Indian Economic activity remained weak in the month of August as GDP slumped to 5.0 percent in Q1 2019-20. Monetary policy committee of RBI maintained the accommodative stance and slashed the repo rate by 35 basis points from 5.75% to 5.40% in July 2019. The rate was further reduced by 25 bps to 5.15% on 4th October 2019.
RBI has transferred ₹1,76,051 crore to the Government of India comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted on 27th august. This will help government to meet any fiscal deficits that may arise due to revenue shortfalls because of slowing economy. It also means that the government now has fresh room to announce fiscal stimulus.
Index of Industrial production (IIP) contracted in August by 1.1% primarily by motor vehicles and machinery equipment sector. Consumer Price Index (CPI) Inflation was at 3.2% comfortably below target of 4.0%. Rupee depreciated against the dollar in August to close at 71.73 compared to 69.40 in July. Yield on 10 year government bond increased by 19 basis points from 6.37% to 6.56% in August 2019 reversing the downward trend of last few months.
Capital Market Update:
- Trends in Primary market:
During August 2019, there were four public equity issues, including IPO of Sterling and Wilson Solar Limited and IPO of Spandana Sphoorty Financial Limited, mobilizing Rs. 4,047 crore as compared to five issues amounting Rs. 500 crore in July 2019. There was one right issue for Rs. 102 crore in August 2019 as against three right issues with Rs.1,485 crore in July 2019.
The amount raised through private placement of equity (i.e. preferential allotment and QIP route) stood at Rs. 2,265 crore in August 2019 comparing with Rs. 6,496 crore in July 2019. During August 2019, there were three issues amounting Rs. 2,794 crore from the public issue of corporate bonds compared with nil issue in July 2019. During August 2019, Private Placement of Corporate Debt Reported to BSE and NSE decreased by 12.5 per cent to Rs. 40,309 crore over Rs. 46,080 crore in July 2019.
Funds Mobilisation by Corporates (₹ crore)
a) Capital Markets
After sharp fall in the equity market in July, markets were relatively stable in August 2019. Nifty 50 closed at 11,023 on August 30, 2019, decreasing by 94.8 points (0.9 per cent) over July’s closing. S&P Sensex closed at 37,333 on August 30, 2019, a decrease of 148.3 points (0.4 per cent) over previous month. Nifty and Sensex touched their August’s low at 10,741 and 36,473 respectively on August 22, 2019. Nifty touched high at 11,110 on August 09 2019 and Sensex touched high of 37,641 on August 27, 2019. At the end of August 2019, the total market capitalisation of BSE and NSE stood at 141 lakh crore and 140 lakh crore respectively.
Among select NSE sectoral indices, Nifty IT increased by 2.5 per cent during August 2019, followed by Nifty Pharma (1.1 per cent) and Nifty FMCG (0.7 per cent). While, Nifty PSU Bank decreased by 10.2 per cent followed by Nifty Bank (5 per cent) and Nifty Media (2.2 per cent).
b) Corporate Debt Market
During August 2019, BSE noted 4,175 trades of corporate debt with a traded value of Rs. 58,482 crore as compared to 5,255 trades of corporate debt with a traded value of Rs. 65,646 crore in July 2019. At NSE, 6,095 trades were noted with a traded value of Rs. 1,04,532 crore in August 2019 as compared to 6,886 trades were noted with a traded value of Rs. 1,18,102 crore in July 2019.
c) Institutional Investments
Government eased out rules of FDI on 29th August whereby now 100% FDI is allowed in contract manufacturing and coal mining and single brand retail sourcing is allowed to support more investments and employment.
The mutual fund industry saw a net inflow of Rs. 1,02,538 crore in August 2019. Mutual funds made net investment of Rs. 67,723 crore in the Indian securities– secondary market (Rs. 17,407 crore in the equity and Rs. 50,316 crore in the debt securities) compared to an investment of Rs. 67,883 crore (Rs. 15,084 crore in the equity and Rs. 52,799 crore in the debt) in July 2019.
Foreign portfolio investors (FPIs) were a net seller of Rs. 5781 Crore in August compared to Rs. 3,003 crore in July 2019. FPIs liquidated Rs. 17,592 crore from equity securities, invested Rs. 11,672 crore in debt securities and Rs. 49 crore in hybrid securities in August 2019. As against liquidation of Rs. 12,419 crore from equity market, investment of Rs. 9,433 crore in debt securities and Rs. 17 crore withdrawal from hybrid securities in July 2019.
d) Portfolio Management Services
During August 2019, the total AUM of the portfolio management industry increased by 1.8 per cent to Rs. 16.7 lakh crore from Rs. 16.4 lakh crore in July 2019.
e) Trends in Substantial Acquisition of Shares and Mergers & Acquisitions:
During August 2019, five open offers with offer value of Rs. 4,733 crore was made to the shareholders as against four open offers with offer value of Rs. 2,863 crore made in July 2019. Out of five, four open offers were for change in control of management and one was Consolidation of Holdings.
Saudi Aramco and Reliance Industries Ltd. (RIL) have agreed on a non-binding letter of intent regarding proposed investment of Aramco in the refining, petrochemical and fuels marketing business (O2C) of RIL. Aramco will buy potential 20% stake based upon an enterprise value of $75 Billion of O2C division in one of the largest foreign investment ever in India. This deal will allow RIL to cut down its increasing debt in line with company’s plan to go debt free by 2021. It will also ensure security of oil supply for its Jamnagar refinery. Aramco on the other hand will get 20% stake in one of the largest refining business and gain foothold in India which is third largest crude oil consumer.
Sintex group with presence in Textiles and Plastics has sold off its overseas business Sintex NP SAS to Xtech Invest SAS owned by consortium of PE investors for a consideration of €155 Million in August. Sintex is going through a liquidity crisis marked by default in bond repayments in June 2019.
Global Markets:
The global economic growth has been affected by the trade tensions between the US and China where both sides announced new tariffs on each other and included more items in the ongoing tariff war. Almost all the major stock indices of developed and emerging markets posted losses in August 2019. The bond markets in general outperformed the stock markets in August.
The US economy continued to grow, however, at a slower rate of GDP growth of 2% in Q2 2019. US S&P 500 was down 1.81% in August after a very volatile month. GDP growth rate of the Euro Area softened to 0.2 per cent in Q2 of 2019 from 0.4 per cent in previous quarter. The UK is facing a politically and economically difficult time in the wake of a possible no-deal Brexit. China’s GDP grew at 6.2% in Q2 2019, weakest in last 27 years, since 1992.
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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