Corporate borrowing rise in India, ending deleveraging cycle
The deleveraging cycle of corporate balance sheets that started after the breakout of Covid-19 ended in the first half of 2022-23 as companies stepped up borrowings, worsening their financial ratios. The combined gross borrowings of 760 companies, excluding banking, finance, insurance, and stockbroking firms, were up 12.2 per cent on an annualized basis in the six months to September, growing at the fastest pace in three years. Combined operating profit was down 0.4 per cent, interest expenses were up 12.5 per cent, and net profit was down 10 per cent in the period.
Why it’s important: Poor profitability and incremental borrowing in the first half of 2022-23 has led to a deterioration of financial ratios for Indian firms. The interest coverage ratio has declined to 6.1x, indicating a decline in their ability to service debts.
Central government may breach Rs 16.6 lakh crore budget borrowing goal
The Centre will likely meet its 6.4 per cent fiscal deficit target for 2022-23, or even narrow it marginally, but the gap between receipts and spending met through borrowing is expected to overshoot the Rs 16.6 lakh crore budget estimate. It might have to rely on small savings and cutting spending on some heads to meet the extra expenditure. The finance ministry will likely seek a parliamentary nod for spending more than the originally planned Rs 39.4 lakh crore in the current financial year due to a surge in food and fertilizer subsidies. The supplementary demand is likely to be moved in the winter session of Parliament.
Why it’s important: Overshooting the fiscal deficit in absolute terms could mean borrowing more than what was planned earlier, but it is unlikely to be an issue. Improved revenue collection is also expected to provide a cushion.
European banks must resolve the impasse in regard to central counterparties
The Reserve Bank of India has put the onus on European Union banks to resolve the stalemate caused by the European Securities & Markets Authority’s decision to disqualify key Indian institutions that act as central counterparties in securities, money market, and forex transactions. This was conveyed at a meeting between officials of the banks and central bank deputy governor T Rabi Sankar.
Why it’s important: If the Reserve Bank sticks to its stand, European banks will have to enter into bilateral deals with other banks, avoiding the Clearing Corporation of India, which serves as a central counterparty. Bilateral deals would mean higher capital as the counterparty will be a bank carrying a higher risk weight.
Government to hasten approvals for production-linked incentives to help investors
India will fast-track permissions and facilitate investors boosting capacities under the various production-linked incentive schemes, as it seeks to reinvigorate manufacturing in the country. The Department for Promotion of Industry and Internal Trade, Niti Aayog and the finance ministry, among others, met last week for a review of PLI investments, having crossed the Rs 25,000 crore March target, which showed while some sectors had overperformed, some others were lagging.
Why it’s important: A streamlined process is expected to avoid misuse of the proposed incentives totalling as much as Rs 1.97 lakh crore.
Electric two-wheeler makers face cash flow problems on slow subsidy disbursal
Sales and production of electric two-wheelers may take a hit when demand is rising, with the government stalling subsidy disbursal of Rs 1,000 crore to half a dozen companies, including Hero Electric and Okinawa Autotech. Subsidy payments were to be made under FAME-II initiative, the government’s flagship scheme aimed at boosting manufacturing and sales of electric vehicles. But payments have stopped since April due to alleged violations of local value addition criteria under the scheme.
Why it’s important: The halting of payouts already given to customers is hurting cash flows and may to disrupt operations. If payments don’t resume, sales of electric two-wheelers may miss the one million mark projected at the start of the year.
ISMC’s $ 3 billion semiconductor chip fabrication to begin construction by February
The International Semiconductor Consortium’s proposed $ 3 billion chip fab in Mysuru is likely to start construction in February if the central government approves the firm’s application for financial incentives. ISMC is one of the three consortia shortlisted by the Centre to be eligible for the incentives. The ISMC is a joint venture between Next Orbit Ventures and Israel’s Tower Semiconductor. The three proposals for wafer fabs worth $ 13.6 billion have sought government support to the tune of $ 5.6 billion.
Why it’s important: The Indian government is offering huge incentives to chipmakers, including financing half of the project cost, to build a fab ecosystem in the country and cut reliance on China.
SoftBank to sell a third of its stake in Paytm through $ 200 million block deal
Japan’s SoftBank will sell a third of its stake in One97 Communications, the owner of the Paytm payments app, through a $ 200 million block deal. SoftBank, which owns 12.9 per cent of Paytm, plans to sell 29 million shares, or 4.5 per cent of the fintech company. The shares are being offered to institutional investors at Rs 555-601.45. The sale will fetch SoftBank at least Rs 1,628.9 crore, or $ 200 million.
Why it’s important: A global tech slowdown has seen the Paytm stock remaining below its IPO issue price. Similar block trades have been seen in other tech firms. Investors such as Uber and Tiger Global have sold part of their holdings in Zomato when its IPO lock-in expired earlier this year.
Lower shipments to China, US, and UAE responsible for export contraction in October
Exports to seven of the top 10 destinations of India, including the US, the United Arab Emirates, and China saw contraction in October, leading to the country’s outbound shipments dipping for the first time in two years, according to the commerce ministry data. These 10 nations have a share of 47 per cent in India’s overall exports. The US saw a fall in its value of exports by a fourth to $ 5.38 billion in October. The UAE witnessed 18 per cent fall in shipments at $ 1.98 billion. A slowdown in China resulted in a 47.5 per cent shrinkage to $ 947 million.
Why it’s important: A sharp contraction in exports indicates the effect of the Ukraine conflict, combined with adverse impacts of high inflation, monetary policy tightening, currency depreciation, and as pandemic-led supply chain constraints.
Elon Muck asks Twitter staff to work harder and longer, or quit
Elon Musk, who recently bought Twitter, sent a message to staff telling them that they had until Thursday to consider whether they wanted to stay on for working long hours at high intensity or take a severance package of three months’ pay. He told Twitter employees that anyone who had not clicked on a link confirming you want to be part of the new Twitter by Thursday evening New York time would be considered to have quit.
Why it’s important: The mercurial behavior of Musk regarding changes in the social media platform after the change in ownership might not end up helping the firm.
Amazon India staff concerned over retaining jobs amid global layoffs
With Amazon undertaking a global layoff exercise to axe 10,000 employees close on the heels of Twitter and Meta, the impact on India is still uncertain but the mood at Amazon India is one of fear and uncertainty. The company has put hiring on the backburner and set aside all travel plans across business segments. India, which has close to 100,000 employees, has around 10,000 permanent staff.
Why it’s important: The layoff exercise, expected to be completed by January, is expected to particularly impact Amazon India’s retail division. The hiring freeze has impacted those in the last leg of their selection.
