Neelkanth Mishra of Credit Suisse presents a solid thesis for the distress in the financial space. The moratorium on loans, he says, increases the opacity of balance sheets of financial firms, whether public or private or NBFCs. The market does not know what is the true underlying quality of the book on which to pay a multiple. This has led to an automatic compression of price to book and price to earnings. Plus, amid the income loss due to the lockdown, companies will incur many costs that they cannot postpone, which will go from retained profit. Where companies have no buffers, they will quickly become NPAs and start eroding tier-1 capital of banks, and thus affect their potential for growth.
MARKET CUES: Where do we stand >>>  | Nifty futures on the Singapore Exchange traded 28 points lower at 7 am (IST) in signs that Dalal Street was headed for a weak start to Wednesday's session. |
| On Tuesday, Nifty edged lower after facing selling pressure at higher levels. The index formed a small bearish candle on the daily chart. Analysts said the index may face resistance in the 9,150-180 zone and may find support in the 8,950-8,890 range. |
| Nifty's maximum Call open interest stood at 9,200 followed by 9,500 levels while maximum Put OI was at 9,000 and then 8,500 levels. Options data indicated an immediate trading range between 8,800 and 9,300 levels. |
| Elsewhere in Asia, shares shed some of their recent gains on Wednesday as investor concerns about rising tensions between the US and China tempered optimism about a re-opening of the world economy. The Nikkei share average slipped 0.1%, unwinding some of the gains made on Tuesday. Australia's ASX 200 lost 0.9% in early trade and South Korea's KOSPI fell 0.2%. |
| US stocks pared gains after President Donald Trump's adviser Larry Kudlow slammed China's planned national security legislation on Hong Kong. The S&P 500 climbed past the 3,000 mark for the first time since March 5, up 37% from March lows, but closed below 3,000. Dow ended 529.95 points, or 2.17%, higher at 24,995, while Nasdaq added 15.63 points, or 0.17%, to 9,340. |
| Oil prices fell on concerns over how quickly fuel demand will recover even as lockdowns ease in many countries. Brent crude futures fell 40 cents, or 0.7%, to $35.77 a barrel after falling 1.8% on Tuesday. WTI crude futures slipped 49 cents, or 1.2%, to $33.95. |
| The rupee appreciated 29 paise to close at 75.66 against the US dollar on Tuesday tracking weakness in the American currency, while easing of Covid-19 lockdown measures fuelled growth optimism. |
| Moderating demand for risk helped the safe-haven US dollar index to edge up 0.03% to 99.042, reversing from losses overnight. |
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RBI monetising deficit on the table… The Centre is likely to look at the option of RBI monetising the deficit in the second half of the financial year. "It is an option which we have not closed. It is very much there," a top government official told TOI. The assessment within the government is that expenditure in the first half of the financial year would be met through market borrowing and re-prioritisation of spending. RBI's monetisation of the fiscal deficit broadly means the central bank printing currency for the government to take care of any emergency spending and to bridge its fiscal deficit.
Read More Axis Bank explores capital booster… Almost three years after it got a $1.8 billion "confidence capital" boost, Axis Bank might see a rerun. Private equity group Carlyle has initiated discussions with the country's third-largest private lender for a fund infusion as rising systemic level stress and the economic slowdown are forcing banks and shadow lenders to build provision buffers to tackle future asset slippages. The investment could be around $1 billion and it is likely to be in the form of a primary issuance of shares through a preferential allotment route that may lead to the PE fund owning up to 5-8% of the bank.
Read More Rate cut triggers rush in bond mart… India's latest interest-rate cut last week is already showing signs of adding to record corporate bond sales, as firms build cash buffers to counter the pandemic. The pipeline of deals is growing with at least three state issuers seeking bids for as much as Rs 11,000 crore of bonds on Wednesday. That would add to the Rs 1.4 lakh crore already raised by mainly top-rated businesses in Asia's third-largest economy through domestic note sales since April 1, the best start to a financial year on record.
Read More Europe to see big stimulus today… The European Commission will on Wednesday unveil a plan to help the EU economy recover from its coronavirus slump with a mix of grants, loans and guarantees exceeding 1 trillion euros that has raised a controversy even before it was announced. The aim is to help countries and sectors worst hit by the Covid-19 pandemic recover quickly and protect the EU single market of 450 million people from being splintered by divergent economic growth and wealth levels as the 27-nation bloc emerges from its deepest ever recession expected this year.
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HDFC AMC marks down Essel assets… HDFC Asset Management marked down the value of its holdings in Essel Group's non-convertible debentures (NCDs) by Rs 120 crore during the quarter ended March 2020. The country's second largest mutual fund has taken the losses in its books as it had bought out Essel Group's papers worth Rs 500 crore in June 2019 from its debt schemes in an attempt to shield unitholders. But the move drew the ire of the company's shareholders. The AMC has received Rs 375 crore out of the Rs 500 crore that Essel owed it after the group sold shares to a foreign investor.
Read More June quarter GDP may contract 40%…The Indian economy faces a 'humongous' loss in June quarter and GDP could contract by more than 40% during the period, SBI Research said. It expects another stimulus package later in the year to help shore up the economy. SBI Research estimates the economy will contract by 6.8% in FY21 after a 'smart recovery' in the second quarter and 'much better' growth numbers in the third and fourth quarters.
Read More Firms with China links raise ECBs… Several companies with China connections are raising funds through the external commercial borrowing route after the government tightened foreign direct investment norms, said people with knowledge of the matter. These curbs don't apply to debt. At least three-four Chinese multinational companies are in the process of issuing ECB instruments to parent firms based in China and more will follow.
Read More Insurers seek to cut returns… If you bought insurance as an investment, you would likely get the equivalent of SBI savings deposit rates as returns on discontinued plans. That's the gist of the request top life insurers have made to the regulator Irdai. In the current rate regime, they can't afford to pay the mandated 4% as interest. They believe a rate benchmarked with the short-term savings rate of SBI would lead to a fairer transmission of interest rates on to their guaranteed liabilities paid on investment-linked policies surrendered before maturity.
Read More Meanwhile... Auto firms manage 1/10th of sales... After zero sales in April, auto companies are going through a dull May. Early indications show this month could be a washout, with auto majors such as Maruti Suzuki, Hero Motocorp, M&M and Tata Motors likely to manage just one-10th of average monthly wholesale sale numbers, and experts warn of a prolonged crisis due to economic slowdown and poor consumer sentiment. While most auto manufacturers have opened their plants after lockdown, the entire production ecosystem is yet to fall in place as support from suppliers, vendors, dealers and financiers remains limited, industry insiders said.
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