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WEEKLY CAPSULES


Posted on 04-Oct-2019 Comments  0

Weekly Capsule (Sep 30 – Oct 04) and Impact Analysis




News Announcement Impact Analysis


RBI cuts repo rates by 25 basis points from 5.40% to 5.15% This takes the reverse repo rate to 4.90% and the bank rate to 5.40% post the October policy

The 25 bps rate cut was already factored into the market and that was the reason markets reacted negatively


RBI downgrades full year growth by 80 basis points from 6.9% to 6.1% This is the lowest growth projection made by any Indian or foreign agency on full year GDP growth and spooked markets

Markets were worried because RBI has projected just 5.3% GDP growth in Q2, putting further pressure on Q3 and Q4


RBI raises inflation target to the range of 3.2% to 3.5% for the full year While vegetable inflation is likely to push the food basket up, buffer stock of pulses is expected to rein in inflation

This is well within the RBI comfort level of 4% inflation with a leeway of 2% either ways, to cut rates


RBI raises concerns over poor level of transmission of rate cuts to borrowers RBI revealed that despite the 135 bps rate cut, the total transmission was just about 29 bps defeating the purpose

However, with banks shifting to external benchmark pricing from October, this ratio is expected to improve


Nifty and Sensex fell on all trading days during the full week The correction in the Nifty was initially driven by concerns over banks and the global slowdown worries

However, on Friday the correction was driven by lower than expected rate cuts and RBI cutting growth estimates


Fund raising through commercial paper down 80% in Apr-Sep period Total CPs issued by Indian companies fell sharply by 80% to just Rs.90,000 for the first six months

The weak CP issue market was largely due to NBFCs being virtually out of the market after the liquidity crisis


RBI places Lakshmi Vilas Bank under Prompt Corrective Action PCA has been brought on LVB due to its extremely vulnerable earnings and NPA position

The action led to a sharp correction in the Indiabulls Housing Finance stock ahead of a proposed merger of IHFL and LVB


HDIL top brass arrested over the fall of PMC Bank The link emerged after PMC Bank was barred by RBI as nearly 31% of its lending was purely to the HDIL group

It emerged that PMC Bank had created ghost accounts to fund HDIL promoters even after they were declared bankrupt


Crude oil drops sharply on the back of growth worries and supply glut The sharp fall in the US manufacturing and the US services numbers raised doubts over the demand for oil

The price fall of over 20% was also triggered by Saudi Aramco restoring full production well ahead of schedule


Government raises Rs.4368 crore through the Bharat-22 ETF The Bharat ETF has been a successful method of divesting stake in high dividend paying government PSUs

The issue was oversubscribed over 12 times and will take the government close to its divestment target for full year


Yes Bank promoters get a late week boost on promoter exit During the week, the stock of Yes Bank shot up by nearly 35% from its low price as Rana Kapoor almost exited the bank

The stake of Rana Kapoor has been reduced to just 0.8% after the shares pledged on behalf of Morgan Credit was sold off


Services PMI for September comes in sharply lower at 48.7 The fall in the Services PMI from 52.5 to 48.7 indicates a contraction plus a loss of momentum

Services have been hit by weak demand and that is evident in weak order books as well as weak recruitments


RBI promises extended liquidity support for NEFT transactions This pertains to round the clock NEFT availability from December 2019 onwards

The RBI will extend its liquidity window to facilitate smooth functioning of NEFT transfers on a 24X7 basis


Forex reserves scale a record high of $435 billion on October 01 The sharp rise in forex reserves was largely driven by exports growing faster than imports during the month

Also, the RBI intervention in the currency markets has reduced substantially with the stabilization of the rupee


MAT clarification could dampen the enthusiasm around tax cuts The CBDT clarified that MAT credit will not be available for companies that opt to shift to the 22% tax bracket

This will mean companies will have to continue in the old bracket till the time their MAT credits are absorbed


Global pension funds take on higher risk to make up for lower rates This has become essential with nearly $15 trillion of global bonds paying negative interest rates

This is leading pension funds into equities and other high risk assets putting more performance risk in the portfolio


Auto numbers continued to be tepid for month of September Most four wheelers showed pressure with monthly sales off take falling anywhere between 30% and 50%

In case of two wheelers also, the growth was negative but exports performed a lot better


Bank funding to NBFCs sees a 40% growth YOY to Rs.190,000 crore This largely makes up for the 11% contraction in mutual funding for non banking finance companies after IL&FS

MFs have become wary after the defaults by companies like IL&FS, Dewan Housing and troubles at Essel group


Coal India production at its largest mine touches a 6-month low This sharp fall in output was due to flooding of its pit mines and also the strike by Coal India workers over FDI

However, this cut in coal production is likely to hit the power sector the most, which is still largely thermal dependent


Boris Johnson offers his final deal to EU and sticks to October 31st deadline Labour has been asking for postponement but Johnson is clear about going ahead on October 31st even without the deal

Johnson has asked EU also to meet half way as the EU also stands to benefit immensely from the UK franchise


Government sticks to borrowing program of Rs.2.68 trillion for H2 This is surprising considering that the government has given away Rs.145,000 crore as tax incentives

This would mean that the government is counting on a hugely successful strategic sale of PSUs to bridge this gap


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