming and real time streaming and has been one of the biggest value creators since its listing in 2002. In fact, Netflix virtually made the business of Blockbuster Entertainment redundant forcing the company to shut shop. In the era of new media, Netflix has successfully positioned itself as the media company of the future.

Leave a Reply

Your email address will not be published. Required fields are marked *