The Sensex this morning witnessed its worst fall since demonetisation in 2016 as the sell-off in stocks continues unabated. The Nifty hit a one-year low.
Here are the business and market updates:
Yes Bank bondholders seek help from RBI
Amid concerns that AT-1 bondholders will be wiped out under the restructuring plan prepared for Yes Bank, investors have sought help from the chief banking regulator.
PTI reports on the likely impact of : "As part of the SBI-led restructuring package announced by the RBI, there is a proposal to write down the entire outstanding on AT-1 bonds, which has been pegged at Rs 8,695 crore by Icra on Monday. Investors have reportedly approached the banking regulator seeking help.
The proposal is “likely to further increase the risk aversion of investors as the investors will factor in a higher probability of write-downs on these bonds”, Icra said in the report."
Nifty, Sensex lose all gains made in 2019
Amid the sharp fall in oil prices, the benchmark stock indices lost about 5% of their value at the end of trading today, marking the worst intra-day fall since demonetisation in 2016.
The Sensex was down close to 2,000 points and the Nifty down over 500 points. The Indian VIX, which measures the degree of volatility in the market, was at a 10-year high.
The Nifty and the Sensex were down as much as 6% during the day, before bouncing up from their 200-day moving average.
Indian government bonds rise to 2009 high
The crash in stocks has gotten risk-averse investors seeking safety in government bonds; this has increased bond prices and pushed down yields. US bonds have witnessed a similar fall in price.
Bloomberg reports : "The yield on the benchmark 10-year debt slid as much as 13 basis points to 6.05 per cent, a level last seen in 2009.
Government bonds have rallied since mid-December, which has pushed benchmark 10-year yields down by more than 60 basis points through Friday, as the RBI has kept the banking system flush with cash."
Gold, the precious metal that is traditionally seen as offering safety during times of crises, however, has failed to make major gains during this market rout.
India's import bill expected to drop by 10% on oil price fall
With economic growth expected to drop further due to coronavirus concerns, the one-third fall in crude oil prices on Monday offers some relief for India which imports most of its oil.
IANS reports: "India's oil import bill is expected to fall by a sharper 10 per cent in FY20 as the increasing spread of Coronavirus and now the fallout of talks between OPEC and Russia has depressed the crude oil prices to about $30 a barrel now against a high of over $70 a barrel in September and again in January this year.
For FY21, the import bill could slip to half of current levels at $64 billion witnessed in FY16 when crude had fallen to $26 a barrel for some time."
The question facing consumers right now, after the sharp fall in global oil prices, is whether there will be a commensurate decrease in domestic fuel prices.
The rupee's fall in the last few weeks is likely to cancel out some of benefits of lower crude oil prices, but given the magnitude of the oil price fall, there will still be pressure on oil marketing companies to cut prices.
Yes Bank shares up 30% on stake sale; SBI down close to 5%
The jump in Yes Bank shares comes after State Bank of India's announcement on Saturday that it would pick up a stake in the troubled bank.
Details of the sale from PTI : "SBI on Saturday announced it will pick up a 49 per cent stake in Yes Bank for Rs 2,450 crore and clarified that all the deposits and liabilities of the reconstructed bank will continue in the 'same manner'."
SBI's decision to pick up a share of Yes Bank, seen by many as a move that will destroy the public-sector bank's value, hasn't been welcomed by markets.
Stock market update: Sensex down over 1,800 points
Ashish Rukhaiyar reports:
"Indian benchmarks shed around 5% during the first half of the trading session on Monday.
The 30-share Sensex was trading at 35,726.65, down 1849.97 points or 4.92% with more than 2,000 stocks in the red as against less that 300 gainers.
All 30 stocks in the Sensex were deep in the red with stocks like L&T, TCS, ICICI Bank, Indusind Bank, ONGC, Tata Steel and Reliance Industries all shedding more than 5% on Monday.
The broader Nifty was down around 530 points or 4.83% to trade at 10,458 at 12:55pm. The India VIX index jumped around 25% to touch a new 52- week high of 31.98."
The fate of Yes Bank bondholders
While depositors in Yes Bank have their interests protected by the government and the Reserve Bank of India, investors in the bank's high-risk bonds (worth nearly Rs 11,000 crore) aren't going to get that lucky.
Reuters reports: "The Reserve Bank of India (RBI) said it would work on a revival plan, as part of which bonds classified as Additional Tier 1 (AT1) capital will be written down “permanently, in full.”
So-called AT1 bonds were introduced after the 2008 global financial crisis. They carry higher interest rates than more senior debt as investors accept the risk they can lose their investment at certain pre-agreed points if the funds are needed to bolster a struggling bank's capital."
More from Reuters on a potential consequence of the default: "Boutique rating agency Acuitş Ratings warned in a note that the RBI's plan to wipe out AT1 holders would “substantially add to the risk perception on these hybrid instruments and limit their issuances."
Fuel gets cheaper as oil prices fall
The crash in oil prices is turning out to be (marginally) good news for consumers who can now enjoy lower petrol and diesel prices.
Piyush Pandey reports:
"The state owned oil marketing companies have reduced the price of sensitive petroleum products like petrol by 24 -27 paise a litre and diesel by 24-26 paise a litre across major cities as the price of international crude oil fell by most in a day since 1991 Gulf war."
Are negative interest rates about to hit US debt?
Several European bonds have been yielding negative returns for some years now, thanks to the European Central Bank that has been quite willing to purchase these bonds from investors.
Are US bonds next? The coronavirus scare and the subsequent sell-off in stocks has raised bond prices, driving down their yields very close to zero.
Reuters explains the dynamics: "Even if the Fed is resistant to adopting negative rates, as most expect, Treasuries should hold their appeal as the worlds largest and most liquid market. That means that strong demand could send yields on some shorter-dated notes into negative territory, a move that seemed unthinkable only a few weeks ago."
The rise and fall of Rana Kapoor
A profile of the Yes Bank founder by our Mumbai-based reporter Manojit Saha :
"Rana Kapoor, a former Bank of America executive , set up Rabo India Finance, a non-banking finance company, with the help of Rabo Bank in 1997-98, along with his partners Harkirat Singh and Ashok Kapur. Rana Kapoor was Ashok Kapur’s brother-in-law.
That marked the start of an aggressive entrepreneur in the financial services space, who would continue his journey in the next two decades until it was cut short by the Reserve Bank of India in 2018."
Stock market update: Sensex nosedives over 1,500 points
The Sensex this morning has witnessed its worst fall since the demonetisation exercise in 2016 as the sell-off in stocks continues unabated. The Nifty hit a one-year low.
The Sensex is down over 1,500 points and the Nifty is below 10,600.
The market rout in the last two weeks, it is worth noting, has shaved off almost 10% of the value of Indian shares.
The sell-off seems driven by heavy foreign selling. PTI reports: "On a net basis, foreign institutional investors sold equities worth Rs 3,594.84 crore, while domestic institutional investors bought shares worth Rs 2,543.78 crore on Friday, data available with stock exchanges showed."
What's behind the oil price crash?
Concerns over demand have been gradually dragging down the price of oil over the past few weeks, but today's crash is predominantly supply-driven.
The New York Times reports: "The Saudi decision to cut prices by nearly 10% on Saturday was a significant move in retaliation for Russia’s refusal Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil."
Bloomberg has more on the exact events that led to the breakdown in relations between Saudi Arabia and Russia.
RBI firefights depositor worries
The RBI has found it necessary to clarify that the safety of depositor money (essentially the bank's liabilities) locked up in Yes Bank should not be judged by the market price of Yes Bank's shares.
What's in the news today?
Last week saw financial markets experience increased volatility as stocks plunged amid fears that the coronavirus scare, which continues to spread across the globe, could drag down global growth. But things are only set to get worse this week.
Here are a few stories that are likely to develop further during the course of the day:
1) Indian stocks are expected to witness a sharp fall once again today judging by the 2% fall in the SGX Nifty and the bloodbath in other Asian markets. The Nikkei is down over 6% this morning.
2) The price of oil has dropped by over 30%, the biggest fall since the 1991 Gulf war, as OPEC members Russia and Saudi Arabia have gotten themselves into an all-out price war .
3) The Yes Bank saga is likely to get murkier after the arrest of the bank's founder Rana Kapoor yesterday on charges of fraud. More questions are likely to be raised about the safety of depositor money and the broader financial system.
4) The rupee has been tumbling amid the turmoil in the broader financial markets, weakening past the 74 to a dollar mark .
