The price of Brent Crude fell by nearly 11% in a single weak taking the fall since the peak of October to well over 35% as Brent Crude touched an 18 month low of $53.82/bbl. There were two primary reasons for the sharp fall in the price of Brent Crude. Firstly, the oil market is likely to remain oversupplied on the back of diluted Iran sanctions and a surge of US shale flooding the market. Secondly, the bigger worry is on the demand front. The trade war is likely to depress demand for crude as global GDP gives by nearly 40 bps. The recent US shutdown may only add to the oil price woes.
Indian corporates collected nearly Rs.6 trillion from the equity and debt markets; a fund raising fall of 30% on a YOY basis. The markets were not exactly conducive with continued volatility and macro worries forcing a lot of companies to put off fund raising plans due to steeply higher cost of funds. More than 80% of the funds were raised through the debt market route with equity accounting for the balance. Most of the equity fund raising of Rs.80,000 crore came through IPOs and private placement to institutions. The IL&FS fiasco also led to tapering of the appetite for debt paper.
With Donald Trump almost indicating that he may be forced to fire Jerome Powell from the Fed Chairmanship after the latest round of rate hikes, experts are worried that such a move could result in market chaos in the US and across world markets. Trump has been trying to talk Powell into adopting a more dovish stance. While Powell acknowledged that growth slowdown was a potential worry, the Fed went ahead and raised rates by another 25 bps in December taking the rates to 2.50%. The Fed has hiked rates by 100 bps in the year 2018 lone. A lot will depend on the move by the Senate.
The GST Council, in its meeting on 22nd December, implemented another round of cuts on specific items to reduce the products in the 28% category to as few as possible. Some of the products that have been shifted from the 28% bracket to the 18% bracket include monitors & television screens up to 32 inches, re-treaded tyres, power banks of lithium ion batteries etc. However, the Council has kept high generating products like cement and select auto parts at the peak 28% rate of GST only. Cement and auto parts generate GST revenues to the tune of Rs.35,000 crore, where status quo has been kept.
IL&FS auditors may be getting into a tight spot as the government has taken up cudgels against the auditors for not able to detect even the most flagrant form of violations. Auditors are alleged to have approved incurred and fraudulent statements of the debt-laden IL&FS and the crisis could have been substantially averted if the auditors had been more vigilant. This is based on an interim report filed by the ICAI. The ICAI report led to the MCA reopening the last five years of accounts of IL&FS all over again. The note also sought recasting of the accounts by a government appointed auditor. For example, IL&FS did not meet the RBI norms for CICs, overlooked investments made by the parent in the subsidiaries, ignored serious asset-liability mismatches and ignored heeding ratio warnings.
The government may offer additional Rs.7400 crore of soft loans to sugar mills for creating ethanol capacity under a recently launched scheme. Even non-molasses based distilleries will be allowed to avail these soft loans as the government is trying hard to reduce the consumption of fossil fuels by doubling ethanol blending. It is expected that ethanol doping of petrol will not only help the farmer get a better price for cane but also enable India to reduce its dependence on oil imports. India’s production in this sugar cycle is likely to be 31.5 million tonnes of sugar, slightly lower than last year.
