Midnight News Update – Jun 19th 2017
The finance minister has affirmed the rollout of GST will happen as scheduled on July 01st with the last meeting of the Council happening on 30th June. While the FM has ruled out any relaxation on the launch of the GST, he has agreed to offer some relaxation for filing dates for the months of July and August. There have been concerns of readiness pertaining to the GST and according to the GST statistics over 85% of the tax payers are already registered. For those who are still not registered for various reasons, the GST Council will open one more window for registration from 25th June onwards.
The finance ministry has now called upon four large banks to explore the possibility of merging small and mid-sized banks with a view to creating banks of size and economies of scale. One possibility is that the larger PSU banks like PNB, BOB, Bank of India and Canara Bank may be asked to explore merging smaller banks with them. The idea of the finance ministry is to create a few banks that can match up to the SBI in terms of size, reach and capitalization. That is only possible through such mega mergers. Large PSU banks may have to take the lead; at least that is what the Finance Ministry is indicating.
According to Grant Thornton, India’s deal tally for the period Jan-May was at $35 billion. Just $1.89 billion worth of deals happened in the month of May 2017. In value terms, the value of mergers and acquisitions were up by 4% over the corresponding period last year. While domestic transactions were nearly double, the cross-border transactions were down by half. A total of 170 deals were announced during this period. The largest, of course, was Flipkart’s $1 billion acquisition of Snapdeal. Across sectors like banking and ecommerce there is a trend of consolidation, which will drive M&A from here.
Modi and Trump are to have a detailed meeting during Modi’s visit to the US on June 26th and this meeting is likely to set the tone for greater bilateral ties between the two nations. While the issue of visas for Indian IT and the environment for pharma will come up for discussion, there will also be discussion on the role played by Pakistan in fomenting terrorism in the valley as well as China’s expansionist aims in the South China Sea. This will be the first time that Modi and Trump will be having official level talks and one hopes that it is a repeat of the euphoria one saw back in 2014.
Foreign portfolio investors have pumped a total of $3.55 billion so far in the month of June into Indian markets. Of course, the inflows have been predominantly in debt, but the fact is that the combination of GST implementation and a good monsoon appears to have gone down well with the foreign investors. As of now, there is still a spread of 4.5-5% between the US benchmark bonds and the Indian benchmark bonds, which FPIs are finding attractive considering that the INR continues to be strong. Not surprisingly, nearly 80% of the inflows in June came into debt. From here on, a lot will depend on the progress of the monsoons and the implementation of the GST. Of course, quarterly results still need to show a higher traction in the coming quarters for foreign investments in equity to pick up.
Foreign Holdings of private corporate bonds has touched a record high in the month of June. The combination of compelling yields and very low levels of currency volatility is creating demand in these bonds. As of date, overseas bond investors have already utilized 91% of their $51 billion limit for corporate bonds. Since the last few months, foreign portfolio managers have found Indian debt relatively more attractive than equity. That is because while earnings are still not showing traction for a boost to equities, debt is still seeing premium spreads over the benchmark and a stable rupee.
