The Nifty and the Sensex have opened with significant gains this morning after yesterday’s market rout.
GDP figures released by the government yesterday turned out to be worse than economists’ estimates.
Join us as we follow the top business news through the day.
Here’s why the US dollar is falling
Sensex ends 273 points higher; Bharti Airtel soars 6%
A modest recovery for stocks after yesterday’s drubbing.
PTI reports: “The BSE benchmark Sensex spurted nearly 273 points on Tuesday, led by gains in Bharti Airtel, HUL and Reliance Industries amid a positive trend in global markets.
A sharp appreciation in the rupee against the US dollar added to the momentum, traders said.
After a highly volatile session, the BSE Sensex settled 272.51 points or 0.71 per cent higher at 38,900.80. It hit an intra-day high of 39,226.82 and a low of 38,542.11.
Similarly, the NSE Nifty advanced 82.75 points or 0.73 per cent to settle at 11,470.25. It touched a high of 11,553.55 and a low of 11,366.90 during the day.
Bharti Airtel was the top gainer in the Sensex pack, rallying over 6 per cent, after the Supreme Court granted 10 years to telecom firms for paying the adjusted gross revenue (AGR)-related dues to the government with certain conditions.
Bajaj Finance, Asian Paints, Tata Steel, NTPC and SBI were among the other gainers.
On the other hand, ONGC, Axis Bank, Tech Mahindra, Infosys and ICICI Bank were among the laggards.
Markets ended on a positive note after an extremely volatile session on the back of the Supreme Court judgement on the telecom AGR dues, new margin norms and the reaction to the Q1 GDP numbers, said S Ranganathan, Head of Research at LKP Securities.
Telecom and metal stock led the rally on the indices with support of select financials. Bargain hunting was witnessed in several mid-cap names as stock prices became attractive post the fall on Monday, he added.
Bourses in Shanghai, Hong Kong and Seoul ended with significant gains, while Tokyo was in the red.
Stock exchanges in Europe were largely positive in early deals.
Global oil benchmark Brent crude was trading 1.13 per cent higher at USD 45.79 per barrel.
In the forex market, the rupee settled at 72.87 against the US dollar, registering a surge of 73 paise over its previous close.”
Gold rises to two-week high as dollar dives
The yellow metal is showing some life as the dollar dips.
Reuters reports: “Gold prices jumped more than 1% on Tuesday to a near two-week high, following the steepest fall in dollars in more than two years as investors bet on U.S. interest rates staying lower for longer.
Spot gold was up 0.9% to $1,987.89 per ounce by 0947 GMT, having earlier hit its highest since Aug. 19 at $1,991.91. U.S. gold futures rose 0.9% to $1,996.10.
“The two drivers for gold are the weaker dollar and lower yields and that will keep the metal moving between the range of $1,800 and $2,100 until the U.S. presidential elections in November,” said Robin Bhar, an independent analyst. “However, at the end of every month we might see some corrections as a result of speculators selling their positions.”
The dollar index dropped to a more than two-year low versus rivals, making gold cheaper for holders of other currencies. The U.S. Federal Reserve’s new monetary policy plan, which may lead to inflation rising marginally and long-term interest rates staying lower, also weighed on U.S. Treasury yields.
Low interest rates minimise the opportunity cost of owning non-yielding bullion, which is often used as a buffer against inflation and currency depreciation. Gold has gained about 31% this year, also supported by economic uncertainty stemming from the coronavirus pandemic.
While waning consumer demand remains a headwind, “strong investor demand is likely to continue to provide support for gold,” Heraeus Precious Metals said in a note. “In the near term, gold could move sideways as it consolidates following its rapid rally to record highs in early August.”
Elsewhere, silver was up 2.1% to $28.82 per ounce, after hitting its highest since Aug. 11. Platinum rose 2% to $948.30 and palladium climbed 1.5% to $2,277.05.”
Rupee zooms past 73-mark against USD
The rupee strengthened 73 paise and crossed the crucial 73-mark against the US dollar on Tuesday supported by a weak American currency and positive domestic equities.
Forex traders said the domestic unit gathered momentum after the Reserve Bank of India announced various steps to ease pressure on liquidity.
At the interbank forex market, the domestic unit opened at 73.18 against the US dollar, gained further ground during the trading session and finally settled for the day at 72.87 against the greenback, registering a surge of 73 paise over its previous close of 73.60.
During the session, the domestic unit witnessed an intra-day high of 72.75 and a low of 73.19 against the American currency.
Supreme Court gives telecoms firms 10 years to pay dues to government
Some respite for battered telecom firms even though they demanded a 20-year repayment plan.
Reuters reports: “India’s top court on Tuesday gave mobile carriers 10 years to pay back dues owed to the federal government, offering some respite for heavily indebted Vodafone Idea Ltd whose business has been hit by cut-throat competition in recent years.
Vodafone Idea and Bharti Airtel, two of India’s three major carriers, had previously asked the court for 15 years to settle their fees.
Tuesday’s Supreme Court ruling means companies will have until 2031 to clear their dues, after they missed an original January deadline ordering them to pay roughly $13 billion.
The dues refer to the amount that telecom providers have to pay to the Department of Telecommunications (DoT) for using airwaves and in license fees.
The decision will come as a relief to Vodafone Idea, a joint venture between Britain’s Vodafone Group Plc and India’s Idea Cellular, which reported its eight consecutive quarterly loss in the three months to June and expressed concerns about its ability to stay afloat.
The company’s gross debt, excluding its lease liabilities, was 1.19 trillion rupees ($16.31 billion) as of end-June.
The entry in India of Reliance Industries’ Jio Infocomm telecoms venture in late 2016 with free voice services and cut-price data, forced many rivals out of the fiercely competitive market. Others such as Vodafone and Idea were forced to regroup but continue to bleed and lose subscribers.
Vodafone Idea has paid 78.54 billion Indian rupees, according to regulatory filings, and still owes roughly 500 billion to the government.
On Tuesday, the Supreme Court also asked telecoms firms to pay 10% of the dues owed by March 31, 2021, pushing Vodafone Idea’s stock down 9.8% at 0850 GMT.
“The window for Vodafone to raise funds, have better models and give paybacks commitment is small which is adding pressure on the stock,” said Abhimanyu Sofat, Head of Research, at brokerage IIFL Securities.
Vodafone Idea did not immediately respond to a request for comment.
Bharti Airtel previously said it has paid its complete dues of 180 billion rupees on the basis of self-assessment, but government calculations suggest it still needs to pay another 259.76 billion rupees. Its shares were up 6.9%.
India’s newest carrier Jio, controlled by India’s richest man Mukesh Ambani, has already cleared its smaller backlog of charges.
India’s telecom providers have to pay the DoT nearly 3-5% of their adjusted gross revenue (AGR) in usage charges for airwaves and 8% of AGR as licence fees. They have long disputed the definition of AGR but last year the Supreme Court upheld the DoT’s view the AGR should include all revenue.”
Real GDP likely to contract by 10.9% in FY21: SBI Ecowrap
SBI expects GDP growth to be negative in all four quarters this year.
PTI reports: “After the country’s economy contracted by a record 23.9 per cent in April-June quarter, real GDP for FY21 is expected to shrink by 10.9 per cent, according to State Bank of India’s research report – Ecowrap.
It had earlier estimated real gross domestic product (GDP) at (-) 6.8 per cent for the current fiscal.
The first quarter GDP contraction compares with 3.1 per cent growth in the preceding January-March quarter and 5.2 per cent expansion in the same period a year back.
Our preliminary estimate indicates that all the four quarters of FY21 will exhibit negative real GDP growth, and decline of full year growth will likely be in double digits (around 10.9 per cent), the research report stated.
It estimates Q2 real GDP decline in the range of (-) 12 per cent to (-) 15 per cent, while Q3 GDP is seen between (-) 5 per cent and (-) 10 per cent. Q4 is expected to be in (-) 2 per cent to (-) 5 per cent range.
The report said the country’s GDP growth plunged to 23.9 per cent in Q1 FY21 due to the nationwide lockdown imposed on March 25, 2020, in the wake of the COVID-19 pandemic and is much worse than market and its estimates.
As anticipated private final consumption expenditure (PFCE) growth collapsed as COVID-19 containment measures reduced consumption to mostly essential items, it said.
With investment demand not seeing recovery due to unutilised capacity, the share of private consumption expenditure will remain on the higher side in overall GDP estimate, it noted.
Assuming that it remains at 57 per cent of GDP in nominal terms, we will see at least around 14 per cent decline in PFCE growth in FY21, as against an average of 12 per cent growth for the nine-year period ended FY20, the report said.
This indicates an average swing of 26 per cent in current fiscal indicating a consumption washout, it added.
The pandemic has significantly impacted expenditure patterns under individual consumption expenditure components like health and education, the report stated.
It, however, sees two positives amidst all these numbers.
First, RBI sector-wise credit-data for the month of July indicates that except industry, credit has increased in all other major sectors in July. There has been a significant increase in credit to MSE (micro and small enterprises), agri and allied and personal loans, the report said.
Second, some of the sectors where new projects announcements were seen during the first quarter include roadways, basic chemicals, electricity, community services such as hospitals, water sewage pipelines, it said.
According to the research report, there is a need to revive sectors such as construction, trade and hotels, aviation.
Restoring transportation services and giving push to infrastructure by issuing special bonds to RBI like perpetual bonds must also be explored apart from supporting states through fiscal measures in their endeavour, it added.”
Bharti Infratel shares jump over 5% after proceeding with Indus Towers merger
Shares of Bharti Infratel on Tuesday jumped over 5% in early trade after the company said its board has decided to proceed with the scheme for merger with Indus Towers.
The stock gained 4.91% to ₹208 on the BSE.
At the NSE, it rose by 5.16% to ₹208.80.
Bharti Infratel on Tuesday said its board has decided to proceed with the scheme for merger with Indus Towers, and that the cash consideration chosen by Vodafone Idea for its 11.15% stake in Indus Towers is expected to be about ₹4,000 crore.
The company said its board, in a meeting held on August 31, 2020, took note of the status of scheme of arrangement between Indus Towers and Bharti Infratel and the related agreements.
Maruti reports 17% rise in August sales at 1,24,624 units
Some encouraging signs for the auto industry.
PTI reports: “The country’s largest carmaker Maruti Suzuki India (MSI) on Tuesday reported 17.1 per cent increase in sales at 1,24,624 units in August.
The company had sold 1,06,413 units in August last year, MSI said in a statement.
Domestic sales increased by 20.2 per cent to 1,16,704 units last month, as against 97,061 units in August 2019, it added.
Sales of mini cars comprising Alto and WagonR stood at 19,709 units as compared to 10,123 units in the same month last year, up 94.7 per cent.
Sales of compact segment, including models such as Swift, Celerio, Ignis, Baleno and Dzire rose 14.2 per cent to 61,956 units as against 54,274 cars in August last year.
Mid-sized sedan Ciaz sold 1,223 units as compared to 1,596 units earlier, down 23.4 per cent.
Sales of utility vehicles, including Vitara Brezza, S-Cross and Ertiga, increased 13.5 per cent to 21,030 units as compared to 18,522 units in the year-ago month, MSI said.
Exports in August were up down 15.3 per cent at 7,920 units as against 9,352 units in the corresponding month last year, the company said.”
India’s mfg sector activity returns to growth in Aug as demand picks up: PMI
Some signs of greenshoots as manufacturing picks up.
PTI reports: “India’s manufacturing sector activity re-entered the growth territory in August, driven by a rebound in production volumes and new work, amid an improvement in customer demand following the resumption of business operations, a monthly survey showed on Tuesday.
The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose from 46 in July to 52 in August, signalling an improvement in operating conditions across the manufacturing sector following four consecutive months of contraction.
In April, the index had slipped into contraction mode, after remaining in the growth territory for 32 consecutive months. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
“August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards a recovery from the second quarter downturn. The pick-up in demand from domestic markets gave rise to upturns in production and input buying,” Shreeya Patel, Economist at IHS Markit, said.
Despite an expansion in new orders, job shedding continued in the Indian manufacturing sector. The relocation of employees following COVID-19 pandemic was often linked to the reduction in staffing numbers.
“However, not all was positive in August, delivery times lengthened to another marked rate amid ongoing COVID-19 disruption. Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers,” Patel said.
The survey noted that the decline in foreign exports weighed slightly on overall new orders as firms cited subdued demand conditions from abroad. However, new business received by Indian manufacturers expanded at the fastest pace since February.
On the prices front, higher raw material costs due to supplier shortages and transportation delays stemming from the COVID-19 pandemic, resulted in rising input prices during August.
“The rate of input price inflation was solid, following four monthly declines in cost burdens. Firms, however, continued in their efforts to drive sales amid greater competitive pressure and reduced their selling prices further,” Patel said.
Looking ahead, Indian manufacturers remained optimistic for the next 12 months. Positive sentiment was often attributed to hope of the passing of COVID-19 pandemic, improving client demand, and new business wins, the survey said.”
Easier norms for default recognition
Markets regulator SEBI on Monday asked credit rating agencies (CRAs) not to consider as default the restructuring of debt done solely due to COVID-19 related stress by lenders.
The move comes after the Reserve Bank of India (RBI) provided a loan restructuring window for corporates, following bankers’ and industry’s demand.
As per RBI, restructuring will be allowed as per the prudential framework issued on June 7, 2019.
“Based on its assessment, if the CRA is of the view that the restructuring by the lenders/investors is solely due to COVID-19-related stress or under the … RBI framework, CRAs may not consider the same as a default and/or recognise default,” SEBI said.
US corporate bond yields turn negative
Record GDP contraction: Analysts say lockdowns have had deeper impact than expected
Yesterday’s GDP release turned out to be worse than what was expected by economists.
PTI reports: “The June quarter GDP contraction at 23.9 per cent — the steepest ever on record — shows that the impact of the lockdown has been “way higher than anticipated”, analysts said on Monday.
India’s performance is the third-worst among the over 50 countries which have come out with GDP numbers so far, and some analysts expect the remaining three quarters in the fiscal to show negative growth as well.
The Indian economy was facing challenges even before the onset of the COVID-19 pandemic and a host of measures, including deep rate cuts by the RBI and stimulus by the government, have been taken in an effort to arrest the slide since late March.
The GDP contracted by 23.9 per cent in Q1 FY21, with agriculture being the only bright spot in the economy.
”…the quantum of negative growth shows the impact of lockdown has been way higher than anticipated,” analysts at India Ratings and Research said.
The situation would have been far worse but for the banking, financial services and IT and IT-enabled services sectors which continued to operate in the lockdown, they added.
Analysts at Care Ratings said growth in the rural and agricultural economy will not be sufficient to compensate for the decline in urban demand and estimated the FY21 GDP contraction at 6.4 – 6.5 per cent.
Without sharing an estimate, India Ratings said the GDP will continue to contract in the remaining three quarters as well.
Their peer Icra said the 23.9 per cent contraction number can be revised downwards, when data on small businesses and the informal sector comes in, and maintained its negative 9.5 per cent growth estimate for the full fiscal.
It said there is a “wide discrepancy” between the double-digit growth of government final consumption expenditure on the expenditure side, and contraction in public administration, defence and other services on the production side, terming it as “rather incongruous”.
Singaporean bank DBS said the sharp de-growth in GDP is owing to the “stringent” lockdowns but the surprise drag was from the public administration, defence and other services segment which contracted likely due to a complete stop in the private sector.
It said fiscal push will carry a larger multiplier than easier financial conditions rendered by the RBI but added that the central bank will still lean towards rate easing in the second half of the fiscal year.”
Rupee jumps 53 paise to 73.07 against US dollar in early trade
The strength shown by the stock indices has helped sentiment in the currency market as well.
PTI reports: “The rupee strengthened 53 paise to 73.07 against the US dollar in opening trade on Tuesday supported by weak American currency and positive domestic equities.
Forex traders said the domestic unit gathered momentum after the Reserve Bank of India announced various steps to ease pressure on liquidity.
At the interbank forex market, the domestic unit opened at 73.18 against the US dollar, gained further ground and touched 73.07 against the US dollar, registering a rise of 53 paise over its previous close.
It had settled at 73.60 against the US dollar on Monday.
“The rupee strengthened post the initial weakness as RBI said a stronger rupee would help tone down inflationary pressure,” said Abhishek Goenka, Founder and CEO, IFA Global.
The Reserve Bank on Monday announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September to ease pressure on the liquidity and maintain congenial financial conditions with a view to ensuring sustainable recovery of economic growth.
Moreover, financial sector regulators, including the RBI and Sebi, on Monday reaffirmed their commitment to continue co-coordinating on various initiatives to strengthen the financial sector.
On weak April-June gross domestic product (GDP) data, Goenka said “India Q1 GDP came in at (-) 23.9 per cent against expectations of (-) 19 per cent. Q1 included months when the country was in a state of lockdown. Therefore, the print does not matter as much now as the high frequency data does.”
Meanwhile, on the domestic equity market front, the 30-share BSE benchmark Sensex was trading 80.75 points higher at 38,709.04, and the broader NSE Nifty advanced 49.90 points to 11,437.40.
Foreign institutional investors were net sellers in the capital market as they offloaded shares worth Rs 3,395.49 crore on Monday, according to exchange data.
Brent crude futures, the global oil benchmark, rose 1.08 per cent to USD 45.77 per barrel.”
GDP contracts by record 23.9% in Q1
The Indian economy saw its worst contraction in decades, with Gross Domestic Product (GDP) shrinking by a record 23.9% in the April to June quarter in comparison to the same period last year, according to data released by the National Statistical Office on Monday
The contraction reflects the severe impact of the COVID-19 lockdown, which halted most economic activities, as well as the slowdown trend of the economy even pre-COVID-19. Economists expect this to contribute to a contraction in annual GDP this year, which may be the worst in the history of independent India.
“The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily, while the capacity to neutralise this contraction has also contracted equally because of the tax revenue contraction. Therefore, I don’t see GDP returning to positive territory for six quarters, until the second quarter of next year,” said D. K. Srivastava, chief economist at Ernst and Young, and a Member of the Advisory Council to the 15th Finance Commission.
Sensex surges nearly 400 points in early trade; Nifty tops 11,500
Some much-needed recovery in the benchmark indices after yesterday’s rout.
PTI reports: “The BSE benchmark Sensex jumped nearly 400 points in early trade on Tuesday tracking gains in index majors Kotak Bank, the HDFC twins and ICICI Bank amid mixed cues from global markets.
After opening on a choppy note, the BSE Sensex was trading 399.53 points or 1.03 per cent higher at 39,027.82; while the NSE Nifty was up 116.70 points or 1.02 per cent at 11,504.20.
IndusInd Bank was the top gainer in the Sensex pack, surging around 4 per cent, followed by NTPC, Tata Steel, Bajaj Finance, SBI, Asian Paints, M&M, Kotak Bank, the HDFC duo and Bajaj Finserv.
On the other hand, ONGC and ITC were the laggards.
In the previous session, Sensex plunged 839.02 points or 2.13 per cent to 38,628.29, while the Nifty tanked 260.10 points or 2.23 per cent to end at 11,387.50.
Exchange data showed that foreign institutional investors sold equities worth Rs 3,395.49 crore on a net basis on Monday.
According to traders, market shrugged off the slump in GDP and weak global cues by rebounding around 1 per cent after previous session’s low. Buying in financial stocks lifted key benchmarks.
India’s economy suffered its worst slump on record in April-June, with the gross domestic product (GDP) contracting by 23.9 per cent as the coronavirus-related lockdowns weighed on the already-declining consumer demand and investment.
Bourses in Shanghai and Seoul were trading with significant gains in mid-day deals, while Hong Kong and Tokyo were in the red.
Stock exchanges on Wall Street ended on a mixed note in overnight session.
Global oil benchmark Brent crude was trading 1.04 per cent higher at USD 45.75 per barrel.”
Funskool to focus on domestic market, says CEO
Buoyed by the Prime Minister’s (PM) call for developing innovative ‘toys and games’ in India for making the country a global toy hub, a leading toy manufacturer said that it saw a bright future for the sector.
“The PM’s speech focussed more on the Indian toy sector and this will give a fillip to domestic toy manufacturing companies,” R. Jeswant, CEO, Funskool (India) Ltd. told The Hindu.
“We see a bright future for the Indian toy manufacturing firms and the country can be a hub for the industry as a lot of initiatives are set to follow the PM’s speech,” he added.
Since April, Funskool exports had grown exponentially following a surge in sourcing by international majors. However, the domestic volume was impacted by the pandemic. Currently, the company exports about 60% of its production. Going forward, it would strive to keep it 50:50 (domestic production and exports). Funskool has has three units — one in Goa and two in Ranipet in Tamil Nadu.