After China, India seems to be the next trade target for Donald Trump. In fact, Trump has issued a warning that Indian tariffs on American imports were unacceptable. A month after the Commerce Ministry imposed punitive tariffs on 28 items of US imports including cashew and kernels, Trump has objected to the move and called it unacceptable. India had held back on punitive tariffs but finally imposed it in June 2019 after the US withdrew GSP for India and also refused to permit India to import crude oil from Iran. Trump’s has not spoken about retaliation but that could follow.
Of all the risks to the Indian rupee in the current fiscal, the mountain of NRI deposits that need to be redeemed this year could be the biggest. According to a report in the Economic Times, the Indian rupee could be staring at nearly $94 billion worth of NRI deposits that will mature in the current fiscal, accounting for 70% of total NRI deposits. While a good chunk of deposits do get rolled over, shorter term deposits by NRIs are susceptible to narrowing interest spreads and that has been happening for some time now. NRIs have had a long standing preference for Indian NRI deposits.
Even as the government goes out of the way to monetize Air India, the last five year performance is hardly flattering. In fact, Air India continued to make losses despite heavy government infusion. According to the government budgetary statistics, a total sum of Rs.24,000 crore was infused into Air India by the first NDA government between 2014 and 2019. However, despite this infusion, Air India has reported cumulative losses of Rs.20,000 crore during this period. The government is keen to sell off Air India this year and buyers may show interest in Air India, with Jet Airways out of the business.
The Indian leader in agri-futures has one more first to its credit. NCDEX launched futures contracts on premium un-milled rice. Indian commodity exchange, NCDEX, has launched futures contracts on premium quality paddy to help exporters of premium rice to hedge their price risk in the exchange traded commodity markets. The contract will have a minimum lot size of 10 tonnes. India is the world’s largest exporter of rice with Africa being the biggest market for non-basmati rice and Middle East being the leading market for premium Basmati rice. India also exports rice to other parts of the world.
The FPI tax issue appears to have spooked the markets as the BSE and NSE saw $30 billion of market cap wiped out post the Union Budget. With the government refusing to issue any clarification on the higher incidence of tax on FPIs due to the enhanced surcharge, the Sensex gave up nearly 1200 points in 2 days. FPIs structured as trusts are taxed as non-corporates in India; which means that the higher incidence of enhanced surcharge on higher income groups would impact them. Meanwhile, Citi Research is bullish on banks for the June quarter but expects it to be overshadowed by autos, metals and energy. Auto companies saw pressure on top line and bottom line since one year while metals have been hit by weak Chinese demand. PSU banks are certainly benefiting from bottoming NPA cycle and better NIMs.
Crude oil edges up but remains range bound between $64 and $65/bbl. After showing early signs of volatility, the Brent Crude prices oscillated in a narrow range of $64 and $65/bbl. At higher levels, the oil prices faced resistance as the trade war between the US and China showed little signs of cooling. However, at lower levels, the OPEC supply cuts and the sanctions on Iran have offered support to oil prices. Oil continues to be range bound. The big boost for oil price could be if the trade war comes to a decisive end and the growth forecasts for GDP are upgraded across the board.
