Nifty lost close to 50 basis points on Thursday on global cues. The pressure on Thursday came from the financials which looked the most vulnerable after the indications of an escalating US trade war with Turkey and also with China. The rupee tumbled to an all-time low of Rs.70.16/$ on trade deficit woes. With the trade deficit for July coming in sharply higher at $18 billion, the rupee decisively cracked the 70 mark and settled beyond that level for the first time in its history. CAD could also put pressure on the INR as government officials are expecting a $26 billion rise in oil bill due to rupee weakness.
The minutes of the MPC committee meeting leading to the Monetary Policy on August 01st was made public on 16th August. The MPC Committee minutes has highlighted the inflation risk in a big way. According to the minutes of the MPC released on 16th August, the key reason for the second rate hike in 2 months was the sharp inflation risk that was visible. The inflation was already consistently holding over the 4% benchmark rate as stipulated by the RBI last fiscal year. The committee has specifically focused on the expected inflation which is estimated to go up sharply and stay above 4%.
In a retail online market that is fast heating up, Reliance may give the biggest challenge to Amazon in the retail space. This is contrary to the popular belief that the combined entity of Wal-Mart and Flipkart could give Amazon a run for its money. Reliance will be able to warehouse products in India while Amazon and Wal-Mart will not be allowed to hold e-commerce inventory within India. That means, under the New E-commerce Policy, Reliance could challenge Amazon due to its better and tighter control over the logistics value chain. One has to wait for the contours of the new E-commerce policy.
Now inflation is leading to a downward revision of India’s GDP estimates. India Ratings has marginally revised India’s GDP growth for FY-19 to 7.2%. This is marginally lower than the rating agency’s original estimate of 7.4% GDP growth for 2019 fiscal. The major reason offered by India Ratings for this growth downgrade is the expected rise in MSP and its impact on inflation. India Ratings is also cautious on global macro cues. The agency also estimates that the combination of weak currency, a persistent trade war, and an oil price war could put further pressure on growth.
In a recent study by Bloomberg, India’s quarterly earnings report for the first quarter could have been much better without the impact of SBI. Nifty earnings for Q1 got negatively impacted by the SBI effect For the first quarter, Nifty companies reported an EPS of Rs.114, but it was above Rs.120 if the impact of SBI was removed. That still values the Nifty index at over 24X trailing earnings. Overall most manufacturing companies reported revenue growth in line with expectations but profit growth showed smart traction on the back of better cost management during the quarter. Metals, oil companies, and private banks continued to flatter the street while pharma and PSU banks continued to be under pressure. The big star of the quarter was the FMCG and consumer space.
UBS warns that Turkey could be headed for a Balance of Payment crisis. The problem for Turkey is its vulnerability to the US dollar and the recent depreciation of the Lira. According to UBS, the only option in front of Turkey to remedy the debt and currency situation was to effect emergency rate hikes, which Tayyip Erdogan was totally averse too. Turkey also has the overhang of huge dollar debt, which worsened after the 43% correction in the Lira. Erdogan has long been obsessed with a cheap money policy as an essential ingredient for the sustained growth of the Turkish economy.
