Finally, the core sector showed some green shoots by turning in stronger growth in February at 2.1% versus 1.5% in January. The core sector is an assortment of 8 core infrastructure segments. Within the 8 core sectors; crude oil contracted by 6.16% while natural gas grew by 3.7%. Core sector had peaked out at 7.18% in July 2018 and has been downhill since. While cement grew at 8.04%, coal production was up by 7.26%. Core sector is critical as it accounts for over 40% of IIP. Core sector represents the core infrastructure sectors and hence have a strong downstream multiplier effect on growth.
In the last month of the current fiscal, the government recorded the highest GST collections at Rs.1.06 trillion. Interestingly, this is only fourth time since July 2018 that the collections have crossed the Rs.1 trillion marks and could be the result of an aggressive push by the department in the last few days. This has taken the average collections for the full year at Rs.98,114 per month, marginally higher than the previous year. Intelligent tax leakage analysis and plugging has also helped substantially and the Central Board of Indirect Taxes had focused extensively on mining data and following up with tax payers.
After the resounding success of the first round of dollar swaps, the RBI has announced the second round of $5 billion on April 23rd. This will infuse another Rs.35,000 crore into the Indian markets. At the same time, the swap auction will also absorb dollars and prevent the rupee from getting too strong. In fact, banks have been borrowing overseas dollars to participate in the swap auction. This runs the risk of banks being flooded with dollars since the last time around they only got 1/3rd allotment. It should help the RBI shore up its reserves position and also bring in greater stability to the rupee.
Nearly a year about a spate of private banks were caught with huge divergences in NPAs, the RBI has tweaked the NPA divergence norms to make it more transparent and meaningful. As per the new RBI norms, banks will have to disclose NPA divergences if the financial provisioning exceeds 10% of profits before provisioning and contingencies. This will force the profitable banks to be more transparent and will not put unnecessary pressure on struggling banks. The norms also require making a disclosure if the divergence leads to a spurt in NPAS of more than 15%. Divergences arise from not recognizing NPAs.
Finally, the Sensex breached the 39,000 mark but failed to hold on to gains. There was a mix of short covering and portfolio reallocation by investors on the first day of the new fiscal year. There were also hopes in the market that the RBI could cut rates in its April policy. US markets react positively to strong economic data from China. There was also positive traction from the US markets after China reported PMI Manufacturing in excess of 50, the expansion was taken as a good sign by the US markets. Even as US treasury yields tapered, the US equity markets showed some smart traction. Even technically, the S&P is showing signs of momentum in the short to medium run according to technical analysts and that is likely to hold the markets in good stead. Gold has also been weakening sharply in last few days. Finally, the heads have started rolling at IL&FS with the SFIO arresting former IL&FS vice-chairman, Hari Shankaran for fraudulent conduct. This marks the first high profile arrest made in the IL&FS case. The company has been defaulting on loans for close to a year with hardly any cash flows left. The Serious Frauds Investigation Office (SFIO) had been investigating of the former directors of the company in perpetrating an outright fraud on the company as well as laundering money out of India. In fact, the SFIO has already issued show cause notices to a number of former managers and directors of IL&FS.
