Midnight News – Jun 11th 2020

unnamed Midnight News – Jun 11th 2020

 

 

Less than two weeks after Moody’s downgraded India’s sovereign rating and its outlook, S&P has taken a more measured stance and retained its rating as well as its outlook. Now all the three rating agencies have placed India in the lowest investment grade above the speculative bracket. However, unlike Moody’s which also changed India’s outlook to negative, S&P has retained the outlook as “Stable”. S&P has warned that if the lag effect of COVID-19 persisted longer than anticipated, then there was a strong chance of the rating and the outlook being downgraded from current levels. CAD is less of a risk now.

The US Fed in its June meeting of the FOMC, held the Fed rates at the range of 0.00%-0.25%. The Fed has projected 6.5% contraction in GDP for the US economy in 2020 accompanied by nearly 9.3% unemployment. Fed has pointed to the risk that the public health crisis could have a serious bearing on growth and economic activity over the next 2 years. Fed has agreed to sustain its bond purchase program at the current level of $80 billion per month in treasury and $40 billion in agency and mortgage backed securities. For Indian markets, this means lower rates and liquidity will sustain.

The mutual fund flow data announced by AMFI for May 2020 clearly hinted at SIPs continue to stay robust at around Rs.8123 crore for the month. This was slightly lower than the average of the last few months. However, the overall assets under SIP management were almost flat at Rs.276,000 crore. However, some of the funds have pointed out that the change in AUM of mutual funds does not appear to reflect this robustness. According to fund managers, this discrepancy could be because of bounced SIPs. If the bounced SIPs due to insufficient funds are considered, the SIP flows may be less flattering.

There is some good news on the oil refining front and that may be music for the oil extractors and the refiners including ONGC, Reliance, IOCL, and BPCL etc. For the month of May, the refinery throughput has improved sharply compared to April. This is largely on the back of higher demand. The throughput increased to 80% and IOCL reported that the demand for all petroleum products had almost doubled in May compared to April. It may be recollected that refinery utilization levels had dropped to 39% in April 2020. Petrol demand was up by 70% and diesel demand was up by 60% in May 2020.

As India limps back to normalcy, the big question is where is the funding going to come from. Despite the best efforts of the government, the 76 day lockdown has certainly caused a lot of financial stress for individuals and small businesses. The question now is about funding themselves back to economic health. With bank loans hard to come by, one big source that is going to emerge is gold loans and banks are literally falling over each other to give loans against gold. Farmers and small businesses are finding it tough to get loans from banks and are opting for gold loans which get disbursed faster. Even for the banks, this is working out better as the asset backed loans are lower on the risk scale. The World Gold Council has estimated that with banks getting risk averse, gold loans could be an option for banks.

Dr. Reddy Laboratories completed the acquisition of the generics portfolio of Wockhardt, which includes the branded generics business across India, Nepal, Sri Lanka, Bhutan and Maldives. The portfolio comprises 62 brands across respiratory, dermatology and neurology. The acquisition was done at an upfront consideration of Rs.1850 crore, which was later scaled down to Rs.1483 crore in view of the COVID-19 epidemic. This fits in with the long term bet that Reddy Labs is making on the India market and to reduce its dependence on the US market. The employees will move to Reddy Labs, en masse.

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