BQuick On Aug. 7: Top 10 Stories In Under 10 Minutes
Here is a roundup of the day’s top stories in brief.
1. Unprecedented Rate Cut
India’s Monetary Policy Committee cut its benchmark interest rate for the fourth time this year -- this time by 35 basis points -- to support growth in the economy at a time when inflation remains in check. Addressing growth concerns assumes the “highest priority” at this juncture, the MPC said while maintaining an “accommodative” monetary policy stance.
- The repo rate stands reduced by 35 basis points to 5.4 percent, taking the total quantum of rate cuts in 2019 to 110 basis points.
- At current levels, the repo rate is at its lowest since 2010 and the rate cutting cycle has been the steepest since 2015-16, when Raghuram Rajan cut rates by 125 basis points.
- A majority of the 36 economists polled by Bloomberg had forecast a 25 basis point cut. Bank of America-Merrill Lynch had forecast a 35 basis points cut in rates.
The benign outlook for inflation allows headroom for policy action to close the “negative output gap”, the MPC said.
Other Key Decisions
- The central bank decided to to extend on-tap authorisation to entities for three retail payments systems.
- RBI plans to introduce a framework for online payment providers to report frauds by merchants and customers.
- It also announced measures to improve the flow of credit to consumers and small businesses.
2. Calling RBI: Show Us Some Thought Leadership
The Reserve Bank of India is not unaccustomed to tough economic conditions or to tough economic questions. It’s an organisation with deep institutional memory and understanding of all aspects of the economy and the banking sector.
It is then a little worrying to see lack of thought leadership—or at least the lack of communication of that thought leadership—from the central bank in recent times.
Ira Dugal offers a few examples:
- Why is growth slowing?
- Are fiscal risks building?
- Why is a 35 bps rate cut better than a 25 or 50 bps cut?
Are we getting the answers we should from the RBI, she asks.
3. Pakistan Suspends Bilateral Trade With India
Pakistan’s government said Wednesday it is downgrading diplomatic relations with India and suspending bilateral trade with the nation.
- The decision comes after a meeting held by Pakistan’s Prime Minister Imran Khan to propose legal, political, diplomatic response to India’s move of revoking Jammu & Kashmir’s autonomous status, according to a statement.
- Pakistan resolved to take the matter to the United Nations, including the Security Council, the statement said.
- India has said Jammu & Kashmir was an integral part of India and the issue was strictly internal to the country.
"August 15 will be observed as Black Day," Pakistan added.
4. Tata Steel’s Profit At Over Two-Year Low
Lower prices and weak demand dragged Tata Steel Ltd.’s profit to its lowest since December 2016.
- Net profit fell 64.3 percent over the last year to Rs 693.1 crore.
- Revenue rose 1.3 percent to Rs 35,947.1 crore.
- Margin narrowed 290 basis points to 15 percent.
- Operating profit fell 15.4 percent to Rs 5,376.8 crore.
Steel sector is facing “significant headwinds” that has affected overall profitability.
5. Other Earnings: Adani Ports, Cipla, HCL Tech, M&M
Adani Ports & Special Economic Zone Ltd.’s profit beat estimates in the quarter ended June on higher volumes and other income, and foreign exchange gains.
- Net profit rose 48.02 percent year-on-year to Rs 1,022 crore.
- Operating profit increased 16.03 percent to Rs 1,843 crore.
- Operating margin expanded 7 basis points to 65.95 percent.
Cargo volumes rose to an all-time high.
Cipla Ltd.’s profit rose in the quarter ended June on robust demand in North America and Europe.
- Net profit increased 6 percent year-on-year to Rs 478.2 crore.
- Revenue rose 1.3 percent to Rs 3,989 crore.
- Operating profit rose 24.5 percent to Rs 904.6 crore.
Cipla’s “very interesting” cost-cutting aided earnings.
HCL Technologies Ltd.’s net profit missed the lowest analyst estimate in the quarter ended June as margin contracted.
- Net profit rose 12.5 percent quarter-on-quarter to Rs 2,230 crore.
- That compares with the Rs 2,378-crore estimate of analysts tracked by Bloomberg.
- Revenue in dollar terms rose 3.8 percent to $2,364 million.
- Operating profit rose 7.8 percent to Rs 2,748 crore.
- Margin contracted to 16.7 percent from 18.6 percent.
Still, HCL remains confident of achieving its 18.5-19.5 percent margin guidance.
Mahindra & Mahindra Ltd.’s profit for the quarter ended June fell missing estimates as India’s automakers are yet to see signs of revival from the worst slowdown in a decade.
- M&M’s profit declined 26 percent over a year earlier to Rs 918 crore.
- The company also reported an exceptional gain of Rs 1,367.05 crore during the period on the sale of shares of M&M Benefit Trust and buyback gains on transfer of certain long-term investments.
- Including the one-off gain, the automaker’s profit stood at Rs 2,260 crore compared to Rs 1,257 crore in corresponding quarter.
- Revenue fell 4 percent on a yearly basis to Rs 12,997 crore.
Weak sentiments and liquidity crunch impacted performance.
6. Nifty Slips, U.S. Stocks Slump
Indian equity benchmarks ended lower after the Reserve Bank of India reduced growth forecast for the year even as it cut benchmark rate by 35 basis points.
- The S&P BSE Sensex ended 0.77 percent lower at 36,690.50.
- The NSE Nifty 50 fell 0.85 percent to 10,855.50.
- The broader market index represented by NSE Nifty 500 Index ended 0.72 percent lower.
- RBI trimming its growth projection below 7 percent for financial year ending 2020 may not “go down well” with the markets in the near term, according to Rajiv Singh, chief executive officer at Karvy Stock Broking.
- Eight out of 11 sectoral gauges compiled by NSE fell.
Follow the day’s trading action here.
U.S. equities slumped and bonds rallied globally after a series of dovish central-bank surprises underscored growing concern over the outlook for growth.
- The S&P 500 Index’s loss approached 1 percent in heavy trading volume as the 30-year Treasury yield closed in on an all-time low.
- German rates dropped to a record as industrial production registered the biggest decline in almost a decade. Currency markets were volatile after policy makers cut rates in New Zealand, India and Thailand.
- West Texas Intermediate crude fell 4.2 percent to $51.36 a barrel, the lowest in more than seven weeks.
Get your daily fix of global markets here.
7. Automakers Look To Government For Help
Reduction in goods and service tax rate, liquidity crunch and scrappage policy were among the many issues the automobile industry raised at a meeting with the finance minister today.
- India’s auto sector is grappling with its worst slowdown in more than a decade.
- Retail auto sales fell for the eighth straight month during the seasonally weak monsoon period as buyers stayed away amid tight financing.
- The meeting was attended by as many as 21 representatives of the automobile industry, including Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Honda Motor Co. and Toyota Motor Corp., and dealers and components manufacturers.
“The situation is quite serious. The industry doesn’t have enough time.”
Meanwhile, Mahindra & Mahindra’s Pawan Goenka said job cuts at automakers are not alarming at this stage but it could be higher at auto parts suppliers and dealerships.
- “The velocity and speed of job losses in auto ancillaries and auto dealerships would be higher than OEMs (original equipment manufacturers),” the managing director of India’s largest tractor maker said in a press conference.
These players do not have deep pockets like OEMs and hence job losses and adjustments there happen quickly.Pawan Goenka, MD, M&M
Goenka refrained from giving a forecast citing the slowdown.
8. Mutual Funds Eye Piece Of DHFL Repayment Cake
Asset managers in India are seeking regulatory approval to join creditors as one of the nation’s major shadow lenders tries to pull itself out of distress.
- A body of mutual funds has written to the Securities & Exchange Board of India seeking clarity on whether they can participate in an inter-creditor agreement drafted by banks who have lent to Dewan Housing Finance Corp.
- The financier has about Rs 6,300 crore ($894 million) of principal and interest repayments on rupee bonds due in August and September to mutual funds, insurers and pension funds.
- DHFL didn’t service most of its financial obligations last month and its credit rating has been cut to D by major Indian ratings agencies.
The mortgage lender is among the worst hit in the nation’s $42 billion NBFC industry.
9. Bottom Of The NPA Cycle? Not Quite.
The bad loan cycle for Indian banks, which began in 2015, is getting stretched out as new segments of stress have started to emerge against the backdrop of weakening economic growth and volatile financial markets.
- The stress, which was earlier restricted to sectors like infrastructure, telecom and power, is now being felt across a much wider array of sectors ranging from housing finance, travel and tourism and media.
- According to data compiled by BloombergQuint, slippages, or fresh bad loans, in the April-June 2019-20 quarter jumped to the highest since at least the first quarter of last financial year.
The country’s ten largest banks reported slippages worth Rs 53,724 crore.
10. Reliance To Bring Tiffany To India
American luxury jewellery retailer Tiffany & Co. will soon make its way into the Indian market through a joint venture with Reliance Brands Ltd.
- The 172-year-old premium jewellery chain store plans to expand operations in Delhi and Mumbai, according to a statement.
- Tiffany, which is already present in 25 countries, plans to open stores in Delhi by the year-end, and in Mumbai by next year in partnership with the Mukesh Ambani-owned company.
Ambani has been expanding his presence in the consumer space.