Weekly Capsule (Apr 02 – Apr 06) and Impact Analysis

News Announcement Impact Analysis
RBI monetary policy maintains status quo on repo rates
  • Along expected lines the repo rate was held at 6% as was the SLR and the CRR at 19.5% and 4% respectively
  • The MPC also maintained a neutral stance on monetary policy although higher inflation could impel rate hikes in future
ICICI Securities listed at a steep discount of over 16% on Wednesday
  • The sentiment around the stock was already soured due to the company getting only 78% subscription for its IPO
  • In addition, the charges of favouritism against the ICICI Bank CEO had also dampened sentiments around the stock
Trade war between the US and China appeared to worsen during the week
  • China retaliated to US tariff proposals by imposing 25% tariff on 106 items of import from the US
  • The worry is that this could gradually escalate into a full-fledged trade war impacting other nations too
RCOM gets some relief as court permits sale of its assets to Jio
  • The $4 billion RCOM-Jio asset sale deal had been held up due to a stay order obtained by Ericsson over unpaid claims
  • While the deal will be permitted, the funds will be held in an escrow account till the minority shareholder case is decided
Macquarie bets big time on Indian consumer staple stocks
  • Most consumer staples have benefited from a more friendly GST regime for food products
  • In addition, the government thrust on rural demand is also opening up the demand gates for FMCG products
Nikko of Japan feels that trade war fears were overestimated
  • According to Nikko, if the trade tariffs are going to impact only $50 billion of trade, then it could actually be immaterial
  • The tariffs are likely to hit just about 10% of total US-China trade and so the collateral damage will be limited
Indigo confirmed that it is opting out of the race for Air India
  • Indigo had apparently blamed the unfavourable terms of the deal offered by the government for opting out
  • While the 76% sale is attractive, the uncertainty is over the Rs.34,000 crore debt burden and land monetization
RBI pays out an additional Rs.10,000 crore dividend to government
  • RBI had transferred Rs.13,000 crore to the contingency reserve and reduced the dividend to the government
  • To bridge its revenue shortfall, the government had asked the RBI to payout a higher dividend this year
RBI bans regulated entities from dealing in crypto currencies
  • Since RBI regulated entities are an all-encompassing term, this could virtually put an end to crypto currencies like Bitcoins
  • RBI, like other central banks, has been worried about the security and the monetary implications of Bitcoins
Banks push for winding up of Alok Industries and Jyoti Structures
  • There was only one bid for both the companies and the deadline is almost over for both the companies under NCLT
  • Under the IBC, if the case is not resolved 270 days then the company has to be compulsorily liquidated
India pips Japan to become the world’s second largest steel producer
  • Indian output is approaching 100 million tonnes and is slated to grow to 300 million tonnes by the year 2030
  • India had overtaken the US in 2015. China, however, remains the largest with 50% of the world steel output
ICICI Bank shareholders lost over Rs.30,000 crore in market cap
  • The stock has corrected sharply since the CEO’s conflict of interest case broke out
  • In addition, retail investors hold Rs.35,000 crore exposure in ICICI Bank indirectly through mutual funds
RBI tacitly admits that US Fed could be a key trigger for domestic rates
  • RBI cannot afford to cut rates when the Fed is hiking as it would narrow the yield differential and FPIs could sell
  • That trend was visible in 2013 when nearly $13 billion of bonds were sold by FPIs in less than a fortnight
OPEC output continues to be under pressure due to Venezuela factor
  • The crisis in Venezuela and Libya have been added to the planned production cuts by OPEC and Russia
  • Brent Crude has stayed above the $70/bbl mark and is expected to remain buoyant through the year
JSW Steel buys 26% stake in Numetal to bid for Essar Steel
  • Numetal had been disqualified from bidding for Essar Steel as Rewant Ruia was on their board
  • Both Numetal and Arcelor Mittal are key bidders for Essar Steel as global players look at India steel capacity
Mr. Vaghul bats for a more deeper inquiry into the ICICI allegations
  • The former ICICI Bank boss, while expressing confidence in the management, has called for a deeper probe
  • To quote Vaghul, Corporate governance is always a matter of perception and that can only be managed with transparency
Deutsche Bank warns that the Dollar short trade may be coming to an end
  • In the last year emerging market bonds yielded over 13% of which more than half came from dollar weakness
  • Deutsche has warned that over $750 billion riding on this trade may not be at risk as the dollar could strengthen
Core sector growth came in at 5.3% for the month of February 2018
  • The thrust to core sector was driven by cement, refinery products and fertilizers as steel was subdued
  • Core sector accounts for over 40% of the IIP and has key implications for the PMI-Manufacturing and for GDP
GlaxoSmithKline plans to sell off its Indian healthcare business
  • The money from the sale will be used to finance the buyout of Novartis’ 36.5% stake in the healthcare joint venture
  • The consumer healthcare products of Glaxo like Boost and Horlicks were stagnating in a competitive Indian market
FPI flows into equities in 2017-18 almost halved to just $4 billion
  • In the last one year, Indian equities have grossly underperformed other Asian markets
  • Concerns over valuations and the corporate governance issues like the PNB fiasco also took its toll on FPI flows
Indian companies raised Rs.84,300 crore via IPOs in fiscal 2017-18
  • This figure is nearly 3 times the figure achieved in 2016-17 and was largely led by PSU driven IPOs
  • With the government’s aggressive divestment targets, the current year could also see a spate of IPOs