Midnight News Update – Aug 14th 2017
A recent note by Barclays has highlighted that the Modi government is unlikely to embark on any major reforms running into the central elections in 2019. Barclays’ view is that the focus will be more on administrative reforms than on legislative reforms. The brokerage house also feels that the government will be unwilling to go for major reforms as the short term benefits of the same are dubious. There are still some pending reforms on the land and labour front, although the government is likely to go slow on sensitive issues. Rather the focus will be to highlight the merits of GST and the Anti-Graft focus.
The RBI has some reason to worry as the gold imports are likely to surge by over 33% in 2017 to a total of 750 tonnes. Gold imports result in use of foreign exchange for unproductive purposes. A good rainfall is likely to boost rural demand and give a push to rural incomes. Gold prices globally have been moving up as the geopolitical risk in North Korea and the South China Sea has been instrumental in creating safe-haven demand for gold. In 2016, India’s gold imports were at the lowest level in 13 years due to high prices and a prolonged jewellers strike. Year 2017 is likely to be a buoyant for gold demand.
One of India’s top real estate companies, DLF, has been facing the blues of GST and RERA as time cycles have got elongated. Its net profits for the June quarter fell by 58% as the pressure of negative working capital cycles is taking a toll on the company’s finances. The slowdown appears to be more on the mid and premium segment, which is where DLF predominantly operates. The statutory side-effects of RERA and the more stringent registration requirements are also forcing the players to go slow. RERA also places too many restrictions on builders and brokers and the nuances are yet to be digested.
In a conference call after the quarterly results, Dilip Sanghvi of Sun Pharma attributed the poor performance in the quarter to poor execution on the ground. For the quarter ended June 2017, Sun Pharma reported a net loss of Rs. -425 crore compared to analyst estimates of a profit of Rs.1180 crore. The loss was largely driven by a one-time charge of Rs.951 crore in the quarter towards a US anti-trust settlement. Generic manufacturers have long been under pressure on the volumes and the pricing front as tighter competition and stringent regulatory oversight have made the business environment tougher.
For a long time, Neil Kashkari, the President of the Federal Reserve Bank of Minneapolis has been favouring a dovish approach to rates at a time when the entire FOMC has been in favour of raising rates. Kashkari calls this hawkish approach to rates as fear mongering by the Fed. According to Kashkari, the probability of inflation rising sharply in the future is very remote and therefore the Fed hawkishness does not really make sense. Within the FOMC, Kashkari has traditionally been a dissenter and has voted for cutting the rates. According to Kashkari, there is no evidence that inflation is moving towards the original Fed target of 2%. Among the conditions set by Fed for hike rates originally was full employment, return to economic growth and inflation touching 2%. Only full employment has been achieved!
Sajjan Jindal has confirmed that Jindal Energy could be launching its electric car by 2020 along with its own charging and storage infrastructure. Electric cars are the next big revolution with Elon Musk of Tesla having the taken the lead. It is expected that the demand for electric cars could grow 50 times in the next 5 years and that could have long term implications for the demand for fossil fuels. The company will be investing nearly Rs.4000 crore into the electric car project. Electric cars also have the GST advantage as they will be taxed at just 12% compared to 28% plus cess for ordinary cars.
