Category: Market News

India’s largest public sector bank, State Bank of India (SBI), is all set to report its March 2020 quarter result (Q4FY20) on Friday, June 5. The bank has also informed that its board will meet on June 11 to consider raising funds in single or multiple tranches of up to $1.5 billion. The bank expects to raise funds during 2020-21 through a public offer, a private placement of senior secured notes in U.S. dollar or any other convertible currency.

What it means

There is a general positive expectation about the bank’s net profit, and the same is expected to jump on a year-on-year (YoY) basis. SBI Cards stake sale, worth Rs 3,000 crore, may support profitability. However, loan growth is expected to be muted. NPA levels and provisioning made for the same will also be keenly watched in the results tomorrow. In a major restructuring exercise, SBI has created a separate Financial Inclusion and Micro Market (FI&MM) vertical with a focus on rural and semi urban areas.  It is expected that under this newly launched vertical, the bank will offer loans mainly for agriculture as well as allied activities, and micro and small enterprises causing movement in loan growth in the days to come.

The Adani Group’s power arm, Adani Power has announced the appointment of Vivro Financial Services as the merchant banker to evaluate its proposal of delisting its equity shares from BSE and NSE. The Company has informed that after the receipt of the due diligence report from the merchant banker, the board will again meet to discuss the delisting proposal in detail. The proposal to buy out the company’s public float has come from promoter firm Adani Properties Pvt. Ltd. In the delisting proposal, Adani Properties had expressed its intention either by itself or together with other members of the Promoter Group as the case may be to acquire all the equity shares of the Company, each equity share having face value of Rs 10 held by the public shareholders of the company.  The promoter group collectively holds 74.97 percent of the paid-up equity share capital.  Public shareholders hold 25.03 percent in of the paid-up equity share capital.

What this means

Several Indian companies are considering going private as stock valuations remain depressed. In the last 12 months, Adani Power’s share price has halved from a high of ₹73.75 to the current level of ₹37.95, making delisting by the promoter group an attractive and affordable option. With the delisting promoters seek the freedom to restructure their businesses outside the scrutiny of public shareholders and regulators. It could also be seen as a strategic move to reward shareholders and have better control over the company. While depressed valuations might be an attractive reason for the promoter to take the company private, the move might not be the best from the point of view of minority shareholders. Vedanta’s delisting earlier has not been received positively in the market as shareholders feel that the price offered is not reflective of the true value of the company.

Founder and Managing Director of Kotak Mahindra Bank Ltd, Uday Kotak is all set to sell stakes worth around Rs 6,000 crore in the private sector lender. This is a move to comply with a settlement agreement struck with the Reserve Bank of India (RBI) in January on promoter stake dilution. The stake sale is expected to happen at Rs 1,215 – 1,240 per share. The pricing of the sale, most likely to be executed on Tuesday, the 2^nd of June, represents 0.7% to 2.7% discount to Monday’s closing price of Rs 1,248 per share. The promoter stake sale will happen via a block. Morgan Stanley, Goldman Sachs and Kotak Securities are the advisors to the block deal.

What this means:

The move will signal an end to the extended standoff between the regulator and the bank over the reduction in promoter shareholding. This move comes after the bank had, on Saturday, raised Rs 7,442.5 crore through a qualified institutional placement (QIP) of its shares. During the month of January 2020, RBI had agreed to Kotak Mahindra bank’s proposal to reduce promoter stake to 26 percent from the current 29.9 percent over the next six months. Additionally, it was also agreed that promoter voting rights will be capped at 20 percent of the paid-up voting share capital until March 31 and will be further capped at 15 percent, effective April 1. Kotak Mahindra Bank had informed then that the promoters will not purchase any further ‘paid-up voting equity shares’ of the bank till the promoter shareholding reaches 15 percent. With this settlement agreement, the bank has decided to withdraw the writ petition filed in the High Court of Bombay after RBI struck down its proposal to issue perpetual non-convertible preference shares to comply with promoter shareholding norms.

India’s Oldest Stock Exchange, The Bombay Stock Exchange has launched options on goods contract on its platform from today. The two contracts launched are gold mini (100 gram) and silver kilo. These contracts were launched by S K Mohanty, whole-time member of markets regulator SEBI, who emphasised that this is the right time for the launch of these contracts. These contracts are deliverable contracts and shall terminate into physical deliveries at the time of expiry. The National Stock Exchange (NSE), which has also received SEBI approval for launching options in goods contract, will introduce options on gold mini from June 8.

What this means

Options contract gives the buyer or holder of the contract the right but not the obligation to buy or sell the underlying asset at a predetermined price within or at the end of a specified period. The options on goods contracts, Gold Mini and Silver Kilo, will enable small-time jewellers and retailers to come forward and hedge their price risk on the BSE’s commodity platform. This is an endeavour by BSE to offer new products to commodity market participants and to deepen the market ecosystem. With this launch, BSE becomes India’s first exchange to launch options on goods contract like Gold and Silver. The BSE and NSE have entered into the commodity segment only in 2019 and are making persistent attempts to gain volumes.

For the Indian Stock Market, the week that passed was a short one. The markets remained closed on Monday, the 25th of May on account of Ramzan. However, the week turned out to be one with strong gains witnessed after a while. After the dampening of sentiments that followed the stimulus package announcement by FinMin, the lockdown extension and the rising number of Corona cases in the country, the markets had been showing a downtrend for three consecutive weeks. As the markets closed on Friday, NIFTY ended above 9500 levels at 9580.30 and SENSEX settled at 32,424.10.

Though the main stock indices showed early gains on Tuesday, as markets closed for the day, the indices showed slight losses. S&P BSE Sensex fell 63.29 points at 30,609.30 and Nifty 50 index fell 10.20 points at 9,029.05. The market witnessed a strong rally on Wednesday. S&P BSE Sensex jumped 995.92 points at 31,605.22 and Nifty 50 index surged 285.90 points at 9,314.95 as the markets called it a day. The robustness continued on Thursday as well when S&P BSE Sensex jumped 595.37 points at 32,200.59 and Nifty 50 index gained 90.20 points at 9,580.30. After a refreshingly buoyant week, the markets closed with modest gains on Friday.

The positive sentiments could be attributed to the hopes of lockdown easing globally and within the country. However, the persistent US-China tensions seemed to have capped the uptrend. This coupled with weak GDP figures and bleak outlook for the next quarter might play a pulldown factor in the week to come.

Few headlines that stirred the stocks last week:

1. ITC acquires Spices maker Sunrise Food – In the wake of the acquisition announcement, ITC stock rose 5.96%
2. Bharti telecom to raise $1 billion via block sale of Airtel Shares – With the news breaking out in the market, Telecom major Bharti Airtel dropped 6.85%.
3. Suzuki Motors ready to restart production at Gujarat Plant – With the news, Maruti Suzuki India (MSIL) jumped 9.31%
4. Eicher Motor to consider stock split – The news along with expected Q4 results on 12th June, made the stock surge 18.95%
5. HDFC Q4 results: Profits dips 22% as provisions spike – Even with a decline in profit figures, HDFC rallied 9.42%
6. Kotak Mahindra launches QIP for fund raising – The stock surged 5.47% based on the announcement.
7. Sun Pharma Q4 results, profit tumbles 37% – Sun Pharmaceutical Industries rose 1.33% after the result announcement for the Company’s Q4 of FY 2020.
8. TVS Motor Q4 results: Profit slump 45% YoY – Amidst the slump, the stock managed to gained 7.36%.
9. Wipro appoints Capgemini executive Thierry Delaporte as its MD and CEO – The stock shot up by 12.52%.

As the markets open tomorrow, the early market moving sentiments would be based on Q4 GDP results and lockdown ease of the economy.

As the world grapples in the clutches of Corona and people world over speculate on how the post-COVID 19 era would look like, elsewhere in the international platform, two superpowers are locking horns in a long dragging trade war. The trade war between the United States and China is an economic conflict that started becoming prominently visible since 2018 and has caused economic damage to both the countries involved, trickling down its impact to the world economy.

A Story so far…

One major concern Donald Trump has right from the initial days of his tenure was the prevalent “unfair trade practises” majorly in the trade relations of the US with China. In fact, one of the major focus of his Presidentship campaign in 2016 was to bring in policies to curb these “unfair practises” which weighed heavily against the US. Among these unfair practises, the major concerns were a growing trade deficit in the US, theft of intellectual property and the forced transfer of American technology to China. From 2018, Trump began to set up a series of tariffs and other trade barriers, starting from imposing heavy tariffs in import of steel and aluminium from China. Apart from curbing the earlier mentioned unfair practises, the move was also aimed at protecting American goods and boosting local business in the US.
However, China considered these moves as a deliberate attempt by the US to curtail its rise as a strong global power. It marked the beginning of a cold war, when China too retaliated by imposing tariffs and trade barriers for import of US products to the country. The period from 2018 to Dec 2019, saw a series of back and forth negotiations, failed trade talks, tit for tat tariff wars, fresh restrictions and trade barriers and several WTO cases fought between both the countries. In Aug 2019, with China halting purchases of US Agri products and Chinese Yuan weakening considerably which in turn lead to an equity market plummet, US accused China of engaging in currency manipulations.
Finally, in January 2020, the US and China signed the Phase One trade deal of the “Economic and Trade Agreement between the United States of America and the People’s Republic of China” which highlighted a consensus on rollback of tariffs, expansion of trade purchases, renewed commitment on intellectual property, technology transfer and currency practises by both the countries.
Though the signing of phase one deal sent across a positive vibe, with the onset of COVID 19, the relations between both the countries has strained again. With US being the worst hit by pandemic, Trump now accuses China of irresponsible handling of the virus, which has put the global economy and hundreds of millions of life world over in peril. Amidst rapidly escalating bilateral tensions, Trump has announced a series of new decisions including issuing a proclamation to deny the entry to certain Chinese nationals and tightening of regulations against Chinese investments in America. Sanctions has been imposed on the Chinese Tech Giant Huawei for using US machines and software and US has also initiated delisting of Chinese Companies from US Stock Markets. US President Donald Trump has also severed ties with the World Health Organisation (WHO), accusing the international organisation of siding with China to misguide the world on the gravity of situation that COVID 19 is presenting.

A story of losses and gains….

This long dragging trade war has had repercussions in both the US and Chinese Economies as well as the global economy. The trade volumes between the US and China dipped steadily over the turmoil period.

Source: Statista

As per latest report, the trade war since 2018 has erased $1.7 trillion of market value from American Companies and has cut US investment growth by 0.3% by the end of 2019. The ripples of the ongoing trade war were felt in the agricultural sector, manufacturing and auto sector, stock markets as well as domestic politics in the US. The trade war has also slowed down the Chinese Economy and has made it an investor’s pain when it comes to returns from investments in the country.
While both US and China faced huge economic damages with the ongoing trade war, global economy too faced the heat. Globally, foreign direct investments have also slowed down. Many countries including the US, Germany, UK, Japan and South Korea showed “a weak manufacturing performance in 2019”. The ongoing crisis has also led to several Asian Governments putting stimulus measures in place to address the damage from the trade war. To add to the woes, COVID 19 pandemic has further deepened the crisis.
However, just like how every coin has two sides, the ongoing crisis has also benefitted many countries in the form of opportunities for increasing exports to US and China, as trade volumes between both the countries decreased. Vietnam remains the lead beneficiary here as many tech companies from the country moved their manufacturing to the US. South Korea, Malaysia, Mexico and Brazil has also benefitted from the opportunity to chip in and fill the gaps created by the tiff between both the countries.

What in the Story for India?

When the world economy is embroiled in the economic conflict between US and China, it is opening up a great opportunity for India. As an emerging global power, our country could very well become a preferred option for investments shifting their base from the warring countries. As trade tensions between US and China led to decline in world output, India recorded $44.8 million in exports to US and $14.6 million to China in 2019. Furthermore, amidst the ongoing crisis, US sees India as a natural ally against China and there is a high probability that the US foreign policy will be aligned to provide a major push to Indian growth goals in post pandemic era as they seek a strong ally in us. China too might like to go with tactical diplomatic relations with us to avoid an unfavourable tilt in the balance of international relations.
However, with Corona engulfing the country and devastating the Indian economy and with a deep recession looking inevitable, India would need to buckle up twice as hard to cash in on the ongoing trade war. If the Government’s push towards self-reliance finds a fruitful execution and if Make in India movement gains momentum, we stand a big chance to benefit the most from the turn of events. It all depends on how post lockdown period, when the economy slowly gets back on track backed by the stimulus package, plays out for the country. If we manages to become “Atmanirbhar” to cater to the new order that will set in post COVID19 , then clearly India will emerge beneficiary in the ongoing economic standoff between two superpowers and emerge a resilient global leader.

On Friday, the 29th of May, the National Statistical Organisation, Ministry of Statistics and Programme Implementation, released the provisional estimates of Annual National Income for 2019-20 as well as the estimates of GDP for Quarter 4 (Q4) of FY 2020. India’s GDP growth fell to 3.1% in the January-March Quarter of 2020. Though the figures reported beat the general expectation of a greater slump, there is nothing much to cheer about as all major sectors of the economy registered decline in growth.
The growth numbers indicate the devastating impact that COVID 19 has had in the economy. As per Central Statistics Office (CSO), the GDP figure is the lowest since the last 44 quarters. Overall, for FY 2020, the economic growth dived to 4.2% as against 6.15% in FY 2019. This is the lowest since 2009 global financial crisis.

Source: Bloomberg Quint

Further, the Government has also revised data for previous quarters downwards. As per the revised figures, the GDP for Q1 FY2020 is 5.2%, Q2 FY 2020 is 4.4% and Q3 FY 2020 is 4.1%

Mini Facts:
GDP – Total value of all final goods and Services produced in a country, within its boundaries during a certain period of time.

The downward revision of GDP figures even during the pre lockdown period is a matter of concern. It could be a possible pointer to the fact that the economy was already weak and COVID 19 has hit an already downward moving economy, which would further make the impact of the pandemic more pronounced.

How major sectors fared:

Most of the major segments of the economy has shown a downward trend with growth figures slumping to new lows. The growth in manufacturing sector was 1.4% for Q4 2020. However, the overall growth rate for the segment for entire FY 2020 was 0%. Construction segment contracted by 2.2% for the fourth quarter. Hospitality sector was one of the worst hit as the pandemic set in. The segment consisting of trade, hotel, transport and communication grew 2.6% for Q42020. The financial sector grew 2.4% for the last quarter of FY 2020. Agriculture and Mining are the only two segments which bucked the trend and provided some relief figures for a downward spiralling economy. Agriculture, in the backdrop of a strong rabi harvest season, grew at 5.9% in Q4 of FY 2020 compared to 3.6% in Q3. For the entire year, the growth in the segment was 4% as against 2.4% in the previous fiscal. The mining sector grew at 5.2% in Q4 compared to 2.2% in Q3 of FY20. Exports grew a little more than 3% for the entire fiscal.
The core sector output has also drastically shrunk by 38%. These 8 core sectors constitute 40% of weight of items in the Index of Industrial Production. This suggests a bleak outlook for the future.

Mini Facts:
The eight core sectors of the Economy are:

1. Coal
2. Crude Oil
3. Natural Gas
4. Petroleum Refinery Products
5. Fertilizer
6. Cement
7. Steel
8. Electricity Generation
   All these sectors constitute 40.27% of Index of Industrial Production (IIP). IIP is an index which shows growth rate of different industry segments of the economy for a given period of time.

If we consider the expenditure side, Government expenditure remained the major growth driver with a growth of 13.6% in Q4 FY2020, while Private Consumption and Investment fell. Private Consumption slowed down to 5.3% for the entire fiscal as against 7.2% for FY 2019. Gross Fixed Capital Formation grew only 2.8% for FY 2020 which is an indicator of low investment. These figures are also an indicator of an increased sentiments against spending during the pandemic time which has had a drastic impact on the demand side of the economy.

What this means and what lies ahead:

The National Statistical Office while releasing these estimates has explicitly mentioned that the data available for arriving at the GDP figures was inadequate and hence there are chances for further revision. The lockdown put in place and the consequent shut down of many units and extension of statutory time frame for submitting requisite financial returns have been cited as the reason. Hence, it is very much possible that a revised figure might paint a grimmer picture of economic growth.

However, even if we consider the current figures, it can very well be expected that what we witness now might be just the tip of the iceberg. The Q4FY2020, which is the period from Jan-March, was the time when the lockdown had just begun. Hence, the full and painful impact of the lockdown might present itself in Q1 of FY 2021. 40% of India’s GDP in contributed by states and zones which are currently identified as red zones by the Government. The State of Maharashtra, which is a major contributor to the economy and worst COVID affected State in the country, has crossed 60,000 confirmed Corona Cases which points to a possibility of lockdown 5. This would further aggravate supply side disruptions and labour shortage making it difficult for the economy to be back on track with ease.

Though the Government had announced a Rs.20 Lakh crore stimulus package to lift up the economy, the benefits of the same, mostly in the supply side, would be visible probably only in the medium to long term period in future, provided it is effectively implemented. Even though RBI proactively supported the Government efforts by policy rate cuts, it has not generated much enthusiasm among banks to actually start lending credit to the needy business. Mounting pressure of NPA still keeps the banks risk averse. This might hamper the effective implementation of the stimulus package, which is leaning heavily on banks for implementation. Hence, the need of the hour now seems to be measures to improve the demand side of the economy by measures which would directly pump money into the economy.

Every dark cloud will have a silver lining. Post COVID, new business leaders are likely to emerge. There are sectors in the economy which are poised to fare well in the pandemic period, which might play a significant role in pulling the economy back to its feet. The outlook for agricultural segment remains positive with the growth exhibited by the segment and the expectations of good monsoons and record food grain production. Segments like FMCG, Education, E-Retailers, Insurance, Pharma and Banking/NBFC segment might most likely turn out to be performing segments of the economy during and post COVID times.

The times we live in right now are unprecedented. Even as we look out to sectors who could hold the fort for the economy during these difficult times, India will have to prepare for the upcoming recession that has already began to set in. The tunnel seems dark and long, but there is always light at the end of the tunnel. It’s just a matter of time till we reach there!