GDP Tumble & More

Good morning, folks! It has been one happening week. With the Indian GDP setting new records of the worst kind, the government continuing to use Chinese ban as a digital weapon and Supreme court jumping to action the only battle at our end was just to see how much we could pack in. Jump in for a quick overview of what’s made the world of business go round this week.

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GDP comes tumbling down

If you have been checking out the news even in the most basic manner, you would be well aware of the headline numbers. India has indeed seen a shrinkage of an indescribable 23.9% (almost one quarter!) in its GDP for the April to June quarter YoY. This is the first time in 40 years that our GDP has fallen. So much so that the early revised estimations for this year’s GDP are now dipping to -10.8% by Nomura and -10.9% by SBI. In fact, this is the worst number among the G-20 countries with the drop coming in at 25.6% when compared to the Jan – March quarter. So, don’t go believing all the propaganda of the made-up numbers showing the 30%+ drop for countries like the US.

Digging deeper: There is a very high possibility that with better data, the number could be further revised downwards. One of the main reasons being propagated for this drop is the stringency of the lockdown initially. In fact, on a scale till 100, University of Oxford ranked India at 100 in terms of lockdown harshness in the first half of April, averaging to just about 80 till June end. As per a Credit Suisse report, of the Rs. 20 Lakh Crore loss in GDP, 50% falls in the government bucket, 25% in the wage earners, 15% for the informal sector and about 10% for the corporate sector. Although, many economists are suggesting that the impact on the unorganized sector is highly underestimated.

Where are we headed? By all estimates, that should be worst quarter. However, let’s not be misguided by any rosy picture of a V-shaped recovery. Even the silver lining of rural revival is beginning to show frayed edges. You know what they say. Deeper the hole, more difficult it is to get out of it.

Season X of Chinese App ban

As you can see, we have lost count of the number of rounds this Chinese app ban has now been going on. In the latest season though, among the 118 apps banned, highly addictive and popular game PubG owned by Tencent grabbed all headlines. With 175 million installs, India and it’s insomniac citizens are the biggest market for PubG leading to a 2% drop in share price for Tencent with this latest ban. This latest digital attack from India is apparently a response to escalating tensions on the real life-border.

First reactions: Of course, China called out this ban, going so far as to claim that it violated WTO rules. Neither was it beneficial to Indian users or Chinese companies. On the other end of the spectrum were the people looking at this as an opportunity for the Indian tech startup space. Ban on Chinese gaming and utility apps is seen as a foothold for Indian apps that can mimic it decently enough in good time to fill the vacuum.   

Is it really helpful? In some ways, this move is like social media. It is good window dressing but the real picture is not really the same. One concern is that such knee-jerk bans are going to endanger further investment into tech startups in India considering some of the biggest have investments from Chinese firms. Second, increasing import duty for Chinese goods only hurts domestic industry in the absence of decent-enough replacements. Third, banning China from public projects again may not be very wise especially at a time when we seem to be struggling with government funds. Maybe, India needs a real Chanakya in these times!

France Economy set to relaunch

French President Emmanuel Macaron unveiled one of the largest and very ambitious stimulus package with a pretty, round figure of 100 Billion Euros sizing up to approximately 4% of the GDP. The so-called “France Relaunch” plan aims to get the economy back to 2019 levels in the next two years, right in time for the presidential elections in April 2022.

Three pronged strategy: The three main elements to the plan list out 35 billion euros to make the economy more competitive (of which 20 billion will be in the form of tax cuts), 30 billion euros for green energy and 25 billion euros to support jobs (including support for part time workers and training). The plan is intended to create 160,000 new jobs next year.

Balancing act: This development comes at the back of a 13.8% shrinkage in the economy in the April – June quarter, with expectations of a final number for the year at about 10.3%. The stimulus is expected to be funded 40% from the EU’s 750 Billion Recovery Fund and 60% from government funds. State debt to GDP is expected to reach a tottering figure of 120% this year.

IN SNIPPETS

GVK hands over keys to Mumbai Airport to Adani: Adani group acquired 74% stake in Mumbai’s CSM International Airport now making the group as the country’s largest private airport operator in a duopoly with the other player being GMR. While GMR operates Delhi and Hyderabad, Adani has six non-metro under it’s belt prior to this Mumbai acquisition.  

Closed chapter on AGR dues? The Supreme Court ruled for a 10-year timeline for telecom companies to pay their dues, starting April 2021 apart from a 10% upfront payment. There would also be no recalculation of dues. Considering the vast difference in the amount, the news means very different things for the two main players in the spotlight. While Vodafone-Idea resorted to figuring out funding options, Bharti Airtel investors were last seen dancing on the streets.

Supreme Court puts a hold on banks declaring NPA: On Thursday, Supreme Court ruled that loan accounts which were not declared NPA or bad loans till August 31, would not be declared so by banks till further notice. Effectively, while it does not extend the moratorium, it delays any bank action to collect dues from lenders unable to make payments for now.

Warren Buffet goes “sogo shosha” shopping: Berkshire Hathway released figures to show a build-up of about 5% stake in five of Japan’s biggest “sogo shosha” or trading houses. Fairly unique to the country, these operations have a long history of operating in multiple industries by providing growth capital. In fact, Phil Knight credits a lot of Nike’s success to one such sogo shosha. Buffet seems to have jumped at attractive valuations and is betting big on them.

Ban on tenant eviction in US till Dec 31st: With a lot of T&Cs, the Trump administration announced a moratorium on eviction for households earning less than $99,000 this year. The order comes more so at the plea of CDC which foresaw evictions leading to people crowding shelters at a time when the probability of a second wave could be quite high.

MARKET PULSE

Quite a red chart there. Although, the color could be mislead for the USD because the Indian rupee actually appreciated which is being touted as an RBI tactic to fight inflation.

Flat is the only word that sums up both the equity indices although aviation stocks showed some mercy resulting from the increase to 60% capacity, telecom stocks seemed to breathe a sigh of relief with the clarity on AGR dues while banks seemed a little iffy now that the moratorium is up.

Gold has been pretty range bound although 10-year G-sec yields continue to take a tumble.

WILD CARD

Amid all the corona craziness, comes crazier news. A sheep, mind you, one sheep has set the record for being sold at a price of a whopping 367,000 GBP or about 3-3.5 Crores in Glasgow, Scotland. The intent is of course to sire more sheep and extend the lineage of this Texal Ram breed. Why this price? As per this Times Now article, “…because of his place of birth, his perfectly toned torso, perfect head and muted gold colouring”. Go, figure!

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