The progress of the rainfall continues to be extremely tardy. The weak monsoon report for the week raises the spectre of slower growth. Indian monsoons were below average for the fourth week in succession with hardly any rainfall over the Central and Western parts of India. This has raised some serious concerns over the cropping in these critical areas. Agriculture accounts for 15% of India’s GDP and it has larger implications for food inflation and inputs costs. The next 2 weeks will be crucial for the progress of monsoons and will have a larger impact on food grain production this year.
The much touted 5G spectrum auctions may still be some time away and Moody’s expects these spectrum auctions to happen only the second half of 2020. Moody’s has stressed that the auctions could only happen in the second half of 2020 considering the stretched balance sheets of the telecom companies. Indian has already identified the 5G spectrum (3.3-3.6 GHZ). The telecom auctions are likely to cost nearly Rs.5 trillion and telecom companies already have debt in their books to the tune of Rs.4.3 trillion. That is hardly a sustainable situation, especially considering the pressure on margins.
At long last, there appears to be some good news on the perennial problem of bad loans which fell to 9.3% in fiscal 2018-19 as per the RBI Financial Stability Report (FSR). As of March 2019, the gross NPAs of the banking system in India fell to 9.3% from a high of 11.2% a year ago. The RBI report on Financial Sector Stability expects this ratio to narrow further to 9% by March 2020. The FSR also pointed out that the market was now separating the quality NBFCs where the fund flows from banks were still available. Provision coverage improved by 800 bps to over 60% and this should make banking stocks attractive.
The long awaited tightening of rules for pledged shares and mutual funds have come as SEBI tightened rules for pledged shares and mutual funds to protect minority shareholder interest. SEBI has put greater disclosure requirement on pledged shares and better corporate governance framework for mutual funds. Any pledge of shares in excess of 20% of holdings by promoters will need a detailed explanation for the pledge. SEBI has been worried about the collateral risk to other investors. For MFs, SEBI imposes sectoral caps and also maximum mandatory caps on non-liquid holdings in liquid funds.
Macros continued to be uncertain ahead of the G-20 meet this weekend. Brent crude fell more than 100 bps to below $66/bbl. The trigger came when the Whitehouse Economic Advisor, Larry Kudlow, underscored that higher tariffs on China will go ahead. The markets were a little jittery ahead of the G-20 Summit in Osaka because any failure to arrive at a rapprochement in Osaka would literally mean the end of the road for trade talks. Meanwhile, the global equity markets also tempered on Thursday after the comments from Larry Kudlow. This was an extension to Trump’s earlier comments wherein he had spoken about a Plan-B in place in case China continued to be intransigent. In fact, after Kudlow’s comments, the global market tapered its gains as the trade war showed no signs of relenting.
It was a classic yes-no fiasco with Air India all over again. The government has confirmed that plans to divest Air India have been postponed; but not put off. This clarification came after a junior minister had tweeted that the Air India sale may be shelved. Government clarified that the proposed sale of the flagship government carrier, Air India, had not been put on the back burner, although the appetite has been tepid considering its debt burden of Rs.50,000 crore. Air India showed an improvement in performance last year and that should work in its favour in the future.
