BQuick On Jan. 4: Top 10 Stories In Under 10 Minutes

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

1. A Rupee Was All Jet Needed

All Jet Airways India Ltd. ever needed was Rs 1, or just 1.4 U.S. cents, for providing hot meals and cold towels, writes Andy Mukherjee.

• As a full-service carrier, India’s second-largest airline spends that much more per available seat kilometer than its bigger rival, IndiGo. That’s excluding fuel costs, which are volatile and exorbitantly taxed but comparable for all players.
• The problem is that as 2015 was ending, Jet was earning only half a rupee more in revenue per seat kilometer than IndiGo. That was just before InterGlobe Aviation Ltd., the owner of IndiGo, set out to expand its scale of operations 2.5 times faster than what Jet could muster.
• The market leader also drove prices lower by forgoing revenue of Rs 0.9 per kilometer over the first nine months of 2016.
• Jet was too indebted to match its rival’s aggression. When it tried, by sacrificing revenue of Rs 0.3 per kilometer, it ended up charging customers less than it cost to fly them.

Then, starting September 2017, oil prices shot up for a year.

2. Winners Of The Next Growth Cycle

Large caps and larger mid caps will lead the new growth cycle in the next two to three years, according to Hiren Ved.

• Small and micro caps will not contribute, the co-founder and whole-time director at Alchemy Capital Management said.
• “The froth in small caps is a sign of oncoming fatigue in the broader markets,” Ved said on BloombergQuint’s special show Alpha Moguls. “All investments will be a function of managing the volatility during the holding period.”
• That strategy helped the wealth manager outperform the benchmark in the just concluded year, said Ved, who has been managing investments for 17 years.
• Around the start of 2018-19, Alchemy booked profits in mid caps and invested the money in some large-cap non-consensus trades that held them in good stead.

Yet, it’s very difficult to predict if the market is at the end of the correction.

3. Sensex, Dow Rebound

Indian equity benchmarks snapped their two-day losing streak in a highly volatile session led by banking and financial services shares.

• The S&P BSE Sensex Index rose 0.51 percent or 181 points to 35,695.
• The NSE Nifty 50 Index climbed 0.52 percent or 55 points to 10,727.
• For the most part of the day, the benchmarks were highly volatile as the Nifty fluctuated 10 times between gains and losses.
• All sector gauges barring the Nifty IT Index compiled by National Stock Exchange ended higher.

Follow the day’s trading action.

U.S. stocks rebounded from Thursday’s rout, the dollar surged and Treasuries fell as a risk-on mood spread across financial markets after American hiring data underscored labor-market strength.

• The S&P 500 held advances above 1 percent after data showed a surge in hiring last month that was accompanied by faster wage growth and an increase in participation.
• The 10-year Treasury yield rose back above 2.6 percent and the dollar firmed against major peers, with investors paring back bets that the Federal Reserve will rush to stop its tightening efforts.
• West Texas Intermediate crude climbed 2.3 percent to $48.16 a barrel, hitting the highest in more than two weeks.

Get your daily global markets fix.

4. Autos Set For A Revival?

Automakers sold fewest vehicles in a year in December. Still, analysts remain optimistic citing falling fuel prices and the possibility of a spurt in rural demand if the government increases spending ahead of the next general election.

• Anuj Kathuria, president, global trucks at Ashok Leyland Ltd., said a higher base last year due to pre-buying and a liquidity crunch impacted truck sales as non-bank lenders turned cautious. “We are not worried about slower growth rates for the last few months and we expect volumes to pick up in the January-March quarter.”
• Fuel prices have also fallen from a record high. Inventory levels have also started to fall at dealerships.

The situation will improve in the quarter ending March, according to Nomura.

5. Tilemakers’ Road To Recovery

Tilemakers are expected to recover after a poor run in 2018 as fuel prices fall and demand from the real estate sector improves.

• Prices of gas have tumbled and companies regained pricing power. Brokerages, including HSBC and Nomura, expect the government’s focus on housing and toilet building to aid revival.
• The real-estate sector—which contributes more than 90 percent of demand for wall and floor tiles—was under a prolonged slowdown for the past three to four years after back-to-back disruptions such as demonetisation, goods and services tax and the RERA legislation, which protects buyers from mis-selling, hurt housing demand.
• Shares of tilemakers declined nearly 70 percent in 2018.

Here’s why 2019 could be better for tilemakers.

6. The Thin Line On Aadhaar

The government introduced an amendment legislation in Lok Sabha that will allow private entities to use Aadhaar. The bill, which will pave the way for voluntary use of the biometric database to establish identity, proposes several changes to the Aadhaar Act, the Indian Telegraph Act, 1885 and the Prevention of Money-Laundering Act, 2002.

• The government has come up with a creative way to not fall afoul of the Supreme Court’s judgment on Aadhaar while allowing use by private entities, Rahul Matthan, partner and head of technology at law firm Trilegal, said.
• But Supreme Court advocate Vrinda Bhandari argued that the creative way is still aimed at using private data for commercial exploitation, something that the apex court had clearly barred.

Here are the proposed amendments in the law and what their impact might be.

7. Air India’s Rs 2,000-Crore Lifeline

Air India received two loans worth Rs 2,000 crore from the National Small Savings Fund in 2018.

• The national carrier borrowed Rs 1,000 crore each—for six months in October and for four-and-a-half months in November—at an interest rate of 8.5 percent a year, according to the airline’s response to BloombergQuint’s Right to Information queries.
• The airline, saddled with more than Rs 54,000-crore debt, is on a government bailout.
• The interest rate of 8.5 percent for Air India’s NSSF loans is marginally cheaper than the prevailing rates for commercial borrowings.
• Rates on short-term loans of up to six months offered by banks to public sector companies range from 8.10-8.50 percent plus the risk spread based on how they are rated, said a banker who didn’t want to be identified.

Air India is in a difficult financial position and is availing loans to repay debt.

8. Apax Partners Nears $400-Million Fractal Deal

Apax Partners is in advanced talks to acquire a stake in Fractal Analytics Inc., a provider of machine learning and artificial intelligence services, people with knowledge of the matter told Bloomberg News.

• Apax is discussing a deal, which could be valued at about $400 million, to buy stakes from existing shareholders, the people said, asking not to be identified because the information is private.
• The company is also discussing injecting fresh capital into Fractal, which would make Apax the majority shareholder, they said.
• Fractal, which counts Alphabet Inc.’s Google and Wells Fargo & Co. among its clients, helps customers get answers from the increasing quantities of data they collect using artificial intelligence.

The technology firm is seeking investment to help fuel new growth.

9. China Cuts Banks' Reserve Ratio

China’s central bank took a further step to secure liquidity to the slowing economy, amid investor jitters over the outlook and expectations that more easing moves are in the pipeline.

• The amount of cash lenders must hold as reserves will be cut by 1 percentage point, dropping by 0.5 percentage point on Jan. 15 and a further 0.5 percentage point on Jan. 25, the People’s Bank of China said on its website.
• The cut will release a net 800 billion yuan ($117 billion) of liquidity and will offset a funding squeeze ahead of the Chinese New Year, it said in separate statement.
• Data this week also showed a worsening picture for the world’s second largest economy, with a manufacturing gauge falling into contraction, further depressing investor sentiment after a rough 2018.
• The Shanghai Composite Index hit a four-year low earlier this week, and Apple Inc. shares plunged the most since 2013 after reporting it would miss a quarterly sales forecast because of slowing iPhone sales, especially in China.

The latest reduction is the first all-inclusive required reserves cut since March 2016.

10. Here’s How Powell Regains Control Of Fed’s Narrative

Using words to influence people’s behavior — technically known as policy guidance — is key to the Federal Reserve’s ability to deliver on its dual mandate of maximum employment and stable prices, writes Mohamed El-Erian.

• Yet the effectiveness of the central bank’s communications strategy has taken a hit in the last few weeks. Chair Jerome Powell has a golden opportunity on Friday to advance the process of regaining the narrative.
• It’s not that the Fed pronouncements matter less these days. They remain as important and influential. What has changed is their impact on volatility.

Many now worry the Fed has been fuelling the volatility in the markets.