Exactly 6 months after the NBFC crisis triggered by IL&FS, the same NBFC’s have become the biggest market for bank credit which has grown 48% year-on-year. Even as commercial lending is struggling to grow, it is NBFCs that are taking away a chunk of bank funding. While bank lending overall grew by 14.6% on a YOY basis, it was only NBFC lending that grew 48%. Personal loans saw a 75% fall while credit to manufacturing contracted by 0.7%. Effectively, NBFC have shifted their money raising focus from money markets to the banking system. Of course, this could come with its own set of risks.
Based on inputs received from the ground, the government has warned sugar mills against selling sugar in the market below the MSP. Under the Sugar Price Control Order (SPCO) 2018, all sugar mills are currently required to sell sugar at Rs.31/kg plus GST. In recent inspections, the government has observed that sugar mills are either selling below the price or selling at Rs.31 inclusive of GST to clear stocks; both of which were illegal. The sugar mills owe Rs.20,167 crore to farmers and the higher price will help reduce these dues to more manageable levels in future. MSP was recently raised by Rs.2/kg.
There is a big contrarian call from a not so big hedge fund that is taking the market by storm. Top performing US hedge fund, Crescat Fund, has suggested, “Long on Gold and Short on Equities”. Crescat Fund, has been among the best performers with a return of 41% in the last year itself. The fund is now betting on a global recession leading to an end to the economic cycle and hence has been suggesting a portfolio switch from equities to gold. In fact, Crescat expects recession by 2021 and suggests going long on gold in Yuan terms rather than on dollar terms. This is projected to be the next big trade.
It is now apparent that Brent crude is caught in a tight range. Brent Crude crossed $68/bbl mark on Wednesday but faced solid resistance above the level. A combination of supply cuts by OPEC and the sanctions on Iran and Venezuela put pressure on oil supply and pushed prices up. In addition, JBC of Vienna estimated that the reserves had been drawn down by nearly 40 million barrels since January. However, there has been regular resistance to oil above $68.5/bbl on shale supply and global slowdown concerns. Any cues on global growth could be the next big trigger for oil prices.
Fed held rates in the range of 2.25-2.50% on Wednesday and its dovishness could be a signal for dollar weakness, according to economists. The dollar index fell by 0.5% on Wednesday and could be a precursor to a sustained weakening of the dollar. Dollar was apparently waiting for a trigger to weaken and the trigger may have come in the form of a dovish Fed statement, literally ruling out rate hikes before 2020. Since the beginning of March, Bloomberg Dollar Index has fallen over 2%. In fact, Asian shares reacted positively to the Fed dovishness with the MSCI Asia Pacific Index (Ex-Japan) up 0.5%. Apart from the Fed maintaining status quo on rates, there was also an indication in the Fed statement that further rate hikes in 2019 were unlikely due to challenging economic conditions.
Markets are now wary that the BREXIT could become messy and could even happen as early as next week. Even as the EU is willing to give Theresa May another 2 months to resolve the BREXIT deadlock, there may be more immediate problems for May. If she fails to win backing from Parliament next Friday, then UK could face ejection from the EU within a week itself. À no-deal BREXIT is the worst case situation where even the bank of England expects a 7% economic de-growth. Considering the central role of London in global financial markets, that is a scenario markets would want to avoid.
