Global investors are taking a cautious view of India and also on the rupee. Strategists at FPIs don’t expect any major rupee appreciation according to a Reuters poll. According to the poll conducted by Reuters among currency and macro strategists at FPIs, the rupee was unlikely to show strength during the current fiscal year. According to Reuters, most strategists polled were of the view that the risk-off approach would run through the year and that would mean FPI flows into India would be limited. That would also imply that rupee gains for FPIs will be capped reducing its attractiveness.
Even as auto companies are cutting production and laying-off people, it has put the focus on the key auto lenders among banks. In the last few quarters, there have been huge layoffs across the auto sector from auto manufacturers to dealers. Banks have also gone slow on funding dealers against their inventory. Now the focus shifts to banks that have a relatively large auto loan portfolio both at the retail and the wholesale level. Growth in auto loans by banks has already fallen below 5% and now banks are worried that the loans given to auto companies and to auto dealers could turn bad.
There is a positive side to the RBI transfer of funds to the government as it is likely to boost growth without spiking fiscal deficit or interest rates. While the Rs.1,76,000 crore transfer by the RBI to the government may have become a topic for debate, an ET report underlines that it would assist GDP growth in two ways. Firstly, the lower fiscal deficit will keep sovereign ratings buoyant. Secondly, the fiscal deficit will not pressure interest rates and the RBI will have the leeway to cut repo rates to boost economic growth going ahead. That is what the industry has been demanding anyways.
In the midst of a volatile trading day, the Sensex gave up most of the intraday bounce and closed in the negative zone on Thursday. While the Nifty closed flat on Thursday, the Sensex closed 80 points lower. While Autos and metals did show smart gains, banks and financials remained under pressure. The pressure on the financials came from the RBI proposal to shift retail and SME loans to external benchmark pricing from October, which is expected to strain margins of the banks. Autos bounced on GST rate cut hopes while metal stocks rallied on the back of China economy picking up.
In the midst of the trade war chaos, China has wisely chosen to go easy on the Hong Kong protests. The Hong Kong protests against the proposed Extradition Bill had its impact on China agreeing to withdraw the Bill. The Hong Kong leader Carrie Lam underlined that China had agreed to respect the status quo and will not insist on the passage of the bill. Hong Kong is a Special Administrative Region (SAR) within China and has a substantial autonomy in functioning. Meanwhile, the trade war also impacted the US labor markets. In what could be the first credible sign that the trade war was hurting jobs in the US, the weekly jobless claims went up marginally in the US. The jobless claims represent the number of people filing applications for unemployment and are an important indicator of the labor market confidence.
The level of $60/bbl continued to be the decisive level for Brent crude which touched an interim high of $61/bbl on Thursday. Brent Crude has rallied nearly $4 in the last 3 trading sessions and the trend got accentuated on Thursday after the US announced that trade-related talks would commence again in October. The positive data coming from China also gave a boost to crude oil prices. The only worry could be that inventory has seen a pile-up in the US and that could be an overhang for crude oil prices. Oil experts are of the view that inventory pile up in the US could depress global oil prices.
