Thinkpad: Snakes & Ladders

Happy Sunday.

Probably not that happy if you are an investor in Adani Group stocks though.

The group dominated news across stock markets this week.

It started with reports that the accounts of three large foreign portfolio investors, which have 90% or more of their portfolio invested in Adani Group companies since fiscal 2016-17, were shown as frozen on the National Securities Depository Ltd.

Who are these FPIs and what is the extent of their holdings? Sajeet Manghat explains in this report. The Adani Group went into a clarification overdrive to say these accounts are not actually frozen.

Were they? Or were they not? And why? It wasn't a simple yes or no answer, as Sajeet explained in this story.

Clarifications continued but the damage was done. Gautam Adani had apparently lost some $13 billion — more than anyone in the world — over the course of the week, Bloomberg reported. Probably not a week that makes for a happy Sunday. On the other hand, if you had $13 billion to lose, maybe not such a bad Sunday either.

Snakes and ladders.

This week saw a resolution plan emerge for PMC Bank, After a two-year long struggle, the RBI finally hit a ladder to climb out of this snake-pit.

A consortium of Centrum Financial and Bharat Pe has been given a small finance bank license. Once in place, this consortium will take over the assets and liabilities of PMC Bank.

The resolution plan does raise some uncomfortable questions though.

In the normal course of things, neither Centrum nor Bharat Pe would have bagged a licence for a universal bank or a small finance bank this easily. But the RBI had a problem it was struggling to resolve and the Centrum-Bharat Pe combine offered to take that problem off its hands. So they got a licence.

You also have to ask — why don’t other, smaller cooperative banks that go under receive the kind of attention PMC Bank did? Why do so many of those banks get liquidated while PMC Bank gets resolved? Eventually, it comes down to the ad hoc nature of India's bank resolution process. We raise some of these issues in this piece.

Across the central banking world, the inflation scare really made its presence felt this week. Thinkpad has weighed in on the inflation theme often so we'll keep this short and say — central banks can no longer look the other way.

You got the Fed acknowledging it this week with rate increase expectations being ratcheted-up, although they held on to the word "transitory" for dear life, probably to stave off a market meltdown. But the Fed, as chair Jerome Powell said, is now "talking about talking about" the beginning of normalisation. Some, like Mohammad El-Erian, believe the Fed is already behind the curve.

The Indian central bank is also looking like it is behind the curve. At 6% retail inflation, the RBI should start to get a lot more cautious. Governor Shaktikanta Das' pronouncement that it is "too early, too premature" to talk about normalisation following the June monetary policy review was, well, too early and too premature.

Most economists now think the RBI and the Monetary Policy Committee will need to start "talking about talking about" normalisation in August and move towards it by October.

We'll leave you with this one view spanning the economy and markets from Sanjeev Prasad of Kotak Institutional Equities. The good news — he is hopeful that a multi-year capex cycle is around the corner. The bad news — he still sees some pain in the near-term from weak consumption.

The good with the bad. The snakes with the ladders.

Too philosophical for a Sunday? We agree. Enjoy a light weekend.