BQuick On Dec. 23: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief
1. The Lotus Fails To Bloom In Jharkhand
The Bharatiya Janata Party conceded defeat in the Jharkhand assembly elections with Hemant Soren-led alliance of the JMM and Congress looked set to secure over half the seats in the mineral-rich state.
Jharkhand would be the second state, after Maharashtra, from where an incumbent BJP has been ousted from power. It would also be the seventh state where BJP has been unable to secure a majority in the last 10 assembly polls.
- Prime Minister Narendra Modi and Home Minister Amit Shah both congratulated Soren and their alliance in separate tweets.
- The results come as the government struggles to contain growing nationwide protests against a new religion-based citizenship law that’s seen at least 24 people killed in clashes between police and demonstrators.
- The poor showing will add pressure on the government as it presides over an economy that’s growing at its slowest rate in six years and with unemployment running at the highest in four decades.
A loss now means that the number of BJP-controlled states has now fallen to 16 within the last 18 months.
2. The Slowdown Is Giving Auto Dealerships A New Avatar
There are at least 15,000 automobile dealers in India with 25,000 showrooms employing nearly 2.5 million people. As Indian consumers cut back spending in an economic slump, auto sales tumbled. Many dealerships shuttered outlets as profits fell and margins narrowed, forcing them to consider nimbler and leaner ways of running operations.
- New entrants like MG Motor India have launched a digital showroom. No cars on display, only large interactive screens and virtual reality apps to show vehicles.
- Volkswagen India, too, is reducing the number of full-fledged showrooms and setting up pop stories that are half the size.
- Premium motorcycle maker Royal Enfield, too, has introduced “studio stores” of 500 sq. ft.
- M&M is using augmented reality apps while Maruti Suzuki India Ltd. has agreed that a studio setup could work well in smaller markets.
But will this kill the traditional dealership model?
3. How Low Can Small Savings Rate Go?
A struggle to improve the pass-through of easier monetary policy to the broader economy has prompted a number of changes. The central bank has flooded the system with liquidity, initiated purchase of long-term bonds and asked banks to link their lending rates to an external benchmark.
- However, one piece in the interest rate transmission process that remains missing is a cut in small savings rates.
- Interest rates on small savings instruments, ranging from post office deposits to National Savings Certificates, among others, remain administered with rates decided by the government.
- While these rates were linked to government bond yields in 2016, following recommendations of the Shymala Gopinath committee, the government has not strictly adhered to the formulas suggested.
- The result is that small savings interest rates offered currently remain much higher than rates offered by banks on instruments such as fixed deposits.
- The gap is wide.
Here’s what can be done about higher interest rates on small savings, a historic problem in India.
4. Sensex Halts Gaining Streak
Indian equity benchmarks ended with marginal losses, halting their four-day record gaining streak.
- The S&P BSE Sensex fell 0.09 percent to end at 41,642.66.
- The NSE Nifty 50 fell 0.07 percent to close at 12,262.75.
- The broader markets represented by the NSE Nifty 500 Index fell 0.08 percent.
- The market breadth was tilted in favour of sellers.
- Six out of 11 sectoral gauges compiled by NSE ended higher.
Follow the day’s trading action here.
U.S. stocks edged higher, while Treasuries advanced after China demonstrated its willingness to open its economy as it pursues a trade deal with President Donald Trump. The dollar gained.
- The S&P 500 Index gained 0.1 percent as of 9:32 a.m. New York.
- The Stoxx Europe 600 Index was little changed.
- The U.K.‘s FTSE 100 Index advanced 0.5 percent.
- West Texas Intermediate crude decreased 0.2 percent to $60.35 a barrel.
Get your fix of global markets update.
5. Best Value Stocks? Look At The Cash Flow
For portfolio manager Sudhanshu Asthana, a company’s cash flow is the barometer for choosing stocks. And that is what he suggests investors should be looking at while considering beaten-down small and mid caps in the current market.
- “We should look at companies that turn a large amount of operating profits into operating cash flows and are not dependent on third-party funding—either debt or equity,” Asthana, chief executive officer and chief investment officer at Tamohara Investment Managers said.
Looking at companies that have cash flows leads to the fact that downsides are lower, and you compound money in turn.Sudhanshu Asthana, CEO and CIO, Tamohara Investment Managers
- Such companies turn out to be “steady compounders”, he said.
Watch Asthana explain when its a good time to buy small and mid caps in the latest episode of BloombergQuint’s special series Alpha Moguls.
6. Large Vs Small Vs Mid: Which Stocks Will Dominate 2020?
India’s largest stocks are likely to be winners again in 2020, after propelling the benchmark equity index to its fourth straight annual gain.
- Analysts expect gains in the S&P BSE Sensex in the new year to be led by just a handful of big names, similar to 2019, as uncertainty around a slowing economy is likely to continue driving investors to the safety of quality stocks.
- “Investor focus is unlikely to shift soon from the few high-quality names which continue to steadily grow faster than the economy,” said Dipen Sheth, Mumbai-based head of institutional research at HDFC Securities Ltd. “The foreign flows, too, favor top players.”
- India's benchmark Sensex has climbed nearly 16 percent this year. But only three companies have accounted for 65 percent of all the advance.
The skewed rally may extend well into the new year. Here’s how Indian markets are expected to look like in 2020.
7. Boeing Sacks CEO Over 737 Max Crisis
Dennis Muilenburg was ousted as chief executive officer of Boeing Co., a once-unthinkable turning point for a U.S. industrial champion engulfed in turmoil after two deadly crashes of its top-selling 737 Max jetliner.
- David Calhoun, who had served as chairman since October, will replace Muilenburg as CEO and president Jan. 13, Boeing said in a statement Monday.
- The move followed a rare public rebuke Dec. 12 by the U.S. Federal Aviation Administration and a damaging two-day stint in October before Congress, where Muilenburg faced calls to resign from lawmakers and victims’ relatives.
- Chief Financial Officer Greg Smith will serve as interim CEO during a brief transition period, and board director Larry Kellner will replace Calhoun as chairman.
Boeing is trying to regain its footing amid the Max grounding, one of the worst crises of the modern jet era.
8. Tata-Mistry Case: Registrar Of Companies Seeks ‘Deletion Of Comments’
The Registrar of Companies, Mumbai has moved the National Company Law Appellate Tribunal seeking deletion of comments made against it in the tribunal’s Dec. 18 judgment which had reversed the removal of Cyrus Mistry as executive chairman of Tata Sons.
- The NCLAT, while quashing the conversion of Tata Sons from a public company to a private one, had said that the ROC acted against the provision of Section 14 of the Companies Act in granting its approval to the conversion.
- The NCLAT had held this conversion illegal and said that it was “hurriedly done and with the help of the ROC”.
- The ROC in its petition argued that the NCLAT never gave them a chance to put their side before recording adverse comments against it in the order.
- The ROC said that it has acted in accordance with the law and that the NCLAT has taken allegations against them as “gospel truth”, without verifying it from their office or calling them to explain their action.
NCLAT said that the ROC had not followed the due procedure in allowing Tata Sons to to go private from public.
9. A Guide To What Central Banks Will Do Next Year
It was the year central banks jumped back into the fray, cutting interest to deal with a slowdown driven by a trade war and subsequent decline in manufacturing.
- Some, like the Federal Reserve, had at least made some headway on rate hikes before 2019, creating room to loosen amid the weakest growth since the financial crisis.
- But others, like the European Central Bank, found themselves in a more difficult position and had to cut benchmarks further below zero, stoking resentment about subzero rates.
- 2020 looks like it might be a quieter year for monetary policy. Fiscal may take up some of the lifting work, and growth prospects are looking a little brighter.
- The economic numbers are mostly mixed rather than positive, though. On balance, the monetary policy bias still leans to the dovish side.
- While the big guns are set to hold fire, others, especially in the emerging markets, are projected to cut again.
Find out how major central banks across the world will change interest rates in 2020.
10. India’s Streaming War Gets Hotter
Netflix Inc. and its rivals are facing a price war in India as a jump in the cost of watching video on mobile phones threatens to slow demand in what is shaping up as a key growth market globally for streaming.
- The country’s three wireless carriers hiked data tariffs by as much as 41 percent earlier this month, leaving some customers in India, where most streaming is done on phones, with less to spend on entertainment services like Netflix, Apple Inc.’s TV+ service -- which debuted there last month -- and those of local competitors.
- Cheap broadband, a well-established film culture and a vast English-speaking population have helped make India a lucrative streaming battleground.
- But an increase in data costs, coupled with a wider slowdown in the economy, could make customers more sensitive to how much they pay for content, just as players like Apple and Amazon.com Inc.’s Prime try to dig a foothold in the market.
Here’s how Netflix is trying to get ahead of the curve.