The uncertainty over the No Confidence motion on Friday and the China slowdown had its impact on the Nifty. The index slipped to the 10,957 mark in Thursday trades. One of the key drivers for the market pressure was the INR which settled beyond the 69/$ mark in close of trade. This is the worst closing for the INR. Confidence Vote may be more sentimental as the ruling NDA does have the requisite numbers. Markets did bounce from lower levels. But the spectre of a slowdown in China and a weak rupee will continue play on the Indian markets over the next few weeks.
Although Kotak Bank did announce good results for the first quarter ending June 2018, the markets were not impressed. Kotak Bank reported 12.3% higher net profits for Q1 at Rs.1025 crore. The stock was the top loser in the Nifty today despite growth in net profits. Despite the 41 bps fall in the Gross NPAs, markets reacted to the higher provisioning and the 20 bps fall in the NIM. However, the markets should veer around to the view that the higher provisioning cannot be held against the stock. Kotak Bank has been among the top performing private banks in terms of stock market returns in 2018.
A likely slowdown in China continued to play havoc on Indian metal and commodity stocks on Thursday. Hindalco stock cracked 8% on global metal demand slowdown fears. The stock has been under tremendous pressure over the last few days and is already quoting at a multi year low. Most metal counters have been under pressure on fears that the trade war could slow China’s growth and stunt commodity demand. This was Hindalco’s sharpest fall in the last 11 months in a single day. Despite the 8% fall in the stock price, the worst for the sector as a whole may be far from over.
In a move that was long on the cards, SEBI is expected to announce guidelines to permit mutual funds into commodity derivatives. This was held up in the past due to the different regulation points but with both the businesses now brought under the purview of SEBI, such cross dynamics should be more than possible. The intent is to improve institutional participation in the commodity markets, which will lend breadth and depth to the markets. It will offer an additional asset class for mutual funds. SEBI may also consider permitting cross margining at a later date to improve market depth.
As the trade war heats up in the world with multiple players and varied combinations emerging, India may have problems of its own. In fact, the Commerce Secretary has confirmed that since income levels in India had crossed the level where subsidies could be offered by the government to encourage exports, India could end up losing the case at the WTO. There is another problem that is cooking up simultaneously for India. India may be caught in a dilemma between Trump and cheap Iranian oil. India has a choice between the devil and the deep sea. It either loses cheap oil imports from Iran or it risks losing the goodwill of Trump and possible punitive tariffs on its $25 billion trade surplus. With just 1 year to go for elections, the government may really find itself in a Catch-22 situation.
The Speaker of the Lok Sabha has admitted discussion on the Trust Vote on Friday. While NDA continues to have the numbers in the floor of the house, the opposition may be looking at the motion more to force a transparent debate on the economic policies of the government. The NDA is expected to be supported by the Shiv Sena and the SAD, while the BJD and the AIADMK may remain neutral. The NDA should get through the required numbers with ease. However, the opposition will be looking at this exercise more as a litmus test of opposition unity in presenting a joint voice against the BJP.
