In this edition, we talk about the dismal economic indicators that signal a possible global recession as well as India’s slowing growth. We also talk about the BillDesk acquisition being called off and Elon Musk’s flip-flop on Twitter.
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Fourteen years ago, on Sept. 15, 2008 to be precise, Lehman Brothers filed for bankruptcy. The collapse of the American investment banking giant that had $639 billion in assets triggered a global financial crisis.
Why are we recalling that event? Well, because this past week there has been a frenzy of speculation that the world could soon see another Lehman moment.
A week ago, the CEO of Credit Suisse – a major Swiss bank and one of the world’s largest – said it had a “strong capital base and liquidity position” and that this shouldn’t be confused with its stock price performance. The remarks came as concerns grew about the health of Credit Suisse.
The bank’s shares have indeed been falling—they are down 53% year to date. But the bigger concern is spreads on its credit default swaps – essentially, the cost of insuring exposure to debt it issued – have soared to their highest levels since 2008 after many risky bets turned sour and it suffered billions in losses.
Market observers were quick to point out the similarities between Lehman and Credit Suisse, saying the American bank had also reassured about its capital base just a week before filing for bankruptcy.
Nassim Nicholas Taleb, a former trader and the author of 2007 book The Black Swan, even took a dig at Credit Suisse and tweeted: “All rumors are false until officially denied.”
So, is Credit Suisse in danger of collapsing? Well, the situation does seem a lot more serious than Credit Suisse would have us believe. The credit ratings firm Moody’s, for instance, downgraded its rating on Credit Suisse in August and estimates the lender could suffer a loss of $3 billion in 2022. The bank’s statement this week that it is selling the nearly 200-year-old Savoy Hotel in Zurich didn’t help either.
What would happen if Credit Suisse were to, God forbid, collapse? That will certainly be a catastrophe bigger than Lehman. And while the last time the central banks of major economies had plenty of firepower to prop up their respective economies, this time they have already exhausted their ammunition to deal with the pandemic.
So, let’s hope Credit Suisse gets its act together.
Darkening outlook
Credit Suisse’s fate will only be known in the next few weeks and months. But the prospects of global—and Indian—economic growth certainly seems to be going down, or more precisely, slowing down.
The International Monetary Fund (IMF) said Thursday it will downgrade its forecast for a 2.9% global growth rate in 2023. This, the IMF managing director Kristalina Georgieva said, could put the global economy at the risk of a recession and financial instability.
Georgieva said the outlook for the global economy was “darkening” given the shocks caused by the COVID-19 pandemic, Russia’s invasion of Ukraine and climate disasters.
The IMF is not the only major global organisation to have sounded the alarm bells. The World Trade Organization has cut its forecast for global trade growth to 1% in 2023 from a projected 3.5% in 2022.
And then there’s the World Bank, which slashed India’s GDP growth outlook for 2022-23 to 6.5% from 7.5%.
The bad news for India doesn’t just end at this. A 2 million barrels per day crude oil output cut by the Organization of Petroleum Exporting Countries and Russia will mean that global crude and gas prices will remain at elevated levels. This will hurt India, which imports up to 80% of its fossil fuel needs.
This means, for you the consumer, petrol and diesel at the fuel pump will continue to burn a hole in your pockets, as global oil prices look to top $100 per barrel once again.
And all of this is impacting India’s economy. Latest numbers show growth in the services sector fell to a six-month low in September. The S&P Global India Services Purchasing Managers’ Index fell to 54.3 in September from August’s 57.2, as weak external demand weighed on sales. Even manufacturing PMI edged lower to 55.1 in September from 56.2 in August.
If all these numbers seem too heady, just get this—things are not looking good for the global (and Indian) economy, so brace for impact.
No billing for BillDesk
As the economy slows down, India’s fintech sector seems to be going through the motions as well.
This week, tech investor Prosus, which is owned by South African tech and multimedia major Naspers, called off a $4.7 billion deal to acquire Indian payments firm BillDesk, citing breach of conditions. Prosus had announced the deal in August last year to expand its footprint in India’s burgeoning fintech sector via its payments gateway PayU.
The deal was called off just hours before its deadline, taking the Indian company’s shareholders by surprise and setting the stage for what promises to be an engaging legal battle that lawyers and journalists alike long for.
So, as the legal battles begin, we’ll be watching rather keenly. Can we get some popcorn, please?
Will he, won’t he?
No, we haven’t suddenly turned into a lovestruck teenage girl besotted with a tall dark and oh-so-handsome guy. We’re talking about Elon Musk and his flop-flip (okay, flip-flop, if you insist) on Twitter.
You see, months after saying he was going to acquire Twitter and then saying he was walking away because the microblogging site had, wait for it, way too many bots, the Tesla founder again wants to make the $44 billion purchase.
The new about-turn came after Twitter filed a lawsuit, where Musk was expected to fare poorly. That trial has now been halted with the judge reportedly allowing Musk more time to close the deal.
So, has the billionaire really had a change of heart or is he merely buying time to avoid the lawsuit?
We’ll ask Musk and let you know! (Or at least we’ll try!)
Tulsi Tanti passes away
Long before there was Renew Power or Azure Power or any of the other myriad renewable energy companies that now jostle among themselves for market share, there was Suzlon.
Founded in the mid-1990s by Gujarati businessman Tulsi Tanti, Suzlon once controlled half of India’s wind turbine manufacturing capacity and was worth Rs 68,000 crore.
Today, the company—beset with losses, burdened by debt, its progress stymied by some bad business decisions—is worth just about an eighth of that figure.
Late last week, Tanti died of a heart attack. Tanti, once one of India’s richest men, saw most of his wealth erode in less than a decade. But he never gave up.
Indeed, he kept trying to revive Suzlon’s fortunes, literally till the very end. He died just days before Suzlon plans to raise Rs 1,200 crore via a rights issue, and use that money to pay off some of its creditors.
We hope he travels gently into the wind…
Market Wrap
All economic indicators this week may have been pointing south, but India’s stock markets were headed in the opposite direction.
Although the markets corrected a bit on Friday, the benchmark Sensex and Nifty both ended the week solidly in the green with gains of around 1.4% each.
The Nifty 50 counters that gained the most were Coal India, JSW Steel, aluminium producer Hindalco and state-run ONGC. Titan, Hero MotoCorp, Larsen & Toubro and Tata Steel were among the other winners.
Companies that were most in the red included Adani Enterprises, Hindustan Unilever, Eicher Motors, Britannia Industries, and Mahindra & Mahindra. Some others that left their investors poorer were Adani Ports and state-run Power Grid Corp of India.
Other headlines:
- SEBI orders Brickwork Ratings to wind down operations within six months
- SEBI imposes five-year market ban on Gautam Thapar in CG Power case
- D-Mart Q2 revenue climbs 36% to Rs 10,384.66 crore from Rs 7,649.64 crore a year earlier
- Apple said to ask suppliers to shift some AirPods, Beats production to India
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Automobile retail sales rise 11% in September on festival demand: FADA
- GST collections rise 26% year on year to Rs 1.48 trillion in September
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Electronics Mart India IPO subscribed 7.6 times
- Competition Commission of India grants conditional approval to Zee-Sony merger
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French author Annie Ernaux wins 2022 Nobel Prize in Literature
- Swedish scientist Svante Paabo gets 2022 Nobel Prize in medicine
- Americans Carolyn R. Bertozzi and K. Barry Sharpless, and Danish scientist Morten Meldal get 2022 Nobel Prize in Chemistry
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France’s Alain Aspect, American John F. Clauser and Austrian Anton Zeilinger get 2022 Nobel Prize in Physics
- Belarus activist Ales Bialiatski, the Russian group Memorial and Ukraine’s Center for Civil Liberties get 2022 Nobel Peace Prize.
Until next week, happy investing!
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