ICRA has painted a very sombre picture of the Indian economy

Airline stocks in the US and across the world took a big hit on Monday after it became evident that
Warren Buffett had entirely exited his stake in US airline companies. In fact, Berkshire Hathaway had a
10% stake in four large US airlines; Delta, UAL, American Airlines and Southwest Airlines. In the March
quarter, they had exited all their positions in airline stocks due to the structural changes that they
foresaw in the airline industry post the COVID-19 shutdown. Being one of the world’s most iconic
investors, Buffett’s views have an oversized impact on investors across the world.
US based private equity fund, Silver Lakes, took a 1.15% stake in Jio Platforms for a consideration of
Rs.5656 crore. This comes a little over a week after Facebook took a 9.99% stake in Jio Platforms for
nearly Rs.43,500 crore. Jio Platforms represents the digital properties of the Reliance group and this is
part of the group’s asset monetization plan to become zero net debt by March 2021. The deal values Jio
Platforms at $65 billion and represents a 12% premium to the price paid by Facebook. With this deal,
digital platforms account for nearly 55% of the total valuation of the Reliance group overall.
In the June quarter, the overall oil output is expected to drop by over 12% as oil companies across the
world cut down drastically on output in the light of weak demand. If you add up the output cuts by
Russia, the Baltic’s, OPEC and the US Shale, the total output cut could be as high as 23%. This should
hopefully be able to match the contraction in demand and prevent price destruction in a big way.
Demand for oil has fallen sharply across some of the biggest oil consumers like China, Japan, EU and
India. Brent had dipped below $20/bbl but had bounced back on the back of deep supply cut hopes.
ICRA has painted a very sombre picture of the Indian economy. It expects GDP to contract by 20% in the
June quarter and an overall 2% contraction in output for the fiscal year 2021. That could have deeply
negative implications for tax collections and domestic demand. This is substantially lower than their
earlier forecast of GDP growth. ICRA feels that graded relaxation may not really help as the social
distancing would make doing business quite difficult in India. This could also have a collateral effect on
output. RBI has cut policy rates by 75 bps but clearly that is not having much of an impact.
It was almost a repeat of Black Monday on 04 May as the Sensex tanked 2002 points in a single day and
resulted in wealth destruction to the tune of Rs.580,000 crore. There were a number of triggers for the
fall. Firstly, the SGX Nifty had fallen sharply on Friday after the US had again threatened to resume the
trade war. Secondly, across the world, the PMI Manufacturing data has been extremely disappointing.
For example, in India it fell to an all time low of 27 indicating extreme contraction in manufacturing
output. In addition, comments from Warren Buffett at the Berkshire AGM on overall market valuations
and on airline stocks also put pressure on the global markets. Markets were also unhappy that the
lockdown was being extended till 17 May, meaning another half month of output may be lost.
It now looks like the 3-month EMI moratorium offered by banks on loans may not be extended by
another 3 months. Instead of May 31, the moratorium may now expire only on August 31. While the RBI
or the government is yet to confirm on this issue, the IBA (Indian Banks Association) has been
demanding that the government announce this measure soon. Since the lockdown has now been
extended till May 17, it is felt that an extended moratorium will benefit the borrowers and the bankers.
In March, the RBI had announced a deferral of EMI payments, although interest would still accrue.