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Economy - May 15, 2020

India's borrowing target now raised to Rs 12 lakh crores

India’s borrowing target now raised to Rs 12 lakh crores

From the estimated amount in the budget of 7.8 lakh crores, the government has increased the gross market borrowing target to Rs 12 lakh crores for the financial year 2020-21. It attributes nearly 54% increase to deal with the problem of illiquidity during the economic crisis due to corona virus pandemic.

 

The circular:

The government issued a circular on 8th May 2020, which said that the gross borrowing target has been raised from the budgeted Rs 7.8 lakh crores to Rs 12 lakh crores. In a statement given on Friday, the Finance ministry said that an increase in the borrowing targets has been done after consultations with the RBI and has been inevitable during this covid-19 pandemic crisis.

 

Increase in budgeted borrowings:

A few days ago, a package worth Rs 1.7 lakh crores was announced. It is expected that there will be additional packages and programs introduced in the days ahead to have fiscal support. This is because of the expected reduction in the tax revenue from the lock down. It is expected that the revenue shortfall would be same as the additional borrowings of Rs. 4.2 lakh crores in this financial year. The recent surge in the fuel prices will generate an additional Rs 1.4 lakh crores but still cannot reduce the revenue shortfall.

A senior government official communicated with the media that there will definitely be a revenue shortfall in this financial year. It is because many of the industries are shut down amid lock down in the month of April. For now, they are focusing on the expenditure side. If the situation improves in the second half of the year, then the government will scale down the estimated borrowings. He added that the RBI has not taken any call for monetizing the deficit. A stimulus package will be announced very soon and the government is working on it.

 

Borrowing Plan:

The government plans to borrow an amount of Rs 7 lakh crores in the first half of this financial year than the earlier of plan of Rs. 4.88 lakh crores. So it means that the government can borrow at the most Rs 6 lakh crores by the end of September. The government can borrow an average of Rs 30,000 crores per week according to the current plan as compared to the earlier plan of borrowing Rs 19,000 – 21,000 crores. This will leave a balance of Rs 5 lakh crores which can be borrowed in the second half then the earlier plan of Rs 2.92 lakh crores.

 

Benefits of additional borrowings:

The additional market borrowings would lead to an increase in the bond yields and would also ensure adequate liquidity in this system. According to the report given by finance ministry, the surplus liquidity in the banking system is Rs 6.07 lakh crores currently.

 

 

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Equities, Market News, Markets - May 9, 2020

BSE, NSE to launch rupee derivative contracts

BSE, NSE to launch rupee derivative contracts

 

The NSC IFSC  and India INX have introduced rupee derivatives which will help in bringing much needed added liquidity in the economy. This will supplement their customers with several investment options.

The motive behind introduction of rupee derivatives:

The CEO of NSE, Vikram Limaye communicated to the media that the introduction of rupee derivatives will help in the development of (Gujarat International finance tech) GIFT IFSC as a hub of global financial services. This IFSC platform will help in the rupee exposure of non resident participants. This non residents’ participation will also enhance the IFSC’s extended trading hours and USD settlement. They’ve already received permissions for offering securities trading in any currency except the Indian rupee.

 

Importance of introduction of rupee derivatives:

Mr. Limaye added that this measure will enhance the efficiency of Indian rupees’ price discovery. It will be done by eliminating the onshore and offshore markets’ segmentation. It will also allow for trading and hedging using rupee derivatives contracts to their trading partners viz. IFSC entities and banking units. The Finance Minister Nirmala Sitharaman did the inauguration of the rupee derivatives contract. The contract will be having a lot size in NSE IFSC – Rs 20 lacs and India INX – Rs 10 lacs and the contract will be settled in cash.

 

The futures and options:

The futures at the NSE IFSC will have in total three monthly expiry contracts . The options at NSE IFSC will have total seven weekly and three monthly expiry contracts. For the other one i.e India INX, there will be in total eleven weekly and twelve monthly contracts. In the past few months due to the corona virus pandemic crisis, there is an acute volatility faced by the currency markets. The introduction of rupee derivative contracts in the IFSC will lead to more stability during these situations.

 

The Contracts:

The chairman of India INX, Ashishkumar Chauhan communicated to the media that the size of contract will be Rs 10 lacs and the trading is made available from 8th May 2020, 3:30 pm IST. The trading is for both the pairs viz. USD-INR and INR-USD. He added that for the USD-INR product, many of the people like the exporters, importers, traders, etc associated with any kinds of businesses have expressed their keen interest. The Gandhinagar GIFT City is the only IFSC situated in India having zero short term, zero long-term, zero stamp duty and zero transaction taxes as of now.

Each and every businessman interested should consider trading and hedging using rupee derivatives contracts at the GIFT City. The MD and CEO of India INX, V Balasubramaniam communicated to the media that he looks towards the best participation of members and international participants. This will be the first launch of offshore Indian rupee derivatives contract.

 

 

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HDFC Bank Q1 Result Update: Profit rises 19% YoY to Rs 9,196 crore; NII up 15%
Economy - May 6, 2020

HDFC eyes up to raise capital amid pandemic

HDFC eyes up to raise capital amid pandemic

It’s been speculated that HDFC has been planning to raise an amount of Rs 8000 crores to increase the capital buffers and maintain liquidity for future uncertainties. It is due to the outbreak of corona virus which has lead to severe economic disruptions.

 

Options considered:

India’s top financial services company is having discussions with several Investment banks regarding how to raise capital. The options considered by HDFC limited are sale of shares to institutional investors or a right issue or sale of warrants. A person with knowledge of the subject matter communicated with the media that in the current scenario, it is better to be overcapitalized. In this economic turmoil, profits and increase in net worth cannot be expected soon. He added that the plan to raise capital is in its early stage.

The board is likely to consider the plan and take a decision after declaring the quarterly earnings of its subsidiaries. The plan is to raise nearly Rs. 8000 cross using a dual tranche of QIP, rights issue or warrant issue. The amount of capital raised will be used by the company to deal with higher costs and for expansion purposes. It is due to the current situation that has led many businesses to sell majority of their stakes at cheap valuations. Money mortgage lenders will have an adverse effect on their home sales. There would be a significant impact on the financial health of their borrowers. It is because many businesses cutting jobs and finding it difficult to make payments during this economic slowdown.

 

The Stress Test on investors:

HDFC Bank Limited, a subsidiary of HDFC Group recently conducted a stress test on its investors. The result showed an increase in the bad assets of lenders. 1.52% of HDFC is owned by mutual funds, 70.88% by foreign portfolio investors and 8.06% by insurance companies.

The current market price of the HDFC Ltd is Rs 1,727 per share. Rs 8,000 crores comes around 2.7% of stake of HDFC Limited.

 

 

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RBI Lowers CPI Inflation Forecast to 3.7% for FY26 Amid Stable Price Outlook
Economy - May 5, 2020

RBI to make TLTRO more effective

RBI to make TLTRO more effective

The RBI is expected to take steps in order to make the Targeted Long Term Repo Operations (TLTRO) more effective so it solves the liquidity crisis of NBFCs. The RBI Governor Shaktikanta Das said that it promises the representatives of NBFCs sector and microfinance sectors that they are working on strengthening the mechanism of TLTRO.

 

The meeting and discussions:

As per the statement given by RBI, the meeting was held with the representatives of NBFCs and micro financial institutions to discuss the issues regarding unavailability of liquidity from the banks and the extension of loan moratorium. In the meeting, it was requested to shift the loan moratorium period from March-to-May and April-to-June since the repayments from the customers are already collected for the month of March.

 

The suggestions given by Sa-dhan:

Sa-dhan, the micro lenders association suggested that there should be a direct lending given by the RBI to small and medium financial institutions to sustain the liquidity crisis faced by them. It has also requested for a relaxation in the norms relating to asset classifications for the next 3 months i.e. up to 30th September 2020.

The representatives of NBFC sector for the meeting were Ramesh Iyer, the chairman and TT Srinivasaraghavan, the director of Finance Industry Development Council (FIDC). The chairman Manoj Nambiar and CEO Harsh Shrivastava, the co chairperson K Paul Thomas and executive director P Satish of Sa-dhan attended the meeting as the representatives for the microfinance sector.

 

TLTRO can inject liquidity for smaller NBFCs:

Some of the industrial leaders said that TLTRO, which has been created by the RBI to solve the problem of illiquidity cannot be accessed by the smaller firms. RBI said that the banks can borrow and invest at least 50% of it in securities issued by microfinance sectors and NBFCs.

The first auction of Rs 25,000 crores had bid just above 50% because the banks were not willing to invest in smaller firms. The RBI identified the reason for such uninterested response and is taking necessary steps to solve it.

 

Problems of NBFCs & MFIs:

P Satish said to the media that NBFCs and MFIs have started operations on Monday and many of them are finding it difficult to have funds for salary payments and other operational expenses. Nearly 24% of the NBFCs have only received the payment from lenders in the lock down period. If the moratorium is not extended by the SIDBI, Mudra and SBI, it would cause a huge problem since they have a vast exposure to small and medium-sized MFIs.

 

 

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Equity Right
Economy, Market News, Markets - May 4, 2020

Jio Platforms acquire investment from Silver Lake

Jio Platforms acquire investment from Silver Lake

After the announcement of Facebook-Jio deal worth $5.7 billion a few weeks ago, Silver Lake, a technology investment firm is to invest $750 million (Rs. 5,655.75 crores) in telecommunications giant Jio Platforms Ltd. The investment is for 1.15% stake of the company at an equity value of Rs.4.90 lakh crores.

 

The Deal:

As per the deal announced by Reliance Industries Limited and Jio Platforms Limited, Silver Lake will invest $750 million in Jio platforms. This investment represents an equity value of Rs 4.9 lakh crores of Jio platforms and takes Jio’s enterprise value to Rs. 5.15 lakh crores. It represents 12.5% premium to the valuation of the investment made by Facebook which bought 9.99% of Jio Platforms Ltd.

Reliance Industries’ wholly owned subsidiary, Jio Platforms mainly focuses on next generation technologies. Reliance Jio Infocomm is a wholly owned subsidiary of Jio Platforms Limited which offers voice over LTE on its 4G network. The regulatory and customary approvals for the transaction are yet to be received. The financial advisor of Reliance Industries was Morgan Stanley. The legal counsel were ASB & partners and Davis Polk and Wardwell.

 

Statements by the CEO:

Reliance Industries Chairman and MD, Mukesh Ambani said that Silver Lake is one of the best technology and Finance firm. RIL is delighted and encourages such global technology relationships which will help them to transform the Indian Digital Society.

The Co-CEO and Managing partner of Silver Lake, Egon Durban said that Jio Platforms has great potential and has the power to bring low-cost Digital services to their customers and also to the small businesses population.

 

How will this deal help the economy?

Jio platforms stated that the COVID-19 pandemic has caused several economic disruptions globally and in India. This partnership with one of the the best technology investors, Silver Lake will have a significant role in revitalization of the Indian economy. The investment by Silver Lake will further help Jio in developing the world class digital platform it has built, powered by Broadband connectivity, Smart Devices, IoT, Blockchain technologies, etc.

Silver Lake is a technology investment firm with over 43 billion combined AUM and committed capital. They have nearly 100 investment and operating professionals worldwide. On 30th April 2020 while announcing its quarterly and annual financial results Reliance Industries said that it will achieve zero net debt status. The company has received proposals from other strategic and financial investors for a similar sized investments. They will announce it the coming months.

 

 

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