BQuick On Oct. 4: Top 10 Stories In Under 10 Minutes
Here is a roundup of the day’s top stories in brief.
1. Fifth Interest Rate Cut Of 2019
India’s Monetary Policy Committee on Friday cut interest rates for the fifth time this year to support growth at a time the central bank believes the near-term outlook for the economy is “fraught with risks”.
- The committee decided to pare the benchmark repo rate by 25 basis points to 5.15 percent.
- The MPC decided to maintain its stance at ‘accommodative’, “as long as it is necessary to revive growth, while ensuring inflation remains within the target”.
- The MPC noted that negative output gap has widened further and the near-term outlook is filled with risks.
- RBI also raised income limits to be eligible for loans to give more borrowers access to microfinance credit. The household income limit for rural borrowers has been raised to Rs 1.25 lakh per annum from Rs 1 lakh earlier.
- India also plans to allow foreign-exchange settled rupee derivatives trading in specially designated centers as it tries to deepen the local market. The non-deliverable forwards will be traded on the International Financial Services Centres, RBI said on Friday.
Governor Shaktikanta Das faced a barrage of questions on the stability of the Indian financial sector.
2. RBI Provides Its Strongest Forward Guidance
The lead up to today’s Monetary Policy Committee meeting was considered a Hobson’s choice by some market commentators.
- There was no alternative but to cut rates, though, in that choice, the Reserve Bank of India had some optionality to send a nuanced signal: cut a lot, and risk some members turning neutral, and confusing the markets about the future of the cycle.
- Cut too little, and the market may believe the easing cycle to be over, and reprice the entire rates curve.
- Amid this set of similar but slightly distinguished decision sets, the MPC has done well to send a coherent message, delivered a unanimous decision to cut rates, and maintain an accommodative stance.
- More so, RBI has used its strongest language so far, promising to keep an accommodative stance as long as it is necessary to revive GDP growth, while maintaining inflation within its policy target band.
There should be no ambiguity as to RBI’s policy objectives from here on, write Barclays’ Rahul Bajoria and Shreya Sodhani.
3. The Tax Cut Bonanza Is Already Half Lost
Indian equity benchmarks have given up half the gains since their corporate tax cut-fuelled September peak amid macro worries.
- The Nifty 50 index, which surged to a two-month high of 11,600 on Sept. 23 after the tax bonanza, is now below 11,200.
- The S&P BSE Sensex index, which hit 39,097, is now down nearly 1,400 points since its Sept. 24 high.
- For Nifty, bulk of the gains came from index heavyweights HDFC Bank Ltd. and Reliance Industries Ltd., which together accounted for over 200 points on the index.
- The remaining three stocks in the top five—ITC Ltd., Larsen & Toubro Ltd. and Kotak Mahindra Bank Ltd.—added another 100 points. Infosys Ltd. and State Bank of India were the top laggards as they shaved 61 points from the index.
Tax cuts have not created immediate demand. But there could be some positives from the festive season and strong monsoon.
U.S. Stocks Advance, Dollar Falls After Job Numbers
On Friday, U.S. stocks gained and two-year Treasuries fell after hiring data bolstered optimism that the world’s largest economy remains on solid footing.
- The S&P 500 pushed its rebound to a second day after hiring figures slightly missed estimates for September, while August’s reading was revised upward.
- Wage gains cooled and the unemployment rate fell, forcing traders of fed funds futures to trim the amount of easing they expect from the Federal Reserve this month.
- The two-year Treasury rate spiked past 1.40 percent, and the dollar declined for a fourth straight day.
- West Texas Intermediate crude increased 1.6 percent to $53.32 a barrel.
Get your daily fix of global markets here.
4. Samir Arora's Mix-And-Match Strategy
Stark polarisation or crowding of stocks at extreme ends in India isn’t sustainable, according to Singapore-based fund manager Samir Arora.
- “If you believe that the market in the end is going to be okay, then it has to broaden,” said Arora of Helios Capital Management Pte, referring to investors right now seeing value in a only a handful of large caps.
- The Indian equity market has seen polarisation within the NSE Nifty 50 since the index bounced back after the government announced a corporate tax cut to revive growth.
- At such times, Arora suggests a mix-and-match strategy to pick stocks.
- Helios Capital is invested in some of the stocks trading at higher valuations, he said, but it has also picked up some of the most distressed private sector banks because of their low multiples.
Find out what Arora thinks is the trick to get higher returns.
5. Bulls’ Parade At BPCL
Bharat Petroleum Corporation Ltd.’s best share surge in more than a decade on India’s reported privatisation plan has made it the world’s most expensive fuel refiner and retailer. But it has now run ahead of analysts’ expectations.
- The government is considering selling its entire stake in the nation’s second-largest fuel retailer to a global oil company, Bloomberg reported on Sept. 13.
- Shares of BPCL have since surged nearly 50 percent.
- And the spike was so steep that, according to Bloomberg data, the average of 12-month price target is 16 percent lower than the refiner’s prevailing Rs 531 apiece.
- BPCL’s 12-month forward enterprise value-to-Ebitda stands at 10.1 times, a 33 percent premium to its five-year average and 58 percent premium to the global average.
6. Yet Another Manpasand Auditor Resigns
Batliboi & Purohit resigned as statutory auditor to Manpasand Beverages Ltd., citing its inability to audit because of lack of cooperation from the maker of MangoSip juice.
- “The firm has considered recent developments of an ongoing litigation among the board of directors and subsequent resignation of the directors along with the company secretary. Also, our audit team members were not allowed to enter the Vadodara factory for conducting the statutory audit,” according to the auditor’s resignation letter uploaded by Manpasand Beverages on the bourses.
It’s the third Manpasand Beverages auditor to step down since May 2018.
- Batliboi & Purohit, which was appointed after Mehra Goel & Co. quit as auditor on Aug. 2, found several discrepancies in Manpasand Beverages’ financial statements related to sales, purchases, expenses, goods and services tax returns, debtors and creditor accounts, among others.
- In May 2018, Deloitte Haskins & Sells resigned stating that the company wasn’t sharing “significant information”.
The auditor resignations have sent Manpasand’s stock into a downward spiral.
7. PMC Bank's Former MD Arrested
Former managing director of Punjab Maharashtra Cooperative Bank, Joy Thomas, was arrested on Friday in connection with the alleged Rs 4,355 crore scam at the bank by the Economic Offences Wing of Mumbai Police.
- Thomas was summoned to the EOW office at the city police headquarters and arrested after questioning, a police official told PTI.
- Yesterday, the EOW had arrested Housing Development & Infrastructure Ltd. directors Rakesh and Sarang Wadhawan in the same case.
- The EOW had also attached Rs 3,500 crore worth of properties belonging to the Wadhawans and HDIL.
- The arrests came after the EOW on Monday filed a first information report against the officials of PMC Bank and HDIL, and formed a special investigation team to probe the matter.
8. India’s Services Activity Contracts
India’s services sector activity growth eased in August as new business inflows rose at a slower pace following which job creation and output expansion moderated, a monthly survey showed.
- The IHS Markit India Services PMI declined to 52.4 in August from 53.8 in July, pointing to a slower rate of increase in output.
- A print above 50 means expansion, while a score below that denotes contraction.
- “The weaker PMI readings for India’s service sector match the trend noted in the manufacturing industry, bringing unwelcome news of a cooling economy halfway through the second quarter of 2019-20," said Pollyanna de Lima, principal economist at IHS Markit.
- The IHS Markit India Composite PMI Output Index, that maps both the manufacturing and services industry, fell to 52.6 in August from 53.9 in July.
Despite the decline, service providers remained confident of a rise in business activity in the coming 12 months.
9. ‘Aarey Not A Forest,’ Says Bombay High Court
The Bombay High Court on Friday refused to declare Aarey Colony a forest area and declined to quash Brihanmumbai Municipal Corporation's decision for felling over 2,600 trees in the suburban green zone for Mumbai Metro’s car shed.
- A bench of Chief Justice Pradeep Nandrajog and Justice Bharati Dangre dismissed four petitions filed by non-governmental organisations and environment activists related to Aarey Colony in Goregaon, a major green lung of Mumbai.
- The division bench dismissed a plea by city-based NGO Vanshakti to declare Aarey Colony a forest area.
The Court also dismissed a petition seeking that Aarey be declared a floodplain.
10. Switch-Over To New Corporate Tax Rates: MAT Conditions Apply
The choice for a lower corporate tax rate is irreversible and this decision must not be based on the assessment of only one particular financial year and instead the decision must be from a long-term perspective, write Mukesh Butani and Tarun Jain of BMR Legal.
- While an ordinary business loss is permitted to be carried forward despite a switch-over to the new regime, losses accumulated on account of ineligible exemptions have to be foregone.
- There is an attendant feature, relating to the availability of MAT credits, which has led to considerable debate.
- CBDT’s Oct. 2 circular does not address text-driven literal interpretation rules for construing fiscal statues and is therefore susceptible to legal challenge.
What can companies do? Read more here.