There seems to be some good news for corporate India as the Indian government appointed panel has recommended cutting domestic corporate taxes from the current 30% to 25%. The government panel recommendation has been exactly in line with what the CII and other representative corporate bodies have been demanding. In the July 2019 budget, Nirmala Sitharaman had increased the turnover eligibility for 25% tax from Rs.250 crore to Rs.400 crore. However, large companies are still paying 30%. Tax cuts had been promised by FM Jaitley way back in 2014 itself to be done in a phased manner.
After a brief halt, Gold continued its upward journey and scaled past the $1500/oz mark. Global gold prices rallied above the $1500/oz mark after bond yields dipped sharply on US Fed stimulus hopes. US markets are now expecting the government to combine monetary and fiscal measures. Instead of stopping at rate cuts, the Fed and the government may synchronize that with a fiscal boost to make it more meaningful for growth. That has, however, meant lower bond yields and these lower bond yields have raised the spectre of an economic slowdown and a flow of funds towards gold as an asset class.
According to a research report put out by Credit Suisse, growth in loans by NBFCs and private banks has shown a distinct slowdown. According to the Credit Suisse report, loan growth of the NBFC sector moved into negative zone for the first time in the last few years. The slowdown has been driven by the slowdown in the auto and construction sector as well as higher levels of caution exercised. Banks and NBFCs have become a lot more wary after the implosion in IL&FS and Dewan Housing in the last one year. Most NBFCs have also seen their cost of funds getting higher in the last few months.
After a brief period of hovering below the $60/bbl mark, Brent Crude showed strength and scaled above the $60/bbl mark on Tuesday. After several abortive attempts at breaching the psychological barrier of $60/bbl, the Brent Crude finally managed to break above the level. Hopes of trade resolution and expectations of another supply cut by the OPEC kept oil prices buoyant. In addition, the stand-off in the Middle East between Iran and the US plus the Houthi insurgency is pushing crude oil prices higher on Tuesday. Saudi Arabia has been alleging that the Houthi rebels have been supported by Iran.
In the midst of all the bad news, there was good news as the auto sector gives the first sign of spending to grow. The best answer to a slowdown is for companies to spend their way of trouble. According to a Bloomberg report, the Maruti Chairman, R C Bhargava, underlined that Maruti would continue to invest in expanding sales despite the sharp slowdown in the auto sector. That announcement not only rallied Maruti, but the auto sector emerged as the star performer on an otherwise dull day. Meanwhile, Wall Street saw a correction on Tuesday after three consecutive days of gains. The US bond yields which had shown some revival in the last few days again fell to the 1.55% mark on Tuesday renewing fears of a slowdown. The 10 year yields have already dipped below the 3-month treasury signalling a slowdown.
The Indian rupee weakened to the 71.80/$ mark before easing to 71.72/$. The INR has now lost more than 5% in the first 20 days of August making the rupee the weakest currency among Asian emerging markets. Apart from the risk of oil prices rising, the markets are also anticipating that the trade deficit could widen. But the big worry for the rupee market has been that the strengthening US dollar could lead to a rush to hedge positions by banks and importers. It is in anticipation of this rush by importers and banks that the rupee has been showing distinct weakness in the last few weeks.
