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WEEKLY CAPSULE AND IMPACT ANALYSIS


Posted on 07-Dec-2018 Comments  0

Weekly Capsule (Dec 03– Dec 07) and Impact Analysis

News Announcement Impact Analysis
RBI maintains status quo on repo rates at 6.50% in December policy
The RBI held rates considering low inflation and growth rates not picking up in the second quarter
However, the RBI chose to maintain the monetary stance at “Calibrated Tightening” hinting at future rate hikes
Retail and MSME loans to be pegged to external benchmarks
Effective April 2019, banks will be required to peg their loans to benchmarks like T-bill rates rather than MCLR
The RBI had tried this in the past but it had been difficult to implement benchmarks other than the MCLR
OPEC sets crude supply cuts at 1.20 million barrels per day
OPEC nations will contribute 8 lakh barrels and non-OPEC nations like Russia and Mexico will put in balance cuts
Brent crude prices have crashed by $86/bbl to 60/bbl and this move should provide some support for crude prices
Exit polls give Congress an edge in the state of Rajasthan
Most of the exit polls appear to be hinting at a clear win for the Congress in Rajasthan on the back of anti incumbency
However, the results of Madhya Pradesh and Chhattisgarh appear a lot more mixed and will have to await Dec 11th
US shale producers may benefit from the supply cuts imposed by OPEC
With OPEC cuts hinting at higher prices of crude, US shale producers may have reason to turn to profitability
Shortly after the supply cut announcement, the crude prices shot up by 6% and that has given hope to shale producers
US markets saw one of their sharpest falls during the week
Market weakness was driven by fears that the trade war with China may worsen in the days to come
The recent arrest of the Huawei CFO in Canada is also likely to strain relations between China and the US
The US yield curve turns inverted for the first time in the last 10 years
An inverted yield happens when the long term yields are lower than the shorter term yields reflecting uncertainty
In 1998 and 2005, an inverted yield curve in the US has resulted in a recession within the next 2 years
Current account deficit (CAD) rises to 2.9% of GDP in second quarter
This implies a 100 bps rise in the CAD in 6 months and has been driven by weak exports and higher oil prices
However, with crude oil prices falling more than 30% from recent highs, the next quarter CAD should be better
India to double ethanol blending to 8% in the 2018-19 sugar season
Currently India blends less than 4% ethanol, but this could change with better prices offered by the OMCs
Even a 4% increase in ethanol blending will save crores for the Indian economy in forex paid for oil imports
Market rife with the news of Buffett buying a stake in Kotak Bank
The stock was up by nearly 10% after it was reported that Buffett could buy a stake in the bank
The promoter, Uday Kotak, has been looking to reduce his stake in the bank in line with RBI stipulations
PFC to buy government’s 52.6% stake in REC for nearly Rs.11,000 crore
The idea was to merge the two power financers to ensure better synergy and lower cost of funds
The move will also help the government to get closer to its divestment target of Rs.80,000 crore for the current fiscal
Indian steel stocks see 15% correction in last 3 months
The sharp correction in steel stocks was driven by a global fall in steel prices and a rise in input costs
While the correction was lower in case of Tata Steel, stocks like SAIL and JSPL corrected almost 30% in 3 months
Inflows into equity mutual funds fall 33% MOM in November
This is the lowest monthly inflow into mutual funds in a long time and was largely driven by volatile market conditions
However, the SIP flows have been less affected compared to the bulk flows. Debt flows have been robust
Trump’s trade tariffs may only be worsening the trade deficit
The monthly trade deficit for the US came in at $55.5 billion in November, higher than October despite stiff tariffs
Interestingly, China alone accounts for 80% of the total trade deficit of the US, which perhaps explains the Trump dilemma
Jet Airways seeks $350 million soft loan from Etihad Airways
Etihad, which owns 24% in Jet, has expressed willingness to fund up to $200 million via soft loan
Jet has also been looking at getting Etihad to increase its stake up to the maximum permissible 49% mark
Hindustan Unilever touched an all time high during the week
The stock price rose sharply after the stock was upgraded by analysts following its purchase of GSK Consumer
At a market cap of Rs.4 trillion, HUVR is already among the most valuable companies in India
UK government loses BREXIT vote by a margin of 321 to 299
This would put Theresa May in a defensive position and she will have to give more powers to the UK Parliament
If the BREXIT happens without a deal then it could lead to a virtual crash of the UK Pound and GDP growth
Kesoram to demerge its tyre unit into a separate company
Existing shareholders of Kesoram will be issued shares in the ratio of 1:1 in the new company
Tyres account for 39% of Kesoram revenues and separating it will help the company get a better valuation
ICICI Securities launches instant payout of sale proceeds to clients
This is part of a tie-up between ICICI Securities and BSE and the funds will be made available within 30 minutes of sale
This facility will be subject to a ceiling of Rs.50,000 per day for a registered client
Manufacturing PMI was buoyant at 54 after a long time
This indicated a clear expansion of manufacturing activity with a positive momentum compared to the previous month
This rise in PMI was led by fresh orders flowing in as well as higher production and more jobs created
Axis Bank and Marico bag maximum analyst upgrades in November
Axis Bank benefited from a management shift and also from positive traction in managing NPAs
LIC Housing, MGL and Cadila Healthcare were among the stocks that got more than 3 upgrades during November
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