The biggest election in the world’s largest democracy took off with Phase-1 kicking off in India on 11th of April. The first phase of voting in India saw lower-than-average voting across many states. For example, UP recorded a turnout of just 63% while Bihar was 53% and Uttarakhand was about 57%. There are a total of 90 crore voters who are eligible to vote in this election and entire polling will be completed in 7 phases. Normally, voter turnout has a major implication for vote shares for political parties. The markets are largely betting on the NDA returning to power with a comfortable majority.
The woes of sugarcane farmers are far from over. In fact, Indian sugar mills owe nearly $4.38 billion to the cane farmers as per reports in Reuters. Indian sugar mills have run up a debt of close to $4.38 billion to nearly 5 crore cane farmers across India. India had produced nearly 36 million tonnes of sugar in the last sugar cycle and that glut of supply had pushed down sugar prices. Despite governments promising sugar farmers payments in 15 days, they are due for more than 1 year now. Most sugar mills are selling sugar below the government stipulated price to clear stocks and hence the payment delays.
Even as auto stocks struggle with weak demand there may be good news for tire companies. The rating agency, ICRA, expects tyre demand to grow by up to 8% till FY-2023. ICRA expects that with stable demand outlook and a strong credit profile, tyre companies may be inclined to invest in building capacity in the next 2-3 years. According to ICRA, the tyre industry is expected to invest close to Rs.20,000 crore in capacity expansion in the next 3 years. The tyre industry is already growing at 10% and OPMs are strong at nearly 15% annually. This makes a case for better valuations.
After a 50 year low in credit growth in 2017, Banks closed FY19 with 13.2% credit growth and 10% deposits growth. After credit grew at less than 5% in FY-17, the latest fiscal year has seen bank lending and deposits grow in double digits. This has been partly attributed to a faster resolution to the NPA problem through the NCLT mechanism and more banks coming out of the Prompt Corrective Action (PCA). Credit growth is the key to PSU banks returning to profitability. Most PSU banks need to expand their lending books to keep pace with the growth in deposits and to boost bank profits.
The rupee and Brent continued to play on the stock markets. Sensex and Nifty ended higher but stay cautious on rising VIX. The volatility index (VIX) has shot up to above 21 levels. The VIX had remained in the range of 12-15 for a long time except during the liquidity crunch last year. Higher VIX is indicative of caution among traders in the markets. In the meanwhile, there was good news on the currency front with the Rupee strengthened for the third day to 68.92/$ on strong flows. A combination of IMF growth outlook for India, the strong FPI flows and the willingness of exporters to convert dollars into rupees has led to a surge in the rupee in the last few days. The previous month saw the trade deficit narrowing and trade analysts are expecting a repeat. Weakness in the dollar index (DXY) has also helped the rupee.
The seesaw in oil prices continued with Brent Crude falling by 151 bps to $70.65/bbl on Thursday on the back of US supply worries. After closing at a 5-month high of $71.63/bbl on Wednesday, Brent Crude gave up most of its gains as higher supply from the US was expected to compensate for the supply shortfall from Libya, Venezuela, and Iran. Also, Russia does not appear to be too keen to support the OPEC supply cuts of 1.2 million bpd beyond September. IMF growth worries are also playing on crude at higher levels. Normally, the price of the impact of a GDP slowdown tends to be quite sharp.
