There could be some hope on the trade war front as Trump hints at easing up on Huawei if China agreed for further trade talks. Huawei is on the US blacklist which prevents US companies from doing business with Huawei. This was done as a pressure tactic to draw China to the negotiating table. However, China has refused to commit on any of these areas to the US. The US had banned Huawei accusing it of indulging in espionage for the Chinese government. Huawei is right now at the centre of the trade war. However, China has refused to take on any talks on structural and security issues raised by the US.
The DHFL crisis has brought the spotlight back on the NBFCs or shadow banks as they are called. Now RBI proposes to enhance monitoring of Shadow Banks. After the recent systematic impact of NBFC defaults, the RBI has begun to enhance monitoring. The RBI has its focus on NBFCs where there exists a solvency issue rather than a mere liquidity issue. The RBI is also expected to get more stringent with the NBFCs on the regulation of their capital adequacy, asset provisioning, default disclosure as well as any serious asset liability mismatch. These are all problems unique to the NBFC sector.
One day of losses inflicted fairly large damage on the Indian stock market value. In fact, six of top-10 companies in the Sensex lost Rs.34,590 crore in market cap during the week. In fact, the Nifty and the Sensex ended with weekly losses after nearly 3 weeks of consistent gains on the indices. The biggest damage during the week came on the day of the monetary policy announcement as the markets were disappointed with a mere 25 bps rate cut. The unfolding NBFC fiasco is also proving to be a major overhang for the markets as did the global cues from the trade war and the geopolitical front.
Iran affirms that it has no immediate plans to exit the OPEC. Iranian Oil Minister, Bijan Zanganeh, has affirmed that despite existing tensions, Iran had no plans to exit the OPEC. Zanganeh also specifically pointed to the specific actions of Saudi Arabia and UAE within the OPEC to create an unnecessary rift. Trump widened Iran sanctions list and now has also included the largest Iranian petrochemicals company. Iran supplies 2.5 million bbl to global market. As of now the global supply chain has been continuing unhindered but there are doubts if this can be sustained if demand for crude picks up.
The next few days will see Nirmala Sitharaman getting into action on the economy front. To begin with, she will chair her first GST Council meeting on June 20th. One of the key items on the GST Council agenda is the turnover limit for e-invoicing which is expected to be pegged at Rs.50 crore. The council is also expected to deliberate on easing the GST process further for small businesses and enhancing the GST collections in the coming months. Meanwhile, the Finance Minister will also meet key stakeholders ahead of Union Budget including economists, bankers, financial institutions and industry chambers to elicit inputs for the Union Budget. These discussions are expected to happen between June 11th and 23rd. Sitharaman has a big challenge ahead of her to revive GDP growth from the Q4 low of 5.8%.
Interestingly, it looks like debt flows are back into India as Foreign portfolio investors (FPIs) infuse Rs.7095 crore in first week of June. After a long time, the FPI investments in debt overtook the FPI investments in equity. In the first week of June, FPI infused Rs.1915 crore into equities and a much larger sum of Rs.5180 crore into debt. The global investors were a little wary of a 50 bps cut and with the RBI cutting repo rates by just 25 bps, it has been enough to enthuse the global bond investors. A lot will also depend on the strength of the rupee and the trajectory of interest rates.
