Sensex corrected by 1069 points on Monday as the markets were disappointed by the stimulus package.
The big hit came from banks, financials and auto stocks. The big worry was the extension of the
lockdown and the fears that there could be a real compression in consumer demand. But the bigger
concern for banks was the 1-year suspension of insolvency proceedings which would leave the banks
with little by way of firepower in the case of defaults. The rapid rise in the number of Coronavirus cases
has also been a major dampener. Goldman has projected a negative growth of (-5%) in FY21.
Despite the fiscal impact of the rescue package being much lower than what the fiscal allocation of
Rs.11.5 trillion indicates, the combined fiscal deficit of the centre and the states is expected to cross the
12% mark. According to the report brought out by DBS Bank, this would be driven by the sharp spike of
54% in the total borrowings for the full year. If the revenues do not get back to normal quickly, then the
borrowings may have to increase further. DBS has also pointed out that most of the spike in fiscal deficit
is coming due to weak revenues as the pump priming is amounting to less than 1% of GDP.
Even as the RIL mega rights issue gets all set to open on May 20, the biggest challenge for SEBI will be
manage the rights entitlements (RE). As per the new system, the RE will be credited to the respective
demat accounts based on the number of shares held in the demat account on the record date. The RE
can be either used to apply for the rights shares or can be surrendered by selling RE in the open market.
But the big challenge will be to ensure that the RE system works to perfection as it has not really been
tested before. RE trading is likely to generate a lot of interest among the 26 lakh shareholders of RIL.
As Tata Steel moves to restructure its European steel business, the Tata Steel Dutch Workers groups
have been up in arms against the massive job cuts planned. The company’s Works Council has dismissed
the Theo Henrar for a deal that was supposed to favour UK steel workers over Dutch steel workers. The
objection raised by the Unions was that the Indian management and the UK headquarters of Tata Steel
Europe had failed to protect the interests of Dutch workers. Labour laws across Europe are extremely
strict and Unions are quite strong. This has made Tata Steel’s European operations hard to handle.
Multiplex stocks like PVR and INOX continued to lose close to 5% on Monday after the lockdown was
extended. Both the stocks have lost close to 55% in the last 3 months since the multiplexes were shut
down. Firstly, even after the lockdown is lifted, the multiplexes are not sure of the public response to
such social gatherings. Secondly, the most lucrative part of the multiplex business, the food business,
has taken a big hit and the losses are likely to add up along with the fixed costs. But, these multiplex
companies also have a more structural issue to contend with.OTT platforms like Amazon Prime, Hotstar
and Netflix have emerged as a distinct competition to theatres and the lockdown is only allowing these
OTT platforms to gather more customers. It may be a long trudge for the likes of PVR and INOX.
In a move that has pleased companies, but not so much the unions, the government has withdrawn its
order on compulsory wage payment during the lockdown. The order was impractical in the first as
expecting employers to pay full wages with no revenues was not feasible in the first place. In the last
few weeks, industry bodies had petitioned the government to withdraw the order as it was not feasible
for most employers. Companies also pointed out that letting people take a pay cut or a furlough would
be better for them than losing jobs. Due to fiscal constraints, the government ruled out any support.