Focus now on resumption of US-China trade talks, yen carry-trade: Analysts

PALAK SHAH Mumbai | Updated on October 04, 2019

Both the US and China have imposed tariffs worth billions of dollars on export of products sparking fears that the conflict could damage the global economy   -  OrnRin

‘US-India trade deal could also act as another trigger’

Large institutional investors in the equity markets will be closely watching the soon-to-begin US-China trade deal talks for any further cues. The talks, which collapsed due to a tug-of-war between the two countries, will begin on October 10 and could drive market sentiments, analysts from a foreign research firm told BusinessLine.

US Commerce Secretary Wilbur Ross and India’s Commerce Minister Piyush Goyal are also involved in talks. This apart, Bank of Japan, too, has promised easing of interest rates in October, which could further fuel yen carry-trade, where large investors borrow in Japanese currency to invest in other assets globally. Also, markets are expecting further positive announcement by the government around the Diwali festival, traders said.

Markets in India fell on Friday after the RBI cut the country’s GDP outlook for the next fiscal to 6.1 per cent from 6.9 per cent. The Sensex and the Nifty fell by over 1 per cent and closed near their 200-day moving average. The Sensex was down 433 points to close at 37,673 and Nifty fell by 140 points at 11,174.

The RBI cut key interest rate by 25 basis points, for the fifth time this year, mainly to boost consumption and demand. The repo rate or the rate at which the RBI lends to banks has been revised to 5.15 per cent from 5.40 per cent. The reverse repo rate stands at 4.90 per cent. Both are the lowest in years.

Policy push ignored

“The markets are unnerved, as the RBI did not explicitly talk about the current stress in the funding environment for non-banking finance companies. Also, after the corporate tax cut and moderating GST collections, there is an increasing risk of fiscal slippage on which the RBI did not say anything,” said Rupen Rajguru, Executive Director, Head — Equity Investment & Strategy, Julius Baer India.

Traders told BusinessLine that the fear in markets was so high that the RBI’s commentary with regard to the accommodative policy to push growth was completely ignored. Fear over the banking sector has gripped stock markets, especially after the collapse of PMC Bank and the crash in the share price of YES Bank, which has been falling as pledged shares of its founder promoter Rana Kapoor were dumped in the open market. RBI Governor Shaktikanta Das clarified on Friday that the central bank would not allow any co-operative bank to fail.

The arrest of real-estate tycoon and promoter Sarang Wadhwan of HDIL has triggered panic, leading to a sharp fall in most real-estate company shares.

Bank stocks have been falling, as they lent to some of the large home developers who may not be able to immediately re-pay their debt.

A court case against Indiabulls Group has been taking a toll on the share price of its group companies as the petitioners have alleged that funds had been siphoned off. Clarifications by the group have not had any effect on the markets.

“It is only fear that is driving the markets currently. Easing of policy by global central banks and their accommodative stance are being ignored,” said a chief strategist at a Mumbai-based leading research house.

Published on October 04, 2019

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