Crude oil prices cracked sharply on Thursday by more than 7.5% to touch $38.9/bbl in the Brent market. Of course, the higher than expected US oil inventories was surely one reason, but the real reason for the oil prices was the extremely negative guidance of (-6.5%) contraction in US GDP. Fed not only warned of weak growth but also of unemployment at 9.5%. That is bad news for oil demand since the US is the largest consumer of oil. US crude inventories had risen by a record 5.7 million barrels to a record level of 538 million barrels. US had boosted imports when Saudi Arabia had opted to flood the oil market.
The US Fed guidance of 6.5% contraction in GDP growth resulted in a sell-off across most markets. Even the NASDAQ that had closed strong on Wednesday reported weakness on Thursday. Most of the European markets were more than 4% down even as Asia remained weak. The Dow also opened weak and is under pressure with a sell off for most of the oil and financial names. The sharply lower growth in the US this year is likely to leave an imprint on Indian companies in the pharma, IT and auto ancillaries sector that still depend on exports for a substantial part of their revenues each year.
The Supreme Court came down heavily on the Department of Telecom (DOT) for extending the logic of its AGR charges to other PSU companies like GAIL, Oil India, Power Grid etc. The Supreme Court has clarified that its first order in September did not apply to the PSU companies but only to the private telecom players where AGR was a disputed issue. However, there is no respite for telecom companies like Vodafone Idea and Bharti Airtel. They will have to pay up the full AGR charges as claimed by the DOT. This is likely to give the steepest hit for Vodafone Ideas, which is under financial stress.
Andrew Wood of S&P has clarified that the long term 7% growth trajectory of India was not exactly damaged by the COVID-19 pandemic. It may be recollected that on Wednesday, S&P had retained its rating at the lowest investment grade for India sovereign debt. However, unlike Moody’s, S&P retained the outlook for the Indian economy at Stable. Moody’s had downgraded India’s outlook to negative along with a rating downgrade. Wood also clarified that while the Indian economy would contract by 5% in FY21, the economy could bounce sharply in 2022. S&P is a tad more optimistic than Moody’s.
According to a report prepared by the ICEA, Indian export of mobile phones had the potential to generate $100 billion by 2025 with another $40 billion coming from component exports. Currently, China and Vietnam are the only two countries that are net exporters of mobile phones while a total of 198 countries are net importers of mobile handsets. According to the report, just two countries and five companies dominate nearly 80% of the handsets market and that is where the report sees the maximum potential to invigorate India’s exports. In FY20, India became the third exporter after China and Vietnam with modest handset exports of about $3 billion. India has launched 3 schemes with outlay of Rs.50,000 crore by the government to boost mobile handset exports. The report was done jointly with EY.
Rating agency, Fitch, has warned that delisting could create governance issues for companies. This is because delisting could create concentration of ownership as well as key man issues. In the last few weeks, Vedanta, Adani Power and Hexaware have announced delisting plans. All the companies have cited greater operational flexibility as the reason for delisting. However, the real reason appears to be that companies do not see much value addition in remaining listed entities. Fitch also warned that such delisting moves could make boards less transparent and governance could be the casualty.