The first signs of economic stress may have come from the Indian auto parts industry as the manufacturing association of Indian auto parts warned of 1 million job cuts. Manufacturers of auto parts have warned that if the auto slowdown continued then the segment may see layoffs to the tune of 20% of the 5 million people employed by the auto parts sector. Auto demand has been sharply down in last one year and dealers are aggressively shutting shop. The auto demand weakness is a function of weak consumer spending where postponement of spending has become the norm today.
Zee group’s plans to exit the debt crisis by September may have run into rough weather. The much touted Dish TV deal with Bharti Airtel may be in valuation trouble according to an ET Report. A news report in the Economic Times highlighted that the deal by Zee to sell its DTH business to Bharti Airtel may have run into valuation hurdle as Bharti was unwilling to pay top dollar in a dull market. The Zee group has, reportedly, pledged a major chunk of promoter shares and the deal was one of the key stepping stones for the group to get out of the debt situation.
In what could elicit mixed reactions from economists and bond markets, the Government may reassess feasibility of Sovereign Bond issue as per a Reuters Report. According to the report in Reuters, the government may be doing a rethink over the issue of sovereign bonds. The Union Budget had proposed a $10 billion sovereign bond issue to reduce the pressure on domestic bond markets. According to Reuters, the suggestion to reassess may have come from the Prime Minister’s Office (PMO) due to the significant currency risks on the government due to issuing sovereign bonds if dollar strengthens.
The US markets came under a spell of correction and Wall Street weakened on the back of tepid results and ECB dovishness. After touching record highs, the US markets came under some pressure on Thursday after tepid quarterly results from Ford Motors and a host of other companies. At the same time, the statements of the ECB Chief Mario Draghi were also interpreted as mildly dovish after he hinted at more rate cuts and QE by the ECB in future. Earlier, the Nifty had been negative for the 6th straight session and the Sensex has lost over 2200 points from its peak levels on Budget Day.
Crude and rupee could hold the key to macros for India. Brent crude prices were up by nearly 100 bps in early trades on Thursday on worries over the Iran stand-off in the Persian Gulf. However, the oil price did peter out in the second half as global growth concerns returned to cap oil prices. US companies like Ford had shown stress on earnings and that capped oil prices. Brent closed marginally lower at $63.31/bbl on Thursday. Meanwhile, the Indian rupee decisively weakened beyond the Rs.69/$ mark on Thursday. The rupee had been capped close to the Rs.68/$ mark last month. The weakness in the rupee has been largely driven by the consistent FII selling in equities ($1.7 billion) since the Union Budget. Also, the FPI tax issue and the sovereign bond issue remain an overhang on the rupee.
Boris Johnson, who has taken over from Theresa May as the prime minister of Britain, offered parliament 3 options for BREXIT. First, would be a new deal which would be a half way compromise with British interests in mind. The second would be a no-deal BREXIT which could be chaotic for growth in the short to medium term. The last would be fresh elections in the UK, which may not be feasible. Britain may have to choose between an aggressive deal with the EU and absolute chaos. A lot would depend on how Johnson is able to leverage his relations with the US to push papers in the EU.
