The portrait of Mahatma Gandhi is displayed on Indian rupee banknotes in an arranged photograph in Bangkok, Thailand (Photographer: Brent Lewin/Bloomberg)  

BQuick On Oct. 5: Top 10 News Stories In Under 10 Minutes 

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

1. Rates Held, Stance Changed

India’s monetary policy committee surprised markets by keeping interest rates unchanged, as it awaits greater clarity on the evolving growth-inflation scenario in the economy.

  • The six-member panel, however, changed its stance from ‘neutral’ to ‘calibrated tightening’, suggesting more rate hikes lie ahead.
  • The MPC expects inflation to stay in the 3.9-4.5 percent range in the second half of 2018-19 and 4.8 percent in the first quarter of next fiscal.
  • Going forward, the outlook for inflation will be shaped by several factors, said the MPC in its statement. While food price inflation has been unusually benign, upside risks could emerge from fuel prices and depreciation in the currency, it added.

The decision left market experts disappointed.

2. Will RBI’s VRS Work?

The Monetary Policy Committee’s decision to hold rates steady will be seen as a negative for the Indian rupee, which has slipped more than 13 percent this year. Foreign portfolio investors have already sold a net of Rs 66,000 crore in Indian debt and equity so far this year. Much of this selling has been centred in the debt markets.

  • It is probably in anticipation of such fears that the RBI has announced a new voluntary retention scheme.
  • Aimed at reducing volatility of debt flows and their implications for the currency markets, the RBI said it will introduce a scheme for investments by foreign portfolio investors in the debt markets.
Under the proposed route, FPIs will have more operational flexibility in terms of instrument choices as well as exemptions from regulatory provisions such as the cap on short-term investments (less than one year) at 20 percent of portfolio size, concentration limits, and caps on exposure to a corporate group (20 percent of portfolio size and 50 percent of a single issue). To be eligible to invest under this route, FPIs would need to voluntarily commit to retain in India a minimum required percentage of their investments for a period of their choice.  
Monetary Policy Committee Statement 

Will the scheme work?

3. Tighter Asset Liability Norms For NBFCs

The RBI is looking to strengthen norms to address the mismatch in assets and liabilities of non-bank lenders after defaults by Infrastructure Leasing and Financial Services Ltd. triggered liquidity concerns.

  • Some of these companies had resorted to seeking too much short-term capital to finance long-term projects, RBI Deputy Governors Viral Acharya and N Vishwanathan said at a press conference held after the monetary policy announcement.
We are looking at strengthening ALM (asset-liability) guidelines to avoid rollover risk going forward. We also believe that isolated events should not be seen as having any system-wide implications.
NS Vishwanathan, Deputy Governor, RBI

Here’s more on the asset-liability mismatch issue.

4. Bonds Rally, Rupee Slips

India’s rupee declined and bonds rallied after the monetary policy committee kept interest rates unchanged, surprising investors who expected the authority to step up its defense of Asia’s worst-performing major currency.

  • The rupee slid to a new record low, falling past the 74 to a dollar mark, before closing 0.3 percent lower at 73.7650.
  • The 10-year yield fell 13 basis points to 8.03 percent.
  • Patel appeared unfazed by the sharp drop in the currency, saying the depreciation was helping to correct external imbalances.
  • The currency’s fall has been moderate compared with its emerging-market peers, and in real effective exchange rate terms, the decline has been five percent, Governor Urjit Patel told reporters in a post-policy briefing.

The pause puts RBI behind counterparts in Indonesia and the Philippines.

5. Sensex Slumps 800 Points... Again

Indian equity benchmarks slumped for third day after the RBI kept rates unchanged.

  • The S&P BSE Sensex Index slumped 2.25 percent or 792 points to 34,376.
  • The NSE Nifty 50 Index dropped 2.7 percent or 283 points to 10,316.
  • The two benchmarks clocked their worst two-day fall since demonetisation in November 2016.

Follow the day’s trading action here.

U.S. Treasury yields rose to seven-year highs amid speculation the latest jobs report clears the path for raising interest rates. U.S. stocks headed for a second weekly decline, with technology shares under renewed pressure.

  • The 10-year bond yield pushed above 3.21 percent as hiring data showed the unemployment rate fell to a 48-year low, though the number of jobs created fell short of estimates.
  • The Bloomberg Dollar Spot Index fell 0.3 percent.
  • West Texas Intermediate crude gained 0.1 percent to $74.42 a barrel.

Get your fix of global markets update here.

6. Grim Outlook

The risk-reward ratio for investing in Indian equities is still not attractive despite the recent correction, said Gautam Chhaochharia, executive director and head of India research at UBS.

  • “The markets have corrected from very expensive valuations to less expensive valuations,” Chhaochharia told BloombergQuint in an interaction.
  • “We are still staying away from commenting that the markets have de-rated sharply and therefore looking attractive.”
  • Chhaochharia expects the Nifty 50 to trade around 10,500 by the end of this year and around 11,900 in the “best-case scenario”
  • CLSA's Chris Wood said Indian markets can only get worse before they get better.
  • The long-term Asia portfolio (excluding Japan) was badly affected by a selloff in Indian financial stocks after the default at IL&FS, Wood said.

7. Modi’s Fuel Folly Confirms Statist Mindset

Prime Minister Narendra Modi's fuel folly over the last 24 hours only confirms that his government is the most statist and interventionist since liberalisation, writes Raghav Bahl.

  • Scared by a huge public outcry to reduce outrageously high petrol/diesel prices, Modi cut central excise by Rs 1.50 per litre, causing a revenue loss of about Rs 10,000 crore over six months, from now until the end of the financial year, i.e. March 31, 2019.
  • It was a puny concession, as his government had increased excise on petrol by Rs 7.63, and on diesel by Rs 9.36 per litre, since coming to power in 2014.
  • The markets reacted furiously. Within one hour—over 13 minutes yesterday until the markets closed, and in 45 minutes of trading this morning—public sector oil companies wiped out over Rs 1 lakh crore of investors’ wealth. Ordinary shareholders lost Rs 48,000 crore and Modi’s government was poorer by Rs 55,000 crore.
  • What is even more astonishing is that Modi rolled back a fundamental reform – i.e. freely priced fuel – to save a minuscule Rs 7,000 crore!

Here’s more on Modi’s original petrol sin.

8. Will ICICI Bank Temper Its Growth Path Now?

Just short of completing a decade-long stint as the managing director and chief executive officer at ICICI Bank Ltd., Chanda Kochhar has decided to step down. Along with her exit came the announcement of a new CEO. Sandeep Bakshi, another ICICI lifer, takes charge as Kochhar steps down. Investors and analysts will now be watching to see if the bank tempers its trademark aggression under KV Kamath and Chanda Kochhar and moves towards a more measured growth path under Bakshi.

  • The first five years of Kochhar’s term saw the bank’s loan book nearly double. Deposits, too, showed an increase aided by the bank’s retail-focused strategy and rapid branch expansion. Kochhar, herself, won many accolades for her leadership at the bank.
  • After the growth, came the slowdown. The economy turned sluggish and policy risks hit large projects. ICICI Bank, along with other lenders to infrastructure sector, started to feel the pain of aggressive lending practices.
  • Some analysts expect Bakshi to tread a more cautious path than Kochhar did. Macquarie, for instance, said that a recent meeting between Bakshi and the research house, had thrown up a focus on profitability more than growth.

Here more on Bakshi's possible strategy.

9. How The Essar Steel Ruling Changes Things

On Thursday the Supreme Court in its order in the Essar Steel case not only put to rest the eligibility question of bidders Numetal Ltd. and ArcelorMittal India Pvt. Ltd. but also laid down important precedents for pending and future insolvency cases, specifically:

  • At what stages in an insolvency process can resolution applicants litigate before the National Company Law Tribunal.
  • When should the litigation period be included or excluded from the timelines specified under the Insolvency and Bankruptcy Code; and
  • What would amount to control while applying the ineligibility criteria on resolution applicants.

10. Chip Hack A Sign of Chinese Cyber Threats: U.S.

The White House national security adviser said Chinese cyber attacks on the U.S. validate the Trump administration’s emphasis on offensive cyber operations of its own, after Bloomberg News reported that Beijing had hacked American computer networks using a microchip built by its spies.

  • Separately, two Democratic lawmakers said the report shows the risk of Chinese cyber-espionage to U.S. companies and the government.
  • John Bolton, who leads the National Security Council, didn’t confirm whether the White House was aware of the Chinese hack before Bloomberg’s report. “I don’t want to address anything that might touch on specific intelligence questions,” he told reporters.
  • Bloomberg Businessweek reported Thursday that Chinese spies exploited vulnerabilities in the U.S. technology supply chain to infiltrate computer networks of almost 30 U.S. companies, including Inc., Apple Inc., a major bank and government contractors.