The DIPAM secretary, Tuhin Kant Pandey, believes that the government should be less aggressive about its divestment targets. According to Pandey, in FY22, divestment just helped collect Rs13,500 crore against the target of Rs175,000 crore. India had missed its divestment target for 3 consecutive years in succession. This year, the targets are more reasonable at Rs65,000 crore and LIC stake sale has already done one-third of the job. Pandey also added that divestment fears led to a fall in PSU stock prices, making it worse.
According to World Gold Council (WGC), India gold sales in festive season 2022 would be less than normal. India normally sees peak demand for gold jewellery, coins and bars in the December quarter. Last year saw revenge buying as the economy recovered from the pandemic. WGC expects gold sales this festive season to be much lower than the 344 tonnes of gold sold last year. High inflation makes people wary of consumption spending. Also, digital gold and products like SGB and ETFs have also caught public attention.
Ironically, the RBI intervention in the currency markets to stem the fall in the rupee is making it less than attractive for carry trades. Due to RBI intervention, the 12-month implied yields on the INR have gone up, making the rupee less attractive for carry trades. A carry trade entails borrowing in a currency with low rates and investing in another currency with higher rates. The interest rate differential with the US is now at the lowest since 2011, sharply reducing the carry trade demand for INR. RBI spent $24 billion in 2022.
The stock of ICICI Bank, the top pick for most institutional investors, is seeing gradual selling by the mutual funds. Incidentally, ICICI Bank still has Buy rating from all the 54 analysts tracking the stock. The stock is up 19% in 2022 and over 100% in last 3 years. Post the exit of Chanda Kochhar, there was confidence that corporate governance issues at the bank should be behind them. However, now MFs are worried about over-optimism. In last 3 months, MF sold Rs2,350 crore of ICICI Bank with the top 3 AMCs being net sellers.
According to Fitch, high inflation and big rate hikes may drive the US economy into 1990s style recession. It has slashed US GDP growth estimates for 2022 by 100 bps from 1.5% to 0.5%. Fitch believes that high inflation would be a massive drain on household incomes and trigger a downturn. Fitch does not expect this recession to be too destructive. The Fed and the economists are totally surprised at the stubbornness of inflation. This is evident from the core inflation touching 40-year high levels of 6.6% in September 2022.
GAIL India has emerged successful bidder for debt-laden JBF Petrochemicals. The COC gave a 100% vote for GAIL’s resolution plan. Apart from GAIL, other bides included ONGC, Reliance, IOCL; among others. It may be recollected that JBF Petrochemicals has defaulted on bank loan of around Rs5,000 crore. JBP Petro was incorporated in September 2008 to commission a 1.25 MTPA Purified Terephthalic Acid (PTA) plant at Mangalore Special Economic Zone. IDBI Bank had underwritten the loan and KKR had invested in JBF.
The impact of a strong dollar is being felt far and wide. From Cairo to Nairobi and from Berlin to London, the strong dollar has hit low income economies and high income economies really hard. A strong dollar means imported inflation in every walk of life. The US$ is up 18% this year and the Bloomberg Dollar Index (DXY) is already at a 20-year high. Normally, cheap currency boosts exports but that is being more than offset by imported inflation. It is also squeezing billions in dollar borrowings with higher potential losses.
Even as Air India appears to be getting a lot of bad press and bad social media, it has decided to triple its fleet size in 5 years. It also plans to increase its domestic and international market share to 30% over the next 5 years. There are also talks of a 3-way merger of Air India, Vistara and Air Asia; all part of the Tata group so that the whole is more than the sum of parts. They already collectively own 218 planes. Indigo leads the Indian domestic market with over 55% market share and Tatas must capture a growing market.