Weak earnings by Indian companies in the June quarter may be indicative of large slowdown in growth as the quarterly earnings have disappointed ahead of festival season. The warning signals came from the automakers and the lenders warning of a weak growth pick up in the next few quarters. A slowdown in domestic consumption and a crunch in the financial markets have taken a severe toll on consumption. CRISIL had already warned of a GDP slowdown to 6.9% and the early quarterly numbers also appear to indicate the corporate sector putting pressure on GDP and the index of industrial production.
With India under pressure to toe the US line on Huawei, China has warned India of reverse sanctions if Huawei is blocked in India. After India had expressed security concerns over Huawei operating in 5G testing in India, China has sent a warning across to India about the possibility of reverse sanctions. India had decided to bar Huawei from testing 5G environment in India due to pressure from the US, which had imposed sanctions on Huawei. China has cautioned that it could impact Indian business interests in China, which could be serious considering that China is among the leading trade partners of India.
Global weakness seemed to take its toll on the price of crude oil as Brent crude hovered precariously around the psychological support level of $60/bbl. The tensions in the Middle East and the Iran stand-off had little impact on oil prices as Brent Crude stayed around $60/bbl on fears that the Currency Manipulator tag for China could only delay trade talks and worsen global growth. On Monday, crude had closed below the psychological mark at $59.81 and it has been seen in the past that below $60, crude tends to fall rapidly, as there are not immediate supports available to stem the fall in oil prices.
With most of the traditional NPAs addressed through the NCLT, there could be new stress emerging from additional sectors that may have put banks on the watch list of investors. Analyst and raters are getting increasingly cautious about banks as sectors like media, housing, infrastructure and NBFCs are facing troubles due to a slowdown in consumption spending. Bankers opine that while the quantum of stress may not be the same as in the past, it does raise questions about the sustainability of the retail lending boom for banks; especially the private banks that thrive on retail lending.
The rupee managed to hold around Rs.71/$ despite consistent FPI selling, but it had come under pressure on Monday after the Chinese central bank allowed the Yuan to a 10-year low beyond 7/$. The rupee has remained under pressure due to hedging demand. The rupee had touched a low of 74/$ at the peak of the liquidity crunch in October 2018. Meanwhile, China has warned the United States that the Currency Manipulator tag could create chaos in currency markets. This was just a day after the US announced that it would tag China as a “Currency Manipulator”. PBOC has refuted any allegations of using the currency as a trade tool. In fact, China has also warned the United States that such a tag could also delay the resolution of the trade dispute, which has been a sore point between the US and China.
Wall Street bounced back as China made some serious efforts to check Yuan slide. A day after China created panic in the global markets by letting the Yuan slide beyond CNY7/$, the Chinese central bank made efforts to check the slide. After weakening as low as 7.06/$, the Yuan picked up strength and closed very near to the 7/$ mark. That has led to most American and European markets seeing a bounce. However, SGX Nifty continues to trade weak. China may use the currency as a bargaining chip and even the US may be a little cautious considering the huge US Treasury holdings that China has.
