Global markets crashed after Donald Trump threatened more tariffs to the tune of 10% on goods worth $300 billion imported from China. Trump blamed the slow progress made by the Chinese government on entering into a trade deal to resolve the issue. Meanwhile, China has also threatened a counterattack on multiple economic fronts. The immediate impact was felt on the price of crude oil which cracked by 7% to close the day at $60.50/bbl on fears of an economic slowdown. Gold shot up by 2% on the back of economic uncertainty. Most of Asia is expected to react negatively to this announcement.
The woes of the global and domestic market were not lost on the Indian indices. The Sensex and Nifty ended at 5-month low on cautious Fed comments. Nifty closed below the psychological 11,000 levels even as the Sensex managed to just hold above the 37,000 marks. The weakness in the indices was largely driven by the Fed lowering rates by just 25 bps instead of 50 bps. The Fed also cautioned that this should not be interpreted as an indicator of further rate cuts. Global markets also cracked after Trump announced more tariffs on China. The weak trend is likely to continue on Friday.
Concerns over growth are getting more real by the day as CRISIL lowered FY20 GDP growth estimate to 6.9% on slowdown concerns. This is lower than the estimates put out by the RBI and the Finance Ministry. According to CRISIL, the slowdown is likely to be pronounced in the first half of the current fiscal due to a combination of weak monsoon and global GDP pressures. However, the second half is expected to be better. This lower growth is based on the assumption that the global and domestic economic scenario does not deteriorate substantially from the current levels.
IT major, Cognizant, reported 11.6% growth in net profits for the June quarter. Cognizant is a major unlisted competitor to Indian IT companies. The improved performance was on the back of better revenue and profit traction. Cognizant increased its lower range of revenue guidance from 3.6% to 3.9% for the full year ending December 2019. The upper range of revenue growth guidance almost remained static. Markets were also excited about Cognizant plans to recruit nearly 500 IT professionals, which is being seen as confidence in the outlook for Indian IT and also for the traction on IT spending globally.
According to a Reuters report, the steep fall in auto sales in India and China have underlined the fact that the markets may be more brittle than anticipated. China witnessed the 12th straight month of sales decline in autos; hit by the trade war and tight emission norms. Indian markets are seeing a slump in auto sales due to weak consumer demand and a squeeze in the NBFC sector. In a typical flight to safety, global gold demand was up by 8% in Apr-Jun quarter as per World Gold Council. According to WGC, the sharp rise in world gold demand was largely driven by central bank demand which was up by 67% at 225 tonnes. Demand for jewellery has been largely static but demand for gold as an investment has been rising in the form of more demand coming from global gold ETFs.
Mutual Funds may not be out of the woods; cautions Anil Singhvi of ICAN. Anil Singhvi has cautioned that despite the Zee deal with Oppenheimer at Rs.400/ share, it could be a case of too little too late for most mutual funds that had structured promoter funding for the Essel Group. According to a report in Bloomberg, fund managers expected higher valuations. The standstill agreement comes to an end on September 30th and Rs.11,000 crore needs to be repaid. While a third of the MF loans are expected to be repaid with the money, the Zee group may be running out of time on the balance amount.
