The trade war may have received a new dimension as China has refused to ease curbs on tech firms, despite US demands. This announcement comes from China notwithstanding the fact that one more round of trade negotiations was just about to begin. China currently discriminates against foreign cloud computing companies, has limits on overseas data transfer and also insists on the local storage of data. In fact, China has withdrawn the initial digital trade offer that it had made. Trump has been trying to make long term structural reforms part of the agenda for trade talks with China, which Xi is opposed to.
Foreign portfolio investors (FPIs) have infused a total sum of Rs.38,211 crore into Indian markets in the first 3 weeks of March 2019. FPIs have been consistently buying into India on hopes of rupee revival and the possibility of a stable government at the center. FPIs infused Rs.27,424 crore into equity and Rs.10,787 into debt markets in the first 3 weeks of March. This is sharply higher than the corresponding inflow in the month of February. The Fed dovishness has also given further impetus to the emerging market (EM) currencies and India has also been one of the key beneficiaries.
Real estate investment trusts (REITs) are likely to come as a major savior for the cash strapped realty sector in India. More so; after the success of the IPO of Embassy Office Parks last week! This is likely to come as a boost to real estate developers looking to monetize the hidden value in future cash flows. In India, REITs entail a minimum investment of Rs.50,000 and REITs are only permitted in the commercial realty sector. The oversubscription of the Embassy REIT is an indication of the appetite for such a product. However, the performance post listing will be the acid test for these REITs.
The woes may not be fully over for the housing finance companies in India. ICRA expects pressure on HFCs to continue in the fiscal year 2019-20 also. HFCs are likely to report lower credit growth of 13% in the current fiscal and according to ICRA, the growth in the next fiscal could at best be 100 bps higher at around 14%. HFCs have been through a sharp liquidity crunch this fiscal and could see Gross NPAs going up from 1.4% to 1.8% (including project finance). According to ICRA, liquidity has come in but the cost of funds is still too steep. Their major investors, mutual funds, have turned risk-averse.
Notwithstanding talks of an economic slowdown and the threats of shale supply from the US, Saudi Arabia is bracing for Brent Crude at $70/bbl to balance its budget. Saudi Arabia still depends on robust oil prices to keep its economy ticking. Saudi may look to sharply cutting its exports to customers so as to keep the global oil markets undersupplied and the prices higher. While that could temporarily benefit US Shale, Saudi Arabia believes it would be worth the effort as they need a minimum $70/bbl to balance the budget. Saudi could get assistance from sanctions but global economic slowdown is not good news. The price of Brent crude is currently stuck in a narrow range between $65/bbl and $68/bbl with the pulls and pushes on both sides equally strong. High oil prices can be negative for Indian macros.
Gold imports dipped by 5.5% to $29 billion in April-February period. This sharp fall in gold imports is likely to keep a ceiling on the current account deficit. Governments are generally averse to high gold imports as it represents the use of foreign exchange to import an unproductive asset. The government had recently put restrictions on gold imports in terms of quotas and also higher import duty of 10% on gold imports. Demand for gold mainly comes from jewellers and the last year the NBFC liquidity crunch and the floods in Kerala had a dampening effect on gold since Kerala is India’s biggest gold market.
