Nifty and Sensex fell for the fifth day in succession on Thursday with the Chinese Coronavirus spreading to more countries. The markets did manage to pick up marginally towards the end on the back of short covering in pharma and select metal stocks. However, the short covering was not strong enough to bring the market into positive territory. Apart from the global macro risks, SBI came out with a report pegging India’s full year GDP growth for FY20 at just 4.6-4.7%. In addition, the foreign portfolio investors have sold Rs.10,000 crore in equities in the last four days and that is putting pressure on markets.
Even as central banks were getting ready to infuse liquidity into the markets, Rabobank has come with a contrarian view on the subject. Michael Every of Rabobank has categorically stated that irrespective of the amount of liquidity infused by central banks into the global economies, growth was unlikely to pick up. In fact, Michael Every has underlined that the need of the hour was structural fiscal reforms and putting more money in the hands of people would only inflate asset prices rather than drive growth. A big chunk of the slowdown was being caused, according to Every, by insufficiency of demand.
The Cellular Operators Association of India (COAI)has urged the government to terms for AGR dues payment and also cut the license fees. In fact, Vodafone Idea has already asked the DOT to give them a 15-year time frame to pay up the AGR dues. COAI has also sought waiver of the interest and penalty component to reduce the burden. According to COAI, the challenge is due to banks unwilling to extend any fund-based or non-fund based facilities to telcos. COAI has also called for cut in license fee levy from 8% to 3% and a sharp reduction in the spectrum usage charges (SUC).
With international gold prices touching a 7-year high at above $1600/oz and Indian gold prices already at a life-time high, the big question that is coming back to haunt is whether gold is overpriced. According to a recent Bloomberg report, ETF gold holdings at $144 billion are back to the 2012 peak. But with the global uncertainty rising, the Coronavirus spreading and loose monetary policy, gold is expected by most experts to inch up much higher. In fact, conservative estimates are already pegging gold to touch the previous global peak price of $1900/oz. In fact, gold bulls are already talking of the start of a gold rally.
With commercial lending still not picking up despite external benchmarking, the RBI may take a leaf out of the book of the ECB (European Central Bank). With five rate cuts not pulling down lending rates in a big way, the RBI has already started the use of LTROs to exert downward pressure on yields. In LTROs, the RBI buys long dated bonds and sells short dated bonds, thus depressing the bond yields at the long end as prices move up. This has been called Operation Twist and the RBI has been doing this buying and selling between 10-year bonds and 364-day Treasury Bills. Yields on AAA rated bonds are down by 40 bps and that is largely because of the government efforts on yield management. This strategy was used extensively by ECB and the RBI has also applied that strategy quite effectively in the Indian context.
Indian gas demand could rise by 66% in the next 5 years, according to a report on the subject. The gas demand in India is expected to increase from 148 million SCM to 250 million SCM per day in 2025. It is estimated that the bulk of the gas demand will come from city gas distribution operations being rolled out in 400 districts of India. In addition, the other major sources of gas demand will come from CNG supply for vehicles, demand from power plants and from fertilizer plants. A lot of the demand is expected to come from coal replacement. GAIL is already investing over Rs.1 trillion on gas footprint.
