BQuick On July 24: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. RBI Expects Bad Loans At 20-Year-High
A stress test conducted by the Reserve Bank of India suggests that the Covid-19 crisis could push Indian banks’ gross bad loans to their highest in nearly two decades.
- Pressures from the pandemic and the national lockdown are likely to significantly push up bad loans for the banking sector, according to the RBI’s Financial Stability Report for July 2020.
- In a “very severe stressed scenario”, the gross non-performing assets of the banking sector could rise to as high as 14.7% of total loans by March 2021, the RBI FSR stated.
- Under the baseline scenario, the gross NPA ratio could rise to 12.5%, the RBI’s stress test covering 53 scheduled commercial banks showed.
- As of March 2020, the ratio stood at 8.5% of total advances.
The banking industry would also see erosion of capital as banks would be required to provide more against defaulters.
Business interruptions linked to the coronavirus pandemic may intensify systemic risks for India’s non-banking financial companies as they face pressure on the assets and liabilities side.
- NBFCs have been facing considerable stress since September 2018. While most of them have pared their asset-liability management issues and shifted towards relying more on bank funding, the coronavirus outbreak can intensify systemic risks, or vulnerabilities due to market-related or economic events, the RBI's FSR said.
- Small and mid-sized NBFCs that have a AA or below rating may face accentuated liquidity risks as banks and debt markets are shunning away from lending to these firms.
The contagion risks of a failure of a NBFC or housing finance company has increased.
More Coverage Of RBI's Financial Stability Report
2. Cafe Coffee Day Probe Finds Rs 2,700 Crore Hole
Coffee Day Enterprises Ltd., the owner of India’s largest coffee chain, has found that its late founder routed Rs 2,700 crore out of the company through transactions first revealed in a note found after his suicide last year.
- V.G. Siddhartha caused subsidiaries of Coffee Day to pay advances to a firm controlled by his family so he could buyback shares held by private equity investors, repay loans and keep up with interest payments on other borrowings, the company said in a filing Friday, disclosing the results of a nearly-year long investigation.
- The company will seek to recover the money from Siddhartha’s closely held firm, Mysore Amalgamated Coffee Estates Ltd.
The probe throws more light on the circumstances surrounding Siddhartha’s death last June.
3. Nifty Ends Flat; U.S. Stocks Retreat
Indian equity markets staged a sharp recovery from the day's low, led by index heavyweight Reliance Industries Ltd. to end little changed, thereby posting its sixth straight weekly advance.
- The S&P BSE Index ended nearly unchanged at 38,128, 380 points higher than the day's low of 37,748.
- The NSE Nifty 50 index ended 0.2% lower at 11,194.
- For the week, the Nifty ended with gains of 2.7% while the Sensex ended with gains of 3%.
Follow the day’s trading action here.
Investors should look for resilience in a business as an investment criteria, according to PPFAS Mutual Fund’s Rajeev Thakkar, at a time the market is trying to make sense of the post-Covid world.
See Thakkar’s view on each sector here.
U.S. stocks fell for a second day on concern over escalating Chinese-American tensions and worries the recovery in the world’s largest economy has stalled.
- Spot gold topped $1,900 an ounce for the first time since 2011.
- The S&P 500 fell as much as 1% and was lower for the week.
- The Nasdaq 100 slumped to a three-week low after Intel Corp. plunged on a warning of a production delay.
- Shares in China bore the brunt of losses as Beijing ordered the U.S. to shut a consulate in a tit-for-tat retaliation.
Get your daily fix of global markets here.
4. Earnings: Asian Paints, ITC, JSW Steel
Asian Paints Ltd.'s profit slumped in the first full quarter affected by the coronavirus pandemic that froze economic activity.
- Net profit of India's biggest paintmaker declined 67% year-on-year to Rs 218.5 crore.
- Revenue, too, fell 43% to Rs 2,923 crore.
After a washout in April, the company saw improved business over the next two months.
ITC Ltd. saw its profit fall in the quarter ended June as the coronavirus pandemic clobbered sales even though some of its products were classified as essentials.
- Net profit dropped 26% year-on-year to Rs 2,343 crore.
- ITC's revenue fell 17.4% to Rs 9,501 crore.
- Cigarette revenue fell 29.1% to Rs 3,853 crore.
Get more details here.
JSW Steel Ltd. has reported a loss for the first time in more than six years after the lockdown to contain the coronavirus pandemic stalled operations during most of the first quarter before the nation started to ease curbs.
- The steelmaker reported a net loss of Rs 561 crore in the April-June.
- Revenue declined 41% over the year earlier to Rs 11,782 crore.
The June quarter was marked by formidable challenges for the steelmaker.
5. Sun Pharma’s $400-Million Settlement
Sun Pharmaceutical Industries Ltd.’s U.S. subsidiary has agreed to pay more than $400 million to settle charges that it conspired to fix prices of generic drugs, in a long-running investigation by the Department of Justice, antitrust division and civil division of U.S.
- The antitrust division, according to a statement on the website of Department of Justice, announced a deferred prosecution agreement resolving the charges against Taro Pharmaceutical Industries U.S.A., under which the company agreed to pay a criminal penalty of $205 million and admitted that its sales affected by the charged conspiracies were in excess of $500 million.
- Under the deferred prosecution agreement, the justice department will file information for conduct that took place between 2013 and 2015, the Indian parent of Taro said in an exchange filing.
The settlement comes more than five years after the prosecutors started investigating allegations.
6. Freak 6,500% Spike In A Gold ETF
National Stock Exchange on Friday canceled trades in two exchange-traded funds run by Axis Mutual Fund following a freak spike in their prices.
- The Axis Gold ETF soared more than 6,500%, and Axis Nifty ETF -- which tracks the NSE Nifty 50 Index -- jumped over 740% despite very modest moves in their underlying assets on the day.
- Axis Mutual Fund had decided to reduce the face value of the two funds to boost liquidity starting July 24.
- It noticed “anomalies” in their prices on the NSE after trading began at 9:15 a.m. local time and asked the exchanges to take “corrective action,” the money manager said in a late evening statement.
NSE in a statement said it canceled all trades in the funds that occurred prior to 9:50 a.m.
7. Urjit Patel On India’s Trilemma
Urjit Patel’s first book since stepping down rather abruptly as Reserve Bank of India governor isn’t a “tell-all”. It isn’t intended to be one.
- It says very little directly about the pulls and pressures that led to his premature resignation. It blanks out the demonetisation episode with which his tenure began. And the indiscretions across private banks that prompted him to refuse an extension to a few high-profile bankers.
- What it does come close to being, though, is a (near) tell-all on government-owned banks. In particular, on the relationship between the Indian government, the banks that it owns and the regulator. Patel calls it, in his conclusion, the ‘trilemma’.
- “It’s clear that it’s not possible to: (i) have dominance of government banks in the banking sector; (ii) retain independent regulation; and (iii) adhere to public debt-GDP targets. All three aren’t feasible on a durable basis,” Patel writes in his book titled ‘Overdraft’.
Read more to see Patel highlight the problem at the heart of the matter.
8. Covid-19 Impact: A Cash Ban Redux?
As the world struggles to figure out the economic impact of the Covid-19 pandemic, HSBC economists say India can look for clues in the fallout of another unprecedented event that shocked its economy—demonetisation.
- “We learnt three important lessons from the demonetisation period, which weren't obvious at first, but became clear in hindsight, with careful analysis,” wrote HSBC economists Pranjul Bhandari and Aayushi Chaudhary in their latest report.
- Low wages, a reversal of the “forced formalisation” of the economy and the gross domestic product data being unable to capture the ground realities were themes noted after the cash ban.
- “We believe these could play out during the pandemic period as well, although on a larger scale,” they wrote.
Understanding these themes could help avoid pitfalls in the aftermath of the pandemic.
Meanwhile, India Adds Nearly 50,000 Cases In A Day
India added nearly 50,000 fresh cases in 24 hours, taking the total tally over 12.8 lakh, according to the Health Ministry’s update as of 8 a.m.
- Of these, more than 8.1 lakh have recovered.
- The country reported 34,602 recoveries on Friday, the most number of patients discharged in a single day.
- The ICMR also said that India did over 3.52 lakh tests on July 23, a record for one day testing.
Track all updates around the Covid-19 virus outbreak in India here.
9. China Is Minting A Billionaire Every Week
Selling shares to the public has long been a lucrative channel for company owners in China to grow their fortunes, but 2020 should have been different after the coronavirus pandemic shut down large parts of the economy and slowed growth.
- Instead, buoyed by an army of retail investors looking for quick returns, the stock-market euphoria has been more apparent in the Asian nation than anyplace else in the world, with the benchmark index recovering from the virus-fueled crash and becoming one of the best performers.
- The 118 companies that went public in Shanghai and Shenzhen this year raised about $20 billion through June, more than double the amount in the first half of 2019, data compiled by Bloomberg show. Shanghai has become the world’s No. 1 listing venue, beating New York and Hong Kong.
The outsized returns and demand from retail investors have sparked concerns that the market is in a bubble.
10. Is There A Fundamental Right To Reservations?
The time has now perhaps come for the Supreme Court to ask itself some difficult questions, writes Abhinav Chandrachud.
- Article 16(1) of the Constitution gives to every Indian citizen the fundamental right to equality of opportunity in employment with the government.
- BR Ambedkar’s speech on this provision in the Constituent Assembly has had a profound impact on the manner in which it has been interpreted by the Supreme Court.
- Over the years, the Supreme Court used Ambedkar’s speech in the Constituent Assembly to create two rules concerning reservations.
Then, in 1963, something interesting happened.