The stock bourses are shut today on account of Diwali Balipratipada. The currency market is also shut today.
Join us as we follow the top business news through the day.
How should the Covid-19 vaccine be distributed?
Stimulus 3.0 supportive for growth but fiscal impact unclear
Taking stock of the government’s latest stimulus.
PTI reports: “India’s third tranche of stimulus measures should support economic rebound over the coming quarters but the actual fiscal impact is difficult to ascertain, Fitch Solutions said on Monday.
The government on November 12 announced another stimulus package, called Aatmanirbhar Bharat Abhiyaan 3.0, totaling Rs 2.65 lakh crore. The package included a boost to formal employment, the Production Linked (PLI) Scheme, an increase in the fertiliser subsidy and the rural employment programme, MGNREGA.
Motilal Oswal in a separate report said its calculations suggest the actual fiscal outgo in FY2021 could be a maximum of Rs 1.1 lakh crore (0.5 per cent of GDP).
This, along with the previous announcements, total fiscal package amount to Rs 17.7 lakh crore (8.7 per cent of GDP). “However, our calculations suggest the actual fiscal outgo in FY21 could be a maximum of Rs 4.7 lakh crore (2.3 per cent of GDP),” it said.
In a report, Fitch Solutions said India’s fiscal deficit is likely to be 7.8 per cent of the GDP in the Fiscal Year’21 (April 2020 to March 2021).
“While many of (Stimulus 3.0) scheme should be supportive to India’s economic rebound over the coming quarters, the actual impact on public finances is difficult to ascertain,” Fitch said.
The PLI scheme, for instance, spans across a five-year period, and their fiscal impact will likely only be seen from FY2021-22 onward, it said.
“Estimating using the outright fiscal outlays from this announcement, ‘Stimulus 3.0’ appears to suggest additional expenditure of Rs 1 lakh crore (0.44 per cent of FY2019/20 GDP),” it said.
Moreover, the announcement did not outline any additional borrowing to finance these additional spending, which suggests a reallocation of FY2020/21 budget expenditure plans instead, Fitch added.
Exactly a month after the ‘Aatmanirbhar Bharat Abhiyaan 2.0’ package — which included announcements regarding consumption and investment — was announced on October 12, the central government came out with its third round of stimulus package.
Stimulus 3.0 package included Rs 1.6 lakh crore toward the PLI Scheme and the remaining Rs 1.2 lakh crore toward the other 11 announcements such as the extension of the Emergency Credit Line Guarantee Scheme (ECLGS 1.0) up to March 31, 2021, the launch of ECLGS 2.0 for the 26 stressed sectors, income tax relief for developers and home buyers, and budget outlay for R&D toward the COVID-19 vaccine.
Additionally, the central government also increased the budget outlay for urban housing (under the Pradhan Mantri Awas Yojana — PMAY), fertilizer subsidy, and Mahatma Gandhi National Rural Employment Guarantee Act.
Of this Rs 1.2 lakh crore, 54.6 per cent or Rs 65,000 crore is additional allocation toward fertilizer subsidy, which takes the total FY21 allocation to Rs 1.4 lakh crore, Motilal Oswal said.
“This is surprising as actual data suggests spending of only Rs 55,400 crore in 1HFY21, implying the government intends to spend Rs 80,900 crore more in 2HFY21. Thereby, expect massive growth of 220 per cent year-on-year in 2HFY21 over the subsidy provided in 2HFY20.”
The brokerage said Stimulus 3.0 along with the Pradhan Mantri Garib Kalyan Package (PMGKP), the first two packages under the ‘Aatmanirbhar Bharat Abhiyaan’, and extension of the PMGKP amount to a total estimated fiscal stimulus of Rs 17.7 lakh crore (8.7 per cent of GDP).
“However, our calculations suggest the actual fiscal outgo from these packages could be up to a maximum of Rs 4.7 lakh crore (2.3 per cent of GDP),” it said.
Of the remaining Rs 54,100 crore of Stimulus 3.0, Rs 10,200 crore has been set aside for additional capital spending by the central government this year.
“This too comes as a surprise. Capital expenditure incurred by the central government in 1HFY21 was 11.6 per cent year-on-year lower at Rs 1.7 lakh crore and only 40.2 per cent of FY21 Budget Estimate (an eight-year low).
“Therefore, additional Rs 25,000 crore announced in ‘Aatmanirbhar Bharat Abhiyaan 2.0’ and Rs 10,200 crore (in Stimulus 3.0) takes the total capital expenditure target to Rs 4.5 lakh crore, indicating the government’s intention to spend another Rs 2.8 lakh crore in 2HFY21. If so, the growth in capex expected in 2HFY21 alone would be 88.6 per cent YoY,” Motilal Oswal said.
It said the announcements of an additional Rs 10,000 crore toward MGNREGA, EPFO subsidy support worth Rs 6,000 crore toward new hiring (fresh hires and those who lost their jobs between March 1 2020 to September 30, 2020), and additional Rs 18,000 crore toward PMAY-Urban are all welcome moves.
The magnitude of each of these announcements, however, still seems disappointing, it said.
Also, there were certain announcements such as Rs 900 crore toward R&D for the COVID-19 vaccine and Rs 6,000 crore toward government equity investment in the National Infrastructure Investment Fund (NIIF).
“However, since we are unsure of when the spending might actually be undertaken, these areas remain ambiguous,” it said.
“All in all, fiscal stimulus package 3.0 is another incremental step toward the betterment of the rural sector, which unfortunately leaves the severely battered urban sector awry,” it said.
The government’s reiteration to not tweak its borrowing calendar anymore beyond the already increased amount of Rs 12 lakh crore makes it really difficult to believe how all this additional spending would actually be incurred.
“Consequently, the bigger question about whether or not this is new spending by the government remains,” Motilal Oswal said.”
COVID-19 hits shopping mall launches in the country
The hit to consumer spending has naturally affected new mall launches.
PTI reports: “Launching of shopping malls in 2020 was hit badly with only five properties beginning operations so far against a pre COVID-19 estimate of 54, which were likely to be unveiled across the country this year, a global property consultant said on Monday.
Severely impacted by the pandemic, just five malls with 2.75 million square feet of space, came up and considering the progress in construction work, 14 new malls spanning 5.9 mn sq. ft. area are likely to completed by 2021- end.
“Before the COVID-19 lockdown in March, our research indicated that Indian cities were to see new supply of approximately 54 new malls in 2020 spread over nearly 22.2 million square feet area.
“Of this, the top seven cities were to see new supply of nearly 35 malls spread over approx 14 million square feet while Tier II and III cities were to see new supply of 19 new malls over 7.6 million square feet,” Anarock Retail CEO and MD Anuj Kejriwal said.
The five new shopping malls were launched in cities like Gurgaon, Delhi, Lucknow and Bengaluru, he said.
In 2021, at least six malls are likely to be completed in Mumbai, to be followed by Bengaluru with three, he said.
Tier II and III cities such as Lucknow, Thiruvananthapuram and Rourkela will see new malls in the next fiscal, Kejriwal said.”
India’s diesel sales fall 5% in early November – industry data
A surprise fall in diesel sales despite the easing of lockdown measures.
Reuters reports: “India’s diesel sales fell 5% in the first half of November compared with the previous year, preliminary data showed on Monday, after rising for the first time in eight months during the month of October.
Diesel consumption, a key parameter linked to economic growth and which accounts for about 40% of overall refined fuel sales in India, fell 5% year-over-year to 2.86 million tonnes during the first fifteen days of November.
Sales of gasoline rose marginally to 1.03 million tonnes, the industry data showed.”
WPI inflation at 8-month high of 1.48% in Oct on costlier manufactured items
The wholesale price-based inflation rose to an eight-month high of 1.48% in October, as manufactured products turned costlier.
The WPI inflation was 1.32% in September and zero per cent in October last year.
This is the highest level of Wholesale price index-based (WPI) inflation since February when it was 2.26%.
While food article prices softened in October, manufactured items witnessed hardening of prices, according to data released by the Commerce and Industry Ministry on Monday.
Food inflation in October stood at 6.37%, as against 8.17% in the previous month.
The rate of price rise in vegetables and potato remained high at 25.23% and 107.70%, respectively, during the month.
Mutual funds add 4 lakh folios in Oct; total tally at 9.37 crore
Investor enthusiasm remains high despite high market volatility.
PTI reports: “The mutual fund industry has added over 4 lakh investor accounts in October, taking the total tally to 9.37 crore, primarily on account of contribution from debt schemes.
Market experts said the addition of folios suggests that investors were undeterred by the market volatility.
Besides, it indicates their understanding of the market risks associated with the mutual fund schemes, they added.
According to data from the Association of Mutual Funds in India (Amfi), the number of folios with 45 fund houses rose by 4.11 lakh to 9,37,18,991 at the end of last month from 9,33,07,480 at September-end.
The sector added 7.37 lakh investors account in September, 4.25 lakh in August, 5.6 lakh in July, 5 lakh in June, 6.13 lakh in May and 6.82 lakh in April.
Of the total new folios last month, more than 2 lakh were added in debt funds.
Folios are numbers designated to individual investor accounts. An investor can have multiple folios.
The number of folios under equity and equity-linked saving schemes rose by 30,000 in October to 6.39 crore.
Debt schemes folios count went up by 2.23 lakh to 75.25 lakh. Barring, long duration, credit risk, all categories in debt funds witnessed growth in folios.
Short duration funds added Rs 41,690 folios in October, followed by corporate bond funds (Rs 33,935), liquid funds ( 28,839) and banking and PSU (public sector undertaking) funds (Rs 17,075).
Overall, investors infused Rs 98,576 crore in various mutual fund schemes last month, driven by robust inflows in debt-oriented schemes.
Debt-oriented schemes witnessed a net inflow of Rs 1.1 lakh crore in October, after recording net outflows for two months in a row. The inflow was largely on the back of a significant investment in liquid, short-duration and money market categories.
On the other hand, the equity mutual funds saw an outflow for the fourth consecutive month to Rs 2,725 crore in October, mainly on profit-booking by investors.”
Walmart nearly exits Japan after selling majority stake in Seiyu
Walmart Inc. is selling a majority stake in Japanese supermarket chain Seiyu to investment firm KKR and e-commerce company Rakuten for over $1 billion, after suffering years of poor profitability amid stiff competition.
The deal, which values Seiyu at 172.5 billion yen ($1.65 billion) including debt, comes after on-off speculation about the world’s biggest retailer looking to exit Japan. It is below the 300-500 billion yen it reportedly sought a few years ago.
KKR will buy 65% of Seiyu and Rakuten will acquire a 20% stake while Walmart will retain 15%, the companies said in a joint statement on November 16.
Walmart first entered the Japanese market in 2002 by buying a 6% stake in Seiyu, and gradually built up its stake before a full takeover in 2008.
But it has struggled in Japan, like other foreign entrants such as Tesco PLC and Carrefour SA who were lured by the high spending power of Japanese consumers but were frustrated by tough competition.
Gold hits 1-week high as dollar eases, pandemic worsens
The second wave of the pandemic is turning out to be good for the yellow metal.
Reuters reports: “Gold prices touched a one-week high on Monday as the dollar retreated, while mounting U.S. coronavirus cases fuelled concerns over the pandemic’s impact on economic recovery, underpinning hopes of further monetary stimulus.
Spot gold rose 0.2% to $1,892.15 per ounce by 0540 GMT, after hitting its highest level since Nov. 9 at $1,898.81 earlier in the session. U.S. gold futures were up 0.3% at $1,892.20.
The dollar index hit a one-week trough, making bullion cheaper for holders of other currencies. Coronavirus cases crossed the 11-million mark in the United States on Sunday, while President-elect Joe Biden’s top advisers called for urgent action to address the crisis.
“There are still underlying problems in structural economies, with job creation being the biggest problem,” said Stephen Innes, chief global market strategist at financial services firm Axi. “Central banks are going to keep the markets flushed enough to bridge this gap between now and the vaccine.”
Germany’s Economy Minister Peter Altmaier said the country should brace for another 4-5 months of severe measures to halt the outbreak. U.S. Federal Reserve Chairman Jerome Powell repeated last week his view that more action from the central bank and Congress, in the form of further fiscal stimulus, would likely be needed.
Gold, which tends to benefit from stimulus measures from central banks as it is considered a hedge against inflation and currency debasement, has soared 25% this year. Prices fell 3.3% last week after Pfizer said its experimental COVID-19 vaccine was over 90% effective based on initial trial results.
“From a technical point of view, gold may face some resistance around $1,900-$1,905,” said Howie Lee, economist at OCBC Bank, adding that bullion’s move higher depends on clarity on fresh U.S. fiscal stimulus. Silver rose 1.1% to $24.91 per ounce. Platinum rose 1% to $897.52, while palladium was 1.1% higher at $2,350.20.”
Maruti Suzuki India sells over 2 lakh cars via online channel
Yet another pandemic-induced trend in the economy.
PTI reports: “The country’s largest carmaker Maruti Suzuki India on Monday said it has sold over two lakh cars through the online channel.
The company, which initiated its online sales platform around two years back, said the digital channel now covers nearly 1,000 dealerships across the country.
“Since the introduction of this new digital channel in 2018, we have witnessed three times increase in digital enquiries and recorded sales of over 2 lakh units since April 2019. This digital channel has helped to generate over 21 lakh customer enquiries,” Maruti Suzuki India Executive Director (Marketing & Sales) Shashank Srivastava said in a statement.
Citing ‘Google Auto Gear Shift India 2020 Report’, he said nearly 95 per cent of new car sales in India are digitally influenced as per the customers first research online and then buy at the physical dealerships. While online experience provides the complete spectrum of information to the customers, at the last mile the customers seek assurance of the deal from their trusted dealer advisors.
“Interestingly, customers who enquire through our digital channel end up purchasing a car within 10 days. This reaffirms that with a robust online to offline platform executed by a digitally enabled salesforce, converting digital enquiries into sales becomes easier,” Srivastava said.
He said the company witnessed a two-fold increase in ‘Near Me’ customer searches for Maruti Suzuki dealers.
“Our investment to create a hyper-local platform is to help customers discover faster and connect to their nearest dealers. This initiative has seen rapid growth in recent times. In the last two years, we have integrated over 1,000 dealerships across 3,000 online touchpoints in this digital transformation journey,” Srivastava added.
Maruti Suzuki India began taking online bookings in 2017. The company said as customer behaviour further shifts online, its dealership’s websites are witnessing a much larger traffic flow.
“The positive results of the initiatives are evident as digital enquiries for Maruti Suzuki have seen a five-fold increase to around 20 per cent of total sales. In the prevailing COVID-19 scenario, the digital enquiry contribution has further increased exceeding 33 per cent during the last five months,” the company said.”
Fed balance sheet grows to a third of US GDP
Reliance Retail acquires Urban Ladder
Reliance Retail Ventures Ltd. (RRVL), a subsidiary of Reliance Industries Ltd. (RIL), has acquired 96% of equity shares of Urban Ladder Home Décor Solutions Private Ltd. for a cash consideration of ₹182.12 crore.
RRVL has the option of acquiring the balance stake, taking its shareholding to 100% in the acquired company.
RRVL will make a further investment of up to ₹75 crore in Urban Ladder and this investment is expected to be completed by December 2023, the company said in a filing with stock exchanges.
Incorporated in India in 2012, Urban Ladder is in the business of operating a digital platform for home furniture and décor products.
It also has a chain of retail stores in several cities across India.
Let the power of compounding serve you
Often, a question comes to me from a client, viewer or reader. ‘When should I start investing for retirement?’ My answer is, ‘The day you earned your first income. The day we start working.’ If you experienced your first day of work, it also means that some day you would retire. On retirement, we all will need a ‘money’ tree that will feed us when our income stops.
Anyone who has ever sowed a seed will know that all seeds do not blossom. Many fail to germinate. Out of the few that survive, not all go on to become large trees.
Some will die after a few weeks, or months. In some cases, there could be external factors such as adverse weather conditions, an animal eating away the leaves and the like. This can be compared with our savings that may suddenly get wiped out on account of contingencies such as income loss due to an adverse economy or health-related spending.
India rate cuts bets fall as recovery gains hold, inflation stays high
Why the RBI may not resort to further rate cuts, according to the market.
Reuters reports: “Negative real rates in India and recovering growth alongside high inflation suggest its central bank has little room for more monetary stimulus, but policy is likely to stay accommodative, economists and analysts said.
Industrial production in September grew for the first time in six months while green shoots are also visible in rising goods and services tax collections, higher energy consumption, and an uptick in the purchasing managers’ index among other gauges.
With inflation staying above 7% in October for a second straight month, well above the RBI’s medium term target of 4%, views that India is near the end of the current rate cutting cycle have become more pronounced.
“The inflation rate has been consistently ahead of not only your target rate but the upper end of your target range as well. Ideally, you should be looking at rate hikes right now,” said Sameer Narang, chief economist at Bank of Baroda.
Though the central bank is unable to hike rates due to the impact of the COVID-19 pandemic on economic activity, it would still be mindful of the long-term impact of negative real interest rates on the economy, economists believe.
High inflation is a risk the RBI cannot afford to ignore, Nomura economists wrote in a note.
JOKER IN THE PACK
The RBI said on Wednesday that prospects for economic recovery have brightened, a comment interpreted by some analysts that the bank may not need to do much more to boost growth.
If the upturn is sustained over the next few months, the RBI said it expects the economy to break out of the contraction seen in the first two quarters and return to positive growth in the December quarter.
Rating agency Moody’s on Thursday revised its 2020/21 growth forecast to a 8.9% contraction from its earlier forecast of 9.6%, citing the steady decline in new and active COVID-19 cases since September.
But COVID-19 is widely seen as the joker in the pack by most analysts.
They said the central bank would help banks and corporates through lower borrowing costs unless a second wave of infections forces it to provide more direct support through rate cuts.
India’s daily coronavirus infections are less than half their peak hit in September, but the economy is still recovering from sweeping lockdowns to check the pandemic’s spread.
Since March, the RBI has slashed the repo rate by 115 basis points to cushion the shock from the crisis.
“Given the fragile state of the economy, the RBI is likely to continue with its accommodative stance for a prolonged period,” Sujan Hajra, chief economist at Anand Rathi Securities said.”
Asia forms world’s biggest trade bloc, a China-backed group excluding U.S.
Fifteen Asia-Pacific economies formed the world’s largest free trade bloc on Sunday, a China-backed deal that excludes the United States, which had left a rival Asia-Pacific grouping under President Donald Trump.
The signing of the Regional Comprehensive Economic Partnership (RCEP) at a regional summit in Hanoi, is a further blow to the group pushed by former U.S. President Barack Obama, which his successor Trump exited in 2017.
Amid questions over Washington’s engagement in Asia, RCEP may cement China’s position more firmly as an economic partner with Southeast Asia, Japan and Korea, putting the world’s second-biggest economy in a better position to shape the region’s trade rules.
The United States is absent from both RCEP and the successor to the Obama-led Trans-Pacific Partnership (TPP), leaving the world’s biggest economy out of two trade groups that span the fastest-growing region on earth.