In the midst of all the GDP disappointments, there has been some positive news on the Index of Industrial Production. The IIP growth for April 2019 comes in relatively healthier at 3.4%, which was a relief after the negative IIP growth seen in the month of March 2019. The IIP growth for the full fiscal year 2018-19 stood at 3.6%. There was positive growth across all the 3 segments of IIP viz. Mining, Manufacturing and Electricity. A total of 14 out of the 23 manufacturing industries covered in IIP showed positive growth in the month of April 2019 with consumer spending still weak.
After a long hiatus, the retail inflation crossed the 3% mark. In fact, CPI inflation for May 2019 touched a 7-month high of 3.05%. The MOSPI not only reported inflation of 3.05% for May 2019 but also revised the April inflation upwards from 2.92% to 2.99%. The sharp rise in inflation can be explained by a spurt in food inflation from 1.10% to 1.83% in May. The concerns of a delayed monsoon along with higher MSP assured to farmers kept food prices high. CPI inflation is a key input for RBI monetary policy and normally the RBI is loath to cutting repo rates when the inflation is headed higher.
The volatility in oil prices continued on Wednesday as Brent Crude corrected over 200 bps to $61/bbl on Wednesday. The sharp fall in Brent Crude prices again saw oil taking support around the $60/bbl mark. A combination of trade war fears, global slowdown concerns and higher inventories reported by the US have led prices lower. However, the immediate trigger for the fall in prices came due to OPEC and Russia delaying their supply regulation deal, which has worked effectively till date. However, both Russia and Saudi Arabia are clear that oil prices could dip further in the absence of the supply deal.
The regulator had allowed side-pocketing of mutual fund schemes where assets were under stress but Mutual Fund houses have not been too keen on using side-pocketing strategy. SEBI had permitted side-pocketing of distressed assets in a mutual fund portfolio wherein the toxic assets could be side-pocketed and valued separately. However, as of now side-pocketing has not found favour with fund houses and they prefer to deal with the problem of stressed investments either by curbing inflows into the fund or by restricting outflows through exit loads. Side Pocketing is a lot more transparent.
The government appointed Bimal Jalan Panel defers report submission on RBI surplus sharing. For the third time the Bimal Jalan Panel put off its report due to sharp internal differences among the panel members. The Jalan Panel was appointed by the government after there were disputes over the extent of RBI surplus to be distributed to the government. The panel was supposed to give it recommendations, which would form the basis for RBI surplus sharing in the future. The genesis of the problem was when the then Finance Minister, Arun Jaitley, started coaxing the RBI to pay a higher dividend and also transfer a bigger share of the RBI surplus to the government coffers. Dr. Urjit Patel had objected to the idea since it would have reduced the reserves of the RBI.
The world’s most profitable company, Saudi Aramco, reported full year net profit of $111 billion for 2018. In fact, Saudi Aramco net profits for 2018 grew sharply from $75 billion to $111 billion, assisted by buoyant average crude prices during the year. Saudi Arabia needs an average price of over $70/bbl to be profitable on a consistent basis. Saudi Aramco had put off its IPO plans last year but may hit the market again next year with an expected market valuation of nearly $2 trillion. Considering its net profits, the valuation of $2 trillion looks reasonable considering the benchmark valuation for oil companies.
