The ruling NDA suffered a minor setback in Karnataka as it failed to muster the numbers and the prospective CM of Karnataka had to make way for a coalition government at the centre. The markets could react negatively to the outcome over the weekend, although it is likely to be temporary. But the outcome is likely to revive the talk of opposition unity in the 2019 elections and the Congress could well be the fulcrum around which such a coalition could be built. To that extent, it may be interesting to see how this outcome on Saturday actually impacts the reforms process in India.
Even as the US and China may be mulling putting the trade war on hold, India has now decide to retaliate with higher duties on US products. The US had imposed higher tariffs on aluminium and steel and that has hit India’s exports. In fact, additional duties to the extent of 100% are being envisaged on certain products. India has also instructed its trade coordination body to withdraw concessions to the US to the extent of loss created by the tariffs on steel on aluminium. India had requested for exemption from the 25% tariff on steel 10% tariff on aluminium but the US had not relented.
The government has been buoyed by the first full-fledge success in NCLT by selling Bhushan Steel to Tata Steel for a consideration of over $5 billion. According to the Finance Ministry, the complete NCLT resolution plan will be instrumental in banks writing back close to Rs.100,000 crore which will substantially expand their bottom-line as well as their lending capacity. Apart from Bhushan Steel, there are 11 more such cases which are at various stages of resolution. Essar Steel and Binani Cements are the two other big accounts that could go for resolution very soon.
In a further indication of consolidation within the Birla Group, Ultratech has agreed to buy out the cement division of Century Textiles via a share swap deal. Century shareholders will get 1 share of Ultratech for every 8 shares of Century Textiles held by them. Century’s total capacity of 13.4 million tonnes will take Ultratech’s eventual capacity in cement to 105.9 million tonnes. Ultratech is already the leader in the Indian cement industry and this will only help the company to further consolidate its position. Post the merger, Ultratech will become the world’s 3rd largest (ex-China).
Even as PNB has remained cagey on the details of the defaults and the action taken with respect to the Nirav Modi case, details of rising wilful defaults at PNB have been rising. In fact, wilful default by the large borrowers of PNB has crossed the level of Rs.15,200 crore by end of April 2018. This comes on top of a massive loss of Rs.13,400 crore reported in the fourth quarter ending March 2018. Some of the largest wilful defaulters on the books of PNB include Kingfisher Airlines, ICSA India, Kudos Chemie, BBF Industries, Arvind Remedies and Indu Projects. Some of the large defaulters of PNB include Winsome Diamonds, Zoom Developers and Forever Precious Jewellery. The bank has already reported a gross NPA ratio of over 18% which is hardly a sustainable scenario for any bank.
India’s forex reserves have slipped by nearly $7 billion since the end of March 2018 on the back of heavy RBI intervention. The forex chest in India stood lower at $417 billion. The RBI is expected to have sold dollars heavily in the forex market to steady the rupee after it fell vertically beyond the 68/$ mark. Rising portfolio outflows and rising oil prices are already putting pressure on the INR and the government is sceptical that higher oil prices and a weaker rupee could only put further pressure on the RBI forex chest. RBI may even consider the fourth tranche of NRI bonds to stem the rupee fall.
