The trade war is not ending any time soon; at least that is the impression President Xi Jinping of China gave when he asked the Chinese to prepare for tough times. In a clear indication that the trade talks were heading nowhere, Xi Jinping has conceded that the global situation was getting increasingly complicated. The US has imposed heavy tariffs of 25% on Chinese goods worth $200 billion and China has also retaliated. Despite the US sobering down on the Huawei blacklisting, Xi has warned that China will have to increasingly look inward. This may not be great news for global growth in GDP.
With the IL&FS problems festering for long enough, the RBI is likely to toughen access to public deposits for NBFCs. In troubled times for the NBFCs, the RBI may be adding one more challenge for them. Most NBFCs are already struggling in the aftermath of the IL&FS crisis and have been asking for a separate line of credit. RBI wants to put curbs on NBFCs approaching the non-banking players like mutual funds, pension funds and provident funds for deposits as these represent long term retail savings. There have been quite a few cases of NBFCs getting deposits of public money entailing higher risk.
What happened to telecom 2 years back may now happen to NBFCs. At least, Fitch expects the IL&FS crisis to lead to consolidation of NBFCs in India. The Fitch view came in light of the RBI decision to create a separate supervisory division within RBI. Already, the IL&FS fiasco has led to higher cost of funds and also liquidity tightness for NBFCs. According to Fitch, with the crunch likely to continued, consolidation may happen in the form of mergers, acquisitions with larger names with a stronger balance sheet. Already, some of the NBFCs have merged themselves into larger banks to get a capital base.
A day after the mutual funds were permitted to trade commodity derivatives, albeit with restrictions, portfolio management services (PMS) registered with SEBI have also been permitted. The pre requisite is to put it in the client agreement and also appoint a commodity custodian. Unlike MFs, there is no condition of offloading physical positions within a month. Unlike the mutual fund, which is a mass market product, the PMS can be more flexible in commodity derivatives since it only needs to get the client consent for the same. They can also create structures out of it at a later stage.
A day ahead of the election vote counting, the Nifty and Sensex were stable even as VIX spurts to a 4-year high. Both the indices closed in the positive although the direction was not very decisive. The volatility index (VIX) shot up to 30.18 intraday but closed below the 28 mark. The sharp rise in the VIX can be attributed to a spurt in hedging demand. On the subject of the outcome of the elections, the all important counting of votes will happen on 23rd May. BJP and Congress held key meetings with their allies ahead of counting day. SEBI and the exchanges stepped up surveillance mechanisms. Both the BJP and the Congress have met their key allies and a lot will finally depend on how the regional parties and smaller allies perform. Uttar Pradesh, Bihar, West Bengal and Maharashtra could be the key states.
Slow down fears were back to haunt the demand outlook for oil and as a result Brent Crude prices dropped closer to $71.50/bbl. The fall in oil was also aided by rising oil stockpiles in the US. Despite the tensions in the Middle East and the sanctions on Iran, oil prices came under pressure as US stockpiles of oil remained robust. With Xi warning the Chinese people of protracted economic challenges, the trade war looks set to continue for quite some time. That is also likely to put pressure on global growth and oil demand. The Middle East could hold the key to the trajectory of oil prices from here on.
