BQuick On Oct. 19: Top 10 News Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. And Then There Were Two
Two weeks after the Supreme Court directed both Numetal Mauritius and ArcelorMittal to pay up past debts to be eligible to bid for insolvent Essar Steel Ltd., the race has now narrowed further. Of the two, only one has met the Supreme Court directive—ArcelorMittal. Numetal failed to do so within the two-week deadline laid down by the apex court, which expires today.
- Numetal, led by Russian financial group VTB, was required to pay Rs 49,000 crore—the amount owed by Essar Steel to its debtors.
- This was because the apex court, after examining the past and present ownership of Numetal, had concluded that “the looming presence of Shri Rewant Ruia has been found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan”.
- A person aware of the matter at Numetal confirmed that no dues had been repaid. The company said it wouldn’t issue a formal statement.
- Rewant Ruia is the son of Ravi Ruia, one of the two brothers who promoted the Essar Group.
2. MPC In Wait And Watch Mode
India’s monetary policy committee’s decision to keep interest rates unchanged at its October meeting was based on lower-than-expected readings of inflation and the need to let the economy adjust to past rate hikes.
- Discussion around factors like the role of interest rates in the currency markets or the impact of the recent turmoil across non-bank lenders was limited, showed minutes of the MPC meet released on Friday.
- Explaining his decision to go with the majority vote of a status quo on rates, Reserve Bank of India Governor Urjit Patel pointed out that inflation had moderated in the last few months.
- Inflation has now remained below the 4 percent mark for two consecutive months. Consumer price inflation stood at 3.77 percent in September. Patel also noted that rates have been raised twice by 25 basis points each.
- Patel, however, added that persistent inflation risks justify a change in stance, which would communicate the message that a rate cut is off the table.
3. SEBI’s New Affordability Index
India’s market regulator is preparing a so-called affordability index to gauge if an investment is backed by the investor’s financial resources to ensure stock prices are not manipulated by trading through mule accounts.
- The Securities and Exchange Board of India is drafting the index that will be based on income and net worth of investors, according to the agenda papers of its Sept. 18 board meeting uploaded on its website on Oct. 16. “This will establish the affordability of the transaction,” it said.
- That’s based on the suggestions of a panel led by TK Viswanathan on fair market trade, aimed at curbing benami or illegal proxy investments.
- The regulator first mooted the proposal on limiting equity exposure beyond an investor’s net worth in June this year.
4. Indian Stocks Slump Again; U.S. Markets Advance
Indian equity benchmarks extended their decline dragged by bluechip stocks like Reliance Industries Ltd., Housing Development Finance Corporation Ltd., Infosys Ltd. and Yes Bank Ltd.
- The S&P BSE Sensex Index fell 1.33 percent or 464 points to 34,316.
- The NSE Nifty 50 Index dropped 1.43 percent or 149 points to 10,304.
- Seventeen of 19 sector gauges compiled by BSE ended lower dragged by the S&P BSE Energy and S&P BSE IT indices’ over 2.5 percent drop.
- On the flipside, the S&P BSE FMCG Index was top gainer, up 0.4 percent.
U.S. stocks rebounded from Thursday’s sell-off as the latest batch of earnings provided evidence of corporate strength.
- The S&P 500 headed for its first weekly gain in a month.
- The dollar dropped for the first time in the three days and the 10-year treasury yield rose to 3.20 percent amid reports President Xi Jinping and President Donald Trump tentatively agreed to meet on the sidelines of the G-20 summit in November, helping to cool trade war tensions.
- West Texas Intermediate crude gained 0.8 percent to $69.18 a barrel.
5. Why UltraTech Missed Estimates And Mindtree Plunged
UltraTech Cement Ltd.’s profit in the quarter ended September missed forecast weighed down by rising energy costs and a depreciating rupee.
- Net profit fell 9.3 percent year-on-year to Rs 391 crore, according to its exchange filing.
- Revenue of the Aditya Birla group flagship company rose 21 percent to Rs 7,771.3 crore.
- Energy costs, which account for a third of the company’s overall expenses, rose 19 percent to Rs 1,099 per tonne.
- Capacity utilisation fell to 65 percent from 73 percent in the June quarter.
Mindtree Ltd. fell the most in seven years today despite the company meeting estimates for the quarter ended September and posting double-digit profit growth.
- Brokerages have raised red flags about the Bengaluru-based IT services provider’s macro outlook.
- The firm’s U.K. clients were engaging in short-term extensions to existing contracts rather than longer-term programmes due to uncertainties such as Brexit, Motilal Oswal said in a research report.
- Credit Suisse said the company’s commentary was cautious on the macro situation and financial services.
6. Another Liquidity Lifeline For NBFCs
The Reserve Bank of India has announced more steps to try and restart the flow of credit to non-banking financial companies. The measures come against the backdrop of continued concerns that NBFCs are facing a credit crunch, with market borrowings drying up and banks reluctant to lend to the sector.
In a notification on Friday morning, the RBI said that:
- Government securities equal to the incremental credit disbursed by banks to NBFCs after Oct. 19 will be eligible to be used to meet liquidity coverage ratio requirements.
- Above provision applicable till Dec. 31, 2018.
- This is in addition to the 13 percent carve out from statutory liquidity ratio permitted for use against LCR requirements.
7. The NBFC Scare Isn’t Over Yet
Nervousness around India’s non-bank lenders has persisted for the past fortnight, despite attempts by authorities to calm the markets. The Reserve Bank of India has ensured that liquidity is comfortable at the system level, while State Bank of India has expressed an intention to increase loan portfolio purchases from the non-banking finance companies. Yet, analysts believe that the sector should brace for tough times.
- Rating agency Moody’s Investors Service believes that the liquidity tightness could lead to sharply higher financing costs or even difficulty in rolling over liabilities for NBFCs because they rely heavily on market borrowing to fund asset growth.
- A key reason behind the nervousness surrounding NBFCs is the increased reliance on market borrowings (commercial papers and bonds), said Moody’s.
- NBFCs should prepare to have lower dependency on the commercial paper and corporate bond markets for the rest of this year, said Hitendra Dave, head of global banking and markets at HSBC India.
8. Ambani Brothers: The $41 Billion Divide
Over the past year, the fortunes of the two brothers at the helm of India’s wealthiest dynasty have grown apart -- to more than $40 billion apart.
- Mukesh Ambani’s personal fortune has swelled to $43.1 billion, according to the Bloomberg Billionaires Index, $5.2 billion ahead of Ma and just ahead of Microsoft Corp.’s former chief, Steve Ballmer.
- Meanwhile Anil Ambani, two years his junior, has had a difficult year, with some of his businesses suffering legal and liquidity challenges that roiled stocks, cutting his personal fortune by almost half to $1.5 billion, according to the index.
- The tale of the two brothers’ diverging fortunes began 16 years ago, when their rags-to-riches father Dhirubhai Ambani, whose life inspired a Bollywood film, died of a stroke without leaving a will.
9. GST Audit: Are You Ready?
With less than three months to go for the deadline, it is highly recommended that businesses not only commence the activity of annual return filing but also simultaneously begin the GST audit process, writes Jigar Doshi of SKP Group.
The cheat sheet to prepare for the GST audit:
- Filing annual return a prerequisite
- Registration/branch-wise break-up of financial statements
- Multiple types of ITC bifurcation and reconciliation
- There's no facility for corrections and rectifications
- Reasons for non-reconciled items to be investigated
- Judicious selection of auditors
10. Saudi Prince Is No Longer An Investor Favourite
He was the man who sold the world on his vision of a Saudi economy no longer dependent on oil. Now Crown Prince Mohammed bin Salman could become the biggest risk to his own project.
- Everything changed when Jamal Khashoggi walked into the Saudi consulate in Istanbul on Oct. 2 and didn’t come out.
- Allegations rapidly spread that the Washington-based journalist was murdered by a hit team sent from Riyadh. And suspicion naturally fell on the oil-rich kingdom’s de-facto ruler, the 33-year-old heir to the throne.
- For a leader who’s staked his country’s future on a surge in foreign investment, that’s an ominous indicator.
- Foreign direct investment slumped more than 80 percent last year.