Morning Scan: All the big stories to get you started for the day


Reserve Bank may raise reserve repo rate

The Reserve Bank of India may on Thursday raise the reverse repo rate, the rate at which the central bank borrows from banks. It will likely raise the rate by about 15-40 basis points while also taking measures to support the budget that proposes larger capex to help growth, a survey of 22 banks, funds and financial institutions by the Economic Times showed. Eight out of 12 economists polled by Mint expect the monetary policy committee to raise the rate by 20-25 basis points to 3.55-3.6 percent. One basis point is a hundredth of a percentage point.

Why it’s important: Persistently high inflation in India is likely to force the Reserve Bank’s hand. It will also be joining other central banks of the world in withdrawing emergency support two years after the Covid-19 pandemic caused widespread economic stress. The hike will signal the start of policy normalization.

NBFCs could be allowed to issue credit cards in India

The Reserve Bank of India and a few non-banking finance companies are said to be in preliminary talks over the possibility of allowing the shadow banks to issue credit cards on a standalone basis. Currently, NBFCs — said to account for 20-30 percent of the overall credit given in the system — can only issue co-branded credit cards with commercial banks.

Why it’s important: If NBFCs are allowed to issue credit cards, it will make a major shift in the way the credit card business is conducted in India. It will allow shadow banks to play a stronger role in the digital financial inclusion ecosystem by giving them equal footing with regular lenders.

India may widen definition of virtual digital assets

The central government is considering broadening the definition of virtual digital assets to cover any new assets that may emerge and further refine the provision to tax these assets. The budget announced last week proposes to tax any income from the transfer of any virtual digital asset at a flat 30 percent to be effective from April 1.

Why it’s important: The government looks to ensure that the definition of a virtual digital asset is dynamic enough to cover any new product that is introduced due to technological advances since the sector is seeing new products launches at a rapid pace. The proposal to levy taxes would be finetuned after discussions with the industry.

Higher direct tax collections could help narrow fiscal deficit

Collection of direct taxes is set to exceed the government’s revised estimates. With only 15 percent of the target remaining to be collected in the remaining two months of the current financial year, the income tax department could exceed the revised estimates in the budget. It collected 30 percent of its year’s target in the last two months of the previous financial year.

Why it’s important: The higher tax receipts would help the government to narrow the fiscal deficit, which at nearly 7 percent is much higher than the 3 percent target mandated by the Fiscal Responsibility and Budget Management Act of 2003. The coronavirus pandemic widened the deficit as the government rushed to provide succor to large sections of the population in distress.

Suzlon seeks Rs 42 billion bailout from government agencies

Suzlon Energy, a loss-making renewable power company, has sought a Rs 42 billion bailout from the Power Finance Corporation and REC. Suzlon has proposed to its lenders that REC would hold up to 50 percent of the sanctioned one-time settlement amount, while the balance will be tied up with PFC. The plan says all the securities held by the consortium lenders will be transferred to the new lenders. The promoters currently hold a 16 percent stake in the company, which has a market valuation of Rs 105.62 billion.

Why it’s important: Suzlon, once the world’s largest maker of wind turbines, has blamed higher goods and services tax for its losses, in addition to the supply disruptions caused by the coronavirus pandemic. The net worth of the group was at negative Rs 33.56 billion on December 31.

Holdings by retail investors at a record even as foreign money exits

The value of holdings of individual investors in Indian firms listed on the National Stock Exchange hit another record high in the three months ended December, coming at a time when holdings of foreign investors declined to a nine-year low. The share of retail investors and high net worth individuals in the NSE-listed companies reached an all-time high of 9.58 percent in the December quarter compared with 9.25 percent in the September quarter and 8.29 percent before the pandemic, according to data compiled by Prime Infobase.

Why it’s important: The participation of retail investors have been rising in India for the past few years. The economic disruptions caused by the Covid-19 pandemic have only hastened the process as other avenues to generate returns dried up and the stock market continued to rise. A new tendency to invest in mutual funds by the salaried class has also helped.

Centre considers plans to extend life of welfare schemes

The central government may introduce new economic and welfare measures days after the budget proposed increased spending. These could include extending the life of welfare programs that will end in the next few months. In the past two years, the government announced a raft of measures to boost demand, which include increasing funds for the rural jobs guarantee scheme, introducing the Aatmanirbhar Bharat Rojgar Yojana, and Pradhan Mantri Garib Kalyan Yojana, and offering incentives for affordable housing.

Why it’s important: The fresh measures would be necessary to keep up the economic momentum and provide help to the stressed poor through income support amid the disruptions caused by the coronavirus pandemic. Much will depend on the Covid curve.

Infra boost to provide windfall to construction equipment makers

Although there has been a decline in demand since the second wave of the Covid-19 pandemic, manufacturers of construction equipment are looking to make the most of the government’s infrastructure push announced in the budget. The enhanced capital expenditure portends well for the sector and is expected to lead to increased demand for construction machinery.

Why it’s important: The anticipated turnaround in the sector will depend on the speedy implementation of the government’s planned capital expenditure. It is also important that once construction contracts are awarded and execution starts, everyone in the value chain are paid on time so that they can pay their suppliers in a time-bound manner.

LIC third largest in world but provides highest return on equity

Although the Life Insurance Corporation of India is the world’s third largest in terms of life insurance premium, it is the largest in terms of share in the home market. The state-owned insurer also offers the highest return on equity at 82 percent, according to a report by CRISIL, a ratings agency.

Why it’s important: The government is set to submit offer documents for LIC’s IPO this week. The highly anticipated initial listing will be India’s largest that is also expected to offer discounts to existing policyholders. The receipts will help the government to meet its trimmed divestment target for the current financial year.

ArcelorMittal looks to buy Sprng Energy in push to boost green steel

ArcelorMitta has joined to race to acquire Sprng Energy, the India arm of Actis, along with Royal Dutch Shell, Adani Group, Singapore’s Sembcorp Energy, and Canadian pension fund CPPIB, in a buyout likely to cost $ 2 billion. This could be the first time in India that a steel manufacturer is looking at such as big acquisition in green energy.

Why it’s important: ArcelorMittal, the world’s biggest steel maker, is looking at cleaner energy sources to decarbonize production around the world and in India. Steel mills account for up to a tenth of global carbon dioxide emissions.

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