Midnight News Update – Nov 09th 2017
Exactly one year after the government announced its move to demonetize the 500 and 1000 currency notes Bloomberg has made its first estimates of the actual loss to the Indian economy at $15 billion. To put things in perspective, this is roughly 0.75% of India’s overall GDP. Not surprisingly, the hit on agriculture, manufacturing and construction was the most acute and these are the sectors which created a clear demand crunch in the forthcoming months. On the positive side, there has been a greater shift towards digitization and banks have become liquid enough to justify recap bonds.
The northern state of Himachal Pradesh will go to polls on November 09th with Gujarat elections coming up in December being the other critical election. The BJP and the Congress are literally facing off against each other in Himachal and it will be a kind of a test run before the much larger state of Gujarat. If the BJP can do wonders in Himachal and Gujarat then the markets should take a positive cue from these results and interpret these as a positive referendum on the BJP in the 2019 central elections. The two national parties will be facing off in a total of 68 assembly seats in Himachal Pradesh.
India is now planning auction of copper mines in 2 years to reduce the dependence on imported copper. These auctions will be on the Khetri mines in Rajasthan which is supposed to be a rich copper source and is estimated to have a copper capacity of 2-3 lakh tonnes. India is already the 7th largest producer of copper in the world but demand for copper has been growing at 6.8% for the last 5 years. While autos, railways and electronics are the big consumers, there is a major boost to demand for copper that is likely to come from electric vehicles as well as from solar and wind power projects.
In what could be a big boost for Arvind Mills, the company has decided to demerge its branded textiles business and its engineering business. Post the demerger the branded business will be called Arvind Fashions while the engineering business will be called Anup Engineering. Shareholders of Arvind will get 1 share of Arvind Fashions for every 5 shares of Arvind Mills and 1 share of Anup Engineering for every 27 shares of Arvind. The idea is to create a value story by hiving off the fashion business as a separate company as such companies typically get better P/E discounting in the market.
OPEC expects that the sharp surge in price of oil towards the $64/bbl mark will result in a surge in US shale production as more shale wells will become viable. According to the Oil Outlook put out by OPEC, American Shale production is likely to rise to 7.5 million bbl/day by 2021, which is nearly 56% higher than the old estimates. Currently, North America produces nearly 5.1 million bpd of shale and that is likely to go up sharply and in the process disrupt the demand / supply economics once again in the oil market. Both the OPEC and Russia have agreed to extend their oil supply cuts of 1.8 million bpd till the end of 2018 and may even look to expand the size of the cuts. OPEC expects shale output to peak by 2025 with OPEC’s own output going up from 33 million bpd to 41 million bpd by 2025.
The GST Council meet on November 09th and 10th in Assam is likely to be crucial in more ways than one. Firstly, the council is likely to slash the GST rates on nearly 80% of the items that are in the peak 28% bracket. There are nearly 227 items in the peak 28% rate and 80% of them will be reduced to the 18% rate. There are also major announcements that are expected in terms of simplification on the process for filing GST returns as well as an update on the technology glitches. The GST Council has already given a 1 month deadline to Infosys for putting the entire GSTN backbone in place.
