There is finally hope for the world markets

There is finally hope for the world markets on the trade war front. The US-China trade talks concluded giving fresh hope to global markets. Global stocks moved to their highest level in four weeks as the trade talks between the US and China concluded on Wednesday. While no comments were forthcoming from either side, the reports suggest a consensus in the areas of defence and agriculture. Even the Nifty and the Sensex closed in the positive on the back of positive cues from the trade talks. If the US and China make the best of this 3 month window, then global markets should be pleased.

Jaitley is ready to present his 6th Budget of his political career. The Budget session will be from January 31st to February 13th as per government sources. The Budget will be presented as an interim budget on the regular date of Feb 01st. In a departure from routine practice, the government will present a regular interim budget instead of a Vote on Account, despite 2019 being the year when General Elections are scheduled. The budget is expected to focus on enhancing rural incomes, sops to the rural population and some ease of business to the MSMEs. Direct taxes may see status quo.

Rupee weakened by 39 bps to a level of 70.473/$ on oil worries. It is now sustaining well beyond the 70/$ mark which has been a psychological level for the rupee all along. With Brent Crude crossing the $61/bbl mark with ease on Wednesday, the rupee felt the pressure as it could imply a weakening of the trade deficit and CAD. The rupee also came under pressure after the Reuters Poll Survey warned of weakness in the rupee during 2019 due to electoral spending, sharply higher fiscal deficit and weak macros.  There was pressure of dollar buying by importers and banks on Wednesday.

The price of Brent Crude is up by nearly 20% in a span of less than 2 weeks. Brent crude rose 4.4% to touch $61.29/bbl in late trades on Wednesday. The sharp rise in Brent Crude began with short covering but fundamental factors also played along the way. According to a report by Bloomberg, the hopes of US-China trade deal coupled with OPEC supply cuts have kept crude prices high. In fact, crude has already gone up by nearly 20% from the lows touched two weeks back. High crude prices also put pressure on the INR and force the RBI to intervene to stabilize the rupee.

Airlines are all over the news again. Government of India targets Rs.7000 crore from Air India sale and will initiate this process in the second half of 2019-20 to be completed during the next fiscal. The government had tried in the past to sell Air India through the strategic divestment route but with limited success. Nearly 55% of Air India’s total debt will be transferred to an SPV as a sweetener for potential buyers. The other major airline, Jet Airways is also trying to fight its way out. Lending banks have proposed a $900 million turnaround plan. Lending banks will restructure $450 million of loans to Jet subject to Etihad infusing $450 million as capital into Jet. It has total debt of Rs.8500 crore and has been defaulting on routine payments. Naresh Goyal may have to cede control of the airlines.

As the IT results season kicks off this week, there is good news from Bloomberg estimates. Indian IT companies may report the best quarter in 2 years as per a Bloomberg report with the five large software companies expected to report the best quarter. This turnaround is expected on the back of pick-up in order flows, rise in tech spending and also on the back of a weakening of the rupee vis-à-vis the US dollar. The Bloomberg consensus estimate is that of a 3.6% growth in revenues in rupee terms and 3.9% growth in operating profits with net profits growing around the same rate.

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