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Weekly Capsule

Posted on 07-Jun-2019 Comments  0

Weekly Capsule (Jun 03 – Jun 07) and Impact Analysis

News Announcement Impact Analysis

Monetary policy cuts the repo rates by 25 basis points in June This takes the repo rates to 5.75%, reverse repo rates to 5.50% and the bank rate to 6%

The markets were expecting a bigger rate cut to the tune of 35 bps to 50 bps considering the growth slowdown

RBI waives charges levied on digital transactions like NEFT / RTGS This is intended to give a push to digital transactions and banks have to necessarily pass on this benefit

However, banks may still charge customers at their end for the electronic services provided

Monetary Policy Committee (MPC) changes stance to Accommodative The policy stance was Neutral and the shift is surprising after 3 rate cuts in the last 4 months

The accommodative stance means that the RBI has kept the door open for more rate cuts in the future

Brent Crude prices touched a low of $60/bbl during the week The sharp fall was triggered by fears of global weakness due to the ongoing trade war and the inverted US yield curve

However, the crude price did take some support after OPEC affirmed its commitment to persist with supply cuts

DHFL bonds downgraded to Default Status by CRISIL and ICRA This was necessitated after DHFL defaulted on debenture interest payment of Rs.960 crore on 4th June

The classification into Default status means that all MF holders will now have to write off 75% of their holdings in these bonds

UTI Mutual Fund entirely writes off its exposure to DHFL Out of the total MF exposure of Rs.5200 crore to DHFL, UTI Mutual Fund alone had exposure of Rs.1800 crore

Apart from the write-off, UTI has also imposed 3% exit load on any withdrawals in the next 3 months

RBI gives better leeway to banks and corporates on defaults Instead of the 180 days resolution period kicking immediately on default, now it will start after a gap of 30 days

Additionally, the maximum time period has been extended to 365 days, although higher provisions will apply after 180 days

Iran not planning to leave OPEC, confirms Iranian Oil Minister Iran, the second largest oil producer in the OPEC, has been on the wrong side of American sanctions since May 02nd

Iran has affirmed that it will continue to remain within the OPEC and continue its battle against American hegemony

Centre lifts land holding limit and extends PM-Kisan to all farmers In a bid to increase farm incomes and relieve farm distress, the government has universally extended PM-Kisan

This is likely to increase the outlay for PM-Kisan and will have implications for the fiscal deficit

Nifty and Sensex ended the week in losses after 3 weekly gains The losses mainly came on the monetary policy day after the lower rate cut and NBFC crisis added up

Interestingly, even during this sharp fall in the markets, the VIX was headed lower towards the 14.5 mark

Bond yields on the benchmark fell below the 7% mark to 6.93% The sharp fall in bond yields was led by low inflation expectations and falling yields in the US

The actual trigger for the fall below 7% came on the credit policy day due to the rate cut and accommodative stance

G-20 members see the trade war as the biggest global macro risk As the World Bank and IMF have affirmed, global GDP growth is likely to fall by up to 70 bps in the current year

Markets also fear that this could push many countries into deflation and lead to currency volatility risk for EMs

Monsoon arrives in Kerala a full 7 days behind its normal schedule A delayed monsoon arrival means that sowing gets delayed and that impacts overall food grain output

A delayed start impacts food grain output even if the actual rainfall ends up being normal

With Jet out of business, airline industry may turn around to profits The shutdown of Jet Airways has already led to a hike in air fares across the board leading to improved profits

Above all, with reduced competition, the need to play the fare cutting game is not too intense at this point of time

IDBI plans to entirely exit its 1.05% stake in the NSE At the current valuation of the exchange at Rs.50,000 crore, this stake would be worth around Rs.500 crore

With the IPO of the NSE nowhere in sight due to the SEBI investigation, investors could be opting out

Trump suspends tariffs on Mexico after immigration agreement Mexico, largely dependent on the US economy, has given in to US pressure and promised to curb illegal immigration

The US has been trying this tactic with China also, with little success as China has refused to come to the table

Barnes & Noble sells out to Elliott Hedge Fund for $475 million B&N was once the largest bookstore before Amazon reinvented the ecommerce space

B&N tried to replicate the Amazon online market place and Kindle (via NOOK) but failed to make any impact

Government to revive BOT model for road construction projects The Build Operate Transfer (BOT) model had been put on hold over 4 years back and has now been reintroduced

BOT will see private investment coming upfront and the centre will not have pump in huge sums of money

Foreign Exchange reserves get back close to peak levels at $422 billion The last two rounds of dollar swap auctions have been instrumental in shoring up the reserves

With oil prices rising and imports moving higher, a solid forex chest is a necessary cushion for the markets

L&T open offer for Mindtree to be open from Jun 17th to Jun 28th L&T will make a Rs.5030 crore offer for another 31% stake in Mindtree to eventually take its stake to 66%

However, the success of L&T’s attempt will largely depend on the support of FPIs holding more than 40% stake

Piyush Goyal gets down to the job of pushing exports higher This includes fast tracking anti-dumping investigations to initiating research on import substitution

The Commerce Ministry is also preparing a list of non-essential imports to reduce the trade deficit



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