BQuick On Feb. 12: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. Twin Trouble For Indian Economy
Retail inflation in India rose to the highest since May 2014, pushed up by expensive food items and higher telecom tariffs.
- Consumer Price Index inflation stood at 7.59 percent in January compared to 7.35 percent in December, according to data released by the Ministry of Statistics and Program Implementation
- Inflation in food and beverages rose to 11.8 percent as compared to 12.2 percent in December 2019.
- This is the second straight month that retail inflation has remained above the upper end of India’s tolerance band of 2-6 percent.
Core inflation, however, still continues to be low.
India’s industrial output fell 0.3 percent in the month of December, countering signs of a bottoming out of the economy.
- The Index of Industrial Production fell 0.3 percent in December over last year, compared to an increase of 1.82 percent in November, according to a statement by the Ministry of Statistics and Programme Implementation.
- Thirty six economists polled by Bloomberg had forecast December IIP growth at 1.7 percent.
- The industrial output data is a reminder of the persisting weakness in the Indian economy even though some indicators like the Purchasing Managers’ Index have shown improvement.
While mining activity increased, manufacturing continued to see contraction.
2. Getting Realistic With GDP Aspirations
The slowdown in the Indian economy must be benchmarked against a realistic estimate of the country’s potential growth, according to V Anantha Nageswaran, part-time member of the Economic Advisory Council to the Prime Minister.
- This potential GDP growth rate, Nageswaran estimated, is between 6 percent and 7 percent and not the aspirational 8 percent-plus that is sometimes used to benchmark strength, or lack of it, in the Indian economy.
We have been lulled into believing that India has crossed 7 percent growth and is close to achieving 8 percent potential growth, based on a few years of high growth rates. But the fact that those were followed by either high inflation or high current account deficits or banking crises, suggests that our potential is somewhere below 7 percent.V Anantha Nageswaran, Part Time Member, PMEAC
Nageswaran explains the government’s tightrope walk in the budget and the RBI’s flexibility.
3. Dr. Reddy Buys Out Wockhardt’s Branded Generics Unit
Wockhardt Ltd. agreed to sell select divisions of its branded generics business and a manufacturing facility to Dr. Reddy’s Laboratories Ltd. as the Mumbai-based drugmaker looks to raise cash for fresh investments and paring debt.
- The board of Wockhardt considered and approved the transfer of business in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives through a slump sale to Dr. Reddy’s for Rs 1,850 crore, according to an exchange filing.
- The business comprises a portfolio of 62 brands in multiple therapy areas such as respiratory, neurology, VMS, dermatology, gastroenterology, pain and vaccines along with related sales and marketing teams; and the manufacturing plant located in Baddi, Himachal Pradesh, with all plant employees, it said.
Find out how big Wockhardt’s generics business is and how the sale fits in the firm’s strategic plan.
4. Sensex Rises As HUL Rallies
Indian equities ended higher for the second consecutive trading session, led by the gains in Hindustan Unilever Ltd. and Reliance Industries Ltd.
- The S&P BSE Sensex rose 0.85 percent or 349.76 points to end at 41,565.90.
- The NSE Nifty 50 rose 0.77 percent or 93.9 points to close at 12,201.20.
- Seven out of 11 sectoral gauges compiled by NSE ended higher.
- Follow the day’s trading action here.
HUL stock surged 5 percent after brokerage Motilal Oswal raised the target price on the stock, and forecast an “impressive” earnings growth for the company in the next two years.
- The consumer goods maker is likely to clock an 18-19 percent annualised earnings growth over the next two years, according to a research report by the brokerage.
- That, according to the report, was due to a favourable base in the next few quarters, demand recovery from the second quarter of next year and price increase in soaps and lower crude oil costs.
HUL’s performance on volumes is likely to improve gradually, Motilal Oswal said.
U.S. equities gained along with European and Asian stocks as optimism grew that the global economy can recover from the impact of the coronavirus amid signs the spread of the illness is slowing.
- All three major American gauges opened firmer, with the Dow Jones Industrial hitting a record, after China’s Hubei province reported the lowest number of new virus cases this month and suspected infections on the mainland declined.
- Oil climbed to around $51 a barrel in New York, holding the advance even after OPEC slashed forecasts for global demand.
Get your daily fix of global markets here.
5. ‘The Risk-Reward Tradeoff Is Not Favourable Yet’
The best-performing portfolio manager since mid caps started rebounding towards the end of last year still prefers to hold a significant portion of the fresh client money in cash.
- 2Point2 Capital Advisors LLP is sitting on 40 percent cash in newer portfolios as the risk-reward ratio isn’t favourable yet, Amit Mantri, founder of the portfolio management firm, told BloombergQuint over the phone.
- That’s more than three times the 12-13 percent cash in its aggregate portfolio.
- Quality mid-cap companies haven’t become cheap, said Mantri who is known for pointing to red flags in balance sheets.
- If the mid-cap valuations were extreme ahead of the liquidity crisis, they have turned expensive, he said.
Read more to see how India’s top 60 portfolio managers performed in January.
6. Are PSU Banks Lending More? Yes And No.
With the economy slowing, the government pushed lenders, particularly public sector banks, into lending more to support the economy. Nearly Rs 70,000 crore in additional capital was provided, loan melas were organised and the Reserve Bank of India was nudged into easing restrictions placed on certain weak lenders.
- Have all of these measures led to increased lending by India’s government-owned banks? Yes, suggests the aggregate lending data.
- A granular look at the numbers, however, shows a different picture.
- For the October-December 2019 quarter, the outstanding advances of 14 public sector banks, which have reported earnings so far, rose 7 percent year-on-year to Rs 55.2 lakh crore—broadly inline with the industry's pace.
- But from these 14 banks, only five reported credit growth at levels close to or above the pace at which banking system credit is growing.
So, what is still holding back public sector banks from pushing more credit into the economy?
7. Cabinet Approves Fund Infusion For State-Run General Insurers
India will infuse Rs 2,500 crore in three public sector general insurers to help them meet their buffer requirements.
- The cabinet approved the fund infusion in United India Insurance Company Ltd., Oriental Insurance Company Ltd., and National Insurance Company Ltd. in the light of the critical financial position and breach of regulatory solvency requirements.
- The government would provide financial assistance of Rs 2,500 crore to insurers in the ongoing financial year, and Rs 6,950 crore had been budgeted for the next fiscal.
The poor financial health of the three insurers has delayed their proposed merger.
- Cabinet approves changes in ‘Vivad Se Vishwas’ Bill for faster resolution in direct tax litigations.
- Cabinet gives the nod to Major Ports Authority Bill to replace existing law.
8. Can The Coronavirus Hurt Indian Economy?
The Indian economy is expected to get impacted, at least indirectly, from the massive outbreak of the novel coronavirus that has killed more than 1,000 people in China. Yet, the extent of impact could be tricky to assess.
- One way to assess the damage that economists have been using is to compare the impact of the current outbreak to that of the SARS epidemic that originated in China in 2002-03.
- India was the only Asian economy that didn’t witness decline in GDP growth due to the SARS impact in 2003.
- Nomura expects a similar trend to play out this time with growth expanding 20 basis points while all other Asian economies contract.
- That’s perhaps because India has the least economic exposure to China, according to Nomura.
But that does not mean it will be fully insulated. Here’s how supply chains may be disrupted due to India's import dependence on China.
9. Kejriwal’s Art And Science Lesson In Taking On BJP
I disagree with people who are castigating ‘superman’ Arvind Kejriwal for ‘contaminating’ his astounding victory with a dash of soft communalism, writes Raghav Bahl.
- Such a line of questioning ignores the harsh realities of power politics.
- It was a supreme display of canny politics.
- For that, he needs to be commended, not condemned.
- An effective politician must be allowed to create a delicate balance between the art-symbolism and science-arithmetic of politics.
Welcome to the world of realpolitik!
10. Kem Chho, Trump!
U.S. President Donald Trump, during his India visit, would participate in a roadshow in Ahmedabad, and also tour the Sabarmati Ashram and inaugurate a newly-built cricket stadium with Prime Minister Narendra Modi, sources said on Wednesday.
- Trump is likely to visit Ahmedabad on Feb. 24.
- During his visit to Modi's home state of Gujarat, he along with the prime minister would participate in a grand roadshow, planned along a 10-km decked-up stretch from the Ahmedabad airport to the Sabarmati Ashram.
- Trump and Modi would later inaugurate the newly-constructed Sardar Vallabhbhai Patel Stadium in the city's Motera area and address a gathering, likely to be attended by over one lakh people, the sources said.
The mega event at the stadium will be similar to the "Howdy, Modi!" event held in the U.S. last year.