OPINION, P6 ECONOMY, P2 INTERNATIONAL, P4 FY19 TARGET EXIT WOUNDS Govt looks to garner `5,000 cr from CPSE share buybacks PM Theresa May says toppling her would risk delaying Brexit EDITORIAL Forcing RBI to ease capital and PCA norms a bad idea NCLAT’s Binani ruling gives hope to Ruia’s Essar Steel bid, but this should be rejected KOLKATA, MONDAY, NOVEMBER 19, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM VOL.XXVIII NO. 15, 16 PAGES, `6.00 (NORTH EAST STATES & ANDAMAN `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 INDIA INC Profit forecasts cut on weak Q2 results OPM IN THE NEWS BSE to part ways with S&P Dow Jones ASIA'S OLDEST BOURSE BSE has decided to snap ties with S&P Dow Jones, which manages and operates benchmark Sensex, reports PTI. BSE plans to develop indices through its own in-house development team. The two entities had entered into a joint venture — Asia Index — in 2013. 139.98 FOLLOWING INDIA INC’S less-than-ordinary performance in the three months to September, earnings for both 2018-19 and 2019-20 have seen downgrades. Analysts have lowered their forecasts forthe Niftyearnings byabout 4-5%with the biggest cuts for Tata Motors and Vedanta. Only a handful of companies beat analysts’ estimates during the quarterwhile many disappointed the Street. In a weak demand environment, companies have not been able to push through higher input costs to consumers, leaving operatingprofitmarginsweak. The reported net profit for the Nifty50 companies grew just 6.9% year-on-year. While earnings growth may rebound in the next two years, the fact is that much of GVA (Ebitda+Ec) (% chg y-o-y) Q3 Q4 Q1 Q2 FY18 FY19 25 20.21 20 15 12.79 Government’s view Basel + norms 18.35 5 0 Q4 Q3 FY18 -23.86 by huge boost from other income ■ GVA (sum of ebitda and wages) grew very slowly ■ Analysts have lowered earnings forecasts by 4-5% for FY19 and FY20 ■ Biggest cuts to Tata Motors and Vedanta the incremental growth will come from banks and financials.“We nowexpect 15% and 26% growth in net profits of Source: Capitaline Nifty-50 Index for FY19 and FY20 with financials sector accounting for a large portion of incremental profits,” analysts at Kotak Institutional Equities wrote. Net profits for a sample of 1,851 companies (excluding banks and financials) seen rising by just 5% year-on-year, if support from other income is not taken into account. That’s despite the topline growing an impressive 23% y-o-y. The fact is operating margins have been under pressure thanks to rising raw material costs — the ratio of raw materials to sales was up 162 basis points y-o-y. RBI needs to relax risk weights for credit to MSMEs, ease the PCA framework to boost credit flows to small units, extend the relief on standard asset classification on MSME accounts to beyond Jan 2019, make restructuring easier A person pays tribute to Alyque Padamsee at Worli crematorium, in Mumbai on Sunday. The 90-year-old theatre veteran and ad guru passed away on Saturday EXPRESS PHOTO: PRASHANT NADKAR FE SPECIALS ■ BRANDWAGON, P10 Food tech: Growth on a platter With a substantial rise in daily order volumes and plans for expansion, food tech players are turning the market around ■ eFE, P8 T-Hub: Advantage tech start-ups The Hyderabad incubator’s international programme looks to help overseas start-ups scale their business in India ■ PERSONAL FINANCE, P9 The fine print in insurance buying Most complaints with Insurance Ombudsman reveal policyholders’ lack of understanding about insurance products Passenger cars sold (lakh) Individuals declaring annual income above `10 lakh (lakh) FY14 25.04 24.78 FY15 26.01 31.32 FY16 27.89 43.43 FY17 30.48 62.15 Growth between FY14-FY17 (%) 21.7 gross income of `10 lakh or above. But whether inside or outside this tax bracket, these people could have been expected to consider buying a car and if a sizeable section of them is not doing so, they couldwell bewaryspenders.To put it differently, despite seeingtheirincomegrowatsomewhat fast clip,large sections of taxpayers are not confident of sustaining their income levels and may have turned thrifty. Car manufacturers, however,don’tagreewiththeideaof ■ Oil price benign for much Ebitdar (` cr) RHS Avg crude oil prices ($/bbl) 500 90 60 45 30 400 266.3 74.62 75 52.73 WHILE SPICEJET’S MANAGING director Ajay Singh has been credited with turning around SpiceJet,which he took over from the Marans in January2015,the Septemberquarter has been one of the worst for the low-cost carrier. SpiceJet reported a stinging loss of `389 crore in Q2FY19,following from a loss at the operating profit level of `32 crore. Singh has been extremely lucky to have run the business at a time when crude oil prices stayed low.In January2015,oil was ruling at only$47 perbar- -32.7 Q4 FY15 200 100 15 0 300 Q2 Q4 FY16 Q2 Q4 FY17 Q2 Q4 FY18 Q2 FY19 rel and theyfell to $28 perbarrel in January 2016.When the Marans were in control of of Singh's tenure; at one point below $30/barrel ■ Oil price rose to $100/bbl when Marans were in control ■ SpiceJet posted `389-cr loss in Q2FY19; biggest loss of `559 cr in Marans’ time 0 ■ Sharper fall in rupee in ’13 -100 ■ Total liabilities stand at `3,900 cr as on Sept 30, 2018 Source: Spicejet.com, ppac.org SpiceJet,oil prices had climbed to nearly $120 per barrel. Yet, the biggest quarterly loss MSME NPAs a concern, worsening of credit quality more visible at PCA banks RBI may accede to most of the govt demands, minor relaxation of the curbs on fresh lending by PCA banks Large parts of realised profits are being transferred to govt every year, reserves built up to meet contingencies and internal capex needs only 7% , notional gains (CGRA) can't be counted for potential transfer to govt, RBI needs to be well-capitalised RBI may agree to advance surplus transfer for 2019, may give all of profits to govt while strongly resisting extra reserves transfer; may not say no to review of framework, though On both issues, RBI to stand its ground, govt may moot steps to cement board’s powers Continued on Page 2 Growth between FY14-FY17 (%) 151 car sales being below potential. “While it makes sense to connect income growth with car sales, it’s not prudent to do the sameforincomedeclaredtothe tax departmentwith that of car sales. It’s plausible that more peoplemaybedeclaringincome now compared to earlier but thatwillhavelimitedbearingon car sales growth,” Sugato Sen, deputydirector-general,Society ofIndianAutomobileManufacturers (SIAM),said. Continued on Page 2 SpiceJet turnaround comes apart as oil prices rise CRUDE SHOCK RBI may nudge strong banks to buy loan assets of NBFCs, focus likely on refinancing needs of smaller NBFCs Governance/autonomy Within one's rights to open talks with RBI under Section 7 (which allows subsequent directions to the central bank),no bar on discussing operational issues at RBI board CRASH LANDING ARUN NAYAL New Delhi, November 18 No liquidity problem really, bank credit to NBFCs saw a y-o-y growth of 48% as on Sept 30, ready to step in when required, NBFCs must not rely too much on short-term funds Transfer of reserves Wants the RBI's capital framework tweaked; reckons more of its reserves could be transferred to govt, cites reserves are 26% of total assets while studies peg adequate level between 12-19%; median among major central banks is 16% Car sales lag income growth THE NOTION IS that India’s tax data hardly match the ostentatious consumption being witnessed in several pockets of the country, especially the urban centres. However, Indians may not be such compulsive spenders,after all. In the four years between FY14 and FY17,the number of cars sold in the country annually increased by 5.4 lakh or 22%. While this may not be a very impressive figure even at first glance, the growth in car sales would indeed look below par when juxtaposed with the numberofindividualswhoduring the period have entered the income bracket where one couldassumethatowningacar withoutgettingintodebttrapis possible. In FY17, 62.2 lakh individuals in the country reported gross annual income of `10 lakh or above, up 37.4 lakh or150% from FY14. Of course, the rise in tax compliance in recent years — the number of individuals/entities who have filed tax returns in India grew from 3.8 crore in FY14 to 6.9 crore in FY18 and is poised to be 7.6 croreorthereaboutsinthecurrent fiscal — may have contributed to the big jump in the number of people reporting No immediate change seen in RBI stance, differentiated CRAR an option to be discussed NBFC liquidity 'squeeze' Contagion of IL&FS crisis must be avoided, liquidity crunch among NBFCs/HFCs need urgent solution LOW ON CONFIDENCE SUMIT JHA New Delhi, November 18 Credit growth higher than nominal GDP growth due to ‘supply push” could result in high corporate leverage; lower capital norms with insolvency regime still to mature will create a false notion of banks being strong The Section has never been used and rightly so; board can give broad counsels and would do well to refrain from operational matters best left to management RBI capital adequacy norm or CRAR (9%) tighter than Basel-III and leads to lower credit growth; while internationally-active banks (just 4 among Indian banks) may need to maintain 8% capital, 4-5% must do for others Likely outcome MSMEs ‘credit-starved’ Sample of 1,851 companies (excluding banks & financials) ■ Headline profits masked Q1 Q2 FY19 Sample of 2,153 companies Q3 Q4 Q1 Q2 FY18 FY19 SNIP-SNIP 7.91 4.04 Amid the simmering tensions between the government and RBI, the latter's board is meeting today. FE takes a look at how the two are pitted against each other on the key contentious issues and predicts areas where a meeting ground could be found RBI stance 10 -127.42 26.34 30.86 FE BUREAU Mumbai, November 18 RM to sales (bps, chg y-o-y) 161.89 (bps, chg y-o-y) -167.59 LATVIA While earnings growth may rebound in the next two years, much of the incremental growth will come from banks WILLTHE RBI BOARD RESOLVE STRIFE? READ TO LEAD reportedwas `559 crore in the September 2013 quarter. Those were tough times because the macro-economic fundamentals were weak and the rupee depreciated sharply, hitting a lifetime low of 68.85 tothedollaronAugust282013. In contrast,the rupee has been stable for much of the last four years before it started depreciating since June thisyear. While the SpiceJet chief has been applauded for his management skills making profits from an airline business in India, it would appear, has little to do with management and almost everything to do withfuelpricesandfavourable currency movements. Continued on Page 2 ● EASE OF DOING BIZ PM Modi to chair meet with India Inc today PRESS TRUST OF INDIA New Delhi, November 18 PRIME MINISTER NARENDRA Modiwill chaira meetingwith top industrialists and policy makers on Monday to brainstorm on measures required to realise his vision of India breaking into the top 50 in the World Bank’s ease of doing business index,sources said. Themeeting‘Reflectionson EaseofDoingBusiness’isbeing organisedbythedepartmentof industrial policy and promotion as the government gears up for India’s ranking to leapfrog on the ‘Doing Business’index nextyearand boost the country’s investment attractiveness,thesourcessaid. Industrialists like Anand Mahindra and top representatives from industry chambers CII,Ficci andAssocham,among others,wouldsharetheirinputs and feedback for the roadmap required to move ahead in that direction, they added. Senior government officials from the teamthatworkedonreformsto improve the ease of doing business parameters taken into account by the World Bank will also participate in the meeting. India’s rank rose 23 places to the 77th spot in the ‘Doing Business’rankings released on October 31. CIC again asks PMO, RBI to disclose wilful defaulters' list PRESS TRUST OF INDIA New Delhi, November 18 SEVERELY ADMONISHING THE Reserve Bank of India and the Prime Minister’s Office,the Central Information Commission has again directed them to disclose the list of wilful defaulters and former RBI governor Raghuram Rajan’s letter on bad loans. In an exhaustive 66-page order,thepanelpulledupthe PMO for not complying with its directive to disclose the letter from Rajan on bad loans. Information commissioner Sridhar Acharyulu said,“If there is anyobjection based on any exception, the PMO should have pleaded such provision and justify their denial.” Detailed report on Page 2
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