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Season of Earnings, EU Leads Towards a Digital Tax et al

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 29, 2018 12:38 PM 3 min read
Editorial

Good evening reader,

 

Dr. Viral V. Acharya, Deputy Governor of the Reserve Bank of India (RBI) in a rather forceful speech last week, made a case for the need of a Central Bank that is "independent from the executive branch of the government".

 

Full of colourful metaphors, including comparing the government's decision-horizon to that of a T20 match vs. the Central Bank touted as a Test player, the speech ended on an almost fatalistic tone stating: "Governments that do not respect Central Bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution."

 

In addition to these public remarks, RBI's rebuffs have lately become rather frequent. Definitely more direct.

 

Think about it. Last one month has brought about an "against expectation" rate hold, a veto on the Finance Ministry's more liberal approach on interoperability, a rejection of the govt's proposal to relax lending norms, and an unprecedented dissent note asserting RBI's the boss when it comes regulating payments cos.

 

Is it a function of increasing pressure from the state, or the urge to display "courageous independence" in light of rising uncertainty around the government's future electoral chances?

 

One thing is for sure - ever since Sep 2016 when present RBI Governor Urjit Patel occupied office, India's Central Bank has come in full circle from being an (almost) extended arm of the government, like during Demonetisation, to lately being rather assertive and vocal about its "independence".

 

Looks like the Test player is trying his hand at T20.

 

Presenting Today's Top 6 Business Stories through our End Of Day Wrap Up:

 

INDIA

 

ITC Q2 earnings reported 11.9% year-on-year growth, driven largely by its cigarette and FMCG segments.

According to a report by Livemint, the company’s cigarettes business contributed 41% to sales but its segment profit margin declined by 1% point over the year to 85% of total profits. Damaged inventory post Kerala floods and a shift to new graphics cited as drivers behind higher costs.

 

Swiggy records 3x increase in revenue even as losses double in 2017-18.

Swiggy reported total revenue of INR468cr vs. INR146cr last year. To keep up with competition from rivals like Zomato and UberEats, the company spent heavily to fund discounting and low-cost deliveries, resulting in loss of INR397cr, double the numbers reported previous year.

India’s largest food-delivery service, Swiggy currently holds c. 35-38% market share, followed by Zomato at c. 30%.

 

Paytm reports losses of INR3,393cr, up 270% driven by online retail.

Paytm Mall - the online retail business, reported a loss of INR1,788cr on revenue of INR775cr.

One97 Communications Ltd, the flagship payments segment also recorded higher losses than last year on back of increased marketing and payment gateway expenses. However, its consolidated revenue increased 4x to INR3,315cr.

 

SoftBank may further invest $120m-$150m in Grofers.

SoftBank Vision Fund is in talks to initiate a new round of investment of c. $150m in Gurugram-based grocery delivery company, Grofers. This round may also see participation from German retail group, Metro AG. The deal will give SoftBank a 40% stake in Grofers.

As per a report by The Economic Times, this development brings the talk of a BigBasket-Grofers merger to a halt.

 

US/INTERNATIONAL

 

IBM acquires Red Hat Inc. for $33bn to compete with Amazon’s cloud services.

In its biggest ever cash deal, International Business Machines (IBM) purchases Red Hat Inc., a multinational software company, to launch itself into the cloud software industry alongside rivals like Amazon and Microsoft. The 107-year old computer services company will pay $190/share for Red Hat as it competes in the cloud market for revenue growth.

 

Asian-Pacific and Latin American countries follow European lead to propose new taxes on Facebook, Google.

Countries like India, Malaysia, South Korea, Mexico and Chile among others have begun exploring new tax policies on revenues of Google and Facebook etc., after European Union proposed for the same.

These ‘digital taxes’ are aimed at enhancing tax receipts from foreign tech corporations.

 

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