Rate cut hopes are back in the Indian bond markets. Economists and bond traders are already factoring in a 25 basis points repo rate cut in the April monetary policy which the MPC is expected to announce in its April 04th policy decision. The survey conducted by Business Standard almost showed unanimity among the treasurers and economists about a likely 25 bps rate cut to spur growth and in the background of the dovish outlook given by the US Federal Reserve in March. It may be recollected that the Fed had hinted that there may not be further Fed rate hikes during the current calendar year.
After a weak February, China factory activity grew in March although export growth remains weak. In what could be relatively encouraging news for global markets, the world’s second largest economy has shown an improvement in factory activity. This has been largely attributed to the government adopted stimulus measures. The PMI in March was at 50.5 compared to just 49.2 in February. This shows manufacturing expansion with signs of favourable growth momentum. However, a longer term secular trend may be more meaningful in the case of China where there have been structural issues.
At the end of the day, it looks like pragmatism prevailed over policy as India again decided to put off retaliatory tariffs on 29 US import items. The proposed punitive tariffs on US imports were to kick in from April 01st, but the government has once again decided to put off the decision to a future date. Apparently, the US has been extremely supportive of India’s request to declare Masood Azhar as an international terrorist and has taken on China directly on this subject. The postponement was more a goodwill gesture and looks unlikely to be implemented any time soon.
The volatile oil prices saw weakness once gain on Friday after Brent Crude dropped nearly $1.20/bbl from the peak. After touching a high of $68.78/bbl in intraday trades on Friday, Brent fell down to close at $67.58/$ as higher supply from suppliers came to haunt the markets at higher levels. The price of Crude has been stuck in a small range for some time now, with the sanctions and OPEC cuts providing support to oil prices. At higher levels there has been pressure from shale supply and a global slowdown. For now, the price of Brent appears to be stuck in a range between $64 and $68 per barrel.
Sensex closed the last week of the fiscal year with 508 points gains, near their highest point in 2019. This move was backed by robust FPI inflows and hopes of a positive outcome from the US-China trade talks. During the year, the Indian markets ended with two companies viz. TCS and Reliance Industries with market cap in excess of $100 billion while HDFC Bank is just a whisker away. FPIs withdrew nearly Rs.45,000 crore during fiscal year 2018-19. The negative figure may sound a tad surprising considering that there have been strong inflows in the last couple of months. In fact, the month of March has seen inflows to the tune of nearly Rs.50,000 crore, but that was not sufficient to compensate for outflows to the tune of Rs.95,000 crore in first 11 months. Poll expectations have played a key role.
Delayed NCLT cases may impose a higher cost on banks as they may now face higher provisions in such cases. They are likely to face higher provisions in 4 high profile NCLT cases; Essar Steel, Bhushan Power, Jaypee Infratech and Alok Industries, which are likely to be fully resolved only in fiscal 2020. The completion of cases would have given relief to banks in the form of reversal of provisions. In addition, most banks will also have to increase the provisioning from 70% to 100% if NPAs go into the fourth year. This could impact the profitability of the PSU banks in the coming quarters.
