The year began with positive gains for the Nifty and Sensex. Both the indices ended in positive territory on the first day of the New Year. Nifty gained over 47 points and the Sensex gained nearly 186 points on the first day of the New Year. There was a positive advance/decline ratio of 32:18. Among the sectoral indices, banking, financials and realty were in positive territory. Auto and metal stocks came under pressure. Rupee began 2019 on a high at 69.43/$, stronger by 34 paisa on Tuesday. There was urgency among exporters to convert dollars into rupees leading to dollar selling. FPIs were net sellers.
In a major relief to aviation companies, the prices of Aviation Turbine Fuel were cut by 14.7% to Rs.58,060 per kilo litre. This cut in ATF prices comes on the back of 10.7% cut on December 01st. This cut is largely in line with the sharp fall in the price of crude oil, which has fallen nearly 35% from the September peak levels of $86/bbl. ATF prices are reset on the first of every month and this effectively brings the price of ATF below the price of petrol and diesel. ATF is a big cost component for aviation companies and this cut should help them to become more profitable.
Year 2018 was the first negative return year for Crude oil since 2015. In 2018, Brent Crude saw a 19.5% correction with WTI crude falling even sharper. Despite touching a high of $86/bbl in October, the price of Brent crude fell sharply after the US diluted sanctions on Iran and the trade war between the US and China threatened to slowdown global GDP growth. Even the OPEC decision to cut daily production by 1.2 million bpd, has not had any positive impact on oil prices. With the US shale likely to flood the market, it is feared that a glut of supply may keep pressure on oil prices.
GST revenues continued to disappoint the government of India. December GST collections came in lower than November at Rs.94,726 crore. During the year, the GST collections had crossed the Rs.1 trillion marks only in the months of April and October. The central government also released Rs.11,922 crore during the month of December as compensation to states. GST is one of the biggest heads of indirect tax collections. Fall in GST revenues only means that there may be greater pressure on the government to make up the revenue shortfall through other means.
In a bid to reduce the financial pressure on MSMEs, the RBI has announced a one-time restructuring scheme for MSMEs. The scheme will only be available for loans up to Rs.25 crore and can be offered by banks and NBFC lenders. This restructuring will be done without any rating downgrade. This announcement came after the RBI Financial Stability Report reported a sharp increase in loans to MSMEs by the banks covered under Prompt Corrective Action (PCA). In the meanwhile, Uday Kotak has underlined the heightened fragility of NBFC sector compared to last year. He warned that NBFCs may require closer monitoring after the defaults by IL&FS triggered a liquidity crunch for financial companies. NBFCs and HFCs have faced challenges on liquidity and maturity mismatch on the balance sheet.
According to global fund managers, the two big news points to watch out for in 2019 will be the trade war and Fed rate action . Fund managers have expressed concerns that the big risk for the global markers could arise if the peace talks between the US and China fail. Currently, there is a 3 month ceasefire during which both the US and China will attempt to negotiate a trade deal. The Fed has not been too emphatic about the direction of the Fed policy in 2019, although Jerome Powell has maintained a hawkish tone, there may be conflicts with Trump’s approach.
