Morgan Stanley expects the RBI to go for a rate hike in the fourth quarter of 2018. Morgan Stanley feels that inflation may be more under control by the fourth quarter and the IIP growth as well as the GDP growth will also be on a surer footing. However, Morgan Stanley still expects this to be a very shallow rate hike cycle which is unlikely to go beyond 25-50 basis points at the very most. The last monetary policy had maintained its stance as neutral but that could change once inflation picks or if the US Fed gets a little more hawkish in its rate guidance. Bond yields are already up on rate hike expectations.
On the request of the CBI, a Mumbai court has again issued non-bailable warrants against Nirav Modi and Mehul Choksi, accused of defrauding PNB to the tune of Rs.13,000 crore. Earlier the ED had issued summons to both of them to appear before the Indian courts and both had expressed their inability to do so due to business considerations. The passports of both these businessmen have already been revoked in the aftermath of the scam. The entire scam revolves around issue of fake Letters of Undertaking (LOU) fraudulently by the employees of PNB to Nirav Modi’s companies.
In the first five trading sessions of April 2018, FPIs have infused nearly Rs.7400 crore into Indian debt. Many bond investors were waiting in the sidelines in the hope that if the bond yield spread narrowed then they would be able to play a risk-off trade on the US dollar bonds. That does not appear to be happening in a hurry. Also the inflation guidance in the monetary appears to clearly indicate that there may be possibility of a rate hike during the year. With the INR also fairly stable, most FPIs find Indian debt to be a good spread story as well as a quasi short bet on the US dollar.
The Cellular Operators Association of India (COAI) has projected that telecom companies in India may continue to see earnings under pressure for another four quarters. Telecom companies have been facing tremendous pricing pressure after Jio entered the fray and dropped the price of voice and data drastically. Most telecom companies have seen their growth and their ARPUs fall in the last few quarters and that trend could continue. However, we could see the telecom earnings cycle bottom out in the aftermath of the spate of mergers and acquisitions that are taking place in telecom.
In what could be a real game changer for the agricultural sector in India, the government is planning to move a Cabinet Note to ensure that farmers actually realize the Minimum Support Price (MSP) that is promised to them. In the last one year, farmers have been forced to sell below the MSP due to the pressure of excess supply. Apart from the states, the government also plans to rope in private companies to ensure that the farmer actually gets the MSP. Currently, the government is envisaging 3 schemes viz. Market Assurance Scheme, Price Deficiency Procurement Scheme and Stockist Scheme. The states will be at liberty to implement one of these models in ensuring MSP to farmers. The centre will compensate for operational losses if any to the extent of 30-40%.
Celebrated world economist, Nouriel Roubini, has warned that all countries will end up losing in the event of a trade war. Roubini has also warned that the impact will not be restricted to trade and commerce but will have long standing implications on financial markets and economic growth too. Roubini has also pointed out that this uncertainty over the trade war had already wiped out $3 trillion of global wealth. Normally, trade wars led to fall in industrial demand and that forces nations to indulge in currency wars to prop up their currencies. The overall strategy is like an internecine warfare.
