Mid Night News – 25th September 2017

Midnight News Update –Sep 25th2017


Stocks may see a wavering drama next week as the stand-off between North Korea and the US is now appearing to head towards a showdown. US planes have already been hovering close to the coast of North Korea in a clear indication that it is prepared to wage full-fledged war, especially in the aftermath of the strong speech made by trump at the UN. North Korea has decided to go ahead with its H-Bomb testing shortly, which could worsen matters between the two nations. FIIs are already sellers for over 6 weeks and the global markets are already in a risk-off mode and this stand-off could worsen that.


Even as the government has been under pressure to prop up the economy, UBS has warned about the negative impact on investor sentiment if the government becomes lax on its fiscal responsibility. In the last 2 years, the government has stuck to its fiscal roadmap despite its rising expenditure bill. According to UBS, it is fiscal discipline that has kept foreign investors interested in India.  The economic boost may give a 0.2% prop to the economy, according to UBS. However, the larger costs could be much bigger. The FM indicated public spending to the extent of $7.7 billion additionally to prop up the economy.


The CII has sought an extension of deadline for filing of GST returns by another couple of months to ease the problems that the industry is facing right now. The CII has also demanded that no penal action be taken against companies for any laxity in filing returns in the first 6 months due to the plethora of technical issues faced. The due dates for filing of returns for July has already been extended to October and the final dates for August are yet to be announced. The next meeting of the GST Council is scheduled on October 06th and they may even dole out sops to exporters in the meeting.


Reliance Jio is likely to deliver a total of 6 million mobile phones over the next 2 weeks. This is the latest bet by the Mukesh Ambani group after its big bet on data and free voice model. The idea off gaining a foothold in the mobile hardware market is to own and control the complete ecosystem of the telecom service. Over the next 1 quarter, Jio is likely to account for nearly 10% of the total number of mobile phones sold in India. Of course, the Jio phone will come pre-loaded with Jio apps for messaging and entertainment. The phone will also be compatible with other electronic items.


Emerging market stocks are finally making a comeback according to data put out by the MSCI. Emerging markets gave negative returns to the tune of -16% between 2008 and 2016. That appears to have changed drastically in the last 1 year. In fact, EMs are up by nearly 31% in the last 1 year compared to 13% for the US and 19% for the other developed markets. However, the MSCI Emerging Markets Index is still nearly 17% below its all-time peak in 2007 and that means there is still room for the EM stocks to appreciate. In fact, over the last 3 decades the EM returns have fluctuated between negative and positive returns making them a lot more volatile compared to the developed markets. Of course, it needs to be remembered that EMs are a heterogenous lot and the last 1 year has been driven by EMs like Brazil, Russia and Peru.


The Fed maintained its status quo on rates last week but the hawkishness is quite clear. The Fed has hinted at 25 bps rise in rates in the December due to a sharp spike in retail inflation. At the same time, the Fed has maintained its guidance of 3 rate hikes in the calendar year 2018. That would be a major challenge for the RBI to cut repo rates domestically. However, the bigger point to watch out for will be the tapering of the $4.2 trillion bond portfolio. It is likely to begin in October this year at the rate of $10 billion per month, which will not exactly create a major dent on other markets.


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