Monthly Archives: June 2019

India’s growth forecast is the brightest spot in a grim forecast for the world economy.

As Finance Minister Nirmala Sitharaman prepares her budget, the World Bank reports Indias economy grew by 7.2 per cent in 2018-19 in contrast to the recent Indian Central Statistical Office (CSO) estimate of only 6.8 per cent growth during the period.

The Bank’s Economic Prospects Report released on Tuesday forecast India’s economy to grow by 7.5 per cent during this and the next two fiscal years, retaining its top spot as the fastest growing major economy. It would be helped by a “more accommodative monetary policy” and low inflation, it said.

The report retained the forecasts it made in January for India.

India’s growth forecast is the brightest spot in a grim forecast for the world economy. The report said that the global growth rate was estimated at 3 per cent last year and is forecast to dip steeply to 2.6 per cent this year, before edging up to 2.7 per cent next year and 2.8 per cent in 2021.

India “is estimated to have grown 7.2 per cent in fiscal year 2018-19, which ended March 31”, the report said. “A slowdown in government consumption was offset by solid investment, which benefited from public infrastructure spending”.

The Bank said that the cut-off dates for data used in the report was May 23.

On May 31, the CSO said that India’s gross domestic product (GDP) growth during the 2018-19 fiscal stood at 6.8 per cent, lower than the previous year’s 7.2 per cent.

The CSO said the Indian economy grew by only 5.8 per cent in the fourth quarter. That dragged down the fiscal year’s growth rate.

Finance Secretary Subash Garg attributed the slowdown to “temporary factors like stress in non-banking financial company (NBFC) sector affecting consumption finance”.

The World Bank report said, “Growth in India is projected to accelerate to 7.5 percent in FY 2019-20.”

“Private consumption and investment will benefit from strengthening credit growth in an environment of more accommodative monetary policy, and with inflation below the Reserve Bank of India’s target”, it added.

Growth projections for India made by different organisations vary a lot. Last month, UN downgraded India’s growth rate for the current fiscal year to 7 per cent, a cut of 0.6 per cent from the projection made in January and reduced the forecast for the next fiscal year by 0.4 per cent to 7.1 per cent. It estimated last fiscal year’s growth rate to be 7.2 per cent.

In April, the IMF cut India’s growth projections for this year by 0.2 per cent from the 7.5 per cent made in January to 7.3 per cent. It projected next year’s growth at 7.5 per cent, though lower than the earlier 7.7 projection.

The Asian Development Bank said in April that India’s growth rate would be 7.2 per cent this year and 7.3 per cent next year.

China’s economy grew by 6.6 per cent last year and is forecast to grow by 6.2 per cent this year and further decelerate to 6.1 per cent next year and 6 per cent in 2021, the World Bank said.

Pakistan was estimated to have grown by 5.2 per cent last year, but is forecast to steeply decline to 3.4 per cent this year and 2.7 per cent next year, before recovering to 4 per cent in 2021, according to the report.

This despite “financial assistance from Gulf countries and China and an International Monetary Fund programme (that) have helped rebuild confidence”, it said.

Last year, the report said, Bangladesh recorded a growth rate of 7.9 per cent — the highest of all nations, regardless of size, although with a GDP of only about $250 billion, or less than a tenth of India’s, it is not considered a major economy. Bangladesh’s growth is forecast to fall to 7.3 per cent this year, the Bank reported. It is forecast to rise to 7.4 per cent next year and dip to 7.3 per cent in 2021.

Commenting on the global economic outlook, World Bank Group President David Malpass said, “Current economic momentum remains weak, while heightened debt levels and subdued investment growth in developing economies are holding countries back from achieving their potential. It’s urgent that countries make significant structural reforms that improve the business climate and attract investment”.

The Bank report added several notes of caution for India and the South Asia region. “Fiscal deficits continue to exceed official targets in India and Pakistan, and supply bottlenecks and business climate obstacles could hold back investment potential in the region,” it said.

“In addition, non-performing assets in the region remain high. A sharper-than expected deceleration of growth in major economies or an intensification of trade frictions could have spillover effects for the region,” the report added.

It is also an oil importer at risk from vagaries of the oil market.

Brexit also poses another risk to the region, it said: “A number of economies have preferential trade arrangements with the UK, and would be vulnerable to a turbulent UK exit from the European Union.”

https://www.business-standard.com/article/news-ians/indian-economy-grew-7-2-in-2018-19-likely-to-top-at-7-5-world-bank-119060500156_1.html

Axis Capital, Edelweiss Financial Services, SBI Capital Markets and IIFL Holdings are the book running lead managers to the issue and Link Intime is the registrar

Shyam Steel Industries has filed draft papers with markets regulator Sebi for its initial public offering.

The IPO consists of fresh issue of up to Rs 200 crore and an offer for sale of up to 66.70 lakh shares, comprising up to 11.60 lakh shares by the promoter selling shareholders and up to 55.09 lakh shares by other selling shareholders, according to the Draft Red Herring Prospectus (DRHP).

Market sources said the IPO size is estimated to be around Rs 500 crore.

The Kolkata-based firm proposes to utilise the net proceeds from the IPO towards repayment/prepayment of certain borrowings of the company and its subsidiary Shyam Steel Manufacturing and for other general corporate purposes.

Axis Capital, Edelweiss Financial Services, SBI Capital Markets and IIFL Holdings are the book running lead managers to the issue and Link Intime is the registrar.

Shyam Steel Industries is a thermo mechanically treated rebar (TMT Rebar) player having integrated steel plants. The company operates all its steel manufacturing plants in West Bengal.

https://www.business-standard.com/article/pti-stories/shyam-steel-industries-files-ipo-papers-with-sebi-119060400414_1.html

In the first five months (January – May) of the current calendar year 2019 (CY19), FPIs have invested a net of Rs 76,051 crore ($ 10.9 billion) into the Indian equities.

Foreign portfolio investor (FPI) flows to the equity market till May 2019 have been the best in the past six years. Till May 2019, FPIs have pumped in nearly $11 billion on expectation of more business-friendly measures and continuity in ongoing policies post the outcome of the general elections.

And their bet proved correct with the Narendra Modi – led National Democratic Alliance (NDA) winning the 2019 general election with a thumping majority. FPIs remained net buyers for the fourth straight month in May.

In the first five months (January – May) of the current calendar year 2019 (CY19), FPIs have invested a net of Rs 76,051 crore ($ 10.9 billion) into the Indian equities. During the same period of CY18, they were net sellers of Rs 1,599 crore. On Monday, June 3, 2019, FPIs turned net buyers of Rs 994 crore, taking their total net investments in equities to Rs 77,045 crore for CY19, as per data available with NSDL.

Mutual funds, on the other hand, have been cautious and have mostly been fence-sitters. On a YTD basis, their investment in equities totals Rs 3,027 crore, as compared to Rs 59,372 crore in the corresponding period in 2018.

The strong FPI inflow has taken the benchmark indices to their respective all-time high with the S&P BSE Sensex closing above the 40,000 mark for the first-time ever on Monday. Thus far in CY19, the S&P BSE Sensex and Nifty 50 index have rallied 12 per cent and 11 per cent, respectively.

“Market discourse was dominated by politics for the larger part of H1CY19, with apprehensions around potential fractured verdict. With the return of Mr Modi as Prime Minister with a bigger majority for the Bharatiya Janata Party (BJP) and near two-thirds majority for the NDA, those worries are more than adequately addressed. From market’s perspective, the focus should now shift to fundamentals and the economy,” said analysts at Motilal Oswal Securities in a recent report.

Though India will remain on foreign investor’s radar, the pace of flows seen over the last few months going ahead may slow, analysts say. Foreign investors, according to them, will now wait-and-watch how the economy takes shape in the backdrop of doubts over monsoon, interest rate trajectory and other global events such as the US – China trade war.

“FPIs have invested at a scorching pace since the past few months. It is in the anticipation of policy reforms they have come in a big way. I think they will wait for the Budget announcements and other policy measures before the flow to India resumes in a big way. That said, the market valuation, too, is also a cause for concern,” explains U R Bhat, managing director at Dalton Capital.

A silver lining amid this is the fall in oil prices over the past few weeks. In the midst of the global trade war, crude prices have seen a significant fall (down by over $10/barrel) and global interest rates have almost crashed (US 10-yr yields down by 60 basis points in last three months). Both these augur well for India on the external / fiscal / monetary front, analysts say. The backdrop is well set for the government to capitalise on these trends and drive the growth outlook higher.

Most foreign brokerages, too, remain bullish on Indian equities and have revised their targets for the S&P BSE Sensex / Nifty50 post the general election outcome. Morgan Stanley, for instance, expects the S&P BSE Sensex to hit 45,000 by June 2020 as their base case – up 12.5 per cent from the current levels. Their bull-case level for the index is 50,000 by June 2020. BNP Paribas, too, sees the S&P BSE Sensex at 42,000 by December 2019-end.

https://www.business-standard.com/article/markets/fpi-inflows-into-equity-markets-till-may-2019-is-the-best-in-six-years-119060400494_1.html

Both the drug associations and pharma companies responsible for mandating the requirement of obtaining NOC prior to the appointment

The Competition Commission of India has levied a total fine of over Rs 74 crore on pharma firms — Himalaya Drug Company and Intas Pharmaceuticals — along with its senior officials as well as two Madhya Pradesh-based drug groupings for indulging in anti-competitive trade practices. The two drug associations are Madhya Pradesh Chemists and Druggist Association (MPCDA) and Indore Chemists Association (ICA) as per an order by the Competition Commission of India (CCI).

The fair trade regulator held both the drug associations and pharma companies responsible for mandating the requirement of obtaining NOC (No Objection Certificate) prior to the appointment as stockists which resulted in limiting and controlling the supply of drugs and medicines in Madhya Pradesh.

The act of entities contravened Section 3 of the Competition Act which pertains to anti-competitive agreement,the regulator said in an order dated June 3.

Regarding Himalaya Drug and Intas Pharmaceuticals, CCI noted that “despite advising the pharmaceutical companies not to facilitate such practices of the associations and directing the companies to bring to the notice of the Commission any kind of anti-competitive conduct being forced upon them by the trade association(s), the pharmaceutical companies have failed to demonstrate such ability.”

As per the CCI order, Himalaya Drug was fined Rs 18.59 crore while its three senior officials were fined a total of nearly Rs 4 lakh. Besides, Intas Pharmaceuticals was levied a penalty of Rs 55.59 crore and its four officials were fined Rs 11.78 lakh in total.

Similarly, MPCDA was fined Rs 4.18 lakh and ICA Rs 39,812.

In the matter of associations, the CCI said it has been proscribing anti-competitive practices of state and regional chemists and druggist associations in mandating NOC for appointment of stockists.

However, “despite various orders of the Commission passed in other matters and advisories issued by the Commission, the anti-competitive conduct on the part of the associations and their office bearers has been unrelenting,” the regulator said while imposing fine on MPCDA and ICA.

The ruling came on a complaint filed by Madhya Pradesh Chemists and Distributors Federation (MPCDF) which was aggrieved by the fact that one of its member, Pharma Agencies, despite having valid license was denied supply of products because of insistence on obtaining NOC from the two associations before being appointed stockist by pharmaceutical companies.

MPCDF is affiliated to the All India Chemist and Distributors Federation which is a registered organisation of chemists and distributors in the state of Madhya Pradesh.

https://economictimes.indiatimes.com/news/company/corporate-trends/cci-imposes-rs-74-cr-fine-on-himalaya-drug-3-others-for-anti-competitive-trade-practices/articleshow/69654682.cms

CDPQ bought another 27.84 lakh shares of M&M at the same price from M&M Employees Welfare funds, according to the BSE.

Shares of M&M ended Monday’s trading session up 1.05%, at Rs 653.90 a piece.

Canada’s CDPQ, an institutional investor that manages funds for several public and para-public organisations, has invested `1,424.56 crore in Mahindra & Mahindra (M&M) by picking up stakes in the auto company from M&M Benefit Trust as well as M&M Employees Funds, marking the former’s first investment in the Mahindra Group.
Mahindra & Mahindra Benefit Trust on Monday sold 1.92 crore shares of M&M, amounting to Rs 1,244 crore to CDPQ, according to a stock exchange notification released on Monday by the company.

“The shares held by the trust were the outcome of various mergers and schemes of amalgamation. The trust held 10.36 crore shares of M&M. According to the trust deed, the proceeds of the sale would be transferred to M&M, which would be used by the company for its various operational requirements,” the company said.

After Monday’s transaction, the M&M Benefit Trust will hold 8.44 crore shares, representing 6.8% of the equity capital of the company. “The sale has been executed at a gross price of `648 per share. Following the sale, the shareholding of the promoters and promoter group of the company has come down from 20.44% to 18.90% of the total paid-up equity share capital of the company,” M&M said in a stock exchange filing.

CDPQ bought another 27.84 lakh shares of M&M at the same price from M&M Employees Welfare funds, according to the BSE. Shares of M&M ended Monday’s trading session up 1.05%, at `653.90 a piece.

Mahindra Group chief financial officer VS Parthasarathy said since the benefit trust holds M&M shares for the benefit of its shareholders, it had decided to monetise part of the holding by divesting to a long-term, high-quality investor. “This is the first investment by CDPQ in the Mahindra Group reposing their faith in the future prospects of the company and Indian economy in general.”

CDPQ is an institutional investor that manages funds for several public and para-public organisations, mainly pension and insurance plans, in Quebec, Canada. Created in 1965, CDPQ manages more than C$309.5 billion, with investments in 60 countries.

https://www.financialexpress.com/market/mahindra-mahindra-shares-worth-rs-1424-crore-picked-up-canadas-cdpq/1597176/

The telecom company looks to raise $750 million which it will deploy in reducing the debts.

India’s third largest telecom operator Bharti Airtel said that its Africa subsidiary intends to go ahead with an initial public offering for listing on the London Stock Exchange, the company announced in a BSE filing. With this, the telecom company looks to raise $750 million which it will deploy in reducing the debts, it further said. The company is also eyeing to list Airtel Africa on the Nigerian Stock Exchange (NSE). The mobile service provider had earlier submitted a registration document to the UK Financial Conduct Authority for approval. Airtel Africa had revealed its plan for going public early in 2018.

Currently operational in 15 African countries, Bharti Airtel has over 9.9 crore users spread across three African regions primarily. Out of Nigeria; East Africa, and the rest of Africa, Nigeria brings most of the profits for the company and also accounts to half of the company’s EBITDA and 40% of its total revenue. Speaking on the recent quarterly results, Airtel Africa MD and CEO had said that Africa growth story remains strong as the company has reported a 12% revenue growth for the full year. The company also reported a spike in the traffic growth of 73%. Airtel had ventured into Africa business about nine years ago.

Meanwhile, Bharti Airtel Africa has posted its quarterly results and said that it is making more money per user now. With an increase in average revenue, the telecom is now getting Rs 123 per user at an average. However, the same is still not at par with the sustainable level in the telecom business, MD and CEO, India & South Asia, Gopal Vittal had earlier said. Bharti Airtel’ rival Reliance Jio, which is owned by Mukesh Ambani, garners an average of a little over Rs 126 per user.

According to Bharti Airtel’s recent quarterly release, Sunil Bharti’s telecom company has over 40 crore users across 16 countries. Airtel’s various services include telecom operations in India, South Asia and Africa, digital TV services and Airtel business. The company has 38 crore subscriptions for its telecom services alone.

 https://www.financialexpress.com/market/ipo-news/bharti-airtels-africa-arm-to-proceed-with-initial-public-offering-looks-to-raise-750-million/1597329/

RBI seen cutting rates by at least 25 bps, may turn ‘accommodative’ after dismal GDP

Beginning a three day review on Tuesday, the Reserve Bank of India’s six-member monetary policy committee (MPC) can draw comfort from subdued inflation. Running at 2.92 % annually in April, it has stayed below the medium term target of 4% for the past nine months.

A worrying slowdown in India’s economy makes a cut in the central bank’s benchmark interest rate highly likely this week, but analysts say policymakers should also find ways to boost banks’ liquidity to ensure they drop their lending rates too.

Beginning a three day review on Tuesday, the Reserve Bank of India’s six-member monetary policy committee (MPC) can draw comfort from subdued inflation. Running at 2.92 % annually in April, it has stayed below the medium term target of 4% for the past nine months.

Two-thirds of 66 economists polled by Reuters expect the MPC to wrap up on Thursday by cutting the repo rate by 25 basis points, but that survey was taken even before India released far worse than expected economic growth numbers, so expectations for a cut have probably hardened.

If they are right, and the RBI does lower the repo rate to 5.75% it will be the third meeting in a row since February that India has cut interest rates. The last time it moved this quickly to lower rates was in 2013 to revive the moribund economy from growth rates that had slipped to a decade low.

The trouble is banks are laden with bad debt and are scared of losing customers if they cut deposit rates, constraining their ability to cut lending rates despite all the prods from the RBI.

State Bank of India, the country’s largest lender by assets, has cut its key lending rate by only 10 basis points in response to the 50 bps cuts by the RBI.

A series of defaults at lender Infrastructure Leasing and Financial Service Ltd last year has raised concerns about the country’s shadow banking industry with other lenders also facing trouble accessing capital and rating downgrades.

The RBI had retained its “neutral” stance after the rate cut in April but traders said a change in this stance to “accommodative” will be more comforting for markets than just a rate cut, especially after the recent GDP numbers.

“Liquidity woes in banking system are far from over,” said Lakshmi Iyer, Chief Investment Officer (Debt) at Kotak Mahindra Asset Management Company.

“Given the global as also domestic scenario, the MPC may well choose to gratify the markets with a benchmark rate cut. What is more important for markets is the MPC guidance than the actual rate action.”

The economy really does need help.

Data out on Friday showed annual economic growth running at 5.8% in the January-March quarter, sharply down from 6.6% in the previous quarter, well below forecasts and the slowest in more than four years.

“The market is expecting RBI to cut the rates by at least 25 basis points, and we will not be surprised if they decide to cut the rate by even 50 bps, to infuse liquidity and push growth,” said Romesh Tiwari, head of research at CapitalAim.

FISCAL, RAIN AND OIL UNCERTAINTIES
Re-elected last month for a second term regardless of the slowdown, Prime Minister Narendra Modi needs to stop the rot, and his economic strategists are working on big-bang reforms.

New Finance Minister Nirmala Sitharaman is due to present a budget on July 5 that many analysts expect to be expansionary, though the she cannot afford to let the deficit slip too much.

Until then the RBI will have to live with the uncertainty over the new minister’s fiscal plans, while knowing that when the government does boost spending it will go some way to boosting banks’ liquidity.

Also, the effect of the drain on banks’ liquidity from political parties’ demand for cash during the election campaign should begin to fade.

Oil prices and the monsoon rains are less predictable. The central bank had lowered its Jan-March 2020 inflation forecast to 3.8 percent but warned it could be higher if food and fuel prices rise abruptly or if the fiscal deficit overshoots targets.

https://www.financialexpress.com/economy/rbi-seen-cutting-rates-by-at-least-25-bps-may-turn-accommodative-after-dismal-gdp/1597317/

Analysts said India is benefiting from the weakness in global markets that is resulting into fall in oil prices, US bond yields and dollar

The markets on Monday rallied sharply, with the benchmark Sensex and the Nifty closing above 40,000 and 12,000 for the first time after weak economic data, coupled with slump in oil prices, increased expectations of a rate cut by the Reserve Bank of India (RBI).

The Sensex ended at 40,267.62, up 553 points, or 1.4 per cent, while the Nifty added 166 points, or 1.39 per cent, to close at 12,089.

The gains came despite a slump in global equities amid fears of economic slowdown due to the US-China trade conflict. Driven by the robust show by indices, investor wealth rose by Rs 1.76 trillion.

Analysts said India was benefiting from the weakness in global markets which is resulting in a fall in oil prices, US bond yields and the dollar. The 10-year US bond yield has declined from 2.54 per cent to 2.1 per cent in the past one month.

Brent crude prices have gone down by 15 per cent to below $64 a barrel in the past fortnight. Prices, however, were volatile on Monday. The fall in global oil prices has helped ease macroeconomic pressure and the inflation outlook, providing more comfort to the RBI.

The 10-year government bond yield ended below 7 per cent for the first time since November 2017. The rupee appreciated 43 paise to end at 69.26 against the dollar.

Foreign portfolio investors (FPIs) have stepped up their India investment amid softening of US bond yield. On Monday, FPIs invested Rs 3,069 crore in the domestic market.

The RBI will announce its bi-monthly monetary policy on Thursday. In the last two policy reviews, it had cut the repo rate by 25 basis points each. According to experts, the RBI will go for another round of rate cut, the third in a row, on Thursday to prop up economic growth, which dropped to a five-year low in the final quarter of 2018-19, and benign inflation. The gross domestic product data, released Friday, showed growth in the fourth quarter of 2018-19 slowing to 5.8 per cent — the slowest in several quarters.

“Two things one needs to look out for is the RBI policy and the FM’s plan to revive growth. The markets are going to latch on to every word that the finance minister is going to speak about how she is going to revive growth,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies.

Market players said the market is hoping that since we have a stable government with a more significant mandate, there will be continuity in reforms and the government will take quick action that will reverse slowdown. However, they expressed concerns about the valuations.

“It’s not a cheap market, and the market is trading at the higher end of the valuation range. From now on, the onus will be on earnings. If it comes quickly, the market will be fine. If earnings revival does not happen, markets will be disappointed,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

The broader market underperformed the benchmarks with the NSE Midcap 100 Index rising by 0.96 per cent and the NSE Smallcap 100 gaining 0.28 per cent.

All of BSE’s 19 sectoral indices gained, with the auto index gaining the most.

https://www.business-standard.com/article/markets/sensex-ends-above-40-000-mark-all-19-indices-rise-auto-gains-the-most-119060301621_1.html

LTTS in a BSE filing said that L&T will sell up to 40,34,399 equity shares of face value of Rs 2 each

Larsen & Toubro Technology Services (LTTS) Monday said its promoter L&T plans to sell 4.03 million shares on June 4 and 6.

LTTS in a BSE filing said that L&T will sell up to 40,34,399 equity shares of face value of Rs 2 each that represent 3.88 per cent of the total paid up equity share capital.

The floor price of the offer shall be Rs 1,650 per equity share of the company. The shares will be sold on June 4 (for non-retail investors) and June 6 (for retail and non-retail investors who choose to carry forward their unallotted bids), it said.

At the end of March 2019, L&T held 78.88 per cent shares in LTTS. Shares of LTTS closed at Rs 1723.75 apiece Monday, down 2.18 per cent from the previous close on the BSE.

https://www.business-standard.com/article/pti-stories/l-t-to-sell-40-34-lakh-ltts-shares-119060301396_1.html