Former SEBI chairman, M Damodaran, has come down heavily on the role and the independence of Boards in the aftermath of the ICICI “conflict of interest” episode. The board chairman, Mr. M K Sharma, had come out and given a clean chit to Chanda Kochhar even before the CBI investigation had commenced. Damodaran also pointed out that the independent directors on the board are supposed to represent the interests of the minority shareholders but are, in fact, too worried about antagonizing the current promoters. Damodaran also pointed out that boards in India must lead from the front.
In a move that could have larger repercussions across the world, Iran has decided to switch from US dollars to Euros for all its foreign currency payments. Iran has been consistent about its need to reduce the dependence on the dollar. This appears to a reaction to recent threats by Donald Trump to exit the Nuclear Deal with Iran. Trump also threatened to re-impose sanctions on Iran effective May 12th. The immediate provocation for this action appears to be the recent unilateral attacks on Syria by the US, France and UK. Both Russia and Iran are allies of Syria.
The new Infosys CEO, Salil Parekh, surely disappointed analysts when he guided for lower growth. But there appears to be a marked shift in the strategy pursued by Parekh compared to Sikka. While Sikka had been largely obsessed by margins and profitability, Parekh is open to giving up some degree of margins and profitability to purchase a higher rate of growth. In fact, one of the reasons for the lower margin guidance is that Infosys plans to invest heavily in the digital business. It will also be getting rid of some of the non-core acquisitions like Panaya which were undertaken during Sikka’s time!
India’s largest property player, DLF, plans to present a complete timetable for monetization of assets after Morgan Stanley expressed concerns that the monetization was going at an extremely slow pace. The analysts have also been demanding greater details on how DLF plans to unlock value on some of its franchises across India. DLF plans to begin work on a 7 million SFT residential project in Central Delhi. DLF is also expanding into Chennai, Hyderabad and Goa to reduce its dependence on NCR. DLF has total debt of Rs.5,500 crore currently and plans to become zero-debt by March 2019.
With the government plans to resolve the stressed assets in power sector not getting too much traction, the power segment may be staring at nearly Rs.3 trillion worth of bad assets in the next 2 years. The government had recently attempted to have companies like PFC, REC and NTPC to buy out stressed assets of sick power units but that has not received too much interest or traction from bankers and the PSU companies. The Indian banking sector has a power exposure to the tune of Rs.5.20 trillion currently. NTPC has not shown too much keenness to pool these assets and that has led to the plan not taking off in a big way. Even banks, that have large exposures to these power producers, are not too keen to take large haircuts to bail out these power loans. 57% of power debt has interest coverage less than 1.
Rabobank believes that India could be a surprise loser in the global trade war if combined with US Fed rate hikes. A tariff war was most likely to reduce exports and make imports more expensive. In the Indian context, it could result in a loss of GDP growth to the tune of nearly 2.3% over the next few years. Trump has already targeted the Indian Rupee for being deliberately undervalued and tariffs could be the next step as India also runs a trade surplus with the US. The bigger risk, according to Rabobank, could be if the US Fed really tightens rates as it could lead to outflows of nearly $22 billion from India.
