The GDP estimates for the third quarter of 2017-18 came out at 7.2% while the full year projections came in at 6.6%. The GVA (excluding the impact of taxes and subsidies) is expected to be around 6.4%. The Indian economy is likely to end the fiscal year 2017-18 with GVA of $2 trillion and GDP of $2.58 trillion. Agriculture disappointed due to a combination of a weak monsoon and the base effect. While manufacturing growth was above 8% in the organized sector, it was the SME and unorganized sector that actually took a hit. On the positive side, there was a visible pick-up in construction activity.
Manufacturing PMI for the month of February 2018 fell to a 4-month low of 52.1. Normally, a level of PMI above 50 is considered expansionary while below 50 is considered to be contractionary. But more than the absolute number, it is the trend that actually matters. The PMI Manufacturing had touched a 5-year high of 54.7 in the month of December 2017. While production and inventory build-up are still healthy, the good news is that job creation in industry is also picking up. The PMI Services is normally announced a couple of days later and it is that segment that has been really seeing a crunch.
The telecom price war triggered by Reliance Jio has claimed its first victim with Aircel filing for bankruptcy under the weight of piling debt and mounting losses. Aircel was on the verge of merging with RCOM which was eventually called off last year due to regulatory hassles, leaving Aircel with little choice but to file for bankruptcy. Aircel had been trying hard to restructure its debt to the tune of Rs.15,500 crore but with little success. Malaysian businessman, Ananda Krishnan, who had backed the Aircel venture is expected to lose nearly $7 billion on this investment.
The core sector output for the month of January showed a growth of 6.7% and was largely helped by cement and refinery production. The core sector is a combination of 8 key infrastructure sectors and becomes critical as it constitutes over 40% of the Index of Industrial Production (IIP). The core sector growth was 7.4% in November and 4.2% in December. The big boost came from cement growing at 20% and refinery production at 11%. Electricity generation also grew by 8%. Additionally, coal, steel and crude oil production topped the 3% mark for the month of January 2018.
Global investment bank, UBS, has highlighted 10 key short term risks for the Indian markets. UBS does believe that the confusion over exchanges giving out data and the frauds in PSU banks could be a primary dampener for the markets. Additionally, UBS also believes that a combination of the LTCG on profits and the rich valuations of mid and small caps could lead to sustained selling by foreign portfolio investors (FPIs). UBS also worried about rising inflation due to food and oil as well as the consequent hardening of bond yields. The impact of rising yields is already visible in the profitability of Indian banks like SBI. At a macro level, the rising trade deficit as well as the revenue deficit and fiscal deficit going out of control are red flags. As oil prices rise, earnings growth may also come under question.
NSE has assured the markets and investors that it is working closely with global exchanges to ensure orderly transition in terms of cessation of live data feeds. In February, the exchanges had announced the cessation of data supply agreements with other exchanges, something that has not gone down well with powerful names like MSCI. Indian exchanges put these restrictions to prevent the off-shoring of Indian financial markets. Over the last few years, India has seen its Nifty trading as well as its dollar/rupee trading shift substantially to Singapore and Dubai respectively due to lower trading costs.
