Good Morning!
Great news and cheap stock valuations never co-exist. Even recent history from 2001, 2003 and 2008-2009 suggests every time markets fall hard, they do bounce back. It may take a while for them to find their feet and find some sort of a bottom. And there is no hard and fast rule about how that happens. Markets get cheap when people do not have the confidence about what the future holds, and that is exactly the situation now. Dalal Street veteran Vetri Subramaniam says this is the time for investors to focus on valuations to figure out whether one should be positively disposed or negative disposed towards the asset class.
MARKET CUES: Where do we stand >>>
- Nifty futures on the Singapore Exchange-traded some 162 points higher at 7 am (IST) in signs that Dalal Street is poised for a major rebound after Monday mayhem.
- On Monday, Nifty broke below its crucial support at 8,900 by a wide margin, opening the doors for further selloff that can take the index towards the 8,700-8,500 range. For the day, the index formed a Long Bearish Candle on the daily chart. Analysts said it has now become a 'sell on rise' market.
- Nifty is making lower highs and lows since the last three sessions and it sustaining below the 20-day EMA. Momentum oscillator RSI has also turned southward on both daily and weekly charts in a negative signal for the index.
- Elsewhere in Asia, stocks rose, spurred by a surge on Wall Street, after early results for an experimental vaccine sparked speculation economies could snap back quickly. Equities rose more than 1% across the region, with Tokyo, Sydney and Hong Kong outperforming.
- On Wall Street, the benchmark S&P500 posted its biggest one-day percentage gain in almost six weeks, gaining 3.15%. The Dow rose 3.85% and the Nasdaq added 2.44%.
- Oil prices rose, extending gains for the fourth straight session, amid signs that producers are cutting output as promised just as demand picks up. Brent crude climbed $0.85, or 2.4%, to $35.66 a barrel while WTI crude gained $1.30, or 4.1%, to $33.12.
- The rupee plummeted 33 paise to close at 75.91 against the US dollar on Monday, tracking weak domestic equities and foreign fund outflows.
- The dollar nursed losses against major currencies, while the euro held onto hefty gains against the Swiss franc and the greenback. The pound also benefited from the dollar's losses and rose to $1.2215.
LOOK WHO'S
Covid vaccine news lifts mood... Data from an early-stage trial for a coronavirus vaccine lifted hopes late Monday, sending global equity markets and oil prices surging. Data from Moderna Inc’s Covid-19 vaccine, the first to be tested in the US, showed it produced protective antibodies in a small group of healthy volunteers, the company said on Monday. Shares of the pharmaceutical company surged. There are currently no approved treatments or vaccines for Covid-19, and experts predict a safe and effective vaccine could take 12 to 18 months to develop.
Loan repayments begin to look up... Domestic banks are seeing a slow but sure recovery in loan repayments as customers are increasingly choosing not to exercise the Reserve Bank of India-provided option of moratorium on payments to avoid paying higher compounded interests. Small entrepreneurs who had earlier opted for a moratorium on repayments are now paying a portion of their dues as the cash flow begins to improve with businesses opening up slowly, said bankers.
NBFCs set to start advances... Top NBFCs are set to resume sanctioning fresh loans in June with sentiment boosted by the government stimulus and easing of the lockdown, even as they tread cautiously, aware that repayment capacities may have weakened with job losses and income declines. The Edelweiss Group, Mahindra Finance, IIFL Finance and Shriram Transport Finance have started disbursing loans with their clients demanding to draw down the limits sanctioned in March. Companies expect double-digit loan growth in the September quarter or early in the December quarter.
HFCs find buyers for their bonds... Housing finance companies dominated primary bond sales on Monday as the government’s stimulus package helped lift the mood of debt investors. Tata Housing Finance, HDFC and ICICI Home Finance led the primary market bond sale, raising Rs 5,475 crore collectively. The spread or differential between top-rated corporate bonds and government papers — a barometer of calmness — narrowed to 80-90 basis points immediately after the government had announced the relief package, compared with 90-100 bps a few days earlier.
AND WHO'S
Nasdaq set to ban Chinese IPOs… Nasdaq is set to unveil new restrictions on IPOs, a move that will make it more difficult for some Chinese companies to debut on its stock exchange, people familiar with the matter said on Monday. While Nasdaq will not cite Chinese companies specifically in the changes, the move is being driven largely by concerns that some of the Chinese IPO hopefuls’ lack of accounting transparency and enjoy close ties to powerful insiders.
RBI's 'switch auction' flops…. The move through which the central bank wanted to replace bonds worth Rs 30,000 crore maturing this year with longer-dated ones found few takers as investors are unsure of the trajectory of inflation and government borrowing at a time when future revenue collection looks uncertain. RBI managed to sell less than half of 2024 bonds offered in lieu of those maturing this year, none of the 2030 bonds and little more than half of the 2060 bonds with a cut-off yield at 6.798%.
India may monetise borrowings... The government may consider monetising its borrowings if the fiscal deficit overshoots expectations sharply, a senior government official said. Experts said the impact of the package on government finances will be about 1% of GDP. The government has already raised its borrowing target for the year to Rs 12 lakh crore from Rs 7.8 lakh crore announced in the Budget, attributing it to the coronavirus outbreak. High government borrowing from the market can raise interest rates and deny credit to the private sector. Monetisation can avert this, but there are risks of high inflation and currency depreciation apart from a general deterioration in macroeconomic balance.
Meanwhile..
IBC suspension irks banks... A one-year blanket suspension of new cases under the Insolvency and Bankruptcy Code (IBC) has surprised bankers who are wondering what the alternatives for recovery are in case of loan defaults over the next one year. Though the resolution through the IBC process was delayed, it had given bankers a solid tool to ensure defaulters do not game the system. With the taking away of this tool bankers say borrowers may no longer fear the law.
The DAY PLANNER
- Q4 Earnings: Bajaj Finance | Tata Power | Apollo Tyre | Ujjivan SFB
- Japan March Industrial Output (10.00 am)
- Euro Area April New Car Registrations (11.30 am)
- UK March Unemployment Rate (11.30 am)
- US Fed Chair Powell Testimony (07.30 pm)
- ECB Lane Speech (7.30 pm)
HAPPY TRADING !
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Dev Roy
Stock Market Analyst
http://inquisitordev.blogspot.com/
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