The China Corona virus appears to be taking its toll on the markets as the Sensex corrected by more than 450 points on Monday. The sharp fall in the index was a reaction to the virus issue becoming close to a pandemic and the death toll crossing 120 and more than 1300 new afflictions. From an investment perspective, investors are not only avoiding Chinese assets but also emerging market economies that are predicated on the Chinese economy. It is expected that the Chinese government and the central bank may soon announce some strong stimulus measures to ensure that GDP growth is not impacted.
SEBI Expert Panel proposes some drastic changes including tightening of norms for related party transactions. The idea is to prevent the misuse of these transactions and to protect the interests of the minority shareholders. The recommendations were made by S Ramesh, CEO of Kotak Mahindra Capital Ltd. The panel has proposed that “Related Party” should cover any person or entity that directly or indirectly exercises control over the company; irrespective of the shareholding. Increasingly, have been using complex structures to control the business and that would not get covered under this ambit.
There seems to be some progress on the Air India divestment front with sweetened deal terms. The government will now absorb 30% more debt and liabilities as compared to the previous offer. As per the new terms, the potential buyer will have lower debt, full management control, a leaner organization and full flexibility to form a consortium. The new owner will have to retain the Air India brand as per the terms of the offer. Under the new deal, the buyer has to take on debt and liabilities only to the tune of Rs.23,286 crore. The government needs to complete Air India divestment to meet its full year targets.
According to data put out by EPFR, India dedicated funds have seen fund outflows to the tune of $5.4 billion for the year 2019 with close to $1 billion flowing out in the month of December itself. However, during the same period global emerging market (GEM) funds saw overall inflows of $1.2 billion during the year. The overall allocation to India by the Asia (ex-Japan) funds fell in December 2019 to 12.6% from 13.1% in November. The preferred sectors continued to be financials and information technology. These slowing of India flows can be attributed to sharply lower GDP growth estimates for 2020.
There may be some breathing room for telecom companies with the AGR dues deadline likely to be postponed to March 31st this year. As per the proposal, the telcos will make part payment by 31st March upfront and it will depend on the Supreme Court verdict. Companies have agreed to pay the principal upfront but not the interest, the penalty and the interest on the penalty. If the proposal is accepted by the Supreme Court, it will result in additional revenues of Rs.22,000 crore in this fiscal for the three telecom companies viz. Bharti Airtel, Vodafone Idea and Tata Tele. Even if all the telecom companies accept this formula, the government would still end up with additional revenues of close to Rs.35,000 crore this year. The upfront amount would represent about 25% of the dues claimed by the DOT.
Nobel Laureate, Dr. Abhijit Banerjee, has admitted that the Indian economy could be actually passing through recession with the banking and infrastructure sector really starved for funds. He focused on the urgent need to refinance the banking sector which was in the doldrums. In a slightly controversial suggestion, the economist has also suggested the imposition of wealth tax and better strategies of wealth redistribution. He lauded the move by the government to aggressively look to divest assets like Air India as it would infuse competition and a greater degree of competitiveness in the airline.
