Tag: Global economy

The Reason Global Banks are Selling Off

The Reason Global Banks are Selling Off

With another trading session comes another bloodbath for the banks. In the month of January, global share markets seemed to be at the mercy of the change in the oil price. In fact, the markets were closely monitoring the course followed by oil prices. In the month of February, the financials have gained more importance.

A rough session with the European investors showed that Deutsche Bank is yielding 9.5%. This in turn is dragging the German DAX index down by almost 3.3%. Wall Street took its hint from Europe and eventually the American bank stocks crumbled down. Goldman Sach suffered a fall of 7.5 percent and Morgan Stanley toppling over 6%. Thereby, the four big banks of America collapsed by 3% in the morning trade with the investors bracing up to sell off the banks.

Profitability of Banks in Europe

20% of the bank stocks have been shed this year. However, this is much more than bad debts, emerging market jitters and tumbling energy prices. Exceptional low interest rates in Europe are the cause behind the serious profitability crisis of the banks. The profit that they make on the loans is also slashed when the interest rate falls down to 0%. It seems that this monetary policy is going to stick around for some time. Investors are worried that these banks might not even be able to repay back their loans. The realtors have come to terms with the reality that negative are not going to help the profitability of the bank.

Oil Residue

Most of the banks have invested heavily in the large projects of oil. As the prices of oil slumped down, several companies that were behind the project crashed. As per the list complied by Hanes and Boone, the Houston law firm, about 42 companies of the United States have been bankrupted in the beginning of the year 2015. It is more likely that others will follow.

With oil price being the lowest in the last 12 years, banks like JPMorgan Chase, Citigroup and Well Fargo are stuck with huge loans in the energy sector and are hoarding money to cover up for the potential loss in their gas and oil loans.

The Absence of Liquidity

With US Federal Reserve putting an end to the quantitative easing program in the year 2014 and particularly after it began lifting the interest rate in December 2015; the liquidity in the financial market has been drying up. The new regulatory and the capital requirements that had been carried out restricted the bank trading activity and also cut down the number of rooms the banks appeared to have in their balance sheet to offer to the liquidity market. All of this was due to the fall in the commodity prices that led to the severe sell-offs in the potential market and also high-yield debt. This consecutively caused the shift of the liquidity risk to the buy-side from the bank.

Sovereign Funds

The sovereign wealth funds of the nations that produce oils are dragging out money from the market to fill the shortfalls in their budget that have been created by cheap oil. The fiercely selling asset is setting off the oil prices.

Bloodbath at D-street: Sensex crashes 800 pts, Nifty plunges below 7,000

Bloodbath at D-street: Sensex crashes 800 pts, Nifty plunges below 7,000

11/02/2016 16:22

Triggered by the global sell-off, the Indian equities witnessed hefty selling across all the sectoral indices on Thursday, with the benchmark Sensex crashed below 23,000-level while the NSE Nifty breached 7,000 mark. The foreign investors continued to wipe out cash fund from emerging markets like India over the prospects of the world economy amidst an ongoing slump in crude oil prices and worries over China.

The BSE SENSEX closed at 22951.83, down by 807.07 points, or by 3.4 per cent, and the NSE Nifty ended 239.35 points or 3.32 per cent lower at 6976.35.

The traders hit the “Sell” button after Fed Chair Janet Yellen on Wednesday signaled uncertainty over China’s growth prospects and an ongoing commodity rout, fears that have pushed global equities to the cusp of a bear market. While Yellen reiterated that the Fed remains on track to gradually raise interest rates, she conceded that the world’s top central bank may have to alter its interest rates forecasts amidst a continued financial market rout, meaning that the Fed may delay further rate hikes.

On the corporate front, shares of SBI ended 3 per cent lower after the country’s largest public sector lender reported a sharp decline of 67.09 per cent in its consolidated net profit at Rs 1,259.49 crore for the third quarter ended December 31, 2015, due to rise in provisions and bad loans.

The BSE MIDCAP closed at 9690.9, down by 327.22 points or by 3.27 per cent, while the BSE SMLCAP ended at 9801.26, down by 476.45 points, or by 4.64 per cent.

The top losers of the BSE Sensex pack were Adani Ports & Special Economic Zone Ltd. (Rs. 188.50,-6.94%), Bharat Heavy Electricals Ltd. (Rs. 120.35,-6.01%), Tata Motors Ltd. (Rs. 275.65,-5.55%), Oil And Natural Gas Corporation Ltd. (Rs. 202.80,-5.23%), Mahindra & Mahindra Ltd. (Rs. 1126.00,-4.93%), among others.

Meanwhile, Cipla Ltd. (Rs. 541.00,+0.40%), Dr. Reddy’s Laboratories Ltd. (Rs. 2887.00,+0.01%), were among top gainers on BSE.

On the sectoral front, all the thirteen sectoral indices ended bleeding in red, with realty and power stocks emerged as top losers, falling 5.94 per cent and 4.81 per cent, respectively.

The Market breadth, indicating the overall strength of the market, was weak. On BSE out of total shares traded 2965, shares advanced were 400 while 2455 shares declined and 110 were unchanged.

On the global front, Hang Seng ended nearly 4 per cent lower in reopening after a three-day holiday, signaling a deepening contagion that has struck global equities. While markets in mainland China remained closed for the Lunar New Year Holidays and that in Japan were also shut for a national holiday.

Construction ind can help India combat global doom: Study

22/01/2016 08:59

In the midst of doom and gloom in the global economy with consequential impact on India, highly job-oriented construction industry can give quite positive results in terms of stepping up economic growth, more employment and raising tax revenue for the government, if the stress-ridden sector is provided immediate succour, a just-concluded ASSOCHAM-TARI study has pointed out. “Construction sector, which is the second largest employment generator after agriculture, comprising roads, ports, airports, bridges and real estate, has the multiplier potential to create benefits at least double the size of direct inputs,” highlighted the study titled ‘Construction industry: Contributing to Make in India,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with Thought Arbitrage Research Institute (TARI). “The output multiplier demonstrates how an increase in demand of Indian construction sector can lead to an increase in overall output of the economy by 2.4 times thereby showcasing strong backward linkages of the sector with ancillary and complementary industries such as cement, steel, iron, bricks, sand, chemicals, heavy machines and equipment, sanitary ware, wood, electrical and other fixtures, paints and others,” noted the study. “Over 75 percent of real estate projects of the total investments worth over Rs 14 lakh crore remained non starter (under implementation) as of FY15 owing to plethora of issues like delays in environmental clearances, project approvals, acquisition, lack of finance and carrying the baggage of badly executed public-private-partnership (PPP) models that are crippling growth of construction in India,” said ASSOCHAM Secretary General, D S Rawat while addressing a press conference. “One of the major problems facing the industry is a high level of debt on their balance sheets, resulting from project delays which, in turn, were caused by things like environmental issues both at the state and Central levels,” said Rawat. “With the union government liberalising foreign direct investment (FDI) rules in realty and construction sector, we are hopeful that it will lift the affordable housing space, revive steel, cement and other related sectors, rev up employment scenario and boost the GDP (gross domestic product) growth,” he added.