Midnight News Update – Jun 16th 2017
One of India’s most successful cooperative movements in India, AMUL, has reported a 17.5% growth in sales for the fiscal year 2016-17 at Rs.27,043 crore. Although this sales growth is much lower than the previous year, the revenues of AMUL have grown by 3.5 times since 2010. This implies a CAGR growth rate of 19% annually consistently over the last 7 years. During the same period, the production of milk at AMUL doubled from 9 million litres per day to 18 million litres per day even as the price of milk also doubled during the same period. AMUL is currently not listed on the stock exchanges.
PFC is expected to raise Rs.18,000 crore through the issue of Section 54EC bonds. These bonds are specially issued by infrastructure development and infrastructure financing companies where investors can get capital gains exemption by reinvesting the proceeds of the sale in these Section 54EC bonds. In the past REC, NHAI and IRFC have issued Section 54EC bonds. PFC has a full year borrowing target of Rs.70,000 crore and the company expects to raise nearly 30% of its borrowing target via these bonds. These bonds give a very attractive post-tax yield and are in demand from HNI investors in India.
The GST Council is scheduled to have its 17th meeting on the 18th of June at Delhi. It is proposed to further cut the rates on certain items where the Council has received specific feedback. In the last meeting the GST Council had revised the rates on 66 out of the 133 items for specific representations were received. This meeting will approve draft rules pertaining to anti-profiteering as well as the forms with respect to advance rulings, appeals, revisions, assessments, audits and e-way bills. The last meeting had also increased the composition limit for traders from Rs.50 lakhs to Rs.75 lakhs.
The Civil Aviation Ministry has sought a 2 month deferment of the implementation of GST from July 01st to September 01st. Apparently, the airline companies require more time to comply with the new rules and regulations and also get their systems ready. There is confusion over the finer details of ticketing and on the movement of spares by airlines. The Revenue Secretary, Hasmukh Adhia, has already confirmed that the launch of the GST will be on schedule. The Civil Aviation Ministry is making a separate representation to the GST Council for giving a special deferral to the aviation industry.
Crude oil prices dropped to a 6-week low as the markets are getting increasingly worried about the inventory stockpiles as well as the ability of the OPEC to control prices. Already the US has now become the swing producer of oil as against Saudi Arabia which held the coveted position for a long time. The OPEC has extended its daily cut of 1.8 million barrels till the end of March 2018, but that is hardly having any impact as the US is pumping in an additional 1.25 million barrels of oil per week. On top of that, US stockpiles are at an all-time high and the world is running out of storage space for oil. The OPEC nations will be expecting an improvement in prices so that their budget deficits problem can be addressed. However, that looks unlikely at this point of time, with oil prices under tremendous pressure.
According to a report by Morningstar, mutual fund exposure to IT stocks is approaching an all-time low. During the last month, there was some opportunistic buying in Infosys and Tech Mahindra more as a contra call, but IT overall has seen tepid demand from mutual funds. The chunk of MF investments still goes into banking, insurance, housing finance, MFIs and NBFCs. IT companies have been hit by weak growth in IT spending, shift from BFSI to SMAC and a more stringent visa culture in the US. Most MF manages are biding their time and preferring to wait on the sidelines for more clarity on IT sector.
An audit report by Deloitte has now pointed out that the NSE all along knew of the lacunae in its HFT software but never bothered to rectify it. The technology architecture of the exchange was prone to manipulation and therefore 3 brokers got special preferential treatment with respect to execution of trades. Deloitte was appointed by NSE on October 01st 2016 to do a comprehensive audit. A show cause notice has already been issued to Chitra, Ravi Narain and other officials by SEBI to explain things. NSE is also looking to settle the issue by consent where there will be penalty without admittance or denial
The oil minister, Dharmendra Pradhan, has invited BP PLC and Reliance Industries to commence retail operations in India. Pradhan recently had a detailed meeting with Bob Dudley of BP and Mukesh Ambani of RIL. Currently, RIL operates 1221 petrol pumps in India and sells 300 kilo litres per month. Both BP and RIL are now realizing that the downstream business consisting of refining and marketing is a more de-risked business compared to extraction. BP is currently planning to set up extensive retail operations across some of the key growth economies of the world like India, Mexico, China and Indonesia.
In its latest report, Credit Suisse has raised serious questions over the debt repayment capacity of Indian corporates. The stress was particularly acute in the power, telecom and steel sector. Consider the following statistics. 70% of the power companies in India have interest coverage of less than 1. 57% of telecom companies have interest coverage ratio of less than 1 while for steel the share is 55%. That means the operating profit of the sector is overall not sufficient to cover the interest payments. Total debt of Indian companies stood at Rs.14.50 trillion ($225 billion). Infrastructure and metals constitute nearly 46%of this total stressed debt. This ratio becomes all the more relevant considering that the RBI has already identified 12 key group accounts for initiating insolvency and bankruptcy proceedings.
