The big news was the slowdown in China trade and that set the tone for the day. China reported weak trade performance and markets across the global, including India, were spooked by the trade performance of China in December. While exports fell by 4.5%, the imports fell by 7.6% showing a clear pressure coming from the trade war. It has larger implications for the world economy as China continues to be the engine of global growth. The immediate impact was felt on metal and alloy stocks which are the stocks that are most dependent on Chinese demand and supply dynamics.
Is that one more way for the government to shore up its finances? The Finance Ministry has asked PSBs to bring down government stake to 52%. As per the SEBI regulations, the government will have to bring down its stake to ensure that the minimum 25% public float condition is maintained. SBI, the largest public sector bank, has already initiated a QIP of Rs.20,000 crore worth of shares to dilute the government stake and post the stake sale, the government stake will stand reduced to just 58.5%. It remains to be seen if private management will also be brought in or not.
Wall Street dropped sharply on Monday on weak China data and tech sell off. The sell off was apparently hurting both ways and the worst impacted were the technology stocks in the US which do have a dependency on China. The weak trade data announced by China took its toll on the US stock markets. Apple has already issued a profit warning and the weak Chinese story led to further sell off in technology stocks on Monday. Weak Citibank earnings also hit the US indices. The US government shutdown also continued for the 24th day with no immediate relief in sight.
The Reuters estimate of retail inflation was bang on target with CPI Inflation for December coming in lower at 2.19%. The retail CPI inflation at 2.19% is close to the lower end of the RBI comfort zone of 2-6%. This is the lowest inflation recorded in the last 18 months and was supported by WPI inflation also falling to 3.8%. Food inflation remained in negative territory at (-2.51%) while fuel inflation also showed signs of easing on the back of falling crude oil prices. RBI policy implication is yet to be evaluated, although experts do believe that it could eventually lead to a rate cut scenario.
The China impact was felt on the INR and on global crude prices. The rupee touched a one-month low level of 70.92/$ in late trades. The rupee was weaker by nearly 43 paisa after the weakness in Chinese trade data raised apprehensions that China may resort to weakening the Yuan to give a boost to exports. There was also pressure of dollar buying coming from importers and banks fearing a weak Chinese Yuan could have an impact on the INR. China also impacted Oil as it fell to $60/bbl. Oil prices fell below the $60/bbl mark on Monday after weak trade data from China raised the spectre of a slowdown in global demand. Oil demand tends to be extremely sensitive to shifts in global demand patterns, more so because China is the largest consumer in the world.
The government confirmed that India was likely to overshoot its fertilizer subsidy bill by $4.2 billion this fiscal year. The overshooting of the subsidy bill is due to the rise in the global prices of fertilizers and fall in the currency value of the rupee. The actual subsidy bill is likely to be Rs.1 trillion as against the original estimate of Rs.70,000 crore. The government may consider a special banking arrangement to make this good this shortfall since the Ministry has refused to fund the gap. Banks may end up funding the gap and get fertilizer bonds in exchange for that.
