In the aftermath of the debt funds fiasco last year, SEBI announced stringent liquidity norms for liquid mutual funds. In a bid to make liquid funds safer, SEBI has now mandated that liquid funds must hold at least 20% of their assets in liquid form and could charge an exit load for selling out within 7 days. Liquid form assets have been defined as cash in bank, T-bills, G-Secs and repos. In the event of liquid assets falling below 20%, it will first have to be restored before making further investments. The idea is to ensure that liquid funds stay true to their name and nature in terms of their asset mix.
It could be a temporary setback for the resolution to the trade war between China and the US. China decides to scrap its goodwill tour to the US ahead of top-level talks. In fact, China turned down an invitation from the US to visit their Montana State Farms and also cut short their goodwill trade talks with the US. The trigger for the decision was a tweet by Donald Trump hinting that he was not interested in a partial deal with China. China has been looking for lower tariffs while the US has been looking at a bigger share of the Chinese agricultural market. High level talks are scheduled in October.
It was a day when the bulls returned to the scheme with a big bang as the Nifty and Sensex got a $96 billion market cap boost in a single day. Early trades on Friday hardly had any indications of the massive rally to come but the 8% cut in taxes changed the scenario. Sectors like automobiles and FMCG rallied sharply as did the banks on hopes that industrial and consumer lending would bounce back. The government had announced cut in corporate tax rates, concessional rates for new manufacturing clarity on buyback tax. It also clarified on the FPI liability on the additional surcharge.
Oil may be in the midst of an uneasy stability as Brent crude stabilized at $64.28/bbl as US ramps up defences in the Middle East. To avoid any major geopolitical fallout in the Middle East, the US ramped up its defences. Initial reports coming out from the US and Saudi Arabia had pointed to Iran’s involvement in the drone attacks. However, the US has desisted from any rash action to avoid another Middle East crisis. Oil had shot up to $72/bbl on Monday after the drone attacks on Saudi oil facilities. Houthi rebels had claimed responsibility but Saudi and the US have blamed Iran for the attacks.
The big gainers on Friday from the corporate tax rate cuts were from the automobile and FMCG sectors. The tax cut to 22% is likely to be a big benefit for both sectors. Autos and FMCG had been facing a sharp fall in consumption and that could be rectified if these benefits can be passed on to the end customer. Both the sectors are among the highest tax payers within corporate India. Interestingly, the Niti Aayog chairman, Rajiv Kumar, has reiterated that the Rs.145,000 crore tax breaks would have a limited impact on fiscal deficit, although economists are pegging an increase from 3.3% to 3.97%. Kumar underlined that a large part of this shortfall will be made up by asset sales, expenditure cuts and increase in tax revenues. Kumar also hinted at the RBI transfer buffer available. It remains to be seen.
Election Commission announced dates for Maharashtra, Haryana assembly polls. The elections for state assemblies of Maharashtra and Haryana have been scheduled on October 21st and will be completed in a single day. The ruling NDA had done exceptionally well in both these states in the central elections in May this year. The final results will be announced on 24th October. These polls will be a mandate for the new government and the Section 370 abrogation. The BJP and the Shiv Sena will be fighting the election under a joint banner while the NCP and the Congress would be allies in the election.
