A New Beginning

Ekambit Newsletter Volume 1 Number 1, June 2020

Welcome to the very first issue of Ekambit Newsletter!

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Quote of the Week

News and surprises tend to follow the direction of the trend.

As seen this week with PSU Banks.

Markets Heatmap

29-May-2020 to 5-Jun-2020

FII Statistics

29-May-2020 to 5-Jun-2020

Viewpoint

The Indian Market continued its uptrend for the second consecutive week, led by Financials which had been the most impacted over the last couple of years due to various crises: NBFC, PMC Bank, YES Bank, COVID-19.

Other factors which aided last week's rally:

Easing of nationwide lockdown
Positive global cues
Foreign fund inflows

As seen from the heatmap, PSU Banks were the best performers this week. We expect this outperformance to continue due to key factors:

Since the 2008 Financial crisis, private banks have led the banking sector due to their superior technology, marketing and customer service.

Chart courtesy Tradingview

Despite these positives for private banks, the #1 factor is depositor confidence, where private banks took a beating following the YES Bank crisis. Numbers released this week duly reflected the same.
In FY19, private banks raised deposits worth ₹7.1 trillion (65%), while public sector banks raised ₹2.7 trillion (21%). In FY20, incremental deposits shifted drastically to 32% (Private) vs 54% (PSU).

FIIs tend to hedge every position, hence Long and Short Open Interest rise and fall in tandem at any point of time, as shown in the chart. Current momentum favours Long positions.

Do keep an eye on macro factors - Global markets, COVID-19, FII flows - before deciding to hold unhedged overnight positions.

Macro Events

Handpicked, key macro events from last week shown below.

Date	Event
1-Jun-2020	Maharashtra extends lockdown till midnight of June 30 2020 but eased restrictions starting June 3 in a phased manner. Indian government’s fiscal deficit is Rs 9.36 lakh crore, 122% of its revised target of Rs 7.67 lakh crore. 12 banks including State Bank of India, Bank of Baroda, Axis Bank Ltd., and ICICI Bank Ltd., can start trading today in the NDF Rupee market. India's manufacturing PMI contracts for second straight month to 30.8 in May (27.4 in April, 51.8 in March, 54.5 in Feb). Public Sector Banks sanction collateral free loans worth Rs 3,200 crore to MSMEs on June 1, says Finance Minister Nirmala Sitharaman. Revised MSP set for 14 kharif crops based on CACP formula, says Prakash Javdekar. Moody's downgrades India's rating to Baa3 from Baa2, on par with S&P Global Ratings and Fitch Ratings, as it expects GDP to contract by 4% in fiscal 2020. Indian Energy Exchange Ltd. and Power Exchange India Ltd. commence real-time electricity trading.
2-Jun-2020	IMD retained its forecast for normal monsoon in India this year at 102% of long-period average. US factory gauge improved to 43.1 in May from an 11-year low of 41.5 in April. India’s drug regulator granted U.S. pharma giant Gilead Sciences marketing authorisation for its anti-viral drug remdesivir for “restricted emergency use” on hospitalised Covid-19 patients. India offering financial incentives of about 500 billion rupees ($6.6 billion) to attract investments from global companies in the manufacture of mobile phones and related components. India vehicle registrations fell 48.6% month-on-month and 89.4% year-on-year to 1.93 lakh units in May.
3-Jun-2020	Public sector banks disbursed loans worth Rs 3,893 crore to MSMEs under the 100% Emergency Credit Line Guarantee Scheme. India Services PMI for May stood at 12.6, rising from a record low of 5.4 in April. India composite PMI stood at 14.8 in May compared with 7.2 in April. India Employment index contracted for third straight month with 46 compared to 44.2 in April. Private banks garnered only 31.6% of the incremental deposits across the banking system in FY20, compared to 54.2% for State-run banks. Public sector banks now hold a 62% share, while private sector banks hold 29%. Farmer has been freed from the APMC Act, will now be able to sell his produce to anyone: Prakash Javedkar. Businesses remained unaffected after the severe cyclonic storm Nisarga weakened following its landfall near Mumbai.
4-Jun-2020	Global air passenger traffic plunged by 94.3% in April this year as compared to the same month a year ago: IATA. Cabinet approved the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020. Essential Commodities Act will be amended to remove cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities, helping farmers realise better prices. ECB expanded bond buying by 600 billion euros ($675 billion) to 1.35 trillion euros, and extended them until at least the end of June 2021.
5-Jun-2020	India unemployment rate for 2018-2019 (only now released) declined to 5.8%, down from 6.1% in the previous financial year. Labor force participation rate rose to 37.5% in the same period compared to 36.9% a year ago. Consumer confidence collapsed from 115.2 in March to 97.9 in May—the lowest level since March 2014: RBI’s Consumer Confidence Survey. RBI to set up payment infrastructure development fund to help push deployment of PoS infrastructure in tier-3 to tier-6 towns, north eastern states. Initial RBI seed capital: Rs. 250 Crores. No new public funded schemes or projects by any ministry should be initiated in the current fiscal other than PM Gareeb Kalyan, Atmanirbhar Bharat and any other special package: Finance Ministry. US payrolls rose by 2.5 million in May, following a 20.7 million tumble in April. Jobless rate fell to 13.3% from 14.7%. US U6 (underemployment) rate fell only slightly to 21.2% in May from 22.8%. 21 million Americans still remain unemployed.