By Ravi Dutta Mishra
New Delhi, Aug 13 (IANS) Global stock markets are falling, gold price are touching life-time highs and the inversion of bond yield curve is signalling a possible global recession in the near future.
India on the contrary is far from a recession but the slump in sectors such as capital goods, auto, cement, mining and construction are more susceptible to recession as these have seen contraction in growth for the past few months.
A sector is said to be in recession if there is negative growth in two consecutive quarters. Several of the sectors have already reached that stage or are close to entering recession.
Auto sales have seen a decline for the past several month with the latest July figures showing that these have fallen by 19 per cent. The fall is even acute in passenger car segment where sales declined by close to 37 per cent in July. A falling demand and poor health of NBFC are prime reasons for this decline pushing the industry to seek a separate package from the government.
Similar developments is being seen in the real estate and construction segments. Dwindling demand and project delays have put the sector on the brink of bankruptcy with several promoters already facing insolvency proceedings.
As a corollary to this, connected sectors such as cement has reached closer to entering a recessionary phase. Cement production has witnessed negative growth for the past few months and industry representatives suggest that a pickup at this juncture looked difficult in the absence of government support to investment in infrastructure sector.
Several other industrial and commercial sectors are also witnessing consistent decline. The mining industry is facing a slowdown and according of Federation of Indian Mineral Industry (FIMI), unless government incentivised mining through tax sops such as lifting of export duty, the sector would go down deep into depression leading mine closure and loss of thousands of jobs.
A direct result of persistent slowdown has been sluggish performance of the capital goods segment. Investment by capital goods sector is important to push up industrial activities, increase manufacturing and roll out products that further expands the economy.
But slow demand conditions and the lack of private sector interest in fresh investments has put the sector under acute stress. Slow growth of infrastructure sector has also contributed to pushing capital goods industry on the brink of recession.
Economies globally are showing signs of acute weakness and the next stage could be a worldwide recession, if Morgan Stanley is to be believed, in nine months from now.
Escalation in trade tension between the two largest economies -- US and China -- is the chief factor nudging the world economy towards a recession. Further, Bank of America on the basis of recent data said a greater than 30 per cent chance of a recession in the next year.
But in light of the GDP figures questioned by several economists and experts on the counts that it does not reflect the fall in investment, export, import and credit in the Indian economy, how far can we shun the fear of a recession?
Not to forget the unemployment is at a 45-year high.
A recession is characterised by falling levels of investment and rising unemployment, all of which constituted the 2008 financial crises. A severe form of recession is called a depression, the last the world saw in 1930 -- known as the great depression.
Warning signals are also coming via another historical indicators of recession: the bond yield curve. The yield curve has typically inverted before recession and it is now nearly similar to what was seen ahead of the 2008 financial crises.
A far greater threat of recession hangs over UK's economy and other European economies. Political uncertainty owing to Brexit led its second quarter GDP to contract, raising fears of an imminent recession.
Possible counter-measures are being taken by global central banks. India cut the benchmark policy rates by an conventional 35 basis points, New Zealand cut it by 50 and Thailand also by a surprising 25.
The Federal reserve also slashed the policy rate by 25 basis points, however it did specify that the rate cut was a "mid-cycle adjustment" and not necessarily the beginning for a rate cut cycle.
(Ravi Dutta Mishra can be contacted at email@example.com)
By Arun Kejriwal
The short-truncated trading week ended with losses but had hope and expectations on Friday. Dow Jones was a roller coaster this week and global events do make one nervous. BSESENSEX in three trading days closed with losses of 231.58 points or 0.62 per cent at 37,350.33 points while NIFTY lost 61.85 points or 0.56 per cent to close at 11,047.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.72 per cent, 0.67 per cent and 0.69 per cent respectively. BSEMIDCAP was down 1.31 per cent while BSESMALLCAP was down 0.90 per cent.
The week began on Tuesday after a religious holiday on Monday and was down sharply. This was followed by a recovery on Wednesday. Thursday markets were closed for India's Independence Day and they were flat with an upward bias on Friday.
Dow Jones was all over the place last week. The net result was a weekly loss of 401.43 points or 1.53 per cent at 25,886.01 points. The daily movement was an eye opener and indicates the amount of nervousness. Monday saw a loss of 390 points, Tuesday a gain of 382 points, Wednesday a sharp fall of 800 points, Thursday and Friday saw gains of 100 and 307 points respectively.
Total gains during the week were 789 points while losses were 1,190. Total movement during the week was 1,979 points. This is effectively a change of 395 points per day or 1.52 per cent per day. Just to put in perspective, while we had a short and volatile week, the total movement in three days on the BSESENSEX was 1,015 points (loss of 623 points and gain of 392 points) or 338 points daily average. This becomes a daily change of 0.90 per cent.
The immediate cause of concern in US was yet another round of duty being imposed on Chinese imports into the US. This seems to have become never ending and is getting markets really worried. To add to this is tension in Hong Kong where civil strife is on and the city has been locked down. China has moved in military to Shenzhen and there could be large-scale violence in the immediate near term. There is a slowdown looming large and this is certainly not good news for the markets.
Back home, after having meetings with various stakeholders, the Finance Minister had detailed meetings within the Ministry and also the PMO. No public outcome is yet available but is expected once Prime Minister Narendra Modi returns from Bhutan on Sunday. Expect some announcement on this subject on Monday or Tuesday.
The week ahead would see the listing of two IPOs on Monday and Tuesday. Monday would see the issue from Spandana Sphoorty Financial Ltd list. The issue was subscribed 1.05 times with the help of QIB portion which was subscribed 3.11 times. HNI and Retail was undersubscribed at 0.55 times and 0.09 times respectively. With little hangover of selling pressure the share should be able to sustain itself but one should not be surprised if the shares trade below the issue price.
Tuesday would see the shares of Sterling and Wilson Solar Ltd list. The company had tapped the markets with its offer for sale of Rs 3,125 crore which saw the issue to be subscribed. The QIB portion ensured that the issue scraped through. HNI portion was subscribed 0.89 times and Retail portion 0.30 times. Looking at market conditions and the response, the share is likely to be under pressure unless some QIB's decide otherwise.
In short, both issues are not expected to have any fireworks.
Markets are experiencing turbulence and tough conditions currently. This is with trade wars between China and the US continuing for almost nine months, civil unrest in Hong Kong, Iran and the middle East, Europe and Brexit. To add to this, we have a slowdown which seems to be gaining momentum. Oil prices which seem to have steadied are again under pressure.
Towards the end of June, in India it looked like this would be a monsoon starved year. By beginning of August, the scenario has changed completely and instead of a drought we have floods affecting about a third of the country. It appears the rain gods have rained with a vengeance this time.
In such a scenario, one has to depend on local cues and hope that issues on the domestic front are sorted out soon. FPI issue of surcharge, some sort of one-time relief for auto sector and retail sector will go a long way. Expect good tidings on Monday or Tuesday. Till then keep you fingers crossed and hope for the best.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal.)