On a day of interesting economic events, all eyes were on the Karnataka assembly outcome. While the BJP government in Karnataka has 15 days time to prove its majority, there is a Supreme Court hearing on Friday morning which will finally determine whether the BJP government in the state has a smooth ride or not. Markets continued to show signs of uncertainty as the Nifty settled below the 10,700 mark. Meanwhile, the Congress and JD(S) have already demanding similar treatment for them in states like Manipur, Goa and Bihar where they are the single largest party.
Even as Brent Crude crossed the psychological $80/bbl mark, the Oil Ministry and Finance Ministry officials are slated to meet later this month to discuss on a possible excise duty cut. The level of $80.18 was last seen in late 2014 after which the oil prices have been on a consistent downtrend. Brent touched a low of $29/bbl in early 2016 but has since bounced back almost three-fold on the back of supply restrictions and expectations of higher oil demand. For India, the big worry could be higher inflation, higher CPI inflation and pressure on the RBI to hike repo rates.
According to Fitch, the big worry for emerging markets could be its pile of $19 trillion in debt. With the US like to hike rates further and the yields in the US threatening to touch 4%, there could be a genuine risk-off trade away from EMs and towards developed markets. Over the last 10 years, the total borrowings of EMs have increased four-fold from $5 trillion to $19 trillion. The US Fed is likely to raise rates by nearly 150 basis points by the end of 2019 and that will mean that EMs will find it increasingly difficult to refinance their dollar borrowings at competitive rates of interest.
The Trump government may be finally getting what it wanted as China has offered the US a $200 billion potential cut in its trade deficit. China plans to do this by increasing its imports of American products. A couple of months back, the US had threatened sanctions on China and China had threatened with retaliation. With an annual trade surplus of $375 billion that China enjoyed with the US, they just had too much at stake to squander it away in a game of counter sanctions. The US has also demanded that China scrap subsidies for specific industries on which China has not made any commitment.
The race for the acquisition of Essar Steel is surely hotting up with Numetal and Arcelor Mittal making a serious bid for the Essar. Numetal has offered Rs.37,000 crore for Essar Steel and has called for a second round of bidding. On the other hand, Arcelor Mittal which had put its bid in the first round in February has protested against the demand. It may be recollected that Numetal’s biding had been declared void as a scion of the Ruia family was on the board of Numetal. Arcelor Mittal, on the other hand, had a technical issue due to its stake in bankrupt Uttam Galva. To this effect, Arcelor Mittal has transferred Rs.7000 crore to an escrow account in SBI to take care of the outstanding debt of Uttam Galva. Arcelor only has a minority interest in Uttam Steel, but still needs to repay to be eligible.
According to a report by J P Morgan, India’s share in the MSCI-EM index could come down from 8.32% to 8.18% when the rebalancing of the MSCI-EM index is completed in the middle of May. This is likely to lead to passive outflows to the tune of $450 million from Indian equities as global index funds and ETFs rebalance their portfolio in tune with the lower allocation. This lower allocation for India became necessary after China A-Shares were permitted to be included in the MSCI-EM index. Global fund managers use the MSCI-EM index as their passive benchmark for EM allocations.
