Midnight News Update – Aug 02nd 2017
India’s PMI-Manufacturing came in sharply lower at 47.9 for July 207 as compared to 50.9 in June. The sharp deceleration in manufacturing was a result of manufacturers focusing more on disposing inventory in the immediate aftermath of the launch of GST. For PMI, the 50 level has considered to be crucial as any level below 50 indicates that the manufacturing sector is contracting on a sequential basis. The last sharp fall in PMI-Manufacturing below 50 mark happened after demonetization. However, it is expected that the PMI should pick up from next month after the GST impact subsides.
Even as the Indo-China stand-off continues at the Doklam plateau on the China-Bhutan-India border, the commerce minister, Nirmala Sitharaman, has initiated serious talks with her Chinese counterpart on the rising trade deficit that India is running with China. The meeting happened on the sidelines of the BRICS meeting that is underway at Shanghai. India runs a trade deficit of $53 billion per annum with China and that is a huge drag on the Indian trade account. While dumping of Chinese steel has been curbed, other forms of dumping still go on. India also seeks greater access to Chinese IT and pharma markets.
SEBI has constituted a high-powered committee to improve market surveillance and curb insider trading and market manipulation. The regulator is already probing the case of NSE where certain brokers have been alleged to have received preferential treatment. The committee includes members from law firms, stock exchanges, the regulator, forensic audit firms and data analytics firms. While the final report will be submitted in the next four months, it clearly underlines the regulator’s commitment to focus more on the safety and integrity of the stock market mechanism to improve investor confidence.
JSW Steel saw its Q1 net profits fall by 43% to Rs.624 crore. As price of steel globally declined and cost pressures started adding up, JSW has obviously felt the pressure of tightening margins in this quarter. There was a 55% increase in the cost of materials used by JSW and that was largely driven by the 100% increase in the price of coking coal, which the key input. Revenues for the quarter were up by 24% at Rs.15,977 crore, which is indicative of buoyant demand for steel. While steel price has corrected in the last few months, iron ore has not corrected putting further pressure on steel company margins.
The Sovereign Gold Bonds (SGB) issued by the government of India could now turn to be a lot more attractive as the holding limits have been substantially relaxed. Currently, investors in SGBs were only permitted to hold gold up to 500 grams in a fiscal year. This included gold purchased through the SGB issue and through the secondary market combined. That limit has been relaxed 8-fold from 500 grams to 4 KG. This should be a big boost as the old rules were really constraining investment in SGB. Against the target of raising Rs.25,000 crore in the last two fiscal years, the government could raise only Rs.4769 crore. This relaxation will help the government improve its collections. The RBI is also keen to reduce the gold imports and one the best ways to do so will be to lead to more demat investments in gold.
According to research done by India Ratings, the UDAY bonds have helped save Rs.14,000 crore for the power distribution companies. The scheme, which entails issue of bonds against outstanding dues, has released nearly Rs.22,000 crore of funds for the banking system, which can be fruitfully deployed in lending. Most power distribution companies were saddled with debt due to inability to hike tariffs, under-recoveries and government sops. Under the UDAY scheme, states will take over 3/4th of the debt of the distribution companies and issue bonds against the same.
