BQuick On Oct. 8: Top 10 News Stories In Under 10 MinutesBloombergQuintOpinion
This is a roundup of the day’s top stories in brief.
1. Liquid Funds: Biggest Monthly Outflow In A Decade
Money market schemes, used by companies to park surplus cash for the short term, saw the biggest monthly outflow in at least a decade in September as mutual funds faced redemption pressure after a string of defaults by Infrastructure Leasing & Financial Services Ltd. and quarter-end withdrawals.
- Investors pulled out Rs 2.11 lakh crore from the liquid/money market category compared with an inflow of Rs 1.71 lakh crore in August, according to data released by Association of Mutual Funds of India.
- That’s the most investors withdrew in a month from such schemes since April 2007, according to Bloomberg data.
- It contributed to a total outflow of Rs 2.3 lakh crore from all schemes put together compared with an inflow of Rs 1.74 lakh crore a month ago.
- It’s not clear what contributed to the large inflow in August and whether it had a bearing on the September outflows.
Equity fund inflows surprised.
2. Indian Markets Snap Decline; U.S. Stocks Flat
Indian equity benchmarks rebounded, ending the three-session losing streak.
- The S&P BSE Sensex Index rose 97 points or 0.28 percent to 34,474.
- The NSE Nifty 50 Index climbed 32 points or 0.3 percent to 10,348.
- Today’s session was highly volatile with the Nifty swinging over 10 times between gains and losses.
- Metals, realty and financials came under heavy selling pressure.
U.S. stocks clawed back from an opening drop on Monday following a testy exchange between Secretary of State Michael Pompeo and Chinese officials during a meeting in Beijing.
- The S&P 500 Index was essentially flat while the other major American equity benchmarks were down following the worst week in a month for U.S. shares amid a rout in Treasuries.
- European shares declined amid Italy’s continued defiance of EU officials over the budget proposed by the new populist government.
- The MSCI Emerging Market Index fell 0.7 percent to the lowest in almost 17 months.
- The dollar rose as Treasuries took a holiday before a busy week of debt sales.
- The Bloomberg Commodity Index declined 0.3 percent to the lowest in a week.
3. Rupee Closes Below 74/$ Mark For The First Time
The rupee weakened for the fifth consecutive session and closed below the 74 to the dollar mark for the first time.
- The Indian currency closed at 74.07 per dollar, after the monetary policy committee kept interest rates on hold on Friday.
- The new normal for the rupee against the dollar will be in the 70s, according to Bank of America-Merrill Lynch.
Crude oil has definitely been one of the big reasons why the rupee has weakened. If crude does come off, then what we are going to see is a bit more stabilisation and a two-way market in INRRohit Garg, Director - Asia Forex And Rates, BofAML
Here’s more from BofAML on the rupee, inflation, and growth.
4. IL&FS Exposure: Breathing Space
Indian lenders are unlikely to reclassify loans given to Infrastructure Leasing & Financial Services Ltd. in the September quarter, according to bankers with at least three large banks.
- Banks are awaiting clarity from the newly appointed board on the resolution plan and from the regulator, before they decide on how to treat these loans.
- Any adjustments required will likely reflect in the December quarter, they said.
- Banks have a loan exposure of about Rs 50,000 crore to IL&FS and its 348 associated companies, said two people familiar with the account.
- The IL&FS annual report shows that its consolidated debt obligations exceeded Rs 91,000 crore, as of March 2018.
Here’s why the account is not yet due to be classified as a non performing asset.
5. Magnitude Of The IL&FS Crisis
The Indian government expected a potentially serious fallout of the defaults by Infrastructure Leasing and Financial Services Ltd.
- The Finance Ministry, in a note sent on Sept. 30 to the Ministry of Corporate Affairs before taking control of the group, underscored how IL&FS group’s high debt and exposure to its commercial paper in the debt market threatened to impact the financial sector. BloombergQuint has reviewed a copy.
- The infrastructure conglomerate had a high leverage ratio of 13 times as the borrowing of about Rs 91,000 crore was on the base of equity and reserves of just Rs 6,950 crore, the note said.
The cascading impact of the default by the IL&FS group on the financial sector would be quite substantial as evidenced from the partial default of some of the companies in September 2018.Finance Ministry’s Sept. 30 Note
Here are the possible repercussions of IL&FS’ defaults.
6. Need For A Paradigm Shift
Every crisis has a silver lining: it spawns lessons that help forestall a recurrence. Much ink has already been spilt over various corporate governance failures in Infrastructure Leasing & Financial Services Ltd. that may have contributed to its financial implosion. These include excessive risk-taking, distorted managerial incentives, laxity on the part of the board of directors and possible lapses on the part of gatekeepers such as auditors and credit rating agencies, writes Umakanth Varottil.
- The solutions proffered tend to follow the well-trodden path of tightening the already stringent corporate governance norms and their implementation.
- However, this time it’s different.
- Lessons from a previous wave of crises involving Satyam and Sahara have not been wasted.
- The essential lesson is that the conventional corporate governance regime is woefully inadequate to deal with financial institutions.
Governance in financial institutions need to viewed through a different lens.
7. Ashish Chugh’s Micro-Cap Mantra
Investors should focus on the management and strategy and not on the stock price while investing in micro caps, according to Ashish Chugh, founder of Hidden Gems Advisory.
- “Some company’s businesses are such that they take about three to five years to turn profitable and hence micro-cap investors need to be patient,” Chugh said at the Investors Carnival event in Goa.
- Investors can get multi-bagger returns by identifying mis-priced stocks, he said. “Biggest profits come when an ugly duckling becomes a swan.”
Learn more about Chugh’s investment strategies here.
Catch the full coverage of Investors Carnival here.
8. Income Tax Returns Deadline Extended
- The government today extended the deadline for filing income tax returns and audit reports for financial year 2017-18 to Oct. 31.
- The Central Board of Direct Taxes had earlier extended the deadline for tax payers whose accounts have to be audited from Sept. 30 to Oct. 15.
- The assessees filing their return of income within the extended due date shall be liable for levy of interest as per provisions of section 234A of the Income-tax Act, 1961, the CBDT said.
Here’s CBDT’s rationale for the second extension within a fortnight.
9. Nordhaus, Romer Win Nobel Prize In Economics
William Nordhaus of Yale University and Paul Romer of New York University’s Stern School of Business were awarded the 2018 Nobel Prize in Economics for including long-term thinking on climate issues and technological innovation in economic research.
- The two Americans “have designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth,” the Royal Swedish Academy said on Monday.
- Nordhaus, 77, began working on environmental issues in the early 1970s and has been trying to measure the economic costs of global warming ever since.
- The 62-year-old Romer has argued that policy makers should stop trying to fine-tune the business cycle and instead promote new technology to foster growth.
Here’s what the economists have warned about climate change.
10. Why Modi Wasn’t On The Tarmac To Trap Putin In A Bear Hug
What’s common among Barack Obama, Xi Jinping, Sheikh Mohammed bin Zayed, Sheikh Hasina, Shinzo Abe, Benjamin Netanyahu, and Emmanuel Macron? Prime Minister Modi broke protocol to personally receive them at Indira Gandhi International Airport. And now, what’s common between Justin Trudeau and Vladimir Putin? Modi stayed with protocol and away from the tarmac when they landed in India, writes Raghav Bahl.
- This visible ambiguity around Putin’s visit was amplified when India bought the $5-billion S-400 air defence missile system, but made very little hoopla around it.
- Modi, who never misses a trick to talk up his hard/militaristic nationalism, skipped any mention of S-400 at the joint press conference.
- India’s External Affairs Ministry even omitted mentioning this landmark weapon’s acquisition in the list of documents signed.