Black Friday

It's Thanksgiving but D-Street has no reason to be in festive spirits this holiday season. The latest GDP numbers for the September quarter show that the economy is not in the pink of it's health. Q2 GDP growth slid to a more than six year low of 4.5% and there are no signs of bottoming out yet.  Market veterans are looking at another round of  Interest rate cuts and Quantitative Easing by the RBI at it's Monetary Policy Review meeting on 5th December. The danger here is that retail inflation has been inching upwards with the October CPI numbers at 4.62%, a 16 month high on the back of high vegetable prices . Many economists have warned about the ills of stagflation - a term which denotes periods of high inflation coupled with high unemployment and stagnant demand in a country's economy. Transmission of interest rate cuts remain slow. Since January 2019, the RBI has slashed rates by 135 basis points while the fall in MCLR rates of banks has been only 40 basis points. Credit activity in the corporate sector remains weak with NBFC's adopting a cautious approach and suffering from liquidity woes. It seems that even the big boys are not immune from the slowdown.  AUM for Bajaj Finance grew at 37% YoY while the loan book growth for HDFC Bank was at 13%, both down from their peaks by more than a third. Even the retail sector has started to signal signs of stress. Delinquency rates have perked up in the unsecured personal loan space although they are far from being worrisome.

India Inc's hopes of a festive season recovery have now started to fizzle out in less than a month. The $5 trillion dream looks far from possible at the current run rate. Foreign brokerages and rating agencies have further trimmed their growth estimates with the worst estimates coming from India Ratings at 4.7 % for the full year. Moody's on the other hand further cut its full year estimates to 5.6% and expects economic activity to revive only from 2020. The silver lining is that the Modi Government has been taking proactive fire fighting measure to re instill investor confidence in the economy. The most bold and landmark decision was the recent cut in corporate tax rates which led to a period of unseen euphoria in the stock markets.  It was a much needed move in a country where industrialists have for long whined about being forced to shell amongst the effective highest tax rates across the globe. This move brought India at par with other Asian nations. Other government initiatives include its disinvestment programme, bank recapitalisation & mergers, higher infrastructure spending, support for the auto sector as well as tax bonanzas for start ups. 

For the moment, global markets seem to be enjoying the liquidity fueled rally with the Dow Jones at record highs and the S&P 500 clocking it's best November in a decade. Nifty is close to it's all time high and crucial resistance at 12150 zones. It will be noteworthy to see if this party lasts till the dawn or it is interrupted by another Lehman moment. 

By Mudit Bhura