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Global Markets Plummet Over Coronavirus Outbreak Fears, Banks' Credit Growth Slips to 6.3%, China PMI Falls

Professor of Financial Economics and Part-time Value Investor, Transfin.
Feb 29, 2020 9:51 AM 6 min read

China's factory output plunges to all-time low. Global markets touched record lows in the last few days. Pace of highway project awards slows to six-year low. Banks’ credit growth slips to 6.3%. Ecommerce firms say new 1% TDS could lead to working capital crunch. Tata Motors to wind up its auto retail business. Companies push out big interim dividend to fight DDT rejig blues.




At 4.7%, Q3 GDP growth is marginally better than the previous quarter's.

Grim Domestic Product

India's GDP grew by 4.7% in the December quarter, as per official data released by the Central Statistics Office (CSO) today. This is marginally better than the 4.5% growth in Q2, which was a six-year low.


4.7% is still low on a YoY basis - in Q3 last year, the economy grew by 6.6%. India’s GDP growth in FY19 had stood at 6.8%. [Livemint]


The GDP growth for the December quarter is in line with the estimates given by economists polled by Reuters recently.


India's economic growth is expected to pick up some steam in the coming fiscal. However, this trajectory could be derailed by macroeconomic factors and the coronavirus outbreak in China.


On the domestic front, there is some good news. The eight core industries have recorded better growth in January 2020 at 2.2%. And the infrastructure sectors had expanded by 1.5% in January 2019. The production of coal, refinery products and electricity grew by 8%, 1.9% and 2.8% respectively. [Hindu BusinessLine]


Pace of highway project awards slows to six-year low.

Highway Don't Care

The pace of project awards for highways has reportedly decelerated to the slowest in six years due to delays in land acquisition. This could slacken the pace of construction in the next two years.


The length of highway projects awarded last year, at 3,700 km, was much lower than the same in 2018, when it was 7,397 km.


While the decline in project award is evident, it will start reflecting in execution by 2022, as the project award started slowing in 2019. [BS]


Extra Crunch

Wondering why land acquisition in India is so controversial and what are some of the reforms that the Government should consider implementing? Read this article for answers.



Banks’ credit growth slips to 6.3%.

Credit Crisis

According to the latest RBI data, banks’ credit growth slipped to 6.3% on a YoY basis to ₹99.68Lcr ($1.39trn) till the fortnight ended February 14th.


In the similar fortnight last year, the advances stood at ₹93.78Lcr ($1.3trn). In the previous fortnight ended January 31st, bank credit had grown by 7.1% on an annual basis to ₹100.23Lcr ($1.39trn).


Recently, RBI Governor Shaktikanta Das had highlighted that domestic credit growth continues to be a challenge for the banking sector. [Livemint]


Crisil says credit growth may have bottomed out, expects it to pick up next fiscal.

Credit Cushion

As per rating agency Crisil, credit growth may have bottomed out. While it is expected to be 6% in FY2020-21, it is likely to improve to 8-9%. Moreover, the recent measures announced in the Union Budget and by the Central Bank are expected to spur credit growth.


“The prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9% on-year in fiscal 2021, a good 200-300 basis points (bps) over the likely growth of around 6% this fiscal,” Crisil said. [The Banking & Finance Post]



Ecommerce firms say new 1% TDS could lead to working capital crunch.

Taxing Times

In this year’s Union Budget, the Government had proposed a new levy of 1% TDS (tax deducted at source) on ecommerce transactions. This move, it was feared, could increase burden on sellers on such platforms.


Now, firms like Amazon, Flipkart and Snapdeal have approached the Central Board of Direct Taxes saying the new levy will hurt the working capital of small sellers and increase their compliance burden.


"We have highlighted these concerns as well as the increased cost of compliance for MSMEs/sellers and the e-commerce industry to the Government," a Flipkart spokesperson said.


The Federation of Indian Chambers of Commerce and Industry (FICCI) has said TDS will "negatively impact working capital of the vendors and could lead to reduced trading activity, thereby impacting economic growth." [ET Tech]


Tata Motors to wind up its auto retail business.

Extra Crunch

As part of its strategy to move away from its non-core businesses, Tata Motors is winding up its auto retail business Concorde Motors.


Set up in the late '90s, the Concorde business had been burning cash for the company for a long time on account of high costs and low volumes. The company has registered a loss for seven consecutive years with cumulative losses crossing over ₹366cr ($50.61m). [ET Auto]



Companies push out big interim dividend to fight DDT rejig blues.

Make Hay While the Sun Shines

As per a report, as many as 203 companies have already declared interim dividend worth ₹27,901cr ($3,898m) in February so far, especially in cases where the promoter stake is high. The average promoter holding of the clutch of 203 companies stood at nearly 60% at the end of December 2019.


Why So?

Finance Minister Nirmala Sitharaman in Union Budget 2020 announced that Dividend Distribution Tax (DDT) has been removed and will be applicable to individual investors only, next fiscal year onwards.


“With the abolition of dividend distribution tax (DDT), any individual who earns more than ₹5cr ($0.6m) of total income in a year will end up paying as much as 43% tax on dividend income against the earlier rate of 35% (DDT of 21% + additional 14% tax on dividend above ₹10L ($13,930)),” notes Tushar Sachade, Partner – tax and regulatory services at PwC India. [Financial Express]


Individuals lead philanthropic contributions in FY18; Kiran Majumdar-Shaw, Azim Premji, Nandan Nilekani lead the trend.

Charity Begins at Home

Private funds raised for philanthropy and the social sector in India reportedly hit a record high of ₹70,000cr ($9,779m) in FY18, growing at a compound annual growth rate of 14-18% over the last eight years.


Amongst these, philanthropic contributions by individuals accounted for a sizeable ₹43,000cr ($6,007m). Meanwhile, the contribution of domestic corporations to the social sector is slowing.


Click link for the full scoop. [BS]



China's factory output plunges to all-time low.

Beijing Blues

Reeling from the effects of the coronavirus outbreak, factory output in China contracted at the fastest pace on record. China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January, the National Bureau of Statistics said today. This is well below the 50-point mark that separates monthly growth from contraction.


Analysts polled by Reuters expected the February PMI to come in at 46.0.


This number gives the first clear picture of how adversely the coronavirus outbreak has affected the Chinese economy, the world's second-largest. [Bloomberg]


Global markets touched record lows in the last few days.

International Alarm

This week, global markets were in turmoil.


Friday was a bloodbath for Indian markets. Sensex and Nifty fell by 3.64% and 3.71% respectively. All sectoral indices on the Nifty ended deep in the red. On a weekly basis, Sensex slipped around 7% while Nifty declined 7.2%. This was the worst weekly fall for the indices in a decade.


The Dow Jones Industrial Average and S&P 500 each dropped 12% and 11% for the week, respectively, marking their worst weekly performance since the 2008 financial crisis. [CNBC]


Stock indices in Europe, Japan, South Korea and Australia plummeted to record their worst levels in years. The declines put those global benchmarks into corrections, or a decline of at least 10% from a recent peak.  [WSJ]


Why the Fall?

Why have domestic and international indices shed so much in numbers in the last few days? The main reason is the coronavirus outbreak in China, which has now spread to all six habitable continents. Even though China has seen a fall in the number of new cases, other countries are seeing a rapid growth in infections as well as deaths. Other factors include US indices seeing a record fall, expectations that GDP growth could remain flat in Q3 (it increased marginally from 4.5% in Q2 to 4.7% in Q3) and foreign portfolio investors offloading shares worth ₹10,000cr ($1.39bn) in four days. [ET Markets]


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