US and European markets fell on Tuesday after Trump hinted at tariffs on imported cars from the coming week. European auto stocks were among the worst hit. The tariff decision is likely to be taken immediately after the G-20 Summit scheduled over the end of the month at Buenos Aires in Argentina. In fact, Trump has hinted at a 25% tariff on imported cars from Canada and Mexico. Most auto stocks globally are down nearly 25% on a YOY basis as the risk of higher trade tariffs and slowing growth in car sales has been weighing on the automakers. BREXIT also continues to be an overhang.
With trade worries easing and FPI selling transforming into buying in November, the rupee has shown distinct signs of strength. In fact, Rupee gained to 70.79/$ after touching a low of beyond 75/$ in the previous month. The rupee had seen panic selling after the NBFC crisis triggered by IL&FS had threatened to derail the entire financial system. That has been largely addressed by the government-sponsored liquidity support to financial markets. China has also hinted at a mutually amicable settlement between China and the US, which would put an end to the internecine trade war.
The stock of Yes Bank cracked further after Moody’s downgraded Yes Bank’s rating to non-investment grade. Yes Bank also took a hit after the RBI started scrutinizing the books of Yes Bank to get a gauge of its overall NBFC exposures. The tenure of Yes Bank CEO, Rana Kapoor, will be ending on January 31st, 2019 and that is also making investors very jittery. Yes Bank was also in the news after a Bloomberg article revealed that mutual funds had actually funded bonds issued by the Kapoor family’s investment holding company. While the loans have since been repaid, the reputational damage had been done.
After infusing Rs.40,000 crore into the financial markets in November, the RBI plans to infuse another Rs.40,000 crore in December too. This will also compensate for a pick-up in currency growth and stronger credit growth. This infusion will be done through bond purchases via its OMO program. However, market experts believe that this may not be sufficient since the current shortfall in the financial system is close to Rs.100,000 crore. While rate cuts may not happen in the current scenario, the RBI is widely expected to cut the cash reserve ratio (CRR) by 1% in its December policy meet.
With a view to reducing the problems for Air India, the government plans to hive off its debt and its ground handling unit into a separate entity. In the last couple of years, the government had made repeated attempts to sell the airline but there were no takers on both occasions. The government will transfer the large part of the debt of the airline as well as its ground handling operations into a separate SPV which will be 100% owned by the government. Out of the total debt of Rs.48,700 crore, the government plans to take out nearly Rs.33,400 crore into the SPV. The government had identified Air India for strategic sale since a normal disinvestment was not possible. However, the strategic sale had not worked considering its huge debt and lack of clarity over monetization of assets.
After a frenetic price rally in the last couple of years, HEG is still confident of substantial demand coming from the massive expansion of steel capacity on the anvil. Also, the NCLT process is leading to a lot of major steel franchises changing hands which is also likely to create heavy demand for graphite electrodes. HEG makes graphite electrodes which are an important input that goes into the building of electric arc furnaces which are the key equipment for the manufacture of steel. Indian steel demand is expected to grow 3-fold by 2030 and large steel plants are preparing themselves for that.
