The core sector numbers for the month of November came in at -1.5%. This is the fourth successive month for which the core sector numbers have been negative although the fall is much lower this time around. Within the core sector numbers, there were two sectors that showed a positive bounce. Cement grew by 4% during the month while refining products also showed a smart growth. However, other sectors like steel, fertilizers, electricity and other showed negative growth. The core sector comprises 42% of IIP and hence they tend to normally move in tandem.
There was mixed news on the macro front. For the first 8 months of the fiscal (Mar-Nov) 2019, the fiscal deficit had already exceeded the target by 15%. However, this is a normal scenario considering that even in the last year the fiscal deficit spillage was at a similar level as of end of November. The fiscal deficit at 3.3% remains the target for year although the government may find it hard to stick to that target considering the fiscal push given and the tax cuts. Current account deficit for Jul-Sep quarter was down sharply at (-0.9%) on the back of a sharp improvement in the trade deficit in last few months.
GST revenues for the month of December crossed the Rs.1 trillion marks for the second month in succession. The GST revenues were 9% higher in December compared to the year-ago period. However, the government needs a monthly run of Rs.1.25 trillion in GST revenues to get close to its target and that looks a steep order. The government has moved to plug some of the leakages in GST including compliance. For example, after the GST Council cut rates on end products, the credit on input GST paid was more than actual GST on the end product. These anomalies were leading to loss of revenue.
Even as the date of the trade deal is still uncertain, China is hardly relenting on its domestic stimulus. The Chinese economy has been badly in need of a stimulus and that is why the trade deal was important. However, China is not too pleased about some clauses on tariffs and import commitments. In the meantime, China has effected another major stimulus by cutting bank reserve ratios to release close to Yuan 800 billion ($115 billion) in the financial system. This is expected to give a big boost to liquidity and demand in the economy and could be a major positive for the sentiments around metal stocks.
The one major index in the world that beat all other indices in the year 2019 was the tech-laden NASDAQ. For the year 2019, the NASDAQ gave returns of 38%, something unprecedented for the index in the last 10 years. That last time it happened was in 2009 but that was on the back of the financial crisis and an unprecedented liquidity infusion. For example, the technology companies in the US took 15 years to recover the losses of 2000 but between 2015 and 2019 the NASDAQ has doubled. In the last year alone, the NASDAQ created wealth to the tune of $7 trillion (3 times the market cap of India). During the last one year, Apple gave 100% returns, while Microsoft and Facebook gave over 50% returns. Interestingly, even today at 27X earnings, the NASDAQ is 1/4th valuations seen in 2000.
CARE Ratings has downgraded Yes Bank bonds worth Rs.21, 000 crore due to uncertainty over the timeline of raising capital. In November, the CEO of Yes Bank, Ravneet Gill had claimed that Yes Bank was close to raising additional equity. However, that did not materialize. That was one of the main reasons for this downgrade. The Tier-1 capital of Yes Bank had fallen to 8.7%, just marginally above the statutory requirement of 8%. Unless the bank raises capital urgently, it would be unable to continue lending. The downgrade will impact a lot of mutual funds with large exposures to Yes Bank bonds.
