The real problem with the fiscal deficit may be on the revenue side and not on the spending side. Rathin Roy has warned of silent fiscal crisis in India in the coming years. A key member of the Prime Minister’s Economic Advisory Council (PMEAC), Rathin Roy, has warned that the Indian economy could be facing a silent fiscal crisis. Normally, fiscally fiscal crises are caused by rampant rise in spending but Roy warns that this crisis could be due to shortfall in tax revenues. Last year, India faced a shortfall in direct and indirect tax revenues leaving a gap in the budget, which normally leads to cut in core spending.
NASDAQ may not have a global monopoly over tech listings any longer as China’s version of NASDAQ debuts and adds $44 billion in market cap on Monday. On Monday, China launched its own board as a platform for home grown technology companies and the trading hit a feverish pitch on debut which nearly doubled the market cap of the combined board. In the first batch, 25 companies were added to the board, with 16 of them making a frothy debut. The worst performer during the day was up by 84% and that says a lot! Of course, frothy valuations are something to be cautious about.
The cracks in the Nifty may be getting wider and broader. IN fact, the Nifty cracked sharply after RBI governor sounded a note of caution on rate cuts. The RBI Governor, Shaktikanta Das, underlined on Monday that an accommodative monetary policy only implied that rates will not be hiked. Das, however, added that it should not be interpreted as a signal of sharp rate cuts. Coming just a day after the Boston Fed caution on rate cut enthusiasm, this view had a sharply negative impact on financial heavyweights betting on rate cuts in August. Das urged that rate action will be driven by data flows.
The fluid situation in the Middle East is beginning to again take its toll on the price of Brent Crude. Oil prices hardened on rising tensions in the Persian Gulf region. Just a couple of days after Iran seized British tankers off the Straits of Hormuz, the situation continued to be tense. The US had declared the Iran action as an act of war although it has stopped short of any immediate intervention. Oil prices, despite the demand concerns, were higher by 132 bps on Monday due to the rising geopolitical risks in the Middle East oil routes. Strait of Hormuz moves nearly 30% of all global oil.
There may be a bigger story in falling P-Notes as FPIs may be cutting positions in India in a bigger way. Participatory Notes fell to Rs.81,913 crore in the month of June 2019. Of the total investments made through the P-Note route, 70% was in equities with the balance 30% in futures and options. P-Notes have lost their charm for FPIs since 2017 after the SEBI tightened the costs and the procedures for issue of P-Notes. Normally, the P-Notes are issued by registered FPIs to their sub-accounts looking to participate in India without the hassles of registration. Meanwhile, there was also pressure on Indian equity brokers with numbers reducing by 25% in the last one year. The reason was a combination of stiff competition from discount brokers, tight regulatory environment and predominance of F&O!
After Trump mentioned about his willingness to mediate on Kashmir, India ruled out any diplomatic intervention by the US and cut through any diplomatic ambiguity on Kashmir. During Imran Khan’s visit to the US, Trump had made a statement that PM Modi had wanted him to intervene to sort the Kashmir issue and that he would be willing to do so. However, the Indian foreign office affirmed that there had been no such discussions and that India still treated Kashmir as a bilateral issue only. Interestingly, the US foreign office press release has entirely ignored this fact in its release.
