Daily Market Update – 1st Sep

unnamed Daily Market Update   1st Sep


GDP for the Jun-20 quarter contracted by -23.9% largely on account of the COVID-19 pandemic and the lockdown. This is nearly 500 bps worse than that the consensus estimates. The big pressure was visible on trade, hotels and construction which saw -50% contraction in the Jun-20 quarter. Manufacturing also contracted by -39%. Surprisingly, the public services also saw contraction clearly showing pressure on government finances. The sole silver lining was agriculture sector which showed a positive growth of 3.4% in the Jun-20 quarter. This is worst GDP contraction since GDP records were maintained.

The core sector for the month of Jul-20 contracted by -9.6% and has been showing a consistent improvement since May although it still remains in the negative territory. Fertilizer production was the only core sector item that showed positive growth in the Jun-20 quarter. The core sector de-growth for Jun-20 was revised from -15% to -12.9% indicating that deep data appears to be hinting at a likely recovery in the core sector. Electricity production has been showing good traction and is coming back to the pre-COVID levels. Core sector remains the key as it accounts for 40.27% of IIP.

The Indian stock markets cracked in response to the aggression shown by China along the Line of Actual Control. The PLA, which is the official Chinese army, has taken control of two hilltops on the Indian side. Pangong in Ladakh has become the centrepiece of the conflict after India converted Jammu & Kashmir Ladakh into a Union Territory last year. The worsening situation on the border is one of the reasons for the Sensex crashing nearly 1000 points after scaling the 40,000 mark during the day. Two years back it was Doklam near Bhutan and this time it is Galwan and Pangong that are the flashpoints.

Larsen & Toubro announced the completion of the sale of its electric and automation business to Schneider Electric for a consideration of Rs.14,000 crore. The deal which was first announced in May 2018 was finally completed with all regulatory approvals in August 2020. L&T’s decision to exit the electrical business was part of its larger corporate restructuring plan. All the 5000 employees of the E&A division of L&T will be absorbed in Schneider Electric. The longer term strategy of L&T is to only focus its energies and capital on the EPC and the services business in order to unlock value from the business.

It does appear like Adani is all set to finally move into the Mumbai Airport business by buying out the stake owned by GVK Infra of Hyderabad. Adani will acquire the debt of GVK Airport Developers Limited through with GVK group holds 50.5% stake in MIAL. This will pave the way for the Adani group to acquire 74% stake in Mumbai International Airport Ltd or MIAL. In addition to the GVK stake, the Adani group will also acquire 23.5% equity stake in MIAL that is held by ACSA and Bidvest. Adani Airports Holdings will also infuse fresh funds into MIAL to ensure that it is not constrained for liquidity. That will also help GVK to achieve financial closure of the Navi Mumbai International Airport. Adani will directly take over GVK’s debt from Goldman and HDFC and also relieve GVK of various guarantee obligations.

India’s fiscal deficit for the Apr-Jul period touched Rs.8.21 trillion breaching the full year fiscal deficit target of Rs.7.96 trillion. As a share of proportionate GDP, the fiscal deficit in the first four months was 17.4% of GDP. In the previous fiscal year, the full year fiscal deficit limit was breached in October. At the current rate with revenues from direct and indirect taxes tepid, experts estimate that overall fiscal deficit for the full fiscal year could be closer to 7.5% of GDP. The government has set an ambitious target of Rs.210,000 crore to be raised from disinvestments and that also looks quite a remote possibility.

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