Oil prices came under severe attack on Thursday. Brent Crude cracked by 5.16% to $67.33/bbl on higher US stockpiles and trade worries. In fact, the US WTI was at its lowest level since March. Crude has lost more than 10% from its recent peak of $75.6/bbl. While rising US stockpiles played a role, the one factor that really drove oil prices down was the concerns over a worsening trade war between the US and China. With neither country relenting, it runs the risk of triggering a slowdown in growth. The perceived demand slowdown continues to be the biggest risk for the oil prices going ahead.
Even as Indian markets danced to a different tune altogether, it was trade worries and global growth concerns that pulled Wall Street lower. There was an all round selling in US stocks including technology, energy and industrial stocks as the trade war showed signs of worsening. Xi Jinping has already predicted the trade war to last all the way to 2035 and IMF has raised concerns over growth. In the meanwhile, the very volatile situation in UK over the BREXIT deal vote is also keeping the markets on tenterhooks. The geopolitical crisis in the Middle East is also dampening sentiments.
The original super start AMC, Reliance Capital, has decided to exit the mutual funds business altogether. Once the largest Indian mutual fund in terms of assets under management (AUM); Reliance Capital has decided to exit the mutual funds business fully. Currently, Reliance Capital and Nippon Life AMC have a 42% stake each in the AMC. Reliance Capital will be selling its entire stake to Nippon, making the latter the majority owner. RCAP will receive Rs.6,000 crore for its stake in the AMC. The huge debt means the group needs to find ways and means to monetize its assets and repay the loans to creditors.
The news continues to be discouraging for the aviation sector. As per ICRA, domestic air traffic for the month of April 2019 fell by (-4.2%). The sharp fall in the air traffic was largely attributed to the shutdown of Jet Airways. Domestic passenger traffic had been in a constant upswing between July 2013 to March 2019 and that trend stands reversed. Apart from Go Air, all the other airlines in India also saw a sharp fall in passenger load factor (PLF), the airline equivalent of capacity utilization. A combination of high ATF costs and weak pricing power due to competition has squeezed aviation companies in India.
The vicissitudes of the stock markets continued on the day of counting. After the election verdict Sensex lost over 1000 points from its peak. The Sensex crossed the psychological mark of 40,000 in early trades on the Modi re-election euphoria. However, as the news had sunk in, the markets started reacting to other global risks like the trade war and a no-deal BREXIT. The good news was that the VIX fell by nearly 30% below the 20 levels. But there is good news from a longer term standpoint. The five years of Modi rule created stock market wealth of $1 trillion, according to ET. The market cap of the BSE went up from Rs.75 trillion in 2014 to Rs.150 trillion in 2019. In absolute wealth terms, this will go down as the one government that oversaw the maximum amount of wealth creation in a five year term.
With a stable government in place, the industry demands cannot be far behind. Indian industry has already put forth its charter of demands to the NDA 2.0 government, which include tax changes, thrust to reforms and a big push to FDI flows. Industry leaders also focused on the need to pull millions out of poverty so as to make the growth more equitable. Industry also urged the government to focus on job creation and reviving agriculture. There are also other challenges like smoothening the GST process flow and taking the Insolvency and Bankruptcy Code to its logical conclusion and making banks competitive.
