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Weekly wrap-up: Market updates, news and insights for the week ending 23rd August
Publish date: 24th August, 2018
News: Nifty closed 75 bps higher close to the 11,557 mark
Our perspective:
- Despite bullish undertones, the Nifty has been tentative due to the hawkish statements coming from the US Federal Reserve with a high likelihood of September rate hike
- During the week, the buying action was broadly restricted to dollar defensives like IT and pharma as well as the fast growing FMCG space.
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Market Strategy – Grin and bear it
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News: US Fed hints at one more rate hike in September Fed meet
Our perspective:
- In his discussion of minutes, Fed chief Powell hinted that strong growth rate and jobs data could make a case for a rate hike in September. Trump has criticized aggressive rate hikes.
- Indian markets will be closely watching the language of the Fed as the RBI meets for its next MPC in early October and could be driven by domestic inflation and Fed trajectory.
Related reads
Subdued inflation to provide comfort from RBI
Economic – RBI signalling a brief pause
4 questions you may have about rupee depreciation
News: L&T approves fourth largest buyback in Indian history
Our perspective:
- The Rs.9000 crore buyback will comprise of 6 crore shares at Rs.1500 per share representing nearly 4.29% of the capital of L&T, which will get extinguished.
- Buybacks are normally interpreted as a price base signal in India as also a hint that the company may be looking at limited investment needs in the near future.
Related reads
Economy – IIP continues to signal a growth story
News: SEBI to take urgent steps to reduce the Total Expense Ratio (TER) of MFs
Our perspective:
- Average TERs in India are among the highest when compared to global markets and are above 2.50% when small town incentives and GST compensation are added up.
- Globally, funds like Vanguard have saved billions of dollars in the form of lower expense ratios by focusing on passive funds like index funds and ETFs, with sharply lower costs.
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Five things to make of household savings
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News: US imposes 50% anti dumping duties on Indian metal pipe imports
Our perspective:
- This duty has been targeted specifically at India and China based on complaints by US pipe manufacturers. These are large diameter pipes to transport oil and gas.
- Global funds like Blackrock and JPM have expressed concerns that EMs like India and China may become the target as Trump faces increasing pressure on his home turf.
Related reads
How the Turkish currency crisis impacts India
5 indicators to gauge the intensity of the trade war
US-China face-off – Why India should be concerned
News: RBI puts onus of large loan fraud checks on the bank CEOs
Our perspective:
- RBI has instructed bank CEOs to personally supervise bad loan accounts above the value of Rs.50 crore to prevent obvious frauds on shareholders and depositors.
- We have seen cases like Neeraj Singal of Bhushan Steel who was recently arrested as well as defaulters like Vijay Mallya, Nirav Modi and Mehul Choksi who managed to abscond to safe havens after defaulting on banks. RBI wants CEOs to create an early warning system.
Related reads
Are the troubles over for the Indian banking industry?
Five challenges faced by Indian banks
What you must know about bank NPAS
News: ONGC may look to list its overseas unit (OVL) to monetize its global properties
Our perspective:
- ONGC Videsh Ltd., the global arm of ONGC, owns nearly 11 oil and gas fields across Russia, Brazil and Iran. Government has asked ONGC to monetize its global business via an IPO considering the better valuation for oil stocks globally.
- ONGC already had taken on large debts for its expansion in the last few years and has recently added on to its debt to acquire the government stake in HPCL.
Related reads
Why we have an Add recommendation on ONGC
6 effects of rising crude prices on the Indian economy
News: JP Morgan looks to disrupt US broking industry with its digital platform
Our perspective:
- This digital platform will be in direct competition with the platforms of Schwab, Ameritrade and Fidelity who specialise in discount broking
- With broking increasingly becoming an ancillary activity, JPM may look to leverage its strengths to offer a low cost / no account minimum kind of offering to capture the market.
Related reads
Why we have Sell call on IIFL Holdings
5 things to know about IPO investing
News: Government may ask for PSU buybacks to the tune of Rs.12,000 crore
Our perspective:
- The government is likely to approach cash-rich PSUs to buy back shares from the government to the tune of Rs.12,000 to finance its divestment program.
- That would be an easier route for government to monetize its stake in the PSUs without really diluting its stake; especially considering the current IPO market situation.
Related reads
4 things to know about the HCL Tech buyback offer
Why TCS Buyback presents a good investment opportunity
News: Donald Trump continues to be keen on low interest rates
Our perspective:
- Trump has expressed disappointment with the speed at which Powell has been hiking rates. Trump is keen on a weaker dollar to push exports and also to ensure that in a trade war, businesses have lower rates to counter imported inflation.
- The bigger worry for Trump could be on the rising Medium rated debt in the US. Debt below the AAA rated category had grown by 120% since 2011 and that debt could get into problem if the rates go much higher from current levels.
News: Liberty House of UK willing to pump in $5 billion into stressed assets in India
Our perspective:
- Liberty House, led by Sanjeev Gupta, has already sunk in over $1 billion into buying stressed assets of Amtek Auto and Adhunik Metals in the past.
- Liberty is also in the fray for Bhushan Steel and for ABG Shipyards, which are pending before the NCLT. Liberty sees huge potential in Indian stressed assets.
Related reads
How to identify stressed companies
5 things to know about RBI’s push for Bankruptcy Code
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