The Dow Jones index cracked sharply as higher bond yields and the risk of falling healthcare margins led to an across the board sell-off in Dow stocks. Amazon and Berkshire announced a partnership to foray into the healthcare business to bring down healthcare costs sharply in the US. Considering their market value and their deep pockets, they are likely to create a formidable force in the market and healthcare companies could see a squeeze in margins. However, markets are worried that the sharp rise in bond yields may make equity less compared to debt for asset allocators.
In a let up for insurance players, SBI Life announced a 21% growth in net profits at Rs.230 crore for the quarter ended December 2017. New business in the quarter grew by 42% to Rs.2316 crore. Even the premium collections were up by 38% for the quarter. There was also a healthy growth in the renewal premiums at SBI Life. It may be recollected that SBI had listed on the bourses in October last year and is one of the few life insurers listed on the bourses. The AUM of SBI Life has also grown by 23% to Rs.112,000 crore. SBI Life is one of the more profitable private sector insurers in India.
NTPC has listed its $6 billion Medium Term notes (MTN) instrument at the India International Exchange. This listing will allow NTPC to raise funds at lower cost from international investors and also allow the foreign investors to participate in quality paper in the Indian market. The INX is located at the much touted GIFT City in Gujarat. The purpose of the INX was to enable corporates to raise capital at a low cost in a transparent and cost effective manner. This facility is available to Indian issuers looking at a global audience and also to global investors looking for a stake in the India story.
IOCL flattered the street with a 97% growth in net profits at Rs.788 crore for the quarter ended December 2017. The sharp rise in profits was spurred by a mix of strong inventory gains and high refinery margins. The inventory gains doubled due to higher crude oil prices and that was one of the main drivers of profitability at IOCL. The big takeaway was that the gross refining margins (GRM) went up sharply YOY from $7.67/bbl to $12.32/bbl in the latest quarter. This GRM also represents a sharp premium over the Singapore GRM benchmark. The company also recommended a 1:1 bonus.
The Chief Economic Advisor, Arvind Subramanian, does not appear to be a votary for corporate tax rate cuts. Ahead of the budget, there has been a strong demand to cut corporate tax rates from 30% to 25% to give a boost to the revival of the capital investment cycle. The CEA is of the view that cleaning up the balance sheets of corporates and banks should be the first priority and the tax cut could create serious revenue matching problems for the government. The concerns of the CEA were more on the lines of the fiscal slippage that India is likely to witness this year to the tune of almost 50 basis points. The demand for corporate tax cuts came after Trump announced a bold tax cut for corporates from 39% to 21%. As the CEA rightly put it, that may not be the priority for the Indian government at this point of time.
The government proposes to issue recap bonds of 6 different maturities with 6 different coupon rates. At the short end the recap bond maturing in 2028 will have a coupon of 7.35% and at the long end the recap bond maturing in 2033 will have a coupon rate of 7.68%. Out of the total government allocation of Rs.88,000 crore for recapitalization, nearly Rs.80,000 crore will be infused by way of recap bonds. In reality, the recap bonds are more of an accounting entry as the liquidity available with the banking system will be used to subscribe to these bonds, which will come back as capital support.
