BQuick On Sept. 21: Top 10 News Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. Sudden Plunge
Volatility erupted in India’s stock market on Friday, with a sudden plunge setting off an exodus from financial shares. For most part of the day, benchmarks traded firmly higher, but slumped sharply in afternoon trading as housing finance companies fell, dampening the overall market sentiment. At day’s lowest level, the Sensex slumped over 1,100 points and Nifty fell below the psychologically important level of 11,000.
- The S&P BSE Sensex Index finally closed 0.75 percent or 280 points lower at 36,842.
- The NSE Nifty 50 Index closed 0.8 percent or 91 points lower at 11,143.
- All 11 sector gauges compiled by the National Stock Exchange fell dragged by the Nifty Realty Index’s 3.5 percent drop followed by Nifty Private Bank Index’s 3.45 percent decline.
Why panic gripped Indian markets today.
U.S. Stocks Pare Gains
U.S. stocks looked to cap a second straight weekly gain amid continued calm on the tariff front, though quarterly rebalancing brings the potential for volatile trading.
- The S&P 500 Index opened higher Friday after a three-day advance.
- The euro slipped from a three-month high after data showed euro-area expansion edged lower in September.
- West Texas Intermediate crude gained 0.9 percent to $70.99 a barrel.
- The MSCI Emerging Market Index rose 1.3 percent to a two-week high.
Get your fix of global market update here.
2. Blame The ‘Rumour Mills’
Mortgage lenders Dewan Housing Finance Corporation Ltd. and Indiabulls Housing Finance Ltd. blamed rumours for the sudden plunge in shares on a day the benchmark Sensex swung the most in more than four years.
- Dewan Housing Finance nosedived as much 60 percent in its biggest decline since listing, before closing 43 percent lower.
- Indiabulls Housing Finance dropped 35 percent to a 19-month low, before recovering to close 8.3 percent lower.
- Ashwini Hooda, deputy managing director of Indiabulls Housing Finance, attributed the panic to one large non-bank lender defaulting on debt two weeks back, which led some mutual funds to sell bonds at distress.
- Kapil Wadhawan, chairman and managing director at Dewan Housing Finance, agreed. “Two weeks ago, there was a lot of panic around one of the other NBFCs. All these rumour mills have led to what we’re seeing in the market today.”
Here’s more on the housing financiers’ sell-off.
3. Can Promoter Rana Kapoor Make Yes Bank’s Transition Difficult?
The Reserve Bank of India has asked private sector lender Yes Bank Ltd. to find a replacement for Chief Executive Officer Rana Kapoor by Jan. 31. In doing so, the regulator rejected a proposal by the Yes Bank board to reappoint Kapoor as CEO for another three years.
- Kapoor is one of the founders of Yes Bank and he and his family still own 10 percent stake in the lender. He is also listed as an ‘Indian partner’ in the bank’s Articles Of Association.
- One implication of the Articles could be that Kapoor will have the ability to stay on the board even if he has to step down as CEO. However, it remains unclear whether the RBI would take a position on this.
- The regulator’s action is similar to what it did in the case of Axis Bank Ltd., where it asked the board to reconsider a proposal to appoint Shikha Sharma as CEO for another three-year term.
Read more on what legal experts have to say.
4. Banks’ Quiescent Shareholders And Activist Regulators
While much has been written about the functioning of the private sector bank boards and of the central bank, the more fascinating question is about the dog that did not bark: the quiescent shareholders of these banks, writes JR Varma.
- RBI’s regime of voting right caps and fit and proper criteria has ensured that activist investors can never threaten the career of non-performing incumbent management in Indian banks.
- SEBI too has ensured that the big exchanges and other financial market infrastructure in India are immune to shareholder discipline.
- Indian regulators do not seem to understand that capitalism requires brutal investors and not just nice investors talking pleasantly to the management.
Why has this not attracted the attention of activist investors.
5. IL&FS Financial Services CEO Steps Down
IL&FS Financial Services Ltd. Chief Executive Officer and Managing Director Ramesh Bawa resigned at a time when the group is facing a severe liquidity crunch and downgrades.
- Bawa tendered his resignation with effect from Sept. 21, 2018, according to a stock exchange filing.
- IL&FS Financial Services is the non-banking lending subsidiary of the Infrastructure Lending & Financial Services Group.
- IL&FS Financial Services also failed to service its credit obligation to IDBI Bank which was payable today, it said in a separate filing.
Defaults by IL&FS group entities have rocked India’s credit markets.
6. Natural Gas Prices To Go Higher
Domestic natural gas prices are expected to be hiked for the third consecutive time, boosting the earnings of state-run oil explorer like Oil & Natural Gas Corporation Ltd., and Oil India Ltd., according to a BloombergQuint survey.
- The government could hike gas prices to $3.39 per million British thermal units for six months starting Oct. 1, according to the average of 14 estimates from analysts and industry experts.
- An increase in the fuel’s price may encourage the oil public-sector undertakings to boost investment and production, helping India cut energy imports and more than double the share of gas in its energy mix.
- ONGC and Oil India produce and sell nearly 80 percent of India’s gas, with private players like Reliance Industries Ltd., Vedanta Ltd., Hindustan Oil Exploration Ltd., among others, comprising the remainder.
The price hike could have a ripple effect.
7. JPMorgan Sees Low Returns, High Volatility For Indian Market
JPMorgan cautioned investors to brace for volatility and low returns in the run-up to the next general election amid geopolitical tensions and global monetary tightening.
- “By June next year, I see the Nifty at 12,500-12,700,” said Bharat Iyer, head of India equity research at JPMorgan.
- The group expects corporate India’s earnings to grow 15 percent for the year, which would support the market since valuations are already high.
- Yet, global cyclical headwinds mean that the next 12 months will be a phase where return expectations should be modest, he said.
Read more to see what investors are looking out for.
8. Hollande’s Rafale Revelation
A French media report quoted former French President Francois Hollande as saying that the Indian government proposed Reliance Defence Ltd. as the partner for Dassault Aviation in the Rs 58,000-crore Rafale jet fighter deal and France didn't have a choice.
- The defence ministry spokesman said the French media report is being verified.
- The spokesperson reiterated that neither government of India nor the French government had any say in the commercial decision.
Hollande's remark is set to escalate the political slugfest over the deal.
9. India Calls Off Talks With Pakistan
- India called off the meeting between External Affairs Minister Sushma Swaraj and her Pakistani counterpart Shah Mehmood Qureshi in New York today, citing the "brutal" killing of three policemen in Jammu and Kashmir as well as the release of postal stamps glorifying Kashmiri militant Burhan Wani.
Reacting strongly, MEA spokesperson Raveesh Kumar said talks with Pakistan in such an environment would be meaningless.
The latest brutal killings of our security personnel by Pakistan-based entities and the recent release of a series of 20 postage stamps by Pakistan glorifying a terrorist and terrorism confirm that Pakistan will not mend its ways.Raveesh Kumar, Spokesperson, MEA
The spokesperson noted that “two deeply disturbing developments have taken place” since yesterday.
10. Short-Term Fixes For Structural Weakness?
The government’s five steps to ‘rein in the current account deficit’ are short-term measures aimed at financing the CAD, not with a structural approach to diminish it, writes Tulsi Jayakumar.
- One critical weakness in our service exports is the lack of diversification. There's over-reliance on software exports to just three markets.
- The basket of service exports, as also destinations will need to be expanded to neutralise the risks associated with shrinking external demand.
- Capital flows can pressure the current account too. Interest and dividends on FDI, portfolio flows, and other investments has accounted for 43 percent of the CAD in April-June 2018.