The pressure of weak exports and the trade war started showing once again as India’s trade deficit widened to $15.4 billion for the month of April 2019. The main reason for the sharp rise in the trade deficit was the marginal 0.64% growth in the exports. While exports rose to $26 billion, imports were 4.5% higher at $41.4 billion. Oil imports were higher by 9.3% at $11.38 billion accounting for more than 25% of India’s total imports. The big worry was the gold import bill which was sharply up by 54% for the month at $3.97 billion, considering that this is an unproductive use of forex resources.
The IL&FS case could be a game changer for the role of independent directors; at least that is what it looks like. Independent directors of IL&FS have come under the scanner of The Ministry of Corporate Affairs, which is looking into the role played by auditors, credit rating agencies and some independent directors in exacerbating the crisis at IL&FS. When IL&FS started defaulting with outstanding loans of Rs.94,000 crore, it was evident that there were serious lapses of governance and audit compliance. It is now almost 1 year since the first default came to light and the case still carries on.
Oil was volatile but the supply factors put some downward pressure on oil prices. Brent Crude fell below $71/bbl as US reports rise in crude oil inventories. According to the International Energy Agency (IEA), the US output stayed above 12.6 million bpd even as the weekly inventories rose by 8.6 million barrels to a total reserve of 478 million barrels. This higher US output has managed to make up for the loss of output from Iran and Venezuela. The trade war is getting deeper and that is also putting downward pressure on prices. Hedge funds continue to remain long on oil in the futures market.
There is still hope that the impact of the weak Yuan would not be too hard on India. Global investment banks do not see big Yuan devaluation despite slowing GDP growth. UBS expects the Chinese GDP falling below the 6% mark but expects the Yuan to fall to a level of 7.2 only if there is a full-blown trade war. As of now, the trade war has been a combination of tariffs and trade talks. Morgan Stanley was less bearish on the Yuan and does not see it depreciating beyond 6.6. A weak Yuan would put pressure on the INR as was last seen in September 2015.
Sensex and Nifty reversed the Tuesday pattern on Wednesday to correct sharply in the last hour. While the indices bounced in the last hour on Tuesday, the reverse happened on Wednesday as markets are back to Monday levels. There is a weekly expiry of F&O positions coming up on Thursday and the VIX is still at elevated levels of 28.60. The Advance / Decline ratio was quite weak at 11:39. The big fall in the indices came after the IMD affirmed the delay in the onset of monsoons. IMD has concurred on Monsoon delay and pegs Kerala onset after June 06th. This is just a couple of days after the SKYMET forecast. The IMD has projected a 6-day delay in the Kerala onset with a margin of error of a couple of days. SKYMET and the IMD have concurred that the impact of the El Nino may be lower than anticipated.
There was a knock on sentiments in the US consumption front. Retail sales in the US fell sharply in the month of April as American households cut back on purchase of motor vehicles and a range of other consumer products and that impacted retail sales in the month of April. In the midst of the escalating trade war between the US and China, industrial production had also fallen last month. While US retail sales had surged by 1.7% in March, it was down by 0.2% in the month of April. Robust growth in the US and buoyant consumer spending is at the core of a recovery in the global markets.
