Relief rally on markets may continue on short covering by foreign investors
Indian equities, which rebounded on global cues after a losing streak, could rise further if foreign institutional investors cut their bearish bets on Nifty and Nifty Bank futures when markets reopen after the Dussehra holiday. The Nifty, which fell 1,209 points over 12 sessions through 3 October, jumped 2.29 percent to 17,274.30 points on Tuesday. The rally induced by short covering could see the Nifty rise to as much as 18,000 points.
Why it’s important: A potential relief rally only points to the continued choppiness in the stock markets. Volatility with a downward bias is not going away soon despite short bounce backs.
Market regulator to tighten rules, prosecute offenders more vigorously
Stock market offences may soon invite more severe punishment as the central government in consultation with the Securities and Exchange Board of India is looking to tighten rules that could lead to criminal prosecution of market offenders. It will require amendments to the Sebi Act that could make it mandatory for the regulator to prosecute certain kinds of offences. Sebi has powers like a civil court and passes penalty orders on violations. Criminal prosecution requires it to go via regular courts. That might change.
Why it’s important: In the past few years, the regulator hasn’t used its prosecution powers too often. A modified law might compel it to act more strictly to deter market offenders.
WTO cuts 2023 global trade growth to 1 percent as recession approaches
The World Trade Organization has slashed its forecast for global trade volume growth to 1 percent from 3.4 percent estimated earlier. The Geneva-based multilateral body has said that world trade may lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks such as a looming recession in western markets and the war in Ukraine weigh on the global economy.
Why it’s important: If the growth in trade volumes slows down due to adverse global factors, India’s merchandise exports could face significant headwinds next year.
FMCG sales growth could firm up in second half on improved demand
The demand for daily groceries and household products could recover in the second half of the 2022-23 financial year due to an easing of inflationary pressures and a normal monsoon. Consistent price hikes across categories continued to squeeze household budgets and impacted demand for consumer goods in the fiscal second quarter ended September.
Why it’s important: Rural markets have been seeing slower growth than urban areas due to persistently high inflation. A robust harvest could change it, and sales could improve on better sentiment during the festival season.
India’s inclusion in global bond markets deferred due to reluctance of smaller asset managers
Reluctance among relatively smaller asset managers and funds in Europe and the US to register themselves locally as foreign portfolio investors is the primary reason behind the deferral of India’s inclusion in global bond indices. These standalone entities, unlike global financial giants familiar with India’s markets and its rules, say the burden of regulatory compliance might outweigh the rewards.
Why it’s important: Asset managers need to register as a foreign portfolio investor, a process that can take about 3-6 months. If India is indeed included, it could see significant inflows into fixed income securities.
Jalan-Kalrock consortium to infuse more capital to revive Jet Airways
Jet Airways could soon restart operations see its new promoter has agreed to the demands made by banks to infuse capital. At a meeting held last week, lenders asked the Jet Airways management to bring in capital before restarting operations, and they have agreed. The first tranche may come within a week. Two years ago, a consortium of Murari Lal Jalan and Kalrock Capital won the bid for Jet Airways, which has been grounded since April 2019.
Why it’s important: The National Company Law Tribunal in June cleared the consortium’s resolution plan to revive the grounded Jet Airways. It remains to be seen how much longer it takes for the carrier to resume commercial flights.
Banks are quick to raise interest on loans, but slow on deposit rate hikes
After the Reserve Bank of India progressively raise policy rates by 1.9 percentage points, lending rates have risen sharply, while deposit rates have moved at a slower pace. Between May and August, the average interest rate on fresh loans has increased by 47 basis points and 34 basis points for outstanding loans. However, the increase in deposit rates failed to match this pace as the rate on outstanding term deposits grew only 22 basis points during this period. One basis point is a hundredth of a percentage point.
Why it’s important: The sluggish transmission of deposit interest rates by banks have been seen in earlier instances of monetary tightening as well. Even in down cycles, deposit rates do not react with similar speed as loan rates. This blunts the central bank’s action to an extent.
ONGC Videsh to invest $ 1 billion in offshore blocks of Brazil’s Petrobras
State-run ONGC Videsh is looking to invest around $ 1 billion in a Brazilian offshore hydrocarbon block and raise its stake. Brazil’s state-run Petrobras operates the BM Seal-4 block with a 75 percent participating interest, while OVL holds the rest. It saw a major gas discovery in 2019 and is expected to start production after 2026. OVL’s stake in the block is expected to go up after the investment.
Why it’s important: The development signals India’s latest effort to strengthen the country’s energy security. India’s dependency on oil imports have compelled policymakers to acquire equity energy at a time crude oil prices have shown a consistent upward trend.
Consumer firms see increased demand during festive season
The nine-day Navratri festival brought cheer to retailers of consumer-facing firms despite high inflation and interest rate increases. The first leg of the festive period from Navratri to Diwali had been the best in the past two to three years for cars to mobile phones, consumer appliances and apparel. E-commerce firms are expected to post sales worth $ 11.8 billion, according to Redseer. This is more than double the pre-pandemic figure of $ 5 billion in 2019.
Why it’s important: The sales rebound after two consecutive years of tepid demand induced by the covid pandemic. Increased domestic consumption is critical for India to maintain its growth momentum.
Dubai house built on crypto assets may face legal and regulatory scrutiny
Many rich Indians are paying in cryptocurrencies to buy properties in Dubai. Such transactions can come back to haunt the property owners as there could be future scrutiny by Indian agencies such as the Enforcement Directorate and the Income-Tax Department. Moving cryptos to Dubai and other financial centers may have triggered multiple tripwires, experts said.
Why it’s important: There could be potential charges of malpractice for wealthy Indians shifting unaccounted wealth through cryptos to buy offshore immovable properties. Investors should take expert advice before investing through this route.
