Plethora of IPOs hit the Stock Market

By Harshit Sharma

The major indices in the market were at all-time highs in the initial few trading sessions of June. Nifty touched its record high of 10,006 level. Good market conditions attracted companies to enter the capital markets in this month.

Security and Intelligence Services (India) Ltd saw a strong investor turnout for its initial public offering with the issue covered almost seven times on the final day on Wednesday, while the share sale of Cochin Shipyard Ltd was covered three times on the second day of its offering. The Rs 1,468-crore initial public offering of Cochin Shipyard ended on a strong note on Thursday, with the issue being subscribed 76.1 times. The offer received bids for 258.69 crore shares compared to 3.39 crore shares offered (excluding the portion for anchor investors). 

The vigour in the primary market is likely to continue with at least a dozen more companies to hit the market. The government’s divestment plans in various state-owned companies would be also picking pace in the second half of 2017. New India Assurance, General Insurance and IRCTC.

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has given its approval to:

(a) issue 13,90,00,000 fresh equity shares of Indian Renewable Energy Development Agency (IREDA) of Rs.10 each to the public on book-building basis through the IPO;

(b) issue shares to retail investors and IREDA employees at a discount of 5% on the issue price of each equity share on book-building basis, with cap of 0.5% on equity post issue for CPSE employees and the allocation to retail investors in the net offer will not be less than 35%, as per the ICDR, 2009.However, the number of shares proposed to be issued to employees and retail investors will be finalized in consultation with the lead managers and as per the SEBI regulations

The funds raised through initial public offers (IPO) have crossed Rs 10,000 crore in the first half of this year. The primary markets at are in a bullish mode as many IPOs are already through and many are in pipeline. Most of the newly listed companies have yielded great returns and overall optimism in the secondary markets are the drivers for record fundraising this year. The BSE IPO index has gained more than 30% this year.

Repo Rate cut by 25 bps

By Tabish Salam

The wise men of the Monetary Policy Committee slashed Repo rate by 0.25% to 6% as expected. The rate cut was supported by the decline in headline inflation, moderation in core inflation, smooth rollout of Goods and Service Tax, and a normal monsoon.

Four out of six members of the Monetary Policy Committee including the RBI Governor, Dr. Urjit Patel, voted for 25bps rate cut while Dr. Ravindra Dholakia voted for 50bps rate cut, and Dr. Michael Patra voted for a pause. 

RBI believes that from here on, retail inflation has only one direction, which is up. Going forward, there would be inflationary pressure from the increase in HRA, upturn in food prices, formalisation effect of GST, increase in rural wages and minimum support price for crops and also farm loan waivers.

The RBI has maintained its GVA forecast at 7.3%. The MPC growth outlook was rather muted and it noted that while the outlook for agriculture appears robust, underlying growth impulses in industry and services are weakening. The RBI noted risks to growth from slowdown in manufacturing activity, leveraged balance sheets of the private sector, regulatory challenges of the real estate sector, and constraints on capital expenditure by states on account of farm loan waivers. For the last one and half years, the central bank has been awfully off the mark as far as inflation is concerned. Is this the likely end of the easing cycle? The only time since 1970 that benchmark interest rates in India have been lower than 6% was between January 2009 and August 2010 following the 2008 global financial crisis. This time around, the global backdrop is far from similar. Interest rates across the developed world are being normalised, and with the US Federal Reserve expected to begin shrinking its balance sheet in the next few months, the room for manoeuvre by the RBI is limited. However, according to a few experts there is a room for the RBI to cut rates by another 0.25%. The onus will now be on banks to reduce the interest rate on outstanding loans, as the RBI noted that while interest rates on fresh loans based on

Marginal Cost of Lending Rate have fallen, the base rate has not declined as much. 

In future further lending rate cut by banks will largely be dependent on their ability to reduce deposit rates as banks remain focused on protecting their margins.

Amendment of the Banking Regulation Act

By Himani Gandhi

The ordinance to amend Banking Regulation Act allows RBI to ask banks to sit down with loan defaulters and reach a settlement as part of the bad loans resolution package.

• The Ordinance amends the Banking Regulation Act, 1949 to insert provisions for recovery of outstanding loans.  Under these provisions, the central government may authorise the Reserve Bank of India to direct banks to initiate recovery proceedings against loan defaulters.  

• These recovery proceedings will be under the Insolvency and Bankruptcy Code, 2016.  The Code provides for a time-bound process to resolve defaults by either (i) restructuring a loan (such as changing the repayment schedule), or (ii) liquidating the defaulter’s assets.

• The RBI may from time to time issue directions to banks for resolving stressed assets.  Stressed assets are loans where the borrower has defaulted on repayment, or loans which have been restructured. 

• The RBI may specify authorities or committees to advise banks on resolving stressed assets.  Members on these committees will be appointed or approved by the RBI.

Before we get to the analysis of the amendment, we need to envision what is coming in the evolution of the bankruptcy process in India. We conjecture that in the early years, recovery rates will be poor, for four reasons:

• We must remember that the IBC is itself new. The institutional infrastructure for the IBC works poorly, as of yet. It will take time for IBC to work well.
• India is short of professional participants in the Insolvency Resolution Process of the IBC. For example, as yet foreign capital has been largely blocked. There will be fewer participants and the highest bid will be a bargain.
• The IBC is best applied at an early stage in the difficulties of a company, but most existing NPAs have been ripening for many years. For those cases, there is really nothing to be done but to pick at the bones of the corpse.
• Inexperienced creditors’ committees are likely to turn down offers that look bad, and later discover that the recoveries in liquidation are worse. It takes capability in a creditors’ committee to vote correctly. Even when human skills are present, decisions may often be adversely affected by policy and regulatory constraints. It will take time for those policy and regulatory constraints to be addressed.

New Vision Document for Jewellery Industry to reach $60 billion exports

By Manjeet Malik

The Gem & Jewellery Exports Promotion Council (GJEPC) has prepared a ‘Vision Document’ to achieve an exports target of $60 billion by 2022 as per a report. The ‘Vision Document’ suggests several measures to achieve the target.It suggests several infrastructural changes, some tax reforms and some procedural changes which has 20 to 30 measures.

For this year, the industry has a growth target of 10% and is on a track to achieve $47 billion exports this year.Meanwhile, to enable marginal and small industry players to contribute to exports, the government has identified 16 clusters to set up common facility centres where modern machines would be provided.

Acoording to Manoj Dwivedi, the jewellery industry needs to achieve higher scale to become globally competitive and provide an impetus to jewellery exports. The government is taking various policy initiatives to find ways to improve things. Plans are also afoot to jewellery parks on the lines of IT parks across India in prominent gems and jewellery clusters.

If this happens, It is obviously a great news for the Indian economy and every jewellery merchant would be looking forward to it.

Air France-KLM Culture Clash

By Priyanka Yadav

Strategic alliances can be effective ways to diffuse new technologies rapidly, to enter a new market, to bypass governmental restrictions expeditiously, and to learn quickly from the leading firms in a given field. However, strategic alliances are not simple or easy to create, develop, and maintain. Strategic alliances projects often fail because of tactical errors made by management.

The 13-year-old alliance between national carriers KLM and Air France is fraught with difficulty and some officials have doubts about whether it can continue, broadcaster NOS said, quoting a company document.

French staff in the Franco-Dutch company complain their colleagues from the Netherlands are money-grubbing, while the Dutch regard the Air France staff as aloof, according to the report. “The French have the impression that the Dutch think only of money and are always ready to fight for profit. They are not afraid of anything,” the researchers reported. “The Dutch think that the French are attached to a hierarchy and political interests which are not necessarily the same as the interests of the company … The extent to which employees are disillusioned is shocking. People are pessimistic, frustrated and burnt out because they feel that this is not listened to.”

A leaked internal report says the national cultural differences between the airline group's Dutch and French staff is so acute that it is uncertain 'whether the alliance can survive given the long-standing mutual incomprehension'.

“One questions whether the alliance can survive given the long-standing mutual incomprehension between the Dutch and French camps within the group,” one researcher was quoted as writing.

Air France-KLM said: “The conclusion of this study identifies cultural differences and different visions leading sometimes to difficulties but also a common interest and the desire to find solutions in the interest of Air France-KLM group and each airline.

It is clear that as a business grows, it may develop a diverse group of employees. While diversity often enriches the workplace, it can bring a host of complications as well. Various cultural differences can interfere with productivity or cause conflict among employees. Stereotypes and ignorance about different traditions and mannerisms can lead to disruptions and the inability of certain workers to work effectively as a team.

By using a well managed strategic alliances agreement, companies can gain in markets that would otherwise be uneconomical. Considerable time and energy must be put forth by all involved in order to create a successful alliance. It is essential that corporations enter into strategic alliances arrangements with a comprehensive plan outlining detailed expectations, requirements, and expected benefits.

Tomato Prices Likely to Decline

By Shruti Barar

Tomato prices which have skyrocketed up to Rs 100/kg are more likely to decline over the next fortnight. The prices of tomato are up for more than a month that too in most parts of the country. In Kolkata it touched Rs 95/kg , Rs 92/kg in Delhi ,Rs 90/kg in Bhopal, Rs 60/kg in Jaipur as per the data. Deputy Director General of ICAR, Mr. A.K. Singh commented that the prices are expected to come down in the next 15 days as supplies from Southern states and other growing areas are likely to improve. 

Due to the rains coming to an end, the supplies from Southern states like Andhra Pradesh, Telangana and even Maharashtra will improve and thus would ease pressure on prices. The heavy rains in Madhya Pradesh and Rajasthan caused some damage to the crop and also the transportation difficulty due to the same posed hindrance in the delivery of already harvested crop.Cost of transporting has gone up as trucks are taking more than the normal time due to rains and floods.

While the government has pegged the country's total tomato output to be higher by 15 percent to 187 lakh tonnes in the 2016-17 crop year, but the figures will be revised after the current damage.

Why Prevailing Oil Situation is a Boon for Inida?

By Shruti

The largest oil producers in the world, i.e., Russia, Saudi Arabia and the US are facing a problem of lack of demand. There is not enough immediate purchasers for the major oil producers who have not stopped their oil production since September 2014. So they are only stocking their production.

The recent Qatar episode has worsened the situation more because it is world’s largest LNG supplier, and lately, with the help of Iran it has increased production. The Ukraine episode was an accelerator for the whole scenario. Things started changing drastically after this. The United States could sense the vision and boldness of Russian President Vladimir Putin. Saudi Arabia was also very upset by the episode.

The United States, in a planned way with the help of the European countries, put too many economic sanctions on oil export. It has surpassed the production of Saudi Arabia, who used to be the largest producer of oil in the world, through fracking(the process of injecting liquid at high pressure into subterranean rocks, boreholes, etc. so as to force open existing fissures and extract oil or gas). Thus in order to resurrect its lost position, Saudi Arabia has refused to cut its production in spite of falling prices. Iran has also returned to the market with full capacity of production which is supposed to increase by 1 million per day. US has also lifted the sanction on Iran.

However, In a bid to push prices up, OPEC and key non-cartel members -- including Russia, but not the United States -- agreed coordinated output cuts in December to push up prices. The cuts were envisaged for six months and extended for another three. But so far, they have had hardly any effect -- with oil prices still hovering at 45 dollars a barrel. Renewable energy is also seeing unprecedented growth -- encouraged by some traditional oil majors like BP -- while companies are under pressure to reduce emissions in line with the Paris Agreement on climate change.

Thus all these factors combined are a positive indicator for Indian economy which is looking for a big leap as the oil prices does not seem to rise for at least three to four years now.