Inflation eased in July 2019 but only just about. CPI Inflation fell marginally to 3.15% for the month of July 2019 and this came about after a series of inflation spikes in the last five months. The fall in inflation was actually triggered by food inflation which was marginally lower at 2.33% from 2.37% in the previous month. A major contribution also came from the easing of fuel inflation on lower crude prices. The easing of inflation after 5 months could be supportive of the RBI’s accommodative monetary stance. RBI had cut repo rates by 35 bps in its August monetary policy to boost GDP growth.
The latest asset quality problems for Indian mutual funds may come from the Amravati Infrastructure Project which has run into trouble after the World Bank withdrew funding support. Aditya Birla AMC and Franklin Templeton AMC have an exposure of Rs.1300 crore to the $715 million Amravati Infrastructure Project Bonds. Amravati Bonds 2018 were issued by the Andhra Pradesh government nodal agency, CRDA. Problems surfaced after World Bank withdrew its $300 million financing. The problem gets compounded for MFs as these 10-year bonds have a 5-year moratorium lock-in.
Auto sales numbers may be just about getting weaker by the day and they saw the worst de-growth in the last 19 years. Automobile sales for the month of July 2019 fell by 18.71% on the back of weak demand from the consumer sector. This is the worst fall in auto sales on a YOY basis since December 2019. The auto sector has been reeling under a demand slowdown due to factors like higher fuel costs, higher insurance charges and monetary tightness. Job losses have also been escalating with the auto ancillary sector already reporting more than 2 lakh job losses in the last few months alone.
Trading incentives may soon be back on the BSE for F&O traders as the Bombay Stock Exchange plans to re-introduce liquidity enhancement scheme (LES). The LES gives financial incentives to market makers for creating liquidity in the markets, especially in the equity derivatives segment. This scheme was being offered by the BSE in the past but was later discontinued. BSE is looking to leverage on the recent introduction of inter-operability across clearing corporations to enhance its derivatives volume market share. Interoperability allows seamless use of clearing corporation margins across exchange platforms.
The 183 points correction in the Nifty and the 625 points correction in the Sensex was the worst fall in the last one month and it was largely led by global cues. The sharp correction was driven by escalating fears of a global slowdown and a worsening trade war between the US and China. Globally, there has been big shift out of equities and into bonds, yen assets and gold. Simultaneously, the Indian rupee also weakened to Rs.71.40/$ on global dollar strength. As the global dollar demand pushed up the value of the dollar, the INR saw a sharp correction on Tuesday. The weak FPI flows and the absence of any solution to the FPI tax issue also exacerbated the fall in the rupee. INR has been the worst performing currency among EMs with the Indonesian Rupiah following close behind on global risk-off sentiments.
If you are wonder why global Central Banks prefer negative interest rates, then the reason is to counter the impact of currency wars. Central banks the world over are increasingly exploring negative interest rates to fight the impact of currency wars. According to the IMF, there are currently global bonds worth $13 trillion that are carrying negative yields. Negative yields are keeping their currency subdued and hence the currency war tactics of some EMs like China to weaken the Yuan to push exports is not impacting them. Switzerland, Scandinavia and Japan currently offer negative yields on bonds.
