Weekly Capsule (May 18 – May 22) and Impact Analysis

weekly cap 1 Weekly Capsule (May 18 – May 22) and Impact Analysis

 

News Announcement

Impact Analysis

  • RBI cuts repo rates by 40 bps and maintains accommodative stance
  • Like in March, the RBI held the MPC meeting early. The rate cut was over and above the 75 bps cut in March
  • This rate cut pegs the repo rate at an all time low of 4% and the reverse repo rate at 3.35%
  • China – US tensions are back on the radar of global markets
  • The stand-off began after the US alleged that China had not taken enough precaution to prevent the COVID-19 spread
  • As the first punitive measure, the US has decided to delist nearly 80 Chinese companies listed in the US
  • KKR will invest Rs.11,367 crore for 2.32% stake in Jio Platforms
  • This is the 5th Jio stake safe by RIL after selling stakes to Facebook, Silver Lakes, Vista and General Atlantic
  • Till now, RIL has monetized 17.2% stake in Jio Platforms for Rs.78,500 crore and will use them to become debt-free
  • RBI has agreed to extend the EMI moratorium by 3 more months
  • That would mean borrowers will now get time till August 31 to start their EMI payments without impacting credit score
  • However, borrowers must remember that interest will continue to accrue on the outstanding balances
  • IATA opposes government move to fix cap on air fares
  • The government has announced air fare cap for 3 months to be able to avoid surge pricing for consumers
  • However, airlines have also demanded floor pricing, which the government has not agreed to
  • RIL Rights Entitlements start to trade on NSE and BSE at a premium
  • The rights entitlements (RE) can either be exercised for shares of RIL or they can be renounced and sold in the market
  • RIL-RE will only be valid till 20 May after which it gets extinguished and trading stops on the NSE and BSE
  • RBI to auction G-Secs worth Rs.30,000 crore on Friday, 29 May
  • This is in line with the enhanced government borrowing program by 50% for the full year
  • The enhanced borrowing program was necessitated by the pandemic forcing a sharply higher fiscal deficit
  • Jet insolvency resolution process delayed to August 31
  • This postponement has been necessitated by the lockdown which has been on since March 24 this year
  • SBI, which holds a majority stake in Jet Airways, is yet to get any firm bids from potential buyers for Jet Airways
  • Finance Minister wants banks to slash lending rates after rate cut
  • Between March and May this year, the RBI has cut repo rates by 115 basis points, all the way down to 4%
  • In addition, the RBI has also scaled down reverse repo rates to 3.35% to make RBI deposits unattractive for banks
  • RBI outlined the possibility of negative GDP growth in fiscal year 2020-21
  • The negative growth is likely to be driven, according to RBI, by the lag effect of the lockdown
  • While RBI has not spelt out a figure, full year estimates for GDP range from -1% to -5% for Indian economy
  • FMCG market contracts by 34% in 2020 on the back of COVID-19 syndrome
  • The traditional FMCG business, accounting for 87%, actually contracted by 38% in April with online holding fort
  • Despite demand for home needs robust, the logistic issues have forced FMCG companies to operate at lower capacity
  • UK Court orders Anil Ambani to pay $717 million in 21 days
  • This payment is due on account of a personal guarantee given by Anil Ambani for loans from Chinese banks for RCOM
  • While Ambani had disputed the validity of the guarantee, the UK court has held the guarantee to be valid
  • Fitch downgrades issuer default ratings of Tata Steel and JSW Steel
  • These ratings have been downgraded from BB to BB- indicating negative outlook in steel demand
  • Fitch also pointed to problems at Tata Steel UK and expects the steel demand cycle to remain weak for some time
  • India’s crude oil imports fall 12.48% in the month of April 2020
  • The import volume of 17.28 million tonnes of crude represents a multi-year low for oil imports into India
  • This was largely driven by a 45% fall in fuel demand as most vehicles remained off the road due to the lockdown
  • Banks and NBFCs unhappy with the extension of moratorium by 3 months
  • Financials are already strained for cash flows and this longer moratorium is only going to make matters worse
  • The situation is getting more dire for NBFCs with lower ratings as cash flow mismatch is getting exacerbated
  • India Ratings expects a sharp spike in bank slippages to Rs.14.5 trillion
  • This 60% spike in gross NPAs is likely to be caused purely by the lockdown and concomitant economic weakness
  • India Ratings expects pressure from sectors like infra, power, construction, hospitality, steel, realty and telecom
  • Reliance and Bharti Airtel saw maximum MF inflows in April 2020
  • Both the stocks saw net buying to the tune of over Rs.750 crore in the month of April 2020 on growth hopes
  • Among big sell candidates of mutual funds in April were L&T and private banks like ICICI Bank, HDFC bank and Bandhan
  • Chinese search engine, Baidu, may opt to delist from the NASDAQ
  • Baidu has taken this decision after the US threatened to delist more than 80 Chinese companies from the US markets
  • Baidu has said it would prefer to list in a market closer to the US. This has led to worsening of trade relations.
  • Franklin Templeton unit holders explore legal options for redressal
  • Aggrieved investors in the six wound up funds can approach SEBI and then follow it up with legal action if required
  • One option would also be to approach the US regulator, SEC, since Templeton is a US based mutual fund house
  • Reliance is likely to use 75% of the rights issue proceeds to retire debt
  • That would mean RIL would use Rs.40,000 crore to reduce their net debt of Rs.161,000 crore in the books
  • However, the full rights value would only be received by Nov-21 and RIL wants to become zero net-debt by Mar-21
  • Bharti Airtel reports ARPUs at Rs.154 for the month of April 2020
  • This represents a sharp 15% rise in ARPUs and is at a premium to Reliance Jio’s ARPU at Rs.131 in the month of April
  • Jio ARPUs have been under pressure due to the launch of Jio Phone which is targeting the low end customers

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