Business Live: Prolonged growth slowdown likely to hit India’s external sector, says SBI report

The benchmark stock indices have opened yet another day with strong gains as investors are enthused by the prospect of a strong economic recovery.Petrol and diesel prices have risen for the second day in a row as dynamic pricing resumes amid the strong rally in global crude oil prices.Join us as we follow the top business news through the day.2:30 PMGold futures rise on spot demand, global cuesThe sentiment in the gold market seems to be witnessing a quick change.PTI reports: “Gold prices on Monday rose by Rs 350 to Rs 46,048 per 10 gram in futures trade as speculators created fresh positions on firm spot demand.On the Multi Commodity Exchange, gold contracts for August traded higher by Rs 350, or 0.77 per cent, to Rs 46,048 per 10 gram in a business turnover of 13,586 lots.The yellow metal for October delivery edged up by Rs 357, or 0.78 per cent, to Rs 46,220 per 10 gram in a business turnover of 5,446 lots.Fresh positions built up by participants mainly led to the rise in gold prices, analysts said.Gold prices traded higher by 1.03 per cent at USD 1,700.40 per ounce in New York.”2:00 PMBad bank not a good idea unless key issues are addressed, says Uday KotakThe idea of a bad bank has made a resurgence as NPAs are expected to shoot up due to the coronavirus-induced lockdown.PTI reports: “Setting up of a bad bank to deal with the problem of mounting NPAs is not a good idea and will not yield desired results unless some key aspects like transparency and recovery rate are addressed, newly-elected president of CII Uday Kotak said.Citing an example of Stressed Assets Stabilization Fund (SASF), set up by erstwhile Industrial Development Bank of India (IDBI), Kotak said it did not work well.“I think we have tried the bad bank in the past. If you recall when IDBI had challenges in the early 2000s, there was an IDBI SASF, which was created. A part of non-performing assets (NPAs) of IDBI were moved to that SASF,” Kotak told PTI in an interview.SASF was constituted by the Government of India pursuant to a provision in the Union Budget 2004-05, a special purpose vehicle (SPV) trust for acquiring NPAs of erstwhile IDBI. As many as 636 stressed and non-performing cases with aggregate loans of over Rs 9,000 crore were hived off to this SPV.However, it could only recover less than half at Rs 4,000 crore at the end of March 2013, according to a 2014 audit report by the Comptroller and Auditor General of India (CAG).The idea of a bad bank keeps on re-surfacing every three-four years when stressed assets in the banking sector moves northward.”1:30 PMReliance Jio net debt plummets to ₹21,900 croreReliance Jio’s net debt has fallen to ₹21,900 crore from its peak of ₹2.17 lakh crore, with global investors pumping funds over the last six weeks, for equity stake in its parent Jio Platforms Ltd., which is a wholly owned subsidiary of Reliance Industries Limited.Investors such as Facebook, Silver Lake, Vista, General Atlantic, KKR and Mubadala have invested over ₹92,000 crore in Jio Platforms, conferring an enterprise value of ₹5.2 lakh crore.As in the case of the earlier deals, Jio Platforms is expected to retain 10% of the funds and transfer the rest to its parent company, which could subsequently use the funds for deleveraging its own balance sheet.
 1:10 PMProlonged growth slowdown likely to hit India’s external sector: SBI reportIt may be only a matter of time before the prolonged slowdown in economic growth affects India’s external stability.PTI reports: “The prolonged period of growth slowdown is likely to adversely impact India’s external sector which currently is comfortably placed on account of subdued prices of crude oil in the international market, said a SBI report on Monday.As per SBI’s research Ecowrap report, India is likely to end the current fiscal with current account surplus, if the oil prices in the international market remain subdued and do not show volatility during the course of the financial year.We should be mindful of our external sector in 2020-21 as a prolonged period of growth slowdown could impact the external sector metrics, specifically the rupee, it said.In 2020-21, the report maintains that India is going to achieve a current account surplus owing to lower oil prices, although the magnitude might shrink if oil prices show undue volatility and stay at over USD 40 /bbl for a sufficiently longer period of time, it said.Noting that the gross domestic product (GDP) growth has declined from 8.3 per cent in 2016-17 to 4.2 per cent in 2019-20, the report said, the FY21 median growth contraction is currently at 5 per cent, indicating a growth collapse of at least 9 per cent from FY20 levels because of COVID-19.The only saving grace is that our external debt position is sustainable with the external debt to GDP ratio at 19.8 per cent at end-June 2019, it said.”12:30 PMRIL shares hit fresh high with another investment in JioRIL shares continue to rally as buyers can’t get enough of Jio.PTI reports: “Shares of Reliance Industries (RIL) touched a fresh all—time high of Rs 1,624, a day after the company announced another major investment into Jio Platforms.On Sunday evening RIL announced an investment of Rs 5,683.50 crore by a wholly—owned subsidiary of the Abu Dhabi Investment Authority (ADIA).Earlier in the day, RIL shares hit a new high of Rs 1,624 per share. However, they have trimmed major gains made initially.At 10.52 p.m., its share price was at Rs 1,586.15, higher by 5.55 points or 0.35 per cent from its previous close.With the latest investment, Jio Platforms has raised Rs 97,885.65 crore from leading global investors, including Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala and ADIA in less than seven weeks.This investment values Jio Platforms at an equity value of Rs 4.91 lakh crore and an enterprise value of Rs 5.16 lakh crore. ADIA’s investment will translate into a 1.16 per cent equity stake in Jio Platforms on a fully diluted basis.”
 12:00 PMIs the S&P 500 really just the S&P 5?
 11:40 AMDon’t lose money when interest rates dropThe Reserve Bank of India (RBI) has been reducing interest rates to fight the economic slowdown. Accordingly, bank deposit rates are coming down. Rates on other instruments are also following suit so that the entire interest rate structure falls in line. Falling interest rates is a global phenomenon as every country is struggling with growth. While low rates are good for those who want to avail loans, it is not so good for savers. We discuss here some pockets within debt mutual funds, which would be interesting in the current scenario.Let us see what options you have for fixed income / debt investments. For bank deposits, the rate on a State Bank of India deposit of 5-10 years maturity is 5.4%. The rate on Kisan Vikas Patra is 6.9%, National Savings Certificate, 6.8% and Monthly Income Account, 6.6%. Public Provident Fund (PPF) pays 7.1% currently, but there is an upper ceiling on investment i.e. ₹1.5 lakh per year. The 7.75% RBI Savings Bonds have been discontinued. They may be relaunched but the interest rate would be lower. Yields (annualised returns) of tax-free PSU bonds in the secondary market are only 4.6% to 4.7%. Against this backdrop, we will discuss certain debt mutual fund investment options.
 11:20 AMBusiness economists expect worst slump since 1940sThe US economy is expected to bounce back, but the threat of a second wave of the coronavirus looms large.PTI reports: “Business economists expect the United States to suffer its worst downturn this year in more than seven decades before growth resumes sometime next year.Overhanging that forecast, though, is the risk that a second wave of the coronavirus could threaten the economy once again.A survey released Monday by the National Association for Business Economics predicts that the gross domestic product — the total value of goods and services produced in the United States — will fall 5.9% for 2020 as a result of the recession triggered by the virus.That would be the sharpest annual decline since GDP fell 11.6% in 1946, when the nation was demobilizing after World War II.The NABE panel of 48 forecasters expects the 5% annual GDP drop that occurred in the January-March quarter to be followed by a record 33.5% annual plunge in the current April-June quarter. Yet the NABE panel foresees economic growth returning in the second half of the year, with strong annual expansions of 9.1% in the July-September quarter and 6.8% in the October-December quarter.Even so, those gains would fall far short of making up for the dizzying economic contraction in the first half of this year.In 2021, the panel forecasts GDP growth of 3.6%. But not until at least the second half of next year, according to an overwhelming majority of the forecasters, will the economy recover all its lost output from the recession. If a second eruption of viral infections were to occur, though, it would likely take much longer.Eighty-seven percent of panelists view a second wave of COVID-19 as the greatest downside risk through 2020, added Eugenio Aleman, an economist for Wells Fargo and the chair of the outlook panel.”
 11:00 AMGold dips as strong U.S. jobs data boosts risk sentimentThe global risk-on sentiment isn’t doing any good to the yellow metal.Reuters reports: “Gold prices slipped on Monday as an unexpected improvement in U.S. employment numbers boosted optimism about economic recovery, boosting risk appetite and denting the appeal of the safe-haven metal.Spot gold was down 0.2% at $1,682.57 per ounce, as of 1241 GMT. U.S. gold futures were up 0.3% at $1,688.10. Last week, the bullion dropped 2.4%, its largest weekly fall since the week ended March 13 and a third consecutive weekly drop.The U.S. economy unexpectedly added jobs in May after suffering record losses in the prior month, data on Friday showed, indicating that the downturn triggered by the coronavirus outbreak was probably over and boosted equity markets.Focus is now on the U.S. central bank, which will hold a two-day policy meeting ending on Wednesday However, showing signs that the effects from the pandemic are still present, China’s exports contracted in May, after a surprising gain in April, while imports fell more-than-expected to a four-year low.”10:30 AM‘India facing demand recession’There are those who believe that with social distancing going to be the new norm, demand for ‘personal transport’ could see a surge. This might boost car sales, especially in the second half of FY21. We have to be patient and prudent till normalcy is restored, says T.T. Srinivasaraghavan, MD, Sundaram Finance Ltd. (SFL), in an interview. Edited excerptsThe impact of COVID-19 can be felt in all sectors, and financial services is no exception. How is SFL handling the situation?The answer actually lies within your question. There are virtually no exceptions. Other than those who are manufacturing PPEs, sanitisers and other COVID-related stuff, everybody is more or less in the same boat. Business has come to a complete standstill and demand for trucks and cars has been virtually non-existent since the lockdown began. We just have to be patient and wait for better days.
 10:00 AMSensex rallies over 600 points in early trade; Nifty tops 10,300 levelThe rally in stocks continues as traders believe the worst of the economic damage caused by the coronavirus pandemic may be behind us.PTI reports: “Equity benchmark Sensex rallied over 600 points in early trade on Monday led by gains in index-heavyweights Reliance Industries, HDFC Bank and ICICI Bank amid positive cues from global markets and sustained foreign fund inflow.After hitting a high of 34,927.80, the 30-share index was trading 608.59 points, or 1.77 per cent, higher at 34,895.83.Similarly, NSE Nifty surged 184.60 points, or 1.82 per cent, to 10,326.75.IndusInd Bank was the top gainer in the Sensex pack, soaring around 7 per cent, followed by Titan, Axis Bank, SBI, Bajaj Finance, ONGC, ICICI Bank, L&T, HDFC Bank and NTPC.Shares of Reliance Industries (RIL) jumped around 2 per cent after the company on Sunday said it sold 1.16 per cent stake in its digital unit Jio Platforms to Abu Dhabi Investment Authority for Rs 5,683.50 crore.This is the eighth deal by the oil-to-telecom conglomerate for its digital unit in less than seven weeks, completing the sale of the targeted 21 per cent equity in Jio Platforms ahead of a potential IPO.On the other hand, Sun Pharma and Bharti Aurtel were the laggards.In the previous session, the BSE barometer settled 306.54 points or 0.90 per cent higher at 34,287.24 and the broader Nifty rose 113.05 points or 1.13 per cent to 10,142.15.On a net basis, foreign portfolio investors bought equities worth Rs 97.61 crore in the capital market on Friday, provisional exchange data showed.”
 9:45 AMFuel prices rise as daily revision resumes after over 80 daysConsumers who didn’t get to benefit from record low oil prices in previous months, will still have to pay more as oil prices rally.IANS reports: “Oil marketing companies have resumed the dynamic pricing system for daily revision of fuel prices after over 80 days of halt.In the national capital, the price of both petrol and diesel was increased by 60 paise to Rs 71.86 and Rs 69.99 per litre, respectively.Prices of transportation fuel were last revised under the dynamic pricing policy on March 16 and there were few instances of price hike only when the respective state governments hiked VAT or cess.In a bid to increase revenues during the nationwide lockdown, several state governments raised taxes imposed on transportation fuels.With the revision, petrol prices in Mumbai, Kolkata and Chennai rose to Rs 78.91, Rs 73.89 and Rs 76.07 per litre, up from the previous close of Rs 78.32, Rs 73.30 and Rs 75.54 respectively.Similarly, the diesel prices in Mumbai, Kolkata and Chennai increased to Mumbai Rs 68.79, Rs 66.17 and Rs 68.74 per litre respectively, up from Rs 68.21, Rs 65.62 and Rs 68.22.Already, the gap between cost and sale price of petrol and diesel for OMCs has reached around Rs 4-5 per litre. If this has to be covered over a period of time, given there is no further increase in global prices, auto fuel prices may be increased by 40-50 paisa per day for a couple of weeks to cover the losses.The increase in retail price under daily price revision would largely depend on prevailing oil prices and global oil market at the time to determine the retail price. Going by current trend, crude prices are way above price levels in April when even benchmark Brent crude had slipped below $20 a barrel.However, lockdown has also curved demand for auto fuel. This could maintain some check on prices.Raising retail prices became important for OMCs now as the recent steep excise duty hike without resultant increase in petrol and fiscal prices, had substantially brought down its marketing margins from record high level of Rs 12-18 per litre.If it is unable to raise prices when the global crude prices are rising, it would start incurring losses that will get steeper.

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