Midnight News Update – Oct 17th 2017
Jaiprakash Power Ventures has received expressions of interesting from 5 suitors for a 30% stake in its business. The bidders include Brookfield of Canada, SREI Infra Group, Resurgent Power, Edelweiss ARC and the JSW Group. The company has an outstanding debt level of Rs.12,439 crore and has been desperately trying to monetize its assets to pare off its debt. The stake sale is being driven by a consortium of lending banks led by ICICI Bank which has the highest stake in the company. Tata Power owns a 25% stake in Resurgent Power.
The National Infrastructure Investment Fund (NIIF) has inked a $1 billon investment agreement with the Abu Dhabi Investing Authority, the sovereign fund of the Emirates government. This will make the ADIA a shareholder in the NIIF. NIIF is a collaborative investment fund sponsored by the government of India and seeks to invest in highly capital intensive infrastructure projects like energy, transportation, water, housing and waste management. The fund will facilitate flow of foreign funds into Indian infrastructure projects. Other potential investors include RUSNANO, Qatar Investment Authority etc.
Rising fuel and freight costs could weigh on the earnings of cement companies in the coming quarters. Most dealers will be restocking after the GST and that will result in higher costs. The ban on illegal sand mining in some states may also impact the construction activity and that is likely to have an indirect impact on cement demand. According to consensus estimates compiled by Bloomberg, Revenues of cement companies for the quarter are likely to be down by 14% while the net earnings could be down by nearly 32% on QOQ basis. Cement has a problem of pricing power for producers.
Wholesale Price Inflation (WPI) for the month of September fell to 2.6%. This is sharply lower than the CPI inflation at 3.28% for the same month that was announced a few days ago. The lower rate of WPI inflation was largely driven by weaker food prices, especially vegetables. However, inflation in manufactured products was slightly higher at 2.72% and that can be largely attributed to the impact of GST implementation. Even fuel inflation cooled marginally leading to positive downstream effects. Weak WPI is also interpreted by many economists as a sign of an economic slowdown.
With cars becoming more fuel efficient, the demand for gasoline could be saturating sooner rather than later. But the demand of oil could continue to remain robust till 2035 as demand from petrochemical plants could keep the oil industry going. Petrochemicals are important chemical ingredients that go into the making of everything from plastics to pesticides. The second big trend for oil companies is the shift to gas for heating, firing power plants and a host of other uses. Most of the largest oil companies in the world like Royal Dutch Shell and BP are expecting peak oil demand to be hit around the year 2035, although it could also be earlier. While oil demand in US, Europe, Japan and China is likely to peak by 2035, India may continue to see a rise in demand for oil well beyond that.
As Trump is likely to meet with Janet Yellen to decide on the next Fed chairperson, the big challenge that will continue to haunt the regulator will be inflation continue to remain subdued. The answer to that question may lie in what is now called, “The Amazon Effect”. Online retailers like Amazon are putting tremendous pressure on brick-and-mortar retailers and are forcing prices down. This has been one of the key contributors of lower inflation. In the latest quarter, US core inflation came in at 1.7%, still way below the US Fed’s official target of 2% to justify consistent rate hikes.
