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BQuick On Oct. 30: Top 10 News Stories In Under 10 Minutes

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

1. FSDC Meeting: NBFC Crisis Takes Centre Stage

The liquidity crunch faced by non-banking lenders overshadowed other discussions at the meeting of Fiscal Development and Stability Council today.

  • Government representatives told the Reserve Bank of India officials that the liquidity crunch shouldn’t have a spillover effect on other sectors, a government official told reporters.
  • The meeting was attended by Finance Minister Arun Jaitley, RBI Governor Urjit Patel, among other officials.
  • The council discussed current liquidity situation, including segmental liquidity position in NBFCs and the mutual fund space, according to a Finance Ministry statement.
The Council decided that the regulators and the government would keep a close watch on the developing situation and take all necessary measures.
Finance Ministry Statement

2. Government Vs RBI

Finance Minister Arun Jaitley today criticised the central bank for failing to check indiscriminate lending between 2008 and 2014.

  • “The central bank looked the other way, there was indiscriminate lending,” Jaitley said.
  • The United Progressive Alliance government was pushing banks to lend, which resulted in credit growth in a year shooting up to 31 percent from the normal average of 14 percent, he added.

Just How Much Power Do We Give Technocrats?

Central bank independence has thus far been thought of overwhelmingly in relation to monetary policy. For central banks to claim independence in other matters that often fall within their remit—regulation, for instance—is quite a stretch, writes IIM Ahmedabad Professor TT Ram Mohan.

  • When politicians fail, people can vent their anger by voting them out. They cannot similarly vote out technocrats.
  • The creation of a separate regulator for payments is a discussion about the scope of functions of the RBI.
  • A discussion on ‘scope’ cannot be said to be a discussion about ‘autonomy’ at all.

Technocrats, in general, must be subject to political oversight.

3. Government May Sell IL&FS Outright

India is examining options including an outright sale of Infrastructure Leasing & Financial Services Ltd., a person with knowledge of the matter told Bloomberg News, as the government tries to stem defaults at the lender with $12.6 billion of debt.

  • A plan to be presented to a bankruptcy court Wednesday by the state-appointed board of the lender includes selling the entire stake to a financially strong investor and ensure business continuity, the person said, asking not to be identified as the matter is private.
  • Other options include splitting businesses according to verticals and disposing them off to several buyers or injecting liquidity at group level to avoid an outright sale.

The beleaguered financier hasn’t stopped missing payments.

4. Indian Markets Fall; U.S. Opens Higher

Indian equity benchmarks fell after a rebound in the previous session dragged by energy and metal stocks.

  • The S&P BSE Sensex Index fell 0.52 percent or 176 points to 33,891.
  • The NSE Nifty 50 Index declined 0.51 percent or 52 points to 10,198.
  • Twelve of 19 sector gauges compiled by BSE ended higher.
  • The S&P BSE Energy Index was the top sectoral loser, down 2.7 percent.
  • On the other hand, the S&P BSE Information Technology Index was top gainer, up 1.7 percent.

Follow the day's trading action here.

U.S. stocks pared gains as financial markets remained volatile amid a spate of mixed earnings and fresh data showing cracks in the housing market.

  • The S&P 500 Index clung to an advance, while the Nasdaq 100 Index slumped anew as megacaps from Amazon.com to Microsoft continued to retreat from summer records.
  • U.S. stock investors remain on edge as the S&P 500 hurtles towards its worst monthly performance since the bull market began.
  • President Donald Trump on Tuesday blamed Democrats for what he called a market “pause,” as the party is favored to win control of the House in next week’s midterm election.
  • The Bloomberg Dollar Spot Index climbed 0.1 percent to the highest in more than 17 months.
  • The yield on 10-year Treasuries gained three basis points to 3.11 percent, the largest climb in almost two weeks.
  • West Texas Intermediate crude fell 0.9 percent to $66.42 a barrel, the lowest in 10 weeks on the largest fall in a week.

5. Coal India Offer For Sale

The government is looking to divest up to nine percent of its stake in Coal India Ltd., over the next two days.

  • The government will offer 3 percent stake via an offer-for-sale, which opens on Oct. 31, according to a stock exchange notification.
  • The divestment offer includes a greenshoe option, which if exercised, will allow the government to sell up to 9 percent in the coal miner.
  • The floor price has been fixed at Rs 266 apiece.
  • The government could raise Rs 14,861 crore if it sells the 9 percent stake.

The government has raised Rs 10,028.8 crore through share sales this year.

6. Earnings: Tech Mahindra, Cognizant

Tech Mahindra Ltd.’s quarterly profit growth met estimates backed by higher margins.

  • Net profit rose 18.5 percent quarter-on-quarter to Rs 1,064.3 crore in the quarter ended September. That compares with the Bloomberg consensus estimate of Rs 1,013 crore.
  • Revenue rose 4.3 percent to Rs 8,629.8 crore.
  • Revenue in dollar terms fell 0.5 percent to $1,218 million.
  • Ebit margin expanded to 15.3 percent from 13 percent earlier.

Read the highlights of the earnings here.

Cognizant’s profit in the July-September quarter rose despite foreign exchange losses due to currency fluctuations.

  • Net profit fell 4.6 percent sequentially to $477 million.
  • Revenue rose 1.7 percent $4.08 billion.
  • It expects revenue to remain in the range of $4.09-4.13 billion in the next quarter.
  • Company declared a dividend of $0.2 per share.

Profit missed estimates due to rupee depreciation.

7. Valuations Not A Problem Anymore

A couple of months back, investors had a tough time deciding whether to invest in Indian stocks trading at rich valuations. That problem no longer exists, according to India's largest asset manager.

  • “Today the problem is outlook, not valuations,” said S Naren, executive director, and chief investment officer at ICICI Prudential Asset Management Company Ltd., which oversees about $42 billion.
  • According to Naren, India requires a meaningful correction in U.S. stocks, which would trigger an emerging market rally.
A lot of money has found its way to the U.S. and … market participants there must believe the Fed is done with rate hikes.
S Naren, CIO, ICICI Prudential AMC

8. IPOs = Wealth Destruction

Initial public offerings haven’t enriched investors so far this financial year amid volatility in the market.

  • Of the 10 maiden offers launched this year, shares of only three companies are trading above their issue price and two are above their listing price. The outliers: HDFC Asset Management Co., RITES Ltd. and Fine Organics Industries Ltd.
  • To be sure, 26 of the 43 companies that listed in the previous financial year, too, are trading below their issue price and 34 are below their listing price.

9. Delhi’s ‘Severe’ Pollution Situation

India’s Environment Pollution Control Authority said private vehicles might have to be stopped from plying in New Delhi if air pollution continues to worsen.

Let us hope the air pollution situation in Delhi doesn’t deteriorate or else we will have to stop plying of private vehicles. Only public transport will be used.
Bhure Lal, Chairman, Environment Pollution Control Authority
  • Air quality in Delhi and the National Capital Region on Tuesday deteriorated further after an overnight spike in Particulate Matter.
  • The overall Air Quality Index at around 3 p.m. was 401, falling in the 'severe' category, the highest this season.

10. The Resurrection Of Import Substitution

‘Import substitution’. For free-trading nations, the term conjures up a failed, Marxist-slanted experiment of the mid-20th century.

  • The 1991 reforms in India symbolised the end to the rage, the final death of import substitution not only on the subcontinent, but also across Asia, Africa, and Latin America.
  • But after Asian economic crisis, the lesson was revised: that all cross-border trade in goods—and even more so, services—is managed to one degree or another.
  • While Trump’s moves have been in the name of national security and China's unfair policies, it is reasonable to infer their intended consequence is to incentivise import substitution.
  • China and India have responded to America’s ‘offensive’ import substitution with their own ‘defensive’ analog.

Import substitution is back, writes trade law expert Raj Bhala.