Weekly Capsule and Impact Analysis – 16th Jun 2017

Weekly Capsule (Jun 12 – Jun 16) and Impact Analysis

Major News Item Impact Analysis
   
Ø  FOMC raises Fed rates by 25 basis points to the range of 100-125 bps Ø  The hike in rates is in tune with the Fed guidance of 3 rate hikes in 2017 followed by 3 in year 2018

Ø  The Fed has also guided about the likely timetable for the tapering of the bond portfolio, which will be calibrated

 

Ø  Trade deficit for the month of May 2017 came in at $13 billion Ø  The import growth at 33% was sharply higher than the exports growth of 8.3% leading to this divergence

Ø  With imports rising sharply, the import coverage of forex reserves has come down from 12 months to 9 months

 

Ø  Pharma industry instructed to adhere to the GST anti-profiteering clause Ø  The clause calls for any reduction in tax rates to be passed on fully to the end customer for all pharmaceuticals

Ø  Additionally, any hike in tax impact above 10% due to GST will have to be absorbed by the company and not passed on

 

Ø  India expects a sharply higher pace of growth in the steel sector Ø  Steel output for 2017-21 likely to grow at 8.9% per annum compared to just 2.9% for the 2012-16 period

Ø  India has already become a net exporter of steel and its total capacity is likely to increase to 129 million tonnes by 2021

 

Ø  IIP for April 2017 came in at 3.1% as compared to 3.8% in March 2017 Ø  The lower growth was driven by weak manufacturing growth which constitutes nearly 75% of the overall IIP

Ø  The good news is that the pain of demonetization seems to be over as IIP settles in a higher orbit above 3%

 

Ø  May CPI inflation came in at a 5-year low of 2.18%, WPI inflation at 2.17% Ø  The weak inflation was driven by negative food inflation which impacted the CPI and the WPI negatively

Ø  With CPI well below the RBI’s reduced guidance, it does open the gates for rate cuts in the August policy

 

Ø  Brent crude prices slipped to the $46/bbl mark on supply worries Ø  US record stockpiling and rising US shale output is spooking oil markets as is the GCC embargo imposed on Qatar

Ø  The OPEC has reduced its daily crude supply by 1.8 million bpd, but that is hardly having any impact on prices

 

Ø  RBI names 12 defaulting companies and initiates IBC proceedings Ø  These 12 names including Bhushan, Amtek, Essar and Monnet owe over Rs.200,000 crore to the Indian banks

Ø  They will have a maximum of 270 days for a resolution failing which insolvency proceedings will be initiated against them

 

Ø  SEBI outlined a broad framework for commodity options trading Ø  To being with, it will only be permitted on 1 commodity per exchange and will have commodity futures as underlying

Ø  The MCX has confirmed that it will be ready to launch commodity options in the next 3-4 months time

 

Ø  RBI may relax the NPA definition for the SME sector in India Ø  Currently the NPA definition is 90 days and any delay beyond that is leading to classification as NPAs

Ø  Most SMEs suffer from negative payment cycles and the NPA classification results in their credit lines being snapped

   
Ø  RBI extends the Prompt Corrective Action (PCA) to Central Bank of India Ø  Central Bank of India has net NPAs of 10.2% of the loan book which makes it a second level PCA candidate

Ø  Now the banks will face restrictions on employee costs, top management compensation and branch expansion

 

Ø  India may have to walk a diplomatic tightrope in the Qatar case Ø  India is one of the major exporter of engineering goods to Qatar and those shipments have been impacted

Ø  However, Saudi Arabia and UAE, are major business partners for India and hence Qatar becomes a tightrope

 

Ø  ED files its charge sheet against Vijay Mallya under the PMLA Ø  The PMLA case came just one day after the Westminster Court had given bail to Vijay Mallya

Ø  Normally, UK extradites its citizens only in cases of very grave crimes against humanity and nor for financial peccadillo

 

Ø  SEBI issues comprehensive norms for margin trading Ø  The regulator has covered detailed guidelines covering eligibility requirements for brokers and disclosure norms

Ø  Most importantly, SEBI has explicitly focused on the Chinese Walls between client accounts and with the prop account

 

Ø  SEBI calls upon rating agencies to improve debt monitoring Ø  SEBI is of the view that in case of RCOM and earlier in Amtek case, the rating agencies delayed the downgrade

Ø  SEBI has called for an early warning system including early availability of default data, which is getting delayed now

 

Ø  RBI is also seriously considering merging banks for synergy Ø  Large banks like BOB, PNB, Canara Bank and BOI have been identified for considering a possible merger

Ø  Smaller regional banks like Syndicate Bank and Vijaya Bank have already called on RBI to consider merging them

 

Ø  PFC to raise Rs.18,000 crore via the issue of Section 54EC bonds Ø  These bonds are eligible for capital gains tax exemption if the proceeds are reinvested in these bonds

Ø  PFC has an annual fund raising target of Rs.70,000 crore and the 54EC bonds will constitute a key component

 

Ø  Mutual fund exposure to IT stocks is at an all time low Ø  According to Morningstar, while Infosys and TECHM have seen buying, overall IT stocks have failed to elicit interest

Ø  IT stocks have been hit by weak IT spending, stringent visa regulations in the US and weak growth

 

Ø  Deloitte Audit report confirms that NSE was aware of flaws in the algo system Ø  The algo system was misused by some brokers to get priority access to the trading server

Ø  According to the Audit Report, NSE was aware of the same but did not do anything about that

 

Ø  Credit Suisse raises serious doubts about corporate debt repayment Ø  While power has only 70% interest coverage, telecom and steel have only 55% interest coverage

Ø  This raises serious questions over the ability of these sectors to service their interest and principal outstanding

 

Ø  BP and RIL to invest $6 billion to revive oil extraction in KG Basin Ø  The freedom to price oil and natural gas could be a key driver for the revival of this segment

Ø  Earlier, the oil minister had invited BP and RIL to invest in marketing and retailing of oil in India