BQuick On July 8: Top 10 Stories In Under 10 Minutes

This is a roundup of the day’s top stories in brief.

1. Equity Mutual Flow Inflows Jump

Inflows into equity mutual funds, including equity-linked schemes, jumped the most in three months in June as investors turned upbeat after Prime Minister Narendra Modi returned to power with a bigger majority.

• Net inflows rose 42 percent over the previous month—the biggest increase since March—to Rs 7,663.13 crore in June, according to data released by the Association of Mutual Funds in India.
• The inflows into equity schemes over the last two months, especially after the electoral verdict, has helped repose retail investors’ trust, NS Venkatesh, chief executive at AMFI, told BloombergQuint.

Still, the overall mutual fund industry witnessed a net outflow of Rs 1.59 lakh crore.

2. RBI Gives Budget 2019 A Thumbs Up

Reserve Bank of India Governor Shaktikanta Das praised the Narendra Modi government’s efforts to rein in the fiscal deficit, saying it would help avoid crowding out private investment.

• Das, who was speaking to reporters in New Delhi after the customary post-budget board meeting, said Finance Minister Nirmala Sitharaman’s proposal to pump in Rs 70,000 crore into weak banks was also very “positive.”
• Das said the decision to raise duties on gasoline and diesel will have a transient effect on inflation, which is expected to stay below the RBI’s medium term target of 4 percent.

The RBI chief also added that liquidity situation in the banking system was improving.

3. Sensex Slumps, U.S. Stocks Struggle

Indian equities sank to their steepest loss of the year as disappointment with the nation’s budget spending pledges exacerbated a regional selloff.

• The benchmark S&P BSE Sensex retreated 2 percent to 38,720.57.
• The NSE Nifty 50 Index slid 2.1 percent to 11,559.
• Both gauges marked their biggest losses since October.
• Both of India’s gauges have fallen below their 50-day moving average after the nation’s government focused on narrowing its budget gap, contrary to expectations that it would spend more to boost a slowing economy.
• Things were a stark contrast in the bond markets. Sovereign bonds in India extended the best weekly advance since May after a government official said that the nation could raise as much as $10 billion offshore, a move which may help shift a chunk of the borrowing away from the domestic market.

Here’s what market veterans had to say about the equity market selloff.

At the start of a week stuffed with central-bank activity, U.S. equities fell and European stocks drifted following steep share declines in Asia.

• All three main U.S. stock gauges fell on Monday, with tech shares leading decliners in the S&P 500 Index.
• Gold headed for its first gain in three days, while the dollar was little changed.
• West Texas Intermediate crude gained 0.4 percent to $57.76 a barrel.
• The main focus for markets this week looks to be Federal Reserve Chair Jerome Powell, who will testify in Congress just days after the latest payroll report signaled that the American economy remains on track.

Get your daily fix of global markets here.

4. Impact Of Surcharge And Buyback Tax On Equity Investors

In levying a much higher surcharge on those in the higher income brackets, the government’s Budget proposal has also anguished non-resident and foreign investors.

• These changes apply not just to individual taxpayers but also to Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person.
• This provision also includes trusts, which is how several foreign investors route their investments in India’s capital markets.
• While the exact scope of impact is tough to identify, it is widespread and encompasses non-resident Indian investors too.

Here's what tax experts think the impact of the surcharge and buyback levy will be.

5. A Bond, Not Equity Budget: Ridham Desai

Union Budget 2019 favours the bond market over equities, according to Morgan Stanley’s Ridham Desai.

• “The government bonds are in a bull run,” Desai, the head of India equity research and India equity strategist at the investment banking firm, told BloombergQuint in a conversation.
• The budget’s proposal to issue sovereign bonds in the foreign currency is a “confident step”, he said, adding it’s a “risk India was unwilling to take from past 75 years” due to uncertainty around its macro-stability.
• Desai said Finance Minister Nirmala Sitharaman’s maiden budget is growth-oriented. He’s bullish on India’s growth story and said the country is set for a better growth environment.

Here are some of his stock picks.

6. India Treads Tentatively Towards Foreign Currency Borrowings

The government’s decision to borrow in foreign currency has benefits but will need to be treated with extreme caution, writes Ira Dugal.

• The government is hoping that by diverting a part of its borrowings overseas, it will free up the domestic financial savings pool for private use.
• We would need to ensure that overall foreign currency debt, including that of corporations, remains within a prescribed limit.
• Can we be confident that each successive government will use this route conservatively?

The RBI’s job in ensuring adequate checks and balances on new risks will only get tougher.

8. Tata Steel’s Plan-B To Pare Debt

Tata Steel Ltd. isn’t looking for a joint venture partner in Europe for now after a deal with Germany’s Thyssenkrupp collapsed, but plans to go ahead with its plan to pare debt.

• A combination of free cash flows along with the sale of non-core assets should be able to service the debt target of nearly $1 billion (about Rs 6,800 crore) in the ongoing financial year, Koushik Chatterjee, executive director, and chief financial officer at the steelmaker, told BloombergQuint in an interview.
• Tata Steel has a gross debt of over Rs 1 lakh crore as of March.
• A merger of the European unit with Thyssenkrupp would have transferred some of it to the joint venture that didn’t materialise, allowing India’s oldest steel producer to focus more on the domestic market where it has been slow to expand capacity.

The company is now looking to improve performance instead of scouting for a partner.

9. Deutsche Bank: 18,000 To Be Fired

Deutsche Bank AG started cutting hundreds of jobs at its investment bank in London on Monday morning as the German lender embarks on its most aggressive restructuring plan yet.

• Earlier in the day, equities teams from Sydney to Mumbai were among those losing their jobs as part of CEO Christian Sewing’s plan to cut 18,000 positions to reverse a slide in profitability.
• Deutsche Bank will shrink its trading activities by 40 percent through an unprecedented withdrawal from equities – a loss-making business in a market where it lags peers.
• In fixed-income, the rates operation will also be scaled back.
• About 18,000 jobs, almost 20 percent of the workforce, will go.

The plan is ambitious and faces big pitfalls. But if it works out, investors will be rewarded.

10. Political Crisis Erupts In Karnataka

The Congress-Janata Dal (Secular) alliance in Karnataka, which barely managed to keep the Bharatiya Janata Party out of power in the state, was pushed to a brink after 13 MLAs resigned sending the coalition government into a crisis.

• The BJP was quick to act with leader BS Yeddyurappa saying the ruling alliance has lost the majority and Chief Minister HD Kumaraswamy should resign.
• Bengaluru saw widespread protests by Congress and JD(S) workers who alleged horse-trading by BJP in the state.
• Kumaraswamy asserted he has "no fear" about the "political developments" and was concentrating on fulfilling his responsibilities.

Will a cabinet reshuffle help Congress-JD(S) retain its majority? Follow developments here.