Weekly Capsule for week ended Aug 25th 2017

Weekly Capsule (Aug 21 – Aug 25) and Impact Analysis

Major News Item Impact Analysis
   
Ø  Nandan Nilekani takes over as non-executive Chairman of Infosys Ø  This fills up the vacuum created at the top after the resignation of Vishal Sikka and the Board chairpersons

Ø  After a brief 3 year stint for Sikka, Infosys now returns to being run by its original founding promoters

 

Ø  FIIs sold over $2 billion in Indian equities in August 2017 Ø  While Infosys selling was part of this, there are also overall concerns of growth not being in sync with valuations

Ø  The strong rupee at around 64/$ is also proving to be a disincentive for FIIs to commit to Indian equities

 

Ø  IOC plans to invest up to $8 billion in the Paradip refinery in Odisha Ø  IOCL is now positioning as an end-to-end player with forward and backward integration of its business lines

Ø  Mr. Jaitley has already announced the intent to create a merged oil behemoth to take on global competition

 

Ø  Insurance companies to dominate the IPO market in coming months Ø  A total of Rs.20,000 crore to be raised through IPOs of HDFC Life, GIC Re and New India Assurance

Ø  The sale of government stake in PSU insurance companies is a step towards the divestment targets for the fiscal year

 

Ø  ICRA expects microfinance institutions to report negative ROE this year Ø  Most MFIs are still feeling the brunt of the business hit taken in the aftermath of the demonetization last year

Ø  MFIs have seen a sharp rise in credit cost and a larger degree of delinquencies in their cash-focused markets

 

Ø  Government moves fast on curbing imports of food Ø  After curbing the import of pulses, the government has also put curbs on the import of green gram and black matpe

Ø  Farmers were feeling the heat of higher imports which were pushing down prices of most agri products

 

Ø  CARE has reported a 16% fall in net profits of India Inc for Q1 Ø  Lower profits were largely driven by a near 9% fall in the overall volumes and sales of Indian companies

Ø  The caution was also largely due to the launch of the GST effective from July 01st which encouraged de-stocking

 

Ø  Global investors caution Fed against an aggressive taper of bond portfolio Ø  The taper is likely to begin in September and markets are worried about a liquidity crunch in global markets

Ø  Things could get much worse if US yields move up and other EMs see risk-off outflows

 

Ø  UK laid out a tentative roadmap for its exit from the EU Ø  This is the first step in commencing the process of disengaging the UK from the EU over a 2-year period

Ø  A lot will depend on how the UK will compensate for its trade losses by exiting from the EU region

 

Ø  Option buyers may get  an option on whether to exercise their options Ø  This is more relevant on the expiry day when all ITM options are assumed to have been exercised

Ø  However, this results in a very steep STT of 0.125% on notional value of the contract and needs change

   
Ø  Reliance to enter power storage business in alliance with BP Ø  Power storage is a natural extension for large companies globally that are exposed to old fossil fuels

Ø  The focus will be to leverage the fast-growing renewable space in India and offer storage solutions

 

Ø  The Cabinet gave in-principle approval for merger of PSU banks Ø  The idea is to reduce duplication of banking services across India and help better sharing of resources

Ø  There will be national level banks with scale and also regional level banks formed through mergers

 

Ø  Bankruptcy proceedings could lead to investment bank deals worth $80 bn Ø  This is likely to be an outcome of nearly $180 billion of stressed assets that need to be restructured

Ø  Many large companies are likely to find good bargains especially in steel and power

 

Ø  Yellen speech at Jackson Hole spooks bond markets Ø  At the gathering of global central bankers, Yellen emphasised on tapering and a hawkish rate scenario

Ø  That led to a hardening of yields in the US debt and led to a fall in bond prices across the board

 

Ø  Overseas Dollar borrowing of India Inc up by 57% in July 2017 Ø  The sharp rise in dollar borrowings could be largely attributed to the SEBI imposed ban on rupee denominated bonds (RDB)

Ø  The borrowing market was largely dominated by large corporates like HPCL, Idea, Reliance and EXIM Bank

 

Ø  Nandan Nilekani outlines immediate goals for Infosys Ø  A complete strategy report is expected to be in place by October which will outline the road ahead for Infy

Ø  Nilekani will also work on a long term corporate governance structure that will accommodate founder inputs

 

Ø  RBI Committee wants home loan rates linked to benchmark repo Ø  This linking is essential to ensure that a proper transmission of rate cuts by the RBI actually happens in case of home loans

Ø  The committee wants banks to quote home loan rates based on the repo rate rather than their own MCLR rates

 

Ø  Cyclone Harvey sends US oil prices higher as Texas shuts down Ø  The cyclone that will shut US refineries will curtain oil supply and that has pushed up crude oil prices

Ø  The cyclone has come as an unexpected support for oil prices at a time when they were struggling to sustain above $50/bbl

 

Ø  Violence erupted in North India after the conviction of the Dera chief Ø  The violence has already left more than 30 dead and over 250 injured as the army has already been called in

Ø  The handling of the situation also raises grave concerns over the futures of Mr. Khattar as the CM of Haryana

 

Ø  POSCO of South Korea could be one of the contenders for Essar Steel Ø  Essar Steel has debt to the tune of $40,000 crore and Tata Steel has already evinced interest in the company

Ø  For POSCO, this will be a return to India, after its failed bid to set up a $10 billion Greenfield steel project in Odisha

 

Ø  Infosys has appointed Egon Zhender to hunt for the next Infosys CEO Ø  It may be recollected that Pravin Rao is only standing in as a temporary CEO

Ø  The new CEO will have a tough task to balance the recent events with the future vision of Infosys