The markets fell for the second day in a row on concerns over the GDP number to be announced for the 3rd quarter on November 30th. The last quarter has been excellent for corporate results with the Nifty 50 companies reporting a 12% growth in profits. This makes it the best performance in the last 6 quarters. The November GDP number becomes critical because the GDP growth came in lower at 5.7% for the June quarter. While September quarter is likely to be better than that, the GST impact is still an unknown variable and the extent of its impact could have a bearing on the final GDP number.
On the day when North Korea tested a more powerful Intercontinental Ballistic Missile (ICBM), the markets hardly appeared to be perturbed. In fact, even the NASDAQ which was in the negative actually turned into the positive after the news of the North Korean ICBM test came through. Markets are obviously sceptical about North Korea’s capability to launch an ICBM with a range of 10,000 KM. The only worry for the market could be if the US decides to pre-empts any future misadventures by North Korea through targeted attacks. That may be negative for the markets as a whole.
Out of the total debt of Air India to the tune of $7.6 billion, the government plans to keep debt to the tune of $4.7 billion out of the books. The government plans to transfer nearly $4.7 billion of debt and all the non-aviation assets of the company into a separate SPV. The idea is to hive off a stake in the SPV to global realty investors who will get a package of key real estate assets and the transferred debt. The rescue package is key to the future of the divestment program and the Modi government will be counting on the successful completion of the AI divestment which can serve as a futuristic template.
The oildeal between Russia and OPEC is likely to extend till the end of 2018 when the OPEC meets in Vienna. The supply cuts have definitely had an impact in pushing up prices of crude oil but the big challenge for Russia and the OPEC is when to stop. Obviously, once the markets get used to the supply cuts then any withdrawal of cuts will result in a sharp fall in the price of crude oil. Already, Russia is likely to expand production at its Sakhalin oil wells and the supply discipline could get seriously tested in the next few months. But the big challenge will remain; when to stop this supply quota.
The latest report by Morgan Stanley continues to be extremely positive on India and expects the Indian markets to sharply outperform the other Asian markets during the year 2018. While MS has a Sensex target of 35,770 by end of 2018, their focus is more on the relative outperformance that the Indian markets can provide. Improving capital expenditure, fiscal spending, supportive global growth and a sharp turnaround in consumer sentiment could all contribute towards a strong performance by the Indian markets in the Asian scenario. Above all, MS also expects much stronger free cash flows generated by Indian companies as a key trigger. While the indications of a turnaround in the capital cycle are there, MS is still not pricing in a multi-year increase in growth rates leading to a market re-rating.
The proposed Financial Resolution and Deposit Insurance Bill is likely to be a short-term worry for Indian depositors as it envisages the scrapping of the DICGC, which effectively insures all bank deposits up to a level of Rs.1 lakh. The depositor insurance is a facility that has been rarely used as the RBI normally intervenes to either call a halt on withdrawals or merger the bank with a larger bank. However, the question is how will the interests of depositors be protected if the new Act gets sweeping powers to decide on the liquidation of PSU banks. It has already led to protests across India.
