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Friday, July 28, 2017

National Fertilisers Share Sale Gets Oversubscribed By Institutional Buyers

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New Delhi: The government’s 15 per cent stake sale in National Fertilisers (NFL) got off to a smooth start today with the portion reserved for institutional investors getting oversubscribed in the afternoon trade.

Through the two-day offer for Sale (OFS), the government is selling 7.35 crore shares or 15 per cent stake at a floor price of Rs. 72.80 a share.

The share sale would fetch about Rs. 530 crore to the exchequer. Of the 5.88 crore shares reserved for institutional buyers, bids for over 6.73 crore shares came in, representing 1.14 times the shares on offer, as per NSE data.

Bids will come in till close of market hours. The OFS will open for retail investors tomorrow.

In the secondary market, NFL scrip dropped 6.72 per cent to Rs. 73.55 a piece on BSE.

Government holds 89.71 per cent stake in NFL. The floor price of Rs. 72.80 a share is at a discount of 7.67 per cent over yesterday’s closing price of Rs. 78.85 on BSE.

So far in the current fiscal, the government has already raised about Rs. 7,000 crore through share sale in four companies.

Of this, Rs. 1,207 crore has come from initial public offering of HUDCO in May and Rs. 1,192 crore through Nalco OFS in April and Rs. 203 crore through RCF OFS in June.

Besides, around Rs. 4,200 crore have been raised through stake sale in L&T held through Specified Undertaking of Unit Trust of India (SUUTI) last month.

The government has budgeted to raise Rs. 72,500 crore through stake sale in PSUs.

Rupee weakens marginally against US dollar in early trade

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Mumbai: The Indian rupee on Wednesday weakened marginally against the US dollar amid thin trading as traders wait for the outcome of a Federal Open Market Committee meeting.

The rupee opened at 64.43 a dollar. At 9.15am, the rupee was trading at 64.42 a dollar, down 0.07% from its Tuesday’s close of 64.38.

According to a Bloomberg report, the US Federal Reserve is expected to keep rates on hold, traders are looking for comments that it could make on its balance sheet reduction plan.

The 10-year bond yield was at 6.447%, compared to its previous close of 6.43%. Bond yields and prices move in opposite directions. The benchmark Sensex index rose 0.08% or 24.24 points to 32,252.51. So far this year, it has risen 21%.

So far this year, the rupee has gained 5.6%, while foreign investors bought $8.69 billion and $16.87 billion in local equity and debt markets, respectively.

Asian currencies were trading lower.South Korean won was down 0.34%, Taiwan dollar 0.08%, Malaysian ringgit 0.08%, Thai baht 0.07%, China renminbi 0.05%, Indonesian rupiah 0.04% and Singapore dollar 0.04%. However, China offshore spot was up 0.08%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 94.06, up 0.01% from its previous close of 94.054.

RBI stops printing Rs 2000 notes, focus turns to new Rs 200 notes

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Mumbai: The Reserve Bank of India (RBI) stopped printing Rs 2000 notes about five months ago and is unlikely to print more in the current financial year, said people aware of the development. The central bank, however, has stepped up the printing of other denominations, including new Rs 200 notes, the people added on condition of anonymity.

About 3.7 billion Rs 2000 notes amounting to Rs 7.4 trillion have been printed, said one of the people cited above. That more than compensates for the 6.3 billion Rs 1000 notes that were withdrawn after Prime Minister Narendra Modi’s demonetisation move on 8 November 2016.

“Most of the printing that’s being done, about 90% is only Rs 500 notes. Nearly 14 billion pieces of new Rs 500 notes have been printed so far,” this person said.

That is also close to the 15.7 billion of old Rs 500 notes (amounting to Rs 7.85 trillion) withdrawn from circulation after 8 November.

RBI data shows that currency in circulation stood at Rs 15.22 trillion as on 14 July, eight months after demonetization. This is about 86% of the Rs 17.7 trillion that was in circulation on 4 November.

Separately, RBI’s printing press in Mysuru has also started printing the new Rs 200 notes, which are likely to come into circulation next month, according to a second person.

“Initially, around a billion Rs 200 notes are expected to hit the market,” this person added.

The central bank did not respond to an email seeking comment.

The new batches of Rs 500 notes are expected to ease the shortage of Rs 2000 notes in circulation that is being reported in certain parts of the country. The Economic Times first reported this shortage on 20 July.

“The cash crunch which existed till two months ago has now eased with RBI increasing supply of Rs 500 notes over the last 40 days,” said Neeraj Vyas, deputy managing director, State Bank of India (SBI). “But we have also seen a sharp drop in the supply of Rs 2000 notes during this period.”

RBI is possibly keeping the supply of Rs 2000 bank notes low because the central bank wants to get the right mix, according to SBI chief economist Soumya Kanti Ghosh. In the initial days of remonetisation, RBI had focused on Rs 2000 notes to quickly increase currency in circulation.

A 19 July report from SBI’s economic research wing showed that cash on hand with banks is high at 5.4% of currency in circulation compared with 3.8% pre-demonetisation. This shows that there is excess cash lying in ATMs or bank branches, most of which could mostly be Rs 2000 notes, concluded the report.

“Although we haven’t see any drop in supply of Rs 2000 notes, we expect it to be moved out of ATMs once Rs 200 notes hit the market,” said Radha Rama Dorai, country head, ATM and allied services, at ATM service provider FIS.

Is global economic recovery statistical or real?

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This Bare Talk column is all about collecting and documenting questions about the supposedly synchronized recovery that has been under way in the last four to six quarters, including in parts of the developing world. The more I tried to make sure that there was indeed a global recovery, the more I became confused and disoriented. Forget about its strength; even the alleged truth of the recovery is in doubt.

My interest in the topic was piqued when I saw a chart on the Twitter handle of American economist Brad Setser that showed a strong recovery in Chinese exports (as per Chinese data and in dollar terms) to the US, the Eurozone and Japan. Brad Setser was widely followed for his commentaries on China’s foreign exchange reserve accumulation before the crisis of 2008. He briefly went to work in the US Treasury during the Barack Obama presidency. Now, he is back to blogging, at the Council of Foreign Relations.

As is to be expected, the growth in exports to the US has been the fastest. So, I decided to check if growth in US domestic demand had indeed accelerated. I looked at the nominal dollar values of gross domestic purchases and private non-residential fixed investment. I calculated annualized growth rates over rolling six and eight quarters. The results added to my puzzle. There is, if anything, a slowdown in the growth of both these indicators that reflect underlying domestic demand.

Then, there was a post by Matthew Klein in FT Alphaville. His blog post of 1 July showed that China had, in the last 12 months, gone from de-stocking to re-stocking. He suggests that we send a “Thank you” note to China for the world economy avoiding a recession in 2016, since China decided to abandon any pretence at reforms and restructuring and went back to doing what it does best—priming the pump. But more than thanking China, we must “thank” the Federal Reserve, for it made life easier for China with just one rate hike each in 2015 and in 2016.

If China were indeed re-stocking, then China’s imports must have risen faster than its exports in recent months. Turns out that China’s imports had began to rise faster than its exports only in 2017. Data from the Organisation for Economic Co-operation and Development on China’s imports (in US dollars) show that imports by China were contracting for eight quarters from the last quarter of 2014 until the third quarter of 2016. Turns out that we need to thank the American private sector too. America’s imports of Chinese goods had recovered from the fourth quarter of 2016 and the recovery has continued well into the second quarter of this year. American demand has helped Chinese producers, and not American producers so much. America’s rolling 12-month trading deficit had widened to $780 billion in May this year, from a recent low of $745 billion in September 2016. There is not a big jump in US growth but whatever growth there is, it is helping China, as usual.

China’s own domestic demand growth is, perhaps, only now beginning to help the rest of the world, as per their import data. So, how has economic growth in China recovered really? The real estate sector has contributed to growth. An index of home prices in 100 cities in China rose nearly 20% last year and an index of prices of newly built homes in 70 cities in China has been growing at double-digit rates in the 12 months up to June 2017.

Now, there are stories about China’s waning credit impulse. Two financial market participants have written about it in the Financial Times in recent months and they warn that it would spell the end of global recovery. Maybe that is why Janet Yellen threw hints of going easy on her own plans for interest rate increases in the coming months, in her testimony to Congress earlier this month, and Mario Draghi of the European Central Bank did not announce plans to end asset purchases by the European Central Bank last week.

But is China really going to slam the brakes on credit growth? China’s reforms have always been high on intent and low on delivery. In fact, over the weekend of 15-16 July, the president of China had presided over the National Financial Work Conference and supposedly expressed outrage at the extent of leverage in the economy. Surely, he could not have been in the dark about it until now. Separately, The Telegraph carried a report last week that according to the latest “China Financial Stability Report” of The People’s Bank of China, its shadow banking size is more than double the original estimates. The report is not yet available in English. So, with this revelation and outrage, one would have thought that China would be pulling in its horns. That is what we are being led to believe. But a story in Bloomberg that reported on the National Financial Work Conference suggests that there was also a call to “serve the real economy” and to “reduce lending costs for the real economy”. So, is the credit impulse in China going to weaken or go right back up?

The only region that appears to have done well is the Eurozone. But quite how they racked up the trade surplus (whom did they sell to?) and turned around a sclerotic economy is not clear. Perhaps a weak euro and weaker oil were behind it. But, in a recent article for the Financial Times, Martin Wolf had shown that more than 60% of the population has seen its real incomes decline in France, Sweden and Italy (almost 100%) after the crisis. Maybe, beyond raging asset prices and official statistics, there isn’t a real global economic recovery.

IRB Infra Q1 profit rises 31% to Rs238 crore

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Mumbai: IRB Infrastructure Developers Ltd on Monday reported a 30.9% jump in net profit to Rs237.9 crore in the quarter ended June 2017, as compared to the same quarter last year on the back of a 19.7% rise in revenue to Rs1,816.9 crore and a 73.7% jump in other income to Rs53.5 crore.

At an earnings before interest, taxes, depreciation and amortization (Ebitda) level, however, the company disappointed with a growth of just 5.7% compared to the year-ago period to Rs817.9 crore. Consequently, its Ebitda margin fell by 600 basis points (bps) to 45%. One bps is a hundredth of a percentage point.

The main reason for such a huge drop in IRB’s Ebitda margin during the quarter was a close to 800 bps rise in contract and site expenses to 44.4% of the revenue. In the quarter ended June 2016, the same was just 36.4% of the revenue.

Interestingly, despite IRB Infra’s interest expense during the quarter falling by 13% from the year-ago period and, consequently, interest coverage ratio rising to 2.86 from 2.35, the company’s board approved a special resolution for consideration by its shareholders that in case of a default, its lenders shall have the enabling right of conversion of debt into equity as per the Reserve Bank of India’s (RBI’s) strategic debt restructuring (SDR).

“It is clarified that the company has been regular in paying interest and principal instalments of all of its loans and the company shall continue the same in timely manner in future as well, the special resolution is just an enabling resolution and is not for any immediate action but only for complying with lender(s) sanction terms. There are absolutely no proposals for conversion of any loan into equity, either pending or envisaged,” IRB Infra clarified.

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