Midnight News Update – Jul 03rd 2017
July 01st marked the first day after the official launch of GST and there was a mix of consternation, joy and confusion among the trading community. Products like smart phones and cars started offering discounts to customers on the basis of lower impost likely. Even Hindustan Unilever, India’s largest manufacturer of FMCG products cut prices of most of its toiletry products. However, small and medium sized traders were up in arms against the complexity of GST and also protested that it would sharply increase their compliance costs. GST will bring millions of small businesses into the tax ambit.
Addressing chartered accountants in New Delhi in the aftermath of the launch of GST, Prime Minister Modi warned the CAs not to assist businesses that are using the corporate entity veil to launder funds. Modi pointed out that the government has aggressively gone after nearly 300,000 registered companies for money laundering and has already cancelled licenses of nearly 100,000 such entities. Modi also underlined that GST will be the second step towards curbing the black money flow in India after the success of demonetization. The impact on demand is yet to be seen and will be visible in a few days.
Sales of automobiles took a hit in the month of June as most auto companies focused on offloading their pre-GST stock rather than focusing on production and fresh sales. But there were differences. While Maruti and Eicher saw an increase in sales in June, other players like Tata Motors, M&M and Hyundai India saw a sharp fall in sales compared to the year-ago period. Volumes remain weak due to aggressive de-stocking at the dealer levels. Ironically, Maruti’s total sales for the month of June at 106,394 units were the lowest monthly sales recorded by Maruti in the last one year.
The National Pharmaceutical Pricing Authority (NPPA) has revised the price of nearly 814 drugs to make them in sync with the post-GST scenario. The new ceiling prices will be effective from the 01st of July. Wherever, the price of drug will go higher due to GST, the NPPA has asked the pharma companies to absorb the additional cost rather than passing on to the customer. The prices of life-saving drugs and essential drugs are expected to come down as a result of the GST. The GST Council has fixed a GST rate of 12% on most essential drugs, which is slightly higher than the 9% charged currently.
The RBI has already admitted that bad loans of banks being at a 15-year high, there was scope for a further worsening of the NPA situation before it started getting better. The RBI, based on its stress tests, has estimated that the baseline Gross NPA level may increase to 10.2% by March 2018. While banking NPAs stand at $100 billion, the total stressed assets including doubtful assets and restructured assets stands at over $190 billion. Many of the banks are currently initiating insolvency proceedings against 12 business groups that have been identified. The RBI has already asked these banks to make larger provisions for loans to groups against whom insolvency proceedings have been initiated. The haircut in most cases is likely to be 50% and that is going to put a huge strain on PSU banks in this quarter.
Like most global brokerages, Goldman Sachs has admitted that it had badly misjudged the commodity price trajectory for the current year. Goldman was positive on crude oil, nickel and copper during the year, but all these 3 commodities cracked during the year. Oil fell due to oversupply despite OPEC output cuts. Copper fell because most copper dealers started strategically de-stocking copper at higher price levels. Nickel fell due to rule changes in the Philippines. Overall, Goldman has admitted that their research failed to properly evaluate the multi-layered impact of factors on commodity prices.
