The Signal: The Week Highlights

1. US Fed’s Forces Vs Corona’s Virus

In continuing its landmark policy for prioritizing a strong labor market, the Fed keeps interest rates at ~0%. Poised to bear faster price rises, the Fed is to stay En-Garde till inflation does not boil over 2%. Trying to stimulating economic activity, it is keen to revel again in its longest economic expansion on record, rather than its sharpest downturn since Great Depression. 

Covid 19 is truly economically viral, proof of which lies in World Bank’s cries. But, from pain emerges winners! Here the heroes are the central banks, who are adapting today’s practices to fight today’s woes. If 1918 solutions tackled the 1918 pandemic, then the 2020 solution will too tackle the 2020 pandemic.

2. Inflation Impression Imprints An In-Line Image

India’s retail inflation dips marginally to 6.69%, continuing to stay above RBI tolerance level for 5th consecutive month. It was 6.93% in July 2020 and 3.3% in August 2019. At over 6%, inflation remains just above the MPC’s tolerance band of 4 (+/-2)%, creating a stagflation-like scenario where inflation is high despite a collapse in growth. Supply sinkages pried higher inflation figures on account of amplified fodder prices.

Amidst a corona- filled year, disruption in supply-chain activity was a given, and was reflected in latest figures. Ample system support via liquidity measures and restructuring facilities are deemed necessary for better times ahead. As for rate-cuts, we see a pause in the upcoming October meet, as outputs of effective policies and transmissions are brought outwards.

3. In Covid 19 Parlance, IIP Stands For “Indian Industrial Problems”

The Index of industrial production (IIP) contracted at -10.4% in July VS -16.6% in June and -33.8% in May. While up from record -57.6% fall in April, IIP has now fallen consecutively for 5 months! It can be attributed to fall in production of consumer durables and capital goods, indicating continuing stress In discretionary consumption and investments.

Sharp recovery seen in May and June seems to be losing steam, even though there is consistent decline in pace of contraction. The adversity is here to stay for short-term, as the viral virus continues to spread an air of uncertainty across the country’s socio-economic factions. In this process, like a tortoise (slow and steady), India is sowing the seeds of the much-awaited and talked about V-shaped recovery. 

4. Here’s a 2017 Recap in 2020! Banks Recap Program Revives

Moody’s Investors Service has estimated that PSBs will need ₹1.9 lakh crore to ₹2.1 lakh crore ($25 billion-$28 billion) in external capital over next 2 years under to restore loss absorbing buffers. As NPA and credit costs increase, the profitability wound is sure to rupture, adding stress to current conservative credit climate.

All, but one voice, cheered when the moratorium was announced, and that was the banks. Knowing of the impending doom, in economic contractions, and bending will to satiate central govt. policies, those who lend money are themselves in dire need of it. 3 years later, and banks find themselves 4 years behind! But as is always, Banks will navigate through this crisis too, maybe limping more than ever before 

5. SEBI’s Stunt To Modernize Multi-Caps – A True (To Label) Story

SEBI re-defined Multi-Cap MF category via introduction of new market-cap minimum exposure limits, and higher equity allocation to become “true to label”. Per SEBI, funds not choosing to buy/sell stocks to comply with new norms can merge/re-position/ switch unitholders to another scheme.

“Whats there in a name?” asked Shakespeare. ‘New investment norms’ says SEBI as it shook the markets and MF industry alike last week for investment and interest fairness. SEBI suggests alternatives to those not willing to comply by offering them a 1-time exit under multiple faces.