Daily Market Update – Aug 27th

unnamed Daily Market Update   Aug 27th

 

The Federal Reserve is likely to keep interest rates at close to zero for the next five years. This and a lot more are expected to be part of a long term strategy paper to be announced by the Fed as early as September first week. One of the highlights of the new strategy paper is likely to be that the Fed may not be too finicky about inflation and may choose to keep rates low even if inflation touched 2%. The Fed Chair, Jerome Powell, is expected to provide an outline of this one-and-half year policy that is likely to be announced later next month. The ultra low rates have helped equities give extraordinary returns.

The Competition Commission of India or CCI has approved Carlyle’s acquisition of 25% stake in the data centre business of Bharti Airtel. The deal is worth $235 million valuing the overall data centre business of Airtel at closer to $1 billion. On completion of the deal, Carlyle will hold 25% in the data centre business with the balance being held by Airtel. The data centre provides data co-location through 10 of its centres across India. The deal will be executed through Comfort Investments, which is a special purpose acquisition vehicle created by Carlyle Group purely for this purpose.

The government is expected to sell up to 15% stake in Hindustan Aeronautics Limited or HAL through the offer for sale or OFS route. The government will sell 3.34 crore shares with the option to retain up to 50% oversubscription. This will take the potential divestment size to Rs.5020 crore at the floor price of Rs.1001 per share. This is a 15% discount to the closing price of Rs.1177. The stock has rallied over 30% in the last few weeks ever since the government announced a massive defence in-sourcing plan. With the recent rally, the government is looking to monetize some of its holdings at higher prices.

The total government debt in FY21 is slated to hit an all-time high at 91% of GDP. The government data in FY20 was at just 75% but the situation is likely to worsen as the pump priming of the economy calls for a sharply higher level of fiscal deficit. The government borrowing calendar for the first half has also hinted at pressure on borrowings. In the last few years, the government is playing an increasing role in stimulating growth in the economy and that is taking its toll on the finances of the government. Government debt stood at 66% in FY16 and has been rising one-way since then.

Vedanta has moved the Supreme Court against the Madras High Court order refusing to give permission to reopen the Vedanta copper plant at Tuticorin. This plant has been shut since the middle of 2018. The National Green Tribunal had allowed the plant to be opened but the Madras High Court had dismissed the order and directed Vedanta not to reopen the plant. The High Court held the company directly responsible for the pollution in that particular area. Back in 2018, massive protests against the Tuticorin plant had forced the police to open fire in which 13 people had died and many had suffered grievous injuries. Tuticorin is one of the largest copper smelters in India and accounts for a bulk of the copper supply. As a result of this shutdown, India is forced to import copper for its needs.

Gillette reported a minor 1.85% fall in net profits at Rs.44.97 crore for the Jun-20 quarter. Gillette follows the July-June annual accounting cycle. However, total income of Gillette fell by 26% a Rs.352.74 crore in the Jun-20 quarter. The Gillette management has affirmed that its operations were badly hit by the Coronavirus pandemic which had led to capacity shutdowns. Despite manufacturing getting back to near normal levels, the concern remains over the lag effect, especially in terms of availability of labour. However, the company has reported a bounce in volumes post May 2020.

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