After manufacturing the pressure is showing in the service sector too. India’s PMI Services hits a 7-month low on the back of weak manufacturing PMI. The PMI Services for the month of April fell to 51 from 52 in the previous month. At above-50, the PMI services are still showing expansionary tendencies. However, the MOM fall is indicative of loss of momentum; which was also the case with PMI manufacturing. The lower PMI services, according to IHS Markit, had more to with electoral disruption rather than any secular slowdown in growth.
The US is unhappy with India’s new Ecommerce policy, although Modi has not been too willing to entertain US complaints on the subject. US Commerce Secretary, Wilbur Ross, will now raise ecommerce regulation with India. Wilbur Ross is looking to negotiate with the Indian government to find an amicable solution for Amazon and Wal-Mart. The new rules pertaining to ownership, product portfolio, and data handling. Ecommerce companies cannot strike deals with sellers nor have equity in vendors. The US had recently withdrawn preferential trade treatment to India, impacting exports worth $5.6 billion.
There is a common thread in consumption top line and that is a clear rural slowdown. March quarter results show strain on consumption on the rural front. With most FMCG companies showing pressure on the top line front, the crux of the problem according to Bloomberg appears to be rural demand. Rural demand has taken a hit due to a mix of weak growth in farm incomes, liquidity crunch in the distribution channels and postponement of purchase in case of most products in rural and semi-urban areas. That has shown in FMCG results with most FMCG companies facing top-line pressures.
Despite the Trump warning, crude oil did manage to bounce back smartly from lower levels. In early trades, Crude Oil fell sharply but recovered all its losses and a lot more by close on Monday. The trade war threat did not go down well with the oil price as Brent fell to a low of $68.79/bbl before bouncing back to close at $71.36/bbl levels. In fact, Brent crude more than made up for early losses and closed 72 bps higher. While the trade war would sour sentiments on the demand front, supply constraints from Iran, Venezuela, and Libya complemented with OPEC output cuts is expected to support oil prices.
The likely trade war took its toll on the indices as the Nifty corrected over 100 points and Sensex fell 370 points. The indices had little hope of a recovery after the US President announced punitive tariffs of 25% on Chinese imports to the tune of $325 billion. Metals, consumer stocks, and rate sensitives were the worst hit with the volatility index up sharply at 26.50. On the subject of trade wars, marquee investor Warren Buffett has warned that trade wars could be bad for global markets. Buffett’s statement came as a reaction to Trump’s decision to exacerbate the trade war. Buffett ruled out a full-fledged trade war but admitted that even a partial trade war would be bad for most of Berkshire holdings (it has a major holding in Apple). Buffett also predicted that the US and China would remain superpowers for 100 years.
India’s dalliance with democracy continues as we completed the 5th round of voting with over 62% voting percentage. The fifth round voted for 51 Lok Sabha seats and now the fate of nearly 75% of the Lok Sabha seats is already in the ballot boxes. The fifth round was significant as it included some high profile contests like in Amethi, Rae Bareli, Lucknow, and Hazaribagh. This leaves 2 more rounds to go for the completion of polling with the final results to be announced on 23rd of May. The first exit polls will be available to the viewers only after the last round of polling is done on 19th May.
