Growth slowdown may be real according to the Finance Minister, as mentioned it its Monthly Economic Report. In fact, the report hints at a slowdown in GDP growth in FY2019, especially in the fourth quarter. According to the Monthly Economic Report put out by the Department of Economic Affairs, GDP growth may have taken a hit due to weaker private consumption post the liquidity crisis. Even fixed investments were quite weak, which exacerbated this trend. While the actual Q4 growth will be only known on May 31st, the Finance Ministry has hinted at the weakness in Q4 GDP numbers.
With the FMP problem getting compounded by the day, SEBI has now hinted at decisive regulatory action on the debt fund exposure to private debt. With mutual funds increasingly rolling over the fixed maturity plans (FMP), SEBI has hinted at fresh directives to curb mutual funds acting as banks by lending to promoters. SEBI underlined that in the absence of capital adequacy norms for mutual funds, a stronger framework would be required to protect the interests of fund investors. SEBI will focus on transparency and accountability of funds and prevent MFs from acting as quasi-banks.
Finance ministry admits that the repo rate cut transmission yet to happen. Despite 2 repo rate cuts of 25 bps each, it had not resulted in any worthwhile transmission to the end borrower. That limited its ability to spur growth. In fact, the RBI had cut rates in April despite seeing hardly any transmission post its Feb repo rate cut. However, the RBI has already indicated that the MPC may be inclined to wait till transmission is visible. This could mean that the RBI may be a little more calibrated in its June policy where it may choose to get a hang of transmission before attempting further rate cuts.
Oil has fallen more than 7% in less than a week. On Thursday, Brent Crude dropped sharply by 2.88% to $70.10/bbl on US supply concerns. This was triggered after the US announced a record daily output of 12.7 million barrels even as US inventories touched 470 million barrels. This resulted in the price of Brent crude dipping below the $70/bbl mark although it closed just above that mark. Brent has fallen by $5.50/bbl from its recent peak despite the Iran sanctions taking effect from 02nd of May. In addition, the sanctions on Venezuela and the strife in Libya are also constricting supply.
The National Company Law Appellate Tribunal (NCLAT) has now allowed banks to declare defaulting group IL&FS companies as NPAs, as required by the RBI. While the NCLAT had, in February, restrained banks from showing their exposure to the IL&FS group as NPAs, the RBI had objected to this as not giving a transparent picture of bank balance sheets. Now banks have been allowed to show their exposure to IL&FS group as NPAs, although it is still not mandatory. IL&FS has total debt exposure of Rs.97,000 crore with a big chunk being bank credit. RBI had expressed concerns that by postponing the recognition, the banks and the investors may be living in a false sense of complacency. In most cases, a very small part of the IL&FS debt may be recoverable and provisions may have to be made!
Foreign investors have urged the NSE not to challenge SEBI fine and the 6-month ban imposed. As per an ET report, the foreign shareholders prefer that NSE abides by the SEBI directive rather than challenging it. SEBI had imposed a total penalty of close to Rs.700 crore on the exchange as disgorgement of profits made via preferential treatment to select brokers. SEBI has also barred NSE from accessing the capital markets for a period of 6 months. In addition, select brokers and former officials of NSE have also been pulled up by SEBI.
