Sunday, September 14, 2014

The International Energy Agency(IEA) has lowered its forecast for global oil demand growth.

IEA for the third month in a row, calling the recent slowdown in demand "nothing short of remarkable." The IEA now foresees global oil demand growth of 900K bbl/day in 2014, a decrease of 65K bbl/day vs. last month's forecast and down by 300K bbl/day since July. The agency now expects oil demand to rise by 1.2M bbl/day next year, but that's 100K bbl/day less than it forecast last month.

Thursday, September 11, 2014

CCEA cleared stake sales of Coal India,ONGC & NHPC.

After a long hiatus, the government finally seems to be on track to meet its divestment target of over Rs 400 bn for the current fiscal. As per a leading financial daily, the Cabinet Committee on Economic Affairs (CCEA) yesterday, cleared stake sales for Coal India, ONGC and hydropower utility NHPC. At the current stock price levels, disinvestment in these companies is expected to meet the budget target of Rs 434.25 bn. CCEA has cleared a 5% stake sale in ONGC in which the government currently holds 68.94% stake. This is likely to fetch over Rs 190 bn at current price levels. CCEA has cleared a 10% stake sale in Coal India in which the government currently holds 89.65% stake. This could fetch the government close to Rs 240 bn at current prices. The proposed 11.36% stake sale in NHPC is expected to fetch over Rs 30 bn. Given the buoyancy in the markets, achieving the divestment target may not be a big challenge if the government gets the pricing right. The proceeds will be great help in meeting the fiscal deficit target for the fiscal which has been pegged at 4.1% of GDP.

Sunday, September 7, 2014

Draghi announced new measures to boost economy.

In its latest attempt to boost economic activity in the European region, the President of the Euro Central Bank (ECB), Mario Draghi, has announced new measures. This includes its own version of the QE program, something other developed nations such as US and Japan resorted to; to provide a fillip to their respective economies. This development seems to have come at a time when the central bank does not have many monetary policy options; given that interest rates stand at 0.05% (benchmark rate) after being reduced by ten basis points. Deposit rates stand at minus 0.2%, indicating that the spending is being encouraged.

In the attempt to boost the economy and push in more capital in the system, the central bank is as such looking to purchase bonds of about 700 bn Euros or US$ 906 bn. However, as reported by Bloomberg, a full-fledged QE plan was not announced given the split in views amongst the members of the Governing Council. Nevertheless, what this could possibly mean is over time, such capital could find its way to chasing higher returns. What is concerning is that this would add to the already existing bubble scenarios that are being witnessed in various parts of the world.

Thursday, September 4, 2014

Foreign Banks will now be allowed to lend in INR-RBI's new guideline

Amidst the asset quality and poor credit off-take woes, here comes another trouble for Indian banks. In one set of news, foreign banks will now be allowed to lend in Indian rupees. The central bank has allowed non-resident foreign banks to offer debt to local companies in Indian rupees. This is expected to happen through swap arrangement with Indian banks. However, this will call for fresh competition for Indian lenders from the foreign counterparts. Primarily because foreign banks are not bound by the reserve requirements of cash reserve ratio (CRR) and Statutory Liquidity Requirement (SLR). This would make it easier for them to lend at cheaper rates. Moreover, the fact that foreign banks can set up representative offices in India for lending purposes also is a big encouragement for them to set up base in India. While the Indian banking sector dynamics are undergoing a sea change, underlying challenges persists for the domestic players.
The Bank of Japan held to its upbeat view on the economy and heavy monetary stimulus this morning, despite the recent stings from a 3% sales tax hike in April. The projection of economic recovery saw consumption benefiting from a tightening job market resulting in higher wages. Leaving its policy framework unchanged, the central bank also pledged to increase base money by 60T-70T yen ($571B-$666B) per year via aggressive asset purchases to reflate its declining economy.

All eyes are on the ECB's policy meeting today,

Which will decide whether an overvalued euro and tensions with Russia will lead to further stimulus measures. Although most economists expect the ECB to keep interest rates on hold and refrain from large-scale QE at least for today, many banks predict that Mario Draghi may commit to buying ABSs. Draghi previously announced at Jackson Hole that the ECB's Governing Council will "use all the available instruments" to deliver price stability over the medium term.

Wednesday, September 3, 2014

Indian Services PMI

The HSBC services PMI (seasonally adjusted) for -India stood at 50.6 in August from 52.2 in July. This marked the fourth consecutive month of expansion. The composite index came in at 51.6 in August as against 53 in July.    

India figures nowhere in global competitiveness

India has taken rapid strides in the fields of business and technology. But the country lags behind in global competitiveness due to lack of inclusive growth. In the latest survey on global competitiveness by World Economic Forum, India has slipped down further to the 71st ranking in FY15 from the 60th ranking in FY14. Switzerland tops the list as can be seen in today's chart. Also, it is interesting to note that the ease of doing business in India is the least among BRICS nations comprising of Brazil, Russia, India, China and South Africa. The main factors acting as stumbling blocks for doing business in India are long bureaucratic processes to start business, poor infrastructure, high inflation and tax rates and low primary health and education resulting in rigid and inefficient labour markets. However, the redeeming factor is that the country still ranks favourably on business sophistication and innovation. Therefore, if India were to attract global investments and achieve export competitiveness, then these structural issues need to be urgently resolved.

Tuesday, September 2, 2014

Infra Companies saw ease in leverage ratio

Infrastructure is one sector which is the biggest beneficiary since Narendra Modi came to power this May. The ease of doing business increased dramatically after the elections. Not only that, even the financial condition of these firms has improved quite a bit. As an article in Business Standard points out, the combined debt to equity ratio of the top 17 infra companies has declined to 3.5x in FY14 from 3.7x in the previous year. Fund raising and non-core asset sales have helped these companies improve their financial health. With the investor appetite failing to wane amidst the promise of ache din, it appears that the balance sheet of these companies may improve further.

So, should investors lap onto them? Well, not , in general. High working capital, huge debt and wafer thin margins makes infra as a business quite susceptible. Bureaucracy adds another layer of susceptibility. Though bureaucracy may not be a big worry now with Mr Modi assuming power, financial risks remain. Hence investors should be careful while investing in them as the current euphoria may be short lived.

FII's ownership of sensex

According to a BofAML report foreign institutional investors' ownership in Sensex was a record high of 22% in the quarter ended June'14. Additionally, the FIIs control close to 40% of the free float.