Weekly Capsule (May 04 – May 08) and Impact Analysis

 

News Announcement Impact Analysis
   
Ø  Reliance sells additional stake in Jio Platforms to global PE investors Ø  While 1.15% stake was sold to Silver Lakes, another 2.3% was sold to Vista Equity Partners

Ø  Both the deals valued Jio  Platforms at around $65 billion, a 12% premium to the valuations given by Facebook deal

 

Ø  RIL, Infosys and Hindustan Unilever accounted for 50% of Nifty bounce Ø  The sharp bounce in Nifty from the lows of March 23rd was driven by just 3 stocks with most banks still tepid

Ø  RIL has recovered most of its losses after a series of deals gave hints that RIL could monetize and become zero debt by 2021

 

Ø  Franklin Templeton MF issues an apology to SEBI over its remarks Ø  This was after Templeton global CEO, Jennifer Johnson, had remonstrated about SEBI’s rules on unlisted holdings

Ø  SEBI had pointed out that there was a grandfathering clause and an extended time limit for such a shift

 

Ø  April sees fall in equity fund flows and negative flows in credit  risk funds Ø  Equity flows were still positive but nearly 47% lower on a MOM basis; largely supported by robust SIPs

Ø  Credit risk funds saw outflows of Rs.19,300 crore, most of the outflows coming after the Franklin Templeton fiasco

 

Ø  Government raises the borrowing limit for the year to Rs.12 trillion Ø  This is a sharp spike from the original budgetary target of Rs.7.8 trillion. Rs. 6 trillion will now be the target for H1

Ø  This is a clear indication that revenues are likely to be tepid in the fiscal and fiscal deficit could be sharply higher

 

Ø  Trump threatens end to trade deal but trade officials move ahead Ø  Trade representatives from the US and China are working overtime on ensuring that the deal does not break

Ø  Earlier Trump had threatened China that he would call off the deal if China did not honour its $200 billion of US imports

 

Ø  Moody’s warns India of a rating downgrade soon Ø  Moody’s had recently lowered the outlook for Indian implying that any upgrades were entirely ruled out for now

Ø  With the huge impact on growth, as evident from the PMI, and the spiralling fiscal deficit, downgrade looks a possibility

 

Ø  May issue of Sovereign Gold Bonds priced at Rs.4590/gram Ø  This is slightly lower than the April tranche that was priced at Rs.4639/gram with rebate for digital investment

Ø  The SGB Series 2 will open for subscription on May 11 and will close on May 15 and offer a good equity hedge

 

Ø  India sees 7.57% growth in pharma exports in fiscal 2019-20 Ø  For FY20, the pharma sector achieved record exports of $20.58 billion; slightly short of the $22 billion target

Ø  Pharma exports are expected to get a further boost in FY21 as the US has substantially relaxed its FDI policy

 

Ø  Bond yields are expected to see a sharp spike on higher borrowing targets Ø  With borrowing target raised by more than 50% this year, the rush for government borrowing could spike bond yields

Ø  This is likely to largely neutralize the impact of the RBI rate cuts and push up the cost of borrowing for corporates

Ø  Government raising huge monies from RBI via Ways and Means advances Ø  The centre’s WMA from RBI stood at Rs.1.66 trillion compared to just Rs.1.10 trillion in the previous week

Ø  The WMA of state governments combined has also  spiked from Rs.10.63 bn to Rs.38.23 bn in a span of just one week

 

Ø  Export contraction in April 2020 could be worse than March numbers Ø  Ministry of Commerce had reported 25% contraction in exports for March and April could be sharper

Ø  Apart from the lockdown in most sectors, April exports are also likely to be hit by labour and logistical reasons

 

Ø  India  eyes a major increase in share of the global plastic exports Ø  Currently India’s share of the annual plastics exports of $1 trillion just 1% while China is 10%

Ø  With Coronavirus undermining China’s  credibility, India is ramping up capacities to bridge the gap

 

Ø  Moody’s pegs India’s FY21 GDP growth at 0% on COVID-19 lag effect Ø  Moody’s has provided a best case scenario of flat GDP growth assuming growth recovers sharply in Q3 and Q4

Ø  Moody’s has also retained the negative outlook and warned that India could be downgraded to Junk status

 

Ø  US unemployment spikes to 14.7%; the highest since the Great Depression Ø  This is largely on the back of severe job losses on the back of a spate of shutdowns in US businesses

Ø  The unemployment rate was as low as 4% just one year back and now more than 30 million are availing jobless benefits

 

Ø  PFC could be sitting on potential bad loans to the tune of $6.5 billion Ø  This was pointed out by a detailed study of the power sector by an independent research body

Ø  Nearly 20% of the loans give by PFC and REC to thermal power companies are likely to become bad in the next one year

 

Ø  Reliance may look to exit its $1 billion stake in Asian Paints Ø  This was held by RIL as an investment via its group company, Teesta Retail and is nearly 4.9% of APIL capital

Ø  This is part of RIL’s larger plan to monetize all non-core assets to bring Reliance Group to zero net-debt by March 2021

 

Ø  SBI extends loan moratorium to NBFCs by another 3 months Ø  With the moratorium expiring on May 31, it would not really make sense as the lockdown is likely to extend longer

Ø  With SBI taking the lead, other banks are expected to follow, giving the much needed respite for NBFCs

 

Ø  PMI manufacturing and PMI Services for April crash to all-time lows Ø  For the month of April, PMI Manufacturing fell vertically to 27.2 while PMI Services fell sharply to 5.4 levels

Ø  This is clearly indicative of an economy at standstill with most sectors shut or operating at 50% capacity utilization

 

Ø  Banks may trying hard to find a buyer for the assets of Future Group Ø  The group is already deep in debt and has been making consecutive defaults on its debt repayments

Ø  Rising interest costs, steep rentals and zero footfalls have brought that Future group to the virtual brink

 

Ø  MSME sector in India may be staring at 10 crore job losses in the near future Ø  MSMEs account for 25% of GDP output and nearly 40% of the total exports going out of India

Ø  MSMEs have been asking for direct transfers for payment of wages and salaries; but government has not responded