The Indian economy got a double boost on Monday after the IIP growth for January came in higher at 7.5% while the inflation came in lower at 4.4% for the month of February 2018. The higher IIP number was largely driven by manufacturing which constitutes over 70% of the overall IIP. The CPI inflation was led lower by food inflation coming in at just about 3.26%. The IIP has shown some green shoots of an investment cycle recovery and that could be the good news. However, the lower inflation is unlikely to induce the RBI to cut rates as inflation is still over the 4% cut-off. Fed will be closely watched.
At a time when PNB and other banks are struggling to recover money lent against fraudulent Letters of Undertaking (LOU), Bank of India has managed to recover nearly Rs.7000 crore ($1.2 billion) of advances given against stand-by letters of credit. These assets had been already declared as NPAS and BOI is confident of recovering another Rs.2000 crore by year end. This should give hope to PNB which is struggling with nearly $2 billion of loans given to Nirav Modi against LOUs issued by PNB. The RBI had already instructed PNB to make provisions for the amount over the next 4 quarters.
With cement companies eyeing higher volumes, the prices of cement have taken a hit in the month of March. The month of March alone has already seen an Rs.9 per bag cut in cement prices on an all-India basis with regional disparities much higher. The price at Rs.322/kg has almost lost the price gains of the previous 3 months. Since the beginning of the fiscal year, cement prices fell for 6 months in succession due to a combination of GST implementation and RERA implementation. Cement dealers confirm that the glut of supply in the market is likely to keep pressure on cement prices across India.
Tata Sons, the holding company of the Tata Group, proposes to raise Rs.8000 crore through the sale of its part stake in TCS. These funds will be used to finance the repayment of debt in its telecom arm. Tata Sons proposes to sell around 2.83 crore shares and Citigroup and Morgan Stanley are the lead arrangers to the stake sale. Once the transaction is completed, Tata Sons will still hold around 72% stake in TCS. It may be recollected that Tata Teleservices business is being sold to Bharti Airtel and Tata Sons had promised lenders that all debt will be repaid with zero haircut.
RBI has released its final norms on hedging of commodity risk abroad. The new regulations will come into force from April 01st 2018. As per the regulations, banks will be allowed to issue stand-by letters of credit (SBLC) for a maximum period of 1 year in lieu of making remittance of margin money for commodity hedging transactions. The onus will also be on the banks to ensure that the SBLC is used for the stated purpose only. Many Indian businesses need to hedge their commodity risk in oil and metals with appropriate hedges abroad. The RBI has always been wary of these trade finance routes being misused and the latest PNB fiasco has only served to underscore the apprehension of the RBI. Also, banks need to ensure that the quantity and tenor of the hedge are in tune with the exposure.
Paytm has secured approval from SEBI to offer wealth management products on its platform. This is likely to add to the fee income of Paytm. To begin with, Paytm will only offer direct plans of mutual funds which do not charge upfront loads on the customer and hence their costs are lower. Paytm has already secured the approval for launch of payment bank which was launched in May 2017. It may be recollected that Paytm was a big beneficiary of the demonetization exercise of 2016 when the Paytm platform saw a multi-fold growth in the volume of transactions since cash was hard to come by.
