Midnight News Update – Nov 17th 2017
Geoffrey Dennis of UBS has come out with one of the bearish outlook for Indian equity markets with estimates of a 20% correction to necessitate buying interest in stocks. According to Dennis, the Indian stocks are sharply overvalued and there is unlikely to be any valuation comfort unless the markets correct by at least 20% from correct levels. It may be remembered that global FIIs have been aggressive sellers in the Indian equities in the last few months but that has been more than compensated by the sharp inflows from domestic mutual funds. However, Dennis stays long-term bullish on India.
At a time when the stock of RCOM fell the Rs.10 mark, the lenders are faced with a tough choice. RCOM holds Rs.44,000 crore of debt and it has recently let most of its employees go to reduce costs. The recent crisis has been triggered by the default on dollar debt. The company has signed a standstill agreement with lenders where it gets to refrain from paying its debts till December 2018. But with the sharp fall in stock prices and the market value of the company below the debt, lenders are a worried lot. Both the company’s deals with Aircel and the tower sale deal with Brookfield have fallen through.
On the back of a bumper harvest of pulses, India has removed the restrictions on export of pulses. This will open the way for a much larger market for pulses producers. Currently, most Indian farmers are already earning lower than the MSP in most of the key mandis. Production of pulses has shot up by 40% in the last 2 years as more land has come under acreage. The surplus supply in the Indian market has led to a sharp fall in the price of pulses and that can be partially salvaged by allowing exports. Now farmers will be in a position to export the pulses to other markets at better prices.
Even as the government and the GST Council have been working hard to streamline the GST, the latest proposal is to give an additional 2% rebate on GST for online payments of GST. This will be another way to wean people away from cash. A company that currently pays 18% (9%CGST + 9%SGST) will now pay only 16%. This will effectively rescue the tax burden on companies making online payment by 2%. This will also pave the way for a solid audit trail for financial transactions and will go a long way in reducing the use of cash and push more businesses towards digital cash.
Most observers of the Indian economy are worried that the GST implementation may be the last big-ticket reforms implemented by the Modi government. The government is now likely to go into election mode and the outcome of the Himachal and Gujarat state elections may be the key triggers. The focus may shift more towards measures that are seen as populist and is likely to include boost to employment guarantees, irrigation and crop insurance programs. Modi romped to power in 2014 by promising to rid India of corruption and revive growth. While some of the measures like the GST and the demonetization were largely good in intent, they did have a lot of negative repercussions. The government will be keen to ensure that the negative impact of its economic reforms do not rub-off politically.
It is ironical by true! The Norwegian Sovereign Fund, which created a $1 trillion corpus on the back of oil money, has decided to remove oil and gas stocks from its portfolio altogether. Currently, oil & gas stocks represent nearly 6% or $37 billion of its equity index and that is likely to see a lot of oil selling across the world markets. The Fund holds 2.3% in Royal Dutch Shell, 1.7% in BP, 0.9% in Chevron and 0.8% in Exxon Mobil. Since the primary wealth of Norway is in the form of oil and gas, the fund is of the view that holding oil & gas stocks only adds to its concentration risk rather than mitigating the same!
