Teji Mandi: Three things investors should know on November 12, 2020

Recovery not adequate; recession is imminent: RBI report comes as a rude shock

Despite the sharp revival in the economic activities, the RBI has projected degrowth of 8.6% YoY in India’s real GDP during the September ending quarter. This, however, is a sharp rebound from 23.9% contraction seen during the first quarter of 2020-21.

If this forecast is true then India will technically enter a recession in the first half of 2020-21 for the first time in its history, the RBI went on to say. A recession is defined as two consecutive quarters of negative growth.

RBI will release the actual data at the end of November. So, the between period, in our opinion, can be highly volatile for the market. Shrinking GDP in Q2 would effectively mean that recent exuberance is highly irrational and there is a prevailing froth in the equities market right now.

Global oil prices likely to remain muted indicates future data

In a major fillip for manufacturers, Oil prices are likely to remain in the range of USD 47-50/bbl. However, it is bad news for oil producers.

Brent crude contract for December 2023 is currently trading at just $48 a barrel. That implies a rise of only about $3 a barrel over the next three years from the current oil price. For 2025, Brent contracts are seen at just $49 a barrel. In simple terms, it means crude prices are expected to be almost as depressed in 2025 as they are now.

The reason behind such a muted outlook on oil is due to the sharp differences between OPEC and Russia. Both the powerful oil producers have so far refused to cut production despite the high inventory built up by Opec and Russia.

Lower crude prices are always great news from India's perspective. It could significantly reduce the import bills of the country and production costs for the manufacturers.

However, it is also important to note that such bearish sentiments could change overnight if OPEC and Russia reach an agreement for a possible production cut.

Big focus on real estate in FM’s Aatmanirbhar 3.0 announcements:

Finance Minister Nirmala Sitharaman has made major announcements for the housing and real estate sectors under the Aatmanirbhar 3.0 package.

The government has made an additional allocation of Rs 18,000 crore over budget estimate for PM Awaas Yojana Urban. It will speed up the pending projects and generate employment.

Apart from that, inventory clearance has also been a major focus area. The government has increased the difference limit between the prevailing circle rate and agreement value. The limit has been increased to 20% from 10% earlier.

Announcement under PM Awaas Yojna is already an extension to the existing scheme. However, increasing the limit between the circle rate and agreement value is a new incentive for the real estate sector. It will provide income tax relief for Developers as well as Home Buyers and encourage the housing demand.

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Free Press Journal