Global Economy, Markets & Sector Demonetisation: FIIs willing to tolerate short-term pain for 6-9 months Robert Buckland, Global Equity Strategist, Citi Nov25, 2016 | Source: CNBC TV18
The foreign institutional investors (FII) are willing to tolerate the short-term pain of demonetisation for a period of around 6-9 months, says Robert Buckland. He says FIIs have not been affected by the news. he adds India is less vulnerable to the capital outflows as compared to other emerging markets
I have been on the road around Asia talking to investors and the big global issues. Some of the trends that you are looking are exactly the opposite of what we are seeing elsewhere. Everywhere else there is all the talk of interest rates going up, over here potentially the talk of interest rates going down. So, it is making India a very specific in terms of what is going on elsewhere in the world. So, there is a focus on India and what is different about India.
There are two very important numbers that you need to focus on in world financial markets. The first one is the dollar and second one is US treasuries. Those two have changed radically post the Trump victory. We as a house at Citi were dollar bears before Trump won, we are now dollar bulls. We have moved emerging markets from overweight recommendation to an underweight recommendation as a result.
We think the Fed are going to hike in December, we think the Fed will hike twice next year and we think the Fed will hike twice in the year after as well. So, that is five rate hikes from the Fed over the next two years or so.
Demonetisation: Prolonged disruption to impact NBFCs' asset quality: Krishnan Sitaraman, Senior Director, Crisil Ratings Nov 24, 2016 | Source: CNBC-TV18
The short-term impact will be felt by those companies that are cash intensive – the likes of business catering to used commercial vehicle financing, gold financing entities and micro-financing companies. However, he said Crisil rated NBFCs will be able to manage the impact because of liquid assets on their balance sheet. This disruption will likely get over in a month or two, but if it is prolonged over three months then asset quality challenges could arise for them, too.
NBFC space over the last few years has structurally strengthened both from business diversity and finance raising ability point of view. Over the last 4 years NBFC share of credit pie in the Indian financial system has gone up from 12 to 15 percent and over next three years will move to 18 percent.
We have done two types of analysis one on the securitised pool of transaction which some of these NBFCs have originated and that is something which is a closed structure which typically will not benefit from any outside support. So, that is something which is more vulnerable if things pan out in the same current situation over a long period of time.
What we have done is applied a severe stress on the securitised transactions that we have rated and we have seen that even if there is considerable fall in collections over the next two months the existing credit enhancements in those structures like over collateralisation and external cash collateral that will be able to support the investor payouts over the next two months. If the disruption in collection extends for a period of over two months that is when these securitised transactions or some of those in the asset classes which I talked about earlier they could come under stress and we will need to evaluate more closely at that point of time.
If you move towards overall balance sheets or balance sheet based borrowings which NBFCs have taken there they have more stability I would say in the fact that they have access to undrawn bank lines. So, if there is a issue to a short-term liquidity stress they can always borrow from a banks and they can also liquidate. They have liquid assets on their balance sheet that can be liquidated if need be.
Demonetisation not a well thought-out plan Interview with Mark Mobius of Templeton EM Group Nov 24, 2016 | Source: CNBC-TV18
Demonetization’s near term pain for long-term gain: The purpose is very noble. They want to attack corruption and that is fine but I think it would have been better to take another route to attack corruption. In any case it is done and it will have an impact on economic growth and maybe half a percent less than what you would expect and of course it will tie up businesses for quite a while now, at least until the end of the year. So at the end of the day it is unfortunate that it happened. My big worry is that it may hurt Modi's election in November, his party maybe hurt as a result of that. But let us hope that does not happen because we believe the Modi government's efforts at reform are very good.
Duration of demonetization pain : It will be this quarter and then by the end of the year it will be over. I believe people will have adjusted by that time.GDP impact I would say half a percent is probably what we will see because it is not going to last very long as we just noticed. It would be one quarter and overall it would be about half a percent.
Take on inflation and interest rates: I am seeing a fall in interest rates mainly because the Modi government wants that to happen, they want lower interest rates and I believe the inflation picture is not that dire. Inflation is pretty steady and they could afford another interest rate cut. So, we are seeing that longer term despite what is happening in the US. Of course in the US we are seeing better growth, higher interest rates of the Fed but I don't think that is going to have a big impact on the direction of where India is going both in terms of both inflation and interest rates.
An interest rate cut led consumption improvement next year : There is going to be improvement next year; better consumption, lower interest rates and of course these two are aligned, one will affect the other and I believe that the prime rate has to come down.
We are looking of course at the repo rate but if you look at the gap between the prime rate and repo rate, it is much too wide. The prime rate has to come down.
Big fiscal stimulus on its way next year : If the government is able to effectively invest in infrastructure and accelerate all the infrastructure projects. This would be very good for the economy. However, as you know this is one of the big barriers that India faces in terms of growth, to accelerate growth. Mind you growth rates in India are very good among the highest in the world but they can even go higher with better infrastructure.
Fiscal surplus next year as the informal economy gets formalized: I think that could be on the margin but I do not think this will be a huge factor because the government will want to get that money out into the economy. So they would want to not have a big surplus and get that money spent. The other factor here by the way is the influx of money going into the banks means as Mr Modi has already mentioned that the bank should be able to accelerate the lending for investments. So that is another factor which we should be aware of.
Corporate Britannia concentrates spend on power brands Varun Berry, MD; Ali Harris Shere, VP – Marketing & Sudhir Nema, VP - R&D Britannia Nov 24, 2016 | Source: Business line
Impact of demonetization on sales: Demonetization has certainly affected the company — the entire chain itself, starting from retailers, vendors. Management expects near normalcy to return by January. There was a momentum which had got into each of the category and that has been affected now. We have never witnessed this kind of situation before. We had a double-digit growth every month last year, but with this situation, we don’t think we will have that kind of growth.
Britannia being a total foods company in five years leading to diversification and R&D: R&D used to take a long time to innovate, and now the time to market will be reduced to about six months. There are about 50 people working in the centre and 25 per cent of them are food technologists. We plan to straddle different categories. Today, we are a biscuit company with 85 per cent of the total share coming from biscuits. We are planning not to have one big block coming from biscuits. So we are looking at macro snacks.
Can consider tying up with international brands: We are evaluating every category. If we are not experts in a certain segment, and think that someone (like any international brand) is an expert, and there is room in that category, we will certainly look to tie up with international brands then. Three years ago, if a major chocolate brand had come to
us and wanted to partner with us, we would have certainly looked into it. We are more ready now than we were three years ago.
Rural marketing: Good distribution strategy is the most important to make the products available, with the right pricing and packaging. We have tried to strengthen the distribution in the Hindi belt, which mostly consists of rural areas. In Tamil Nadu, for example, where we have got three-fourths of the market, we are building the rural distribution. In Tamil Nadu, there is no retailer who does not carry Britannia products. But this is being done indirectly through wholesalers. We want to get there directly — sourcing products from our own distributors. Wholesalers don’t give you all the products — only those which sells the most. So, we are changing that.
Impact of reduction in import duty and inflation: Inflation has been high. It is actually 12 per cent and for the full year, it will be about 10 per cent. Inputs have gone up 12 per cent, and then the inflation kicked in and on the top of that demonetisation. Sugar, oil, everything has gone up. Initially, the reduction of import duty on wheat did help, but suddenly, the prices have gone up again. The Black Sea area shuts down during winter. So, if you reduce the duty even further, it can be fine. We have already taken a 6.5 per cent increase in prices and will try and get some more increase as we go through the year.
Fresh capital infusion: We opened one factory in Tamil Nadu. We will open four more during the year. We have 14 as of now. We expect to have a capex of about Rs 310 crore during the year, which will be more or less the same during the next three years.
NBCC teams up with Russian co for smart city, rail projects Anoop Kumar Mittal, Chairman NBCC Nov 24, 2016 | Source: CNBC-TV18
NBCC (India) signed a memorandum of understanding (MoU) with Russia's Rosinformexport LLC to jointly participate in the smart city projects in India.
Anoop Kumar Mittal, Chairman of NBCC said that the partnership with the Russian company will fetch some smart city and railway projects. There is synergy between NBCC and Rosinformexport as it is also a state-owned company.
On NBCC's project management consultancy (PMC) orders he said that the company usually gets 7-10 percent margins and some of the pending milestone payments were released for PMC business in the last quarter.
NBCC have signed an agreement with ITI for developing land in Bangalore and the size of the land is about 30 acre land, which is having IT land use at present and both of us will jointly redevelop or develop that project and the land will be equity of ITI and NBCC will develop on project management consultancy (PMC) basis and do marketing, charge their agency charges and as far as VSNL land is concerned of course there was discussion at government level with NBCC but yet we have not received any firm communication from the government.
In PMC segment, the company get fixed agency charges which does not vary but in last quarter there were some old payment which was linked to milestones those were
released that is why you saw sudden increase in profit margin otherwise revenue growth was 25 percent. We have order of about Rs 71,000 crore and definitely it should be much more than that. It is today's commitment; definitely it should be much more than this.
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