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Weekly wrap-up: Market updates, news and insights for the week ending 19th October
Publish date: 19th October, 2018
News: Nifty closes on a weak note, very close to the 10,300 mark
Our perspective:
- The real scare for the markets came after Supertech, a realty company, was downgraded to junk by a rating agency on Wednesday.
- The sharp downgrade had its impact on most of the rate sensitive sectors including banks, NBFCs, Auto stocks and realty. Below average GRMs from RIL also dampened sentiments.
Related reads:
What is dampening the Indian stock market?
Reasons why the Nifty is walking a tightrope
Everything you need to know about the longest US bull market
News: Rupee and bond yields show strength during the week
Our perspective:
- The rupee is now trading closer to the Rs.73.5/$ mark after the RBI came in to support the rupee at 74 and the liquidity infusion also helped markets. Low trade deficit was also useful.
- After the RBI maintained status quo in the October policy, the bond markets have been celebrating with yields going below the 7.90% mark during the week.
Related reads:
4 questions you may have about Rupee Depreciation
Rupee at 70 – What should you do?
How does the Turkish currency crisis impact India?
News: NBFCs and rate sensitives react negatively to Supertech downgrade
Our perspective:
- The Supertech downgrade by several notches revived the memories of the way IL&FS was downgraded recently leading to the huge sell off in markets.
- NBFCs like Indiabulls Housing and other NBFCs have a huge exposure to Supertech and may have to take a large write-off in this quarter
- NBFCs are also wary of the more stringent regulation that RBI has warned that NBFCs could be subjected, to put them at par with banks in terms of regulation.
Related reads:
Five things to know about the housing finance sector
What is troubling India’s financial market?
Are the troubles over for the Indian banking sector?
News: RIL disappointed in GRMs but petchem and telecom made up for it
Our perspective:
- RIL oil gross refining margins (GRM) at $9.5/bbl were nearly $2.50 lower than the previous margin levels leading to some concerns.
- The petchem margins, however, were a lot more robust and the telecom business of Jio touched 25 million subscribers, albeit with lower ARPUs of around Rs.131.
- RIL also announced a major expansion of its digital franchise with a majority stake in DEN Networks and Hathaway Cables for a total consideration of Rs.5260 crore.
Related reads:
Jio juggernaut moves on, other telecom players on the ropes
How Reliance hit $100 billion in market cap
Why we have a Sell call on Reliance Industries
All you need to know about the rumoured partnership of RIL and Alibaba
News: Tata Sons may look to buy a controlling stake in Jet Airways
Our perspective:
- The airline has been under liquidity crunch for quite some time now and has been defaulting on short term outstanding amounts to employees.
- The acquisition will fit in perfectly for Tata Sons with their Vistaara and Air Asia franchises. Additionally, the global flying licences of Jet will add value the Tata aviation business.
Related reads:
The curious case of India’s aviation industry
7 things to know about Indian aviation
Why we have a Buy call on Interglobe Aviation (Indigo)
News: Infosys Q2 results were largely in line with expectations
Our perspective:
- While tech stocks may have suffered due to the sell-off in the NASDAQ, the Infosys Q2 results actually was in line in terms of revenues and profits.
- The company saw a rise in big business clients in excess of $1 billion and that also led to the Operating margins at around 24.1%, an expansion of 40 bps.
- The big takeaway for the company would be the sharp traction in the digital business but it still lags TCS on the operating margins and operating efficiency front.
Related reads:
Why we have an Add recommendation on Infosys
Why we have a Reduce call on TCS
Will TCS outperform Infosys after Q2 results?
How Infosys is regaining digital mindshare through acquisitions
News: Trade deficit comes in lower for September at $13.98 billion
Our perspective:
- The lower trade deficit will be relief for the value of the rupee and for the CAD as the overall trade volumes fell following the incessant trade war between the US and China.
- There is also a cause for worry. The lower trade deficit was also accompanied by a negative YOY growth in exports despite the consistently weak rupee.
Related reads:
Five things to know about the housing finance sector
What is troubling India’s financial market?
Are the troubles over for the Indian banking sector?
News: Punjab National Bank to raise over $1.2 billion via sale of non-core assets
Our perspective:
- Apart from selling some of its marquee real estate properties, PNB will also look to monetize part of its holding in PNB Housing, which is a listed company.
- After the $2 billion fraud committed by Nirav Modi, PNB has been forced by the RBI to first monetize its assets where possible before asking for any support from the government.
Related reads:
Are the troubles over for the Indian banking sector?
5 things to know about India’s credit growth
5 things to know about farm loan waivers
News: Saudi Arabia could retaliate against the US over the Khashoggi issue
Our perspective:
- While the US has talked about sanctions on Saudi Arabia, it may not be feasible considering the arms orders that Saudi Arabia places with the US.
- While Saudi involvement in the assassination of Khashoggi is alleged, the Kingdom has denied and has warned the US of retaliatory action in such an event.
Related reads:
How US sanctions on Iran will impact India
Is India decoupling from the global market trend?
Contagion effect of China on world markets
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