Newsletter: 03-12-2018
International Snapshot:
It’s been a while since we have heard a lot of good news together. Last fortnight we had positive outcome from two important events, in our view.
- The leader of 3 countries (USA, Mexico & Canada) finally agreed on a deal in principle to replace NAFTA (North American Free Trade Agreement), which governs more than 1.2 trillion $ of mutual trade.
- A deal was struck between Donald Trump and Xi- Jiping which postponed ,as of now ,the most pressing threat to the global and Chinese economy i.e. a sharp hike in US tariffs that had been slated for Jan 1 2019. A 90 days time is borrowed within which 2 countries can work out amicably a solution to thorny issues including technology transfer, intellectual property and cyber theft, and probably avoid the much hyped trade war.
- Crude fell to as low as 59$ on Brent to rebound back today @ 62$ per barrel. A fall of 30% from a high of 86$ per barrel. This will surely push down inflation and reduce the pace of rate hike in USA. “We had already indicated in our previous newsletter how a flattening yield curve of a 10 year paper, was telling clearly that the fear of rate hikes is ebbing”
However OPEC meeting on Dec 6 to decide on output cut will give us a further hint on where crude oil is headed.
Meanwhile British parliament will vote on Dec 11 on Brexit and if it’s voted in favor, Britain will leave the European Union on March 29.
Domestic Snapshot:
Back home in India GDP for the 2nd quarter grew by 7.1% Vs 8.2% in previous quarter and 6.3% year on year. Private consumption expenditure grew by 7% after recording 8.6% growth in quarter 1. Government expenditure rose 12.8% Vs 7.5% in previous quarter. Gross Fixed Capital formation grew 12.4% Vs 10% in quarter 2. All this points out to good traction In Capital Goods sector going forward. Along with corporate and private Banks we are now positive on even Capital Goods and Cement Sector.
Also soft GDP numbers along with fall in crude prices pins hope for a no rate hike and a dovish statement from the RBI in the upcoming meet on 5th December.
Government has been pressing hard on the RBI to relax (Prompt Corrective Action) PCA framework and a sub-committee constituted for the same is expected to turn in its recommendations before the next meeting scheduled on Dec 14. Four out of 11 Banks are likely to come out of PCA.
RBI had sold more than 22 billion $ in last 6 months to defend the fall in Rupee and now its consciously building the reserve by buying it back. It has bought greater than 500 million $ in the first 2 weeks of November & therefore it seems to us that the new range for $ will be between 70 to 72 $, since on every rise of rupee RBI will think of building its $ reserves by selling Rupee.
For us a major event this fortnight is the results of 5 state elections on Dec 11. Though for us election of chief Minister of a state and voting for Prime Minister are 2 different ends, but media will ensure that a link is drawn and that will create a lot of volatility and as usual throw great opportunities.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are not SEBI registered investment advisory or research analyst. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
