RBI’s monetary policy committee maintained the accommodative stance and slashed the repo rate by 25 bps to 5.15% from 5.40% on 4th October 2019. The rate was earlier reduced by 35 basis points from 5.75% to 5.40% in August 2019. This is 5th consecutive rate cut by RBI in last year.

Repo rate is the interest rate which the Reserve Bank of India charges for loans to other banks for short term. Changing Repo rate is one of the three instruments of monetary policy available with the Central bank along with open market operations and scheduled bank reserves (SLR – Statutory liquidity Ratio and CRR – Cash Reserve Ratio) requirement. The lower repo rate means cheaper borrowed funds for banks. Repo rate is reduced in the expectation that the banks will reduce short term and medium term interest rates on the consumer loans. Reduced bank rate increases monetary base and money supply in the economy as it leads to borrowers borrowing more of cheaper funds and spending more money.

Reducing repo rate is a good measure to kick start the economy. However, it has brought limited success over last few months. The bank loan rates have not come down proportionally because of inadequate monetary transmission. Monetary transmission means the process by which the monetary policy decisions influence interest rates, demand and money supply to affect economic performance. To address this RBI has made it mandatory for banks to link lending rate to external benchmarks from 1st October 2019. The benchmarking can be done with Repo rate, GOI (Government of India) 3 month Treasury bill yield published by FBIL (Financial Benchmarks India Pvt. Ltd.) or GOI 6 month Treasury bill yield published by FBIL or any other benchmark interest rate published by FBIL. Under the external benchmarking system the banks will be still free to decide the spread on external benchmark.

Index of Industrial production (IIP) fell 3.8% in October 2019, following a drop of 4.3% in previous month. Consumer Price Index (CPI) Inflation was measured at 4.6% in October 2019 as against 4% in previous month. Rupee depreciated against the dollar in October to close at 71.02 compared to 70.64 in September. Yield on 10-year government bond decreased by 25 basis points from 6.70% in September 2019 to 6.45% in October 2019.

Trends in Capital Markets:

  1. Primary market Update:

During October 2019, there were two main board public issues of Indian Railway Catering and Tourism Corporation Ltd. (IRCTC – mobilising Rs. 638 crore) and Vishwaraj Sugar Industries Ltd. (mobilising Rs. 60 crore) mobilising total Rs. 698 crore against nil main board issues in September 2019. There were two right issues amounting Rs. 235 crore as against no right issue in September 2019.

During October 2019, the amount raised through private placement of equity (i.e. preferential allotment and QIP route) stood at Rs. 621 crore comparing with Rs. 15,789 crore in September 2019.

During October 2019, there were three issues amounting Rs. 973 crore from the Public Issue of Corporate Bonds comparing with four issues amounting Rs. 495 crore in September 2019. During October 2019, Private Placement of Corporate Debt Reported to BSE and NSE decreased by 2.7 per cent to Rs. 47,318 crore over Rs. 48,629 crore in September 2019.

Funds Mobilisation by Corporates (₹ crore)

2.Trends in Secondary Markets:

a) Capital Markets

At the end of October 2019, Nifty 50 closed at 11,877, increased by 403 points (3.5 per cent) over September’s closing. S&P Sensex closed at 40,129 on October 31, 2019, an increase of 1,462 points (3.8 per cent) over previous month. Nifty touched high at 11,877 and Sensex touched high of 40,129 on October 31, 2019. Nifty touched its low at 11,126 while Sensex touched its low at 37,532 on October 07, 2019.

The market capitalisation of BSE stood at Rs.154 lakh crore as on October 31, 2019 and the market capitalisation of NSE stood at Rs.152 lakh crore as on October 31, 2019.

During the month of October 2019, most of the sectoral indices witnessed upward trends. Among BSE indices, S&P BSE Auto increased by 13 per cent, followed by S&P BSE Energy (8.9 per cent), S&P BSE Oil & Gas (7.46 per cent). Auto sector surged on expectation of strong sales during the festival season. On the other hand, S&P BSE Tech decreased by 2.5 per cent and S&P BSE Telecom decreased by 6.6 per cent during the period.

Among select NSE sectoral indices, Nifty PSU Bank increased by 9.2 per cent during October 2019, followed by Nifty Midcap 50 (5.6 per cent), Nifty MNC (5.4 per cent), Nifty Midcap 100 (4.9 per cent), Nifty Pharma (4.4 per cent), Nifty Next 50 (4.4 per cent), Nifty FMCG (3.8 per cent), Nifty 200 (3.8 per cent), Nifty 500 (3.7 per cent), Nifty 100 (3.7 per cent), Nifty Bank (3.3 per cent), Nifty Small 100 (2.7 per cent) and Nifty IT (0.1 per cent). On the other hand, Nifty Media only decreased by 0.7 per cent during the month.

b) Corporate Debt Market

During October 2019, BSE noted 4,133 trades of corporate debt with a traded value of Rs. 50,078 crore as compared to 3,550 trades of corporate debt with a traded value of Rs. 43,012 crore in September 2019. At NSE, 5,692 trades were noted with a traded value of Rs. 1,00,001 crore in October 2019 as compared to 5,297 trades noted with a traded value of Rs. 97,677 crore in September 2019.

c) Institutional Investments

The mutual fund industry saw a net inflow of Rs. 1,33,482 crore in October 2019 compared to a net outflow of Rs. 1,51,790 crore in September 2019. Mutual funds made an investment of Rs. 45,485 crore (Rs. 3,437 crore in equity and Rs. 42,048 crore in debt) compared to an investment of Rs. 42,384 crore (Rs. 11,029 crore in equity and Rs. 31,354 crore in debt) in September 2019. 

FPIs were a net buyer of Rs. 16,069 crore in October 2019 in the Indian securities market compared to a net buyer of Rs. 6,582 crore in September 2019. FPIs invested Rs. 3,670 crore in debt securities during October 2019 as against Rs. 990 crore liquidation from debt securities in September 2019. FPIs invested Rs. 12,368 crore in equity market as compared to an investment of Rs. 7,548 crore in September 2019.

d) Portfolio Management Services

As on October 31, 2019, AUM of the portfolio management industry increased by 6.9 per cent to Rs. 18.2 lakh crore from Rs. 17.1 lakh crore in September 2019. Of the total, AUM of fund managers of EPFO/PFs contributed Rs. 13.6 lakh crore (i.e., 74.6 per cent of total AUM).

e) Trends in Substantial Acquisition of Shares:

During October 2019, 4 open offers with offer value of Rs. 13 crore were made to the shareholders as against 12 open offers with offer value of Rs. 1,502 crore made in September 2019. All the offers were for change in control of management. 

Mergers & Acquisitions and Private Equity Key Deals:

French Energy giant Total SA has acquired 37.4% stake in city gas distributor Adani Gas Ltd. for around Rs. 5700 Crore. Both Adani family and Total will hold 37.4% stake each in Adani Gas while remaining 25.2% will be with public shareholders. Both partners plan to make significant investments in LNG, gas distribution and fuel retail infrastructure in next 10 years and target to cater to 7.5% of India’s population across 15 states. This deal will provide Total with firm demand for gas and expertise in Indian retail market. Total is another major oil player’s entry into Indian Energy market after Shell, BP and Saudi Aramco. Saudi Aramco entered India in August 2019 after acquiring 20% stake in Reliance Industries Ltd.’s Oil to Chemical business.

GVK group raised USD 1.07 Billion from Abu Dhabi Investment Authority, Canada’s Public Sector Pension Investment Board and National Investment & Infrastructure Fund to reduce debt and to increase stake in Mumbai International Airport Ltd.

Global Economy:

The global economy is slated to grow at its slowest pace in a decade in 2019 – largely as a result of US-China trade war dampening business confidence, investment, manufacturing and trade worldwide. The World Bank expects global growth rate to slow down to 2.6 per cent in 2019, while IMF has forecasted it to be 3.0 per cent, reflecting weaker-than-expected trade and investment since the start of the year. Going forward in 2020 as well the global growth is expected to remain lacklustre and possibly lower than IMF’s global growth forecast of 3.4 per cent.

Real GDP in the U.S. grew at an annualized rate of 1.9 per cent in the third quarter of 2019, down slightly from 2 per cent in the second quarter of 2019. The quarter-on-quarter (Q-o-Q) GDP growth rate of the Euro Area remained unchanged at 0.2 per cent in Q3 of 2019, largely driven by robust growth in France (0.3%) and Spain (0.4%). The quarter-on-quarter (Q-o-Q) GDP growth rate of Japan decelerated to 0.1 per cent, from 0.4 per cent in previous period. Chinese economy has been hit by the ongoing trade war with the US, weakening global demand and alarming off-balance-sheet borrowings by local governments. In the third quarter of 2019, the Chinese GDP growth rate slumped to 6 per cent, the weakest growth rate since the first quarter of 1992.

Global Equity Markets:

Global equity markets continued its growth momentum in October 2019 buoyed by Federal Reserve’s move to lower the federal funds rate by another 0.25 percentage points. In the USA, the Dow Jones Industrial Average index and S&P500 index rose by 0.5 per cent and 2 per cent respectively in October 2019, while technology heavyweight Nasdaq composite index rose by 3.7 per cent. The European equity markets grew by 0.7 per cent, following 3.7 per cent rise in the previous month. Amongst other developed markets, Japan’s Nikkei Index rose by 5.4 per cent followed by Germany’s DAX index (3.5 per cent), Hong Kong’s Hang Seng index (3.1 per cent) and France’s CAC40 index (0.9 per cent). On the contrary, the UK’s FTSE100 index lost 2.2 per cent on the concerns over brexit uncertainty.  Brazil’s Ibovespa Index went up 2.4 percent and China’s Shanghai composite Index went up 0.8 percent during the period.

Acknowledgements: RBI Bulletin (www.bulletin.rbi.org.in ), SEBI Bulletin (www.sebi.gov.in ), NSE (www.nseindia.com ), BSE (www.bseindia.com)

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