Markets Flat As They Brace For Weeks Of Uncertainty

Pre-election results jitters have now set into the markets which is reasonably logical and to be expected despite a victory priced into the market already

9 May 2024 12:00 PM GMT
On Episode 288 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajit Velonie, senior director at CRISIL Ratings as well as Nitin Sarin, aviation legal expert and managing partner of Sarin & Co.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Markets flat as they brace for weeks of uncertainty
  • (02:04) Oil prices slide below $82 a barrel, could they drop further?
  • (02:39) Why only vegetarian thali prices are rising
  • (04:36) Non bank finance companies are racing to find new sources of capital as banks tighten their wallets
  • (14:55) Are grounded airlines doomed to stay that way?

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Markets Stay Flat

It’s almost a month to go for the results of India’s 2024 general elections on June 4 and markets are as flat as they come and go.

Pre-election results jitters have now set into the markets which as we have discussed is reasonably logical and to be expected despite a victory priced into the market already.

This will be an interesting month in the markets until June 4, Tuesday, the day the results will be announced. So the markets are obviously open on that day.

The BSE Sensex after moving up and down 611 points and ended at 73,466, down 45 points.

The Nifty, on the other hand, settled unchanged at 22,303.

Meanwhile, Saturday May 18 will be special trading sessions on the stock exchanges to test a disaster recovery site. These tests do happen periodically and are important to ensure continuity where something goes wrong with the primary trading systems.

Oil Prices Fall Again

Oil prices fell in Asian trade on Wednesday thanks mostly to rising crude and fuel inventories in the U.S., a sign of weak demand and a key trigger to keeping prices down.

Brent crude was quoting around $82 a barrel and even slipping below that momentarily. These are the lowest levels since mid-March.

U.S. crude stocks rose by 509,000 barrels in the week ended May 3, market sources said, citing American Petroleum Institute figures and Bloomberg reported

Prices of Veg Thali Up

Prices of onions, tomatoes and potatoes have risen again, taking the price of a home cooked vegetarian thali by 8% in April to Rs 27.4 versus Rs 25.4 in the same month last year, a report from Crisil Ratings computes the thali price every month has said.

Broilers or chicken prices continue to fall pushing the cost of a non-vegetarian thali by 4% to Rs 56.3 versus Rs 58.9 last year.

The price of broiler chicken fell 12 per cent Y-o-Y making the non-vegetarian thali cheaper. Broiler accounts for 50 per cent of the total cost of a thali.

Poultry industry representatives The Core has spoken to in recent weeks have hinted at soft prices though did caution that heat waves could have an impact.

The fact of course is that over a longer period, broiler prices have stayed stable, as opposed to wildly gyrating vegetable prices.

A vegetarian thali has roti, onion, tomato, potato, rice, dal, curd, and salad. A non-vegetarian thali has the same foods but chicken (broiler) replaces dal.

Crisil works out the average cost of a home-cooked thali based on input prices in North, South, East and West India.

More specifically, there were fewer onions available in the market and the potato crop in West Bengal was damaged which in turn led to prices rising, Crisil said.

Rice and pulses’ prices increased too, by 14 per cent and 20 per cent year-on-year (Y-o-Y).

Sequentially, the price of a vegetarian thali in April was flat due to a 4 per cent decline in onion prices and a 3 per cent fall in fuel cost. The prices of tomatoes and potatoes continue to inch up.

A non-vegetarian thali’s cost increased 3 percent compared to March due to more demand for broilers and rising input costs.

NBFCs Rush To Diversify Their Borrowings As Banks Hold Back

Offices in Mumbai’s financial districts in BKC, Lower Parel among others have been buzzing with activity in recent weeks. One reason lights are on perhaps longer than normal is all the firefighting that is going on, including with raising funds and I will come to it in a moment.

Earlier this week it was reported that IIFL Finance who was asked by the RBI to halt its gold loan business was now facing a cash crunch as banks were not lending to it right now because of the regulatory shadow.

While IIFL Finance is in the crosshairs, it is quite clear that non bank finance companies in general are on the backfoot when it comes to raising fresh funds which is of course the key raw material for their business.

The problem of course started last year when the Reserve Bank raised their risk weights and thus cost of capital.

NBFCs are now furiously diversifying their capital sources since close to 70% of their funds come from banks themselves and non convertible deposits from investors.

It is of course a continuing reminder that the opportunity for credit is so large in India that NBFCs can create products that are attractive to customers despite borrowing from the people - the banks - who could also be competing with them.

Ratings agency Crisil is saying that quarterly commercial paper (CP) issuances by NBFCs1 have hit a ~four-and-a-half-year high of ~Rs 1.2 lakh crore in January-March 2024, a level last seen in July-September 2019.

This is still lower, it points out than the highs of ~Rs 3.1 lakh crore seen in July-September 2018.

According to Crisil, while banks remain the dominant funding source (~43% share currently), NBFCs will look to diversify their resource profile given the increase in risk weights for bank funding.

Crisil says there is no cause for worry in the diversification that is happening or the rise of CPs because among other things, issuances are largely backed by shorter tenure assets such as loan against shares, gold loans and unsecured loans.

Also, NBFCs are issuing longer tenure CPs now as against the shorter tenures in the past and overall asset liability management should not be a challenge.

I spoke with Ajit Velonie, Senior Director at Crisil Ratings and began by asking him how NBFCs were coping in this changed environment.

Meanwhile, the RBI has warned some non-bank lenders against disbursing cash loans in excess of the permissible limit of 20,000 rupees ($240), according to two sources and a letter seen by Reuters, a move that is likely to stop large cash payouts to those borrowing against gold.

The central bank's advisory comes within weeks of regulatory action against IIFL Finance, India's second-largest gold loan player, for violation of cash disbursal and other norms

Loans beyond Rs 20,000 are not allowed by the Income Tax Act but some finance companies have apparently secured indemnities from the borrowers.

Once Grounded, Always Grounded

First the news. After the Tata and Singapore Airlines owned Vistara airlines saw a spate of cancellations because pilots did not turn up in the first week of April, exactly a month later, it is the turn of sister company fully Tata owned Air India Express.

Air India Express reportedly cancelled more than 70 international and domestic flights from Tuesday night till Wednesday morning due to senior crew members going on "mass sick leave".

The airline said a section of our cabin crew reported sick at the last minute, starting last night, resulting in flight delays and cancellations.We are engaging with the crew to understand the reasons behind these occurrences and actively addressing this issue to minimise any inconvenience caused to our guests.

An Air India Express employee union has listed a series of demands and complaints ranging from terminations of long servicing employees contrary to job security post acquisition, removal of allowances.

It is indeed interesting to see that union action is back in India on the front pages, thanks to Air India which for the best part of three decades made more news for its union actions rather than its service.

The Tatas have a tough battle ahead.

Speaking of battles, exactly a year ago, the Wadia Group-backed Go First ceased operations and filed for voluntary insolvency.

There have been several attempts to revive the airline like there have been for Jet Airways which has been in and out of insolvency courts. Jet Airways closed down in April 2019, exactly 5 years ago

And yet in both cases, it inevitably seems to be one step closer, two steps back. This is despite various suitors coming forth, making bids, trying to arrange funds and obviously get things going.

I also must admit that the one reason this story interests me continually is because I still see Jet Airways aircraft, including Boeing 777s and Go Air’s Airbus A320 parked in various airports, including Mumbai.

And I never fail to wonder, if everyone can see that these aircraft worth tens if not hundreds of millions of dollars at one time are rotting away, why can’t we move faster through the bankruptcy and insolvency process.

The details of the cases can be intricate and complicated but what is not complicated and easy to see is that time is flying and aircrafts are not immortal.

I reached out to Nitin Sarin, aviation legal expert and managing partner of Sarin & Co who incidentally appeared in court for one of the lessors of GoFirst and began by asking him whether there was something in the nature of the aviation industry or the bankruptcy resolution process in India which ensured that once an airline was grounded, it was next to impossible to take off again.

Updated On: 9 May 2024 6:00 AM GMT
Next Story
Share it