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White Knight Rising, TCS Soars High et al

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 11, 2018 1:35 PM 3 min read
Editorial

Good evening reader,

 

We've extensively covered the topic of IL&FS and its after effects on Non-Banking Finance Companies (NBFCs). NBFCs face a funding crunch no doubt, partly due to their asset liability mismatch (perhaps not systemically spread out but for the first time coming on investors' radar), but primarily due to withdrawal of commercial paper and debenture investors post IL&FS.

 

Now we have the State Bank of India (SBI), rushing in as a white knight, granting a Rs.45,000cr lifeline to buy loans off NBFCs' books. Is this merely a prescriptive bailout or does it represent something out of the ordinary? We think the latter.

 

Consider this. SBI is not in the business of buying off loan portfolios, it is in the business of underwriting loans. Both activities require a fairly different set of skills and capabilities. Second, what is the biggest source of funding for NBFCs? The banks themselves. Thereby, a bank (SBI is this case) instead of lending to NBFCs, is preferring to directly acquire its assets (an activity where it competes with them). Is this a case of moral hazard? Can banks in future consider switching the tap off wholesale funding, making NBFCs distressed, only to buy off their loan portfolios at a discount? Food for thought.

 

Time to head into today Top 6 Business Stories through our End Of Day Wrap Up:

 

INDIA

 

National Financial Reporting Authority to inspect IL&FS books.

Loaded with auditing anomalies, books of debt-laden IL&FS have been sent to the new audit regulator, National Financial Reporting Authority (NFRA) by Ministry of Corporate Affairs (MCA), as a “test case” for the auditor watchdog. The new management at IL&FS has started efforts to clear up the ‘mess’ by consulting the government, Non-Executive Chairman Uday Kotak said after meeting with MCA Secretary.

 

Tata Consultancy Services announce Q2 earnings, reports net profit growth of 7.6%, revenue up 20.7% from last year.

Tata Consultancy Services (TCS) announced a net profit of INR7,901cr i.e. 7.6% for Q2.For the first time in seven quarters, the company's margin increased to 26.5%. Revenue stood at INR36,854cr for this quarter, up 20.7% from last year. The company announced a dividend of INR4/share.

 

Tata Group takes control of AirAsia India, new Board and CEO appointed.

Sunil Bhaskaran, Vice President of Corporate Affairs at Tata Steel, has been appointed as the new CEO of AirAsia India, with effect from 15 November. CEO and the Deputy CEO of AirAsia Group, Tony Fernandes and Bo Lingam, to step down. S. Ramadorai, company’s Chairman, is to be replaced by Banmali Agarwala, who currently heads Tata Group's Aerospace and Defence business. The restructuring implies that Tata Group will henceforth manage the airline’s India operations.

 

Flipkart Co-Founder, Sachin Bansal to invest $100mn in Ola, making it the largest personal investment in Indian Internet space.

Sachin Bansal may invest $100mn in Ola, after selling his 5.5% stake in Flipkart to Walmart. He exited the company, making almost $1bn from the sale. Bansal’s investment in Ola to be made through subscription of shares and a small component of a secondary sale by current investors. His total capital commitment for Ola will comprise more than 10% of his personal wealth gained from the Flipkart-Walmart deal this year.

 

US/INTERNATIONAL

 

Sharp decline in US stocks over rising interest rates leads to selloff in global markets.

US index Dow Jones Industrial Average dropped over 3%, due to investors fretting over high interest rates slowing economic growth, along with trade tensions. Tech companies were amongst the worst hit. Chinese market fell 5% in response, with South Korea and Japan following trend.

 

AT&T set to introduce its own video streaming service in 2019.

AT&T announced the launch of its video streaming service. The platform shall feature films, documentaries, animated and TV shows, acquired from purchase of Time Warner (now called WarnerMedia). The online service is expected to launch in the last quarter of 2019, centered on HBO content. John Stankey, Chief of WarnerMedia, said that this product is ‘HBO and more’.

 

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