Weekly Capsule (Sep 04 – Sep 08) and Impact Analysis
| Major News Item | Impact Analysis |
| Ø Geopolitical tensions between the US and North Korea continue to simmer | Ø There was little let-up with North Korea persisting with its nuclear tests and the US threatening sanctions
Ø Equity markets have more or less discounted the risks of a full-fledged war, although gold has touched a yearly high
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| Ø US jobs report comes in weaker than expected for August at 156,000 | Ø This raises some questions about the Fed rate action and now hikes look more likely to resume from mid-2018 only
Ø The unemployment rate in the US has risen from 4% to 4.4% and the GDP and inflation are also not favouring a rate hike
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| Ø PMI manufacturing bounces back to 51.2 for August | Ø Despite the post-GST production lull, there was a visible spurt in new orders during the month pushing PMI above 50
Ø However, the PMI services continues to stay below the 50-mark indicating a weakening momentum
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| Ø Auto numbers for August were better than expected despite GST | Ø The positive trend in four wheelers was led by Maruti with Tata Motors also chipping in on the CV front
Ø In the two wheelers space, TVS Motors and Eicher flattered while Bajaj Auto continued to disappoint the street
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| Ø CRISIL lowers India’s GDP forecast to 7% for fiscal year 2017-18 | Ø This downgrade was triggered by first quarter GDP for the fiscal coming in sharply lower at 5.7%
Ø With the lag effect of demonetization and the GST disruption, the impact on GDP growth could be as high as 70-80 bps
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| Ø ONGC to raise Rs.26,000 crore through the issue of debt paper | Ø Part of the funds raised will be used to finance the buyout of the government’s 51.1% stake in HPCL
Ø ONGC also has a larger plan to invest over $5 billion developing gas fields off the Eastern coast
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| Ø Adani may write off its entire investment in Mundra Power | Ø This was triggered by the SC striking down Adani’s demand for compensatory tariffs to cover higher imported coal costs
Ø Banks are, however, worried that nearly Rs.25,000 worth of debt of Adani Group is accounted for by Mundra
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| Ø HDFC Bank also classified as “Too Big to Fail” bank after ICICI and SBI | Ø TBTF banks are systematically important banks that have larger implications and so need to be protected
Ø These TBTF banks will be required to set aside a higher portion as Tier-1 capital impacting profitability in the short run
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| Ø ICICI Lombard to raise Rs.6000 crore through its maiden IPO | Ø Both key shareholders, ICICI Bank and Fairfax, will use the OFS route to partially exit their stake in ICICI Lombard
Ø For ICICI group it is one more case of SOTP valuation opportunities after ICICI Pru Life, the only listed insurer
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| Ø ITC has filed a Rs.1000 crore defamation suit against IIAS | Ø IIAS, a proxy advisory firm, had urged shareholders to vote against the proposal to pay Rs.1 crore/month to Deveshwar
Ø While ITC claims defamation, the shareholders of ITC have already approved this proposal in its AGM |
| Ø Implementation of RERA has led to delays in many realty projects | Ø Marketing is a major concern as the new law prohibits pre-sales and only RERA registered properties can be sold
Ø Even properties nearing completion are not taking a chance and are waiting leading to a slowdown in off-take
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| Ø MCX proposes to launch Gold option contracts before Diwali this year | Ø Commodity options were permitted earlier this year and MCX is the market leader in gold contract futures in India
Ø The big challenge could be the commodities turnover tax (CTT), which could make exercise of contracts unviable
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| Ø SEBI may permit physical settlement of stock options contract | Ø The idea is to reduce the extent of volatility in stock options by forcing more of delayed delivery rather than speculation
Ø The big challenge for the physical settlement to take-off may be the absence of a robust stock lending mechanism
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| Ø Corporate Governance Committee to submit report by end of September | Ø The committee, led by Uday Kotak, has creation of a governance model as its terms of reference
Ø The issue came into the limelight after the recent fracas at Infosys between the board and the founding promoters
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| Ø Stanley Fischer, Fed Vice Chairman, to step down by mid-October | Ø Stanley Fischer, along with Yellen, has been an opponent of Trump’s plans to ease financial sector regulation
Ø The move may induce Trump to undertake a complete overhaul of the Fed top brass
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| Ø Mutual Fund AUM crosses $300 billion mark for the first time in India | Ø While the growth has been rapid in the last 2 years, Indian MF industry is still substantially smaller than its US counterparts
Ø The positive take-away is the increase in the number of individual accounts and the rise in the number of SIPs
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| Ø Dr. Viral Acharya wants the deposit franchise of small PSU banks sold | Ø According to the RBI deputy governor, this may be more feasible than trying to sell stakes in weaker PSU banks
Ø However, this may come up for serious objections from the banking unions and may be hard to push through
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| Ø Raghuram Rajan blames the GDP slowdown on demonetization | Ø Rajan is of the view that while containing black money is laudable, demonetization had negative repercussions
Ø Rajan also referred to the need for RBI governors to be more forthright in their opinions to the government
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| Ø GST Council may fix tax anomalies on cess hike on cars in its Sept meeting | Ø The GST Council is likely to hike the cess on luxury cars and SUVs and spare small and mid-sized cars
Ø The Council will also take a view on the IT related issues that people have faced with the GSTN network in September
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| Ø FPIs may be shifting to SGX for trading index futures | Ø This basically pertains to those investors who were using the FPI route, which was made expensive by SEBI
Ø With the Indian option closed, most FPIs using the ODI route are now going back to trading futures on the SGX
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| Ø Government may keep debt out to attract bidders for Air India | Ø With its $8 billion in debt, this offers the best way for the government to facilitate the entry of buyers into Air India
Ø Government may also look at monetizing some of its real estate assets to defray part of the debt, prima facie |
