Hope is a “Choice” that can empower us in 2020
Recapping the year 2019 and wearing the “20-20” vision to guide our way through a continuously changing and challenging world, economy and capital markets in the year(s) ahead.
uTrade Solutions Annual newsletter – 1st Jan 2020
With the ever-accelerating advancements in sciences, technology and artificial intelligence yet again this year, it seems little can stop us. But might we (and our leaders) be digging our own graves with our consistent ignorance and apathy towards global issues that threaten the very existence of a future for mankind? As the world gets even warmer and climate patterns continue to shift this year, as politics and elections get dirtier and disengaging for the masses, and as more people begin to wonder if capitalism is at the crossroads - we continue to sail through time, armed albeit only with hope as a weapon to protect ourselves from the problems of the near future.
As our planet prepares itself for yet another revolution around the Sun, let’s take a bird’s eye view of how human societies fared with their ambitions in 2019. This year witnessed the turn of events with the US economy moving from projected growth towards a likely slowdown, US China trade wars leading slowdown in the global economy (and rattling many businesses around the world), emerging countries staying “emerging” without much real progress, and most developed countries struggling with continued decline in productivity due to ageing population and specifically EU nearing a recession. Hong Kong protests continued for months as the citizens seek freedom and Government tried retaining control. Basically, most countries and companies around the world are bracing for a very slow 2020.
Indian economy has been on a continued decline in the year 2019, and the downturn is likely to trickle in the year ahead too. It had started with loss of confidence not (only) among foreign investors, but among country’s own consumers and corporates. Loss in investor confidence was accelerated further by the (re-elected) Government budget in July 2019, some provisions of which were quickly overturned 2 months later when rationality prevailed. But the confidence among corporates and investors was already dented.
The slowdown was further fueled with the NBFC crisis (which was a structural arbitrage between what central banks did not want banks to do, and had NBFCs do (long-term “riskier loans” with the “same” banks’ short-term loans), with ILFS and DHFL moving into liquidation and losing billions of bank and investor dollars in the process. With a massive economy (including SME businesses) dependent on NBFC loans, the dry out of liquidity by NBFCs means the SME businesses will shrink leading to job losses, and hence the economic growth slowdown. In the meanwhile, large global corporations also appear to have moved into a “wait and watch” mode before promoting their investments in India.
This leaves only the Government spending to retain the country’s growth, which may not work sustainably as the Government deals with lower tax collections & rising current account deficit.
Key events that shaped Indian capital markets included
- SEBI has implemented several rules and regulations to protect smaller investors from brokers pooling their funds and pledging their securities, as well as increasing Brokers’ margin requirements (reducing leverage)
- The ILFS collapse impacted clearing on the capital markets brokers, whose funds got stuck with the institution < /li>
- NSE launched managed colocation services for smaller brokers through trading vendors < /li>
- SEBI gave a final order against NSE and several of its members for the “Colo” algo scam, ending years of investigations. < /li>
- NSE revives its plan for IPO in 2020
- Karvy stock broking fraud to the amount of up to INR 2800 crores shook the capital markets industry leading to SEBI planning tighter regulations for the brokers in 2020
- Banks (including Citibank) had to engage regulators and supreme court to settle a large trade on NSE in July 2019, denting foreign banks confidence in Indian capital markets rules
- Smaller stock brokers struggle to survive and many of them wind down amidst tighter regulations, increased compliance costs, dropping commissions, and inability to cope up with increasing competition from large tech driven brokers
- NSE SGX tied up for GIFT City connect trading and got the regulatory approvals
- Indian Parliament passes a bill to form a unified regulator for IFSC Gift City for international financial services business
- BSE derivatives segment had a renewed push leading to increased participation and liquidity
20 20 vision for the year 2020
- US elections, trade wars, and it’s slowing economy shall continue to impact the global economic growth and sentiments
- EU’s economy will be closely watched around the recession line, with Brexit finally happening.
- Hong Kong’s economy shall continue to falter amidst stare off between the government and activists, and long-term impact as a hub for doing business in China shall be reviewed by foreigners
- Climate change consequences and headlines will intensify, hopefully leading to political and leadership debates; and in the best case transforming into some much-needed action too.
- The world should see a shift towards cleaner sources of sustainable energy and increased adoption of electric automobiles
- Indian Government may offer more tax cuts to revive the Indian corporate and consumer sentiment, in the February 2020 budget. The economy may not be easily revived though.
- SEBI may overhaul existing regulations and introduce new rules (especially post Karvy), reducing the “broker” exposure from its clients, including direct pay in pay out and custodians managing client assets (and not brokers)
- USDINR Currency launch in Gift City may lead to higher volumes as it can easily act as hedging instrument for investors and traders, round the clock. (This may also dent DGCX USDINR volumes in the next 1-2 years)
What are we reading and writing
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