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.
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.
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.
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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
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.
Foreign Trade Policy:
The government on Wednesday extended the existing foreign trade policy (FTP) for six more months amid the coronavirus outbreak. The current policy will now be valid up to September 30, 2021.
The foreign trade policy is essentially a set of guidelines for the import and export of goods and services.
Covid-19 was catastrophic for international trade. Exports during April-February this fiscal dipped by 12.23% to $256 billion. Imports during the period too declined by 23.11% to $340.8 billion, leaving a trade deficit of $84.62 billion. The country mainly exports petroleum oils (13.2%), diamonds (6.8%), medicaments (4.5%), articles of jewelry (4.2%), and motor vehicles (2.2%), while it imports petroleum oils (21.3%), gold (6.5%), coal and similar solid fuels (4.7%), diamonds (4.6%), petroleum gas and other gaseous hydrocarbons (3.6%).
Gold imports rose by 22.58% to USD 34.6 billion (about Rs 2.54 lakh crore) during 2020-21 due to increased domestic demand. The demand for gold would further increase on account of forthcoming auspicious Akshaya Tritiya and marriage season
The government is likely to waive a 10% customs duty levied on imported vaccines in a bid to keep low the cost of overseas vaccines that are being eyed to supplement domestically made shots ahead of opening COVID-19 vaccination to all citizens over 18 years of age. The government presently levies 10% customs or import duty plus a 16.5% IGST and social welfare surcharge on vaccines coming from overseas.
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Expectations from FTP 2021-2026
- A long-standing demand of exporters, especially MSMEs, is credit access. Formal financial institutions such as banks are reluctant to lend to MSMEs due to their lack of adequate collateral. The policy can help open up alternate credit avenues, such as financial technology start-ups.
- The advisory group suggests raising borrowing limits at the Export-Import Bank of India.
- If India were to do away with subsidies, exporters would still need some form of government support. Easier and lower taxes are a way of filling this gap. The reduction of corporate tax rates and simplification of duty structures are long-standing demand
- The existing FTP focuses on the Merchandise Exports from India Scheme (MEIS), an incentive scheme, where exporters receive duty credit scrips for a percentage of the value of the goods exported.India has decided to withdraw the MEIS and replace it with a Remission of Duties or Taxes on Export Products (RoDTEP) scheme.
1. RBI Governor Shaktikanta Das announced that MPC has kept the policy rates unchanged (Repo rate 4%, Reverse Repo rate 3.35%) and is to maintain an accommodative stance.
2. The Union Cabinet on Wednesday announced a new e-bidding platform to promote market price discovery of natural gas produced from fields across a number of contractual regimes, where producers already have pricing freedom. This move would help boost incentives for gas producers to invest more in increasing natural gas production.
3. Securities and Exchange Board of India (SEBI) has tightened rules on inter-scheme transfers (ISTs) in mutual fund schemes. The regulator said inter-scheme transfers for managing liquidity should only be taken after all other avenues like using cash, market borrowing and selling securities in the market, for raising liquidity have been attempted and exhausted.
4. Vedanta delisting – The delisting of Vedanta Ltd will provide the group with enhanced operational and financial flexibility in capital intensive business and is expected to support an accelerated debt reduction programme in the medium term. Corporate simplification is the trigger behind delisting.
5. Titan exits joint venture with German luxury brand Montblanc in India. The development is in line with Titan’s strategy to focus on its primary business and proprietary brands, as per the JV agreement the partnership will end in December 2020. The India joint venture of Montblanc was formed by establishing Montblanc India Retail Pvt Ltd in 2014 in which Titan holds 49 percent stake.
6. Paytm vs Google: Over 5000 apps developers express interest to list mobile sites on home grown mini app store. The mini-app store will list mobile websites to offer users app-like experience without having to download them. To enable thousands of Indian mobile websites developers to break away from the alleged monopoly of Google Play Store, Vijay Shekhar Sharma of Paytm has announced a Rs10 crore grant. He envisages having 1 million mobile websites on the company mini app by Q1 2021.
7. Government to expand production-linked incentive (PLI) scheme to more sectors to boost domestic manufacturing says Amitabh Kant, CEO Niti Aayog. Recently , the government announced a PLI scheme for the pharmaceutical sector, mobile and electronic manufacturing companies.