Mid Night News update – 17th Jan 2017

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Reliance Industries’ net profits were up by 4% at Rs.8022 crore for the third quarter ended December 2016. Revenues for the period were up by 3.5% at Rs.66,606 crore. The good news was that the gross refining margins (GRM) went by from $10.1/bbl to $10.8/bbl. The markets were expecting upward of $11/bbl of GRMs and to that extent the GRM may be disappointing. But it is still the best among the refining companies in the world. The price of RIL in the past has failed to react positively as the big overhang of telecom investments in Reliance Jio continues to be the big worry for RIL. Shareholders are already questioning the logic of sinking the profits of the matured refining and petchem business into the telecom business which is already under tremendous competitive pressure.

Contrary to the hopes of Arun Jaitley, the meeting of the GST Council ended on 16th January with no breakthrough in centre state power sharing. The issue of dual control continues to be the biggest roadblock for going ahead with the GST. States are insisting that all businesses with a total turnover of less than Rs.1.50 crore per annum must be under the sole control of the states. However, the centre is averse to this kind of a horizontal slicing of powers between the centre and states. This virtually rules out the implementation of the GST effective April 01st 2017. The GST Council is unlikely to meet before the Union Budget and that will mean that a likely implementation date could be October 2017.

In what could be a slightly disconcerting announcement for Foreign Portfolio Investors (FPIs), the government has decided to go ahead with the implementation of GAAR with effect from April 01, 2017. General Anti-Avoidance Rules (GAAR) is intended to empower officials to come down heavily on transactions that are structured only to save tax by using a foreign entity. It is a question of form versus substance debate. The transaction must be genuine not only in form but also in substance. However, the GAAR does provide for a grandfathering clause wherein transactions prior to April 01, 2017 will not come under the purview of such investigation.

The National Company Law Tribunal (NCLT) will pass its order in the Tata-Mistry case on Jan 18th. Mistry had dragged Ratan Tata and the board of Tata Sons to the NCLT for mismanagement of the holding company. The dispute broke when at the AGM of Tata Sons on October 24th, the Tata Sons board decided to remove Cyrus Mistry from the chairmanship of Tata Sons and replace him temporarily with Ratan Tata. It was this decision that had prompted Cyrus Mistry to approach the NCLT. Subsequently, the Tata Sons board had also called EGMs of various group companies to eject Cyrus Mistry and Nusli Wadia from the boards of Tata group companies.

The Serious Frauds Investigation Office (SFIO) has sought details of the purchase of 15% stake in MCX by Kotak Mahindra in mid-2014. This is part of investigation of the SFIO into the NSEL scam, which had erupted in July 2013 when the spot exchange had defaulted on an Rs.5600 crore payout leading to the closure of the exchange. The SFIO has sought key documents from Kotak Mahindra on the same. Back in 2014, Kotak had purchased the stake in MCX at a price of Rs.459 crore which was a 24% discount to the market price at that point of time.

The UK£ fell sharply and equities fell on Monday after it appeared that the progress of BREXIT may be quicker than originally anticipated. Theresa May has indicated that the UK would prefer to sit out of the EU rather than putting up with the problems of immigration. May also feels that this could give UK the leeway to independently negotiate trade terms with the other nations. The sentiments were further soured by Trump’s comments that Britain would be better off exiting the EU and in fact encouraged more nations to split from the EU. Such comments have not gone down well with the market.

The WPI index for the month of December 2016 came in at 3.39%, slightly higher than 3.15% in November 2016. This increase in WPI inflation could be largely attributed to higher oil prices. At current levels, the CPI inflation and WPI inflation are almost at par and that is a far cry from the 900 basis gap in the month of September 2015. Like in the case of CPI, even in the case of WPI inflation the food inflation continues to be weak and apply downward pressure.
 

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