The benchmark stock indices opened the day with strong gains but have since witnessed a sharp fall.
GDP growth figures for the quarter that ended in June are expected to be released today with analysts expecting a sharp contraction.
Join us as we follow the top business news through the day.
US tech stocks now worth more than Europe’s stock market
RBI announces measures to ensure orderly market conditions
RBI responds to rising yields.
Reuters reports: “The Reserve Bank of India announced several measures including two more tranches of special open market operations in bonds while also raising the held-to-maturity limit under the statutory liquidity ratio for banks, it said on Monday.
“The RBI remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of COVID-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability,” the statement said.
The RBI will conduct two tranches of 100 billion rupees each of simultaneous sale and purchase of bonds on Sept. 10 and Sept. 17, it said in the statement.
RBI will also conduct term repo operations for a total of 1 trillion rupees at the prevailing repo rate in the middle of September to assuage pressures from advance tax outflows, it added.”
Sensex crashes 839 points as China border tensions flare up
Stocks opened the day with significant gains only to witness a heavy sell-off through the rest of the day.
PTI reports: “Snapping its six-session winning run, the BSE benchmark Sensex plummeted 839 points on Monday as fresh India-China border tensions triggered a broad-based selloff in domestic equities.
Profit-booking at higher levels and weak macroeconomic data also fuelled the crash, traders said.
After rallying 543 points in the morning session and touching the 40,000-mark, the BSE Sensex surrendered all gains to close at 38,628.29, showing a loss of 839.02 points or 2.13 per cent.
Similarly, the NSE Nifty tanked 260.10 points or 2.23 per cent to end at 11,387.50.
In a fresh incident in eastern Ladakh, the Chinese army carried out “provocative military movements” to “unilaterally” change the status quo on the southern bank of Pangong Tso lake but the attempt was thwarted by the Indian troops, the Army said on Monday.
Sun Pharma was the top loser in the Sensex pack, plunging over 7 per cent, followed by SBI, Bajaj Finserv, Bajaj Finance, NTPC, ICICI Bank, Kotak Bank, M&M and Maruti.
Only ONGC and TCS ended on a positive note.
Indian markets opened trade on a positive note, but the sentiment failed to sustain in the afternoon session following reports of the border tensions with China, said Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi.
“Also the Sebi’s new margining system starts from Tuesday which also likely impacted mid- and small-cap stocks where aggressive profit booking was seen,” he added.
Meanwhile, market sentiment was also weakened after the release of core sector data.
The output of eight core infrastructure sectors contracted for the fifth consecutive month, dropping 9.6 per cent in July, mainly due to a decline in production of steel, refinery products and cement.
The production of eight core sectors had expanded by 2.6 per cent in July 2019, data released by the Commerce and Industry Ministry on Monday showed.
Investors are now awaiting gross domestic production (GDP) data, scheduled to be released later in the day.
Bourses in Shanghai, Hong Kong and Seoul ended in the red, while Tokyo settled with gains.
Stock exchanges in Europe were trading on a positive note in early deals.
Global oil benchmark Brent crude was trading 1.48 per cent higher at USD 46.49 per barrel.”
Retail inflation for industrial workers eases marginally to 5.33% in July
A slight drop in inflation even though it may still be above the RBI’s comfort zone.
PTI reports: “Retail inflation for industrial workers eased marginally to 5.33 per cent in July compared to 5.98 per cent in the same month last year, mainly due to lower prices of certain food items.
“Year-on-year inflation based on all-items stood at 5.33 per cent for July 2020 as compared to 5.06 per cent for the previous month (June 2020) and 5.98 per cent during the corresponding month (July 2019) of the previous year,” a labour ministry statement said.
The food inflation stood at 6.38 per cent in July, compared to 5.49 per cent in the previous month and 4.78 per cent during the same period a year ago, it added.
The All-India CPI-IW (consumer price index for industrial workers) for July 2020 increased by 4 points to 336. On one-month percentage change, it increased by 1.20 per cent between June and July 2020 compared to 0.95 per cent rise in the same period the previous year.
The data showed that the maximum upward movement in the current index came from housing group, contributing (+) 2.28 percentage points to the total change.
The food index further accentuated the overall index by (+) 1.77 percentage points.
At item level, wheat atta, mustard oil, milk (Buffalo), green chillies, brinjal, gourd, palak, parval, potato, tomato, snack saltish, cooking gas, firewood, bus fare, petrol, tailoring charges, etc are responsible for the increase in index.
However, this rise was checked by rice, fish fresh, goat meat, poultry (chicken), lemon, etc, putting downward pressure on the index.
At centre level, Jamshedpur recorded the maximum increase of 36 points followed by Haldia (23 points), Tiruchirapally (13 points), Kodarma and Faridabad (12 points each), Srinagar (11 points), Lucknow and Doom-Dooma Tinsukia (10 points each).
Among others, 8 points increase was observed in 2 centres, followed by 7 points in 5 centres, 6 points in 8 centres, 5 points in 7 centres, 4 points in 10 centres, 3 points in 9 centres, 2 points in 9 centres and 1 point in another 9 centres.
On the contrary, Madurai recorded the maximum decrease of 5 points. Among others, 3 points decrease was observed in 1 centre, 2 points in another 1 centre and 1 point in 2 centres. Rest of 6 centres’ indices remained stationary.
The indices of 31 centres are above All-India Index and 45 centres’ indicators are below the national average. The indices of Chhindwara and Jalandhar centres remained at par with All-India Index.
Commenting on the data, Labour Minister Santosh Gangwar said, “The rise in annual inflation is mainly due to hike in house rent and items like Potato, Tomato, Medicine, Bus Fare, Petrol, etc“.
The CPI-IW is a benchmark for working out dearness allowance for the government employees and pensioners.”
Rupee pares early gains, settles 21 paise down at 73.60 against US dollar
The currency market’s moves mirrored that of stocks.
PTI reports: “The rupee pared its early gains and settled 21 paise down at 73.60 (provisional) against the US dollar on Monday, tracking muted domestic equities and a rebound in the American currency.
Forex traders said border tensions between India and China dampened investor sentiment.
At the interbank forex market the domestic unit witnessed highly volatile trade. It opened on a strong note at 73.26, but lost ground during the day and finally ended at 73.60 against the greenback, down 21 paise over its previous close of 73.39.
During the trading session, the local unit witnessed an intra-day high of 73.25 and a low of 73.80 against the US dollar.
“The Indian rupee depreciated against the US dollar amid concerns over escalating geopolitical tensions between India and China,” said Sriram Iyer, Senior Research Analyst, Reliance Securities.
In a fresh incident in eastern Ladakh, the Chinese army carried out “provocative military movements” to “unilaterally” change the status quo on the southern bank of Pangong Tso lake but the attempt was thwarted by the Indian troops, the Army said on Monday.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09 per cent higher at 92.45.
On the domestic equity market front, the 30-share BSE benchmark Sensex was trading 745.60 points lower at 38,721.70 and broader NSE Nifty declined 228.60 points to 11,419.00.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 1,004.11 crore on Friday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, rose 1.40 per cent to USD 46.45 per barrel.”
Goldman sees oil market recovery gathering pace in 2021
A bright outlook for the oil market.
Reuters reports: “Goldman Sachs expects Brent prices to rally in 2021, bolstered by a tighter oil market and as an economic recovery from the coronavirus-induced slump gathers pace, helped by a possible vaccine.
Goldman forecast Brent prices to rally to $65 per barrel by the third quarter of 2021 and average $59.40 for the year.
“Key to the resilience of spot prices despite stalling inventory draws this summer has been the steady rally in long-dated prices,” the bank said in a note dated Aug 30.
The rally in long-dated prices reflects improving growth prospects for next year, Goldman added.
Brent prices have rebounded sharply since plunging to a more than 20-year low in April, helped by production cuts by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) and as many economies began to ease lockdown measures.
“There is a growing likelihood that vaccines will become widely available starting next spring, helping support global growth and oil demand, especially jet,” the bank said.
The Wall Street bank saw demand rising by 3.7 million barrels per day from January to August next year.
It forecast oil supply to be tighter in 2021 as OPEC+ will likely stick to its production quota in the second half of 2020 and a rebound in shale activity stays limited.
OPEC+ eased output cuts levels to 7.7 million barrels per day (bpd) this month from a record high 9.7 million bpd – or 10% of global supply – between May and July 2020 – to help balance supply with collapsing demand.”
Modi govt destroying informal economy, says Rahul Gandhi
The Narendra Modi government had launched a planned attack on India’s informal economy, and the nation-wide lockdown during the COVID-19 pandemic was an example, former Congress president Rahul Gandhi said on Monday in his latest video series.
The BJP’s attack on the informal sector was a conspiracy to turn people engaged in this sector into slaves, Mr. Gandhi alleged.
He said Prime Minister Modi wanted to take out the money in the informal sector and cited demonetisation and the flawed Goods and Services Tax (GST) as other examples of the assault on the informal sector.
“For the first time, the economy is facing a recession. But asatyagrahi [believers of untruth] are blaming it on God,” Mr. Gandhi said in a Hindi tweet, alluding to Finance Minister Nirmala Sitharaman’s “Act of God” reference during a GST council meeting.
“The BJP government has been attacking the informal sector over the past 6 years. I am giving you three massive examples right now — Demonetisation, wrong GST and Lockdown. Don’t think the lockdown was unplanned. Don’t think it was done at the last minute. The aim of these three decisions was to destroy our informal sector,” Mr. Gandhi said in the video.
Most companies that availed loan moratoriums were facing challenges before COVID-19: Crisil
An unintended consequence of RBI’s loan moratorium may be the propping up of zombie companies.
PTI reports: “Most companies that availed loan moratoriums have sub-investment grade ratings and were facing challenges before the onset of the pandemic itself due to slowing economic growth, domestic ratings agency Crisil said on Monday.
In a report released on the last day of the moratorium, the agency said it analysed 2,300 non-financial sector companies which have taken recourse to non-payment of loans, and found that three-fourths of entities are sub-investment grade.
The RBI introduced the loan moratorium from March to help businesses and individuals impacted by the pandemic. Interest on the loans will keep getting accrued, but a borrower will not be tagged as a defaulter for non-payment.
It can be noted that the Indian economy has been grappling with a slowdown in economic growth for multiple quarters and GDP came down to 3.1 per cent in January-March quarter.
“Three out of four entities that availed of moratorium are rated in the sub-investment grade. Most of them were grappling with a slowing economy before the pandemic began,” the note from Crisil said.
It said the moratorium has provided much-needed liquidity support to mid-sized sub-investment grade companies rated ‘BB+’ or lower and has also prevented a sharp weakening in their credit profiles.
Only one out of four companies that availed the moratorium is rated in the investment grade, the agency said, explaining that they took recourse to the dispensation to build a liquidity cushion for exigencies in the near term.
“While every sector has been affected by the dislocations stemming from the pandemic, the majority of those with lower resilience have availed of the moratorium,” its senior director Subodh Rai said.
Heavily impacted sectors such as gems and jewellery, hotel, auto components, automobile dealers, power (power utilities, independent power producers and energy traders), packaging, and capital goods and components, have seen a fifth of the companies availing moratoriums whereas its only one in ten for less-impacted sectors such as pharmaceuticals, chemicals, FMCG, secondary steel and agriculture.
The agency also found that revenue size seems to be having an influence on taking to moratorium, and the smaller-sized ones tend to take it more.
Mid-sized companies having a turnover of between Rs 300-1,500 crore which have availed the moratorium are thrice the number of those having a turnover of above Rs 1,500 crore, it said.
“The moratorium has been crucial in averting sharp downward rating actions in the face of shrinking turnover and declining profitability. It helped companies manage the sudden stretch in working capital cycles and cash flows amid the bleak business environment,” its director Rahul Guha said.
The demand environment continues to be muted and companies in low-resilience sectors will continue to be under stress for two-three quarters, it said.
Debt restructuring, which kicks-off from Tuesday, can play a crucial role in supporting the credit profiles of mid-sized companies, it added.”
The Hindu Explains | Why has Japan mooted the Supply Chain Resilience Initiative?
The story so far: With COVID-19 and trade tensions between China and the United States threatening supply chains or actually causing bottlenecks, Japan has mooted the Supply Chain Resilience Initiative (SCRI) as a trilateral approach to trade, with India and Australia as the other two partners. The initiative is at the strategy stage and has some way to go before participants can realise trade benefits.
What does supply chain resilience mean?
In the context of international trade, supply chain resilience is an approach that helps a country to ensure that it has diversified its supply risk across a clutch of supplying nations instead of being dependent on just one or a few. Unanticipated events — whether natural, such as volcanic eruptions, tsunamis, earthquakes or even a pandemic; or manmade, such as an armed conflict in a region — that disrupt supplies from a particular country or even intentional halts to trade, could adversely impact economic activity in the destination country.
Future Group shares jump after Reliance deal for retail arm
Some palpable enthusiasm among Future Group investors after the Reliance deal.
Reuters reports: “Shares in Indian conglomerate Future Group’s companies jumped on Monday after Reliance Industries Ltd said it would buy the group’s retail arm in a $3.38 billion deal, including debt.
Future Retail Ltd’s shares surged 17% after the deal, which was announced on Saturday. Future Enterprises Ltd jumped 5% and hit an upper price limit.
Future Lifestyle Fashions rose 5%, while Future Consumer Ltd was up 4.8%. Future Supply Chain Solutions jumped 5%.
Shares in oil-to-telecoms conglomerate Reliance, India’s most valuable company, were up 1.1% after the deal.
Reliance’s grocery and fashion retail businesses will benefit from Future’s “strong” brands, analysts at Anique Stock Broking Ltd in Mumbai said in a client note.
Shares in several Indian banks, which reportedly have exposure to the indebted Future Group, also rose on Monday.
Lenders led by Axis Bank Ltd have a total exposure of 160 billion rupees ($2.2 billion) to Future Group, the Mint daily reported.
A consortium led by Bank of India has an exposure of 57.50 billion rupees, while Axis Bank and Bank of Baroda Ltd have exposures of 12.5 billion rupees and 7.5 billion rupees, respectively, the newspaper reported, citing data from ICICI Securities.
Shares in state-run Bank of India were up 7.2% in early trading. Axis Bank was up 1.8%, while Bank of Baroda gained 1.3%. The Nifty banking index was up 1.3% amid an upbeat broader market.”
Delinquencies in US mortgage-backed securities shoot up
The current banking challenge is the most intractable one even before COVID-19: Urjit Patel
In his first interaction with a journalist after stepping down from the Reserve Bank of India (RBI), former Governor Urjit Patel spoke about his new book, Overdraft: Saving The Indian Saver, with Puja Mehra in a conversation on invitation from the Pune International Centre. Edited Excerpts.
What made you decide to write this book?
My teacher Professor T.N. Srinivasan used to say that in India our macroeconomic challenges always had microeconomic sources. In the banking sector in India, which I have observed at various distances over the last 30 years, it’s the other way round. Our macroeconomic problems have created financial sector crisis periodically. The current banking challenge is the most intractable one even before COVID. We have a tendency to make a premature pronouncement of victory over any challenge that we desire to solve. We get tired very quickly. Look at our fiscal policy — from very high levels of fiscal deficit we would have a couple of years of very modest declines. So, from a very high level we could go to a slightly lower high level and everyone says, ‘Oh, we have now had too much fiscal consolidation so let’s go back to our usual norm’. Ditto for bad debts. This does not lead to good outcomes; it just accentuates problems by storing them up.
RBI governor rules out stagflation, expects consumer inflation to moderate
Shaktikanta Das has dismissed worries of stagflation despite faltering growth amid rising inflation.
Reuters reports: “Reserve Bank of India Governor Shaktikanta Das told the Financial Times newspaper that he does not think there will be stagflation and that the consumer inflation should moderate.
“I do not agree that we are likely to face a situation of stagflation,” Das told the newspaper in an interview published on Monday. “I am of the view that consumer inflation, going forward, should moderate.”
He also suggested that another round of stimulus was likely on the cards.
“The government will announce more growth-supporting measures,” he said.
“But whatever fiscal expansion they undertake will be very calibrated and very prudent in its approach.””
Indian economy likely to see record quarterly slump as pandemic hits
The real impact that the pandemic and the lockdown have had on the Indian economy will become clear today.
Reuters reports: “India’s economy likely suffered its largest quarterly slump on record, data is expected to show on Monday, as coronavirus-related lockdowns add to already-declining consumer demand and investment.
Economists in a Reuters poll predicted that gross domestic product in world’s fifth-largest economy will contract by 18.3% in the June quarter, compared to 3.1% growth in the previous quarter, the worst performance in at least eight years.
The same economists predict a contraction of 8.1% and 1.0% in the September and December quarters respectively, which would dash any hopes of an economic recovery this year.
India has reported over three and a half million cases of the novel coronavirus – third behind only the United States and Brazil.
Continuing restrictions on transport, educational institutions and restaurants – and weekly lockdowns in some states – have hit manufacturing, services and retail sales, while keeping millions of workers out of jobs.
Shilan Shah, India economist at Capital Economics, Singapore, said in a note on Friday the economic damage caused by pandemic-related lockdowns was much worse in India than any other country in Asia.
“Timely indicators show that the post-lockdown recovery is now stalling, underscoring the long and difficult road ahead for India’s economy,” said Shah, who is predicting a 15% contraction in June quarter.
Some private economists said the fiscal year that began in April could see a contraction of nearly 10%, the worst performance since India won independence from British colonial rule in 1947.
Prime Minister Narendra Modi announced a $266 billion stimulus package in May, including credit guarantees on bank loans and free food grains to poor people, but consumer demand and manufacturing are yet to recover.
The Reserve Bank of India, which has reduced the benchmark repo rate by a total of 115 basis points since February, kept rates on hold earlier this month amid rising inflation.
Policymakers said federal and state governments are unable to increase spending, following a more than 40% fall in tax receipts in the June quarter.
However, following normal monsoon rains the farm sector, which accounts for 15% of economic output, may give hope that rural economy will be able to support millions of migrant workers, who returned to their villages from the cities when the lockdown began.”
A letter to the investing class of 2020
Dear new investors of 2020, this is one of the strangest of times to start investing. Whether you make a success out of your investment journey or call it quits will depend on what you make of this year!
I said these are the strangest of times to invest. Here’s why.
When your stock market valuations hit a new high — with an early 30s price-earnings ratio — and your GDP growth is at a decadal low — that’s strange.
When you have lending rates at multi-decadal lows and yet there is little growth in loans, that doesn’t seem normal!
When the Nifty bounces back 50% from its March lows but saw its June quarter earnings fall more than half over a year ago, it is odd.
When nobody wants to buy anything, for fear of running down their savings in these tough times, the consumer inflation is at a peak 6.9%. That seems weird.
Sensex rallies over 500 points in early trade; RIL jumps over 2%
A great opening to the day for stocks ahead of the release of quarterly GDP figures later today.
PTI reports: “The BSE benchmark Sensex rallied over 500 points in early trade on Monday driven by gains in index-heavyweights HDFC twins, Reliance Industries and ICICI Bank amid persistent foreign fund inflow and positive trend in global equities.
The BSE Sensex was trading 520.67 points or 1.32 per cent higher at 39,987.98; while the NSE Nifty was up 141.05 points or 1.21 per cent at 11,788.65.
IndusInd Bank was the top gainer in the Sensex pack, surging around 4 per cent, followed by HDFC Bank, Axis Bank, ONGC, Tech Mahindra, ICICI Bank and Bajaj Finserv.
Shares of Reliance Industries jumped over 2 per cent after the company announced acquisition of Future Group for Rs 24,713 crore to bolster its fast-growing retail business.
On the other hand, Bharti Airtel, Sun Pharma and Bajaj Auto were the laggards.
In the previous session, Sensex ended 353.84 points or 0.90 per cent higher at 39,467.31, while Nifty surged 88.35 points or 0.76 per cent to close at 11,647.60.
Exchange data showed that foreign institutional investors bought equities worth Rs 1,004.11 crore on a net basis on Friday.
According to traders, stock-specific action, positive cues from Asian bourses and sustained foreign fund inflow lifted domestic benchmarks in early trade.
Bourses in Shanghai, Hong Kong and Tokyo were trading with significant gains in mid-day deals, while Seoul was in the red.
Global oil benchmark Brent crude was trading 0.61 per cent higher at USD 46.09 per barrel.”
FPIs invest Rs 47,334 crore in August so far
Foreign investors remain net buyers of Indian assets despite all the economic uncertainty.
PTI reports: “Overseas investors remained net buyers in Indian capital markets in August so far, pumping in a massive Rs 47,334 crore on net basis as excess liquidity in the global markets and low interest rates drove money to emerging markets.
According to the depositories data, the equities segment saw a net investment of Rs 46,602 crore while Rs 732 crore was invested in the debt segment by foreign portfolio investors (FPI) in August so far.
The total net investment between August 3-28 stood at Rs 47,334 crore. Prior to this, FPIs were net buyers for two consecutive months. They invested Rs 3,301 crore in July and Rs 24,053 crore in June on net basis.
“FPIs have invested over Rs 80,000 crore in equities since April this year. More than 50 per cent of this investment took place in August itself,” Harsh Jain, co-founder and COO at Groww, said.
Rusmik Oza, executive vice-president, head of fundamental research at Kotak Securities said that “FPIs continue to remain net sellers this week in most emerging and Asian markets except India and South Korea“.
“On month to date and calendar year to date basis also, FPIs have been sellers in most emerging markets and India has remained an exception.”
Himanshu Srivastava, associate director – manager research, Morningstar India, said excess liquidity in the global markets and low interest rates have resulted in foreign money to flow into the Indian equity markets, among others.
FPIs have turned their focus towards emerging markets like India also because these markets have been performing well and offer a good potential to generate better returns.
Indian equities continue to be attractively valued thus drawing FPI’s attention, Srivastava added.
“Recent qualified institutional placement, follow on public offer and initial public offers by many companies have also caused a lot of FPI money to flow into India. They are investing in companies they believe are good picks and are suffering temporarily due to the COVID-19 situation,” Jain said.
In fact, many bets made in April this year have already resulted in handsome gains for some FPIs, he added.”
Warren Buffett looks to Japan, takes 5% stakes in five trading companies
Berkshire Hathaway Inc said it has acquired slightly more than 5% of the shares in five large Japanese companies, marking a departure for Chairman Warren Buffett as he looks outside the United States to bolster his conglomerate.
In a statement on Sunday, Mr. Buffett’s 90th birthday, Berkshire said it acquired its stakes in Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co and Sumitomo Corp over approximately 12 months.
Berkshire said it intends to hold the investments for the long term, and may boost its stakes to 9.9%. A Berkshire insurance business, National Indemnity Co, is holding the shares.
“I am delighted to have Berkshire Hathaway participate in the future of Japan,” Buffett said in a statement. “The five major trading companies have many joint ventures throughout the world and are likely to have more…. I hope that in the future there may be opportunities of mutual benefit.”