RBI Annual Report
The RBI’s balance sheet grew 6.99% YOY to Rs. 57.07 trillion, while the rise in assets was due to an increase in foreign and domestic investment by 11.48 and 13.75%. The bank’s income declined 0.96% YOY as it transferred a surplus of Rs. 99122 crores to government, it fell to Rs. 1.33 trillion. Total expenditure decreased by 63.1%. The stock market bubble has been a worry for RBI, reiterated since August 22, 2020, where the RBI Governor had mentioned that there was a clear disconnect between the equity market and the real economy, where a surplus global liquidity is driving the asset prices worldwide. This asset price inflation in the context of an 8% contraction in GDP in 2020-21 poses the risk of a bubble. The drop in the market proved short-lived even though economic scars were long-lasting. The stock price index is mainly driven by money supply and FPI investments. Though the economic prospects also contributed to the movement, the impact has been relatively lesser. This assessment showed that liquidity injected to support economic recovery can lead to unintended consequences in the form of inflationary asset prices and providing a reason that liquidity support cannot be expected to be unrestrained and indefinite and may require calibrated unwinding once the pandemic waves are flattened and the real economy is firmly on a recovery path. The current report also has concerns about equity markets not reflecting real state of the economy. The impact of the second wave will be done in a month or two and if it is not contained will have long-lasting impacts on employment and output.
Also rea: RBI Monetary Policy – Fintoo Blog
Nifty Hits New High Today at 15455.55
View on Nifty remains bullish as long as 15100-15000 act as strong support for the index. Lot of positive trigger for markets like decreasing cases of Covid, GST meet, stimulus package and ample amount of liquidity to support the ongoing rally.
FMCG companies witnesses 50% Increase in e-commerce sales
The Covid-19 second wave and lockdowns in many states is making people click to buy than going out. While the growth in online sales in April and May was nearly as much as in last fiscal, the online sales in top cities has jumped 4-5% in last 2 months. Biscuit making companies reported online sales from e-commerce segment to around 15% in top 15 cities in April and May. Companies like Grofers have seen sales grew by 46% in April-May as compared to Feb-March period. Tata Consumers has setup separate vertical to cater to online category. Ecommerce as percentage of overall sales has doubled in FY21 compares to FY 20. With this structural change in consumption FMCG companies will see increase in sales with online market share taking away the lunch of offline retailers, going forward online consumption demand will keep increasing and sustain. Early movers will benefit exponentially in terms of gross sales.
Improvement in Q4 results for Kalyan Jewellers
Ramesh Kalyanaraman Executive Director attributed change to massive shift of consumers from unorganised sector to organised gold sector (better hygiene, more space). The shift has helped improve gross margin by 3% to 17% now. Net profit grew 54.1% YOY. Revenue declined 15.1% YOY. Has 30 showrooms in west Asia. Companies outlet increased to 116 in India, opening 9 in April of which 8 where in south India. Has plans to open 21 Showroom in India in current year. The stock should kept on watch list and see how the plans unfold in current year with timely execution of goals set, the company has fair amount of chance to increase market share and sales.
Biden Plans to Propose $6 Trillion Budget
The era of high spending looks likely to continue, President Biden is likely to propose $6 trillion spending for FY 2022 while total spending may rise to $8.2 trillion by 2031. Whereas Inflation fears are hovering over Biden’s spending plan, the White House has warned that anti-competitive practices have led to increase in construction cost, semi-conductor and shipping cost. Prices of lumber, steel, containers have spiralled upward causing inflation. Government is planning to tackle monopoly and supply shortage as price keeps on rising and hampering growth. The situation is still evolving, which need to be seen if the commodities prices would make a U-turn.
Crypto Exchange Survival at Stake in India
Crypto exchanges plan to approach the Supreme Court again to seek clarification that can RBI direct banks to stop dealing with them. Last month banks had stopped dealing with crypto exchanges on informal direction by RBI, while somehow they managed through payment processing companies. But recently, even the payment companies are shying away from dealing with the crypto-exchanges. High speculation and over leverage in crypto markets have led to wild swings in cryptocurrency, which is ultimately leading to client’s position being squared off, if additional premium is not provided. Situation is still evolving and some regulations do need to come to protect retail investors from highly speculative markets.
Government Stimulus Package for economy for the worst-hit sectors
The government is planning a stimulus package and direct relief for hospitality and MSME as they are the biggest employers and have been hit the worst amid second wave. ECLGS may be relaunched for MSME sector to avail loans without collateral. The discussion are at early stage and may be announced as state starts unwinding restrictions. The stimulus will give the economy necessary fire power to get back to growth after second wave, it will be a much needed boost for companies to kick start their business.
GST Council Meet Today
GST Council can consider zero rating or complete tax exemption on products crucially needed to fight against covid 19. Not only the products will be exempted but also inputs required to manufacture would also be exempted. This will lower the prices of life saving drugs and ventilators and oxygen cylinders, which will help overall population, decrease the death rate. The companies involved in the particular business will also benefit on increasing margin and sales.
Paytm Plans to file $3 Billion IPO
One97 communication may be planning to list Paytm this year around Diwali and targeting a valuation of $25-30 billion. Board meeting is scheduled today to approve then plan for IPO, the company has a high profile investor base like Softbank, Ant group, Berkshire Hathaway among others. Company is yet to make profit and last year’s cash burning was around 2500 crore. More details are awaited.
Trade war to start again?
The US Senate moved towards passage of a bill to confront china’s rise. This Bill would plow more than $100 billion into US R&D to foster semi-conductor manufacturing. Bill may include a wide array of measures directly targeting China on human rights and its influence in USA, which may not go well with china who has been importing millions of tons of agri products from USA under a trade agreement. Any retaliation is yet to be seen. If this thing affects the trade agreement and two world power again fighting on the economic front, then it could impact the world economy. This could be a key international trigger and needs to be followed closely.