Weekly Capsule (Aug 20 – Aug 24) and Impact Analysis

News Announcement Impact Analysis
Fed chief hints at a clear likelihood of a rate hike in September
  • The Fed testimony by Powell was quite clear that raising rates would be a necessary antidote to rising growth
  • Emerging markets like India are worried about rising US rates as it indicates the possibility of risk-off trades by FIIs
India’s forex reserves slip below the psychological $400 billion mark
  • In the last few months, the RBI has seen nearly $25 billion worth of forex depleted defending the INR
  • With the forex chest now covering less than 9 months of imports, the only option for RBI may be another rate hike
Ministry of Defence clears purchases of arms worth Rs.46,000 crore
  • This massive allocation will include the purchase of missiles, naval helicopters and much needed guns and ammunition
  • This also means a big fillip to the domestic defence industry which is likely to benefit from larger order flows
Indian aluminium makers record 12% growth in April-July period
  • Both NALCO and Vedanta exceeded their production targets for the period, while Hindalco was almost at par
  • The situation is quite ironic because across the world aluminium producers are struggling to keep pace
60 companies with stressed loan book of Rs.3.5 trillion in trouble
  • The time limit for resolution expires on 27th August post which they will be automatically referred to the NCLT
  • These are the cases where the NPA issues are yet to be resolved and could put a major pressure on banks
Central government to offer Rs.5500 crore of subsidies for Electric Vehicles
  • The government has widened its gamut of EVs to include cars, taxis, scooters, green buses and other two wheelers
  • The government is keen to reduce the dependence on fossil fuels as India relies on imports for 75% of daily needs
L&T announced its maiden buyback of shares in August
  • L&T will buy back 6 crore shares at a maximum price of Rs.1500 per share amounting to Rs.9000 crore
  • While L&T does not have too many capex plans, this could also be a move to ward of potential acquirers
Tata Sons increases its stake in Tata Motors during the price fall
  • In the last few years, Tata Sons has increased its stake in Tata Motors from 25.22% to 33.40% consolidating its control
  • Tata Sons is flush with cash due to the massive buyback undertaken by TCS, which is financing these stake hikes
NCLAT strikes down Mistry’s request to ban taking Tata Sons private
  • While this allows Tata Sons to turn private, NCLAT has also stressed that Mistry family cannot be forced to sell its stake
  • The real challenge will be that once the company goes private, Mistry cannot sell the stake without the assent of the Tatas
RCOM completed the sale of assets worth Rs.2000 crore to Reliance Jio
  • This is part of the overall plan that RCOM has to monetize its assets to repay its Rs.25,000 crore of loans
  • This deal had been held up due to Ericsson seeking a stay on the sale. The Ericsson case has since been settled amicably
Defensive stocks drove the Nifty higher during the week
  • The big boost came from pharma stocks and FMCG stocks, which are likely to gain the most from higher inflation
  • Metals and oil remained under pressure despite good results as they are likely to be hit by any kind of trade war
Finance Ministry asks Bank CEOs to take responsibility for large frauds
  • This warning comes after Neeraj Singal of Bhushan was arrested on grounds of siphoning money out
  • Bank CEOs will have to monitor loans above Rs.50 crore personally to ensure that there are no promoter frauds
PIMCO warns of a likely recession in the US based on yield spreads
  • The spread between the US 10-year yield and the 2-year yield compressed from 150 bps to just 23 bps
  • An inverted yield curve or narrowing spreads are indicative of lack of confidence in the future hinting at likely recession
GST launch may have given a big boost to warehouse demand
  • The sharp increase in the demand for warehouses post GST was pointed out by real estate consultant CBRE
  • GST has impelled companies to look at logistics more as an operating efficiency rather than managing taxes
Jet Airways plans to announce results and a cost cutting plan on 27th August
  • Jet was originally supposed to announce results on August 09th which was put off leading to a sharp correction in price
  • Jet plans to cut costs sharply, including manpower costs, and give a game plan in the AGM with results announcement
Private insurers may have finally started cannibalizing LIC share
  • July marked the 7th straight month of market share decline for LIC with its life insurance share at 69.5% currently
  • Private insurers are now focusing more on the high margin businesses and less on volumes
Venezuela devalued its currency, the Bolivar, by 95%
  • The Bolivar effectively depreciated from 285,000/dollar to a new low of 6 million/dollar in a single move
  • Venezuela is in the midst of social and economic crisis and this is a last ditch effort by the government to bail out
Exit of Ranganath underlines Infy’s manpower challenges
  • Infosys has a big manpower challenge with an attrition rate in excess of 22%, the highest in the industry
  • The change of 4 CFOs in the last 5 years has not sent the right signals on the transparency of financial reporting
Government targets raising Rs.12,000 crore via buybacks
  • With the IPO market already overcrowded, the government will need more reliable ways of meeting revenue targets
  • This proposal will be restricted to the oil PSUs and other cash rich PSUs, that can afford to do a buyback
Rupee crossed the 70/$ mark and has lost over 9.84% since Jan-2018
  • India has been the worst performing Asian currency in 2018 with only the Philippines coming close with -6.6% fall
  • For India it is not just the dollar strength but also domestic concerns over trade deficit and rising inflation
Iran objects to other OPEC members taking its share of crude
  • There is a new battle within the OPEC to take over Iran’s share post the US sanctions being effective in November
  • The OPEC may end up being an open turf war between the Iran and Saudi Arabia for regional hegemony