For the first time, the United Nations has put out the actual loss estimates likely from the Coronavirus pandemic. The worst case estimate by UN is that the virus could lead to a total loss of 25 million jobs across the world with low-end jobs likely to be the most affected. In addition, the UN has also estimated that workers could lose out on income to the tune of $3.4 trillion due to the pandemic and this could have a deep impact on the consumption demand across the world. However, the UN has also added that a well coordinated policy response could significantly lower this impact on the economies.
The Supreme Court came down heavily on the DOT and the telecom companies for doing self-assessment of telecom dues. According to the SC, this amounted to contempt of court since the judgement had already been passed. The telecom stocks, especially Bharti Infratel and Vodafone Idea took deep cuts after the Supreme Court judgement. The judgement also resulted in deep correction in some of the banking stocks like IndusInd Bank, ICICI Bank and Kotak Bank which have substantial exposure to the telecom sector in India. The SC will hear the Solicitor General’s plea after a fortnight.
Government is likely to cut interest rates on small saving and on PPF. Most of the small saving products still offer artificially high rates of interest which are not exactly linked to the market rates. This leads to a distortion of the yield curve since these small savings products also offer tax breaks. For example, PPF offers 8.5% interest, the interest is tax-free, there is Section 80C exemption on investment and redemption is also tax free. This creates a situation where banks end up at a disadvantage. Hence they are not able to cut rates on deposits and also they are unable to pass on rate cuts to borrowers.
The year 2020 has already proved to be the most volatile year since 2011. In the first 3 months itself, there have been 6 instances of the market giving a volatility of more than 3% in a single day. By the end of the year it is expected that the volatility should be more than 2011 and it may end up being the most volatile year in the last two decades. One clear indicator of volatility is the elevated levels of VIX. The volatility index (VIX) has stayed above 50 for a prolonged period and that is also taking its toll on the markets. Equity markets are normally under pressure whenever the volatility reigns high.
Brokers and rating agencies are already busy putting out estimates of how much the RBI could cut rates as a policy response to weak growth. According to Bank of America, Indian GDP could grow at just about 4% in the March quarter and also in the June quarter. This will be a lost half year for India. Fitch expects the GDP growth to remain under pressure for most of fiscal 2020-21. Most brokers are also expecting aggressive rate cuts by the RBI. For example, BOFA expects 75 bps rate cut by the RBI in the next 1 year while Fitch believes that the RBI could take rate cuts as much as 175 basis points by the end of calendar year 2021. In the last few weeks when the global central banks have all aggressively cut rates, the RBI has appeared to be in no hurry to cut rates and preferred to stick to open market operations (OMOs).
According to a Reuters report, the deep cuts in oil prices could create a situation where economies may look to start building oil reserves. The price of Brent has dipped below $27/bbl while Texas Intermediates dipped below the $23/bbl mark. Normally, this is the level when most economies choose to build up their reserves. The bigger worry is that the glut in April could be the largest ever and as storage capacity nears full capacity, the price of oil could fall close to the low of $10/bbl. This was last seen in 1998 before all the oil producers got together to cut supplies and prop up oil prices.
