Inappropriate to say that markets have bottomed; invest in a staggered way

At current levels, it is time to be overweight on equities.

India continues to witness a perfect storm. A once in century medical crisis has disrupted economic activities, which in turn, is reflected in financial market stress. Sectors catering to necessity are doing better than those catering to luxury. On the other hand, hospitality, entertainment and aviation have been hit badly. Major sectors such as auto, real estate, BFSI are also feeling the stress. Sectors like FMCG, Telecom, agri industries are less affected.

Financial year 2020-21 (FY21) will witness negative gross domestic product (GDP) growth for the first time after 1980. In April, steel production was down 87 per cent year-on-year (YoY) and power generation was down 22 per cent YoY. Overall business outlook, as measured by the PMI Index, was down to lifetime low. The risk of the second wave continues to exist as we do a calibrated opening of the economy.

Other countries are also in the same boat. As per IMF, the US is likely to see -5.9 per cent while the EU is likely to see 7.5 per cent contraction in GDP despite high fiscal and monetary stimulus.

However, there is a silver lining. Fertiliser sales nearly doubled in May over last year. It’s a sign of a boom in the agri sector. Britannia posted over 20 per cent revenue growth in April and May. Power demand has begun to inch up again – a sign of economic activity recovering from bottom. ‘Fastag’ & E-way bill generation of May also show some recovery from bottom.

There is also demand for good quality Indian papers, as reflected in successful offerings by Reliance Industries (RIL), Hindustan Unilever (HUL) / HDFC Life / Bharti Airtel and Kotak Mahindra Bank. MSCI & FTSE has proposed to increase India's weight in emerging market (EM) indices over next quarter. This can bring anywhere between $3-7 billion foreign portfolio investor (FPI) flows in Indian equities.

Bank of Baroda underreported bad loans by Rs 5,250 cr in FY19: RBI report

In recent months, there have been several instances of under-reporting of bad loans by lenders.

Government-owned Bank of Baroda has reported a Rs 5,250-crore divergence in the calculation of bad loans for the 2018-19 financial year.

The Reserve Bank of India's (RBI's) assessment of its gross non-performing assets (NPAs) for the year is Rs 75,174 crore. Against this, the bank had reported GNPAs of Rs 69,924 crore, it told the BSE exchange. All figures are for the recently amalgamated entity, wherein Vijaya Bank and Dena Bank were merged with BoB.

After the disclosure, BoB's share price fell by 3.3 per cent to Rs 98.9 on Wednesday. Net NPAs assessed by the RBI for FY19 are Rs 29,045 crore, as compared to BoB's own calculation of Rs 23,795 crore. The provisioning BoB had made on its balance sheet for NPAs were Rs 46,001 crore for the year; RBI says this has to be Rs 50,091 crore, an additional Rs 4,090 crore.

The bank has said of this Rs 4,090 crore divergence, it had already made a provision of Rs 1,475 crore in the current financial year. Leaving an additional impact of Rs 2,615 crore. Consequently, the adjusted net loss for FY19 is Rs 10,998 crore, in place of the earlier reported net loss of Rs 8,339 crore.

In recent months, there have been several instances of under-reporting of bad loans by lenders, prompting regulatory action by the central bank.

Last month, the capital markets regulator, Sebi, had said disclosures in respect of divergence and provisioning are in the nature of material events and, hence, necessitate immediate disclosure.

Further, this information is price-sensitive, requiring prompt disclosure by a listed entity. It has asked banks listed on the stock exchanges to make disclosure of divergences and provisioning beyond a specified threshold as soon as reasonably possible and not later than 24 hours upon receipt of RBI’s Final Risk Assessment Report.

Read Full Coverage on Market News

India 43rd most competitive economy, Singapore tops the list: Report

Singapore has moved up to the top, from the third position last year, while the US has slipped to the third place in the 2019 edition of the IMD World Competitiveness Rankings.

India has moved up one place to rank 43rd most competitive economy in the world on the back of its robust economic growth, a large labour force and its huge market size, while Singapore has toppled the US to grab the top position, a global study showed.

Singapore has moved up to the top, from the third position last year, while the US has slipped to the third place in the 2019 edition of the IMD World Competitiveness Rankings. Hong Kong SAR has held onto its second place, helped by a benign tax and business policy environment and access to business finance.

Economists regard competitiveness as vital for the long-term health of a country's economy as it empowers businesses to achieve sustainable growth, generates jobs and, ultimately, enhance the welfare of citizens.

The IMD World Competitiveness Rankings, established in 1989, incorporate 235 indicators from each of the 63 ranked economies to evaluate their ability to foster an environment where enterprises can achieve sustainable growth, generate jobs and increase welfare for its citizens.

The IMD Business School said it takes into account a wide range of statistics such as unemployment, GDP and government spending on health and education, as well as data from an executive opinion survey covering topics such as social cohesion, globalisation and corruption.

The study said the Asia-Pacific region has emerged as a global beacon with 11 out of 14 economies either improving or holding their ground.

India's ranking has improved by one place in past one year to 43rd, driven by a robust rate of growth in real GDP, improvements in business legislation and an increase in public expenditure on education.

Business Standard

Exit polls and markets: Beware! Play the expected euphoria with caution

It will be interesting to see how the new government will generate additional revenues to fund populist schemes already announced without dampening the market mood.

Markets remained highly volatile during last week with the Nifty conquering the 11,400 mark after threatening to go below 11,100 early in the week. It started the week on a pessimistic note, after IIP contracted to 0.1 per cent in March 2019, the lowest in 21 months. Continued selling by the FIIs ahead of the General Election outcome and the prevailing trade war tensions between US and China kept the market nervous. Sentiments got further hit after Indian Met department’s announcement of a late arrival of monsoon, dampened the early revival prospects of consumption focused sectors.

However, later in the week, sentiments improved after comments from U.S. President Donald Trump that he has decided to delay tariffs on auto imports by up to six months resulting in the trade war tensions easing a bit and finally Markets got a second booster from the supposedly leaked outcome of the Exit Polls predicted a Modi win.

The Exit Polls on Sunday evening revealed a smooth win for BJP-NDA with a median of about 300+ seats. The markets have given this probability a thumbs up with a gap up opening of 250 points on the Nifty and 850 points on the S&P BSE Sensex.

One needs to see whether this sustains as the final outcome rolls out on May 23. Except for 2004 where the margin of error of all the exit polls went horribly wrong, rest of the election years from 1998 were fairly consistent in terms of the direction. However, 

looking at the margin of victory as per the exit polls, it seems BJP-NDA will sail through even if one would assume a 10 per cent margin of error. Assuming that it’s a comfortable victory for BJP-NDA, we could see the up move converting into euphoria as the foreign institutional investors (FIIs) may again make a beeline to invest in an economy where there is political stability and visibility. It would have also caught the naysayers on the wrong foot with short sellers running for cover. All those sitting on the side-lines would be forced to jump in lest they miss the rally.

After the initial festivities, the marketmen and especially the FIIs, would look to see how Modi 2.0 will kick start the consumption cycle, improve trade deficit, provide employment opportunities and deal with farm distress. A “Damocles Sword” hanging on the NBFC sector needs to be handled deftly and swiftly lest it engulfs the economy into another rut like what Banks’ NPA did in the last two - three years. Real Estate is another elephant which is groaning under its own weight of unsold inventories and unserviceable debt. And globally President Trump’s attention may turn towards emerging markets, especially India, after China has been tamed.

Business Standard