Midnight News Update – Jan 02nd 2017
As part of his New Year speech, prime minister, Narendra Modi announce a series of sops aimed at the poor and the lower middle class population of India. In a way, this was intended to tone down the negative impact of the troubles caused by the demonetization exercise. To begin with, the PM announced a special interest subvention scheme for low cost housing in rural and semi-urban areas. There was also something in the speech for the farmers as they will see their Kisan Credit Cards converted into RUPAY cards and government will bear the burden of interest on select loans for a period of 60 days. The PM also announced liberalized credit guarantee and credit lines for medium and small enterprises, as they create the bulk of the employment in India.
The much talked about OPEC deal will face its first real test as it goes live from January onwards. Most analysts believe that 100% compliance is highly unlikely based on the experience of the past. While the OPEC has agreed to cut production by 1.2 million barrels per day (bpd), the non-OPEC nations like Russia and Mexico have agreed to cut production by another 0.6 million bpd taking the total supply cut to 1.8 million bpd. The supply cut, if adhered to in letter and spirit, will bring the oil market to a level of parity and restore pricing power to the oil producers. The big worry for many Latin American members of OPEC will be that a stronger dollar will force them to produce more oil to meet their budget deficits.
While a decline in Maruti’s sales numbers was expected, the fall of 1% was actually much lower than anticipated. This clearly indicates that the auto industry may not be very badly hit by demonetization. The real fall came in the mini-segment, which includes the Maruti Alto and the Wagon-R, where sales fell by 15.3% for the month of December. The real growth for Maruti came in the utility vehicles segment. The sales of Gypsy, Grand Vitara, Ertiga, S-Cross and Brezza witnessed a 75% increase. While this may not be substantial in terms of numbers, it is surely significant in terms of value. Maruti also got a boost from a 47% growth in exports during the month of December.
The feud in the Samajwadi party in the state of UP seems to be far from over. While the patriarch may have reconciled with his son, the big dispute over the party president continues. Akhilesh was keen to consolidate the position of CM and party president under his control. The idea was to make Mulayam Singh more of a mentor to the party. It appears like Mulayam may decide to drop Amar Singh from the party in the larger interests of keeping his party united. But the real shift may have already happened from father to son and the run-up to the UP elections may be quite interesting.
China reported a slowdown in its Manufacturing PMI for the month of December 2016. Manufacturing PMI for December fell to 51.4 from a level of 51.7 in November 2016. A level of above 50 indicates an expansion in manufacturing active while a PMI of below 50 indicates contraction in manufacturing activity. While the economy is still expanding, the pace and momentum seems to be diminishing. Manufacturing sector in China has been plagued by weak global demand for Chinese products and excess capacity in China. China has been trying over the last few quarters to shift the focus of its economy from an investment-driven economy to a consumption-led economy. One of the biggest casualties of this experiment has been industrial growth in China.
Terror returned to Europe with a gunman killing at least 39 people at a New Year celebration in the Turkish capital city of Istanbul. The spate of terror attacks in Turkey has escalated after Turkey stepped up its assault on the Kurdish militants. Turkey has had a problem in its combined fight against the joint power of the ISIS and the Kurdish militants along its border with Iraq. Turkey has a unique positioning as the gateway to Europe, central Asia and to the Middle East and Central Asia.
The Double Taxation Avoidance Agreement (DTAA) with Singapore has also been modified along the lines of the Mauritius Treaty. As per the new arrangement, Singapore will forfeit the right to tax equity gains arising in India. Effective April 01st 2017, any Singapore resident who makes capital gains in India will be taxed in India. The idea behind these modifications is to prevent double non-taxation, curb revenue loss to the government of India and curb the spread of black money. India has already modified its treaties with Mauritius and Cyprus, two other popular tax havens used by global investors to invest money into India.
A day after the Prime Minister’s speech exhorting banks to reduce their lending rates, SBI has taken the lead and cut their Marginal Cost based Lending Rates (MCLR) across various maturities by approximately 90 basis points. With banks flush with funds and credit funds almost zero, the banks have the leeway to drastically cut their interest rates and pass on the benefits to the end borrowers. Taking the cue from SBI, other PSU banks like PNB and Union Bank have also gone ahead and cut their MCLR. How it eventually impacts credit off-take remains to be seen.
Private Equity (PE) investment deals in 2016 touched $15.2 billion making it the second best year after posting a record volume of PE deals worth $17.3 billion in year 2015. Even the number of transactions at 620 in year 2016 was lower than the 775 deals reported in the year 2015. PE investors bet as much as $4.3 billion to acquire a controlling stake in 27 companies. The single biggest PE deal was obviously the sale of 51% stake in the towers business of RCOM to Brookfield of Canada. IT, ITES and BFSI continued to be the major magnets for PE investing in India.
