It was a hardly a surprise that the Indian trade data for September showed sharp shrinkage due to the side effects of the trade war. The trade war and the slowdown in global growth are hitting Indian exports and imports. In fact, exports contracted 6.5% to a 3-month low while imports also continued the slide for the fourth month in succession by 13.85%. The net result was that the trade deficit fell to a 7-month low of $10.86 billion. However, falling trade may not be good news for India Inc as it is a clear indication that export oriented industries may be losing out on top line and bottom line.
Even as domestic funds have been net buyers, they have also been using bounces to restructure their portfolio mix. Mutual Funds used stock market rallies to offload select winners in the market and tweak their exposure risk. It may appear that Indian domestic investors have been consistent buyers even as foreign investors have been net sellers. However, post the corporate tax rate cut announcement, mutual funds were booking profits in stocks like HDFC Bank and Maruti that had rallied sharply from lower levels. Domestic MFs continued to buy into counters like Axis Bank, ICICI Lombard, and SBI Life.
Even as consumer loans are growing, business loans are decelerating, says SBI CEO, Rajnish Kumar. State Bank of India reported a sharp deceleration in working capital loans. India’s largest bank, SBI, has pointed that despite the 135 basis points rate cut by the RBI in the current year, borrowers had used up just 35% of the sanctioned working capital limits in the current year. This is lowest utilization seen in recent years, according to SBI CEO. Even as the corporate demand was slowing, home loans, auto loans and other consumer loans were seeing a spurt. That may not be great news for credit off take.
The rally in the markets was anticipated but the extent of the rally took most by surprise. Sensex spurted close to 300 points as autos, metals and FMCG stocks rallied. On a day when the markets started off ambivalently, the close was fairly decisive. The spurt in the market was led by metals which benefited from the likely trade deal and Chinese demand. The positive results of Hindustan Unilever (despite the slowdown) gave a boost to FMCG and auto stocks as it appeared that consumption stocks may not get deeply hit. VIX tapered by 3.3% on Tuesday bringing it to more balanced levels.
In a significant move, the IMF downgraded growth prospects for most economies including India and China. IMF expects India growth to be at around 6.1% with further downside risks while global growth closer to 3% for year 2019. IMF has already downgraded global growth by nearly 90 bps post since the trade war between the US and China. Trade war losses are estimated at $800 billion. The impact was felt on prices of Brent crude which closed 103 bps lower at $58.74/bbl. The crude prices could have bounced further on Tuesday but the IMF projection cutting global growth rate to 3% with further downside risk, put a ceiling to the oil prices. In addition, the rising stockpiles of crude oil with the US also brought prices down. Interestingly, OPEC has preferred oil prices above $70/bbl.
Finally, there was some good news for the UK Pound as UK stocks and the currency surged on indications of imminent BREXIT deal. The UK pound gained nearly 1% after a long time as there were clear indications that the BREXIT deal with the EU could be imminent. While the contours of the deal were not available, Bloomberg reported that the EU had taken a more balanced view of the proposal sent by Boris Johnson late last week. The deal needs to be closed by October 31st, failing which it could be a chaotic exit for UK. The contours of the deal could be the critical factor.
