HDFC Securities Viewpoint: Crude Will Continue to Grease Markets

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While the opposition continues to drag its feet on the passage of the key reform bills in the Rajya Sabha, Crude has again come to the rescue of the markets. It fell Thursday to a four and a half years low.
With WTI Crude now sub$70 level, the writing is clear on the wall. The current slide in Crude is no flash in the pan. It is a harbinger of future low prices.

This will give the Government  the elbow room to reduce petroleum product prices further

• Which will further bring inflation down
• Which in turn would further clear the smog for the Governor of Reserve Bank of India

The stars are aligning for a rate cut

OPEC Holds Production Levels

We had opined a month back not only in this column but also on CNBC that Organization of the Petroleum Exporting Countries (OPEC)  will not cut production at its November 27 meeting?.Well it actually did not.

The 12-member oil cartel that  met in Vienna, as scheduled on 27th November , decided  to keep the group?s production target unchanged. 
The cartel typically steps in to adjust output when prices move sharply due to excess or insufficient supply. It currently has an oil production ceiling of 30 million barrels a day and has been producing in excess of this level in recent months.

In the run-up to the decision, there was speculation in the world media that the organization might cut production to remove some of the glut
in supply in global markets and boost oil prices.

We had argued that since Saudi Arabia has cut prices for the U.S. markets, ahead of the OPEC meeting the writing is clear on the wall that it will not agree to a production cut as OPEC countries cannot afford to take both a production cut and price cut.

Crude Plummets

Crude Prices plummeted to a four-and-a-half year low on Thursday on the  news.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January sank to as low as $67.75 a barrel during European 
afternoon trading hours, touching the lowest level since May 2010. The contract was down $4.58, or 6.2%, at $69.11 a barrel at the latest.

January Brent crude on London?s ICE Futures exchange fell $4.71, or 6.1%, to $73.04 a barrel.Crude-oil prices have plummeted this year, losing around 30% of their value since June. This is mainly due to rising U.S. oil production, driven by the shale boom, and slowing demand growth in Asia and Europe.

OPEC  would have needed to cut oil production much lower than its current ceiling for prices to make a significant recovery. The decision on production cuts is likely to set the tone for oil prices for the next few months and well into 2015.

RBI issues final norms for small, payment banks

The Reserve Bank of India on Thursday issued final guidelines for payments and small banks that aim to take banking services to more people and small businesses.
The minimum paid-up equity capital for both small and payment banks has been pegged at Rs 100 crore.

The RBI aims to push financial inclusion by setting up these niche outfits - small finance banks that can have all-India operations and payments banks, which can accept more deposits.

Shriram Capital, Janalakshmi Financial Services, Magma Fincorp and Muthoot Finance, among others, are expected to throw their hats into the ring to set up small banks.

The Department of Posts, Bharti Airtel, Vodafone India, Tata Teleservices, Western Union and online digital payment players such as Paytm, Oxigen and MobiKwik have expressed interest in floating payment banks.

Who are eligible for small banks?

Resident individuals/professionals with experience in banking and finance; and companies and societies. Existing non-banking finance
companies (NBFCs), microfinance institutions and local area banks can also opt to convert into a small bank.

The RBI said proposals from large public sector entities and industrial and business houses, including NBFCs promoted by them, will not be entertained to set up small banks.

Who are eligible for payment banks?

Existing non-bank prepaid payment instrument issuers and other entities such as individuals/professionals; NBFCs, corporate business correspondents, mobile telephone operators, and super market chains.

A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payment bank, subject to the 
stake holding complying with the Banking Regulation Act. 

Key activities of small banks

The small bank will primarily undertake basic banking activities of acceptance of deposits and lending to un-served and under-served sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

Small banks will be required to maintain a minimum capital adequacy ratio of 15 per cent of the loans on a continuous basis. The small bank will be required to extend 75 per cent of its credit to the priority sector. Payments banks can accept deposits - current and savings bank - from individuals, small businesses and other entities. However, they cannot accept non-resident Indian deposits.

Key activities of payment banks

The payment bank will initially be restricted to holding a maximum balance of ?1 lakh per individual customer. While the bank can issue 
ATM/debit cards, it cannot issue credit cards.
It can contract outside liabilities (deposits) but not exceeding 33.33 times (against 20 times in the draft guidelines) its net worth.

Bombay HC asks SFIO to probe share round-tripping case

Indias top realty, mining and liquor companies could be in some serious trouble. 
The Bombay High Court today ordered the Serious Fraud Investigation Office (SFIO) to probe share round-tripping by many companies using bank accounts of UBS.
Meanwhile Sebi has been directed to file a reply within 2 weeks as it stated before the court today that it has initiated action against certain person. The alleged share round-tripping in the accounts of UBS by certain companies landed at the High Court after a group of lawyers filed a petition against Sebi and the Union of India seeking an early investigation into the matter.

The companies that are under scrutiny are Unitech , DLF , GMR , Sesa Sterlite and United Spirits.
It may be recalled that in 2010, the UK regulator FSA had smelled a rat after which it wrote a letter to Sebi on the suspicious activities by Indian companies, which perhaps channelised money into the country to manipulate their own share prices.

GDP growth in Q2FY15 may slow down to 5% from 5.7%

The countrys economy may slow down to 5% in the July-September quarter due to low kharif harvest, slowdown in exports and muted government spending. It is scheduled to be announced to today. In Q1FY15, it reported a growth of 5.7%.

New Inclusions in F&O segment

Amtek auto, Bosch Ltd, Engineers India, Indiabulls Housing Finance, Strides arcolab and Wockhardt will be included in the F&O list today
Of these, Engineers India and  Indiabulls Housing Finance are new recruits. The others are old war horses that are merely making a come back to the group.

RBI allows JustDial to raise foreign shareholding to 75%

The Reserve Bank of India (RBI) has allowed domestic search engine Just Dial to raise the foreign shareholding limit to a maximum of 75 per cent of its paid-up capital under the portfolio investment scheme (PIS).

Foreign institutional investors (FIIs)/Registered Foreign Portfolios Investors (RFPIs) can now invest up to 75 per cent (revised from earlier limit of 49 per cent) of the paid-up capital of Just Dial Limited under PIS, RBI said in a notification.

FIIs held 26.64 per cent shares in the company as of September 30, 2014.

ICRA upgrades Jet Airways rating to stable

Credit rating agency ICRA yesterday upgraded Jet Airways to BB or stable rating from 'C' which meant that the company was under the risk of defaulting on its loan payments. 

The rating upgrade takes into account the improvement in the liquidity and credit profile of the company, arising from improved operating performance as well as support from its strategic partner Etihad Airways," the agency said in a statement.

Avantha sells 8.3 pct stake in Crompton Greaves for Rs 1,000-cr

Avantha Holdings today offloaded 8.3 per cent stake in Cromptom Greaves for over Rs 1,000 crore to lower debt.
Cromptom Greaves (CG) is Avantha Group company engaged in power sector.

Avantha Holdings today sold 5.2 crore shares amounting to 8.3 per cent stake in CG through open market, CG informed in a regulatory filing to the stock exchange.

After the sale, Avantha Holdings stake in CG is down to 32.54 per cent from 40.84 per cent.
Shares were sold on an average price of Rs 192.61 apiece, valuing the transaction at Rs 1,001.57 crore.