Prime minister, Narendra Modi, had a high level meeting with 40 leading economists of India ahead of the Union Budget to explore ways to give a big push to growth. The forthcoming Budget on February 01st will be the fifth and final budget by the current government as the next one in 2019 will be in the nature of a Vote-on-account. The government’s concern is understandable in the light of the weak GDP advance estimates pegging growth at 6.5%. The coming budget is likely to put a major focus on farm incomes and rural infrastructure given the message from the Gujarat assembly elections.
Brent Crude prices crossed the $69/bbl mark and has gotten perilously close to the psychological level of $70/bbl. This is a matter of concern for India as she is dependent on imports for nearly 85% of its oil requirements and the monthly trade deficit is already in excess of $13 billion. The combination of falling US inventories, supply cuts by OPEC and rising oil demand have been responsible for this rise in oil prices. With crude at 3-year high, analysts are already warning about overheated oil market. The view is that levels of $70/bbl could lead to a glut of shale in the market as many shale wells become viable.
In a move that was long anticipated, the government has eased norms for FDI into single-brand retail, civil aviation and construction. Single brand retail can now attract 100% FDI through the automatic route while civil aviation can get FDI up to 49%. The easing of norms for civil aviation is largely aimed at the disinvestment of Air India. India has already received a record $61 billion as FDI in the last fiscal year and wants to cross the $100 billion FDI mark in the next 2 years. The traders association, however, is up in arms against 100% FDI in SBR as it goes against the poll promise made by the NDA government.
According to Knight Frank, residential prices in Mumbai had dropped for the first time in a decade due to a supply glut in the market as well as the weighted prices were down by nearly 5% on a YOY basis. Real estate observers opine that the actual fall could be much sharper at the ground level. While weak demand and RERA have been two factors, many builders had also dropped prices to get rid of unsold inventory. New home launches fell by 32% in Mumbai as most of the builders primarily focused on completing their existing projects.
Some of the biggest bond traders in the world now fear that a 30-year bull market in bonds may finally be coming to an end as yields prepare to move further north. Bond prices tend to benefit from falling rates and the benefit was especially pronounced in the last 10 years since the financial crisis. However, with the US reversing its rate stance and other central banks likely to follow suit, this run in bonds may be nearing an end. US 10 year bond yields have already risen by over 125 basis points in the last 1 year and the trend is likely to be upwards if the Fed persists with 4 rate hikes during the calendar year 2018. China, which has forex reserves of $3.2 trillion and $1 trillion of US treasuries, has been wary of US treasuries. That has been dampening the sentiments in the global bond markets.
Five potential bidders have firmed up bids for the assets of Bhushan Steel, one of the beleaguered steel companies which has been referred to the NCLT after it started reeling under the weight of its debt. Tata Steel, Arcelor Mittal, Vedanta, SAIL and JSW Steel are the potential contenders. Most of the large steel players are trying aggressively to expand inorganically to meet up with India’s rising steel demand, which is likely to rise 3 fold by 2030. Bhushan Steel owes over Rs.55,000 crore to banks and is one of the biggest cases of a company being restructured to extricate the banks from the NPA burden.
