Government presented Union Budget 2019-20 in July amidst challenging global environment and notable slowdown in GDP growth rate of India. The chief economic advisor has set the goal in economic survey to make India a 5 Trillion $ economy by 2025. Emphasis has been laid on boosting of Investments.
Amongst notable measures, government has proposed provision of Rs. 70,000 Crore for capitalisation of public sector Banks. A proposal is also being considered to increase minimum public shareholdings from 25% to 35%. For cultivating the start-up culture, government stated that Start-ups will not be subject to any scrutiny from Income Tax department on valuations and fund raising.
RBI maintained the accommodative stance of monetary policy and slashed the repo rate by 35 basis points from 5.75% to 5.40% in July 2019.
Yield on 10 year government bond yield fell by 51 basis points to 6.37 per cent in July 2019. The 10 year government bond yields of all major economies like US, UK, Germany, Japan and Brazil are going down as the major economies are slowing down.
Retail inflation calculated on the basis of Consumer Price Index (CPI), dropped to 3.15 per cent in July in spite of higher prices of food compared to 3.18% in June 2019. Industrial production growth slipped to 4.3 per cent in July, mainly on account of poor show by the manufacturing sector. Rupee lost by 0.67 per cent and closed at 69.41 Rupee per USD.
Trends in Capital Markets:
Primary market Update:
During July 2019, there were five public equity issuance (out of four issuances were at SME platform) mobilizing Rs. 500 crore as compared to eight issues amounting Rs. 547 crore in June 2019. There were three right issues that raised Rs. 1,689 crore in July 2019 as against single right issue which has raised Rs. 10 crore in June 2019.
The amount raised through private placement of equity (i.e. preferential allotment and QIP route) stood at Rs. 6,496 crore in July 2019, compared with Rs. 15,478 crore in June 2019.
During July 2019, there was no fund mobilised from the Primary Market through Public Issue of Corporate Bonds comparing with Rs. 936 crore in June 2019. During July 2019, Private Placement of Corporate Debt Reported to BSE and NSE decreased by 6.2 per cent to Rs. 46,080 crore over Rs. 49,100 crore in June 2019.
Funds Mobilisation by Corporates (₹ crore)
- Trends in Secondary Markets:
a) Capital Markets
There was severe selling pressure on Indian equities in July due to uncertainties over swing of budget proposals and a further slowdown in the economy. Bears dominated the markets as Sensex went down 4.86% and the Nifty slid 5.69% in July.
Bears dominated the markets as Sensex lost 1914 points and Nifty lost 671 points. The market capitalisation of BSE and NSE decreased by 6.9 per cent and 6.8 per cent respectively in July 2019. At the end of July 2019, the total market capitalisation of BSE and NSE stood at 141 lakh crore and 140 lakh crore respectively.
All the major sectoral indices closed negative. Among BSE indices, S&P BSE Consumer Durables decreased by 14.5 per cent, followed by S&P BSE Metal (12.8 per cent), S&P BSE Capital Goods (11.6 per cent), S&P BSE PSU (11 per cent) and S&P BSE Small Cap (10.9 per cent).
Among select NSE sectoral indices, Nifty PSU Bank index declined highest by 14 per cent during July 2019, followed by Nifty Small 100 index (10.9 per cent), Nifty Midcap 50 (10.6 per cent), Nifty Midcap 100 (9.8 per cent), Nifty Bank (7.2 per cent) and Nifty MNC (7 per cent).
b) Corporate Debt Market
During July 2019, BSE noted 5,255 trades of corporate debt with a traded value of Rs. 65,646 crore as compared to 3,662 trades of corporate debt with a traded value of Rs. 56,679 crore in June 2019. At NSE, 6,886 trades were noted with a traded value of Rs. 1,18,102 crore in July 2019 as compared to 5,845 trades with a traded value of Rs. 1,14,725 crore in June 2019. Together, the trading in corporate debt at BSE and NSE amounted to Rs. 1,83,748 crore during July 2019.
c) Institutional Investments
The mutual fund industry saw a net inflow of Rs. 87,088 crore in July 2019. Mutual funds made net investment of Rs. 67,883 crore in the Indian securities– secondary market (Rs.15,084 crore in the equity and Rs.52,799 crore in the debt securities) compared to an investment of Rs.49,803 crore (Rs.6,232 crore in the equity and Rs.43,571 crore in the debt) in June 2019.
Foreign portfolio investors (FPIs) were a net seller for July 2019. FPIs made net investment of Rs. 3,003 crore in Indian securities market in July 2019 compared to an investment of Rs. 13,111 crore in June 2019. FPIs liquidated Rs. 12,419 crore from equity securities, invested Rs. 9,433 crore in debt securities and withdrew Rs.17 crore in hybrid securities in July 2019. As against Rs. 2,596 crore investment in equity market, investment of Rs. 8,319 crore in debt securities and Rs. 2,196 crore investment in hybrid securities in June 2019.
d) Portfolio Management Services
During July 2019, the total AUM of the portfolio management industry decreased by 2.1 per cent to Rs. 16.1 lakh crore from Rs. 16.4 lakh crore in June 2019.
e) Trends in Substantial Acquisition of Shares and Mergers & Acquisitions:
During July 2019, five open offers with offer value of Rs. 2,863 crore was made to the shareholders as against four open offers with offer value of Rs. 5,181 crore made in June 2019. Out of five, four open offers were for change in control of management and one was Substantial Acquisition.
Signs of a further slowdown in the global economy became more prominent during July 2019. Trade tensions between the largest two economies in the world intensified with the US announcing of 10 per cent tariff on US$300 billion of goods from China from September 1. As per the advanced estimates by the Bureau of Economic Analysis, the US economy grew at an annualised rate of 2.1 per cent quarter-on-quarter (Q-o-Q) during the second quarter of 2019. The growth rate in the previous quarter was 3.1 per cent. On the other hand, impact of intensifying Brexit-related uncertainties has been affecting the UK’s economy. The Q-o-Q growth rate of GDP increased to 0.5 per cent in the first quarter of 2019 and it is expected to have a flat trend in the second quarter.
India has experienced mild slowdown in growth rate during the first quarter of 2019. Retail inflation, measured by y-o-y change in the CPI, edged up to 3.2 per cent in June from 3.0 per cent in April-May. The Chinese economy has been hit by the ongoing trade war with the US. China’s GDP grew at a pace of 6.2 per cent Y-o-Y during the second quarter of 2019 which is the weakest growth rate in at least 27 years. Brazilian economy continued to flounder in the second quarter of 2019, after GDP contracted by 0.2 per cent (Q-o-Q) for the first time since the 2015–2016 recession in the first quarter.
Russia’s growth performance and prospects have weakened since in recent quarters due to factors like fall in oil prices, geopolitical tensions, raised uncertainty which dampened domestic and foreign private investment.
Global Equity Markets:
Developed markets mostly witnessed positive returns while emerging markets mostly faced negative returns in July 2019. US shares rose modestly in July 2019. Markets in the UK, in spite of facing rising uncertainty relating to Brexit, recorded positive return. Japanese markets also performed well during the month. Markets in the Eurozone, on the other hand, remained flat.
Global Debt Markets:
Bond markets in the emerging markets fared well on the prospect of lower US rates along with bond markets in selected developed nations. The price of their government bonds increased which was reflected in the falling of yield. Federal Reserve lowered the target range for the federal funds rate to 2.0 – 2.25 per cent during its July meeting. The 10-year US Treasury yield at the end of July 2019 remained flat compared to its previous month’s value. Yield of the German Bund fell by 11 bps. The UK 10-year yield fell by about 22 bps, whereas yield of Japan’s 10-year government bond remained flat.
Among the emerging markets bond yields fell substantially for Indian 10-year bonds by 51 bps. Yields of 10-year government bonds fell by 22 bps in Brazil and by 11 bps in Russia.
This material has been prepared by the personnel in Vora Corporate Finance which is Investment Banking arm of Vora Management Consultancy Private Limited. Any views or opinions expressed herein are solely that of individual authors and may differ from view of Vora Management Consultancy Private Limited. This material is proprietary to Vora Management Consultancy Private Limited and is for your personal use only. Any distribution, copy, reprints or forward to others is strictly prohibited.
This material captures the information based on information available in the public domain, public announcements and sources believed to be reliable. Analysis contained herein is based on publicly available information and appropriate assumptions. This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute strategic, investment, legal or tax advice. In no event Vora Management Consultancy Private Limited be liable for any use by any party or for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you for evaluating any transaction.