8 min read
Hello, hope you are doing well!
To sum up Week 1 of August 2021, we will be reading about…
e-RUPI
Markets at an all-time high
The Vodafone cry
Snippets of other things that happened
Wrap-up
Modiji's Javelin throw with e-RUPI
On Monday (02.08.2021), our PM Narendra Modi launched a “leak-proof” mode of cashless and contactless digital payment to ensure seamless transfer of benefits to the citizens of the country. But before we go on to explain what this is, here’s a disclaimer, it is not a cryptocurrency. Still interested to know? Well okay then, read on.
The digital payment solution, e-RUPI, developed by NPCI, is an e-voucher, which will be delivered to the beneficiaries in the form of a QR code and SMS-string-based voucher through which funds will be directly transferred to their bank account.
Who can generate these vouchers? Any govt. agency or corporations can do so via their partner banks (to name some, SBI, HDFC Bank, Axis Bank, PNB, Bank of Baroda, Canara Bank, IndusInd Bank, and ICICI Bank have come on board as partners). The beneficiary for whom the voucher is generated will be required to show the QR code or the SMS message to the merchant, who will scan the same and a verification code will be sent to the beneficiary’s phone number. The latter will have to share the code with the merchant and the payment will be successful.
These vouchers are said to be secure and to maintain privacy, which will keep the details of the beneficiaries completely confidential. Moreover, the vouchers are person- and purpose-specific, meaning if they are released by the government for the purpose of vaccination, for instance, then they can be redeemed only for that.
e-RUPI aims to reach 190 million unbanked citizens, fold them into a formal financial system, and close part of the digital gap. However, with the beneficiary not required to disclose their identity, these vouchers are also likely to be claimed by other people.
While the introduction of e-RUPI is the first step towards having a digital currency in India, it in itself is not a digital currency but rather a social service voucher system, to ensure the reach of particular benefits to the eligible beneficiaries without any discrepancies and delay. And since this one will be regulated by our beloved government, and not meant for trading, it is definitely not to be confused with a cryptocurrency!
Happy sweet 16th!
Tuesday, 3rd August 2021, was a historic day for the Indian indices which recorded their highest ever closes. The Nifty crossed the 16,000-point mark for the first time on the back of a strong recovery in manufacturing activity in July and other positive signs from monthly macroeconomic data. The Sensex also skyrocketed and hit a fresh high of 53,887.98 on the same day. More than 500 stocks hit their upper circuits for the day. Titan was the top gainer in the Sensex pack, spurting 3.89%, followed by HDFC, Nestle India, IndusInd Bank, UltraTech Cement, Bharti Airtel, and SBI. Only three index components finished in the red- Bajaj Auto, Tata Steel, and NTPC, shedding up to 0.33%. On Tuesday (03.08.2021), investors grew richer by Rs 2.30 lakh crore, with a market capitalization of all BSE-listed reaching a lifetime high of Rs 2,40,04,664.28 crore.
The markets defied gravity on Wednesday and Thursday as well to finish at fresh lifetime highs on Thursday as investors accumulated IT, telecom, and FMCG stocks ahead of RBI’s policy decision. A strengthening trend in the rupee and unabated foreign fund inflows have bolstered market sentiment, traders said. After scaling its all-time peak of 54,717.24 during the day, the 30-share BSE Sensex settled 123.07 points or 0.23% higher at its new closing record of 54,492.84. In a similar movement, the broader NSE Nifty rose 35.80 points or 0.22% to its lifetime peak of 16,294.60. It touched an intra-day record of 16,349.45.
Equity investors have witnessed a wealth addition of more than ₹31 lakh crore (31,18,934.36Cr) in the first four months of the current fiscal, helped by an overall bullish sentiment in the market. The 30-share BSE Sensex has jumped 3,077.69 points or 6.21% during April-July this fiscal.
But the show did not go on as markets remained flattish on Friday (06.08.2021) and Nifty50/Sensex closed at 16,238.20/54,277.72 respectively.
While the Nifty50 and Sensex(30) rallied, the mid & small-cap indices corrected constantly. Profit booking in these two categories was clearly visible. Is this a cue for a broader market correction?
A good Idea, Birla ji?
With a debt-laden Vodafone-Idea Ltd. (VIL) gasping for survival, Aditya Birla Group chairman, Kumar Mangalam Birla has offered to give up his 27% stake in the company to the government or any other entity that the govt. may consider worthy to keep the company operational. The offer was made in June, via a letter to the Cabinet Sec.
According to official data, VIL had an adjusted gross revenue (AGR) liability of ₹58,254 crores out of which the company has paid ₹7,854.37 crores and ₹50,399.63 crores is outstanding. Both VIL and Airtel had approached the SC for correction in the govt calculations but their plea was rejected. Mr. Birla’s letter stated that investors are not willing o invest in the company in the absence of clarity on AGR liability, an adequate moratorium on spectrum payments, and most importantly floor pricing regime above the cost of service. There is no data to acknowledge whether or not there has been any communication or not between Birla and the govt., after the June letter.
Birla stepped down as the non-executive chairman and non-executive director of VIL on Wednesday (04.08.2021) and with him so did the stock price. Shares of VIL hit ₹4.55, its 52-week low on Thursday (05.08.2021). However, it managed to pull back up and closed at ₹7.10 on NSE on Friday (06.08.2021). Birla will be replaced by Himanshu Kapania (who was earlier the managing director and CEO of Birla's Idea Cellular) as the new chairman of Vodafone Idea Ltd.
VIL’s market share of 30% in January 2021 has slid to 25% as of today but it still has a subscriber base of 270 million. With such an outstanding amount as debt, however, it might soon go bankrupt, leaving the field to Reliance Jio and Bharti Airtel.
So will there be a duopoly in the telecom sector or will VIL be nationalized? With the government stretching its finances and wanting to sell off its own ownership in businesses like LIC & BPCL, nationalizing VIL will be tough. Besides, the government’s own BSNL is not doing well in itself.
What else happened?
The promoters have been promoted: Market regulator SEBI on Friday (06.08.2021) agreed "in-principle" to a proposal to move away from the concept of a promoter to "controlling shareholders", and decided to reduce the minimum lock-in period for promoters after an IPO. The watchdog has also decided to streamline the disclosure requirement of group companies. SEBI has decided to do so as nowadays several businesses, including new-age and tech companies, are non-family owned and do not have a distinctly identifiable promoter group. If the object of the issue involves an offer for sale or financing other than for capital expenditure for a project, the minimum promoters' contribution of 20% should be locked in for 18 months from the date of allotment in the initial public offer and follow on public offer. At present, the lock-in period is three years. Further, in all these cases, the promoter shareholding above the minimum promoter contribution will be locked in for six months, instead of the existing one year.
Clash of the Titans: In what appears to be a (petrol-induced) burn to the Mukesh Ambani-led conglomerate Reliance Industries (RIL), Gautam Adani’s flagship company Adani Enterprises, declared that it is entering the petrochemicals business, Adani Petrochemicals. The Adani Group, already in the renewables business, has set up 25 GWs of electricity generating capacity. The company is lined to set up refineries, petrochemical complexes, and also hydrogen-related chemical plants.
India has not seen the likes of such a first move in a corporate rivalry, in decades. Historians have recorded a corporate war in the 1980s where the protagonists were RIL’s Dhirubhai Ambani and Bombay Dyeing’s Nusli Wadia. Ambani arguably won that one and RIL currently leads the petrochemical business in India. Which company shall have the ball in court this time?
Manufacturing growth: India’s manufacturing sector activities witnessed the strongest rate of growth in three months in July amid improved demand conditions and easing of some local Covid restrictions. The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose from 48.1 in June to 55.3 in July, pointing to the strongest rate of growth in three months (a print above 50 means expansion while a score below 50 denotes contraction). This 3-month high PMI also indicates muted inflation. The PMI numbers came on the back of good news that GST collections bounced back above Rs 1 lakh crore in July. They rose to Rs 1.16 lakh crore, recovering from Rs 92,849 crore in the previous month indicating a rise in economic activity.
Amazon is the Future!: For Reliance Industries (RIL), the week started with the company slipping 59 places to rank 155th on the 2021 Fortune Global 500 list released on Monday (02.08.2021) and also ended on a challenging note. On Friday (06.08.2021), the Supreme Court ruled in favor of Amazon and upheld Singapore’s Emergency Arbitrator (EA) award that had restrained the merger of Future Retail Ltd. (FRL) with Reliance Industries Ltd. (RIL). While FRL said that it intends to pursue "all available avenues" to conclude the ₹24,731 crores deal, Amazon welcomed the judgment and said the ruling will hasten the resolution of its ongoing dispute with the Future Group.
To wrap it up…
As widely expected, the Monetary Policy Committee (MPC) of the RBI maintained the status quo on the policy rate and its accommodative stance (but this time with a 5 to 1 majority). The MPC has decided to retain the main repurchase (repo) rate - the key lending rate at which the central bank lends short-term funds to banks - at 4%, but was split on continuing with the lower-for-longer stance. The need of the hour is to revive growth on a durable basis and adequate liquidity & accommodative stance clubbed with low-interest rates do provide a strong monetary boost. Still, markets are sensing a beginning of an end to the current loose monetary policy.
With the ebbing of the second Covid wave, RBI retained its GDP growth forecast for the current fiscal year ending in March 2022 at 9.5% but revised its retail inflation forecast to 5.7%, up from the earlier 5.1%. The coming months will make it more challenging for the RBI to navigate the inflation concerns amidst the risk of a third wave and resultant supply shocks. The RBI has demonstrated and gained enough credibility to tide through the pandemic by taking more than adequate measures and may continue to maintain the status quo on policy rate for the rest of 2021 to prioritize growth over inflation.
In other news, the government has introduced a law in the Parliament to abolish retrospective taxation, in one stroke, ending long-standing disputes with British telecom company Vodafone and Scottish oil explorer Cairn Energy. Former finance minister Pranab Mukherjee had introduced retrospective taxation in 2012 after the Supreme Court stood by the Vodafone group in a tax dispute born when it bought the telecom company in 2007. The law ensnared Cairn’s 2006 restructuring of ownership as well. Both companies have won international arbitration awards against India. Meanwhile, another dispute involving foreign investment is brewing as India has threatened to fine Walmart-owned e-commerce company Flipkart, its founders, and investor Tiger Global $1.25 billion for alleged violation of investment laws. India has always been touchy about foreign money in the retail sector and organizations close to the ruling dispensation have been vehemently opposing it.
Globally, the Tokyo Olympics 2020 come to an end today. They called it the Olympics like no other and India would agree as debutant javelin thrower Neeraj Chopra shattered several glass ceilings to become the country's first gold medallist in 13 years, his stupendous show making it the best ever Games for a nation starved for success at the grandest sporting spectacle.
India seems to be in a mood to create history- be it at the Tokyo Olympics or be it on D-Street with soaring indices. The IPO market is red-hot and shall remain so for quite some time now. Well, Diwali seems to be here early for investors but as corrections have started to take place in the mid- & small-cap space, there ain’t a better time to turn cautious to the broader markets as well!
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That brings us to the end of this weekly wrap-up.
See you next weekend. Stay safe!
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Sources: Moneycontrol, The Signal, The Boring News Co., The Print, and Motilal Oswal.
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