Mid Night News update – 09th Jan 2017

09

The Central Statistical Office (CSO) released the advance GDP estimates for the full year 2016-17. The CSO estimates the full year GDP at 7.1% as against 7.6% for the fiscal year 2015-16. However, the impact of demonetization has not been fully factored in and that means there may be further downsides to the final GDP number. Within the overall GDP composition, agriculture was the big surprise growing at 4.1% as against 1.2% last fiscal on the back of a bumper Kharif crop this year. Most services, other than services driven by government spending, are also likely to be hit and since that has the greatest weightage on the GDP, the impact is likely to be higher. The weak PMI-Services data is also indicating that the pressure on the GDP will continue.

The coming week is likely to be a data heavy week for the markets. Firstly, the markets are likely to react to the advance GDP estimates that came out on Friday evening. Secondly, TCS and Infosys will announce their third quarter results this week and it will be critical to see how their performance and guidance shape up ahead of Trump assuming charge of the presidency of the US. Lastly, there are also important data points in the form of CPI inflation and IIP numbers that will be announced during the week. The direction of the market will also be determined by the direction of FPI flows, which may became slightly cautious as the gap with China GDP growth is threatening to narrow further.

The next week will also see the first public news conference by Donald Trump, which will shed some light on the future trade and economic relationships between the US and China. It may be recollected that Trump had threatened to impose heavy import duties on Chinese products to dissuade imports. This had become important considering the huge trade deficit that the US was running with China. The markets are expecting the news conference to highlight Trump’s stand on a variety of critical issues like economic relationship with China, tax changes and the proposed infrastructure investment.

The Finance Minister is expected to outline the detailed timeline of GST as well as the total state compensation corpus for GST as part of its Union Budget on February 01st this year. The tax projections that the government provides may be for 6 months till the implementation of the GST, which is most likely to go live on October 01st 2017. While the issue of compensation is yet to be resolved and talks between the centre and the state are still on, greater clarity may be available for the states in the Union Budget. While the broad contours of the state compensation are in place, most of the states are urging the centre to increase the quantum of compensation to make up for the shortfall losses due to the demonetization exercise of the government.

The Singh brothers appear to have been forced by the cash crunch in the business to cede control of their key business assets. They are in advanced talks to sell a stake in their key properties of Fortis and Religare to raise enough cash to fund the business. They are looking to divest a majority stake in Fortis Healthcare, Religare Health Insurance, and Religare Securities and eventually in Religare Enterprises too. The divestment of management control in these companies is intended to raise nearly Rs.5500 crore for the group. Most of the shareholdings of the Singh brothers are currently pledged with financiers.

Aurobindo Pharma has acquired Generis Farmaceutica of Portugal for a consideration of €135 million from private equity firm, Magnum Equity Partners. Generis is engaged in the manufacture and distribution of generic pharmaceutical products in Portugal. The transaction will not result in any assumption of debt and will be purely a cash transaction. The final deal will be subject to necessary approvals from Portuguese authorities. This acquisition will give Aurobindo and important foothold in Southern Europe giving them seamless across the European markets. Europe continues to be very important for Aurobindo as nearly 23% of the total revenues of Aurobindo come from Europe.

Even as the Indian economy struggles to come to terms with demonetization, there are stories of scores of companies that have benefited. We are not talking about the immediate beneficiaries like Paytm but also other related players like Uber and Foodpanda who seen to have benefited substantially from the demonetization move. While the COD (cash on delivery) volumes took a hit, this was more than compensated by the quantum of digital transactions. The net result seems to have been positive.

Even as the Tata camp can rejoice having won Round 1 of the battle with the Mistry and Wadia groups, there are some areas for worry. For example, retail shareholders have voted overwhelmingly in favour of the Tatas but the loyalties seem to be a lot more divided when it comes to institutional shareholders. For example, in Tata Motors, institutions voted a marginal 50.1% in favour of the Tatas. Similarly, in case of Tata Chemicals the institutional shareholders voted 51.45% against the Tata group. While this may be a small indication, it shows that institutions have concerns about succession planning at the Tata group.

According to global bonds guru, Mohammad El Erian, the world markets need to be wary of a strong dollar. He believes that the dollar strengthening too quick and too much could actually derail global equity and bond markets. A strong dollar will pressure US companies with substantial global presence and the impact will be visible on US equity prices.

As Obama’s 8 year tenure comes to an end, he will take one big positive with him. Economically, Obama has fared better on creating jobs in the US than all the US presidents in the last 60 years. That is a record that Trump is going to find very hard to match up to. During his tenure, Obama oversaw the creation of 11 million jobs and a sharp 3.1% fall in the unemployment rate in the US. In fact, the US is close to full employment after a very long time, thanks to fresh jobs creation in the last 8 years.
 

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