Inflation and its impact on an overall economy
Retail Inflation in April is 4.3% which is well within the range of RBI. Inflation is measured by the CPI and the wholesale price index (WPI). The CPI measures changes in prices of essential commodities at the consumer level, while the WPI notes changes at the producer level.
The commodities considered for measuring the WPI are manufactured products (63.75% weightage), primary articles such as food (20.02%), and fuel and power (14.23%).
For the CPI, the commodities are food and products (45.86%), housing (10.07%), clothing (6.53%), and fuel among others. Inflation is indicative of the decreasing purchasing power of the country’s currency and vice versa.
Inflation is indicative of decreasing purchase power of the country’s currency and vise versa.
It is basically the cost of production which is passed on to the consumers.
In the Monetary Policy Committee meeting of February 2021, Government specified that for the next 5 years they will not be focusing on maintaining the inflation rate. There is a possibility in the near future for the inflation rate to go higher.
In increasing inflationary conditions, the RBI adopts a contractionary monetary policy. In case of a slow-down, it adopts an expansionary monetary policy, which leads to the increased money supply, lower interest rates, lower borrowing costs, and increasing aggregate demand thereby giving a boost to the economy.
RBI has increased Gsec buying in the past 2 weeks
The central bank of India net purchased Rs. 34,175 crore of sovereign papers between April 22 and May 4 from the secondary market to ensure lower borrowing cost in the second wave that would derail the economic recovery.
The usual efforts through Open market Operation and Government Security Acquisition Program is a corrective measure that the government has been taking to control the rise in bond yields and lower the borrowing cost. The Government principal money manager is said to have bought T bills and long-term papers in 7 tranches in the past two weeks.
Due to the following action, the bond yields have reduced to 0.03 basis points to 6.02%.
Tata Motors Posts $1 billion loss as Jaguar Costs hot bottom line
Tata Motors announced a ₹ 7,600 crore ($1 billion) loss on Tuesday despite a strong performance in the first quarter of 2021 as restructuring costs related to its British luxury car brand Jaguar Land Rover (JLR) hit the automaker’s bottom line.
The company reported losses for three consecutive quarters last year, as the pandemic hammered demand in domestic and international markets.
The standalone business including joint operations reported profit at Rs 1,645.69 crore in Q4FY21 against a loss of Rs 4,871.05 crore in the year-ago quarter and clocked a massive 106 percent year-on-year growth in revenue at Rs 20,045.9 crore during the quarter, driven by strong passenger vehicle demand and recovery in commercial vehicle demand.
The commercial vehicle business consistently posted sequential quarter-on-quarter growth on the back of improved consumer sentiments, buoyancy in e-business, firming freight rates, and higher infrastructure demand including road construction and mining.
WFH promotes tier 2 cities as talent hub and Unemployment in Rural India
Due to work from home policy tier, 2 cities like Kochi, Guwahati, Jaipur, Indore, and Mysore are said to have emerged as talent hubs.
According to Talent500, there has been a 30-40% increase in demand for workforce in tier-2 cities within tech teams across sectors.
Covid has made us all work remotely. In a post-pandemic world, remote won’t just be the new normal, but instead, be a strategic advantage for companies as they build out their teams.
On the other hand, we see rural unemployment has nearly doubled in a week as lockdowns and surging covid infections in villages brought economic activity to a halt. Rural unemployment shot up to 14.34%. The MSMEs (micro, small and medium enterprises) are in bad shape, and the informal jobs market, as well as self-employment in rural India. The situation may get worsened over the next few weeks if we don’t manage to tackle the pandemic in rural India.
Competition Commission of India (CCI) agreed to the proposal of acquisition of an additional 25% stake of Adani Krishnapatnam Port Ltd By Adani Port SEZ
Adani Port SEZ holds 75% shareholding; the proposed combination will lead to acquiring 100% shareholding and complete control.
In April, Adani Ports and Special Economic Zone had said it had acquired a 25 percent stake of Vishwa Samudra Holdings in Krishnapatnam Port for Rs 2,800 crore. Krishnapatnam Port, located on the east coast of India in the Nellore district of Andhra Pradesh, is an all-weather, deep water port with a multi-cargo facility with a current capacity of 64 million tonnes per annum.
12 Drugmakers and Healthcare companies are planning IPO in 2021
Covid-19 has increased investor demand for promising companies in sectors like Pharmaceuticals, healthcare, and related businesses that are beneficiaries of the pandemic.
In the past five years, only seven companies involved in the sector have hit the IPO
Companies like Glenmark Lifesciences, Supriya Lifesciences, Krsnaa Diagnostics, Krishna Institute of Medical Sciences KIMS, Tatva Chintan Pharma, Sigachi Industries Windlass Biotech have already filed their draft paper switch SEBI.
The four companies i.e Emcure Pharma, Wellness Forever, Vijaya Diagnostic, and Star Health Insurance have initiated the process for filing IPO.
It looks like there will be a massive change in the Indian Healthcare system because of covid -19 and demand for drugs, vaccines, diagnostic medical equipment, hospital, and other related services will increase over the period.
Fincare Small Finance Bank is going to file for IPO this week. It is one of the 10 microfinance institutions to receive the RBI nod to convert into a small finance bank. RBI mandates SFBs to list within 3 years of reaching a net worth of Rs.500 crores. Accordingly, Fincare has till Sept 2021 to get itself listed. Ranging between Rs.1200-Rs.1400 crore, the issue will comprise of fresh issue and OFS by existing shareholders. Fincare will file the DRHP with SEBI this week.
- Since late last year, crypto-currencies started gaining steam with Bitcoin going from hovering around the US $10,000 mark to trading at above US $55,000 level presently. With the crypto-currency market opening up S&P Dow Jones Indices have launched the new crypto-currency indices namely, S&P Bitcoin Index, S&P Ethereum Index and the S&P Crypto Mega Cap Index. S&P Global announced the plans first in December 2020 to cover more than 550 crypto-coins in the indexes to allow for the creation of benchmarking tools on crypto-currencies. The indexes will use the data from the virtual currency company Lukka which is based out of New York.
- Angel broking announced its plans to enter the asset management business. The company is planning to open an AMC focusing on SIPs and low-cost passive funds. This will allow the AMC to minimize the distribution and management costs. On the back of this news, the Angel Broking stock soared to end at 20% higher on 6th May. In this pandemic, all the brokerage firms have focused on digitization to help increase their customer base. Angel Broking has added 3,93,500 new customers in March 2012 whereas, Zerodha has added 3,06,000 new customers in the same period.
- US government has approved the temporary waiver of patent protection rules on the Covid Vaccines. India and South Africa had approached WTO in October last year to get a waiver on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) on Covid-19 vaccines. Approval on the waiver will mean that there can be a free flow of technology and medicines developed worldwide. This will significantly reduce the Vaccine cost. However, it will take time to reach a global consensus as many countries believe that this waiver will stifle innovation as it takes away the incentive of spending on R&D by the global pharmaceutical companies.
- Petrol and Diesel prices in India have been on the rise in the past week. With the 3rd rise in the prices in as many days, petrol prices are now at ₹99.99 per litre while diesel is being sold at ₹81.42 per litre in the national capital. The major reason for this price hike is the crude prices which had jumped over $69 per barrel on Wednesday.
- RBI has granted perpetual validity to Bajaj Finance for its entry into the digital wallet space. It will be included in Bajaj Pay which is a consolidated payments platform from Bajaj Finance. The company has announced a consolidated profit of Rs.1347 cr. in FY 21 against the Rs.948cr. profit clocked in FY 20.
- Russia has authorized the production of the single-shot Sputnik Light vaccine in India which has an 80% efficacy rate
- Worldwide semiconductor shortage in the markets have let the Auto companies produce vehicles leaving out the parts requiring the use of semiconductors; China set to build a self-sustaining supply chain of semiconductor products
- Zomato plans to invest $100 million in Grofers to expand into the grocery delivery market
Also read: RBI Monetary Policy – Fintoo Blog
- Some of the key points mentioned in the RBI Announcement on Wednesday are:
- RBI Governor announced Rs.50000 crore on-tap liquidity facility for the tenure of 3 years open till 31st March 2021, for the healthcare infrastructure and additional loan restructuring. This has led to Pharmaceutical companies doing well in the last week with Lupin rising almost 10-11% and Aarti drugs rising almost 13-14%
- Banks will be allowed to park surplus liquidity up to the size of the Covid loan book with RBI gaining 40 bps higher than the reverse repo rate
- 2nd Purchase of Rs35000 crore under G-SAP 1.0 will be conducted on 20th May 2021
- RBI Governor also announced targeted long term repo operations for small finance banks of up to Rs 10000 crores to be used for lending of up to Rs 10lakh per borrower, SME MSME borrowers have been given a chance to extend their payment schedules
- RBI has allowed a one-time restructuring of the loans to individuals and small businesses up to loan size of Rs 25 crore.
Global economy to grow by 6% in 2021, up from its 5.5% forecast in January. Looking further ahead, global GDP for 2022 will be seen increasing by 4.4%, higher than an earlier estimate of 4.2%.
Some Key Points:
- Those who have managed to have a job during the pandemic will have excess saving hence investments will grow.
- Many countries like USA, UK will show market recovery
- Work from home will be adapted post-pandemic too hence software and technology sector will increase
- The number of startups (without the physical office) will increase leading to global employment
- Emotional spending can increase in sectors like clothing, hotel industry, and luxury products
- Despite fossil fuels being the dominant source of electricity generation, we continue to expect that solar PV (Solar Photovoltaics) capacity will grow at rapid rates on the back of growing capacity in the EU, India, and China. If current trends continue, solar PV capacity is on course to surpass natural gas in 2023 and coal in 2024 in the global electricity sector.
- Disruption in the global supply chain also likely to recover with normalcy
- If large numbers of people continue to work remotely, that will reduce long-term demand for office space as well as demand for energy. That, in turn, will mean less investment in office buildings and oil wells. If people continue to shop remotely, then there will be less construction of shopping centers.
- Vaccinations continue to reduce the threat of the virus, thereby enabling more consumers to engage in the kinds of social interaction that boost spending.
China’s growth set to drive global economy in post-pandemic years:
The U.S. and India will be the second and third-biggest contributors to global growth in the period, according to the IMF, with Japan and Germany rounding out the top five.
Global GDP is expected to rise by more than $28 trillion to $122 trillion over that period, after falling $2.8 trillion last year because of the Great Depression.
One reason for the divergence is the faster-than-expected recovery in the U.S. It’s the only large economy where the IMF’s GDP forecast for 2022 is actually higher now than it was before the pandemic.
Joe Biden announced a USD 1.9 Trillion COVID-19 stimulus plan to revive the US economy.
- The relief package was announced with a view to fight against the COVID-19 pandemic.
- This package provided support to small businesses and also provided direct support to american people.
- Due to this, there has been a significant reduction in small businesses failure in the US.
- It includes USD 1,400 in additional stimulus cheques to Americans, an extension for key unemployment programmes.
Disruption in Supply Chain globally:
- There are a number of factors contributing to disruption, including increasing global demand for consumer goods, a shortage of container ships, and air freight capacity.
- Due to the disruption in the supply chain, the recovery of the manufacturing sector is hurting, although Germany is doing exceptionally well.
- The global chip shortage is worsening due to the rising global demand for consumer electronic goods, home appliances, and automobiles. Also, Chinese companies are concerned about the potential impact of future sanctions from the United States.
- The overall supply chain problem is likely to have a negative impact on the global supply of mobile telephones, automobiles, and home appliances, which can lead to an increase in prices. Already, some prices have started rising. Taiwan’s largest supplier of semiconductors says that the global shortage is not likely to be resolved until 2022. Meanwhile, several Taiwanese producers are massively investing to boost capacity.
Push for Green Infrastructure:
- Green Bonds – These bonds are used to finance environmental projects. Currently, their share is less than 5% of the global fixed income market.
- The estimates about green bond issuance are that they are going to increase by over 40% to top half a trillion US Dollars for the first time.
- Environmental, Social, and Governance (ESG) funds will have inflows and they will continue to increase and account for up to 57% of total European mutual funds by 2025.
- The analysis about electricity production from renewables continues to gather momentum, with solar photovoltaic (PV) capacity likely to grow at rapid rates on the back of growing capacity in the EU, India, and China. If current trends continue, solar PV capacity is going to surpass natural gas in 2023 and coal in 2024 in the global electricity sector.
The global economic output seems uncertain. The global economy as a whole should revert to its pre-pandemic level of output by the end of 2021 and expand by around 5% in market exchange rates.
Invest in International Equity : Start Investing
Positive Start of Financial Market for FY-22
- The FY 2021-22 came up with a ray of hope and positivity as the Financial Markets regained Momentum and the Indian Economy witnessed Traction in the Manufacturing & Other Economic Activity, despite the rising cases of COVID amidst the splurge of Second-wave in the Country.
- The IMF (International Monetary Fund) projected the GDP Growth of India to be 12.5% for the coming Fiscal Year, which is the highest amongst the Emerging Economies.
- The DII’s were the Drivers in the First month of FY- 2021-22 as they Invested Approx. 9,900 Cr. In the Indian Markets, whereas amidst the Rising tensions amidst the second wave of COVID and negative sentiments, the FPIs pulled out their money from the markets after a brief period of nearly 6 months.
- Fearing the second wave, the Promoters of many companies look to file an Asset Protection Trust that would provide a cushion against investigations, in case of defaults & bankruptcy.
- View- This move will enable the Lenders to cushion their Contingency Reserves & allow them to tackle adverse situations arising out of Defaults, once they come out of the ‘Moratorium Mode’.
Outlook on Sectors to be affected
- The Hospitality Industry which includes Restaurants, Aviation, Travel & Transport will yet again be affected due to the Local Restrictions from the State Governments in order to curb the Second wave of Covid.
- Aviation Industry is likely to be affected worse even than the first wave, as the DGCA has Extended the Ban on International Travel till 31st May’21. The Airlines have declared that the Bookings have declined by nearly 50% which will also result in further decline in the Passenger flying & Air traffic.
- As India produces over 70% of the Global Vaccines for COVID, the recent spike of second wave & shortages in Vaccination would lead to a lowering of Exports of Pharmaceutical Products which will hamper the economic activities in the Short term at least.
Growth Drivers for the Indian Economy in coming Quarters
- Despite the Rising infections, the Rapid pace of Vaccination has helped lower the Death rate amongst the affected once, and as we proceed further with Providing vaccination to the Youth of the country, the Economic activities are likely to normalize steadily.
- The Manufacturing industry revived at a Good pace led by the key sectors like Cement, Metal & Mining & Automobiles who were coping with the Pent-up demand. It is expected that as the supply chains have lesser restrictions in certain regions, this will help in the growth of economic activity further.
- As per the Analysts, Private Investments in the Markets will increase in the coming 2 Years as the Manufacturing activities will be incentivized by the government which will add as a boost for the sector and further lead to Higher Valuations for the companies.
- The Government is also likely to carry the Divestment process for reducing the Fiscal Deficit in the coming years, as it will also be a Major Contributor in providing aids to the affected industries.
- India will remain to be the Hot Market for Investors globally as they look at China + 1 Alternative for various activities, the Broader Outlook for the next 3 Years looks Attractive & Positive.
20% salary of mutual fund managers to come by way of scheme units: SEBI
- A minimum of 20% of a fund manager’s salary shall be paid in the form of units of mutual fund schemes that they manage. Aside from fund managers, all other “key employees” of the fund house will also be covered, such as the chief executive officer, chief investment officer, and other employees that the fund house identifies as key employees.
- In the case of a fund manager managing only one scheme, he has the option to receive half of the compensation in the units of the scheme he manages. The other half would come by way of other schemes whose risk profile (as defined by SEBI’s risk-meter guidelines) are the same or higher.
- Index funds, exchange-traded funds, overnight funds and existing close-ended schemes will be excluded from unit allocation.
- View- Though this is expected to increase the transparency and may boost the confidence of the investors as the key employees will have ‘skin in the game’ – aligned interest, the norm is expected to hit the fund house employees hard.
Mutual Fund – Low-interest rates. Where should you invest?
IRDA sets a time limit to approve cashless claims in COVID-19 cases
- All insurance companies have to convey a decision on approving all cashless claims against COVID19 hospitalisation within an hour.
- View- This move has been implemented to keep a check on delays in discharging patients. It will help to make hospital beds available to new patients at a time when the second wave of coronavirus has crippled the healthcare system across the country.
- Bad bank to get Rs 2 lakh crore of defaulting companies’ loans
- The Indian Banks’ Association has asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a bad bank (NARC). Approval from 75% of the lenders by value is required to transfer the loans to an ARC.
- The association has identified 102 corporate bad loans of Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore.
- Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.
Zomato files for Rs 8250 crore IPO
- Food aggregator business Zomato filed its much-awaited draft red herring prospectus (DRHP) with SEBI for INR 8,250 Cr IPO this year. The offer consists of fresh issue amounting to INR 7,500 Cr and a secondary component of INR 750 Cr, which will come from the company’s largest stakeholder Info Edge.
- Zomato has reported a revenue of INR 1,367 Cr in the first three quarters of the financial year 2021. The company’s expenses were at INR 1,724 Cr in the same period, leading to a loss of INR 684 Cr. The company’s overall revenue for FY21 is bound to increase as the company witnessed more stability in the last quarter due to a decrease in covid cases.
- View- Zomato is obviously one of the two main food delivery service companies in India. It is a duopoly structure as of now and that goes in its favour. Clearly, they are meeting a need that exists currently and there is a lot of excitement in this sector. This kind of business has a potential high operating lever. So, as the business scales up, costs do not go up in line and as a result, one cannot look at the profitability in the coming years.
Related Article: Upcoming IPO in India 2021
Tata gets nod by CCI for the proposed acquisition of BigBasket
- The CCI approves acquisition by Tata Digital Ltd of up to 64.3% of the total share capital of Supermarket Grocery Supplies Private Ltd and SGS’ sole control over Innovative Retail Concepts Pvt Ltd. The proposed combination will result in the acquisition by Tata Digital of the majority stake of and control over SGS.
- While SGS is engaged in online business-to-business sales through business.bigbasket.com, IRC is engaged in online business-to-consumer sales and operates the BigBasket website.
- Tata Group is into diversified businesses; including steel, software, retail, tea and FMCG. It plans to launch a super app to bring all the Tata consumer-facing brands and products on one platform. The acquisition of Bigbasket is a part of these plans.
- View- The Tata Super app might take on Reliance Industries’ JioMart and the e-commerce giants like Amazon and Walmart-owned Flipkart with robust business strategy.
Cryptocurrency V/S Traditional Assets (Stocks, Mutual Funds and other Debt products)
What is Cryptocurrency? How does it work? And why are they so popular?
- A cryptocurrency is a form of payment that can be exchanged online for goods and services.
- Cryptocurrencies work using a technology called a blockchain. Blockchain is a decentralized technology spread across many computers that manage and record transactions.
- As an asset class, its underlying asset is not a business, currency, building, or commodity. Instead, it is a multi-dimensional digital value container powered by a public blockchain.
- People in support of cryptocurrencies as the currency of the future and are racing to buy them now, presumably before they become more valuable
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, as historically these banks tend to reduce the value of money via inflation.
- Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.
- Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
Should you look at Cryptocurrencies as an investment?
Price volatility and lack of inherent value
For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels of $48,000.
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend bitcoin when it could be worth three times the value next year?
Not an asset backed investment
Since cryptocurrencies are not backed by any asset, the underlying value of the asset is 0. So if an individual is looking at cryptocurrencies from an investment perspective and wants to link any goal with it, it becomes very risky as he doesn’t know what the future value of the investment will be.
No Regulatory Body
Cryptocurrency is not centrally regulated by any government, so every government is taking different approaches to regulate cryptocurrencies. There are several areas of regulation like reporting for tax purposes and regulating initial coin offerings the way that securities are regulated.
As a digital technology, cryptocurrencies will be subject to cybersecurity breaches and may fall into the hands of hackers. Mitigating this will require continuous upkeep of security infrastructure.
Influence by bigger players
The crypto market is dominated mainly by ten big whales or privates. They are massive in the market and take up a lot of space and volume. It is too easy to manipulate the market so far. They make it very difficult to put any price target on the cryptocurrency.
Cryptocurrency v/s Traditional Investments
|Presence of Underlying Asset||No||Yes|
|Availability of Data||Limited||High|
|Regulatory Body||Not present||Different for every asset class and present in every country|
|Fundamental research possible||No||Yes|
|Technical research possible||Yes||Yes|
|Global acceptance||Banned in a few countries||Yes|
Cryptocurrencies appear to be a lucrative form of investments today because of the historical return it has delivered compared to other asset classes. But in the case of cryptocurrencies, its pros like it is seen as a futuristic currency, it has low transaction costs for global transaction, elimination of banking charges are outweighed by its flaws like that it has like it has no underlying asset, no regulator, prices easily influenced by a few players, limited data, etc. So at this point in time, it won’t be wise enough to diversify your portfolio by purchasing cryptocurrency.
Cement Sector and opportunities in India
- India is the 2nd largest cement producer in the world after China.
- The production of cement was 502 Million tonnes in 2018 and expected to grow 550 tonnes by 2020. The demand of the cement industry is expected to reach 550-600 MT per annum (MTPA) by 2025 because of the expanding demand of different sectors, i.e., housing, commercial construction, and industrial construction.
- A total of 210 large cement plants account for a combined installed capacity of 410 MT in India, whereas, 350 mini cement plants make up for the rest. Of the total 210 large cement plants in India, 77 are in the states of Andhra Pradesh, Rajasthan, and Tamil Nadu. The sale of cement in India stood at Rs 63,771 crore (US$ 9.05 billion) in FY20.
- According to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.28 billion between April 2000 and March 2020.
Also watch our video on: https://www.fintoo.in/blog/types-of-health-insurance-covers/
Opportunities Available for the Cement sector
The eastern states of India are likely to be the newer and untapped markets for cement companies and could contribute to their bottom line in the future. In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance, the plants in Gujarat and Visakhapatnam, will have an added advantage for export and will logistically be well armed to face stiff competition from cement plants in the interior of the country. India’s cement production capacity is expected to reach 550 MT by 2025.
Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, the cement sector is expected to reach 550-600 million tonnes per annum (MTPA) by the year 2025.
The Union Budget has allocated Rs.139 billion (US$ 1.93 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission. The government’s infrastructure push combined with housing for all, Smart Cities Mission, and Swachh Bharat Abhiyan is going to boost cement demand in India.
The Government of India extended an additional outlay of Rs. 18,000 crore (US$ 2.43 billion) for the PM Awaas Yojana – Urban over the already allocated Rs. 8,000 crore (US$ 1.08 billion); this is expected to be used for the development of ~30 lakh houses (ground support for 12 lakh houses and completion of 18 lakh houses) and will likely create an additional 78 lakh jobs and boost production and sale in the steel and cement sectors.
Challenges faced by cement Industries
The future of cement industries in India is looking positive but cement industries are facing a situation on Over capacity. Some challenges are indicated below:-
- Lack of price determination due to interventions by the Competition Commission of India & the populist State Governments
- Shortage of domestic coal & increasing cost of imported coal is also adding to the overall increase in production cost
- The logistics cost for cement is high since a lot of the cement is still transported through road transport.
- The current Railways capacity is not adequate enough for transportation
Steel Industry & Its Impact on Indian Economy
Overview of the sector:
- India was the world’s second-largest steel producer in 2019. India surpassed Japan to become the world’s second-largest steel producer in 2019 with crude steel production of 111.2 million tonnes (MT).
- The country is ending FY21 with a total steel consumption of around 95-97 million tonnes of steel which is nearly 5 percent lower than the previous year.
- Apart from construction and infra sectors (68 percent share), engineering goods and fabrication comprises around 20 percent share of steel use, while automobile and packaging have shares of 9 and 3 percent respectively of total steel demand.
- In FY20, crude steel production and finished steel production in India were 108.5 MT and 101.03 MT, respectively.
- Between April–September 2020, India’s cumulative production of crude steel was 52.37 MT, and finished steel was 47 MT. In the month of October 2020, India produced 9.06 MT of crude steel.
- Export and import of finished steel stood at 8.42 MT and 6.69 MT, respectively, in FY20.
- India’s per capita consumption of steel grew at a CAGR of 4.43% from 46 kgs in FY08 to 74.10 kg in FY19.
Government Initiative towards the sector:
- The government has taken various steps to boost the sector including the introduction of National Steel Policy 2017 and allowing 100% Foreign Direct Investment (FDI) in the steel sector under the automatic route.
- The Government’s National Steel Policy 2017 aims to increase the per capita steel consumption to 160 kg by 2030-31.
- The Government has also promoted a policy that provides a minimum value addition of 15% in notified steel products covered under preferential procurement.
- In 2019, the Government introduced Steel Scrap Recycling Policy with an aim to reduce imports.
Steel Industry under the pandemic scenario:
- Steelmakers have supplied about 1.43 metric tonne (MT) liquid medical oxygen to various parts of the country for the treatment of coronavirus patients.
- From September 2020 to April 22, 2021, the total LMO supplied by the steel industry — including public and private sectors — was 1,43,876.283 MT, of which the contribution of steel CPSEs stood at 39, 805.73 MT, as per data provided by the Steel Ministry.
- Private steel companies supplying oxygen are Tata Steel, ArcelorMittal Nippon Steel India (AMNS India), JSW Steel, Jindal Steel and Power Ltd (JSPL), and Vedanta ESL, while state-owned firms are Steel Authority of India NSE 8.00 % Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL).
- Steel prices rose to historical highs in the week ended 16 April 2021, in response to the global rise in steel prices. Prices have gone up by ~59% y-o-y in the month (until April 16).
- An increase in prices of steel to record levels will impact automobile manufacturers in the coming months as most of them will have to increase the prices of their products, twice in the last four months, to protect their operating margins.
Growth Prospect & Future Outlook:
- India is ending FY21 with a total steel consumption of around 95-97 million tonnes of steel which is nearly 5 percent lower than the previous year.
- In FY22 the budget has announced a capital investment target of Rs 5.4 lakh crores that is more than a 34 percent increase compared to BE FY21.
- After a slight dip in February, 2021 domestic steel prices recovered in March 2021 and are expected to remain elevated over the coming months on the back of higher international steel and iron ore prices.
S&P 500 Index down 1% on 22nd April. The Dow Jones Industrial Average and NASDAQ Composite both moved backwards –
- Joe Biden is seeking to raise taxes on millionaire investors to fund education and another spending on welfare to recover the U.S. economy.
- Biden is proposing to increase the capital gains tax to 39.6% for those Americans earning more than $1 million. The current capital gains tax rate and the top individual tax rate is 37%
Indian Cellular and Electronics Association (ICEA) seeks to include mobile phones, laptops and other information and communications technology (ICT) products in essential services list –
- Since the sale of these devices is happening via e-commerce platforms, the industry body has sought permission to include the above products in the list of essential services.
- ICEA has also asked for the service and maintenance of these products to be included in the government’s essential services list during the lockdown period.
- The government has included telecom, internet services, broadcasting, and cable services under essential services right now.
- The major reason behind seeking permission to include these products in essential services is only because the electronics industry in India has come to a standstill. Manufacturing has come to a halt because of shut down of factories.
Ola Electric to set up 100,000 strong network of EV chargers (Hypercharger Network)
- The company said it will install 5,000 chargers in the current financial year, including a few hundred chargers ahead of the launch of its first electric two-wheeler – due in July this year.
- The estimated cost of this is $2 billion will consist of two formats – Vertical tower-based chargers as well as standalone chargers installed at public spaces such as malls, IT parks, and cafes.
Glenmark Life Sciences – IPO
- The wholly-owned subsidiary of Glenmark Pharmaceuticals, Glenmark Life Sciences has filed a draft red herring prospectus with the SEBI for an initial public offer.
- The offer comprises a fresh issue of up to Rs 1,1160 crore and an offer for sale of up to 73.05 Lakhs shares of Rs. 2 each.
Indiabulls Housing Finance partners with HDFC Limited to offer home loans
- Indiabulls no longer wants to be a lender, instead, it will now be an originator of loans for the industry.
- The company has taken a decision to no longer expand its balance sheet but instead earn income by originating loans for HDFC.
- The reason behind taking this move is only because Indiabulls think that this business is a liability management business. The company made two attempts to get a deposit-taking license and got hit badly when both did not happen.
- The two firms will frame a common credit policy with Indiabulls Housing Finance originating retail housing loans. HDFC will retain 80% of any such credit on its book, the rest 20% will go to Indiabulls’s loan book.
Mirae Asset has launched two passive funds
- Investment Managers has launched two passive funds that will track the NYSE FANG+ ETF index, which consists of the most innovative technology and consumer companies.
- The Mirae Asset NYSE FANG+ ETF is an open-ended scheme tracking the FANG+ Total Return Index while the NYSE FANG + ETF Fund of Funds (FoF) will predominantly invest in Mirae Asset NYSE FANG+ ETF.
- The NYSE FANG+ Index is an equal-weighted index designed to represent the technology and consumer discretionary sectors consisting of highly traded growth stocks. Its constituents include Facebook, Amazon, Apple, Netflix, Alphabet (Google), Tesla, and Twitter, among others.
Discretionary consumers goods have taken a bad hit in terms of sales
- Weekly sales of discretionary consumer goods including ice cream, beverages, packaged snacks, refrigerators and ACs have dipped sequentially by up to 50% due to localized lockdowns, weekend and night curfews.
- The out-of-home consumption category has also taken a bad hit.
- Dairy products used by hotels and restaurants have declined by almost 30-40%.
- Sales of home appliances such as refrigerators, ACs, and washing machines have dipped up to 50% because of cuts in production due to a drop in demand.
RBI puts curbs on dividend payouts by banks
- The RBI had curbed banks’ dividend-paying ability in the FY 2020-21 because of the second wave of covid.
- Banks may pay dividends on equity shares from the profits for the FY 2021-21 provided the amount of dividend should not be more than 50% of the amount determined as per the dividend payout ratio.
- The dividend payout ratio shall not exceed 40%.
- This step has been taken in view of the continuing uncertainty caused by the ongoing second wave of COVID-19 as it is very crucial for banks to proactively raise and protect capital against unexpected losses.
- RBI did not permit any banks to pay dividends in 2019-20.
Auto Industry & Its Impact On Indian Economy – India became the fourth largest auto market in 2019 displacing Germany with about 3.99 million units sold in passenger & commercial vehicles categories. India is expected to displace Japan as the third-largest auto market by 2021. Our country is also a prominent auto exporter and has strong export growth expectations for the near future.
- Domestic automobile production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobile sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.
- Passenger vehicle (PV) sales stood at 3,10,294 units in October 2020, compared with 2,71,737 units in October 2019, registering a 14.19% growth. As per the Federation of Automobile Dealers Associations (FADA), PV sales in November 2020 stood at 2,91,001 units, compared with 2,79,365 units in November 2019, registering a 4.17% growth.
- EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two-wheelers.
- The industry has attracted Foreign Direct Investment (FDI) worth US$ 24.53 billion between April 2000 and June 2020, according to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
- In November 2020, Mercedes Benz partnered with the State Bank of India to provide attractive interest rates, while expanding the customer base by reaching out to potential HNI customers of the bank.
- Hyundai Motor India invested ~Rs. 3,500 crore (US$ 500 million) in FY20, with an eye to gain the market share. This investment is a part of Rs. 7,000 crore (US$ 993 million) commitment made by the company to the Tamil Nadu government in 2019
- In October 2020, Kinetic Green, an electric vehicles manufacturer, announced plan to set up a manufacturing facility for electric golf carts besides a battery swapping unit in Andhra Pradesh. The two projects involving setting up a manufacturing facility for electric golf carts and a battery swapping unit will entail an investment of Rs. 1,750 crore (US$ 236.27 million).
- In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide US$ 1 billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the manufacturing and sales business of suppliers and dealers of Japanese automobile manufacturers and providing auto loans for the purchase of Japanese automobiles in India.
- MG Motor India planned to launch MG ZS EV electric SUV in early 2020 and have plans to launch affordable EV in the next 3-4 years.
- The coronavirus pandemic has hit the Indian auto industry hard.
- Commercial & Passenger Vehicle Sales, Commercial Vehicle sales have plummeted around 90% for all manufacturers. Therefore, the segment was under tremendous pressure due to the economic slowdown, Liquidity crunch.
|Company||March Sales Growth|
|TATA Motors||90% ( YoY)|
|Ashok Leyland||90% (YoY)|
|Volvo Eicher||82.7% (YoY)|
- Two Wheelers & Three Wheels Sales- 42% of down fall in sales, companies like Hero Moto & Eicher Motors. M&M Posted a decline of 93.9% & TVS motor with 25.5% fall.
- Tractor Sales & Exports- Again Fall in the tractor sale company like M&M posted 31% fall & Escorts with 54.3%.
- Recovery will be challenging for the auto industry. BS VI implementation is a challenge as the cost of ownership is expected to rise.
- The Government of India encourages foreign investment in the automobile sector and has allowed 100% foreign direct investment (FDI) under the automatic route.
- Under Union Budget 2019-20, the Government announced to provide additional income tax deduction of Rs. 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.
- Vehicle Scrappage Policy Announced- Old cars to be removed.
- Atma Nirbhar Bharat -Special economic & Comprehensive package of INR 20 Lakh Cr towards promoting manufacturing in India.
- Production – Linked Incentive (PLI)- Automobile sector have a financial outlay of INR 51,000 Cr under the Atma Nirbhar Bharat Package.
Future of Automobile Industry in India
- Incentive-Based Scrappage policy will support sales growth in the long run & more importantly reduce the age of vehicles on India’s road, thereby reducing fuel import and air pollution.
- In 2025, the India Electric Vehicle market will be 50,000 Cr approx. $7 billion, therefore generating a number of jobs.