Business Today 31-May-20

There are two deadly fears out there today. Coronavirus and failing economies. Where the former isn’t deadly enough, plummeting economies are. As governments flip between the tough choice of saving lives versus saving livelihoods, a few have moved at lightning speed to save their industries. In Germany, the stimulus of $600 billion was in bank accounts of recipients within the week of the announcement. In the US, companies can self-declare and receive funds instantly. But Italy stepped in gingerly and continues to struggle. Italian firms had to apply online to ask for government aid. When they did, the website crashed. In India, it’s been a waiting and guessing game. To many, the inordinate delay in announcing the second stimulus is worrying, intriguing – even frustrating. But the Centre seems in…

WTI Oil Prices Turn Negative Demand collapse due to coronavirus and lack of storage pull down May futures into negative territory on April 20 CRUDE OIL WTI FUTURES ($) Brent Crude Falls But Not as Much The more relevant benchmark for India is down 65 per cent in 2020, the lowest in 18 years BRENT CRUDE OIL PRICES ($) Indian Basket Lowest in 15 yrs The average price for the Indian basket in March was $33.36 a barrel, a 15-year low; the lowest ever is $18.24 in Nov 2001 CRUDE OIL PRICE (IndianBasket)-$/BBL Still, No Respite for Consumers Brent crude has plunged 65 per cent so far this year. But retail prices of petrol and diesel are down 7 per cent and 8 per cent, respectively Blame It on High…

EQUITY FUNDS’ ASSETS PLUNGE AFTER SIX YEARS The Nifty plunged close to 26 per cent in FY20, the sharpest fall since the 2008/09 financial crisis This reflected in assets under equity mutual funds, which fell from ₹8.9 lakh crore at the end of FY19 to ₹6.6 lakh crore at the end of FY20 This is the lowest since October-end 2017 Since most of this fall came towards the end of the financial year, total mutual fund assets still managed to rise 10.7 per cent to ₹27.1 lakh crore in FY20 Source: Motilal Oswal Consumer, Healthcare Cushion Impact for Equity MFs Healthcare, consumer and oil & gas holdings of equity mutual funds fell the least MoM in March Holdings of real estate, infrastructure, metal and financial companies saw the steepest decline…

Think of a main battle tank coming at you. Firing a pistol won’t help. The right weapon is an anti-tank rocket.” USbased Alok Jagdhari, co-founder of angel investing platform 92angels LLC, cites the analogy to illustrate the need for a big and concerted financial package to revive economies held to ransom by the coronavirus pandemic across the world. Jagdhari has prepared a pandemic survival guide for clients to show the magnitude of the problem and macroeconomic response of various countries. India is missing from the list of countries that have earmarked between 5 per cent and 30 per cent of GDP for the purpose. “Go big or go bankrupt,” says Jagdhari. “Releasing things in dribs and drabs won’t work. Addressing MSMEs (small industries) but not other sectors won’t work.” He…

IDEAS ON THE TABLE First-loan loss direct guarantee by government for Covid-impacted segments An SPV to house a government-sponsored fund Recapitalisation of PSBs with a condition that they support certain sectors Increasing the held to maturity bucket for banks Direct funding line for NBFCs and MFs Reserve Bank of India (RBI) Governor Shaktikanta Das said in a recent interview that banks were not willing to take credit risk beyond a point. The reason: The ₹3.74 lakh crore surplus liquidity was not reaching those hit hardest by the current crisis — non-banking financial companies (NBFCs), microfinance institutions (MFIs), micro, small and medium enterprises (MSMEs) and mutual funds. In fact, there was no dearth of liquidity in the banking system even pre-Covid. Risk-averse bankers were happily depositing funds back with the RBI…

Covid-19 has taken an extraordinary toll on businesses around the world. In India, business confidence is at its lowest since the 2009 financial crisis: 72 per cent of firms have reported adverse effects on operations, 90 per cent are facing supply chain disruptions and 53 per cent anticipate a decline in sales over the next two quarters. Industrial output in key sectors could fall by up to 15 per cent and GDP growth by 10-20 per cent during the April-June 2020 quarter, with ripple effects continuing for an uncertain period of time. The government’s immediate policy priority was, rightly, to support low-income households through cash and in-kind transfers worth ₹1.7 lakh crore, or 0.8 per cent of GDP. This is well below the fiscal packages committed by other national governments,…