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Fed Rate Hike Looms Large, Demonetisation Was A Blow to the Economy, Angel Tax Woes et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 19, 2018 2:38 PM 4 min read

Good evening reader,


Did you know?: The Telecom Regulatory Authority of India (TRAI) has brought about a new framework on TV channel pricing and packaging. Starting January 1st, you'll be able to select and pay for TV channels on an individual selection or "a-la-carte" basis (vs. a lump-sum bundled offering we're all so familiar with). 


According to TRAI, considering 90% of TV Homes watch less than 50 channels, it is only fair that consumers should be able to pick and choose what they really watch/would like to pay for.


TRAI's solution: A basic tier of 100 channels, hand-picked by viewers, mostly Free-to-Air (FTA) channels, at INR130 (plus taxes). Additional pay channels can be individually picked or as part of Broadcaster's offered "bouquets", at Maximum Retail Price (MRP).   

We ask: Is it a true win for consumers? Do you even want so much choice? Will the consumer end up paying more or less than current levels? Would the broadcasters beef up prices (to MRP) to ensure the Sum-of-the-Parts is more than the whole? 


One thing is clear: With cord-cutting behaviour looming large i.e. people increasingly preferring Netflix and Amazon Prime vs. regular TV - only time will tell if consumers continue to stay "plugged-in'" into linear televisions, notwithstanding great choice and flexibility. 


We prefer to stay on the side-lines and watch this one unfold.  


Moving on to today’s Top 6 Business Stories through our End of Day Wrap Up:


All eyes on Fed as an interest rate hike looms large; A hawkish tone from the Fed could drive another leg of "Flight to Quality" away from Indian markets.


The What?: The Federal Reserve will give its last update of the year, following its two-day policy meeting ending on Wednesday. Consensus is calling for a 25bp interest rate uptick but perhaps there will be an equally heightened focus on the commentary alongside the decision which could offer some insight into future interest rate cadence. 


The When?: The announcement as such should hit the wires at 2PM EST, in-line with previous such announcements. 


Stuck between a rock and a hard place?: On one hand, Fed has loosely guided towards gradual rate hikes suggesting an interest rate uptick would hardly come as surprise. Furthermore, economic data has been fairly robust which should further endorse a rate hike. However, sharp sell-off in markets in last few days coupled with President Donald Trump's no-punches-held-back attack on the Fed might offer another narrative. Either way, with several opposing forces at play, all eyes should be on Jerome Powell and the rationale he offers alongside the decision. 


What's in it for India?: Another interest rate hike could potentially drive another period of "flight-to-quality" type behaviour among emerging market equities implying an exodus of funds from domestic markets. However, with crude price volatility and general election narratives at play as well, it perhaps is difficult to isolate every piece out from an Indian perspective.


RBI to inject INR50,000cr in January 2019 via open market operations. Demonetisation shaved off GDP growth by 2% in Q4 2016, says US study. 


The What: As per a RBI press release, the Central Bank will inject INR50,000cr in January 2019 via 5 OMOs of INR10,000cr each.


Zoom Out: This will follow an injection of INR50,000cr in December 2018 as well. 


The Bigger Picture: The moves aims to bridge the cash crunch in the economy and is likely to raise bond prices and boost bank treasury profits when lenders need capital.


You said study?: According to a study by the National Bureau of Economic Research co-authored by Gita Gopinath (Chief Economist IMF), demonetisation hit GDP growth by 2% in Q3 FY17.  The Indian economy grew at 7% the Q3 FY17, and at 6.1% in the subsequent quarter. 


Perspective: In the six quarters before demonetisation, growth averaged 8% and in the seven quarters after, it averaged about 6.8%.


Softbank’s mobile unit plunges, after record IPO.


The What: Stock fell 14.5% during its first day of trading on the Tokyo Stock Exchange. Shares opened at  ¥1,463, below  ¥1,500 the company had set for its IPO price.


Why though: The fall is credited to investors worrying about a price war and the company’s reliance on Chinese supplier Huawei which is facing a backlash from US on back of national security concerns.


Pfizer, GSK to combine consumer-health businesses.


What’s the deal: GlaxoSmithKline will hold a 68% stake and Pfizer the remaining 32% of the new joint venture.

Zoom Out: The deal will let both companies concentrate on prescription medicines, which tend to be more profitable, though carry a high risk profile. GSK Chief Executive Emma Walmsley said that the deal would allow it to create a new pharmaceuticals and vaccines company, with its research and development efforts focused on science related to the immune system, genetics and advanced technologies. GSK stock was up 7.44%. 


Fintech firms push to regain access to Aadhaar-based verification.


The What: Financial service providers are looking forward to regaining access to Aadhaar-based verification, after the Union Cabinet said it would seek approval from Parliament to amend laws allowing banks and telecom companies to verify user details via Aadhaar.


The Backstory: On September 26, the Supreme Court had curtailed the use of Aadhaar-based verification by corporate bodies to authenticate customers. After appeals by institutions, the Cabinet on December 17 had approved amending the existing laws to provide legal backing for seeding of biometric ID Aadhaar with mobile numbers and bank accounts as an optional KYC.


Early-stage startups receive notices from the tax dept. 

Ghost of the past: As per a Times of India report, several early-stage startups have received notices to clear taxes on angel funding raised by them. Some have also received letters levying penalty on the tax not paid. In certain cases, the taxes-cum-penalty amount to c. 50% of the funds raised.

Zoom Out: Earlier this year, the Central Board of Direct Taxation (CBDT) had issued a circular saying that "no coercive measure" would be taken to recover outstanding demands. Later in April, the govt gave relief to startups by allowing them to avail tax concession if total investment including funding from angel investors did not exceed INR10cr.


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