Erstwhile FPI havens may have a tough time going ahead in terms of routing money into India. SEBI’s new FPI rules may create fresh challenges for the Mauritius route. Under the modified categorization rules, SEBI will grant FPI Category I status only to FPIs that originate from countries that are signatories to the FATF. Some of the major tax havens like Mauritius, Cayman Islands and Cyprus are not members of the FATF and this could lead to a lot of FPIs exiting these tax havens and shifting to FATF nations like Singapore, Ireland and Netherlands. This is despite the assurance given to Mauritius by India.
Not surprisingly, the mutual fund collections slowed in the month of September as Indian mutual funds managed just about tepid growth on a MOM basis. Overall growth in mutual fund collections was muted in September with marginal accretion in AUM. The larger AMCs that witnessed increase in AUM on a MOM basis included HDFC Mutual Fund and SBI Fund. Reliance MF, which recently got renamed to Nippon Life Asset Management, saw outflows of Rs.20,000 crore due to Reliance Capital exit. Indiabulls MF saw 50% fall in AUM in September largely due to problems in the parent company.
Oil has shown signs of bouncing but the undertone continues to be weak. Brent crude held above $58/bbl ahead of weekend trade talks between US and China and the optimism surrounding it. Despite Aramco returning to full production and signs of slowing growth across the US, EU and Japan, oil prices edged up marginally on hopes that the trade talks over the weekend may be productive. The Brent prices have already corrected 20% since it touched a peak of $71.90/bbl couple of weeks back. OMCs in India cut petrol and diesel prices for the 6th day in succession; a welcome move after a string of hikes.
If one were to look at the underlying theme of the MSCI indices, then Indian Banks have emerged as the major reason for Value Stocks underperformance. Indian banks, especially the PSU banks, have emerged as the main reason for the underperformance in the MSCI EM Value Index. Many PSU banks have attractive dividend yields but have been rank underperformers in the market due to their weak loan book growth and the high incidence of NPAs. This has driven the ratio of MSCI EM Value to Growth ratio to a multi-year low and shows a clear preference of investors for value stocks at this point of time.
Even as the Indian markets return from a break in trading, Wall Street saw a bounce after a weak opening. The bounce was driven by the comments of White House economic advisor, Larry Kudlow. In fact, Kudlow has expressed confidence that the US-China trade talks over the weekend could be actually productive. Analysts feel that this optimism could keep the markets in a positive frame. Meanwhile, Trump played his surprise blacklist card ahead of China trade talks. Tensions between the US and China are likely to escalate ahead of the trade talks after the US expanded its blacklist. In the latest move, the US has blacklisted some of the top Chinese artificial intelligence firms (AI). The US has also registered a protest against China’s treatment of Uighur minorities and it could impact the talks this week.
It was hardly surprising that the United Kingdom showing signs of economic stress due to trade war and BREXIT. According to a report in Reuters, UK economy has been showing signs of weakness in some of the key high frequency indicators. While business confidence has slipped and labour market shows signs of slowing, a poll of economists by Reuters has pegged the probability of recession at closer to 35%. The recently announced PMI numbers betrayed a sense of weakening of the economy. The Bank of England has already warned that the no-deal BREXIT could contract UK GDP by nearly 6% in this year.
