There is a lot of optimism and hope ahead of the G-20 Summit later this week. The G-20 Summit at Osaka, Japan is happening at a time when the entire world is on the threshold of an economic slowdown of 60-70 bps. The Summit also assumes significance because the leaders of the two largest economies will be meeting to decide on a resolution to the trade war. The US trade team has already initiated trade talks ahead of Trump’s meeting with Xi Jinping. A trade war resolution is critical for a recovery in China which holds the key to GDP growth across global economies, due to its strong externalities.
The 35th meeting of the GST Council focused more on anti-profiteering and processes than on rates. This was the first GST Council meet chaired by Nirmala Sitharaman and it extended the tenure of the anti-profiteering authority by 2 years and permitted Aadhar as proof for obtaining GST registration. The last date for annual returns for 2017-18 was extended to August 31st and the Council referred the decision on cut in GST on EVs to an expert committee. E-invoicing will go live in Jan 2020 and it will be restricted to B2B transactions to begin with. It is expected to plug spillages in GST revenues.
It was a week of the heavyweights giving up value in the stock markets as 6 out of the 10 largest companies on Bombay Stock Exchange eroded $8 bn last week. The erosion of market cap to the tune of Rs.54,000 crore was spread across major companies and included heavyweights like RIL, TCS, HDFC twins and Hindustan Unilever. Most stocks reacted negatively to the rising geopolitical tensions in the Middle East and higher crude oil prices. The domestic debt crisis has also put pressure on the Indian stock valuations as the markets are focused on specific cases like Jet, Jain Irrigation, and Zee etc.
With geopolitical concerns rising across the Middle East and West Asia, Brent crude settled above the $65/bbl mark. In fact, Brent crude gained over 10% in a single week as the geopolitical situation worsened in the Middle East. On Thursday, Iran shot down an American drone, which the US claimed was in international airspace. However, after ordering selective strikes on Iran, Trump withdrew the order in the last minute. The critical Strait of Hormuz remains a volatile pathway for global oil movement and moves nearly 30% of the global oil trade.
Even as Jet was admitted to bankruptcy, the markets are unclear on how Jet Airways bankruptcy resolution will play out. A couple of days after Jet Airways was admitted for bankruptcy proceedings by the NCLT, it is still unclear if potential buyers will be keen on capitalizing on the brand value. Unlike previous cases like Essar and Bhushan, Jet hardly has any assets on its books. It has bank loans of Rs.8000 crore and operational creditors of Rs.10,000 crore. In addition, Jet also has accumulated losses of Rs.13,000 crore on its books. Most of its aircraft were on lease and they have already been repossessed by the lessors while the routes and parking bays have been sold to other airlines. Markets are apprehensive that the recovery may be too small to be material and leave little for shareholders.
The Niti Aayog has asked two and three wheelers to chart out their green path and draw out detailed EV plans as well as a road map over the next 2 months. Despite the protests from the two wheeler manufacturers, the Niti Aayog has asked these companies to prepare a detailed timetable for EV launch. Niti Aayog had suggested a time line of 2023 for three-wheelers and 2025 for two-wheelers. This request comes at a time when auto sales have already slumped to a multi-year low and margins are under pressure. Full shift to EVs is some years away in most countries.
