Weekly Capsule – 23rd Jun 2017

Weekly Capsule (Jun 19 – Jun 23) and Impact Analysis

Major News Item Impact Analysis
Ø  FM has affirmed that GST rollout will be on schedule on 01st July Ø  There were doubts over the timely implementation as industry associations had requested for a postponement

Ø  However, with nearly 80% of the businesses registered under the GST, the government has decided to go ahead on time


Ø  Three large steel borrowers to be referred to liquidation by lenders Ø  Essar Steel, Bhushan Steel and Electrosteel Castings have been identified for liquidation under IBC to recover dues

Ø  Now the priority of the banks will be to ensure that the value of the assets are protected while working for a resolution


Ø  Modi and Donald Trump are scheduled to meet in the US on June 26th Ø  The H1-B visa issue and the impediments for Indian IT industry are likely to come up for discussion in the meeting

Ø  Modi is also expected to discuss the issue of terrorism as well as China’s expansionist designs in the South China Sea


Ø  Foreign holdings in private sector bonds touches record high Ø  Foreign Portfolio Investors have already exhausted 91% of their $51 billion limit in private corporate bonds

Ø  This demand has been largely driven by higher effective yields in India and a stable rupee


Ø  Indian government freezes dividend payout to Cairn UK by Vedanta Ø  Indian government has frozen dividends worth $53 million payable to Cairn UK by Vedanta, which owns Cairn India

Ø  Cairn UK has already disputed a capital gains tax levy of $2 billion in a transaction dating back to 2006


Ø  SEBI goes a step forward towards solving the RBI NPA issue Ø  The shares acquired by investors in distressed companies will not be subject to the open offer requirement of SEBI

Ø  Also, the benchmark price will not be the 6-month average but the book value or the fair value, as the case may be


Ø  SEBI takes one more step towards discouraging P-Notes Ø  SEBI has imposed a levy of $1000 on each P-Note opened by an FII, which could make P-Note investing unviable

Ø  SEBI has also proposed to simplify the entry, on-boarding and compliance requirements for registered FPIs


Ø  Moody’s welcomes the RBI move to attack bank NPAs through IBC Ø  According to Moody’s this move will caution banks and borrowers about being lax in such transactions

Ø  The one-time loss will result in a cleaning up of the bank balance sheets, which will allow resumption of credit


Ø  Crude prices touch a 10-month low during the week Ø  Weak crude prices were driven by a glut of supply from the US shale and from Libya and partially from Nigeria

Ø  The OPEC supply cuts at 1.8 million barrels per day (bpd) has not been able to make any dent


Ø  JP Morgan raises concerns over L&T on tepid state finances Ø  State governments account for nearly 35% of the order book position of L&T and hence are material

Ø  Most state governments are already under strain due to rising debt and the possibility of farm loan waivers

Ø  China to be finally included in the MSCI International EM Index Ø  Considering its $7 trillion market cap, China’s inclusion will result in outflows from other EMs like India

Ø  Most ETFs and Index funds benchmark EM investments on the MSCI index and that will lead to demand for China equity


Ø  Air India revival decision likely to be announced soon Ø  Ministry of Civil Aviation is keen to revive Air India rather than selling of the National Flag Carrier to private parties

Ø  Air India has debt in excess of Rs.50,000 crore and has been consistently making operating losses


Ø  Farallon denies being in talks to acquire a stake in Essar Steel Ø  Essar had been negotiating with Farallon to hive of its steel business, which has been deep in losses and debt

Ø  Farallon has clarified that it is neither in talks nor has evinced any interest in any stake in Essar Steel


Ø  Morgan Stanley continues to be very bullish on M&M Ø  According to Morgan, M&M could be the best play on the revival in rural demand in India post a good monsoon

Ø  Its rural SUV segment as well as the LCV segment have a strong rural franchise and could be the big beneficiaries


Ø  Credit Suisse questions the business model of RCOM Ø  According to CS, despite the proposal to cut debt by half to Rs.25,000 crore, RCOM will be net negative

Ø  Competition in telecom post the Jio launch will mean that the EBITDA of RCOM will only keep falling further


Ø  Tata Steel and JSW could emerge as white knights for steel assets Ø  While the companies are yet to confirm, Macquarie expects that this could be a likely solution to the steel NPA problem

Ø  Steel companies like Essar, Bhushan and Electrosteel are ridden with debt and a saviour could be the only answer


Ø  Vishal Sikka downplays the role of H1-B visas in Indian IT sector Ø  According to Sikka only 6 lakh visas have been issued against millions employed by the IT sector

Ø  With the shift to greater automation and digital platforms, Sikka expects these to reduce further


Ø  Analysts continue to pin hopes on Lupin despite the sharp fall in price Ø  Lupin has corrected by over 50% over the last 2 years on the bank of negative US FDA news flows

Ø  Most analysts believe that at these valuations, Lupin may be a very attractive bet from a long term perspective


Ø  OPEC could be staring at another bear market in oil Ø  With the Qatar imbroglio, the OPEC may lose further control over its ability to regulate output of OPEC members

Ø  The last bear market was seen in early 2016 and the supply dynamics indicate that it could repeat this year


Ø  RIL and BP to withdraw arbitration against government on gas pricing Ø  This withdrawal is a pre-requisite for the companies to realize higher prices on the sale of gas

Ø  The price of gas from deep-sea and difficult terrain has been set at $5.56/unit as against $2.48/unit for normal gas


Ø  Azim Premji raises red flags over the Flipkart – Snapdeal merger Ø  Premji’s family office is a minority investor in Snapdeal and has objected to the $1 billion sale of Snapdeal

Ø  Premji has objected that the $90 million payable to early investors like Kalaari, Nexus and the Bahls

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