It was a virtual Black Monday for world markets. The Dow Jones Index corrected by over 1,000 points with the Dow and the NASDAQ down over 3%. German DAX was down by over 4% while the Italian markets were down by close to 6% on Monday. Even the Kospi of Korea corrected by more than 4% on Monday. The trigger for the fall was clearly the rapid spread of the Coronavirus. With the death toll rising to 2700 and over 80,000 people world over infected by the virus, the IMF has already warned that global growth could take a real hit as an outcome of the virus pandemic. Gold soared on Monday.
Brent Crude corrected more than 4% to a level of $56/bbl even as the WTI dipped below the $50/bbl mark once again. The Brent was reacting to the sharp fall in Chinese demand for oil. China remains the major swing consumer of oil and the oil demand in China has fallen by more than 25% as factories across the Wuhan and Hubel province have been shut down. Even the OPEC and Russia have decided to put off their proposed supply cuts as they see little hope in holding prices when the demand has weakened in the world’s largest oil consumer. Weal oil also negatively impacted most global indices.
In a surprising twist, the Adani Group has also decided to bid for Air India. It will be submitting its Expression of Interest (EOI) by next month. Apart from the Adani group, the Tatas, Indigo, Hinduja group and a US based fund are also in the reckoning to take a majority stake in Air India. The final decision will be based on the due diligence. Adani has plans to become the largest private airport operator in India with 3 airports already in its kitty including Lucknow, Ahmadabad and Mangalore. The acquisition of Air India will be a logical extension to its plans in owning the entire aviation ecosystem.
Indian FPIs may be a worried lot because the Financial Action Task Force (FATF) has included Mauritius in the grey list. Being included in the FATF can be negative for FPIs registered in Mauritius as it would be an impediment to their getting registration from the Indian authorities. Most FPIs have already approached SEBI for greater clarity on this issue. Grey list includes jurisdictions that have agreed to rectify identified structural deficiencies within an agreed time frame. However, if the FATF finds the country non-cooperative, then FPIs registered in Mauritius may not be allowed to buy fresh securities in India.
Hindustan Unilever has created a new subsidiary company, which will undertake all its capital expenditure activities. This will give them the added benefit of 15% concessional tax payable by this company as it would fall in the definition of new enterprises. The manufacturing facilities will be used to produce some of the raw materials that HUVR currently imports from other countries. It may be recollected that in September 2019, the Ministry of Finance reduced the corporate tax rates from 30% (with exemptions and rebates) to 22% (without exemptions and rebates). However, the government also officered a special 15% tax bracket for companies set up to manufacture goods. This action by Hindustan Unilever appears to be driven by this logic of paying the lowest possible tax on profits.
Donald Trump’s first day at the Motera Stadium in Ahmadabad was a clear success as both Mr. Modi and Mr. Trump were effusive in their praise for each other. With over 1.25 lakhs attending the meet, Trump chose to speak on the larger issues of shared values. However, Day-1 was silent on two areas. There has been no discussion about sensitive issues like Kashmir, CAA, NCR etc. Similarly, Trump has abstained from making any comments on the likelihood of a free trade deal with idea or any timelines for the same. The big takeaway for Trump will be the sale of $3 billion worth of defence equipment.
