Just a couple of days ahead of the first phase of polling, the BJP released its manifesto promising to allocate Rs.100 trillion for infrastructure by 2024. This is perhaps the most aggressive commitment to infrastructure that any manifesto has promised in the past. According to NCAER, India needs close to $2 trillion of investments to bring Indian infrastructure to East Asian levels. This volume of investment will also require innovative sources of financing, a robust debt market as well as proper risk sharing in BOT / BOOT projects. The manifesto has also reiterated its commitment to PM-KISAN Yojana.
The World Bank expects India’s GDP to grow at 7.5% in the fiscal year 2019-20. In fact, World Bank upgraded India’s expected GDP growth for fiscal 2019-20 to 7.5%, higher than the 7.2% that India is expected to report for fiscal 2018-19. World Bank expects the inflation rate to remain steady around the 4% mark; well within the RBI comfort zone. The main triggers that World Bank is looking for the growth are higher investment commitments, higher exports, and steady consumption. However, a lot will depend on the color of reforms post the outcome of the general elections.
Rating agencies have now confirmed that the liquidity crunch in the past 6 months is actually hitting credit profile of Indian companies. According to the rating agencies, the liquidity crunch that began after the IL&FS default last year is beginning to impact the borrowing capacity and the borrowing costs of Indian corporates. In fact, the credit profile impact is the worst since 2013 with two issuer downgrade for every one upgrade. According to Bloomberg, lower ratings means that corporate have to pay more to borrow in the market and borrowing costs are already up by over 125 bps.
The US has come out severely criticizing the Draft Ecommerce Policy put out by India. The draft includes fairly stringent measures like regulation of cross border data flows, banning sharing of data of Indian users stored abroad and mandating all ecommerce outfits to only have data storage resident in India. The US Trade Representative has termed these contrary to free trade. When the policy was first announced, the US lobbies tried to stall it by lobbying hard on behalf of companies like Amazon and Wal-Mart that have committed billions of dollars to the Indian ecommerce market.
Crude oil and rupee led to weakness in the Sensex and Nifty. The Sensex gave up more than 400 points from the top of the day to close in the negative. There was also a sense of wariness ahead of the elections, which are scheduled to kick off from April 11th. Over 100 stocks, predominantly in the mid and small cap space touched yearly lows. There were also 60 frontline stocks touching yearly highs. Meanwhile, Brent Crude closed sharply higher at $70.79/bbl on supply constraints as both Brent and WTI touched their highest point in the last five months. The hardening of crude oil prices was largely driven by US sanctions on Iran and Venezuela as well as sustained supply cut commitments from OPEC and Russia. The escalation of fighting in Libya is also threatening to disrupt supply in the oil market.
Meanwhile, Indian mutual funds and portfolio managers await final guidelines before investing in commodity derivatives. The last board meeting of SEBI had given the go-ahead for mutual funds and PMS services to participate in the commodity market. The idea was to give them a new asset class to invest in and also provide them hedging opportunities. From the commodity market perspective, the entry of institutional investors will deepen and broaden the market with institutional best practices. As of now the institutional appetite for commodities is not yet tested.
