Another warning of global growth has come as the OECD has lowered global growth rate once again and warns of worse times ahead. Even as the US-China trade war continued to hold center stage, the Organization for Economic Cooperation and Development (OECD) has projected slowing of GDP growth this year and further falls in the coming years. The US and China jointly account for nearly $35 trillion of global GDP and almost half of the global trade. This is likely to have a spiraling effect on world growth, and the effects are already visible on the trade performance of most economies.
Immediately after Trump withdrew the GSP concession for Indian exports, India is considering moving the WTO over US action to withdraw trade concessions. The US decision to withdraw Preferential Trade Treatment (PTT) for Indian exports to the tune of $5.7 billion has been implemented on the grounds that India had not done enough to open up its economy for US companies or on the IP protection front. A total of 2000 export items could get affected by this decision. However, experts believe that WTO may have a role only if the US specifically differentiates against India, not otherwise.
The rich and famous are preferring equities as an asset class. India’s ultra-wealthy preferred equities and bonds over real estate as per a report brought out by Knight Frank. According to the Knight Frank report, the super wealthy allocated 30% to equities and 28% to bonds but only 23% to real estate in the calendar year 2018. These super-rich held only about 9% of these assets in liquid form. Knight Frank has expressed the view that in 2019, Private Equity investments may emerge as the biggest draw for the ultra-rich Indians and could see the allocations of super wealthy as high as 37%.
Already struggling under the onslaught of the IL&FS and DHFL fiasco, liquid funds got a double whammy from the recent SEBI Board meeting. According to mutual fund experts, two factors may actually impact returns on liquid funds, where corporates and large institutions park their short treasury funds. The cut off for MTM provisioning has been reduced from 60 days to 30 days and liquid funds may be forced to move down the maturity curve. The narrower reference price threshold could combine to give a 15 bps impact on the liquid fund returns, which is substantial for a low return product.
Good times may be back for the markets ahead of elections, or so it looks like. Nifty settled above the 11,000 marks after a long break even as the Sensex rallied nearly 800 points in 3 trading sessions. Heavyweights like banking, financials, and autos rallied on Wednesday despite the US threat to withdraw special trade status to India and the likely MSCI downgrade of Indian weight. The markets were ably aided by the Indian rupee which gained another 30 bps to close at Rs.70.279/$ on Wednesday. This came on top of 60 bps gains on Tuesday. The rally in the rupee was driven by a fall in the price of crude as US shale supplies and higher inventory levels put a cap on crude oil prices. The consistent FII buying into Indian equities since the last 10 trading sessions has also had a salutary impact on the Indian rupee.
The news flows for the beleaguered banks may just be getting worse. Indian banks could be staring at a potential $25 billion in additional bad loans. With the new RBI rules requiring banks to classify loans as NPAs in the event of delay of even 1 day, the power sector is expected to add another $25 billion to the bad debt pile. Also, under the new rules, the company will have to be referred to the NCLT for bankruptcy proceedings automatically if the loan remains overdue for over 180 days. India has higher stressed assets than Italy also and is the only large economy with Gross NPAs greater than 10%.
