Uncertainty Keeps The Markets On The Tenterhooks
We have entered this week with host of global events influencing the markets. As expected, the Great Britain’s parliament rejected Theresa May’s Brexit deal, which means it would be an uphill task for her to complete the Brexit deal before the deadline of March 29, 2019. Post this defeat the Brexit is most likely to get delayed, which led to a small rally in UK’s pound. If Britain fails to strike a deal and leaves EU without one, then it would result in new trade barriers due to which Britain would have to incur substantial losses. The other possible outcome is a second referendum. Global firms (majorly US) have invested billions of dollars in the UK to use it as the gateway to free trade with the other 28 EU nations. People's Bank of China injected record liquidity in its financial market through open market operations of USD 83 billion on Wednesday. This move from China’s central bank came amid slowdown in its economy due to trade tensions with the US. This massive fund infusion in the financial market would help the banks to lend more at a lower rate.
Talking about our country’s economy, the lower crude oil prices and the decline in gold imports helped in bringing down India’s trade deficit to USD 13.08 billion in December 2018, the lowest in 10 months. In the previous month, the trade deficit was at US 16.67 billion. In December, merchandise exports grew marginally by 0.34 per cent yoy to USD 27.93 billion, on the other hand, imports dipped 2.44 per cent to USD 41.01 billion. Gold imports declined by 24.33 per cent to USD 2.56 billion in December, while oil imports rose by 3.16 per cent to USD 10.67 billion.
The Index of Industrial Production (IIP) of India for November 2018 came unexpectedly at 0.47 per cent, lowest in the last 17 months. IIP measures the general level of industrial activity in the economy on a monthly basis, RBI uses this data for framing its policies and other purposes. The weak IIP numbers may prod the RBI to revisit its GDP growth forecast.
Meanwhile, the textile industry is likely to benefit from the free trade agreements (FTA) with the European Union, Australia, Canada and Britain, according to Confederation of Indian Textile Industry. The FTAs would make Indian players more competitive against players from countries like Vietnam and Bangladesh. Besides, the reduction in import duty on Indian cotton yarn will act as a key booster for export companies.
In line with its aim to revive the stressed banks, the RBI has deferred the implementation of the last tranche of Capital Conservation Buffer (CCB) by a year. This is likely to result in an estimated capital of Rs 37,000 crore in the hands of banks but, more importantly, this would help banks increase lending by over Rs 3.5 lakh crore by leveraging ten times the capital.
In the upcoming budgetary session, the government is likely to adopt expansionary economic policy ahead of the General Election. The expansionary budget is likely to put a strain on the government’s fiscal target.
Till date, around 23 companies from the BSE 500 have reported their Q3FY19 numbers, the aggregate net sales of these 23 companies have witnessed a robust growth of 25 per cent on a yoy basis. However, the overall PAT of these companies declined marginally by ~4 per cent yoy. This clearly implies that there is a potential for the companies to generate revenues, but if a firm is not doing good at the operational level or its capital structure is not at its best, then it would be an uphill task for the company to convert that revenue into profit.
