The much awaited Phase 1 of the trade deal between the US and China is expected to be signed today. While many issues have been put off to future meetings, the first phase is positive progress in the sense that both nations realize the importance of going ahead with their trade arrangements. While the US has not committed to reversal of all tariff hikes, it has surely put a freeze on any additional rate hikes. In return, China has committed to make additional US imports to the tune of $80 billion over the next 2 years. Meanwhile, Trump has opined that there would be no let up on blocking sales to Huawei.
At the latest meeting of the Committee of Creditors (COC) of RCOM, the company has received binding bids of up to Rs.21,000 crore from Reliance Industries and UVARC. The committee of creditors of RCOM had met to review the bids on 13th of January. UVARC offered Rs.16,000 crore for the spectrum, real estate assets and the enterprise and data centre business of RCOM. Basically, they will be taking Reliance Telecom which houses these assets. RCOM had to be referred to NCLT last year after it could not arrive at a settlement with its creditors due to differences in the haircut on loans.
The stock exchanges are awaiting SEBI nod to keep the markets open on Feb 01; the date of the Union Budget announcement. The Union Budget announcement date falls on a Saturday when markets are normally closed. The Union Budget has always been an important trigger for the stock markets and this time around it is more so as the markets are relying on a reformist budget to boost growth. Normally, stock markets have reacted positively to budgets that are progressive and at the same time maintain fiscal discipline. SEBI needs to approve any such special trading sessions in the stock exchanges.
The valuation premium commanded by the FMCG sector over the Nifty has dropped to an 11-year low. That means; this is the first time since the global financial crisis that the valuation premium has been so low. In the last one year, the consumer demand has seen a sharp compression and most FMCG companies have been hit hard by the slowdown in the rural sector. For most of the FMCG players, rural demand accounts for 40-50% of their sales and has traditionally been their growth driver. A CSFB study last year had pointed out that consumer demand was seeing postponement by as long as one year.
According to a recent CRISIL research note, the revenue growth for the December 2019 quarter was likely to be extremely insipid. According to CRISIL, the key reasons for the slowdown are weak commodity prices and languishing demand for consumer products. These estimates were based on an analysis of over 30 companies and excluded banks, insurers and oil companies. According to the CRISIL report, the revenues overall could fall by 2-3% in the December quarter on top of a 3-4% fall in revenues in the previous quarter. The report also adds that the two sectors that would drive this slowdown would be auto and FMCG. While autos are expected to report 9-10% fall in revenues, the revenue growth for FMCG segment is expected to drop to the range of 4-5%, underlining the slowdown.
A day after CPI inflation touched a 6-year high of 7.35%, the WPI inflation for the month of December 2019 also came in higher at 2.59%. Again, the key driver of higher WPI inflation was also vegetable inflation, as in the case of CPI. Wholesale food inflation stood at a high of 3.46%, sharply higher from the sub-1% levels seen in the last 3 months. However, the impact of food on WPI is limited as the weight is just 15% as opposed to a weight of 45% for the food basket in the CPI index. However, after removing food inflation, the core manufacturing WPI continued to be in negative territory for the 5th month.
