OPINION, P8 M&M, P10 ASSETS CASE Just ` depreciation won’t boost exports, need to fix business There are big gains to be made from legalising gambling— so move fast on it TRADE TENSIONS Banks working with UK agencies to recover Mallya dues: SBI MD EDITORIAL INTERNATIONAL, P14 Japan's Norihiro Takahashi-led GPIF posts $50-bn Q1 loss MUMBAI, SATURDAY, JULY 7, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL. 58 NO. 160, 16 PAGES, `10.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 35,657.86 ▲ 83.31 NIFTY: 10,772.65 ▲ 22.90 NIKKEI 225: 21,788.14 ▲ 241.15 HANG SENG: 28,315.62 ▲ 133.53 `/$: 68.88 ▲ 0.06 `/€: 80.71 ▼ 0.06 BRENT: $76.43 ▼ $0.96 GOLD: `30,540.00 ▲ `73.00 TIT-FOR-TAT Trump’s trade war is officially on US appetite Imports from China rose 630% in 20 years as demand shifted to electronics 500 IN THE NEWS Varroc shares jump nearly 8% in debut trade SHARES OF auto component maker Varroc Engineering ended with nearly 8% gains against its issue price of `967 in its debut trade on Friday, reports PTI. The stock debuted at `1,032, surging 6.72% over the issue price on the BSE. During the day, the stock soared 9.82% to `1,062. It finally ended at `1,040.55, up 7.6%. On the NSE, shares of the company settled 6% higher at `1,025.15. Retired BoI officials arrested in loan fraud case THE CBI on Friday arrested two senior retired officers of Bank of India (BoI) in connection with an alleged loan fraud of `2,654 crore by Vadodara-based Diamond Power Infrastructure (DPIL) in the bank, reports PTI. VV Agnihotri and PK Shrivastava, retired GM and DGM, respectively, had allegedly granted undue favours to the company in granting credit limits, the officials said. 400 300 200 0 Continued on Page 2 2001 2003 2005 2007 2009 2011 2013 2015 2016 Source: The World Bank US imposes levies on $34 billion of imports, China hits back with duties on US cars, soyabeans, other items BLOOMBERG Beijing/Washington, July 6 US PRESIDENT DONALD Trump threatened to impose tariffs on every single Chinese import into America as the world’s two largest economies exchanged the first blows in a trade war that isn’t set to end anytime soon. After months of rhetoric, a 25%levyon$34billionofChinese goods entering the US took effect just after midnight Washington time on Friday with farming ploughs and plane parts among the products targeted. China hit back immediately via duties on US You have another 16 (billion dollars) in two weeks, and then, as you know, we have $200 billion in abeyance and then after the $200 billion, we have $300 billion in abeyance. OK? So we have 50 plus 200 plus almost 300. Donald Trump, US President Our view is that trade war is never a solution. No one will emerge as a winner from trade war, it benefits no one. Li Keqiang, Chinese Premier IN THE NET Special Feature Putting a battery-powered future on the fast track Formula E, which will finish its season in Brooklyn, New York, this month, is a laboratory for global automakers to work on problems like range, charging time and excess heat ■ Motobahn, P13 QuickPicks Forex reserves up by $24.34 bn to $424.55 bn in H2 of FY18 INDIA'S FOREIGN exchange reserves increased by $24.34 billion to $424.55 billion as of end March 2018, from $400.21 billion as of end September 2017, the Reserve Bank of India said, reports PTI. During September 2017 and March 2018, reserves fell to $399.23 billion as of end October 2017, and then constantly rose to $401.94 billion as at end November 2017, $409.07 billion as of end December 2017, $422.37 billion as of end January 2018 and $420.96 billion as of end February 2018. PAGE 10 Kharif sowing continues to lag; rice acreage down by 15% so far RICE ACREAGE has remained lower by 15% at 67.25 lakh hectares so far in the 2018-19 kharif season, due to uneven distribution of rainfall, reports PTI. Not only rice, the main kharif crop, farmers have sown coarse cereals, pulses, oilseeds and cotton in a lesser area as on Friday compared with the yearago period. The planting of kharif crops begin in June with the onset of the southwest monsoon, which covered the entire country on June 29, two weeks earlier than the normal date. PAGE 12 Ford India recalls 5,397 EcoSport vehicles FORD INDIA on Friday said that it is recalling 5,397 units of its popular SUV EcoSport for a faulty front lower control arm, reports fe Bureau in Chennai. In a statement, Ford India said that it is voluntarily inspecting 4,379 EcoSport vehicles made at the company’s Chennai plant between May 2017 and June 2017 for weld integrity of the front lower control arm. The weld strength on some of these vehicles may be below Ford specifications, it said. PAGE 5 Lack of funding in growth fans fears of oil past $150 Huge investment backlog, prices could go past 2008 highs if no new reserves found, say analysts FE BUREAU New Delhi, July 6 Brent ($/bbl) 120 112.29 100 76.55 80 60 BLOOMBERG Hong Kong, July 6 40 OIL INVESTORS MAY regret urging companies to cough up cash now instead of investing in growth for later as the dearthofexplorationissetting thestageforanunprecedented crude price spike,according to Sanford C Bernstein & Co. Companieshavebeencompelled to focus on boosting returnsandshareholderdistributions at the expense of capitalexpendituresaimedatfinding new supplies, analysts includingNeilBeveridgewrote in a note on Friday.That’s causing reserves at major producers to fall and the industry’s reinvestment ratio to plunge to the lowest in a generation, paving the way for oil prices to surpass records reached last decade,accordingtoBernstein. “Investors who had egged onmanagementteamstoreign 20 0 July 1, 2014 in capex and return cash will lament the underinvestment in the industry,” the analysts wrote.“Any shortfall in supply will result in a super-spike in prices,potentially much larger than the $150 a barrel spike witnessed in 2008.” The world’s oil majors including Royal Dutch Shell and BP navigated the price crash of 2014 bycutting costs, selling assets and taking on debt to help satisfy investors with hefty dividends. The biggest,ExxonMobil,was punished by shareholders earlier this year after compounding disappointing results with a Farm loan waivers July 6, 2018 massive spending plan and a lack of buybacks. The oversupply of crude globally in recent years has masked “chronic underinvestment”, Bernstein said in the report.Oilhasreboundedtothe highestinmorethanthreeyears as the Organisation of Petroleum Exporting Countries and its allies started curbing output at the beginning of last year to trimaglobalglut.Theproducers aim now to pump more to help coolthemarket,butdisruptions from Libya to Venezuela are keeping prices elevated. Continued on Page 2 FE BUREAU Do benefits outweigh costs? More farm loan waivers as likely before Elections 2019 may support rural demand, but their funding by UDAY-type bonds will hit yields as loan growth revives, says BofA Merrill Lynch Global Research. If funded with tax hikes as in Karnataka, the capex cut would cost about 30 bps of growth. Latest series of farm loan waivers (` cr) 36,359 34,000 UP GST evasion of `2,000 cr detected, says CBIC THE INDIRECT-TAX DEPARTMENThas detected goods and services tax (GST) evasion of `2,000 crore over the last few months, John Joseph, member, Central Board of Indirect Taxes and Customs (CBIC), said on Friday, adding that a tenth of this came to light only last week. Independent analysts have, however, felt that the tax evasion exposed may be only a fraction of its actual incidence, given the “very high” transitional credits — a total of `1.6 lakh crore by December-end — claimed by a section of taxpayers for the taxes paid in the pre-GST regime. Suspected instances of undeserved input tax credit (ITC) claims — scores of such claims made in the summary returns GSTR-3B have been detected and investigations into these are going on CRUDE SHOCK Continued on Page 2 China joins WTO 1999 FE BUREAU New Delhi, July 6 shipments including soyabeans and automobiles. Neither side shows any signs of backing down.Trump is already eyeing another $16 billion of Chinese goods and suggestingthefinaltotalcould top $500 billion, more than the US bought in 2017.China’s commerce ministry accused the US of “bullying” and igniting “the largest trade war in economic history”. The first ever US tariffs aimed just at China will likely rallyTrump’svoterswho agree with his “America First” argument that Beijing hasn’t played fair for years, stealing America’s intellectual property and undercutting its manufacturers. But the risk is that a spiralling conflict undermines economic growth by gumming up international supply chains and inflicting higher prices on companies and consumers. Others Plastic or rubber Metals Textiles and clothing Miscellaneous Machinery and electronics 1997 India, US may soon agree trade package SENIORTRADE OFFICIALS of IndiaandtheUSwillmeetlater this month in Washington to wrap up negotiations on a “mutually-acceptable trade package”,according to an officialsource.Themeetingcomes amid an escalation of the global trade war, with the US and China having imposed additional tariff against each other on Friday. The trade package is expected to have specific goals for boosting Indo-US trade throughgreatermarketaccess. Late last month, an American team,led by assistant US trade representative Mark Linscott, held talkswith Indian officials here on several contentious issues, including the extra US duty on Indian steel and aluminium and the next meeting will be a follow-up of that. Since India’s proposed additional tariff worth $235 million on 29 US goods — including almonds and apples — are retaliatoryin nature,any roll-backoftheadditionalduty on Indian steel (25%) and aluminium (10%) by the US will leadtoawithdrawalofsuchtitfor-tat action by New Delhi as well, said the source. Otherwise, India’s proposed additional tariffs will take effect from August 4. For India, greater access to the American market in the food, farm, engineering goods, auto and auto parts segments holds promise in the long term (overfiveyears),saidtheofficial. $ billion 100 ● TARIFF JITTERS 8,000 Punjab (Apr 2017) `2.75 lakh cr 34,000 9,500 (Jun 2017) ($40 bn) Likely waivers by the 2019 general elections seen by BofA Merrill Lynch Global Research 4,100 Andhra 3% (Mar 2018) Maharashtra Rajasthan Karnataka (Jun 2017) (Feb 2018) (Jul 2018) Annual rise in farm income over FY18-20 if loan waivers touch 1.5% of GDP Total : `1,25,959 crore Other states reportedly considering such largesse include Tamil Nadu and Madhya Pradesh (Eco Survey FY17 had estimated upper bound of farm loan write-offs in the current series at `2.2-2.7 lakh crore) RURAL RUSH Auto, consumer stocks reap the benefits of hiked MSPs BHARADWAJ SHARMA Mumbai, July 6 Revenue secretary Hasmukh Adhia during a session on 'One Year Journey Of GST' at Ficci’s office in New Delhi on Friday — and the continuing (though narrowing) gap between the registered eligible taxpayers and those who file the returns also indicate incidence of evasion at a much larger scale. Joseph, who also happens to be the director general of the GST investigation wing, clarified that the evasion cases cited by him included use of fake invoice bills to claim ITC and cases where businesses deducted tax from consumers but failed to deposit the same with the government. Continued on Page 2 MSP pushes up consumer stocks WITH THE MUCH-AWAITED decision on increasing the minimum support price (MSP) for kharif crops finally announcedbythegovernment earlier this week, shares of automobile and fast-moving consumergoods (FMCG) companies have got a shot in the arm as rural incomes are expected to get a boost. The government announced hikes of 4-52% in the MSP for kharif crops. While details on the implementation of the hike are still awaited, it is clearly supportive of rural incomes,brokerage firm CLSA Close 3-day (BSE) gain (%) Bajaj 3,023.35 5.5 Auto Hero 3,636.7 5.3 Motocorp M&M 924.95 3.7 Maruti Suzuki 9,304.8 3.6 ITC 272.3 2.7 Ashok Leyland 132.3 2.3 HUL 1,678.95 2.2 Marico 347.55 2.1 Nestle India 9,948.7 1.8 P&G 9,960.1 1.5 said in a note. With rural demand picking up, sales of auto products had started picking up and the trend is only expected to strengthen. Consumptionrelated stocks will be the key beneficiaries of the MSP hike. The S&P BSE Auto index on Friday closed the session 1.39% higher at 24,702.02 points.SharesofBajajAutoand Hero MotoCorp have gained over 5% in the last three tradingsessions,whileMahindra& Mahindra (M&M) along with Maruti Suzuki recorded an over3.5%gaininthelastthree trading days. Continued on Page 2 RING OUT THE OLD Jio could spell death for manufacturers of low-end feature phones FE BUREAU New Delhi, July 6 RELIANCE JIO INFOCOMM is doing to handset makers what it did to several legacytelecom companies. The 66% reduction in the price of its JioPhone coupled with the introduction of three popular app — WhatsApp, YouTube and Facebook — which together have a market share of around 80%, has certainly sounded the death knell for feature phone manufacturers. So far,the inhibiting factor in sales of JioPhones was the high entryprice at `1,500 and non-availability of apps like WhatsApp.“These limitations at least kept the distinction between feature phones and smartphones in the market. Now with the price cut and introductionofapps,thedividing line between the two categories of phones is over. One can easily say that it's the end of the road for feature phone makers,” said Sanjay Kapoor, telecom analyst and former Mobile phone shipments in India Estimated break-up of feature phone shipments by price Smartphone shipments Feature phone shipments (million) 100 90 80 74 70 62 60 42 50 34 40 30 20 28 32 10 0 Q1 Q2 81 87 85 59 58 62 42 56 55 34 31 34 26 27 28 39 30 30 Q3 Q4 Q1 Q2 Q3 Q4 FY17 `1,5002,000 Above `2,000 3% 16% 29% 52% `1,0001,500 Less than `1,000 FY18 Source: IDC, CLSA, Industry CEO of Bharti Airtel. He added that now the feature phone manufacturers will have to reengineer their businesses because phones that cannot support video and apps and is costlier than the JioPhone would not have takers. Similarwill be the casewith low-end smartphone manufacturerswheretheentry-level price is around `3,000. Since its launch some eight months ago, the JioPhone has added 25 million users as disclosed by Reliance Industries chairman and managing director Mukesh Ambani on Thursday. Analysts see this as not too high as it addressed only20% of the feature phone market as the entry level price `1,500 (refundable security after three years) was seen as too high for this segment. However, now with the price down to `501 with the user’s old feature phone thrown in,it will be able to address 90% of the market. Continued on Page 2
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