Geo Political Worries Re-Emerge

Geo- Political scenario has been one major factor that has affected the global equity markets in the past few months. While it started from Ukraine and Russia Spat and then the Iraq crisis resulted in Oil prices touching skies. When global markets were slowly coming out from these shocks, the Ukraine and Russia have re-emerged on the horizon.

Ukraine rebellions reportedly shot down a passenger plane carrying 298 people yesterday on Russian borders. Bloomberg reported that, a Malaysia Airlines jet was shot down over eastern Ukraine, killing all 298 people on board, in an attack that the government in Kiev blamed on pro-Russian rebels. The separatists denied the accusation. Ukraine’s state security service stated that it intercepted phone conversations among militants discussing the missile strike, which knocked Flight 17 from the sky about 30 kilometers (18 miles) from the Russian border. US officials said the weapon probably was a Russian-made model used widely in Eastern Europe.

Taking the cues from Geopolitical risks, the Standard & Poor’s 500 Index fell the most in three months and even the volatility index had the biggest jump in more than a year amid intensifying tensions. The S&P 500 fell 1.2 percent to 1,958.12. The Dow Jones Industrial Average slipped 161.39 points, or 0.9 percent, to 16,976.81.

While the US markets ended in red, the Asian Indices are also trading with significant cuts. While Nikkei is trading with loss of 1.37%, Hang Seng is also trading in negative zone (down 0.74%). Shanghai Composite is also trading in red with marginal decline.

If we take a look at the Indian equities, Benchmark indices ended flat amid choppy trades after investors turned cautious and booked profits at higher levels. Losses in financial sector as well as oil & gas shares capped gains. While the Sensex ended up 11 points at 25,561 and the Nifty gained 16 points to end at 7,640 levels. The broader markets outperformed the large counterparts. BSE Mid-cap index and Small-cap indices gained 1.3% each.

Now one noticeable factor would be the announcement made by the RBI announced guidelines for small payment banks. We feel it is a positive aspect as it would be a great liberalization in banking segment. The RBI yesterday released the draft guidelines for licensing of both payments banks and small banks. The central bank has sought views on the draft guidelines from all interested parties and general public. However the final guidelines will be issued and the process of inviting applications for setting up of payments banks and small banks will be initiated after receiving feedback, comments and suggestions on the draft guidelines. According to the RBI, both payments banks and small banks are “niche” or “differentiated” banks; with the common objective of furthering financial inclusion.

While small banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in a limited area of operation, payments banks will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas, either through their own branch network or through business correspondents (BCs) or through networks provided by others. They will add value by adapting technological solutions to lower costs, said RBI in its press release. The entities eligible to set up a payments bank include existing non-bank pre-paid Instrument Issuers (PPIs), non-banking finance companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities.

However despite this factor and good start to quarterly results, the Indian equities are likely to be under pressure of Geo-political issues. The SGX Nifty is also trading in red with loss of 0.45%.  We expect  a gap down opening for Indian equities.