Over the weekend, the government signalled more reform measures to spur economic growth. The Friday expectations of big bang announcements were belied as the Finance Minister restricted herself to just hinting that there would be bigger reforms in the next few weeks. Anurag Thakur from the Minister of Finance also indicated that the big reforms could immediately happen in the realty sector. On GST rate cuts for automobiles, FM agreed to refer the matter to the GST Council. The auto industry has been demanding that the GST rates on automobiles be cut from 28% to 18% to spur growth.
Brent could get a boost from the new Energy Minister of Saudi Arabia. Brent Crude closed the week higher at $61.54/bbl as Saudi Arabia appointed oil hawk as Energy minister. Even as crude prices bounced back during the previous week, Saudi Arabia appointed Prince Abdulaziz as its new Energy Minister in place of Khalid Al-Falih. While Falih was instrumental in the Russian alliance, Prince Abdulaziz is an old hand and an oil hawk. He has hinted at oil prices closer to $85/bbl and he had been instrumental in the Mexico/Venezuela secret oil alliance in 1990 at the height of the Gulf War.
Heavyweights did managed to shed a lot of value in the previous week as six out of top ten firms in Nifty shed Rs.88,000 crore in market cap. While the Nifty and Sensex did make an attempt to bounce back on Friday, the damage done on Tuesday continued to predominate. RIL, HUVR, ITC, ICICI Bank, HDFC and TCS were the high value stocks that lost market cap. However, HDFC Bank and SBI managed to close with gains according to a report in ET. In value terms, TCS and HDFC lost over $6 billion of value between them. On Tuesday, the Sensex had lost 770 points, the worst fall in this year.
Despite the FM providing comfort on the tax surcharge front, the FPIs pulled out $800 million from equities in the first week of September. However, debt saved the day for the markets. Foreign investors saw net outflows of Rs.1263 crore in the first week of September. But that glosses over the fact that despite the cut in surcharge on FPI tax, equities still saw net selling of over Rs.5500 crore. The selling by FPIs was driven by concerns over a weak rupee, higher oil prices, possible global slowdown due to the trade war and a general risk-off strategy by traders. FPI flows are expected to be under pressure.
Global cues again continue to be in a state of flux. China August trade slumped as the US-China trade war pinches hard. In fact, China exports fell by 1% in the month of August against Reuters’ estimates that the exports would grow by 2-3%. Even the falling Yuan could not make a substantial impact. China has already released $126 billion by cutting its Bank Reserve Ratio and could go more aggressive on its economic stimulus. In the UK, Boris Johnson ruled out any extension of BREXIT deadline beyond October Labour leader Corbyn has been insisting that UK should abstain from BREXIT till there is a deal or there is another referendum on BREXIT. However, Johnson is quite firm that UK would exit the EU on October 31st either with or without a deal on hand, irrespective of repercussions for the economy.
Frauds may be increasing in the banking industry. Eighteen PSU banks witness frauds worth Rs.31,000 crore in the first quarter. A total of 2480 cases of frauds were reported in PSU banks in the first quarter ended June 2019. Out of these frauds, SBI alone accounted for 1197 cases of fraud amounting to Rs.12,000 crore. This is proportionately higher because banks had seen frauds worth Rs.71,400 crore in the whole of last fiscal year. Rising incidence of frauds in PSBs has been a worry for the RBI and Finance Ministry. The government has been moving aggressively to arrest the number of cases.
