Today's top business news: Shares rise on gains in auto stocks, McKinsey warns India risks decade of stagnation, US banks tighten lending standards, and more

Stock broker reacts has he watches share prices of BSE sensex in Mumbai | File   | Photo Credit: PAUL NORONHA

The benchmark stock indices have lost opening gains to trade in the red.

Analysts have come out with GDP estimates ahead of the official GDP numbers that will be released next week.

Join us as we follow the top business news through the day.

4:30 PM

US banks are tightening lending standards despite Fed easing

4:00 PM

Indian shares rise for fourth day on gains in auto stocks

The stock indices traded flat for most of the day until a rally during the final hours.

Reuters reports: "Indian shares settled higher on Wednesday as automotive stocks gained on news the government could consider tax cuts on some vehicles, while optimism ahead of a key speech by the U.S. Federal Reserve chairman aided global investor sentiment.

India's main stock indexes gained for the fourth consecutive day, boosted in recent sessions by better-than-feared corporate earnings and upbeat expectations around coronavirus treatments.

The NSE Nifty 50 index ended 0.67% higher at 11,549.60 on Wednesday, while the S&P BSE Sensex rose 0.59% to 39,073.92.

The top boosts to the Nifty 50 were conglomerate Reliance Industries Ltd and Kotak Mahindra Bank Ltd, which gained about 2.6% each.

Hero Moto Corp, Bajaj Auto, Eicher Motors and TVS Motor, all prominent manufacturers of two-wheeler vehicles, rose between 1.4% and 6.4%.

Indian Finance Minister Nirmala Sitharaman said the goods and services tax (GST) rates on two-wheelers merited a revision and the matter would be taken up with the GST Council.

Automakers in India have argued for temporary tax cuts on vehicles, to try to boost sales and generate revenue after the coronavirus outbreak hit demand.

Tata Motors Ltd finished 8.5% higher - its best day since early June - after the company pledged to significantly reduce debt over the next three years.

Meanwhile, other global share markets rose on optimism about U.S.-China trade and expectations of ample central bank stimulus before a speech by the Federal Reserve Chair Jerome Powell at the Jackson Hole symposium on Thursday."

3:50 PM

Indian equities face correction after 50% rally

The rally may be overdone given economic realities, analysts think.

Reuters reports: "Indian stocks won't return to their pre-COVID-19 levels this year despite a rally in recent months because companies face further difficulties and a market correction is likely, a Reuters poll of equity strategists found.

The benchmark BSE Sensex Index has rallied over 50% from a record low hit on March 24, a day before Prime Minister Narendra Modi imposed a strict nationwide lockdown, which ended at the start of June, to try to control the pandemic.

The index is still down around 6% so far this year and is about 8% below its life-high of 42,273.87 on Jan 20.

Nearly two-thirds, or 30 of 46 equity strategists polled, said a significant correction in Indian equities was either likely or very likely over the next three months.

“I expect a correction of 10% plus in the current calendar year at some point,” said Bharat Arora, equity strategist at B&K Securities in Mumbai, citing expectations for poor corporate earnings and economic performance in the previous and the current quarter.

The BSE Sensex was forecast to end 2020 at 39,000, near Tuesday's close of 38,843.88, the latest Reuters poll taken Aug. 13-25 found. That would be a 5.5% loss for 2020, marking its worst calendar year performance since 2011.

It was predicted to rise to 40,500 by mid-2021, which would still be more than 4% below the pre-pandemic high of 42,273.87.

Asked what would likely drive stocks for the rest of the year, most of those questioned said economic data and corporate earnings rather than the direct impact of the spread of the novel coronavirus.

The virus has infected nearly 3.2 million people in India, where cases are accelerating at the fastest pace in the world.

Asia's third-largest economy was forecast in the previous quarter to have shrunk 20.0% - the first double-digit contraction since official quarterly data began in the mid-1990s - and no growth for the rest of the year, a separate Reuters poll of economists found.

With business activity and consumer sentiment restrained, Indian companies have reported their most disappointing numbers in the previous quarter in at least three years, with a quick rebound not expected soon.

“There is a lot of demand destruction and after the recent and nascent pent-up demand gets exhausted, there will again be a slowdown. To come back to a pre-COVID-19 scenario the economy will have to tackle lot of issues,” said Neeraj Dhawan, director at Quantum Securities in New Delhi.

The latest poll findings also resonate with widespread criticism of New Delhi's $266 billion economic rescue package, which does not contain new spending, tax breaks or cash support to revive demand and prevent firms from collapsing.

“Although the government has provided some support to the economy by announcing a fiscal stimulus package, we believe more would be needed to get the economy back on track,” said Ajit Mishra, vice-president of research at Religare Broking Ltd in New Delhi."

3:30 PM

TRAI issues show-cause notice to Vodafone Idea on priority plan, says offer misleading

Telecom regulator TRAI has issued a show-cause notice to Vodafone Idea over the contentious priority plan, saying the offer lacks transparency, is misleading and not in compliance with regulatory principles.

In a notice seen by PTI, the regulator has asked Vodafone Idea to “show cause” by August 31, “as to why appropriate action should not be initiated against it for violating the extant regulatory framework by its RedX tariff plan”.

Bharti Airtel has not been issued a show-cause notice, a source said. Airtel offered to abide by what TRAI says and has also voluntarily modified its platinum offering suitably, and hence TRAI is not proceeding with further investigation on that, the source said.

In the show-cause notice sent to VIL, Telecom Regulatory Authority of India (TRAI) said it is of the view that the “claim of VIL for providing priority 4G network with faster data speeds is not in compliance with the extant regulatory framework”.

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2:40 PM

’India risks decade of stagnation in income, quality of life if GDP doesn’t grow over 8% annually’

A stern warning on what's at stake as the economy continues to be in trouble.

PTI reports: "India’s GDP needs to rise annually at 8-8.5 per cent to create opportunities in the post COVID-19 era, and the country risks a decade of stagnating incomes and quality of life if urgent steps are not taken to spur growth, says a report.

According to the report by McKinsey Global Institute (MGI), the country will have to undertake a slew of reform measures over the next 12-18 months with the aim of increasing productivity and creating jobs.

Given the increasing urbanisation and population trends, there will be 90 million additional workers in search of non-farm jobs by 2030 and India will have to triple job creation to 12 million gainful non-farm jobs per year from the 4 million achieved between 2013 to 2018, it said.

The GDP, which is set to contract by over 5 per cent as per some estimates in FY21, needs to go up to 8-8.5 per cent per annum for the next decade to create the opportunities, it said, warning of difficulties if it is not achieved.

Absent urgent steps to spur growth, India risks a decade of stagnating incomes and quality of life, MGI warned.

On the reforms front, it advocated attention to manufacturing, real estate, agriculture, healthcare, and retail sectors, unlocking land which can reduce prices by up to a fourth, creating flexible labour markets, enabling efficient power distribution to reduce tariffs for consumers by over 20 per cent and privatizing 30 top state-run enterprises.

From a financial sector perspective, it said reforms and streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points and also pushed for creation of a ‘bad bank’ to take care of the dud assets.

A bulk 60 per cent of the reforms will have to be undertaken by states and the remaining 40 per cent by the Centre, it added.

The think tank pointed out that the manufacturing and the construction sectors offer the most opportunities for economic growth and also for higher employment.

The report has identified 43 ‘frontier businesses’ across sectors, claiming they have the potential to create USD 2.5 trillion in economic value and 30 per cent of non-farm jobs by 2030, but added that India needs to triple its number of large firms having revenues of over USD 500 million."

2:00 PM

Gold retreats as dollar gains; all eyes on Powell speech

Gold's rally is facing some resistance as investors focus on monetary policy.

Reuters reports: "Gold fell on Wednesday as the dollar strengthened, with investors awaiting U.S. Federal Reserve Chairman Jerome Powell's speech for monetary strategy cues, but worries over the pandemic-ravaged global economy kept prices above the $1,900 mark.

Spot gold was down 0.5% at $1,918.77 per ounce by 0651 GMT. U.S. gold futures edged 0.1% higher to $1,925.30. Gold's retreat toward a key support level of $1,910 “is partly attributed to the U.S. dollar's intra-day rebound, as traders await Powell's speech”, said DailyFx strategist Margaret Yang.

The dollar index rose 0.2% against rivals, making gold expensive for other currency holders, with focus on Powell's speech at Jackson Hole on Thursday, expected to provide further clarity on the U.S. central bank's view on inflation and monetary policy.

Safe-haven inflows into gold also curbed after top U.S. and Chinese trade officials reaffirmed their commitment to a Phase 1 trade deal between the world's top two economies.

“The U.S.-China trade news overnight that the tensions have eased slightly has dulled investors appetite for safe-havens a bit but obviously there is a lot of water to go under that bridge,” ANZ analyst Daniel Hynes said.

 Gold's overall trajectory remained positive, analysts said, with the metal gaining 27% so far this year as investors seek a hedge against possible inflation and currency debasement due to unprecedented money printing by central banks and near-zero interest rates globally.

“There are still a lot of concerns about the economy and they continue to indicate that rates are going be low and stimulus measures will continue, which should boost gold,” Hynes added. Adding to doubts over an economic rebound from the coronavirus crisis, a survey from the Conference Board showed U.S. consumer confidence unexpectedly hit a six-year low in August.

Silver fell 0.3% to $26.33 per ounce, platinum dropped 0.4% to $922.99, while palladium gained 0.6% to $2,178.14."

 

1:30 PM

Auto stocks in demand; jump up to 7%

News of a cut in GST rates on two wheelers has helped auto stocks today.

PTI reports: "Auto stocks were in demand on Wednesday, rising up to 7 per cent, after Finance Minister Nirmala Sitharaman said two-wheelers are neither a luxury nor sin goods and so merit a GST rate revision.

Shares of TVS Motor Company zoomed 6.96 per cent, Hero MotoCorp jumped 5.17 per cent and Bajaj Auto gained 4.22 per cent on the BSE.

Among other auto stocks, Tata Motors rose by 3.89 per cent, Eicher Motors 3 per cent, Mahindra and Mahindra 2.60 per cent and Ashok Leyland 1.35 per cent.

The BSE Auto index was quoting 1.51 per cent higher at 18,280.89 in the morning trade.

Two-wheelers are neither a luxury nor sin goods and so merit a goods and services tax (GST) rate revision, Finance Minister Nirmala Sitharaman said at an industry interaction on Tuesday.

According to a statement issued by CII, which was also issued by the finance ministry’s spokesperson, Sitharaman said a rate revision proposal would be taken up by the GST Council.

Two-wheelers currently attract 28 per cent GST.

“Responding to a question about the need for lowering GST rates on two-wheelers, she assured that this was indeed a good suggestion as this category is neither a luxury nor a sin good and hence merits a rate revision,” the statements said.

This “will be taken up with the GST Council”, the statements quoted Sitharaman as saying.

Last year, the country’s largest two-wheeler maker Hero MotoCorp had urged the government to consider a phase-wise reduction in GST on the segment, starting with bringing bikes up to 150 cc into the 18 per cent slab."

1:00 PM

Govt needs to spend more, not lend more: Rahul Gandhi

Congress leader Rahul Gandhi on Wednesday attacked the government over the state of the economy and said it needs to give money to the poor to restart the economy through consumption.

Mr. Gandhi said “distractions” through media won’t help the poor or make the “economic disaster disappear”.

His attack on the government came after the Reserve Bank of India (RBI) said on Tuesday that demand in the economy will take quite some time to mend and that an assessment of aggregate demand during the year so far suggests that the shock to consumption is severe.

“RBI has now confirmed what I have been warning for months. Govt needs to: spend more, not lend more,” Mr. Gandhi said.

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12:30 PM

Bad bank not only necessary but unavoidable in present situation: Subbarao

As the banking system faces an unprecedented crisis, the idea of a bad ban is making a comeback.

PTI reports: "Former RBI Governor D Subbarao made a strong case for setting up a bad bank saying it is not just necessary but unavoidable in the present circumstances when NPAs are likely to balloon and much of the resolution will have to take place outside the IBC framework.

Even the Economic Survey 2017 had proposed this idea, suggesting the creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) to help tide over the problem of stressed assets.

The standard advantage of a bad bank is that the entity taking a decision on the sale price is different from the entity accepting that price. Conflict of interest and corruption are avoided, and importantly, are seen to be avoided.

There are some successful models of bad banks with carefully designed carrots and sticks. Danaharta of Malaysia, for example, is a good model to study in designing our own bad bank, Subbarao said in an interview to PTI.

The former RBI Governor noted that with the economy contracting by at least five per cent this fiscal year, non-performing assets (NPAs) will balloon.

Also, according to RBI’s Financial Stability Report, gross NPAs of banks may rise to 12.5 per cent by March 2021 under baseline scenario, from 8.5 per cent in March 2020.

“The bankruptcy framework is already overloaded and it simply will be unable to deal with this huge additional burden. It is important, therefore, indeed more than ever before, that much of the resolution takes place outside the Insolvency and Bankruptcy Code (IBC) framework,” he said.

Before COVID-19 crisis hit India, the economy was already decelerating, real gross domestic product (GDP) growth had moderated from 7.0 per cent in 2017-18 to 6.1 per cent in 2018-19 and 4.2 per cent in 2019-20.

The growth projections for the current year by various global and domestic agencies indicate a sharp contraction of Indian economy ranging from (-)3.2 per cent to (-)9.5 per cent.

Earlier on, Subbarao said he had some reservations about a bad bank but, in view of recent experience, he is veering towards the idea of it.

“First, I believed the bankruptcy framework will put resolution on track and help clean up the system,” he said, adding that in hindsight that faith seems misplaced."

12:00 PM

Two-wheelers neither luxury nor sin goods: FM

Two-wheelers are neither a luxury nor sin goods and so, merit a GST rate revision, Finance Minister Nirmala Sitharaman said at an industry interaction on Tuesday.

According to a statement issued by CII, which was also issued by the Finance Ministry’s spokesperson, Ms. Sitharaman said a rate revision proposal would be taken up by the GST Council. Two-wheelers currently attract 28% GST.

“Responding to a question about the need for lowering GST rates on two-wheelers, she assured that this was indeed a good suggestion as this category is neither a luxury nor a sin good and hence merits a rate revision,” the statements said. This “will be taken up with the GST Council”, the statements quoted Ms. Sitharaman as saying.

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11:30 AM

Economic contraction likely to continue in Q2: RBI

The economic effects of the lockdown could be a lot more prolonged.

PTI reports: "The Reserve Bank of India on Tuesday said the contraction in economic activity was likely to continue in the second quarter of the current fiscal as upticks witnessed in May and June appears to have lost strength ifollowing re-imposition of lockdowns to contain the coronavirus pandemic.

The government imposed a nation-wide lockdown on March 25 to combat the pandemic. The lockdown was partially lifted and then re-imposed by certain states to check the spread of coronavirus infections.

According to RBI’s annual report, high frequency data so far point to a retrenchment in activity that is unprecedented in history.

“the upticks that became visible in May and June after the lockdown was eased in several parts of the country, appear to have lost strength in July and August, mainly due to reimposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into Q2,” it noted.

The National Statistical Office is scheduled to release its estimates of GDP for the first quarter of this fiscal on August 31.

RBI did not give out economic growth projections in the annual report as is usual.

Growth was slowing even before the outbreak of the pandemic. India’s Gross Domestic Product (GDP) growth of 4.2 per cent in 2019-20 was the lowest since the global financial crisis more than a decade ago.

The central bank said demand in the economy will take quite some time to mend and regaining pre-COVID levels will have to be fuelled by government consumption.

In its report, RBI also said that “deep-seats and wide-ranging” reforms are needed to regain losses and return to the path of sustainable economic growth.

“An assessment of aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-COVID-19 momentum,” the central bank said.

Private consumption has lost its discretionary elements across the board, it said, adding that transport services, hospitality, recreation, and cultural activities were particularly affected in the economy, where consumption accounts for some 60 per cent of the GDP."

11:00 AM

ECB balance sheet hits fresh all-time high

 

10:40 AM

ICICI to use satellites for farm credit

ICICI Bank has announced the introduction of usage of satellite data-imagery from earth observation satellites—to assess credit worthiness of its customers belonging to the farm sector.

The bank, the first in India and among a few globally to do so, will use the data to measure an array of parameters related to the land, irrigation and crop patterns and in combination with demographic and financial parameters to make faster lending decisions for farmers, it said.

“Use of technology helps farmers with existing credit to enhance their eligibility, while new-to-credit farmers can now get better access to credit,” it added. Since land verification is done in a contactless manner, credit assessments take only a few days as against the industry practice of up to 15 days.

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10:20 AM

GDP to see contraction of 25% in Q1 numbers: Analysts

Analysts expect an economic contraction that is much worse than what was earlier predicted.

PTI reports: "The country’s gross domestic product (GDP) may have contracted by 25 per cent in the June quarter, which witnessed the strictest coronavirus-induced lockdowns, analysts said on Tuesday.

Manufacturing, construction, and trade, hotels, transport and communication will be the worst-affected segments in the official set of numbers to be announced by the government on August 31, they said.

A nationwide lockdown was imposed in the country on March 25, as the COVID-19 pandemic came ashore. While the impact to the economy has been the hardest, the number of those infected have continued to grow and the country has crossed a grim milestone after another on COVID-19.

Ratings agency ICRA said it is pegging the “contraction in Indian GDP and the gross value added (GVA) at basic prices in year-on-year (y-o-y) terms in Q1 FY21 at around 25 per cent each“.

The drag is primarily on account of three key production sub-sectors accounting for 45 per cent of the economy — manufacturing; construction; and trade, hotels, transport, communication and services related to broadcasting, it said.

“Our assessment draws from the available data for volumes and profitability for the industrial and services sectors, the expectation of distress in MSME and relatively informal sectors, as well as the favourable rabi harvest and government revenue spending,” its principal economist Aditi Nayar said.

Foreign brokerage Barclays estimated the economy to have contracted by 25.5 per cent in the June 2020 quarter saying the virus containment measures have “dealt an unprecedented blow to the economy“.

It said the rural economy, government spending and essentials will likely be the only sectors mitigating some of the decline.

The brokerage, however, said while the worst will be over in the June quarter, growth is likely to remain weak going forward as well, and estimated the 2020-21 GDP to contract by 6 per cent.

Manufacturing volumes are likely to contract 40.7 per cent year-on-year, the construction sector by gross value added growth 45 per cent, ICRA said.

It added that GVA for trade, hotels, transport, communication and services related to broadcasting in that quarter is expected to contract by over 50 per cent on a GVA basis.

The revenue expenditure of a small set of state governments for which data is available shows an expansion of 18.5 per cent in the first quarter of 2020-21, the rating agency said. It added that coupled with a 9.7 per cent growth in the Government of India’s non-interest revenue expenditure in Q1FY21, this would support the overall economic performance in the quarter.

The agriculture sector will come at five per cent in the first quarter of 2020-21 as against the 3 per cent growth in the corresponding quarter of the previous financial year, Nayar said."

10:00 AM

Sensex rises over 100 points in early trade; Nifty tops 11,500 level

Stocks have opened the day with some minor gains after showing weakness yesterday.

PTI reports: "The BSE benchmark Sensex rose over 100 points in early trade on Wednesday led by gains in index-heavyweight banking stocks amid persistent foreign fund inflow.

After touching a high of 38,980.60 in opening session, the BSE Sensex was trading 98.93 points or 0.25 per cent higher at 38,942.81; while the NSE Nifty was up 35.40 points or 0.31 per cent at 11,507.65.

Bajaj Auto was the top gainer in the Sensex pack, surging around 4 per cent, followed by Bajaj Finserv, IndusInd Bank, M&M, PowerGrid, Bajaj Finance, Axis Bank, Kotak Bank and ICICI Bank.

On the other hand, Bharti Airtel, Asian Paints, HCL Tech, HDFC and TCS were among the laggards.

In the previous session, the Sensex closed 44.80 points or 0.12 per cent higher at 38,843.88, and Nifty inched up 5.80 points or 0.05 per cent to close at 11,472.25.

Exchange data showed that foreign institutional investors bought equities worth Rs 1,481.20 crore on a net basis on Tuesday.

Traders said extended rally in banking stocks lifted benchmark indices in early trade, despite tepid cues from Asian peers.

Persistent foreign fund inflow too buoyed market sentiment, they said.

In the international market, bourses in Shanghai, Hong Kong, Tokyo and Seoul were trading with losses in mid-day deals, while stock exchanges on Wall Street ended on a positive note in overnight session.

Global oil benchmark Brent crude was trading 0.24 per cent higher at USD 46.40 per barrel."

9:30 AM

Government may look at second stimulus once COVID-19 infections ebb: Expenditure Secretary

The government may look at introducing a second set of fiscal stimulus measures once the COVID-19 infections abate and the psychological fears in people’s minds ebb, a top Finance Ministry official said on Tuesday.

The government has also observed that 40% of the cash transfers directly into the beneficiaries’ accounts recently have been saved and not spent, leading to a feeling that there are limitations of the stimuli measures and hence, making timing the most important factor, Union Expenditure Secretary T. V. Somanathan said.

It can be noted that the government’s first round of fiscal stimulus was announced in late March, and included measures like extra spend of nearly 2 percentage points of GDP. The RBI delivered two deep rate cuts before surprising all with a pause this month, leading some analysts to opine that the government will have to do the heavy lifting now.

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