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This is a roundup of the day’s top stories in brief.
1. The Two Puzzles Of Demonetisation
Exclusive excerpts from the former Chief Economic Adviser's upcoming book 'Of Counsel', where attempts to decode two puzzles surrounding demonetisation – political and economic:
- Why was demonetisation so popular politically if it imposed economic costs?
- Why didn’t the draconian 86 percent reduction in the cash supply have bigger effects on overall economic growth?
- On the second puzzle, he writes: the question was not whether demonetisation imposed costs—it clearly did—but why did it not impose much greater costs?
2. Indian Markets Surge; Rupee Closes Above 70/$
Indian equity benchmarks rallied for the fourth day to end near a two-month high.
- The S&P BSE Sensex Index closed 1.27 percent or 453 points higher at 36,170.
- The NSE Nifty 50 Index closed at 10,858, up 1.2 percent or 130 points.
- The Nifty registered its best F&O expiry since March 2016.
The Indian rupee strengthened to trade above 70 against the U.S. dollar for the first time in three months. The Indian currency has rebounded sharply from record lows hit in October due to falling oil prices, a return of foreign inflows, and now dovish commentary from the U.S. Federal Reserve.
- On Thursday, the rupee gained 1.1 percent to close at 69.84/$.
- The Indian unit was the best performing currency in Asia in trade today and closed its highest level in three months.
- “The appreciation bias may continue if oil prices remain low but gains may be slower from here on,” said Bhaskar Panda of the Treasury Advisory Group at HDFC Bank.
- The next important technical level to watch is 68.85/$, Panda added.
3. U.S. Stocks Fall, Nymex Crude Near $51
U.S. stocks halted a three-day rally as investors awaited developments in the trade war and assessed the impact of falling Treasury rates.
- The S&P 500 fell following the biggest gain in eight months Wednesday that was fuelled by a dovish tone from Federal Reserve Chairman Jerome Powell.
- The 10-year Treasury yield dropped to the lowest level in two months, while the dollar slid for a second day ahead of a sit-down between Presidents Donald Trump and Xi Jinping that could be pivot point in the trade war between the two countries.
- The U.K.’s FTSE 100 Index gained 0.7 percent to the highest in more than two weeks.
Oil rose to trade near $51 a barrel in New York, erasing an earlier loss, after a report that Russia accepted the need to cut production in conjunction with OPEC.
- West Texas Intermediate for January added as much as 2.4 percent in New York, and traded up 1.4 percent at $50.99 a barrel as of 8:58 a.m. local time.
- Prices earlier fell to the lowest since October 2017.
- Volumes were about double the 100-day average.
4. Year-End Discount On Nifty Stocks
Three-quarters of Nifty 50 stocks are now cheaper than what they were historically as the rout drives down valuations in Asia’s most expensive market.
- The 12-month forward price-to-earnings multiple of 37 of Nifty 50 companies is now lower than the five-year average, according to Bloomberg data. That’s the highest number of stocks trading below their long-term valuation in at least a decade.
- Valuations eased as Nifty 50 fell 8 percent in the last three months as liquidity concerns around non-bank lenders aggravated the selloff driven by trade war fears, rising crude and a weaker rupee.
- Still, the benchmark continues to be one of the most expensive indices in the world, and experts advise caution.
5. RBI Relaxes Securitisation Norms
To help further ease liquidity condition for non-bank lenders, the Reserve Bank of India has made changes to the holding period for securitised loan portfolios.
- In a notification on Thursday, the RBI said that the minimum holding period requirement for non-banking finance company originating loans, will now be set at six monthly or two quarterly installments. Earlier the holding period was 12 months.
- The revised rules are applicable for loans of original maturity of above 5 years. This will help housing finance companies in particular who have longer maturity loans.
- The relaxation will stay in place for a six-month period from the date of the circular.
6. Jaitley Defends Revised GDP Series
Finance Minister Arun Jaitley defended the revision in India's gross domestic product growth rate during the previous United Progressive Alliance era, saying the Central Statistics Office, which came out with the revised numbers, was a credible organisation and maintains arm's length distance from the Finance Ministry.
- A day after Chief Statistician Pravin Srivastava announced the revised numbers based on back series data alongside Niti Aayog Vice Chairman Rajiv Kumar, Jaitley said, "I don't think any service is being rendered by those who discredit the highly credible organisation, CSO."
- Jaitley said when the CSO had revised upward the growth rate of 2012-13 and 2013-14, the UPA had welcomed the decision.
- If the government was hoping to silence critics of the new GDP methodology, having Niti Aayog cheerlead the back series risks having the opposite effect. The biggest casualty of all this obfuscation is the important question of where exactly India’s potential growth rate lies, writes Andy Mukherjee.
7. TCS Wins Anti-American Bias Case
A jury in California rejected claims that Tata Consultancy Services Ltd. discriminated against American workers in favour of staffing its U.S. offices with Indians.
- The verdict is a major victory for the Indian outsourcing industry, whose business model depends heavily on exporting engineers to the U.S.
- A federal jury in Oakland, California, sided Wednesday with TCS against four former employees who claimed they’d been sidelined and fired because they aren’t South Asian.
- The case was the first of several accusing India’s big IT firms of hiring bias in the U.S. to go to trial. HCL Technologies Ltd., Infosys Ltd. and Wipro Ltd. face similar claims.
8. ‘Accounting The Weakest Link’
In a year that has witnessed several board failures, from Fortis to IL&FS, noted banker Uday Kotak pointed to accounting as the weakest link. “One of the weakest links in the fiduciary chain of governance is accounting,” said Kotak in a discussion on corporate governance with former Securities and Exchange Board of India Chairman M Damodaran and Mahindra Group Chairman Anand Mahindra.
The discussion among the three, held at a conference hosted by Damodaran and titled Gatekeepers of Governance, touched upon critical issues of corporate governance, namely:
- Declining trust in business/companies
- Complying with both the letter and the spirit of the law
- The role of boards and independent directors
- Accounting practices and auditors
- Accountability of regulators
9. The Travails Of Corporate Governance Without Enforcement
Despite the constant evolution of corporate governance norms that have become rather robust, why does corporate India witness governance crises rather periodically, asks Umakanth Varottil.
- While corporate governance law has evolved at a rapid pace, legal enforcement has fallen short.
- There have hardly been any successful criminal convictions in any of the high-profile cases of corporate governance lapses.
- While there are a number of private enforcement options available, they have seldom been used, and even rarely have they succeeded.
10. Bad News For Mumbai’s Recovering Home Sales
Developers in Mumbai said Maharashtra’s tax surcharge on home sales to fund metro and road projects will hurt demand when the market was showing signs of revival.
- The 1 percent surcharge is over and above the 5 percent stamp duty and 1 percent registration fee on ready properties.
- For under-construction apartments, buyers have to pay 12 percent goods and services tax—taking the total levy to 19 percent of the cost of an apartment.
- The increase in stamp duty comes when defaults by IL&FS group have dried up liquidity for non-bank lenders, the key source of funds for property developers.
- That could hurt a rebound as the new launches had started picking up after the twin disruptions of the note ban and a new housing law.
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