With the second quarter GDP announcement just a day away, the estimates are coming in the range of 4.2% to 4.7% for the second quarter. However, the economists and the analysts are now downgrading the growth prospects for the third and fourth quarters and are pegging the full year GDP growth at below 5%. That will be one of the lowest growth rates that India has seen in recent times and will put the economy at a distinct disadvantage to China, which still sustains GDP growth around the 6% mark with a mix of solid manufacturing and liquidity support. FM has already given a fiscal tax boost.
Moody’s has pegged India’s fiscal deficit for the current fiscal year at around 3.7%. This is at least 30 bps higher than the government forecast. Fiscal deficit is the gap that is created in revenue sources and needs to be filled up with borrowings or other sources of inflows. Under the FRBM Act, the government had committed to keep the fiscal deficit pegged at around 3.4%, but that looks difficult with the stimulus needed for the economy and the Rs.145,000 crore dole-out already given by the finance minister in September in the form of corporate tax rate cuts. The impact on sovereign ratings remains to be seen.
The Sensex and the Nifty saw a late jump on Wednesday with the Sensex closing above the 41,000 mark and the Nifty closing above the 12,100 mark. Metals continued to drive the markets as banks also offered adequate support. In the US, the S&P and the NASDAQ continued to scale all-time highs as a mix of positive economic data and trade deal enthusiasm led the markets higher. The US hopes to seal the trade deal in early January and the US consumption data continues to remain robust. The liquidity assurance in monetary policies globally has also ensured that flow of liquidity to markets continues.
The US oil industry may be facing a unique problem in terms of oil funding. In the last 10 years, the one factor that drove the shale oil boom in the US was the availability of easy credit. With interest at near zero levels and oil prices high till 2014, it led to an unprecedented investment in shale prospecting. That helped the US emerge as the largest oil producer in the world. However, that is now changing as banks are getting increasingly worried about continuing to lend to shale if the oil prices to continue to remain around $60/bbl. Higher rates have also changed the cost equations for shale production.
One of the big casualties of the launch of Reliance Jio service in India was the telecom sector overall. Ravi Shankar Prasad, telecom minister, pointed out that the total revenues of the telecom industry in India had fallen from Rs.2,65,000 crore in FY17 to Rs.2,21,000 in FY19. This was largely driven by lower pricing post the price war launched by Jio. The 3 legacy telecom companies in India; Bharti Airtel, Vodafone and Idea witnessed a consistent fall in ARPUs before Vodafone and Idea decided to merge to be able to take on competition more effectively. The recent AGR charge imposition to the tune of Rs.92,000 crore on the telecom companies is likely to seriously impair the balance sheets of these telcos. Bharti Airtel and Vodafone have taken the AGR hit in their income statements in Q2 itself.
After a gap of 35 days, the Maharashtra government is likely to sworn in on November 28th at the historic Shivaji Park. Uddhav Thackeray will take oath as the chief minister of Maharashtra. While the shape of the cabinet is not very clear as of now, the indications are that the NCP could get the deputy chief minister’s post along with important cabinet berths while the Congress would get the speaker’s job. The people of Maharashtra had voted in favour of the BJP-Shiv Sena combination but the alliance fell out after the two parties could not agree on the formula for sharing the CM’s chair.
