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Russia still faces a high chance of default, despite payment

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Russia faces renewed threat of debt default on May 4, according to major ratings agencies, as the grace period comes to a close after it attempted to service its dollar bond payments in Russian rubles.

Mikhail Tereshchenko | Sputnik | via Reuters

Although Russia has so far averted a historic debt default since sanctions were imposed on its foreign currency reserves, analysts believe it is delaying the inevitable.

Moscow last week made payments to holders of two dollar-denominated Russian sovereign bonds, maturing in 2022 and 2042 and worth a collective $650 million, before the end of a 30-day grace period on May 4.

The Russian Finance Ministry initially tried to make the payments in rubles on April 4 when the U.S. Treasury Department blocked an attempt to pay from dollar reserves held at U.S. banks. A large portion of the Central Bank of Russia’s vast foreign currency reserves held with overseas banks has been frozen by international sanctions imposed following its invasion of Ukraine.

Major rating agencies said this would have constituted the country’s first foreign debt default since 1917, had Russia not met its foreign currency obligations by the end of the grace period. Russia found a source of funds that were not subject to sanctions, allowing payments on the two bonds.

The successful delivery of payments prompted a rally in Russian hard-currency sovereign bonds, but prices for Russian government bonds remain well below the levels seen prior to Russia’s invasion of Ukraine on Feb. 24.

In a note last week, MSCI Research said that despite the rally, “probabilities of default implied by the credit-default-swap market were still exceptionally high across the one- and five-year horizons.”

“Although the resulting rally in Russian sovereign bonds may have encouraged some investors that Russia will avoid default, probabilities of default implied by the credit-default-swap (CDS) market were still exceptionally high across the one- and five-year horizons,” said MSCI Managing Director Andy Sparks and Vice President Gabor Almasi.

“As of May 3, the default probability was 67% over one year, down from over 95% on April 26. Over the same period, the five-year default probabilities fell from 99% to 88%.”

All eyes to May 25

Russia has benefited from an exemption in U.S. sanctions that allows bond payments to be made on Russian sovereign debt from sources authorized by the Treasury on a case-by-case basis.

However, this exemption expires on May 25, and MSCI suggested that unless extended, it could trigger a default event when several Russian bond payments are due on May 27.

“Alternatively, extending the exemption could provide additional payments to bondholders as long as the Russian government signals a willingness and ability to continue making payments,” MSCI added. The Treasury has not yet indicated whether it plans on extending this exemption.

In servicing the $650 million in coupon and principal payments last week, Russia’s Finance Ministry showed that it does not want a default and understands that the consequences would be “extremely damaging and long felt,” according to Timothy Ash, senior EM sovereign strategist at BlueBay Asset Management.

Ash agreed that the key question now is whether the U.S. Office of Foreign Assets Control will extend the general license for foreign debt service beyond May 25.

“A view has been that it is beneficial for the U.S. to allow Russia to draw down scarce FX (foreign exchange) liquidity beyond that frozen by the West. But actually, I think the benefits of seeing this liquidity drawn down very marginally with a few billion external debt service here and there pales into insignificance when thinking of the economic and PR hit to Russia of a sovereign default,” Ash said in an email Friday.

“The Russians themselves revealed their own cost-benefit calculations by paying earlier this month – so the interests of OFAC surely now are the opposite.”

Ash questioned why OFAC would extend the license given that it would be “to the clear benefit of Russia,” and suggested that a more pertinent question would be whether Russia can still find a way to avoid default if OFAC refuses to extend.

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Business

EPFO adds 15.32 lakh net subscribers in March

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Retirement fund body EPFO has added 15.32 lakh subscribers in March 2022, over 19 per cent more than 12.85 lakh enrolled in February this year.
The provisional EPFO payroll data released on Friday highlighted that it has added 15.32 lakh net subscribers in March 2022, a labour ministry statement said.

According to the statement, a month-on-month comparison of payroll data shows an increase of 2.47 lakh net subscribers in March 2022 compared to the net additions during February 2022.

Of the total 15.32 lakh net subscribers added during the month (of March), around 9.68 lakh new members have been covered under the provisions of EPF & MP Act, 1952 for the first time.

The new member addition has increased by 81,327 in March 2022 as compared to the previous month. Approximately 5.64 lakh net subscribers exited but re-joined the establishments covered under the EPFO by transferring their funds from the previous PF account to the current account, instead of opting for final withdrawal.

Age-wise comparison of payroll data showed that the age group of 22-25 years has been on the forefront by registering the highest number of net enrolments, with 4.11 lakh additions during March 2022.

This is followed by the age group of 29-35 with an addition of 3.17 lakh net subscribers. The age group of 18-21 years also added around 2.93 lakh net subscribers during the month.

The age group of 18-25 years constitutes around 45.96 per cent of net subscribers addition during the month.
Age-wise payroll data also indicated that many first-time job seekers are joining the organised sector workforce in large numbers.

State-wise comparison of payroll figures highlighted that the establishments covered in Maharashtra, Karnataka, Tamil Nadu, Gujarat, Haryana and Delhi remain in lead by adding approximately 10.14 lakh net subscribers during the month, which is 66.18 per cent of the total net payroll addition across all age groups.

Gender-wise analysis showed that net female payroll addition is approximately 3.48 lakh during the month. The share of female enrolment is 22.70 per cent of total net subscribers addition during March 2022, with an increase of 65,224 net enrolments over February 2022.
The participation of women in the organised workforce is showing a positive trend from October 2021.

Industry-wise payroll data indicates that mainly two categories of ‘expert services’ (consisting of manpower agencies, private security agencies and small contractors etc) and ‘trading-commercial establishments’ constitute 47.76 per cent of total subscriber addition during the month.
A growing trend in net payroll addition has been noted in industries like textiles, heavy-fine chemicals, hotels & restaurants etc in March 2022 compared to net subscriber addition in February 2022.

The payroll data is provisional since the data generation is a continuous exercise and the process of updating employee records is done on a regular basis.
Hence, the statement said that the previous data gets updated every month. Since April 2018, EPFO has been releasing payroll data, covering the period September 2017 onwards.

EPFO is the country’s principal organisation responsible for providing social security benefits to the organised/semi-organised sector workforce covered under the the purview of EPF & MP Act, 1952.

It offers members a myriad of services, which includes provident fund, insurance and pension both for members and their families.

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Equitas SFB stock tumbles nearly 11% on MD & CEO’s exit announcement

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The stock price of Equitas Small Finance Bank tanked nearly 11 per cent to ₹52.95 apiece on the National Stock Exchange (NSE) after its founder PN Vasudevan’s announcement of stepping down to pursue ‘his distinct set of goals in life’.

Equitas Bank opened at ₹55.5 on the NSE. It touched an intraday high of ₹58.05 before tumbling to a low of ₹51.55 and closed at ₹52.95. 

The fall in Equitas Bank stock comes even as the key Indian benchmark indices Nifty50 and BSE Sensex soared nearly 3 per cent on Friday.

In a regulatory filing, Vasudevan, on Thursday, announced his decision to step down from his role to focus on the public charitable trust that he and his wife had set up. The bank said its Board would be forming a search committee soon to identify the successor and that Vasudevan would continue as MD & CEO till the succession and transition process are completed. 

However, the market seem to be unconviced as the announcement came without a proper transition plan and is in the middle of the merger process with iEquitas Holding Ltd.

“In our view, Vasudevan’s resignation could have been handled well with proper succession planning in place and keeping all the stakeholders well-informed. His sudden resignation at this crucial juncture, when the bank is just recovering from the Covid shock and also in the midst of a reverse merger with the holdco, will be a near-term drag on the stock,” Emkay Global Financial Services said in a report. 

Although the brokerage retained its ‘Buy’ rating for both Equitas SFB and Equitas Holdings, it has reduced its target price for both the stocks. For Equitas SFB, it has cut the target price to ₹67 from ₹75, factoring in a 10 per cent discount relating to management succession/transitional risk. For Equitas Holdings, it slashed the target price to ₹146 from ₹164.

The stocks of Equitas Holdings tumbled over 7 per cent to ₹108.10 apiece on NSE on Friday. 

Published on

May 20, 2022

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Tech View: Nifty forms bullish candle; enjoy the rally till it lasts, say analysts

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NEW DELHI: Nifty50 on Friday capitalised on a strong gap-up start as the index ended almost at day’s higher. In the process, it breached its immediate resistance level of 16,150 and formed a bullish candle both daily and weekly scales. Analysts said more upside is in the offing and advised traders to be cautiously bullish for the week ahead.

The steep decline of May 19 was arrested near the swing low of 15,735, said Gaurav Ratnaparkhi of Sharekhan, who added that the March low of 15,671 offered additional support on the downside.

“With this, it filled up the recently created gap area on the daily chart. Going ahead, the index is set to test the upper end of a reverse falling channel and the swing high of 16,400, which is a key barrier to watch out for. On the flip side, 16,100-16,000 will act as a near term support zone,” Ratnaparkhi said.



For the day, the index closed at 16,266.15, up 456.75 points (2.89%).

The daily timeframe of the Nifty50 indicates that the index has made a double bottom around the 15,735 levels, said Subash Gangadharan, Senior Technical and Derivative Analyst, HDFC Securities.

“While we remain open to further pullback rallies in the very near term, we must remember that the intermediate trend remains down. The bears would gain more control once the recent intermediate low of 15,735 is broken. Till then, enjoy the rally till it lasts,” he said.

Despite the rebound, we feel the market has not reached its bottom, since price patterns on the Nifty50 show that the uptrend has been significantly harmed, said Yesha Shah, Head of Equity Research, Samco Securities.

“Similarly, a Head and Shoulder breakdown has been seen on the weekly chart of the S&P500 index. Having said this, a short-term rebound cannot be ruled out and at this point it is unclear if the bounce will be a relief rally or the start of a fresh bullish surge. Taking all of this into account, we recommend that traders keep a cautiously bullish stance for the coming week as long as the Nifty does not break below 15,700 levels,” Yesha said.

Nifty Bank
Bank Nifty has formed a Bullish candle on daily and weekly scale and a small follow up could trigger some more bounce to higher zones, said Chandan

of Securities.

“It has to hold above 34,000 to extend this move towards 34,500 and 34,750 while on the downside support exists at 33,666 and 33,500 zone,” Taparia said.


(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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