HDFC Bank will merge with HDFC to create financial services giant
India’s biggest private lender will merge with its parent, the country’s largest mortgage financier, in a $ 40 billion all-stock deal to create a $ 160 billion financial services behemoth, subject to regulatory approvals. HDFC Investments and HDFC Holdings, wholly owned subsidiaries of HDFC, will merge into HDFC, which will then merge with HDFC Bank. The process is expected to take 15-18 months.
Why it’s important: The merged entity will be better positioned to cater to soaring demand for housing loans. The merger will also give HDFC Bank a large lead over its closest rival ICICI Bank. Recent changes in rules for non-banking lenders like HDFC have left them with little incentive to remain as shadow banks.
Indian equities rise more than 2 percent, Sensex reclaims 60,000 points
Stock indices rose more than 2 percent on the news of the plan to merge HDFC into HDFC Bank. The benchmark Sensex closed at,611.7 points after a gain of 1,335, or 2.3 percent, the most since March 9. The Nifty added 383 points, or 2.2 percent, to end at 18,053. HDFC and HDFC Bank surged more than 9 percent each and accounted for over two-thirds of the gains in both indices.
Why it’s important: the mega merger was not the only reason for buoyant markets. There were also hopes that the softening of commodity and crude oil prices can provide relief from inflationary pressures in the Indian economy.
Private equity-backed firms at loggerheads with public money managers
Some of the world’s largest money managers, including Canada Pension Plan Investment Board, Norway’s Norges Bank Investment Management and Australia’s EquipSuper, have opposed several proposals made by India’s newly listed internet companies, setting the public market funds on a collision course with the companies and their private equity backers.
Why it’s important: Public money managers such as sovereign wealth funds and pension funds have been nudging managements to focus on corporate governance. There’s a disconnect between public market investors and private equity investors that does not augur well.
Antitrust regulator orders probe against food delivery firms Zomato, Swiggy
The Competition Commission of India has ordered a probe into food delivery apps Zomato and Swiggy over alleged unfair pricing practices, as well as other issues, flagged last year by a restaurants’ association in a complaint to the anti-monopoly regulator.
Why it’s important: the regulator will be looking at delayed payment cycles, deep discounting, exorbitant commissions, unfair pricing, and platform neutrality. These are not new charges for online firms in other sectors like retail and taxi hailing, who allegedly indulge in unfair practices to corner market share.
India’s manufacturing activity weakened in March to six-month low
The S&P Global India Manufacturing Purchasing Managers Index fell to 54 points in March from 54.9 points in February, with companies reporting a slowdown in fresh domestic and export orders. A reading above 50 indicates expansion, but the rate has slowed.
Why it’s important: Inflationary pressures due to geopolitical turbulence in eastern Europe seem to have somewhat dampened business confidence and growth in new orders and production, although manufacturing has now been growing for the ninth consecutive month.
More shares could be on offer in LIC’s IPO to fulfil regulatory requirements
The central government may increase the allotment of its shares in the initial public offering of the Life Insurance Corporation of India to align it with the listing guidelines of the Securities and Exchange Board of India. The rules state that listing by companies with a market value over Rs 1 trillion will require them to make an offer of a minimum Rs 50 billion and 5 percent of shares. It could mean the size of the issue may increase slightly from the existing 316.2 million shares.
Why it’s important: the public listing of LIC has been delayed due to adverse market conditions but volatility seems to have reduced in recent days. The government may want to list LIC in April as a delay beyond May 12 will require a fresh filing of listing documents.
Indian companies may hire more as economy regains momentum
Recruitment plans of companies in India are at a two-year high for the June quarter, the highest since the start of the coronavirus pandemic, according to the latest Teamlease Employment Outlook Report. The survey covered more than 800 small, medium, and large companies across 21 sectors and 14 cities and found that 54 percent of the firms showed an intent to hire in the April-June quarter, up from 18 percent in the June and September quarters of 2020 and 34 percent in April-June 2021.
Why it’s important: More hiring plans in the organized sector will be good news on the employment front but a lot will depend on developments around the Ukraine war and its impat on input costs and domestic inflation.
Amazon and Future group agree to appear before arbitration tribunal
The Supreme Court has said that Amazon and Future group have mutually agreed to appear before the Singapore International Arbitration Centre, while also asking the international tribunal to expedite the matter. The top court has also asked the two parties to file a joint memo with respect to restarting their arbitration proceedings.
Why it’s important: In January, the Delhi high court stayed the arbitration over the sale of Future Group’s retail assets for Rs 247.13 billion to Reliance Industries. Amazon has been litigating to block the deal.
Airfares to stay low as airlines disagree on price hikes
There is disagreement among carriers whether unfair competition is keeping fares artificially low in India’s domestic market. IndiGo, which controls more than 50 percent of the local market, is unwilling to raise fares because that might lead to a dip in bookings.
Why it’s important: The tough competition in the sector has already lead the several carriers to shutter operations. It remains to be seen for how long some of the surviving nine firms can afford to sell tickets below operational costs.
Regulator sets up committee to review governance issues at stock markets
In the wake of the algorithm scam at the National Stock Exchange, the Securities and Exchange Board of India has formed a panel to review governance norms at market infrastructure institutions such as stock exchanges. The parliamentary standing committee on finance has summoned the regulator to discuss various regulatory issues related to the securities market.
Why it’s important: Trust in stock markets took a beating when massive misgovernance came to light at the National Stock Exchange. Ensuring good governance practices in bourses will go a long way to restore faith.
