Source: Bloomberg

BQuick On July 19: Top 10 Stories In 10 Minutes  

This is a roundup of the day’s top stories in brief.

1. Outgoing CEA Arvind Subramanian Pitches To Put RBI’s Reserves To Better Use

From a revenue-neutral rate for the goods and services tax to a universal basic income—Arvind Subramanian has put a number of ideas on the table during his four year tenure as the country’s chief economic adviser. Some of these found their way into policy making; others didn’t. Among the latter was the idea to use a part of the RBI’s reserves for other purposes such as recapitalisation of banks.

Days before he steps down, Subramanian says the idea makes even more sense today than it did when he first proposed it in his Economic Survey of 2016. “(I stand by that idea) even more so than I did earlier,” Subramanian told BloombergQuint in an interview.

If you see how bold and courageous central banks have been in the post global financial crisis era, that’s certainly something I stand by. I still think that’s a very viable plausible ingredient to resolve the twin balance sheet problem. I think that has to be one important component of it.
Arvind Subramanian

Subramanian also pitched for a wider blueprint to reform the banking sector, which he said must also include a re-look at regulation.

I used to speak about the 4Rs but I think there should be 5Rs—recognition, resolution, recapitalisation, reform and regulation. Remember that all that has happened in the last few months shows that we also have challenges on private sector banks. So nobody can say that majority private sector participation is the panacea.  
Arvind Subramanian

For more on what Subramanian said about private investment and farmer distress read this or watch the interview video below.

Read what Subramanian had to say about the investment slowdown and Indian banking.

2. Fosun Is Considering A $500 Million India IPO Of Gland Pharma: Bloomberg Exclusive

A unit of Fosun International Ltd., the Chinese group backed by billionaire Guo Guangchang, is considering an initial public offering of Indian drugmaker Gland Pharma Ltd., people with knowledge of the matter told Bloomberg News.

Shanghai Fosun Pharmaceutical Group Co. is in preliminary talks with potential advisers about an Indian IPO for Gland, according to the people, who asked not to be identified because the information is private. The share sale could raise about $500 million, the people said. Deliberations are at an early stage, and any listing is unlikely to take place before next year, the people said.

Read more about the IPO that’s in the works.

3. Sensex, Nifty End Lower Ahead Of No-Trust Vote; Rupee Closes At All-Time Low

Indian equity benchmarks ended lower for the second day ahead of a no-confidence vote tomorrow on the Narendra Modi government. The S&P BSE Sensex Index ended 0.1 percent lower at 36,351.23 and the NSE Nifty 50 Index ended at 10,957.10, down 0.2 percent.

The rupee today also took a hard knock to close at a historic low of 69.05 as upbeat comments on the U.S. economy by the Federal Reserve chairman drove the greenback to one-year high levels higher against global currencies. This is the biggest single-day fall since May 29.

Follow the day’s trading action here.

BQuick On July 19: Top 10 Stories In 10 Minutes  

U.S. equities fell on the back of disappointing earning results from American Express, Philip Morris and Ebay. The dollar extended gains as weekly jobless claims came in lower than expected, reinforcing the Fed’s messages that the American economy is on solid footing.

The greenback strengthened a third day following Federal Reserve Chairman Jerome Powell’s upbeat assessment of the domestic economy, and after the Beige Book economic report showed growth holding up. The move was in stark contrast to that of the Chinese yuan, which fell to a one-year low.

Get your fix of global markets update here.

4. China’s Yuan Tumbles As PBOC Weakens Fixing, Easing Bets Mount

China’s yuan slumped to a one-year low as the central bank showed little sign of intervening to slow the currency’s descent and bets for monetary policy easing mounted.

The yuan dropped as much as 0.85 percent to 6.8032 per dollar in offshore trading, the lowest level since July 2017. The People’s Bank of China weakened its fixing beyond 6.7 on Thursday for the first time since the currency began tumbling in June. Signs of further monetary easing are also adding strains, with China Business News reporting policy makers have made efforts to encourage bank loans and investment in lower-rated corporate debt.

The yuan has fallen more than 4 percent in the past month, the worst performance among 31 major currencies, as the world’s second-largest economy falters and a trade spat with the U.S. escalates. China will tolerate higher volatility in the yuan and a moderate weakening of the currency as long as there’s no major threat to financial stability, according to Pacific Investment Management Co.

China’s banks are being offered cash and given instructions to boost lending, according to the banking and insurance regulator, adding to evidence of a shift toward greater official support for the economy.

BQuick On July 19: Top 10 Stories In 10 Minutes  

Also read: China Flirts With Easier Monetary Policy Amid Slowing Growth

5. JPMorgan’s Bharat Iyer On Why Indian Equities Are A Safer Bet Amid Trade War

India is better placed than most of its peers if the ongoing trade war between the U.S. and China dominates investor sentiment over the next six-seven months, according to Bharat Iyer, head of India equity research at JPMorgan. India is a very small part of the global supply value chain, he said, making the case for global money coming into the country.

JPMorgan estimates an earnings growth of 15 percent for Indian companies over the next two years from 7-8 percent growth seen in the financial year 2017-18. The improvement could be attributed largely to a low base in the previous quarters as Indian companies struggled in the aftermath of demonetisation and disruptions due to the Goods and Services Tax.

Key Highlights:

  • Expects lower returns and higher volatility in markets in the ongoing financial year.
  • Markets are now chasing earnings growth. Advocating neutral stance towards Indian markets.
  • India is facing cyclical headwinds, dependence on external energy and capital; investors to monitor trade war for the next six months; see India performing well.
  • Expects two more rate hikes in India and three-four in the U.S.
  • Expects earnings growth at 15 percent for the next two years; expects 20 percent earnings growth in the first quarter due to low base effect.
  • Stronger urban consumption and retail banking sector to aid earnings growth.
  • Expects eight to 10 percent growth in the IT sector.
  • Reclassification of mutual fund schemes triggered a sell-off in mid caps.

Watch Iyer’s full interview here.

6. Idea Cellular Lost 25 Lakh Customers In May, Most In Nine Months

Billionaire Kumar Mangalam Birla-promoted Idea Cellular Ltd., yet to get the final approval for its merger with Vodafone India Ltd., lost about 25 lakh customers in May—the most among Indian wireless carriers.

The industry, in comparison, added more than 59 lakh subscribers, according to the latest data provided by the Telecom Regulatory Authority of India. And that was led by Reliance Jio Infocomm Ltd.

Click here to see how India’s telecom companies fared in May.

7. HDFC Group Open To Outside Talent For Deepak Parekh’s Succession

Deepak Parekh, who set the process of succession planning rolling in all HDFC Group companies, said they are open to looking at talent outside.

The group has so far looked at internal talent to fill top management slots but “we’ll have to see”, the non-executive chairman of HDFC Group told BloombergQuint in an interview.

It is not automatic that the No. 2 becomes No. 1. You have to go through the market place to get the best talent possible.
Deepak Parekh, Non-Executive Chairman, HDFC

More on what Parekh said regarding HDFC’s succession plans.

Parekh also said that the impending initial open offer by HDFC Asset Management Company Ltd. is conservatively priced and leaves enough money on the table for investors to make returns.

HDFC and U.K.’s Standard Life Insurance will sell 12 percent stake in a three-day offer that opens on July 25 to raise Rs 2,800 crore, taking the fifth company from the HDFC Group public. HDFC last listed its life insurance business in November to raise nearly Rs 8,700 crore.

Also read: Parekh Says Enough Left On The Table For HDFC AMC Investors To Make Returns

8. Mystery Of The Missing Buybacks

In a May 10 meeting that lasted one hour ten minutes the board of PC Jeweller Ltd. approved a buyback of shares that would cost the company Rs 424 crore. A postal ballot notice was issued to shareholders which said the voting would close at 5 pm on July 13 with the vote outcome to be announced on July 14, on or before 5 pm.

Instead, on July 13 at 7:28 pm, the jewellery retailer informed stock exchanges in a terse two-line statement that its board had withdrawn the buyback proposal. The reason – non-receipt of a No Objection Certificate from its bankers.

On July 16, the first trading day since PC Jeweller made this announcement, the stock fell as much as 30 percent and now trades at Rs 78. From Rs 500 to Rs 78 in 7 months. With absolutely no change in government policy or business conditions.

The only problem – corporate governance. And it just got bigger.

9. All You Need To Know About Tomorrow’s No-Confidence Motion

On Friday, 20 July, the Narendra Modi government will be facing its first no-confidence motion. The Lok Sabha will on Friday debate and vote on an Opposition-sponsored no-confidence motion after Speaker Sumitra Mahajan admitted the notices for it on Wednesday.

In a House of 534 members of parliament, the National Democratic Alliance has 313 members of which 274 are from BJP. The majority mark in the House is 268. There are 11 vacancies.

Though the numbers are heavily stacked against the opposition, the Congress and other parties indicated today that they are keen to utilise the debate to attack the government on a range of of issues, including farm distress, slow economic growth and rising incidents of mob-lynching.

As Things Stand Now...

BJP ally Shiv Sena will vote in favour of the Narendra Modi-led government during the opposition-sponsored no-confidence motion in Lok Sabha tomorrow, according to a source close to Party Chief Uddhav Thackeray. A formal announcement will be made by this evening, the person told PTI.

Tamil Nadu Chief Minister Edappadi K Palaniswami hinted his party AIADMK might not back the no-confidence motion. The AIADMK has 37 MPs and its abstention from voting is also not being ruled out.

The BJD—the ruling party in Odisha—said it will reveal its stand on the motion on the floor of the House tomorrow. It has 19 MPs.

Meanwhile Samajwadi Party chief Akhilesh Yadav today avoided a direct reply when asked whether his party would support Rahul Gandhi as prime minister.

“The country wants to see a new government at the centre. People want to see a new prime minister. You will see a new prime minister after the elections,” he said when asked whether he saw himself or the Congress president as the next prime minister.

Most of the parties have issued whips to ensure complete attendance of members in the House. The debate is scheduled to start at 11 am. Speaker Sumitra Mahajan yesterday said that discussion on the no-confidence motion moved by BJP’s former ally Telugu Desam Party and others will be held for the full day followed by voting on it.

Here’s an explainer on what exactly a no-confidence motion is.

10. This Man Rewrites the Genetic Code Of Animals

For nine nerve-racking months beginning in the summer of 2014, Dan Carlson waited for his lab experiments to be born. Carlson and his team at the biotechnology startup Recombinetics had made a small tweak in the genetic code of dairy cattle in an attempt to prevent the animals from growing horns. Now, that edited DNA was being copied over to the cells in fetuses growing in their surrogate mothers.

No one had tried this before, so it wasn’t clear it would work. And compared with the mere days it takes for the cutting-and-pasting of genes to complete in culture dishes, the months-long pregnancies were agonizingly slow. “You hope everything is going well,” Carlson says. “You’re expecting it to come out without any horns or horn buds, but you just don’t know.”

Source: Bloomberg
Source: Bloomberg

As is common with cloned animals, most of the embryos never made it. But Buri and Spotigy, two calves born in April 2015, were free of the telltale bumps that eventually sprout into horns. That meant they would be spared the fate of millions of U.S.-raised cattle, whose horns are destroyed with a hot iron or toxic paste shortly after they’re born or are sheared off when they’re older. It’s a practice Carlson knows his own father, a farmer, struggled with. The painful procedure is done to prevent the cows from goring one another or their human overseers, but People for the Ethical Treatment of Animals and other animal-welfare groups vociferously oppose it. (PETA isn’t a big fan of gene editing either, which the organization considers animal experimentation.)

Read how scientists like Carlson are using gene-editing to improve animal welfare.