Brent crude was up 3% on Monday as the combination of a US-China truce and likely supply cuts helped prices higher. Oil had fallen from $86/bbl to $58/bbl over the last 2 months after the Iran sanctions were substantially diluted. In the OPEC meeting on 06th December, Saudi Arabia has the support of Russia for supply cuts. However, there are internal murmurs building up. Firstly, Iran has asked countries that hiked production to take production cuts, indicating its unwillingness to cut output. Secondly, Qatar has expressed its intention to exit the OPEC due to Saudi sanctions. December 06th could be interesting.
Hindustan Unilever and Glaxo SmithKline Consumer inked a Rs.31,700 crore deal, marking the biggest deal in the food industry in India. Unilever gets a rapid access to the fast-growing health drinks market since the GSK portfolio includes Horlicks and a host of other marquee brands like Boost, Maltova, and Viva. The importance of the Indian arm of GSK is evident from the fact that Unilever of London is paying 84% of the price and only the balance will be borne by HUL. The deal values GSK consumer business at 7x sales and is at a premium to normal acquisitions in this particular segment.
On a busy day in the markets, two new products were launched; one a brokerage product and another exchange trading product. ICICI Securities launched Instant Payout Facility in association with BSE where the payout of a share sale will be done within 30 minutes of the trade. This is called the e-ATM and is subject to a cap of Rs.50,000 per client per day. This will make equities almost liquid like money market funds. In other news, NSE launched futures on the overnight call money rate (MIBOR) to help traders manage risk exposures. This is the second debt derivative after IRFs.
There was some good news on the PMI front with the manufacturing PMI for November coming in at an 11-month high of 54. PMI measures whether manufacturing is expanding or contracting and 50 is the cut-off. The healthier inflow of new orders encouraged companies to lift production during the month as the huge liquidity crisis of October appeared to be coming to an end. There was also an increase in price across the board and that could translate into higher inflation going ahead. Unlike in previous months, the creation of fresh jobs in manufacturing is also picking up the pace.
In a report released on Monday, Goldman Sachs has raised serious concerns about the low levels of per capita incomes in India. For example, even if you leave out the developed nations, the emerging markets like Brazil, Turkey, Indonesia, China, and even Mexico have per capita incomes that are multiples of India. Per capita income is calculated by dividing the GDP by the population and China overcame the problem with nearly 30 years of rapid growth. For example, China and India had the same per capita income in 1992 but today, China’s per capita income is 4.5 times that of India. According to the Goldman report, at the current rate of growth, it would take 35 years for India to catch up with Indonesia in terms of GDP per capita. At the current pace, it will take India 145 years to catch up with Singapore.
The government is finally coming down heavily on the promoters of IL&FS, who have been the primary reason for the mess in the company. NCLT has now sought details of personal assets accumulated by the nine directors of IL&FS including some of the iconic names like Ravi Parthasarathy, Hari Shankaran, Vibhav Kapoor, and Arun Saha among others. While the company has been defaulting on debt, the SFIO believes that directors had siphoned out the money for personal use, which created this mess in the first place. The board has been dismissed and a new board under Uday Kotak has been constituted.
