8 min read
Hello, hope you are doing well!
To sum up Week 3 of August 2021, we will be reading about…
Afghanistan situation and its impact on Indian trade relations
Indian economy recovery and Crisil report
HDFC’s AT-1 bonds are priced at 3.7%
Snippets of other things that happened
Wrap-up
How trade with Taliban looks like?
The situation has turned tense as Taliban took over Afghanisthan that will affect trade worth billions with India. India supplies essential commodities to Afghanistan, while exporting dry fruits to the fastest growing economy in the world. Shipments between the two nations were postponed or delayed after Taliban extremists began making military advances recently, prompting the fall of the capital Kabul on Sunday. "There is a transitory error in exchange as Afghanistan is seeing progress of force. In any case, inside a couple of days trade will restart," said Rahil Shaikh, MD of Mumbai-based MEIR Commodities, which exports sugar to Afghanistan.
Around the same time, New Delhi's imports from Kabul came to $509 million, comprising primarily of figs, raisins and apples. India's exports to Afghanistan came to $826 million in the monetary year that finished on March 31, comprising primarily of sugar, grains, tea, flavors, drug and material items. Afghanistan has been the second-greatest purchaser of Indian sugar in the 2020/21 advertising year finishing on Sept. 30, buying a record 624,000 tons, as per the All India Sugar Trade Association.
Indian shipments for Afghanistan for the most part land at Pakistan's Karachi port and from that point are moved to Afghanistan by road. Interest for sugar and other essential commodities is vigorous from Afghanistan and imports could rise once banks start operations, said Tayyab Balagamwala, chief at Karachi-based Seatrade Group.
"Taliban has cut import charges on numerous wares. This will prompt more imports," Balagamwala said. India was exporting and importing commodities from Afghanistan in any event, during the past Taliban rule during 1996 to 2001, said a Mumbai-based exporter, who declined to be named.
The United States or European Union may force sanctions on Taliban yet even those authorizations would prohibit exchange of fundamental items. The Federation of Indian Export Organization exclaimed on Thursday that the Taliban have prevented all imports and exports from India through transit routes of Pakistan. Taliban representative Zabihullah Mujahid denied this in a Tweet saying "The Islamic Emirate needs better political and exchange relations with all nations."
That does give a ray of hope to Indian traders as we hope the impasse recedes as soon as possible and peace sanity is restored at the earliest in Afghanistan.
India’s K-Pop style recovery
After playing with a lot of alphabets, with respect to the kind of recovery India may have, experts have finally agreed upon the fact that the recovery has started to kick in.
Crisil Ratings on Wednesday (18.08.2021) said a broad-based recovery is on for India Inc currently, and upgraded its credit quality outlook to 'positive' from the earlier ‘cautiously optimistic.’ To justify this revision in rating, the agency said that the country’s credit ratio (which illustrates the number of upgrades to downgrades), rose to over 2.5 times in the first four months of the fiscal, as compared to 1.33 times in the second half of FY21. The recovery is broad-based and is evident as sectoral growth is playing out.
Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government's thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability, the agency said, adding pharmaceuticals and speciality chemicals continued to see buoyancy backed by domestic and export growth. However, contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades, it said.
To support Crisil’s statement, Ind Ra (India Ratings and Research) on Thursday (19.08.2021) revised upwards its 2021-22 GDP growth forecast to 9.4%. This revision was justified considering the surprisingly faster recovery after the second wave of Covid, higher exports and sufficient rainfall.
Additionally, the global markets are also doing good as the Covid threats ebb leading to higher exports in India, while the southwest monsoon has revived which increases the prospects on the rural economy front. But there are concerns on rising inequalities in the society, as the pandemic has pushed a large number of people back into poverty.
Well, we do not know which alphabet will win the recovery race, but from what it looks like, it is set to be a K-shaped recovery and usually, a K-shaped recovery refers to only a few people benefitting from the growth while the ones on the downward slope go down faster, just as the shape of the alphabet.
(H)ow [to] (D)ominate (F)inancial (C)apital internationally!
HDFC Bank's first Additional Tier-1 (AT-1) capital bonds issue worth $1 billion has been priced at 3.7 percent contrasted with starting demonstrative yield of 4.12 percent. Market sources said the reaction was solid with requests in the area of $4 billion - $4.5 billion. Contributions from prominent investors include GIC and Fidelity Management.
Bankers who dealt with the issue were worldwide players like Bank of America, Barclays and Standard Chartered. The street shows for bonds opened on Monday and covered 125 financial backers. Rating agency Moody's has doled out "Ba3" rating to HDFC Bank's AT-1 capital bonds.
The Ba3 rating is three scores underneath the bank's baa3 Baseline Credit Assessment (BCA), mirroring the likelihood of impairment related with non-combined coupon suspension. The rating additionally factors in the probability of high misfortune seriousness when the bank arrives at the mark of non-sustainability.
This was the bank's first AT-1 security offering in the global market to raise debt capital. This opens the US market for Indian moneylenders to tap the market with such a contribution, trader investors said.
The bank's absolute Capital Adequacy Ratio (CAR) remained at 19.1 percent as on June 30, 2021 (18.9 percent as on June 30, 2020). Its level 1 capital remained at 17.9 percent in June 2021 (17.5 percent in June 2020). The Common Equity Tier 1 Capital proportion (CET1) was at 17.2% as of June 30, 2021. It has a tiny pool of AT-1 capital bonds at 0.5 percent. The bonds are priced at one of Asia’s lowest rates and hence a proud moment for the Indian financial system. It has paved the way for Indian players to raise funds from international investors.
The HDFC bonds will be listed on the India International Exchange (IFSC) as they are considered quasi-equity due to their perpetual property. Lastly, they can be added to the bank’s capital base and can be written off during solvency issues.
What else happened?
Microsoft checks in!: Tech giant Microsoft Corporation has invested nearly $5mn (about ₹37 Crores) in Oravel Stays Pvt Ltd (OYO, which runs the OYO Rooms chain of hotels), through the issuance of equity shares and compulsory convertible cumulative preference shares on a private placement basis by the latter, according to a regulatory filing by the hospitality chain. With this deal, the start-up is now valued at around $9 billion before its proposed IPO. Oyo is likely to shift to Microsoft’s cloud services post this deal. Given the pandemic and its effects on the hospitality sector, OYO, like any other chain of hotels, was badly hit, resulting in it consolidating operations and laying off employees. But, the 27-year founder, Ritesh Agarwal, said that the company is bouncing back and a turnaround is in the picture!
WPI goes easy: The wholesale price-based inflation softened for the second straight month to 11.16% in July on cheaper food items, even though prices of manufactured goods and crude oil hardened. In July 2020, WPI inflation was (-) 0.25%. While inflation in food articles eased for the third straight month, and was at 0% in July, down from 3.09% in June, inflation in crude petroleum and natural gas was 40.28% in July, against 36.34% in June. Inflation in food articles eased despite a spike in onion prices (Inflation in onions was high at 72.01%). In manufactured products, inflation stood at 11.20% in July, against 10.88% in the previous month. While the RBI kept interest rates unchanged at record lows in its last MPC, it revised its projection of retail inflation- up to 5.7% from 5.1% for FY21-22. In tandem with this, data released last week showed retail inflation eased to 5.59% in July, mainly due to softening food prices.
Improving Credibility: The Bangalore-based FinTech startup, CRED, which rewards users for paying their credit card bills on time, is broadening its offerings to help its 7.5 million members gain more from the service- it is entering the P2P space. P2P is a lending model via an online platform which matches lenders with borrowers. Kunal Shah, the founder & CEO said that this is the first investment-focused product that the three-year-old startup has launched. The feature, named Cred Mint, launched in partnership with P2P non-bank LiquiLoans, will allow users to ‘invest’ their savings in a capital pool, which will then be used to on-lend to other customers on the platform seeking personal loans. While Cred spreads will allow users to put between Rs 1 lakh and Rs 10 lakh of their capital into the lending pool, the framework is set such that investors will earn interest of around 9%, while loans will be disbursed at a rate of 12-13%
To wrap it up…
To cap it off, Bank of America has cautioned of a 9 percent close term adjustment for the value market, saying the "road has just restricted runway to proceed with the rally" that started in the second half of last year. The benchmark record Sensex has added an astounding 6,000 points since January and touched 56,000 on Wednesday. Sensex and Nifty tanked 300.17/118.35 points on Friday (13.08.2021) as they closed at 55,329 and 16,450.50 respectively. The markets snapped two week gains on the possibility of US scaling down its bond-buying programme aka Quantitative Easing (QE) or taper.
The homegrown equity market has been exchanging at new lifetime highs since the recent days, reflecting the worldwide market indices, which also are moving at their peak levels. But mid-week, developed markets gave indications of languor, particularly after the Fed minutes affirmed probably tightening, July retail sales information in the US came in beneath assumption and China revealed sub-level development rates for July. Ordinarily, India moves to their tunes, yet kept a moderately steady position this time, as the most noticeably terrible hit enterprises saw a recuperation in July in the midst of the pandemic. July retail sales came in at 72% of the pre-pandemic levels, 61% more travelers took to the skies contrasted and June and the hospitality business saw expanded inhabitance. Indeed, even Nomura's India business resumption list crossed the 100 mark subsequent to plunging in March 2020 and settled at 101.2 levels.
Crude oil prices declined on August 20 on demand stresses because of flooding instances of COVID-19 Delta variation in the midst of a more grounded US Dollar. Appreciating US Dollar combined with stresses over recuperation in the worldwide oil interest in wake of the Delta variation of the Covid19 infection may keep on burdening oil costs in the week ahead. The muted IPO gains have negatively impacted the market keeping in mind the fabulous run it had over the last year.
It is exceptionally far-fetched that India will turn into a USD 5 trillion economy by 2024-25 because of the lull brought about by the pandemic. In 2019, Prime Minister Narendra Modi envisioned to make India a USD 5 trillion economy and a worldwide force to be reckoned with by 2024-25. It is highly unlikely that the goal will be achieved but it's better late than never.
Although bulls have roared for most of the year so far, the bears were not far behind and did play a crucial role. They (the bulls & the bears) share a unique relationship wherein they fight a lot and annoy each other. If one is winning, the other is silently waiting to destroy the party. But lastly, they do complement each other with utmost love and care. On that note, this festival of Rakshabandhan is there to highlight the two sides of the same coin just like a strong bond shared between a brother and a sister.
Share sweets. (Please share stock ideas too!). Spread love. Stay safe and above all stay financially educated. (So that you have enough to splurge on your near and dear one’s, be it any occasion).
Happy Rakhshabandhan!
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That brings us to the end of this weekly wrap-up.
See you next weekend. Stay safe!
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Sources: Moneycontrol, The Signal, The Boring News Co., Business standard, Upstox Daily, and Motilal Oswal.
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