Resolution 2020

Open-ended questions including outlook for free trade, China’s health, domestic growth and PSU divestment need closure

 2019 raised many open-ended questions without any satisfactory conclusion. Investors are looking to 2020 for closure. The foremost concern is if the US versus rest tariff tiff spells the beginning of the end of free trade and collapse of WTO 25 years after it came into existence. As the year drew to an end, there appeared to be some sort of a truce in sight. How Boris Johnson-led Conservative Party prepares UK’s withdrawal from the EU will influence Europe’s recession. Hopes for return of order after the renegotiated North American Free Trade Agreement and a phase I deal that compels China, in return for halving of duty on its products, to buy more American farm produce, protect intellectual property rights and not manipulate its currency can be dashed if the US imposts on goods from Brazil and Argentina continue. After being bruised by the trade war, whether the second-largest economy in the world can once again return to form as the growth engine will be keenly watched. The People’s Bank of China welcomed the New Year by reducing the cash banks have to keep by half a percentage point. A bounce-back will help in cleaning up the debt that had ballooned to 303% of the GDP. On its well being are dependent commodity producers in Latin America, Canada, Africa, Australia and the oil-rich West Asia. The choice crude explorers make, of cutting or pumping up output, will determine the trajectory of Brent prices that had averaged US$ 64 a barrel in 2019 as against US$ 71 in 2018 but surged after the US killed a top Iran government official in Beirut.

Meanwhile, investors are eager to know if India’s slowdown has bottomed out or more pain is in store. The RBI downgraded the current fiscal year’s growth to 5% in its December policy from 6.1% projected in the October statement after GDP slipped to a six-year low of 4.5% in the September 2019 quarter. The mainline equity index surged over 12% in the year to date, with most of the gain coming from end October 2019 on the back of returning foreign investors, who net bought stocks in nine months of the last year. Whether they continue to repose confidence in the Indian market will engage a lot of attention. Rural consumption, interest rate movement, transition of the auto sector to the BS VI environment and stabilization of the GST regime will hold clues if the rally remains lopsided or eventually embraces mid and small caps. Adding fuel will be speculation in the run-up to the budget if STT, capital gains and DDT are to be scaled back after biting the bullet on peak corporate tax rate. How select PSU banks manage their mergers will merit a close look, particularly so as the gross NPAs of the sector declined end September 2019 after growing for seven consecutive years. NBFCs’ ability to surface from the liquidity crunch will draw eyeballs. How soon they will be able to swim will depend on the resolution of the IL&FS crisis. Clearing the Rs 47000-crore debt by monetizing assets of the public-private sector infrastructure financier and developer was supposed to take six to nine months after the first of the defaults exploded in September 2018. With only Rs 5100-crore loans restructured, how the Uday Kotak-led board intends to recover 50% of the amount owed by March 2020 remains a mystery.  So also the curiosity if the media-savvy banker has complied with the RBI order, which the Mumbai High Court refused to stay, to bring down ownership nearly 10% by end of December 2019 and will pare  his holding to 15% by end March 2020 in the new-generation private bank he founded. A fascinating thriller will be Yes Bank’s search for US$2 billion from quality investors. Potential investors including a Canadian billionaire and an Indian high net-worth investor have received cold reception from the market.

The decision of the telecom regulator to extend the call originating charge by a year till December 2020 and of the three private telecom operators to hike fees on their prepaid voice and data services can be party dampeners or boosters. The cliff-hanger will be the Central government’s disinvestment program that has mopped up Rs 12995 crore as against the target of Rs 1.05 trillion for FY 2020. The list of PSUs on the block include 25% stake-sale in  RailTel Corporation through an IPO and shedding of 53.29% equity of BPCL to fetch at least Rs 57000 crore, or 53.5% of the target. As much as Rs 84000 crore is to be collected by offloading 63.75% shares of Shipping Corporation, 30% of ConCor, 100% of Neepco and 75% of THDC. The fate of Air India will occupy considerable bandwidth for the passion it arouses. The economy turning hot or cold will hinge on the pass-through of the Rs 20000-crore last-mile funding for affordable housing.

-Mohan Sule