Tata group stocks corrected on Wednesday after the NCLT Appellate Tribunal (NCLAT) ruled in favour of Cyrus Mistry. This pertains to the October 2016 episode when Mistry was sacked from the post of chairman of Tata Sons and Chandrasekharan was brought in his place. The NCLAT ruled that the appointment of Chandra was illegal and ordered the reinstatement of Cyrus Mistry at the helm of Tata Sons. However, the order will only be effective in four weeks time as the NCLAT has to give time to Tata Sons to appeal against the order to the higher court. Mistry family holds a big stake in Tata Sons.
In another significant judgment pertaining to the Tata Group, the NCLAT also set aside the decision to convert Tata Sons into a private limited company. Mistry family had also objected to this move as it would make it impossible for them to hive off their stake in Tata Sons without the explicit permission of the Tata Group. NCLAT has also set aside the decision, which means Tata Sons will still remain a closely held public limited company. The Mistry family had acquired the stake in Tata Sons many decades ago by converting a loan they have given to the Tata Group. That has now become the bone of contention.
In the 38th meeting of the GST Council, the differences between the centre and the states came out in the open. The states tried hard to get an assurance from the finance minister that the state share of GST would be paid on time. However, the FM was unwilling to assure despite 3 months outstanding. Under Jaitley, it had been decided that states would be paid from the GST Compensation Fund, which could also borrow in the event of shortfall. Also, for the first time in the last 38 meetings there was no consensus on dual rates on lottery and the non-BJP states called for a vote on the subject.
The case between Anil Ambani and ICBC of China may have just taken an interesting twist. ICBC has dragged Anil Ambani to a London Court over a $680 million personal guarantee given by Anil Ambani personally. However, Ambani has said that it was given by an employee who was only authorized to issue a letter of comfort. This pertains to the $925 million loan that Reliance Communications had taken from ICBC in 2012. With RCOM already under bankruptcy, the Chinese bank had no choice but to invoke the personal guarantee. The UK court may insist on depositing part of the amount with the Court.
In what was a long time coming ICRA has downgraded the year end outlook for the power sector to negative. The reasons cited were a slowdown in energy demand growth and sluggish progress on resolution of stressed thermal power loans. Power demand growth had turned negative registering de-growth of -12.9%. The plant load factor (PLF) for thermal power companies dipped from 60.2% to 56.6% due to the predominance of alternate forms of energy like hydro, solar and nuclear energy. Most of the power generators as well as the SEBs are under tremendous stress and banks have not even started recognizing these loans as bad loans. A mix of falling demand and erratic coal supply by Coal India Ltd has brought most of the power companies to the brink. This could have an impact on power stocks.
The FMCG sector is expected to show weaker growth in the range of 9-10% for the full year 2019 according to estimates. That would mark a weakening of growth by 200-300 basis points. The weak growth is likely to be largely driven by weak rural sales, where farm stress has put pressure on income levels. However, profits of FMCG companies have remained buoyant due to price hikes. Now companies like Nestle and Britannia are under pressure to give a boost to sales growth by sacrificing some of their margins. But the key to revival will be rural growth and rural incomes.
