RBI sets average base rate for NBFC-MFIs at 9.22% - Free Stock Cash Tips and more Call on 9644405056

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The Reserve Bank today said the average base rate applicable for lending by Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) for the quarter beginning July 01, 2017 will be 9.22 per cent. "The Reserve Bank of India has today communicated that the applicable average base rate to be charged by Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) to their borrowers for the quarter beginning July 01, 2017 will be 9.22 per cent.

The Reserve Bank had, in its circular dated February 7, 2014, issued to NBFC-MFIs regarding pricing of credit, stated that it will, on the last working day of every quarter, advise the average of the base rates of the five largest commercial banks for the purpose of arriving at the interest rates to be charged by NBFC-MFIs to its borrowers in the ensuing quarter.

IndusInd Bank Inaugurates new Branch in Kota

Private-sector lender, IndusInd Bank said that it has inaugurated a new branch in Kota, Rajasthan. “IndusInd Bank has recently inaugurated its second branch in Kota, India's technical education hub. The branch is located at Plot No. 2 - Kha-6, Near Southpoul Restaurant, Vigyanagar, Jhalawar Road, Kota,” the Bank said in a filing to the Bombay Stock Exchange. With the inauguration of this branch, the bank now has 94 branches in the state of Rajasthan. Commenting on the development, IndusInd Bank, Head Branch Banking, Soumitra Sen said, “…

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The new branch aims at deepening relationships and attracting new customers, thus strengthening IndusInd Banks’ client base across the region. As we expand into deeper geographies to serve the local populace, we look forward to bring a whole new world of convenience and flexibility to customers.” Meanwhile, shares of the bank closed trading at Rs 1477.65 apiece, down 0.83 per

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On Thursday 29th June, the Indian Benchmark Index, Indian Benchmark Index Nifty opened at 9523 and closed at 9504 after making a high of 9576.The Index closed up by 13 points from its previous day close. NSE has recorded highest ever turnover in F&O segment on Thursday. The total turnover in F&O segment in yesterday’s trade stood at around Rs 14.1 lakh crore.

Bank Nifty opened at 23312 and closed at 23227 after making a high of 23476.The Index closed down by 9 points from its previous day close.

The Small Cap Index traded strong and closed at 7299 after making a low of 7254.The Index closed up by 76 points from its previous day close.

Nifty Future to open gap down by 17 points at 9487 against yesterday's close of 9504 as per SGX Nifty.

World Bank Raises $500 Million with ‘Pandemic Bonds’

The World Bank raised $500 million to finance rapid response to disease outbreaks, including through sale of its first-ever “pandemic bonds,” the bank announced Wednesday.

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Drawing on the slow response to the 2013 Ebola outbreak in Africa in which thousands died, the World Bank designed the Pandemic Emergency Financing Facility (PEF), to channel surge funding to developing countries facing the risk of a pandemic.

“With this new facility, we have taken a momentous step that has the potential to save millions of lives and entire economies from one of the greatest systemic threats we face,” World Bank group president Jim Yong Kim said in a statement.

“We are moving away from the cycle of panic and neglect that has characterized so much of our approach to pandemics.”

The fund will provide $500 million over the next five years through a combination of sales of the bonds and derivatives, cash and future commitments from donor countries, the World Bank said in a statement. Germany provide an initial cash injection of €50 million.

The PEF, announced in May 2016 at the Group of 20 finance ministers meeting in Japan, was oversubscribed by 200%.

The PEF covers six viruses that are most likely to cause a pandemic, including those responsible for new influenza pandemic virus A, SARS, MERS, Ebola, Marburg, and others like Crimean Congo, Rift Valley and Lassa fever.

Axis Bank Shares Gain 4% after it declares 80% bad loans as Secured

Shares of Axis Bank Ltd on Thursday gained as much as 4% after the bank clarified to the exchanges that its 80% insolvent loans are secured.

Intra-day, the stock hit a high of Rs514.15 a share. At 10.21am, it was trading at Rs511.55 on the BSE, up 3.5% from its previous close, while the benchmark Sensex index rose 0.68% to 31,045.13 points.

This move is seen positive because provisioning requirement on secured loans is lower as compared to unsecured loans.

The bank said in a notice to the BSE that it had exposure to eight out of the 12 stressed accounts that the Reserve Bank of India (RBI) advised initiating insolvency process on.

The total fund-based outstanding from these eight accounts is Rs5,070 crore. Non-fund-based outstanding was Rs212 crore.

Against this outstanding, the provision held was Rs2,497 crore, the bank added.

On 15 June, RBI has advised banks to initiate insolvency resolution process in select accounts under the provisions of the Insolvency and Bankruptcy Code (IBC).

Banks have started a preliminary assessment of additional credit costs after the central bank asked them to set aside 50% provisioning against secured exposures and 100% against unsecured exposure in all cases referred for bankruptcy.

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Vedanta Makes $3 billion bet to re-energize its Biggest oil Field

India’s Vedanta Ltd will spend $3 billion over the next three years as it seeks to expand oil reserves and nearly double output from its largest field.

India’s biggest non-state producer, controlled by billionaire Anil Agarwal, plans to drill more wells at its Barmer block in the western Indian state of Rajasthan and other blocks in the eastern part of the country, according to Sudhir Mathur, acting chief executive officer of Vedanta’s Cairn Oil & Gas unit.

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“There is a lot of oil in Barmer block, there is no doubt about that,” Mathur said in an interview at Cairn’s headquarter at Gurgaon near New Delhi. “All these projects are very viable for us even at $40 a barrel.”

Agarwal’s Vedanta aims to produce half of the energy-hungry nation’s oil by 2020 and replace some aging fields. The spending plan contrasts with global investments that are set to drop a third year after falling 24% to $450 billion in 2016, following years of low oil prices.

“The crash was brutal,” Mathur said. “But in that down cycle, the management team spent a lot of effort to re-engineer costs on both the projects as well as operations.” Brent crude, the global benchmark, has averaged nearly $53 dollars a barrel this year, down almost by half from 2014.

‘All cylinders’

Vedanta is cutting production costs by about $3 a barrel to $7.50, which it says is among the lowest in the world. It aims to raise oil and gas output from the Barmer block to about 300,000 barrels of oil equivalent a day over next three years from a daily average of 161,571 barrels in the year ended March, Mathur said.

Eris Lifesciences Shares rise 4% on Stock Market Debut

Shares of Eris Lifesciences Ltd rose 4% on debut on Thursday after its Rs1741.1 crore initial public offer (IPO) received a subscription of more than three times when it closed earlier this month.

Eris Lifesciences shares opened 1.5% higher on the BSE at Rs612 apiece compared to the issue price of Rs603, the upper end of the price band of Rs600-603 per share.

At 10.05am, they were up 4% at Rs626, while the benchmark Sensex index traded 0.74% higher at 31,063.40 points. Intra-day, the shares touched a high of Rs627.70 and a low of Rs610, respectively.

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The Ahmedabad-based pharmaceuticals company raised Rs1,741.1 crore through the issue which closed on 20 June, and was subscribed 3.29 times.

Ahead of the IPO, the company raised Rs779.43 crore by selling shares to anchor investors, including Abu Dhabi Investment Authority, Goldman Sachs India Ltd and Morgan Stanley India Investment Fund Inc.

Eris Life sciences develops, manufactures and commercializes branded pharmaceutical products in select therapeutic areas within chronic and acute categories like cardiovascular, anti-diabetics, vitamins, gastroenterology and anti-infectives.

CARE Shares surge 16% after Dlock Deal

Credit Analysis and Research Ltd (CARE) on Thursday witnessed a block deal, in which around 2.6 million shares or 8.8% stake of the company changed hands. However, details of buyers and sellers were not known.

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Following this, the shares of CARE surged as much as 16.2%, its maximum gain since its listing day and touched a high of Rs1,660 apiece—a level last seen on 3 April. The stock got listed in December 2012.

Suresh Pai, assistant general manager at Canara Bank, confirmed in a conversation with CNBC TV that the bank has sold its entire stake in the company and raised around Rs400 crore. As of March 2017, Canara Bank held 8.9% stake in the bank.

CRISIL Ltd has bought the entire stake in CARE at Rs1,659.79 a share, the CNBC TV report added.

Canara Bank rose 3.2% to Rs335.80, while CRISIL rose 1% to Rs1,940. India’s benchmark Sensex index rose 0.6% to 31,029.29 points.

China opens door for India in Donald Trump’s Washington

Very little was expected in India from Prime Minister Narendra Modi’s visit to the US, and for good reason: Modi had gone out of his way to cultivate a personal relationship with Barack Obama, including famously pouring out a cup of tea for him and the cameras when Obama visited India. Modi is nothing if not a strong personality, and has a somewhat worrying tendency to reduce complicated bilateral relationships to personal ones. Whether he would hit it off with Obama’s successor—who could perhaps be politely described as “mercurial”—was a matter of frenzied debate in New Delhi prior to the visit.

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As it turned out, Indian wonks needn’t have worried. Modi enveloped Donald Trump in a bear hug—something he tends to do—and whatever the American president may have thought of that, the bilateral relationship has clearly benefited from growing US disillusionment with Asia’s other giant, China. The question for Modi isn’t whether he can get along with Trump, but whether he can manage the relationship better than Chinese leader Xi Jinping has.

After Xi’s own visit to America—which featured chocolate cake and missiles at Mar-a-Lago—many Indians worried that they couldn’t expect the Trump administration to appreciate that the rise of China meant that India and the US were natural strategic partners. Indeed, hoping that Xi would pressure North Korea into scaling back its nuclear and missile programs, Trump has lavished the Chinese leader with praise and dropped his longstanding threats to punish China for allegedly unfair trade practices.

Also read: Why India-US relations may survive Donald Trump

Even now, the US president shows no sign of rethinking the somewhat intemperate remarks about India he made when withdrawing from the Paris Agreement. And he is unlikely to regret pushing Indian IT companies into a corner when it comes to temporary work visas. But, a few lines in the joint statement issued after Modi’s visit greatly reassured nervous Indian strategists:

[India and the US] support bolstering regional economic connectivity through the transparent development of infrastructure and the use of responsible debt financing practices, while ensuring respect for sovereignty and territorial integrity, the rule of law, and the environment.

Core Inflation can Muddle the case for Rate cuts

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The expectations of a policy rate cut in August are getting firmer every day in the market, especially after the latest reading of retail inflation for May. A rather dovish tone of the minutes of the monetary policy committee (MPC) meeting seems to have added more fuel to these expectations.

But a critical element and perhaps a constant bugbear for the Reserve Bank of India (RBI) has been core inflation. And here, the MPC members differ in their judgement of the future path of inflation.

Members like Ravindra Dholakia and Pami Dua believe the deceleration in core inflation is durable, while RBI governor Urjit Patel, member Chetan Ghate and deputy governor Viral Acharya sound unsure of a sustained deceleration. Michael Patra suggests that core inflation is still worryingly sticky.

While the truth could be somewhere in-between the most dovish (Dholakia) and the most hawkish (Patra) comments, it pays to see how core inflation has moved. It gets more complicated as for all the jawboning by RBI on core inflation, the central bank has not precisely defined the core inflation it monitors. From past statements, it is assumed that RBI arrives at core inflation after stripping food and fuel from the headline number. This has dropped to 4.14% in May from 4.44% in April and 4.5% a year ago.

Economists, of course, have a different take and argue that core inflation should also exclude petrol and diesel elements as well as precious metals like gold and silver. This “core core inflation” is what economists want the central bank to track.

Core core inflation has dropped to 4.01% from 4.18% in April and 4.87% a year ago. Indeed, the fall in this indicator is sharper than the core inflation that RBI is assumed to monitor

Global Copper in Surplus in first Quarter of 2017

The latest monthly report of the International Copper Study Group (ICSG) shows there was a surplus of 164,000 tonnes of the metal in the first quarter of 2017, which it attributes mainly to a decline in Chinese demand. The year-ago quarter had seen a small deficit. China accounts for 47% of global copper usage.

Global refined copper production was virtually unchanged in the first quarter, with primary output declining 2%. China’s refined output rose by 7% but declines in Chile offset that increase. Refined copper usage is estimated to have decreased by around 3%, again due to a decline in China. If one adjusts for Chinese bonded stocks, the surplus increases to 309,000 tonnes, said an ICSG release.

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As IT industry Ambles along, jobs and wages will be under Pressure

For the first time since the global financial crisis, the Indian IT (information technology) services industry’s growth in fiscal year 2017 (FY17) fell below the target set by industry body Nasscom. This is not to say that Nasscom’s forecasts are incredibly precise on most occasions; but that things haven’t been as bad for the industry since the crisis.

In reported terms, growth had fallen short in FY13, FY15 and FY16 as well, although adjusted for currency fluctuations, growth fell within the range Nasscom had forecast for those years.

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The shortfall last year was particularly large. Nasscom had guided for growth of between 10% and 12% in February 2016, but the industry’s reported growth of only 7.6%, which, adjusted for currency fluctuations, translated into a constant currency growth of 8.6%.

This year, Nasscom discontinued the practice of providing a forecast as early as February, and gave one last week instead. This column has argued that it should permanently retire its forecasts largely because it follows a somewhat unscientific process.

Having said that, it’s interesting to note that the growth forecast for the year is the lowest in the past 13 years, barring FY10, when the industry bore the brunt of the financial crisis. And worse still, while revenues are forecast to grow between 7% and 8%, the industry body’s comments on employee addition suggest the industry’s employee base might grow by only around 4%, according to data collated by Kotak Institutional Equities.

BHEL bags order for 15 MW solar Photovoltaic Power Plant

State-run BHEL on Tuesday said that it has secured an order for setting up a 15 megawatt (MW) solar photovoltaic (SPV) power plant on engineering, procurement and construction (EPC) basis, in Gujarat.

"The order has been placed on BHEL by Gujarat Alkalies and Chemical Limited (GACL) for setting up the SPV Power Plant at Gujarat Solar Park at Charanka in Gujarat," the company informed the BSE in a filing.

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"Significantly, this will be BHEL's first ground-mounted solar PV project in the state of Gujarat. The company is presently executing over 180 MW of ground-mounted and rooftop Solar PV projects across the country."

However, BHEL did not divulge the cost of the project.

"The company has enhanced its state-of-the-art manufacturing lines of solar cells to 105 MW and solar modules to 226 MW per annum," the filing said.

"In addition, space-grade solar panels using high efficiency cells and space-grade battery panels are manufactured at its Electronic Systems Division, Bengaluru."

Gold firm as U.S. Healthcare vote delay Weighs on stocks, Dollar

Gold prices firmed on Wednesday as the dollar struggled and shares weakened after a vote on U.S. healthcare reforms was postponed and European Central Bank President Mario Draghi hinted the ECB could trim its stimulus this year.

Asian shares slumped on Wednesday after Wall Street was knocked hard as U.S. Senate Republican leaders delayed a vote on a healthcare overhaul on Tuesday until next month, adding to investor worries about President Donald Trump's ability to deliver on his promises of tax reform and deregulation.

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The dollar index, which weighs the greenback against a basket of six currencies, slipped to 96.322 on Wednesday, its lowest since November.

Spot gold rose 0.4 percent to $1,251.91 per ounce by 0408 GMT.

U.S. gold futures for August delivery was up 0.5 percent to $1,252.50 per ounce.

"Gold prices recovered from most of the sudden plunge in prices earlier this week, with huge volumes being bought on the open in Europe," ANZ said in a note.

"These gyrations point to erroneous trades, with little macro-events inducing such volatility. In the end, gold is back where it all started at around $1,250/oz," it added.

The precious metal slid 1 percent on Monday as a large sell order hit sentiment, though losses were limited by political uncertainty around the world.

"The dollar and the equities are on the back foot at the moment, providing a little support to gold," a Sydney-based trader said.

Sebi tweaks OFS norms to Encourage Employees' Participation

Relaxing its offer-for-sale (OFS) norms, markets regulator Sebi allowed companies' promoters to sell shares within two weeks from the OFS transaction to their employees, reported PTI. Currently, promoters cannot buy or sell the company's shares for 12 weeks after the OFS. In order to streamline the process of OFS with an objective to encourage greater participation by employees, Sebi has modified the existing provision with respect to restriction on sale of shares by promoters post-OFS.

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"Promoters of eligible companies shall be permitted to sell shares within a period of two weeks from the OFS transaction to the employees of such companies. The offer to employee shall be considered as a part of the said OFS transaction," Sebi said in a circular. At their discretion, promoters can offer shares to employees at the price discovered in the OFS transaction or at a discount to the price discovered.

Besides, promoters would have to make necessary disclosures in the OFS notice to the exchange including number of shares offered to employees and discount offered, if any.

Shriram EPC bags multiple orders worth Rs 165 cr

Shriram EPC Limited (SEPC), one of the leading service providers of integrated design, engineering, procurement, services has that it has won multiple orders under its water management business amounting to Rs. 165 crore.

“The first order amounting to Rs. 83.37 crore from City Corporation Davanagere, involves designing, building and improving bulk water supply for 24X7 water supply to Davanagere city and O& M of the Bulk Water Supply Scheme for 3 months.

The ADB funded project is to be executed over a period of 30 months with 3 months for O&M. The second order amounting to Rs. 82.56 crore from Tamil Nadu Water Supply & Drainage Board (TWAD Board) entails implementation of Water supply scheme in Hosur,” the company said in a filing to the Bombay Stock Exchange. Meanwhile, shares of the company were trading at Rs 26 apiece, up 9.01 per cent from the previous close

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SEBI Proposes stricter Separation on Investment Products

The Securities and Exchange Board of India (SEBI) on Thursday proposed to more clearly segregate entities advising on investment products from those selling them in an effort to prevent conflicts of interest.

Under current rules, companies are allowed both to advise and sell mutual funds or other investment products only through "separately identifiable departments or divisions", which must maintain an "arms-length relationship" between the two functions.

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Fees charged for each service must also be clearly separated.

But the SEBI on Thursday sought to make that separation more clear, proposing that companies would no longer be able to offer both advisory and distribution services unless they were split into separate subsidiaries, proposing that the division be completed within six months.

The SEBI also said those providing investment advice must have proper permission from regulators of the products about which they give advice.

The SEBI oversees equities, corporate bonds, and mutual funds, while the central bank oversees trading of currencies and government bonds.

"To prevent the conflict of interest that exists between advising of investment products and selling of investment products by the same entity/person, there should be clear segregation between these two activities," the SEBI said in a draft proposal.

GST may lead to better operating profit margin for multiplex operators

Multiplex companies—PVR Ltd and Inox Leisure Ltd—are expected to benefit from the implementation of the goods and services tax (GST). That’s mainly on account of the input tax credit on fixed costs that these firms bear such as rent, common area maintenance and so on. Ratings agency Icra Ltd estimates that input tax credit will be available on 33% of the total operating expenses. The GST rate has been fixed at 28% for tickets costing over Rs100 and 18% for those under Rs100.

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Tickets below Rs100 account for a small portion of overall ticket sales of PVR and Inox. This is disappointing considering that the entertainment tax is in a similar range (of 28%) for these firms. As analysts from Dolat Capital Market Pvt. Ltd point out, entertainment tax for PVR and Inox based on their net box-office collection is 29% and 27%, respectively, as on fiscal year 2017 (FY17) and thus a 28% GST rate would not have any impact for the multiplex chains. Note that the industry was expecting 18% rate across the board.

Amid loan waivers, foreign investors want nothing to do with state bonds

Indian states have never been able to attract dollars to finance their market borrowings. Since October 2015 when state development loans (SDL) were first allowed to be picked by foreign portfolio investors, not more than a trickle has come in. But over the last few months, foreign investors are earnestly avoiding state bonds even though their pockets are filled to brim with central government bonds and even private corporate bonds. Since April, foreign investors have bought only Rs140 crore worth of state bonds while they grabbed nearly Rs40,000 crore of central government securities. The total approved investment limit in state bonds for investors was hiked by Rs6,000 crore in April this year and that of government bonds was hiked by Rs11,000 crore. Foreign investors even willingly bought more than Rs35,000 crore worth of corporate bonds at a time when companies are fixing their over-leveraged balance sheets.

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Oil Prices climb off 10-month lows as U.S. Stockpiles Drop

Oil prices rose on Thursday after U.S. crude and gasoline stockpiles fell, but worries over whether OPEC-led output cuts would be able to rein in a three-year glut continued to drag.

The market largely shrugged off comments overnight from Iran's oil minister that members of the Organization of Petroleum Exporting Countries (OPEC) are considering deeper cuts in production.

Brent crude futures were 4 cents higher at $44.86 a barrel at 0219 GMT, after falling 2.6 percent in the previous session to their lowest since August last year.

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U.S. crude futures were up 6 cents at $42.59 a barrel. On Wednesday, they settled down at $42.53, after touching their lowest intraday level since August 2016.

Since peaking in late February, crude has dropped around 20 percent, with only brief rallies, completely erasing gains at the end of the year in the wake of the initial OPEC-led production cut.

OPEC and other producers agreed to cut output by 1.8 million barrels per day from January for six months, subsequently extended for a further nine months.

With production rising in Nigeria and Libya, countries exempt from the deal, and output surging in the United States, which was not part of the agreement, many bulls appear to have thrown in the towel.

Oil has "now fallen into 'bear' territory," ANZ said in a research note. "OPEC (and allies) may have pared back production, but that's being offset by relentless drilling in the U.S. and more output in Libya."

A bigger-than-expected cut in U.S. crude stockpiles reported overnight is barely shifting the dial.

Uber investor Bill Gurley to leave Company’s board of Directors

Turmoil at Uber Technologies Inc. continues as longtime backer and director Bill Gurley is leaving the company’s board following the resignation of chief executive officer Travis Kalanick.

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Gurley will hand the board seat to Matt Cohler, his partner at Benchmark, a spokesman for the venture capital firm said.

This will be the third change to Uber’s board in recent weeks. TPG’s David Bonderman was replaced as director by his colleague David Trujillo on Wednesday. Bonderman resigned after he made a sexist remark to fellow board member Arianna Huffington at a company all-hands meeting meant to address Uber’s flawed corporate culture. Wan Ling Martello, an executive at Nestle SA, joined the board earlier this month.

Gurley was one of Uber’s earliest investors and biggest fans. He played a key role on the board over the years, helping to recruit many of the company’s executives. But in private Gurley became a vocal critic of Kalanick in recent months, people familiar with the matter said. The start-up has been in upheaval for most of this year, following rider protests over the company’s ties to the Trump administration and an investigation into Uber’s corporate culture conducted by former US attorney general Eric Holder.

Can niche Products drive VST Tillers into the big league?

The VST Tillers Tractors Ltd stock hit a new 52-week high this week. Despite the company’s unexciting performance in the March quarter, the stock gained almost 20% in the last one month, as the management guided for healthy growth in fiscal year 2018 (FY18).

The company expects power tiller volumes to rise this year, after dropping 7% in FY17. Tractor sales, which increased 24% in FY17, are forecast to register double-digit growth this year also.

VST Tillers is trying to reduce its dependence on power tillers, which are dependent on government subsidy, which is prone to payment delays. Given the subdued outlook for the power tillers business (projected to see an annual average growth of 5-6%), the company is focusing on tractors for growth. It launched two new tractor models and aims to increase its market share further. According to ICICI Securities Ltd, VST Tillers’ management expects tractors to power tillers sales mix to reach 60:40 by 2020. Last fiscal year, the company derived 41% of its revenues from the tractors business.

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The strategy sounds plausible. But it faces one challenge—scalability. Right now, VST Tillers operates in the less than 30 horsepower (hp) segment. It roughly constitutes less than 10% of the total tractor industry’s volumes. It is not present in the 30-40hp and 40-50hp categories, which constitute three-fourths of India’s tractor market and are seeing growth.

“While the government’s push for increased farm mechanisation by subsidising tractor purchases is likely to aid sales in the lower HP segment, a continued customer shift towards increased usage of various agro-implements is likely to lead to a further increase in market size for high HP tractors over the long term,” ratings agency Icra Ltd said in a recent note.

In the overall tractor market, VST Tillers right now has less than 2% market share. It aims to increase this to 5%. New products and geographical expansion can help the company drive sales in the near term. But as an analyst with a domestic broking firm points out, it can be tough to make significant gains in market share without a presence in the large and fast growing 30-50hp segment.

The flip side of GST: its Impact on the Informal Economy

The markets are gung-ho about the shift to the goods and services tax (GST). One factor driving this optimism is the anticipated shift of business from small, unorganized firms in some sectors to organized ones. Since the latter are already in the formal economy, comply with regulations, are generally larger in size and pay taxes, the switch will be much easier for them, which will ultimately translate into increased market share.

Analysts have been preparing lists of companies that will benefit in sectors such as apparel, tiles and sanitaryware, plywood, textile, footwear, electrical equipment and appliances, and plastics and packaging. All these sectors have a high composition of unorganized firms (see chart).

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For example, analysts expect the share of the informal segment in the tiles industry to decline from 40% currently to 20%. Similarly, nearly 60% of the ready-mixed concrete market is unorganized. In the light electrical segment, more than 35% of the businesses are in the informal sector. Certainly, this augurs well for larger companies in the organized sector. This also comes at a time when volume growth has just recovered from the effects of demonetisation and corporate India is desperate for a much-awaited earnings recovery.

But the gain in market share of listed companies means a corresponding fall in the share of units operating in the informal economy. GST is sure to take a toll on the financial health of small- and medium-sized enterprises (SMEs) operating in these sectors. Economists say that the informal or unorganized sector accounts for nearly 50% of India’s gross domestic product and is responsible for more than 80% of total job creation in the country.

Many of the firms operating in this part of the economy make profits largely due to tax evasion and non-compliance with regulatory norms, which allows them to offer products at comparatively lower prices. However, in the GST-era, it will be a struggle for survival for such firms because they will be faced with taxes, lower margins and a sharp spike in the cost of compliance. Some firms in the unorganized sector may go under, while others could find their profits curtailed. 

To be sure, in some instances the two sets of companies cater to different customers, but there is always some overlap. And it is not just the manufacturers in the informal economy who will suffer but also the smaller dealers and wholesalers.

The economics of logistics under the GST regime also favour large companies in the organized sector.

Minutes Reveal two Poles of the Monetary policy Committee

The minutes of the monetary policy committee meeting should put to rest the misgivings one (including this publication) had as to whether the committee members echo a party line. The fact that one member, Ravindra Dholakia, dissented is known but the minutes reveal the real vigour behind the discussions.

Dholakia wanted a 50 basis points cut in the repo rate but the Reserve Bank of India (RBI) had the vote of five to hold rates. He disagreed on almost every outlook that the central bank provided and not just the inflation forecast.

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The most interesting revelation from the minutes is the emergence of two poles, the dissenter Dholakia and the notable hawk Michael Patra, an RBI official. Both the members have polar opposite outlooks based on the same set of data.

While Dholakia said that core inflation figures indicate a clear declining trend and not stickiness, Patra read the opposite. The two members differed strongly even on the output gap. Patra believes that an output gap calculated on historic data will be wider than otherwise and a projected growth of 7.3% in gross value-added for fiscal year 2018 makes a case for a narrowing of the gap. However, Dholakia argued, “There cannot be disagreement on the Indian economy significantly under-performing compared to its potential now for quite some time.” The output gap is here to stay and will keep a lid on inflation, he said.

Dholakia also argued that farm loan waivers and state fiscal profligacy won’t be inflationary, in direct contrast to all other members’ statements.

Daily revision of fuel prices Structurally Positive for OMCs

The shift to daily revision in prices of petrol and diesel from fortnightly revision starting 16 June is structurally positive for Indian oil marketing companies (OMCs)—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOC). With this, India joins countries such as the US and Australia where fuel prices are revised on a daily basis.

This means OMCs will be able to pass on daily changes in product prices and exchange rate fluctuations without delays.

IOC said daily revision of petrol and diesel prices will set new standards of transparency, encourage the automation drive of petrol pumps and lead to better stock management practices.

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However, it will probably be a while before OMCs see benefits in the form of higher marketing margins in their financials. Every Re0.1/litre increase in petrol/diesel price adds 1.9-3.5% to OMC earnings per share, according to Credit Suisse Securities (India) Pvt. Ltd.

It’s also worth remembering here that competition from private sector companies will pose a threat to expansion in marketing margins. Already, OMCs have lost market share in the fuel retailing business to private sector firms in fiscal year 2017 (FY17).

Nevertheless, all three stocks have outperformed the Nifty 50 index in the past year, supported by earnings growth. Even so, valuations aren’t expensive.

Kotak Institutional Equities highlights in a report on 19 June that OMCs may look optically inexpensive trading at 10-12 times price-to-earnings multiples or 6-6.7 times EV/Ebitda for FY19. EV is short for enterprise value and Ebitda stands for earnings before interest, tax, depreciation and amortization.

“However, it may be justified as a significant portion of the business is cyclical and it also requires meaningful amount of capex for upgradation and modernization, let alone to raise capacities,” added Kotak.

Are half-baked anti-Profiteering rules a Nightmare in the Making?

In the current format, the government’s anti-profiteering rules on the goods and services tax (GST) raise more questions than answers. While the intent is to curtail inflation post-GST implementation, the notification suffers from a lamentable lack of clarity on many aspects, increasing uncertainty for businesses.

To begin with, the law would be applicable to all businesses irrespective of their nature or revenue. Since businesses are already struggling to brace for the 1 July deadline, tax experts say it would have been better if these provisions were restricted to those having oligopolistic markets or ones where a significant inflationary spiral is expected due to GST.

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“The concern at this point in time is whether the sweeping provisions provided in the law can be effectively enforced without affecting business confidence. Also, every reduction in tax rates or increase in input tax credit may not lead to a corresponding reduction in prices as there could be simultaneous upward movement of costs of raw material or forex swings,” said M.S. Mani, senior director (indirect tax) at advisory firm Deloitte India.

There is no clear timeline that has been provided for the implementation of the law. Most importantly, there is no mention whether the mechanism for implementing anti-profiteering measures will be product-based or entity based. The rules only talk about the composition of an anti-profiteering committee and that it has the power to determine the methodology and procedure.

Globally, various economic factors like supply and demand conditions, cost structure of the supplier, and geographical location of the marketplace is considered to determine this mechanism. For instance, in Malaysia, the net profit margin methodology is used.

Anti-profiteering has not yielded the desired results in some countries where it was adopted. It proved to be a disaster in Malaysia as it is said to have been misused by tax officials, which led to tax terrorism.