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This is a roundup of the day’s top stories in brief.
1. Rs 15,000-Crore Tax Demand
India asked about 19 banks to pay more than Rs 15,000 crore tax on free services provided to customers who maintain a minimum account balance, four officials with direct knowledge of the matter said, even after the government clarified that these services are not taxable.
- The government asked banks to pay the tax retrospectively for the last five years, two of the four people quoted above said requesting anonymity. The principal amount of Rs 15,000 crore, they said, will increase to about Rs 35,000 crore if interest and penalty is added to it.
- The highest tax liability notice of about Rs 6,500 crore has been served to HDFC Bank Ltd. while ICICI Bank Ltd. and Axis Bank Ltd. have been asked to pay Rs 3,500 crore and about Rs 2,500 crore, respectively.
- Free services provided by banks to customers who maintain a minimum account balance will not be liable to pay goods and services tax, the government had clarified in June.
2. Subdued Festive Sales?
Manjesh Prajapati, 21, saved up for over a year to buy a scooter. Yet, it remains out of his budget. He zeroed in on the Honda Activa 5G to escape the ordeal of everyday commutes on crowded local trains and buses. When the finance graduate who lives in Worli, Mumbai, recently visited the showroom, he found that scooter had turned expensive by Rs 10,000. “As it is, petrol prices are high; now even motorbikes have become costlier.”
- Automakers have passed on the higher costs because of a weaker rupee. What also added to the cost of buying a motorcycle or a scooter is the higher insurance premium.
- A higher upfront outgo, according to auto dealers, may dent festival season sales in October and November, which usually witness buoyant demand.
- The regulator has made multi-year motor third-party insurance compulsory for all two-wheelers and that has increased the premium by up to six-fold.
3. Indian Markets Rebound; U.S. Stocks Fall
Indian equity benchmarks rebounded from six-month lows hit in the previous session as earnings season began with Zee Entertainment Enterprises Ltd.
- The S&P BSE Sensex Index rose 1.35 percent or 461 points to 34,761.
- The NSE Nifty 50 Index jumped 1.5 percent or 159 points to 10,460.
- The Nifty has formed a support at 10,200 and it can go up to 11,000 by Diwali as rally in crude prices may be getting over and bond yields will trade below 8 percent, Sanjiv Bhasin, executive vice president in charge of markets and corporate affairs at India Infoline Ltd., told BloombergQuint
- All sector gauges barring the Nifty IT Index ended higher led by the Nifty PSU Bank Index's 5.6 percent gain.
U.S. stocks fell for a fifth day as Treasury yields resumed their upward march and investors grew increasingly concerned about the effects of the trade war with China.
- The S&P 500 headed for its longest slide since Donald Trump’s election win on rising concern that higher yields will crimp corporate earnings.
- The Bloomberg Dollar Spot Index rose 0.1 percent.
- Oil held near $75 a barrel as a major hurricane headed towards Florida.
4. NBFC Stress To Hurt The Economy?
Where banks feared to tread, non-banks rushed in. That was the story playing out in the Indian financial sector over the last two years.
- The share of NBFCs in outstanding credit rose to 12.6 percent at the end of FY18 compared to 10.8 percent two years ago, Morgan Stanley data showed.
- Now as rates rise and liquidity tightens, analysts expect NBFC lending to slow down. This, in turn, would hurt the flow of funds to some segments of the economy.
- The current strain in NBFCs could reduce the flow of credit from this segment, hurting the flow of financial resources to the economy, Neelkanth Mishra, chief India economist and strategist at Credit Suisse explained.
5. Is SBI’s NBFC Move Sensible?
State Bank of India’s decision to step up purchases of loan portfolios from non-banking financial companies brought relief to the beaten down stock prices of non-bank lenders.
- Shares of all NBFCs closed higher. Bajaj Finance Ltd. gained 10 percent, Indiabulls Housing Finance Ltd. rose 3.6 percent and Dewan Housing Finance Ltd. was up 16 percent.
- Is this a case of SBI bailing out a stressed NBFC sector? Or does the step make business sense for the lender?
"This is an opportunity for us to meet the priority sector targets and also to get a quality book. At the same time, our credit-deposit ratio as of now is about 66 percent. So, there is adequate headroom available to us to ramp up our credit. So it’s a win-win for everybody." - Dinesh Khara, MD, SBI
- Analysts, too, believe that if done prudently, such purchases of NBFC loan portfolios could work well for SBI.
6. Downgrade Risks Surge
The rupee’s longest rout since 2000 and oil’s surge to a four-year high have put earnings estimates of Indian companies at the risk of downgrades.
- Analysts have boosted the average profit forecast for NSE Nifty 50 Index companies by 9.2 percent this year, shrugging off a 12 percent slump in the gauge since August.
- But history suggests the divergence won’t extend for long, and the growing stress in Asia’s third-largest economy may soon translate into lower projections.
- Not that a weaker rupee is bad for all Indian companies -- exporters including software producers and drugmakers will gain in local-currency terms. Still, the net impact on the broader corporate sector may be negative because of higher import bills.
- Add to that the tighter local-funding conditions, and profit estimates begin to appear optimistic.
7. Is It IndiGo Or The Blues?
InterGlobe Aviation Ltd. has lost half of its market value second time in three years since listing. Both times the reasons were the same.
- On Oct. 9, shares of the country’s largest and most profitable airline tumbled more than 50 percent from its peak to trade at Rs 724 apiece. Earlier, the scrip had slumped 46 percent in the first 45 days of 2016.
- A fall in yield, used to measure average earnings, contributed to the decline in the company’s profitability and impacted share prices.
- IndiGo, which also has the leanest cost structure, has seen an increase in its expenses, impacting share prices.
- The Airbus A320neo, which was expected to be a game changer for IndiGo, impacted the company’s financials both in 2016 and 2018.
8. Rafale Deal Details Sought
The Supreme Court is seeking details from the government over a controversial $8.7 billion deal for Rafale aircraft from France.
- The court asked the government to disclose to the court in sealed envelopes information on the the decision-making process leading up to the high-profile purchase.
- The court clarified that it does not want information on pricing and technical particulars.
- The bench, comprising Chief Justice Ranjan Gogoi and Justices SK Kaul and KM Joseph, also made it clear that it was not taking into account the allegations on corruption in the deal made in the petitions.
9. Bidders Curtailed?
Fate of Numetal and ArcelorMittal, ability of bidders to challenge decisions during the insolvency process, exclusion or inclusion of litigation period from insolvency timelines, and “control check”—the Supreme Court’s decision in Essar Steel’s insolvency case is significant for all these reasons.
- Numetal needs to pay a huge price to become eligible for Essar Steel. Does this mean advantage, ArcelorMittal?
- The ability of bidders to litigate through the insolvency process has been curtailed by the Supreme Court.
- The Supreme Court lays down law on when litigation period should be included or excluded from IBC timelines.
- Negative control is not control when assessing bidders eligibility, the top court added.
10. The China Option
India requires more than just import curbs to narrow its current-account deficit. It needs to tap a new crop of measures, literally. Expanding agricultural exports such as soybeans and cotton to China by exploiting opportunities from a global trade war will help cut the deficit, economists at CRISIL Ltd. said.
- Soybeans are at the heart of the trade war between the U.S. and China and cotton isn’t far behind. It puts India in a position to step up and fill the gap left by the U.S.
- China is already the top market for India’s overall export growth in recent months.
- The rise in exports to China has seen India’s trade deficit with the Asian giant shrink, although the gap widened on an overall basis.
- That, along with a slowdown in foreign capital inflows, has led to concerns that the current-account deficit will widen, prompting Finance Minister Arun Jaitley to hint at more measures to curtail the gap.
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