Moneycontrol Pro Panorama | Why investors should care about the aftereffects of disruption

Representative image

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

India’s financial system is healing and along with it, the economy too. That’s the main message from Moody’s decision to move India’s sovereign rating outlook up, to stable from negative. Equity investors may shrug it off as old news because markets have anyway discounted this shift in the country’s financial health. But this mend in India’s rating opens up the conversation for an eventual upgrade in the rating itself, from the current Baa3, if the factors responsible for a brighter outlook continue to play in India’s favour.

What prompted the rating agency to change its mind now? We analyse these factors in detail in today’s edition. The financial system is gradually getting back on its feet with balance-sheets improving, and Moody’s said the banking sector’s vulnerabilities have reduced. That frees banks up from trying to resolve old loan problems given for assets that are probably adding little value, to lending to new economic causes that will add value. Hopefully, they do not turn into problem assets again. Corporate balance sheets have also healed and even the government’s finances appear to be on the mend. There are a few worry spots, such as on the ESG front, which India needs to address.

The Srei group is one of the entities that took a hard knock when the financial system was in a weaker shape. This week, the RBI superseded the board of two companies, Srei Infrastructure Finance and Srei Equipment Finance, citing governance concerns and defaults. It will now be taken through the insolvency process, similar to the DHFL process. Did the RBI jump the gun and not give the promoters enough time to resolve the crisis on their own? Should the RBI have moved earlier, is a counter-question. With a few more troubled financial sector companies waiting in the wings, should the government be thinking of a better structure to resolve the problems of distressed finance companies? For answers, read here.

While the global economy may be healing, it's not short of surprises. An energy shortage is sending shock waves through the world economy, making one wonder if this is the new normal in the wake of the pandemic (as well as climate change?). A power shortage in China is posing a question mark on the output of key chemicals, some of which is imported as feedstock by Indian companies and in other cases, they are competing products. That's why, for some, it could mean a disruption in their output whereas for others, the disruption could signal higher prices and more demand for their output. To know which companies are at risk and which ones could benefit, do read our research team’s in-depth analysis.

More investing insights:

How does the coal shortage impact India's cement companies?

Vesuvius India: A play on rising steel output

What else are we reading today?

Merck’s COVID-19 drug can be a game-changer

IT firms to notch up impressive revenue growth in Q2, focus on order wins

SEBI's proposed changes in IPO pricing and allotment to help strengthen the primary market

Valuation not stories ultimately determines investment returns (republished from the FT)

Traders phone up gambling helplines as game-like broker apps spread (republished from the FT)

Technical picks: Datamatics, M&M, L&T and Tata Chemicals (These are published every trading day before markets open and can be read on the app)

Ravi Ananthanarayanan

Moneycontrol Pro