Even as Trump threatened with rollback of preferential treatment, Nomura has downplayed its impact. According to a note put out by Nomura, the US decision to withdraw the Preferred Tariff status to India will impact $5.7 billion of exports on paper, but the overall impact on the Indian economy may be negligible. According to Nomura, the US accounts for less than 15% of total Indian exports and the domestic Indian market and economy is robust enough to absorb such a loss. Not surprisingly, the Indian markets rallied sharply on a day when global cues were negative for India.
With the MTM cut-off changed in the last SEBI Board met, mutual funds may have to prepare for lower returns on liquid funds. Liquid fund managers are a worried lot as under the new SEBI rules any liquid fund with a maturity of more than 30 days will now have to mark to market. Earlier, this cut off was at 60 days. Fund managers feel that to avoid the MTM risk, most liquid funds will reduce the maturity profile of their liquid funds and that would put pressure on returns. Experts expect the impact to be 12-15 bps and that is a substantial dent on the pre-tax returns which in a best case is around 6%.
China growth continues to falter, the only good thing being that they are taking action. China lowered growth outlook but cuts taxes to boost the economy. China growth outlook for the full year appears to gravitate further down and may end up with annualized growth just around the 6% mark. Of course, the Chinese government has already announced billions of dollars in tax cuts to increase spending capacity and to boost the economy. But the big overhang for China is the ambiguous future of the trade pact and the rising shadow of debt in China, especially the huge quantum of shadow debt.
In a swift move, the IL&FS board charged former directors of the company, money laundering and criminal intent. A day after the scathing Grant Thornton audit report was made public, the newly constituted board of IL&FS has charged 14 former directors of IL&FS group of facilitating money laundering and sanctioning loans in violation of rules. All the 14 directors have been asked to reply within 7 days. Grant Thornton had pointed to financial irregularities in the group to the tune of nearly $2 billion. The entire previous board of the group has been dismissed.
Markets threw up a surprise as they surged sharply on Tuesday despite Trump threats and MSCI overhang. The rally took most traders by surprise as the Sensex retrieved nearly 600 points in the last 2 trading sessions. The markets chose to ignore the withdrawal of Preferential Tariffs by Trump and also the proposed downgrade of India’s weight by MSCI with an A/D ratio of nearly 4:1. The market focused on fundamentals like the stronger rupee, weaker oil prices and a sharp revival in the PMI Manufacturing, PMI Services and auto numbers. Indian rupee also gained by 60 bps to close at Rs.70.49/$ on Tuesday. The rupee rallied on the back of tepid oil prices. In the last few days, FII flows have been quite strong into India and the markets therefore chose to ignore the negative global cues flowing in.
As the SEBI completes 2 years in office, the period will go down as some brave and far reaching capital market reforms. The latest SEBI board meet was, in a way, a continuation of the aggressive reforms process that the SEBI has pursued in the last two years. Some of the key reforms undertaken in the last two years include the New Corporate Governance Code, simplifying FPI framework, and MF categorization, tough orders on blue chips, universal exchange framework and easier delisting for IBC companies. Of course, some key challenges still remain for the capital markets.
