The first set of exit polls from some of the leading channels are pointing clearly towards an emphatic victory for the BJP in Himachal Pradesh and in Gujarat. This should come as a big relief to the equity markets as they were apprehensive that the actual battle in Gujarat could be much tougher. Of course, the final results will still have to be awaited on the 18th of December but the broad appears to be overwhelmingly favouring the BJP. Both these outcomes will be viewed favourably as an indicator of the 2019 general elections, where the markets would prefer the BJP returning to power.
The finance minister is confident that India should exceed its disinvestment target of Rs.72,500 crore for this fiscal year. The government has already crossed Rs.52,000 crore in divestments this fiscal with more than 3 months still to go. The big challenge will be the divestment of Air India which will be a mix of strategic sale and stake divestment. For that, Air India will have to first go through a restructuring wherein part of the debt and its real estate assets will be hived into a separate group company. The ONGC / HPCL deal could actually be the one single factor to help meet the divestment target.
The CEO of Teva has planned job cuts to the tune of 25% of the workforce to help the company back on track. The company will cut nearly 14,000 out of its 56,000 strong workforce which will end up saving $3 billion for the company over the next 2 years. The big challenge for Teva is that its debt burden is nearly twice its market value and the primary focus will be to reduce this massive debt burden. Teva’s total debt stands at $35 billion and at its current cash flow situation, it is going to be impossible for the company to sustain operations. The big hit came from the $41 billion buyout of Allergan last year.
According to Dr. Amit Mitra, finance minister for West Bengal, the total revenue shortfall for all the states put together in the first four months is to the tune of Rs.39,111 crore. Dr. Mitra expects that the total amount due from the centre to the states could touch a high of Rs.80,000 crore by the end of the current fiscal. Of course, the big issue of GST on petrol, diesel and natural gas is a subject on which a decision is yet to be taken. Not only the petroleum minister, Dharmendra Pradhan, but even the prime minister has been favouring bringing hydrocarbons under the GST ambit.
Rating agency CRISIL has issued a warning that housing finance companies (HFCs) and non banking finance companies (NBFC) could see their NPAs rising sharply in the coming quarters. Till now, the problem of NPAs has been restricted to PSU banks at large and a handful of private sector banks. For the HFCs, CRISIL expects that the maximum delinquencies could come from defaults in the loan against property (LAP) market. In fact, the LAP market is likely to see delinquencies rise by 70 basis points to 3.3%. The tepid real estate market and the tight liquidity situation are expected to be the trigger. The LAP sector has touched an AUM of Rs.170,000 crore and has been growing at nearly 20% annually. NBFCs are also likely to be hit by increasing completion from banks coming back to the lending market.
The WPI inflation touched an 8-month high of 3.93% for the month of November 2017. The CPI inflation had also come in sharply higher at 4.88% for the same month. There were 2 key reasons for this sharp rise in WPI inflation. Firstly, the recovery post demonetization was a trigger and secondly the GST also resulted in higher WPI inflation. There was a sharp increase in the primary products, food products and fuel costs as part of the WPI inflation. However, manufacturing inflation as part of WPI was a tad more tepid. The RBI had already raised its inflation target for the year to the range of 4.3% to 4.7%.
