Global: 

Fitch cut Brazil's sovereign rating one notch to BB, citing a deeper than expected economic contraction, government’s failure to improve the fiscal position, legislative deadlock and political uncertainty.

Meanwhile, crude oil prices eased a tad this week after having risen ~20% FYTD. Metal prices too continued to correct after Chinese authorities clamped down on speculative activity in the commodities market – iron ore is down 10%, while steel prices corrected ~13% this week.

Domestic:

There was some legislative action despite the high decibel battle between the BJP and the Congress over the Agusta scandal. As expected, the Insolvency and Bankruptcy code 2016 was passed by the lower house and it goes to the upper house for passage now. This bill will replace the existing obsolete bankruptcy laws and provide a time-bound process for resolving insolvency issues. This will be a big positive, esp. for PSU banks and large corporate lenders.The pipeline and existing stock of bad assets is likely to witness faster resolution thereby releasing significant amount of capital that can be redeployed into productive assets. Importantly, credit costs will also come off over time.

The RBI too chipped in by issuing draft Guidelines for ‘on tap’ Universal Banks License in accordance with its intent of doling out the next round of universal bank licenses by July 2016. In the first round, only 2 applicants (IDFC & Bandhan) succeeded in getting a Universal Banking License. However, now the RBI plans to offer licenses on tap as against the earlier approach of rationing in order to encourage innovation and competition even as it strives to clean up existing banks.

Q4 result trends thus far: Results for 54 companies (ex Oil) from our universe have been largely in line with expectations. Revenue and EBITDA grew 12% and 15% respectively, while earnings growth continued to be depressed at 3% YoY. However, overall aggregate earnings, excluding Pvt banks (provisioning buffer for future delinquencies impacted profits) and Resources (HZL/Vedanta - higher PAT due to other income and reversal of tax provision) stood at ~14% YoY, the best since the last 4 quarters. Note, these are still early days in what typically is the longest quarter of the financial year and hence these trends could change over time.