Japanese exports for the full year were lower by 6.3% on a YOY basis. This could have serious implications for an economy that substantially exports reliant. Also, the Japanese economy has traditionally run a surplus on the current account due to its huge trade surplus and weak exports would mean the trade surplus would come under question. This can raise some serious doubts about the Japanese Yen as a serious safe-haven currency. Above all, the weak growth in exports indicates that the much-touted strategy of pushing growth via exports may not be working due to weak global demand.
The Indian rupee has been under pressure and has lost 2% since December 2018 making it the worst performer among the Asian currencies. Most of the Asian currencies had mildly appreciated against the dollar. One of the main reasons for the rupee weakness has been the weak GDP growth and the huge oil import bill. Recently, the IMF had downgraded India’s full-year growth for 2020 from 6.1% to 4.8% putting it at a disadvantage of nearly 120 bps versus China in terms of GDP growth. Erratic portfolio flows have also been responsible for the weak rupee, even as political developments made the rupee jittery.
Brent crude prices were sharply lower on Wednesday after the concerns over the China coronavirus led to worries that oil demand across Asia could get impacted. There have also been concerns over an oil glut as the US is planning to pump in close to 22 million bpd from the fourth quarter of 2020. This will also keep the market oversupplied and the prices of crude oil under pressure. These two factors have pulled down oil prices despite the supply disruptions coming from Libya. Oil is crucial for India since India relies on imports for more than 80% of its regular oil requirements.
Oil India has filed a plea in the Supreme Court against the Rs.48,000 crore demand made by the DOT. The DOT had made this demand from all companies that had been allotted spectrum in the past and this includes companies like Oil India, GAIL and Railtel. The Supreme Court judgment on the Bharti Airtel issue was fairly clear that the definition of adjusted gross revenues (AGR) would encompass all revenues apart from direct telecom revenues. The DOT has now interpreted that to include oil revenues of Oil India too. The DOT demand is 8 times the cash balance and 2 times the market cap of Oil India.
The Sensex shed close to 820 points in a span of just 3 trading sessions, which is quite surprising at a time when the market is supposed to be in the midst of a pre-budget rally. The reasons are not far to seek. The downgrade of real GDP growth from 6.1% to 4.8% was responsible for the sharp fall in the Sensex. Some of the results have also disappointed and that include HDFC Bank showing higher provisions and RIL showing lower than expected petchem margins and GRMs. TCS had the slowest growth in the IT industry while Kotak Bank saw a sharp rise in NPAs. These heavyweights had an oversized impact on the Sensex. In between these news flows, the recent corona virus pandemic in Asia has also led to risk off investing by many portfolio investors leading to an impact on Indian markets too.
