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Weekly Capsule

Posted on 28-Jun-2019 Comments  0

Weekly Capsule (Jun 24 – Jun 28) and Impact Analysis

News Announcement Impact Analysis

Sino-US trade dispute moves one step closer to resolution Trump agreed not to impose further tariffs and China agreed to resume buying American products in the future

This informal agreement in the sidelines of the G-20 Summit will be welcomed by the world markets next week

G-20 Summit clearly warns against protectionism in a subtle way The G-20 was at its diplomatic best when it stopped short of denouncing rising protectionism globally; led by the US

However, the G-20 did sound a subtle warning that such actions could led to a global growth slowdown

Interest on small savings schemes cut by 0.1% across the board The cut in rates on small savings was in line with the overall dovish stance adopted by the RBI and the government

However, small savings rate have not fallen at the same pace as yields and that is distorting the bond market yield curve

SEBI puts a cap on royalty payments by Indian payments at 5% Effectively, companies will only be able to pay 5% of sales as royalties to their parent in the normal course of business

Any royalty payment above that figure will require an approval of shareholders without insiders voting

SEBI tightens the screws on the subject of pledged shares SEBI widens the definition of encumbrances to include all kinds of direct and indirect encumbrances

Secondly, explanations will be required for pledge above 20% of capital or above 50% of promoter holdings

SEBI board meeting comes down heavily on debt funds All liquid funds will be required to have at least 20% of their portfolios in cash and treasuries only

All credit enhancements and unlisted CPs / NCDs will not be permitted for fresh investments by mutual funds

Gold crosses above $1435/oz in the international market The rise in gold prices can be largely attributed to the higher levels of geopolitical risk in Middle East and West Asia

Additionally, the falling interest rates and the debasement of currencies is also leading to higher gold prices

DHFL again deferred Q4 results leading to a sharp plunge in stock prices The delay in the announcement of results has led to wild speculation in the market about the solvency of DHFL

The stock price has already corrected by nearly 90% in the last one year after its asset liability mismatch came to light

Sectoral caps on MF investment could hit NBFC fund raising The SEBI Board decided to cut reduce the caps on sectoral exposure of MFs by 5% including to NBFCs

This could increase the cost of funding for NBFCs, which still rely substantially on MFs for their funding needs

Fiscal deficit touches 52% of full year deficit in first 2 months This may be an unprecedented situation ahead of the budget wherein 52% of full year target is breached in 2 months

The government may require sharp expenditure cuts or new sources of revenues to keep fiscal deficit targets intact.

Current account deficit widens to $57 billion or 2.1% of GDP for FY-19 The good news was the narrowing of the deficit in the fourth quarter to 0.7% due to robust FII flows and remittances

The sharply higher remittances can be largely attributed to much higher real rates of return that India offers

India’s external debt up by 2.64% as of March 2019 The overall external debt at $543 billion was still less than 20% of GDP, which is well within acceptable norms

The increase in debt was more due to translation losses due to appreciation of the dollar during this period

Wealth managers preferring Singapore over Hong Kong With the rising protests and the rising influence of China, wealth managers show preference for Singapore

With a new Extradition Bill in offing in HK, the rich are already beginning to move funds out of Hong Kong

Indian monsoons remain below average for the 4th week in succession The rain shortfall is still about 24% on an all-India basis although the deficit has been gradually narrowing

Agriculture accounts for 15% of GDP but has a much bigger impact on food inflation and input costs

5G Spectrum auctions may be postponed to second half of 2020 According to Moody’s this delay will be due to the weak financials of Indian telecom companies

The auctions will cost nearly Rs.5 trillion and the telcos are already sitting on debt of Rs.4.5 trillion

Air India will be divested by the government but not now The government has put off the sale of Air India for now considering weak investor appetite

However, the government clarified that the plan was still on, quite contrary to a statement made by a junior minister

Indian government imposes CVD on large radial tyres The countervailing duties range from 9.5% to 17.5% and are intended to protect from Chinese competition

This is likely to come as a boost for the domestic tyre manufacturers who have been hit badly by Chinese tyres

Foreign firms will have to store the Indian data only in India The government clarified that foreign firms can only process data abroad but storage will be in India only

This had become a major controversial issue for franchises like Visa, MasterCard and for ecommerce companies

Brent Crude falls below the $65/bbl mark over the weekend After touching levels of $67/bbl, oil prices retreated on global demand concerns in the light of the trade war

Markets are also wary that a glut of supply from the US could also keep prices lower

US bond yields continue to play hide-and-seek with the 2% mark With US bond yields heading sharply lower, the bond yields did breach the 2% mark during the week

A lot will depend on whether the Fed actually cuts rates by 25 bps in its July meet, as is widely anticipated

DVR shares to be permitted in the case of technology companies DVR voting rights will be restricted to 75% of the overall voting rights in the company

This will be a significant step for the promoter group to retain control in the event of hostile acquisition



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