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Weekly wrap-up: Market updates, news and insights for the week ending 5th October
Publish date: 5th October, 2018
News: Nifty lost 700 points and the Sensex close to 2300 points during the week
Our perspective:
- The sharp correction was led by oil stocks with most OMCs losing nearly 50% in 2 days after subsidy burden was finally imposed on oil companies
- Macros have also been weakening with the Brent Crude prices above $85/bbl and the rupee touching an all-time low of Rs.74/$. That weighed on markets.
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News: Rupee weakens sharply, bond yields recover after monetary policy
Our perspective:
- The decision of the MPC to maintain status quo on rates was contrary to the market expectation of 25 bps hike to support the rupee
- However, the MPC chose to maintain status quo on rates as inflation was expected to come down and the rate hikes had done little to support the rupee in the past.
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News: RBI maintains status quo on repo rates at 6.50%
Our perspective:
- Bond and currency markets were actually factoring in a rate hike of 25 bps by the MPC to absorb some of the rupee weakness in the currency market
- However, the MPC voted to keep rates unchanged considering that 2 rates had already been front-ended in June and August and low inflation did not justify another one.
- The status quo on repo rates came as a boost for bond yields which fell closer to 8% but did spook the rupee leading the INR beyond the 74/$ mark.
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News: OMC stocks crack 50% in two days after subsidy returns to OMCs
Our perspective:
- HPCL, BPCL and IOC were the major losers in the last 2 days losing nearly 50% of their value. Even the upstream stocks like ONGC and Oil India bore the brunt.
- The government imposed a Re.1 per litre subsidy on oil companies which is likely to wipe out their profits by nearly half in the current fiscal year.
Related reads:
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News: Chanda Kochhar steps down from the boards of all ICICI group companies
Our perspective:
- In an abrupt move, Chanda Kochhar decided to step down from all her ICICI positions ahead of the Srikrishna report findings being made public
- The stock market celebrated with ICICI stock gaining nearly 5% after Sandeep Bakshi was officially made the MD and CEO of ICICI Bank
Related reads:
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News: IL&FS constitutes a new board with clear time-bound mandate
Our perspective:
- The board will be led by Uday Kotak and Vineet Nayyar (the man who turned around Satyam) will lead the turnaround strategy implementation for IL&FS
- The board will report its complete strategy by 31st of October with its first priority being to monetize the assets of the IL&FS group and get a hang of the structure
Related reads:
IL&FS credit downgrade sends ripples down markets
How the infrastructure slowdown has hurt India
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News: Bandhan Bank cracks on the back of RBI strictures on ownership
Our perspective:
- The stock cracked nearly 20% the day after the RBI put restrictions on the branch expansion and a freeze on CEO compensation on ownership issues
- Bandhan Bank was supposed to reduce its promoter stake to 40% as per the RBI rules but could not do the same due to freeze on shares post the IPO
Related reads:
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News: Government has set Rs.2.47 trillion as the borrowing target for second half
Our perspective:
- This is the second time that the government has reduced its borrowing target after it set a very conservative target of Rs.2.72 trillion in the first half
- However, the efficacy of this lower borrowing will only be visible if the government also cuts down on its borrowings from the National Social Security Fund (NSSF).
Related reads:
Five reasons why RBI needs to lower borrowing rates
Hawks abound: What RBI minutes reveal about future rate plans
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