Revolut Eyes $65 B Funding Round to Fuel U.S. Expansion

Business, Economy - May 6, 2020

States impose higher taxes to raise revenue

States impose higher taxes to raise revenue

After 40 days, the government has decided to heave the lock down in some areas where no COVID-19 cases exist. The decision comes with some additional norms. On May 4, liquor shops were opened across the country. Currently, all states are struggling for funds due to lock down measures taken to overcome this pandemic. This has resulted in halt of all economic activities. In terms of revenue, taxes on alcohol play very crucial role in earning tax revenue. Around 10-15% tax revenue is earned from alcohol and 15-20% from petroleum products.

How much tax is increased?

To raise revenue, the state governments has increased the sales taxes on liquor and excise on fuels. Almost 13 states have increased taxes. Delhi has put a 70% tax on all types of liquor. The Andhra Pradesh government has increased the tax to 50% on liquor. Earlier, the tax rate was 25% in Andhra Pradesh which has now increased. Rajasthan and West Bengal have also increased the tax on liquor by 15% and 30% respectively. Fuel prices are also hiked by the states. Rajasthan had already increased prices on 22nd March by Rs. 2.2 per litre. The prices was raised again by 0.5-1.1 per litre. The Delhi government raised VAT on both diesel and petrol to 30%.

Importance of liquor sale to states:

Alcohol sale support states to earn more revenue than from other commodities. Revenues are earned from taxes on commodities like country spirits such as malt liquor, country fermented liquor, foreign liquor and spirits such as medical and toilet product which contain alcohol, commercial and denatured spirits, Indian made foreign liquor which are sold to canteen stores and other drugs which contains alcohol. Other than this, income is also earned by confiscating, licensing and penalties imposed on alcohol products.
According to the Indian ratings and research firm, more than 20% revenue of states and union territories such as Himachal Pradesh, Rajasthan, Meghalaya, Sikkim and Karnataka is earned only through sale of alcohol. Uttar Pradesh, West Bengal, Punjab, Madhya Pradesh, Telangana and Chhattisgarh earn 15-20 %. Andhra Pradesh, Odisha and Haryana earn 10-15% and rest of the states earn less than 10%.

Budget 19-20 report of RBI:

On an average, states shares 46% in total revenue receipts and the same is contributed to the central. According to this report, five revenue heads such as property and capital transaction tax, vehicle tax, Value added tax (VAT), SGST and state excise tax contribute 90% to the SOTR (state own tax revenue).

HDFC eyes up to raise capital amid pandemic

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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

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.

Investors get relief with standardized digital KYC process

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Aarti Industries Ltd Q1 FY23 Result Updates.

Economy, Market News, Markets - May 6, 2020

Investors get relief with standardized digital KYC process

Investors get relief with standardized digital KYC process

Know Your Customer (KYC) process generally contain heaps of paper work regarding customer identity and customer acceptance policy. All this makes the KYC process very lengthy and tedious. However, e-KYC is the option available to users but, for e-KYC stock brokers and various online mutual fund platforms didn’t have any standardized or unique set of procedures. E.g. In Person Verification (IPV) is completed by allowing customers by sending their recorded video to the concerned broker while some send their representative to the client’s home for the completion of In Person Verification (IPV).

New standard and unique procedure for Digital KYC:

Due to the unusual wake of Covid-19, the Indian government and Securities Exchange Board of India (SEBI) came up with standard and unique procedure for Know Your Customer (KYC). Media reports noted that Securities Exchange Board of India (SEBI) fetched responses from various brokers about how the KYC process is executed presently and then they released new standardized norms of how digital KYC should be executed.

Details regarding Aadhar based KYC:

A notification was published by Finance ministry of India on 22nd April 2020, regarding KYC process to be completely digitized for transactions through some institutions. Notification states that 9 institution’s viz. Link Intime India Pvt Ltd, CDSL Ventures Ltd, Bombay Stock Exchange (BSE), CAMS Investor Services Pvt Ltd, Central Depository Services (India) Ltd, and National Stock Exchange (NSE) can now undertake Aadhar based e-KYC. Notification noted that all the 9 institutions follow all the standards of privacy and security under the Aadhaar Act 2016.

Details regarding Online KYC:

Securities Exchange Board of India (SEBI), clarified the KYC process and its functioning. SEBI notified various online services that Mediators can practice for completion of KYC process.

Some of online KYC are followed:

Aadhaar eSign

Aadhaar eSign is the method recommended by government, in which we can digitally sign a document using Aadhaar. It will be equivalent to the normal sign we do, i.e. physical sign using pen. This will be completed using One-Time Password (OTP).

Digilocker

Digilocker is an initiative of Central government. It allows an individual to store their personal documents online using cloud storage provided by Digilocker. It provides free upload of documents up to 1 GB. Users can store their PAN card, Driving Licence and other important documents. Digilocker is fully secured, while creating an account. The 12 digit Aadhaar number is compulsory and further every time you login to Digilocker, a 4 digit One-Time Password (OTP) will be sent on the linked mobile number with Aadhaar. Digilocker allows you to sign digitally through their platform. Securities Exchange Board of India (SEBI), allowed verification of documents for KYC process using Digilocker. Documents uploaded on Digilocker can be treated as original documents.

In Person Verification (IPV)

In Person Verification (IPV) can be done effortlessly by using mediator’s portal or application. For IPV, a representative from the mediators can connect client through video call and ask some relevant questions. Investor can complete their In Person Verification (IPV) by presenting their original documents on video call.

The complete procedure of KYC:

The complete KYC procedure will be executed online as per SEBI norms by using broker’s application and online portals. They can cross verify clients by name and all the personal details uploaded by them on Digilocker with digital sign. IPV using video call will ensure all the proofs provided by client are genuine. Aadhaar authentication will be done by the Unique Identification Authority of India (UIDAI) whereas PAN authentication will be done by the database available in Income tax department.

Provision made to check the authentication of bank account is very simple. ₹1 will be deposited in a client’s bank account to verify all the details. This is termed as “Penny Drop” mechanism. Once all the verification is done, clients can download all the documents, do E-Sign on each document and upload it back to the portal. Another way customer can follow is to print all the documents, sign them, and upload the scan copy of it in the portal. Due to all this new measures started by government, investing online is an easy-going task.

Pre-GST CENVAT credit available till 30th June revised

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GST 2.0 Boost: Investment Opportunities in Automobiles and Consumer Durables

Economy - May 6, 2020

Pre-GST CENVAT credit available till 30th June revised

On Tuesday, Delhi’s High Court allowed people enlisted under the Goods and Services Tax to claim outstanding CENVAT credits from the pre-GST system before 30 June, 2020. The advantage of the transitional credit will extend for a term of three years, which is the duration laid down in the Limitation Act. Businesses with pre-GST tax credits will be entitled to claim them by 30 June of this year. The Delhi High Court rejected the arguments of the revenue department that they should have been considered within three months of introduction of the indirect taxation system.

Timeline and benefits:

Abhishek Rastogi, partner of Khaitan & Co., refers to Rule 117 of the CGST Act, which placed a time limit of 90 days to claim a transitional CENVAT credit. The court concluded that the deadline laid down in the law was clear and not compulsory. At a virtual hearing, the court concluded that a timeframe of three years will be available to claim these credits under the terms of the Limitation Act. By filing the TRAN-1 form, taxpayers were permitted to bear input tax credits from the excise and service tax system, under the GST Act. Even though the first cutoff time terminated in September 2017, a few augmentations were given by the Government until December 27, 2017.

Taxpayers were permitted to claim due till 31 March 2020 that were unable to do so due to technical issues. The Court also said that the three-year extension will apply not only to the applicant but also to all persons with CENVAT credit until 30 June 2017. According to market analysts, there are as many as 10,000 such entities. Rastogi claimed that Rule 117 of the CGST Act is unfair, unlawful, and in breach of the right to equality established in Section 14 of the country’s constitution. It is to the point that it places a time limit on the allocation of tax benefits from the existing indirect tax system. Although, Rule 117 of the GST Act requires a time limit to obtain a refund. Taxpayers protested in court that an input tax credit was a privilege and not a tax compromise.

Relief to taxpayers:

At the simulated hearing conducted today by the Delhi High Court, it was specifically mentioned that the specified time limit would not apply because it is a directory and not a compulsory one. The court also ruled that the prolonged duration of three years would refer not only to petitioners but also to all those petitioners who are experiencing problems with transitional credits. The Government has ensured since the launch of the GST that an enormous amount of transitional credit has been misused. An examination of almost Rs 2 lakh crore of transitional credits was announced before the underlying cutoff time was completed by the indirect tax department.

Cryptocurrency EOS dips by 11%

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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.

Cryptocurrency EOS dips by 11%

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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.

India may cap stimulus package to protect credit rating

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Economy, Market News, Markets - May 2, 2020

India may cap stimulus package to protect credit rating

What does Sovereign Credit Rating Interpret?

Sovereign Credit Rating refers to the evaluation of debt paying capacity of a country based on their previous credibility of how previous debt is settled off. Sovereign Credit Rating are published by credit rating agencies. They are estimated by credit rating agencies like Standard & Poor’s (S&P), Moody’s, Fitch Ratings.

Importance of sustaining decent Sovereign Credit Rating:

For all developing countries, it is vital to maintain a decent Sovereign Credit Rating for overall growth of the economy. Decent Sovereign Credit Rating will aid to attract Foreign Direct Investment in the country.

Sovereign Credit Rating of India:

In the preceding year, Sovereign Credit Rating of India by Moody’s was negative, but afterwards they revised it to stable. Previously, Fitch Ratings forecasted growth rate of India will slow down its pace to 4.6% in the end of FY20 as compared to growth rate of 6.8% in FY19.

Regulating Indian Sovereign Credit Rating:

The Indian Government has limited the comprehensive spending on the unexpected spread of COVID-19 to ₹4.5 lakh crore. Additionally, they mentioned its important to have a detailed check on Indian Sovereign Credit Rating for safeguarding the economy.

Credit rating agencies stared demotion in their rating have been started in many countries. Thus different Credit rating agencies warned India if government tries to spend excess funds to curb the spread of COVID-19 virus. It may degrade the fiscal outlook of the country. In mid-March, the government disbursed ₹1.7 lakh crore to fight against the pandemic.

Major concern of everyone, is the Indian economy is stable?

A recent survey conducted by Federation of Indian Chambers Of Commerce & Industry (FICCI) and Dhruva advisors shows that businesses in India may slack their position in the market in near future. FICCI stated that responses from the survey highlights that the government should immediately come up with revival plans especially in Industry sector.

All the small and large companies are on pay cut including the prime minister and the president. Many SME’s gave up their office space due to pilling of a huge amount of rent and to keep control on their expenditures.

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Infosys to LTIMindtree: IT Stocks Climb on Fed Relief

Economy, Market News, Markets - May 2, 2020

SEBI demands info on unlisted bonds

SEBI demands info on unlisted bonds

The SEBI has asked the mutual fund industry to share information pertaining to the holdings in unlisted bonds. These are securities which cannot be traded in the Indian bond market. This is due to the corona virus outbreak which has froze the entire bond market, It has made the fund managers unable to sell or pledge their funds.

Data to be submitted to SEBI:

SEBI has asked the mutual fund industry to provide details regarding the assets under management of holding unlisted NCD schemes. Adding to it, the details of investments in unlisted bonds and the share in such bonds.

Extending the deadline:

SEBI has directed the mutual fund industry to decrease the investment in unlisted NCDs to 15% by the end of March and to 10% by the end of June 2020. Looking into the current scenario of the mutual fund industry, SEBI has increased the deadline by 6 months. In the month of October, the mutual fund industry was prohibited from investing in unlisted bonds by SEBI. This led to illiquidity of unlisted commercial papers and unlisted NCDs in securities.

Shut down of 6 debt funds by Franklin Templeton:

Recently, Franklin Templeton shut down 6 debt funds which comprised nearly 32% of the total value of unlisted papers. SEBI has asked the Association of Mutual Funds in India to give the details regarding the total portfolio’s investment breakup in such unlisted NCD schemes. It must include the residual maturity of listed and unlisted bonds and the details regarding other listed securities.

An industry person said to the media that some of the listed bonds are illiquid in the current market. SEBI will probably scrutinize the level of risk and stress the system if the redemption continues. These are particularly related to the mid sized companies with unlisted NCDs. It is because the terms and conditions are not easily available for such unlisted papers.

Friday’s deadline:

The deadline given by the SEBI to fund houses was Friday. A source said to the media that Friday was a bank holiday and the stock exchanges were closed. Hence, they didn’t expect an email from SEBI asking for the data. Many funds have been redeemed leading to an increase in the bond yields. Many mutual fund industries have asked banks to avail loans to increase the liquidity position. The fund industries would generally take an overdraft facility from banks to meet their cash flow needs.

Losses borne by AMCs when funds are borrowed:

A fund manager said that whenever the mutual fund schemes borrow, they have to pay interest to the extent of average portfolio yield. Mostly the borrowings are higher than portfolio yields and the difference is to be borne by the Asset Management Company. 20% of its AUM can be borrowed by the mutual fund schemes.

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Peerless Group to Exit Insurance Distribution and Double-Down on Hospitals

Business - May 2, 2020

IT firms to reduce subcontractors to control costs

IT firms to reduce subcontractors to control costs

Over the past few weeks, the COVID-19 pandemic has emerged as a significant and global challenge creating worldwide disruption. In order to combat this crisis and maintain the health of businesses, Indian IT Companies are planning partial self satiation by reducing their dependency on sub contractors. Believably, this will aid them in cost curtailing, since it becomes difficult to bear fall in businesses due to Covid -19 pandemic. According to Mr Debashis Chatterjee, CEO of Mindtree Ltd, which is an Indian multinational IT and Outsourcing Co., subcontracting costs shall fall in the coming months. TCS Wipro and Infosys agrees to the same.

Recently Mr. Chatterjee mentioned that in the coming quarters, the firm based in Bengaluru will continue reducing their subcontracting costs. Research says subcontracting alone makes up around 10-15% of the total employee cost. This was not the scenario few years back. Sub contracting expenses hiked in recent years because IT companies wanted new age technically skilled team. They did not bother their in house talent for the same. According to data, in the last fiscal year, TCS paid subcontracting cost that comprised of 13% of total employee cost. Similarly Wipro, Infosys and Mindtree shelled out around 22%, 12% and 11% respectively. Total employee cost is sum total of internal employees costs and subcontracting costs.

What are IT companies like TCS, Wipro, Infosys, Mindtree planning then?

It seems Covid-19 urges IT companies to get self sufficient and get their staff skilled. Milind Lakkad, Global Head Human Resources at TCS told media that they will try and lower their dependency on contractors. This step is taken to control cost. For meeting this goal, they look forward to build talent within the organization. They will go for hiring in a limited manner in hunt of specific skills. On similar lines, Wipro’s Chief Head, Human Resources Saurab Govil informs that they are screening the entire supply chain of employees, including hiring and subcontractors.

Narrating media on how huge chunk their billable are the sub contractors bills, he mentions they stand around 10-11%. The company is planning to replace them with their existing workforce. Infosys CFO Nilanjan Roy, reconfirms that according to him subcontracting will pave way towards cost optimization. Further adding he says their strategic cost optimization in automation, pyramid rationalization and also sub contracting shall not terminate and will continue. He believes the company’s strong clientele relationships and talented engine shall together enable them face this economic turbulence.

What Xpheno has to say?

Xpheno, a Specialist Staffing Solutions Company which is into offering IT Staffing, Engineering Services, Sales Staffing and Direct Hire says, IT companies are resorting to various ways to curtail their cost, by either planning to reduce the number of contractors, or expecting rate cuts from the sub contractors. While other companies are asking sub contractors to provide deferred payment options, mentions Kamal Karanth, co-founder of Xpheno.

Volatility for Hindustan Unilever to continue

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Business, Market News, Markets - May 1, 2020

Volatility for Hindustan Unilever to continue

Volatility for Hindustan Unilever to continue

India’s largest fast-moving consumer goods company announced its Q4 results on April 30. The company witnessed a downfall in volume by 7% in this quarter. The performance has been affected by the effects of Covid-19 since the second half of March. As per the Q4 result, Profit Before Tax (PBT) decreased by 10.6% and Net Profit decreased by 1.2%. The revenue of the company decreased by 9.4% to Rs 9.011 crore. The EBIDTA margin decreased by 160 basis points and growth decreased by 7%.

Impact on performance due to COVID-19:

The spread of COVID-19 affected the company from mid-march. This decline is due to the lock-down all across the world to control the spread of the COVID-19 pandemic. This has impacted the demand and supply chain. Beauty and personal care contributes 42% of sales, which is down by 14%. Other categories like homecare and food & refreshments are both down by 4% and 7% respectively. Only a part of the health and refreshment is a client base which includes tea and coffee. Even the recently purchased diet portfolio of the firm, comprising of Horlicks and Boost, does not count as a market base.

Other elements affecting stock prices are currency and crude oil price fluctuations. According to Sanjiv Metha, Chairman and Managing Director stated the human influence of the pandemic is unclear and they are completely committed to collaborating with the government to ensure that we solve the crisis. Instability in input expenses and currency will increment, with liquidity constrains prone to keep on developing. As indicated by HUL, it is hard to guess the market growth. The organization is currently running at around 70% of the normative standard and is planning to increase this in the coming days.

Strategies to improve efficiency:

Strategies to increase productivity are reduction in non-essential spending, Capex optimization, inventory management, credit allocation, emphasis on receivables, investment stability, etc. HUL has increased production in main categories such as sanitizers and handwashes. They are now working with shorter preparation cycles, improving the supply chain and increasing efficiency.

About the stock:

HUL has a Market cap of Rs.5,15,708 crore. The stock’s last traded price was Rs.2,195 and was 1.65% low. HUL’s 52 weeks low is 1656 and 52 weeks high is 2,614. The stock is likely to be corrected due to its overvaluation and extension of lockdown in the highly affected areas. This is disturbing for financial specialists, proposing that market request can not bounce back long after the lockout has finished.

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