There may be fresh trouble brewing for Anil Ambani after banks opposed RCOM’s proposal to compensate Ericsson out of tax refunds. RCOM proposes to pay nearly Rs.260 crore out of the outstanding Rs.450 crore payable to Ericsson from tax refunds. SBI as the trustee of the bank accounts has objected to Ericsson getting priority over the financial creditors. This could create a piquant situation for Anil Ambani as failure to pay Ericsson could invite contempt of court action against him. Ericsson has obtained this order against Anil Ambani from the Supreme Court.
After passing 3 steel price hikes, steel companies may have to do more. Domestic iron ore prices could increase 3-4% in 2019 as per CRISIL report. Global iron ore prices have surged by 30% between December 2018 and February 2019 due to supply disruption at the Vale’s Mine in Brazil. Interestingly, Brazil alone supplies nearly 25% of China’s iron ore consumption and hence the impact could be felt globally. Rising iron ore prices has larger implications for the cost of production of steel, where iron ore is the key input. It remains to be seen if these hikes can also be passed on.
Moody’s expects GST rate cut to negatively impact builder margins. In the light of the reduction of GST on under-construction flats to 5% and low cost houses to 1%, Moody’s expects the sales of under construction flats to pick up. However, the withdrawal of input tax credit (ITC) will compress the margins of real estate developers. In the new scheme, the builders will not be able to claim credit for the GST paid on inputs; squeezing their margins. That is one of the key reasons why the realty companies have actually underperformed this week after the GST cut announcement.
The tariff war may be turning out to be a meaningless war for the Americans as the US trade deficit widened to $80 billion in December 2018. In a surprising data flow, the US announced a sharp 12.8% widening of the merchandise trade deficit to $80 billion for the month of December. While imports rose by 2.4%, exports were down by (-2.8%). The US Commerce department will now release the next round of trade data only in March and will skip disclosing trade numbers in Jan and Feb. This data point seems to be interesting as the US and China appears to be close to a trade rapprochement.
The villain in the last two days was the sharp rise in volatility in the markets. VIX went up to above 19 as border tensions play spoilsport. The correction on the Nifty and the Sensex may not have been too sharp but the intraday volatility was quite steep with the Sensex losing nearly 600 points from high to low. Despite the late recovery, the shooting down of a Pakistani F-16 and the loss of a MIG fighter added to the geopolitical worry. The VIX is up over 25% in the last 2 days. Adding to macro pressures, Brent Crude crossed $66/bbl as OPEC refused to toe Trump’s line on going easy on supply cuts. OPEC is committed to keep oil prices above the $60/bbl mark to keep supply and demand balanced. Most nations are keen to avoid oil inflation in the event of growth revival.
Finally, the exemption from open offers will be more rule-driven than arbitrary. SEBI will put a framework in place for open offer exemption to acquirers when the SEBI Board meets on March 01st. In the recent past, SEBI has granted exemption from making an open offer to shareholders, in case of certain acquisitions which were driven by government mandate. There have been persistent demands in CDR cases to grant exemption from making an open offer. In its March 01st Board Meet, SEBI plans to have a final framework which may only exempt lenders from the open offer.
