Govt approves ban on e-cigarettes. Labour Ministry legislation recognises gig workers and platform workers for first time. E-commerce sites register a slump in sales in the first half of 2019. Surging oil prices might be bad news for slowing Indian economy. Ritesh Agarwal gets regulatory approval for $1.5bn stock buyback. WeWork’s IPO fiasco doesn’t bode well for SoftBank’s other real estate investments. US Federal Reserve cuts its interest rate for second time this year. Trump hints trade war could continue well into 2020. Purdue Pharma files for bankruptcy.
Moving on to the End of Week Wrap-up:
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ICYMI: In a significant move to bolster the floundering economy, the government yesterday slashed corporate taxes worth INR1.45tr paid by domestic manufacturers. At present, businesses are taxed at 30% but in the new tax regime the rates will be between 15% and 22%. This would make India one of the lowest corporate tax regimes in Asia (the lowest being Hong Kong with its 15%).
The move is expected to boost investments and reignite the economy’s animal spirits. Stock markets gave the move a standing ovation, surging by 5.3%, the highest gain in a decade. However, will this be sufficient to put growth back in the fast lane? Only time will tell.
In Thin Air: The Union Cabinet today approved an ordinance prohibiting the manufacturing and sale of e-cigarettes in India.
According to a draft ordinance, the storage of e-cigarettes shall now also be punishable with imprisonment up to six months or fine up to INR50,000 or both.
Shares of ITC gained 1.8%, Godfrey Phillips India soared 7.8%, VST Industries rose 1% and Golden Tobacco were up 4.5% on back of the news.
Recognition, Finally: The Code on Social Security, 2019, proposed by the Labour Ministry, has for the first time recognised gig workers and platform workers in India’s labour law legislation. While saying these workers fall in the unorganised sector, the Code also seeks to guarantee them employment-related rights like life and disability cover and old age benefits, among others. At the same time, they would not be entitled to EPF, ESIS or gratuity benefits.
(California recently passed a landmark Bill recognising gig economy workers as regular employees. More on that here.)
Going Offline: Online shopping sites recorded a drop in sales in the first half of the year, as per a report by market research firm Kantar.
While the average ticket size has fallen 27% in the first six months compared with the same period last year, average spending is down 21%.
As per experts, the slump in consumption can be ascribed to the cut in discounts as well as an overall economic slowdown.
Companies however expect sales to go back to normal in the second half of the year, which is marked with festivals.
There’s a Catch: The news comes shortly after the Confederation of All India Traders (CAIT) in a letter to the Federal Trade Minister requested the government to ban the upcoming festive sales on Amazon's local unit and its rival Flipkart, alleging that their deep discounts violate the country's foreign investment rules for online retail. (More details about these e-commerce festivals here.)
Oil Be Right Here Waiting For My Order: The recent attacks on Saudi Aramco’s oil facilities in the eastern part of the Kingdom threaten to reverberate across Asia. The strikes knocked out half of Saudi Arabia’s crude production. And because supply lines are so long, the effects of the shortfalls would be days or weeks away.
The effects are being particularly felt in Asia, where 72% of Saudi’s crude exports (c. 5mn barrels/day) go to. Already, Saudi is telling Indian and Chinese buyers it won’t be able to ship as much light-grade crude as ordered. Four of the top five crude oil importers in the world are in Asia (China, India, Japan, South Korea). Moreover, as US sanctions have targeted Venezuela and Iran, many Asian countries have increased reliance on Riyadh.
Arabian Frights: A significant casualty of the attack on Saudi oil facilities could be India’s economic growth, which is already floundering and gasping for breath. The Kingdom cut oil production by half and oil prices experienced their highest surge in about three decades. This could have a negative impact on India, which imports 80% of its oil requirements, counts Saudi as its second-largest oil supplier, and whose economy is currently undergoing a slowdown.
Oyo Dos Tres: The Competition Commission of India has given its nod to Oyo’s Ritesh Agarwal to undertake a $1.5bn stock buyback alongwith pumping in an additional $500mn into the Gurugram-based company. This transaction, to be conducted through a Cayman-registered entity, RA Hospitality, will see Agarwal’s shareholding rise to an estimated 30%.
This Isn’t (We)Working: With its valuation plummeting from $47bn to somewhere between $10bn and $15bn, WeWork’s IPO has been delayed. The fiasco that has been the coworking space company’s public listing aspirations has reflected not only a repudiation of its business model but also SoftBank’s (WeWork’s biggest investor) valuation philosophy. This might not bode well for the Japanese conglomerate’s other real estate investments.
Powell Powers: As expected, the US Federal Reserve cut its benchmark interest rate yesterday for the second consecutive time. The quarter-point cut now puts its key short-term rate in the range of 1.75% to 2%.
The vote was 7-3, with two officials wanting to keep rates unchanged and another arguing for a bigger half-point cut. Fed Chairman Jerome Powell was ambiguous about the Central Bank’s future course of action, stating if the economy weakens additional rate cuts may be in the offing but suggesting economic expansion and numbers for now appeared strong and durable.
The Whole Package, Believe Me: Meanwhile, President Trump told reporters that he seeks a “complete deal” with China, not a partial or interim one. Furthermore, he said he doesn’t need it before the Presidential election next November, hinting that trade talks – and, by extension, the trade war – could continue well into 2020.
Purdue Gets Its Due: Purdue Pharma has filed for bankruptcy even as it negotiated a multi-billion dollar settlement to resolve thousands of lawsuits. The company has been blamed for fuelling the opioid crisis in the US, where prescription painkillers and illegal opioids caused over 400,000 deaths in the last two decades.
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