BQuick On Sept. 18: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. Exclusive: DHFL Lenders Settle For Backup Plan
Lenders to the beleaguered Dewan Housing Finance Corporation Ltd. have decided to proceed with a contingency plan which involves them taking over at least a part of the company’s operations.
- This, after a resolution plan submitted by the company was not agreeable to lenders.
- DHFL, which first defaulted on its dues in June, has over Rs 85,000 crore in liabilities, of which about 40 percent are to banks.
- Lenders have proposed to take over the housing finance company’s retail loan book worth nearly Rs 50,000 crore and run it as an independent unit, said three people with direct knowledge, while speaking on condition of anonymity.
Here’s how the lenders will achieve this and overhaul the company’s structure.
2. Fed Repeats First-In-A-Decade Cash Injection
U.S. money markets showed some signs of calm as the Federal Reserve injected another $75 billion of liquidity and key rates pulled back from troubling levels.
- Although the U.S. money-market interest rate remained elevated for a third straight day -- after spiking to a record 10 percent Tuesday -- it came back down to 2.8 percent early Wednesday even before the Fed accepted billions of dollars worth of Treasuries and other securities.
- Now attention turns to this afternoon’s Federal Open Market Committee decision to see what, if any, further action policy makers take to calm the overnight lending business and ensure higher rates don’t harm other parts of the economy.
- Action is nearly certain after the New York Fed said Wednesday that the effective fed funds rate busted through policy makers’ 2.25 percent cap the day before, coming in at 2.30 percent.
That’s bad because it shows the Fed losing its grip on short-term interest rates.
3. Nifty Recovers Marginally; U.S. Stocks Edge Lower
Indian equity benchmarks ended marginally higher today after falling the most in over two weeks during yesterday’s trade.
- The S&P BSE Sensex ended 0.23 percent or 83 points higher at 36,563.
- The NSE Nifty 50 ended 0.21 percent higher at 10,840.65.
- The broader markets represented by the NSE Nifty 500 Index closed 0.27 percent higher.
- “The Indian markets traded with a positive bias throughout the session amidst high intraday volatility. The correction in crude oil prices has definitely provided respite to investors,” Ajit Mishra vice president–research at Religare Broking said.
- Eight out of 11 sectoral gauges compiled by NSE ended higher.
Follow the day’s trading action here.
Bonds rallied globally while stocks struggled for traction before the Federal Reserve concludes its policy meeting Wednesday, with officials expected to cut interest rates again and possibly move further to calm money-markets rates.
- The S&P 500 Index edged 0.3 percent lower as of 9:31 a.m New York time.
- Europe’s equity benchmark was little changed.
- Government bonds climbed from the U.S. to Japan, with the 10-year Treasury yield dipping below 1.8 percent. The surge came after Fed injected cash to soothe money markets.
- The Bloomberg Dollar Spot Index increased 0.1 percent.
Get your fix of global markets update here.
4. JPMorgan’s Take On Slowdown And Rupee
The slowdown in India’s economy and corporate earnings growth has bottomed out, but the recovery needed to bring in a gush of foreign money is still a while away, according to JPMorgan’s Bharat Iyer.
- Still, the enthusiasm to look at India as an investment destination hasn’t changed, Iyer, India’s head of equities research, at the global investment banking firm, told BloombergQuint on the sidelines of the JPMorgan Investor Summit in India.
- “Emerging market investors are running a neutral position in India vis-a-vis the benchmark. This neutral position has been despite earnings growth being underwhelming for the last four to five years,” Iyer said.
Watch the full interview to see why Iyer expects earnings growth to remain “underwhelming”.
Also, JPMorgan expects the rupee to remain at 71 per dollar levels for the next few months as the Indian currency tracks the yuan, which has been weakening due to the ongoing U.S.-China trade war.
- “We’ve seen the yuan depreciate and the Indian rupee getting empirically linked to the yuan,” said Brijen Puri, head (currencies and emerging markets, Southeast Asia) at the global investment banking firm.
- The market doesn’t believe that there’s going to be any big-bang win in terms of the U.S.-China trade deal because there’s still a very wide gap between what the U.S. wants and what China wants to give up, Puri said.
Watch JP Morgan’s Puri on the India-China currency linkage.
5. Why Mutual Funds Are So Costly In India
India still ranks among the most expensive countries in the world in terms of fees charged on equity and hybrid mutual funds, even after implementation of a number of investor-friendly measures in recent years.
- The reason is that the majority of individual investors in the country still seek the services of mutual fund distributors and opt for “commission embedded” plans which add to the cost, Morningstar said.
- The information provider noted that exchange-traded funds still represent a small portion of India’s fund industry.
Only four countries in the study had higher cost of mutual funds than India.
6. What’s Adding To India’s Economic Pain
A series of inter-linkages are exacerbating the demand slowdown in the Indian economy, according to Pranjul Bhandari, chief India economist at HSBC.
- While the economy was already facing weak rural demand due to low wage growth in the farm sector, problems have been compounded by the crisis faced by non-bank lenders, which has led to a slowdown in construction activity.
- This, in turn, is hurting wage growth in the construction segment of the rural economy, shows Bhandari’s research.
- According to an Aug. 22 HSBC report, construction wages started falling again from January 2019, after a modest pick-up between July and December 2018.
- This, Bhandari believes, coincides with a worsening of the liquidity crunch being faced by non-bank lenders.
Here is what HSBC’s Pranjul Bhandari thinks has made consumption weak in this slowdown.
7. One Bright Spot In Auto Industry
Even as Indians are buying fewer brand-new cars, scooters and trucks, sales of used vehicles continue to grow. And easy availability of finance is primarily behind the surge.
- Non-bank lenders are increasingly financing such purchases, drawn by better yields and entry of organised sellers.
- For most non-bank financial companies that provide such funding, their used vehicle loan book grew more than the overall advances in the quarter ended June, according to exchange filings. And they anticipate a strong growth in the segment.
- For every 100 new auto sales, 120 second-hand vehicles were sold in India as of March 2019 compared with 80 in 2012, according to a report by Edelweiss Securities Ltd. That pushed the category’s growth to 11 percent a year against 4 percent for new cars.
Read the full story here.
8. Trump Vs Iran
President Donald Trump said Wednesday that he has decided to increase U.S. sanctions on Iran following the weekend attacks on Saudi Arabia’s biggest oil installation.
“I have just instructed the Secretary of the Treasury to substantially increase Sanctions on the country of Iran!” Trump said in a tweet.
There are no further details yet on what exactly will be changing.
The Islamic Republic sent a cable to Washington formally denying any role in the attack. Saudi Arabia is expected to unveil what it says is evidence of Iran’s involvement in the incident, which shook crude markets and slashed output at OPEC’s largest producer. U.S. Secretary of State Michael Pompeo is also due to arrive in the kingdom on Wednesday.
9. India Bans E-Cigarettes
India became the latest country to ban electronic cigarettes only days after Juul Labs Inc.’s products vanished from online Chinese marketplaces, signaling that Asian nations may be no refuge for the industry from an escalating crackdown in the U.S.
- The Narendra Modi-led government announced an executive order Wednesday banning the sale and production of all e-cigarettes, echoing growing concerns worldwide over health risks associated with the smokeless nicotine devices popular with teenagers.
- Despite increasing curbs on vaping, some nations view e-cigarettes as viable alternatives to smoking, a leading cause of preventable death.
Why are we debating if it’s more harmful or less? It is harmful. It is addictive. The entire next generation will be going down the drain if we don’t control it now.Preeti Sudan, Secretary, Ministry of Health & Family Welfare
Originally touted as a safer alternative to wean people off cigarettes, e-cigarettes have come under widespread attack across the globe.
10. Relief For PW, Burden Of Proof For SEBI
In a major reprieve for Price Waterhouse and its network firms, the Securities Appellate Tribunal has concluded that the audit firm’s role in the Satyam scam can at best amount to professional negligence and not fraud.
- In saying so, SAT set aside SEBI's 2018 order that had barred not just the specific PW firm that audited Satyam but the entire network of 10 PW audit network firms in India and two individual auditors from auditing the accounts of listed companies for two and three years respectively.
- The SAT relied on a Bombay High Court decision in this matter, which defined the scope of SEBI's jurisdiction to investigate PW's role in the Satyam scam.
- The high court had laid down that SEBI's jurisdiction would depend on the evidence—if SEBI concludes only some omission without any mens rea, or connivance, it cannot give any directions to the audit firms.
SAT has laid down an unreasonable burden of proof on the regulator, say experts - they analyse the fineprint here.