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APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM VOL XLVIII NO. 136, 20 PAGES, `10.00 (PATNA `10.00, RAIPUR `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 READ TO LEAD EARNINGS DOWNGRADE IN FY23 NUMBERS LIKELY Market surge turns the spotlight on valuations Among EMEs, India got the largest flows into equities in July after South Korea ASHLEY COUTINHO Mumbai, August 7 IN THE NEWS States’ capex slows down by 9% in first quarter AMID A RISE in demand and capacity utilisation in the industry, the state governments seem to have calibrated their capital expenditure, reports Prasanta Sahu in New Delhi. The combined capex of twenty states whose finances were reviewed by FE were down 9% on year to `5.5 trillion in the June quarter. These states, which represent roughly 80% of the country's Gross Domestic Product (GDP), had reported a whopping 118% capex growth in Q1 FY22, partly aided by favourable base. Page 2 Maruti looks to produce 2 million cars this fiscal AS THE SEMICONDUCTOR supply improves, the country's largest passenger vehicle manufacturer, Maruti Suzuki India, plans to increase its output to 2 million cars in the current fiscal, reports fe Bureau in New Delhi. Page 4 TechM expects margin expansion in remaining FY23 TECH MAHINDRA EXPECTS margins to rise during the remaining quarters of this fiscal, hoping to continue bucking the industry trend of rising attrition, reports fe Bureau in New Delhi. Page 4 FE SPECIALS THE STEEPRUN-UPin the last month-and-a-half has pushed up valuations of Indian equities. After a punishing first half, theNifty50rallied8.7%inJuly on hopes that the US Federal Reserve would raise rates at a slower clip,paring the year-todate decline to 1.3%. The Nifty50 is now trading at 20.1x the FY23 estimated earnings.Thecountry'smarket capitalisation-to-GDP ratio based on FY23E GDP is at 102%, comfortably above its long-termaverageof79%.The MSCIIndiaindexistradingata 116% premium to the MSCI EM index, above its historical averageof62%,datafrombrokerage Motilal Oswal shows. "The Nifty,at 15,200,was a good level to bet on.At 17,400 levels, and with an economic recession in major economies yet to play out, I'm a bit nervous," said Andrew Holland, CEO, Avendus Capital Public Telecom receipts to miss target by a quarter RISHI RAJ New Delhi, August 7 THE GOVERNMENT WILL be ableto collectaround 27%less from the telecom sector than the Budget target of `52,806.36 in the current fiscalbecauseofitsdecisionnotto charge a fixed upfront payment from the operators for spectrum bought in the recently concluded 5G auctions.Theothertworeasonsfor lower collection will be the decision not to levy spectrum usagecharge(SUC)onthespectrum bought in the auctions, and the four year moratorium forpaymentofdeferredinstallments on spectrum bought in the previous auctions. Because of these factors, the government will be able to mop up only `38,385 crore from sector during the current fiscal against the Budget target of `52,806.36 crore. In the past auctions, operators hadtopay33-50%(depending on spectrum bands) of their total commitment as upfront payment. Continued on Page 2 ALSO SEE Edit: Long-term tailwinds PAGE 6 Markets Alternate Strategies. Holland believes that profit forecasts globally are too high and that the 'bad news is good news'trade is based on more of what happened in the recent past rather than what happenedduringthepreviouseconomic recession. India got the most flows into equities among emerging markets in July, after South Korea, provisional data from the Institute of International Finance shows. China saw the most outflows to the tune of $3.5 billion during the month. "We have always been expensive compared with other emerging markets,"said Harsha Upadhyaya, chief investment officer, Kotak Mahindra AMC. "But the 2,100 point surge in Nifty50 since June 17 has made valuations that much less attractive. On top of that, the earnings season has not been that great when you look at the headline numbers." India versus global peers All key markets continue to trade at a steep discount to Indian equities PE discount PE (x)* to India (%)* Mcap ($ trillion) US MSCI EM China Japan India UK Taiwan Korea Brazil Indonesia Russia -76 44.1 18.2 20.2 11.4 -85 11.1 -85 10.9 15.5 5.5 -79 20.1 3.2 10 -87 3 10.3 -86 1.7 1.7 9.9 -87 0.8 6 -92 16.3 -78 0.6 2.7 -96 0.6 Source: Bloomberg/ Motilal Oswal Financial Services HARSHA UPADHYAYA, NA *Estimates for Nifty50 firms for CY22/FY23 ANDREW HOLLAND, chief investment officer, Kotak Mahindra AMC CEO, Avendus Capital Public Markets Alternate Strategies The indices have moved up too fast, too soon on the assumption that inflation will ease in a quarter or two and the global central banks will hit a pause on rate hikes The Nifty, at 15,200, was a good level to bet on. At 17,400 levels, and with an economic recession in major economies yet to play out, I'm a bit nervous Continued on Page 2 E-comm firms seek to curb return rate to cut losses TUSHAR GOENKA & SHUBHRATANDON Bengaluru/New Delhi, August 7 E-COMMERCE FIRMS IN the B2C segment are looking for ways to curb the high rate of order returns by consumers of general merchandise and lifestyle products to narrow their losses. Unless the high return rate – almost 15-16% – is checked, analystsreckonthatmostsuch firms may find it difficult to post profits. The economics make this clear. The average ordersizeisaround`200-300. Of this nearly 14-15% goes into logistics costs.Add to this, discounts on products, which could range between 20-30%. Though there was some reduction in the return rate in FY22 mainly because of the companies cutting down on cash-on-delivery orders, it's doubtful whether sticking to such a policy would keep on bringing down the rate further onaconsistentbasis astherate in the pre-paid segment did not see any decline in FY22. The total return order volume in FY22 dropped to 14.86% from 16.10% a year ago, according to a report Average order size `200-300 Return of orders 15-16% Logistics 14-15% cost Discounts 20-30% ■ FY22: Return of orders: 14.86%from 16.10% a year earlier ■ Cash-on-delivery ■ Pre-paid PM asks states to change crop pattern, roll out NEP Sets target to cut import reliance for edible oil to 25%; states demand stronger MSP regime for pulses and oil seeds FE BUREAU New Delhi, August 7 PRIME MINISTER NARENDRA Modi on Sunday made a strong case for modernising the country's farm sector by using technology so that it can become self-sufficient in more crops, including pulses and oil seeds. Noting that half of the Fast-track transfer of assets to bad bank: IBA BANIKINKAR PATTANAYAK New Delhi, August 7 management portal which has clients like Myntra, PharmEasy, boAt, Lenskart and others, expects the declining trend to continue even this year as companies are trying to make faster deliveries of products. THE INDIAN BANKS’ Association (IBA) has asked lenders to step up internal deliberations and finalise a list of large stressed assets within 15 days for subsequent transfer to the NationalAsset Reconstruction Company (NARCL). The IBA, which had spearheaded the NARCL initiative, has asked lead banks in the consortiumsto expeditedeliberations on the issue of asset sale to the NARCL in joint lenders’ forum meetings, sources told FE. The move comes at a time when an informal deadline for the sale of large non-performing assets (NPAs) of `50,000 crore to NARCL in the first phase has witnessed repeated extensions—from March to June to September now. Continued on Page 2 Continued on Page 2 order return: 18.8% from 22.1% a year earlier order return: Constant at 10.4% I don’t think cash-on-delivery orders are the primary cause for return order. There are other factors like the touch and feel of a product and how different it is from online viewing to actual feel. LAKSHMINARAYAN SWAMINATHAN, supply growth CXO, Meesho jointly published by Unicommerce and Wazir Advisors. Their sample was 500 million orders. The CoD return orders fell to 18.8% from 22.1% a year earlier, but pre-paid return orders remained constant at 10.4%. Kapil Makhija,CEO of Unicommerce, a supply-chain PM Narendra Modi (left) alongside Niti Aayog vice-chairman Suman Bery with state CMs, LGs and Union ministers at the 7th Governing Council meeting of Niti Aayog on Sunday country's edible oil demand is met through imports resulting in annual import bill of `1 trillion, he called for steps, including a shift in cropping pattern by states to cut this dependency to 25% in the next few years. Addressing the meeting of the 7th Governing Council of the Niti Aayog, which was attended by 23 state chief ministers, three lieutenant governors of Union Territories and many Union ministers, Modi said rapid urbanisation can become India's strength instead of weakness by leveraging technology to ensure ease of living, transparent service delivery, and improvement in the quality of life. Modi said even though goods and services tax (GST) collections have recently improved (monthly average of `1.5 trillion in April-July, FY23), the potential is much more. “Increasing GST collection requires collective action by the Centre and states. It is crucial for strengthening our economic position and becoming a $5 trillion economy,” he said. Amid the schism between the Centre and some Opposition-ruled states over an alleged interventionist role of the former in their constitutionally guaranteed powers, Modi stressed the importance of ‘collaborative relationship’ between the two to further the objective of inclusive growth. Continued on Page 2 Small PSBs betting big on project finance market SHRITAMA BOSE Mumbai, August 7 SMALL AND MID-SIZED public sector banks (PSBs) have turned aggressive in the project finance market, undercutting their larger peers in order to raise their exposure to better-rated corporates. Bankers FE spoke to said that there is intense competition in the market among lenders to participate in syndication of road and other infrastructure projects being executed by public sector units (PSUs) and highly-rated private sector players. Even after the two repo rate hikes in May and June, players like NTPC were able to snap up funding at 6.5%, just 160 basis points (bps) above the repo, according to banking sources. This was before Friday’s hike in the repo rate of 50 bps. LENDING BATTLE ■ There is intense competition in the market among lenders to participate in syndication of road and other infrastructure projects being executed by PSUs ■ Even after the two repo rate hikes in May and June, players like NTPC were able to snap up funding at 6.5%, just 160 bps above the repo What’s more, there are multiple instances of a small PSB edging past one of the largest private banks to be part of a marquee syndication deal. Continued on Page 2 PROTECTION-SEEKING MINDSET TAKING A BACK SEAT ■ BRANDWAGON, P9 Working up a lather Godrej’s gel-to-liquid body wash is a smart way to induce trials ■ MOTOBAHN, P9 Re fall can boost used car sales Rising raw material cost for new cars can benefit the secondary car market ■ eFE, P10 Get a meal free in exchange for data The pandemic has made customer data vital to restaurants, helping them grow the business India Inc ready to embrace broader, new-age FTAs BANIKINKAR PATTANAYAK New Delhi, August 7 WHO IS AFRAID of a‘new-age’ free trade agreement (FTA) that goeswellbeyondtraditionalpillars of goods, services and investments? Certainly not the Indian industry! At least that is the position of key chambers representing India Inc,in a discerningchangefromtheirusual demandformoreandmoreprotection against foreign competition overa decade ago. India is negotiating ‘newage and modern’FTAswith the UK and EU and hopes to forge some more with others in future.These FTAs differ from the traditional ones, as they cover, and involve the coun- BK GOENKA, chairman, Welspun Group New-age FTAs would lead to technology acceleration and adoption of best practices by Indian industry, which would be positive particularly from an ESG perspective. try's commitments on a wide range of subjects. These may include labour, climate/environment, digital technology, public procurement, supply chains, e-commerce, gender, CHANDRAJIT BANERJEE, DG, CII ARUN CHAWLA, DG, Ficci Industry is keen on early conclusion of FTAs with the UK and the EU. While negotiating issues like public procurement, sustainability and IPR, genuine interests of industry should be preserved. New-age FTAs will not only promote meaningful economic activities, but curate an ecosystem for exchange of global best practices, on diversity, inclusion and sustainability, with an objective to transform business value chains. health, education and even some evolving sectors,in addition to the traditional pillars. Indian policy-makers and industryhadtraditionallybeen averse to the inclusion of new areas, especially labour and environment,intradepactsfor fears that it would impose onerous and exacting standards (being adopted by the developed world) on domestic manufacturers that would be hard to implement without incurring huge costs, in which case their export competitiveness would erode further. Moreover,given that areas like digital technology and e-commerce are still evolving,taking commitments on them in trade deals that may remain valid for decades would crimp domestic policy space. New Delhi More importantly, there were fears that foreign firms could exploit the FTAs better andpotentiallyfloodthecountry with cheaper products. In fact, India remained cautious aboutanytradedealforabouta decadebeforesigningonewith the UAE in February, as five of its six prominent FTAs that came into force between 2006 and 2011, had exacerbated New Delhi’s trade balance, according to an FE analysis. These fears have subsided,if not entirely gone,with growing realisation that in an interconnected world, failure to adopt globalbestpracticeshasafarbiggercostthanembracingthem. Continued on Page 2