Wall Street cracked more than 1.25% on Tuesday on global growth worries. In fact, the Dow opened weak on Tuesday after two pieces of negative news spooked the world market sentiments. On the one hand the IMF downsized world GDP growth by 20 bps for this year. On the other hand, the slowdown in China and the desperate stimulus also raises doubts on the growth revival in this year. As per Reuters, industrials and technology stocks lost ground. The sentiments were soured by the weak outlook given by the IMF chief at the WEF and that had an impact on the US markets.
IMF Chief Economist, Gita Gopinath, has stressed on the need for India to stick to its fiscal math more rigorously. Speaking on the sidelines of the World Economic Forum at Davos, Gita Gopinath underlined that the fiscal deficit in India needs to be looked at as an aggregate of central deficit, state deficit and off balance sheet deficit. According to reports, Gopinath stressed on the need for fiscal discipline, especially considering that 2019 was an election year in India. The government is already falling short on its revenue targets for GST collections and disinvestments.
In the first sign of rating agencies getting proactive, ICRA downgraded six mutual funds with high exposure to IL&FS debt. Rating agency, ICRA, has downgraded specific debt schemes of Aditya Birla MF, HDFC MF and UTI due to their high exposure to IL&FS bonds. IL&FS is in the midst of a massive liquidity crunch and has been defaulting on bonds since August last year. While exposure as percentage of AUM is quite small for HDFC AMC and Birla, the exposure is quite high in case of UTI Mutual Fund. In fact, HDFC and Aditya Birla MF have already made a provision for write downs.
In a curious twist to the Essar Steel case, Sajjan Jindal made a case for the Ruias to get Essar Steel back. Essar Steel has been in the news after the promoter had made an offer to repay the full loan of the group and get out of NCLT. While the creditors have refused to accept the offer, Sajjan Jindal feels that Ruias must be given a chance. According to Bloomberg, JSW Steel had also made an unsuccessful bid for Essar Steel. The last word is yet to be said on the subject. Of late, even SBI appears to be more inclined to let the promoter have their ownership in Essar intact.
Rupee ended 16 paisa weaker at 71.44/$ at close of trade on Tuesday. Tuesday marked the third straight day of loss for the Indian rupee after China’s weak growth numbers were announced. Rupee also weakened on concerns over global growth and foreign portfolio flows. As per a report, the currency traders are apprehensive that China may be forced to devalue the Yuan to boost growth and that could impact the rupee further. Meanwhile, crude oil dropped more than 2.7% to $61.04/bbl on slowdown worries. After gaining over 20% from the recent bottom at around $51/bbl, Brent crude has faced pressure at higher levels. The fall in the crude oil prices were driven by fears that the China slowdown could depress the demand for oil as China continues to be the largest consumer of crude.
The divestment target for the next year continues to be aggressive. India to target Rs.80,000 crore from state asset sales in 2019-20. According to a report in Reuters, the government may target close to $11.2 billion from asset sales in the coming fiscal and will include the sale of coveted Air India. The previous attempts to sell Air India had received very tepid response. As part of the divestment program, the government also plans to merge three state general insurance companies before selling a stake in them. This year the government is expected to fall short of the target by Rs.20,000 crore.
