Midnight News Update – Nov 20th 2017
The government is seeking the surplus of Rs.13,000 crore from the RBI as additional dividend. It may recollected that this year the RBI dividend to government was reduced by Rs.30,000 crore. While Rs.17,000 crore was accounted for by the note printing and note cancellation costs, the balance of Rs.13,000 crore was transferred to a special risk reserve for future contingencies. The government wants this reserve of Rs.13,000 crore to be distributed to the government to partially fund the bank recapitalization program. The total size of the recapitalization is Rs.2.11 trillion.
Collections under GST picked up in the month of October to Rs.95,131 crore. This is slightly better than the collections in the month of September. There is likely to be some more confusion going ahead as the GST Council has now reduced the peak rates for 3/4th of the products from 28% to 18%. Additionally, claiming tax credits for inputs (ITC) is becoming another challenge due to technical glitches. The final figure for GST collections will go down once the exporters and other businesses start claiming their input tax credit. For now, the deficit of the states has come down drastically, which is the good news!
Even as Moody’s upgraded the rating of India’s sovereign debt from Baa3 to Baa2, the rating agency has expressed confidence in the long term impact of the reforms process. Moody’s has expressed confidence that the full impact of reforms like GST, digitization and bank recapitalization will be felt in the next few years. The two challenges that Moody’s has pointed out with respect to India are the low GDP per capita and the high ratio of government debt to GDP at 68%. However, the aggressive pursuit of the economic reforms is likely to mitigate the negative impact of both these factors.
Eris Life Sciences has bought out the India branded generics business of Strides Shasun for a consideration of Rs.500 crore. This all-cash deal is expected to be completed by November 30th. According to Eris, the branded Generics business has an annual turnover of Rs.181 crore and will strengthen the position of Eris in the CNS and gastro-intestinal therapies. Strides Labs is of the view that this move in tune with its larger goal to concentrate purely on larger regulated markets in the world. The valuation at 2.5X sales is at par with similar valuations and should help Strides reduce its debt.
It appears to be a tale of two divergent ratings. At a time when Moody’s has upgraded India’s government debt rating, it has withdrawn its rating on RCOM after the company defaulted on its dollar instalment during this month. RCOM had reported its fourth straight loss during the latest quarter and is already struggling to service its debt. Its local debt has a moratorium till December 2018 but even that is now under a cloud as both its deals with Aircel and Brookfield have been called off. RCOM was supposed to use the proceeds of this sale to reduce its debt but even that looks doubtful as of now. RCOM has debt to the tune of Rs.44,300 crore and the Jio price war was the last straw. The company was already in speculative grade and now even the rating stands withdrawn.
Goldman Sachs has taken a very hawkish view of rates in 2018 and expects the Fed to hike rates 4 times during the calendar year. Goldman expects the unemployment rate by 3.7% and the GDP growth to move up to 2.4%. The 4 possible rate hikes will take the rates to a level of 2.50%. Goldman is also of the view that higher prices of oil and ores and metals will keep manufacturing costs buoyant leading inflation higher to the 1.8% mark. The combination of these 3 factors will spur a 1% rate hike. However, a lot will depend on the trajectory set by Jerome Powell when he takes over in February 2018.
