Rupee opens 14 paise higher at 70.42 against US dollar

The rupee climbed 14 paise to 70.42 against the US dollar in the opening deals on Monday. The domestic unit on Friday spurted by 32 paise to close at a nearly two-month high of 70.56 as crude oil prices receded following reports that Saudi Arabia had agreed on a temporary ceasefire in Yemen.

The local unit notched up gains of 38 paise on a weekly basis.

In the capital markets, after remaining net sellers for the past two months, foreign investors infused a net Rs 7,714 crore into the domestic capital markets in September following a slew of economic reforms by the government. However, FPI inflows into India will also be influenced by how the economy performs and how soon corporate earnings recover, VK Vijayakumar, chief investment strategist at Geojit Financial Services said. The US Fed's monetary stance and global liquidity are also crucial in determining FPI flows, he said.

On the global front, Asian stock markets, including China’s, were little changed on Monday, shrugging off news that the US administration is considering delisting Chinese companies from US stock exchanges. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.05 per cent while China's Shanghai stock index slipped 0.2 per cent, Reuters reported.

In commodities, oil prices edged higher, rebounding from a two-week low in the previous session, although gains were checked by concerns about the outlook for the global economy. Brent crude futures rose 21 cents, or 0.3 per cent, to $62.12 a barrel while US West Texas Intermediate (WTI) crude futures rose 14 cents, or 0.3 per cent to $56.05 a barrel.

Lakshmi Vilas Bank under pressure as RBI initiates PCA, IBHFL tanks 14%

Shares of Lakshmi Vilas Bank (LVB) and Indiabulls Housing Finance came under pressure in the early trade on Monday after the Reserve Bank of India (RBI) initiated prompt corrective action (PCA) plan on the former.

At 09:49 am, the stock of LVB was locked at the lower circuit limit of 5 per cent at Rs 34.75 apiece on the BSE while that of Indiabulls Housing Finance was trading over 14 per cent lower at Rs 334.15.

Both LVB and Indiabulls Housing Finance are proposed to merge. Last month, Indiabulls Housing Finance said it expects the regulator to take a decision on its merger plan with Lakshmi Vilas Bank in the next two months.

"The company has proposed Sameer Gehlaut as the non-executive chairman and Gagan Banga as the MD and CEO of the amalgamated bank.The Competition Commission of India (CCI) had given its green light to the proposed merger of Indiabulls Housing Finance (IBHFL) and Indiabulls Commercial Credit (ICCL) with Lakshmi Vilas Bank (LVB) in June 2019," said a Business Standard report.

The Competition Commission of India (CCI) had given its green light to the proposed merger of Indiabulls Housing Finance (IBHFL) and Indiabulls Commercial Credit (ICCL) with Lakshmi Vilas Bank (LVB) in June 2019.

In a press release dated September 28, Lakshmi Vilas Bank reassured customers that PCA plan does not mean moratorium on the bank and that bank can transact normal business. "There are no restrictions on operations by depositors. Bank can also undertake lending activities to all segments except corporates and other stressed and high risk sectors," it addded.

The bank further said that the corrective action plan covers various suggestions/measures to recover NPAs, reduce costs, boost capital, downsize RWAs (Risk-weighted assets) and improve profitability and the management was in the process of implementing all these measures. CLICK TO READ FILING

Other Indiabulls group stocks were, too, trading in the negative zone. Indiabulls Real Estate was down 10 per cent at Rs 45.90 apiece on the BSE while Indiabulls Ventures hit lower circuit Rs 123.75, down 20 per cent. On Saturday, Indiabulls Real Estate said shareholders have approved a proposal to sell its London property to promoters for £200 million in an annual general meeting held on September 28.

The resolution to sell the London property has been approved by the requisite majority of shareholders, according to an exchange filing. Earlier, the company had disclosed its plans to focus on its India business and cut down on debt, news agency PTI reported.

Fed-up European Union eyes a tit-for-tat response to Trump's tariff tactics

Europe’s relationship with the U.S. has been stretched to the limit by President Donald Trump’s “America First’’ foreign policy. But disputes about aircraft subsidies and auto tariffs coming to a head over the next two months could put the allies in a trade war.

And while transatlantic relations have been fraying since Trump came to office more than two years ago, the European Union’s political calculus has changed, with the bloc considering taking a more aggressive stance toward the U.S., according to officials familiar with the EU strategy.

“Europe is cornered and has to fight back,” said Hosuk Lee-Makiyama, director of the European Centre of International Political Economy in Brussels. “The problem is that the EU doesn’t have that much ammunition. There are no good policy options left for the bloc.”

Renewed hostilities between the EU and the U.S. would mark a reversal since Trump and European Commission President Jean-Claude Juncker agreed to a cease-fire last year. That agreement suspended the threat of a cycle of tit-for-tat tariff retaliation that was triggered by controversial U.S. duties on imported metals and that, if resumed, would threaten to put more pressure on a tepid world economy.

EU Retaliation

There’s no shortage of tensions: Washington is blocking appointments to the World Trade Organization’s appeals board, which will render the body inoperative in December; controversial U.S. duties on Spanish olives pose a threat to Europe’s system of farm aid; and Trump’s threat to hit cars and auto parts with tariffs would affect the $191.7 billion in passenger vehicles and light trucks the U.S. imports each year.

But the game changer could be tariffs on another nearly $8 billion of European goods the U.S. is expected to impose as soon as October in retaliation for illegal EU aid for planemaker Airbus SE.

It is this issue that has prompted Europe to weigh a more aggressive posture. Juncker’s commission, whose five-year term ends on November 1, is considering imposing tariffs on more than $4 billion of U.S. goods in retaliation, and using as justification an unrelated 22-year-old dispute over now-defunct American tax breaks. This is despite the fact that the two sides reached a “mutually acceptable solution” to the issue in 2006.

“For the EU, the risk of a conflict with the U.S. is higher now than it was a year ago,” researchers Anabel Gonzalez and Nicolas Veron said in a September 16 paper published by the Bruegel think tank in Brussels.

New Strategy

The idea is being driven by the EU’s desire for a negotiated settlement with Washington over aircraft aid and by concerns that, from the political point of view, the bloc may be unable to afford delaying retaliatory action. EU efforts to resolve the issue through talks have failed to bear fruit.

The possibility of hastier European countermeasures in the aircraft-aid dispute reflects EU exasperation with the Trump administration’s belligerence in transatlantic trade matters generally, according to an official from the bloc.

The idea amounts to scraping the bottom of the barrel of what the EU can conceivably do legally to strike back at the U.S. as soon as possible, according to the person who spoke on the condition on anonymity.

No decision has been taken and the idea could face resistance in some EU national capitals including Berlin. Aside from causing economic harm, such a move would risk undermining the EU’s claim to be working to uphold the WTO system that Trump’s protectionism is shaking.

‘Gung-Ho’

The outcome of the EU deliberations on this issue could depend on the incoming leadership team at the Brussels-based commission, the bloc’s executive arm, and in particular on the designated trade chief, Ireland’s Phil Hogan, who is currently European farm commissioner.

“It may come down to how gung-ho Phil is,” said Lee-Makiyama. “The fundamental reality facing the whole EU political establishment is that there is no real appetite by European industry in general for tariffs against the U.S.”

Forever 21 files for bankruptcy, will shutter most stores in Asia, Europe

Forever 21 Inc. filed for bankruptcy protection, the latest big fashion merchant who couldn’t cope with high rents and heavy competition as the shift to e-commerce cut a swathe through traditional retailers.

Court papers filed in Wilmington, Delaware, show Forever 21 has estimated liabilities on a consolidated basis of between $1 billion and $10 billion. The Chapter 11 filing allows the Los Angeles-based company to keep operating while it works out a plan to pay its creditors and turn around the business.

Forever 21 has obtained $275 million in financing from lenders with JPMorgan Chase & Co. as agent, as well as $75 million in new capital from TPG Sixth Street Partners and its affiliated funds. It plans to exit most of its international locations in Asia and Europe, but will continue operations in Mexico and Latin America. The stores expect to honor gift cards, returns and exchanges.

Once popular among teenagers in the 2000s for its affordable but eye-catching designs, Forever 21’s signature bright-yellow shopping bags have become a rarer sight as Generation Z consumers -- those born from 1998 onwards -- shifted rapidly over to e-commerce and streetwear brands in recent years. The bankruptcy filing could help Forever 21 get rid of unprofitable stores and raise fresh funds, allowing the private, family-held company to restructure its flailing business for a new generation.

“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees,” Linda Chang, executive vice president of Forever 21, said in a statement.

Bloomberg first reported August 28 that Forever 21 was preparing for a bankruptcy filing.

Forever 21’s bankruptcy filing could be problematic for major U.S. mall owners, including Simon Property Group Inc. and Brookfield Property Partners LP, because it is one of the biggest mall tenants still standing after a wave of bankruptcies. The busts emptied more than 12,000 stores in the past two years, and those vacancies may be hard to fill.

Simon counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets covering 1.5 million square feet as of March 31, according to a filing.

Simon and Brookfield were both listed in court papers on Forever 21’s tally of biggest unsecured creditors. The retailer doesn’t have a lot of leverage over its landlords, according to Bloomberg Intelligence, which said in a Sept. 27 report that Forever 21 accounts for just 1.4 per cent of Simon’s annual rent.

Founded in 1984, Forever 21 operates more than 800 stores in the U.S., Europe, Asia and Latin America. It specializes in fast-fashion apparel-- trendy, cheap, quickly-made knockoffs of original designs that often is worn only a few times before being given away or tossed out. Competitors include Zara, H&M and Amazon.com.

Co-founder Do Won Chang has been focused on maintaining a controlling stake in Forever 21, which hindered efforts to raise new funds. Matters are likely to be out of his hands now, with creditors typically setting the agenda in bankruptcy proceedings and major decisions subject to a judge’s approval.

Kirkland & Ellis LLP is the company’s legal adviser, and Alvarez & Marsal is the restructuring adviser, and the investment banker is Lazard.

The case is Forever 21 Inc., 19-12122, District of Delaware (Delaware)

Rate cuts fail to cheer bond market worried about Modi govt's borrowing

September is shaping up to be a brutal month for Indian bonds, and traders are hoping the government’s borrowing plans this week will offer some relief.

Benchmark 10-year rupee yields have climbed almost 20 basis points since end-August, driven by fears that a $20 billion tax cut could boost an already bloated bond supply. Even an expected interest-rate cut by the central bank on Friday -- the fifth for the year -- has done little to aid sentiment.

All eyes are now on the government’s financing plans for the fiscal second half due Monday, with traders concerned that the authorities could increase bond sales beyond the 2.68 trillion rupees ($37.8 billion) set earlier.

“The worries about the fiscal overhang are so deep that it has upset optimism created by the Reserve Bank of India’s easing,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments Co. in Mumbai. Tax cuts have reignited worries about the breach of deficit targets, he added.

Sentiment toward rupee debt soured after Prime Minister Narendra Modi’s administration unleashed a surprise tax break on September 20 to shore up growth. Ten-year yields jumped the most since February 2017 amid fears the authorities would be forced to sell more bonds to make up for an estimated 1.45 trillion rupees of lost revenue.

Benchmark 10-year yields may rise to 7 per cent in the coming months from around 6.7 per cent due to worries about a wider budget deficit and increased bond supply, according to Mirae Asset and IndusInd Bank Ltd. Mirae warned yields could even vault past that level if the central bank doesn’t step in to conduct open-market bond purchases.

The concerns persist even after an assurance from a government official that the borrowing plan remains unchanged for the rest of the financial year. Finance Minister Nirmala Sitharaman has also said any review of the fiscal gap target will only take place nearer to the next budget in February.

Traders remain skeptical, especially after Standard Chartered Plc estimated the government will need to borrow as much as 800 billion rupees more, and Fitch Ratings flagged the likelihood of a wider fiscal deficit.

“Sentiments have been impacted by the fear of additional supply,” said Shyamal Karmakar, head of rates and credit trading at IndusInd Bank in Mumbai.

Below are key Asian economic data and events due this week:

Monday, Sept. 30: BOJ bond purchases, China manufacturing PMI, Japan and South Korea factory output, Thailand trade balance and India budget deficit

Tuesday, Oct. 1: RBA policy review, Japan unemployment, CPIs in Indonesia, South Korea and Thailand, South Korea trade balance

Wednesday, Oct. 2: Japan monetary base, Bank of Thailand’s MPC minutes

Thursday, Oct. 3: Australia services PMI and trade balance, Japan foreign bond buying

Friday, Oct. 4: RBI rate decision, Malaysia trade balance, South Korea FX reserves, Philippines CPI

Centre bans onion export, imposes stock holding limit to check price rise

To control onion prices ahead of the festive season, the central government banned its export with immediate effect. And, perhaps for the first time, directly imposed a stock holding limit on retailers and wholesalers across the country, bypassing state governments.

Earlier, it had authorised states to impose stock limits for certain items under the Essential Commodities Act. However, in an unusual move on Sunday, directly imposed a holding limit of 100 quintals on retailers and 500 quintals on wholesale onion traders across the country.

The price has over the past month soared to almost Rs 80 a kg in some retail markets, including in the capital, Delhi. The effect of the latest moves remain to be seen, as prices have risen due to depleted supply after months of rain in the major producing states of Madhya Pradesh, Maharashtra and Karnataka.

Chart“The sharp increase in prices is because of lower supply. Only around 15 per cent of last year's output is left with famers and stockists. Imposing stock limits or a ban on export will not help much,” Sanjay Snap, an onion wholesaler in Nashik, told Business Standard.

Some said the move could have a cascading impact on growers. “Onion prices rise once in four-five years, the only time farmers get the opportunity to earn some money. The government should allow farmers to earn. Stock limits and export restrictions would help correct prices temporarily but discourage farmers from sowing (more in the future).

Unfortunately, the government also takes no action when the onion price goes down,” said Jaydutta Holkar, chairman of the huge wholesale centre at Lasalgaon in Maharashtra’s Nashik district.

Central government data showed the retail price last week was around Rs 60 a kg in Delhi, Mumbai and Lucknow (and Rs 42 in Chennai). In Kanpur, it was Rs 70; in Port Blair, Rs 80 a kg. On September 13, the Centre had imposed a Minimum Export Price of $850 a tonne (Rs 60 a kg). Even so, some export continued to neighbouring Bangladesh and Sri Lanka. Sunday’s announcement is meant to stop all such shipment. Bangladesh, Sri Lanka and UAE are the top three destinations for Indian onion. The country exported fresh and chilled onion worth $496.8 million in 2018-19. In the first four months of 2019-20, around $154.5 mn.

The Centre had also directed states to take stringent action against illegal hoarding of onion. And, urged all states to utilise the 57,000 tonnes of onion it has as buffer stock. So far, the governments of Delhi, Haryana and Andhra have done so, to cool prices. On Friday, Delhi chief minister Arvind Kejriwal said his government would provide it at Rs 23.9 a kg to buyers.

India produced 23.48 million tonnes in 2018-19 (third advance estimate), up from 23.26 mt in 2017-18.

Why the festival season may not bring much cheer despite tax cuts by govt

Poor demand from Indian consumers could dampen the mood during festivals next month, especially for automobile makers and retailers that count on the season for a sales boost, analysts predict.

Indians typically buy everything from new cars to shoes for themselves and as gifts during celebrations steeped in religion and tradition. Yet the slowest economic growth in six years, unemployment at a 45-year high and tepid private consumption may see sales fall short of recent years, even after the government’s $20 billion tax break to companies earlier this month.

“You can make the product 50% cheaper, but there has to be income to spend,” said Nitin Gupta, an analyst at SBICAP Securities Ltd. in Mumbai. “In the short-term, I don’t see any kind of an income boost. Rather than giving cash to individuals, they have given it to companies.”

Car sales in August fell the most on record and Maruti Suzuki India Ltd. Friday reduced the price on its Baleno RS model by 100,000 rupees ($1,420) to pass on the benefit from the tax cut. Market researcher Nielsen has lowered its 2019 growth estimate for fast-moving goods to 9%-10% from 11%-12%, while a stock gauge of consumer discretionary firms is set for its first annual back-to-back losses since at least 2005.

Even so, the industry’s fortunes beyond the approaching festival season are poised to improve, according to BNP Paribas SA. Plentiful rainfall seen this monsoon season and cash handouts to farmers will help lift rural incomes, helping sales of staples recover in the second half of the year that began April 1, the brokerage said in a recent report.

Poor demand from Indian consumers may dim festive cheer despite tax cut

Here’s what other analysts say:

SBICAP Securities’ Gupta

The festive season is likely to be dull. Consumption is hit and household income has to increase for there to be better demand for companies selling fast-moving consumer goods.

Corporate tax cuts are a long-term phenomena and won’t help in the short term.

It’s uncertain how much companies could pass on the benefit in terms of lower prices.

Recommends buying shares in Dabur India Ltd., holding ITC Ltd., Colgate-Palmolive India Ltd., and Hindustan Unilever Ltd., and selling Nestle India Ltd.

Harshit Kapadia, an analyst at Elara Securities India

I’m not expecting a blockbuster festive season. It won’t be muted either, but will be decent. Even last year demand was largely flat, that’s why double-digit growth in demand on the lower end is possible.

Distributors are preparing for the Navratri and Diwali season, but nobody is stocking up heavily. They are following the normal trend of keeping 15-20 days of inventory, whereas in past years they would keep 30-35 days ahead of the festival season

Recommends buying Havells India Ltd. and selling Voltas Ltd. shares

Ravi Swaminathan, an analyst at Spark Capital Pte

Sales growth in refrigerators and washing machines has been moderate (mid to high single digit).

With early festive demand traction not very encouraging, dealers are hopeful for better traction over the next 2-3 months.

Recommends adding Whirlpool of India Ltd., Havells and Crompton Greaves Consumer Electricals Ltd. shares

Basudeb Banerjee, an analyst at Ambit Capital Pvt.

The best case scenario for automobiles is for demand to remain flattish on a year-on-year basis as last festival season was bad for demand. Things have gotten worse since then.

Investors should avoid commercial vehicles and producers of lower-cost two wheelers, which face a bigger inventory pileup.

Recommends selling Hero MotoCorp Ltd., Ashok Leyland Ltd. and Tata Motors shares, buying Eicher Motors Ltd., Bajaj Auto Ltd. and Maruti Suzuki India Ltd.

Shirish Pardeshi, an analyst at Centrum Broking Ltd.

Demand is there, it’s only the size of the wallet that’s come down. In difficult times, people don’t stop buying the product. If someone was buying a large pack before, maybe they’ll buy a small pack now.

In the festive season people tend to forget the bad times.

Recommends buying shares in Dabur, Britannia, and Hindustan Unilever and Bajaj Consumer Care Ltd., on improving consumer sentiment, helped by a good monsoon that should support demand from rural areas, selling shares in Colgate-Palmolive