SEBI is readying a framework for issuance of P-Notes from the IFSC. As is well known, P-Notes are participatory notes issued by FIIs on behalf of clients who are not registered as FIIs in India and who want to maintain anonymity. SEBI has recently made the P-Notes very stringent after which there was a sharp fall in the issuance of P-Notes as the costs were prohibitive. This is intended to coincide with the cancellation of license to trade index futures on global bourses like the SGX. The IFSC, like the one at GIFT City, will help global and domestic investors to hedge their India risk in dollar terms.
Higher tax outgo and weak results from Taro, led to a sharp fall in the net profits of Sun Pharma for the quarter ended December 2017. Net profits fell by 75% to Rs.365 crore underlining the problems that the pharma sector continues to face. This was largely due to a deferred tax payment of Rs.513 crore to comply with the new tax regime in the US. Also, Sun Pharma could not file any new patents from one of its largest plants at Halol owing to US sanctions. Even revenues were down by 16% at Rs.6652 crore for the December quarter, implying the clear pressure on US sales.
For the second straight quarter, Jet Airways reported a sharp fall in profits by 46% to Rs.165 crore. Jet, like other aviation companies, had benefited from the sharp fall in fuel prices. However, with crude oil bouncing back to $70/bbl levels, the days of cheap ATF fuel are now history. Also, the intense competition in the industry is hurting the pricing power and leading to lower profits. However, the good news is that the domestic aviation segment in India is growing at over 18% per annum and that will ensure that the industry will continue to grow at an attractive pace.
The US CPI inflation was up by 0.5% as against the consensus estimate of 0.3%, largely driven by a sharp rise in apparel inflation to a 30-year high. On a YOY basis, the CPI inflation was 1.8%, higher than the 1.7% that the street was estimating. This is pretty close to the Fed’s original condition of 2% rise in annual inflation and it indicates that the next rate hike may come as early as March. It also opens the doors for 4 rate hikes in this calendar year as against 3 rate hikes originally proposed by Janet Yellen. If the US Fed goes for 4 rate hikes, then it could have an impact on global capital flows.
As the PNB fraud to the tune of $1.7 billion unfolded, a lot of big names are likely to be pulled into the vortex of the fraud. Prima facie it appears to be a case of unauthorized approvals given by officials of PNB based on which other banks had lent funds abroad. While this is not directly a liability for PNB, it does create a contingent liability in its books. However, the bigger picture is that the actual net of this fraud could widen to a much larger scale. One of the main accused in the fraud, Nirav Modi, is a globally acclaimed diamond merchant and his influence spreads across Bollywood and Hollywood. The letters of understanding was illegally obtained from some junior PNB officials. Based on this letter, other banks like Axis Bank and Allahabad Bank had lent money to Nirav Modi.
Berkshire may have entirely or substantially exited its position in IBM. There was a great interest when Buffett had acquired a big stake in IBM a few years ago. It was looked upon as a staid old economy company which had failed to keep pace with newer fleet-footed companies like Microsoft, Google, Facebook and Amazon. Berkshire is already a major shareholder of Apple and it has recently increased its stake in Apple. Warren Buffett himself admitted that his valuation model for IBM had been flawed and he did not see much of a future in holding on to the stock for the long term.
