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PPF Yields Highest Returns in 2018, Options Contracts Witness Rise in Activity, Amazon Builds New Logistics Network to Tap the Rural Indian Population et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 31, 2018 2:02 PM 4 min read
Editorial

Interim Budget 2019-20 expected to push for fiscal consolidation. 'Unrealised Gains’ to remain untouched, states RBI. Amazon build new logistics network to tap the rural Indian population. 

 

Now to Today's Top Business News Stories in Our End Of Day Wrap Up:

PPF Yields Highest Returns in 2018, Options Contracts Witness Rise in Activity, Amazon Builds New Logistics Network to Tap the Rural Indian Population et al.

 

POLICY

Interim Budget 2019-20 expected to push for fiscal consolidation. Govt weighing multiple options to ease farm woes. ‘Unrealised Gains’ to remain untouched, states RBI.

 

Vision 2020: As per a Business Standard report, 2019-20 Interim Budget is likely to continue the theme of fiscal consolidation. However, the government is unlikely to strongly commit to any medium-term fiscal forecast with the 15th Finance Commission report expected in October. Also expected is a focus on rural and agriculture sector post the govt's recent defeat in agri-dominated states.

 

Agrarian Distress: The same newspaper claimed that the government is weighing options to address agriculture distress including a monthly income support program for farmers, a cash handout plan for the shortfall between the actual sale price and state-set procurement rate and a revamped crop insurance program. The final program could be one of these or a combination of all three.

 

Do not touch: As per an Economic Times report, the Central Bank will not touch “Unrealised Gain” in its balance sheet for dividend distribution to the government. "Unrealised Gain" is the valuation gain in currency and gold. Shaktikanta Das reportedly has excluded any distribution unless the gain is realised via a market sale.

 

Perspective: The development comes in the backdrop of a 6-member panel being set up under ex-RBI governor Bimal Jalan to evaluate RBI’s Capital Framework issue.

 

MONEY 

PPF gives high annual post-tax return of 7.7%. in 2018. 

 

ROI: As per a Livemint report, Public Provident Fund (PPF) gave a high return this year at 7.7%.

 

How did that happen?: The RBI increased policy rates in anticipation of rising inflation following which government securities (G-Sec) and products that are benchmarked to the G-Sec rate saw an uptick in returns. The PPF rate is typically 25 basis points higher than the 10-year G-Sec rate.

 

Meanwhile: Fixed Deposits in India yielded better returns this year (6.25%) vs. equity funds, debt, real estate, and even gold!

 

MARKETS

Options contracts expiring in June 2019 witness rise in activity ahead of General Elections 2019.

 

Zoom Out: The most activity was observed in put options at strike prices of 9,000 and 10,500 on the NIFTY50.

 

The Why: The increased activity could be an attempt by investors to hedge their portfolio against any adverse election outcomes and negative global outlook.

 

AMAZON

Amazon plans to expand Whole Foods stores across US; to also build new logistics network to tap the rural Indian population. 

 

The What: As per a WSJ report, Amazon is planning to expand Whole Foods stores across US to put more customers within the range of the e-commerce giant’s two-hour delivery service, Prime Now. Amazon bought Whole Foods in 2017 for roughly $13.5bn.

 


Amazon to reinvent itself: The retail giant has also reinvented itself to accommodate shoppers in rural India by:

 

  • Modifying its app to work with inexpensive smartphones and patchy cellular networks.
  • Adding multiple languages for descriptions of products and embedded videos for those who can’t read.
  • Opening physical Amazon stores to walk people through the process of ordering online and bringing on-board local distributors to deliver packages to the most remote of areas.

 

Perspective: Last year India’s rural shoppers accounted for more than $400bn of retail sales.

 PPF Yields Highest Returns in 2018, Options Contracts Witness Rise in Activity, Amazon Builds New Logistics Network to Tap the Rural Indian Population et al.

AVIATION

Indigo adds longer range Airbus A321neo aircraft to its fleet. Jet Airways in talks with SBI to borrow INR1,500cr. Air India may undertake global search to identify top officials who could take the beleaguered airline through the proposed revival plan. 
 

What’s New?: The induction has made Indigo the first domestic airline to have longer range Airbus A321neo plane in its fleet.
 

What’s next?: The addition of the first A321neo (of the 150 on order) will help the domestic airline tap into medium-haul international destinations.

What about Jet?: As per a Livemint report, the debt-ridden domestic airline is in talks with SBI to raise short-term loan worth INR1,500cr to meet its working capital requirement and fulfil payment obligations. Etihad Airways which holds 24% stake in the carrier likely to provide guarantee for this financing.
 

Zoom Out: Jet had over INR8,052cr of debt on its books as on September 30.
 

Last word: As per a Business Standard report, Air India might consider undertaking a global search to identify persons who could lead the national airline through the proposed revival plan.
 

Up Close: A comprehensive financial package, including transfer of non-core debt and assets to a special purpose vehicle, implementation of robust organisational and governance reforms are part of the plan.

Perspective: The development comes after the airline got no bidders for its stake sale. The carrier is estimated to have a debt burden of over INR55,000cr and about INR29,000cr is to be transferred into an special purpose vehicle.

 

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