RBI Slashes Repo Rate, Lowers GDP Estimates, Sensex Registers All-Time High, Saudi Aramco Emerges As the Most Profitable Company of the World et al.

RBI slashes repo rate by 25bps; lowers GDP estimates. Sensex registers all-time high, Nifty crosses 11,700 mark. Saudi Aramco reveals financial information for the first-time ever ahead of bond debut. SFIO arrests former IL&FS Vice Chairman Hari Sankaran. Supreme Court strikes down RBI’s Feb 12 Circular on bad loans as ‘unconstitutional’. Boeing to cut 737 Max aircraft production by nearly 20%. Nykaa raises INR100cr in funding. AngelList launches India-dedicated fund. Sequoia India to raise separate fund for Surge program. 

 

Moving on to the top Business stories of the week. 

 

ECONOMY

RBI slashes repo rate by 25bps; lowers GDP estimates. Service sector PMI dips to six-month low. Asian Development Bank cuts India’s growth rate forecast to 7.2%. 

 

As Expected: Following its Monetary Policy Committee meeting on Thursday, the RBI has lowered the repo rate by 25 basis points to 6% from 6.25%, maintaining a neutral stance. The six-member committee voted 4:2 in favor of the decision.

Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.

Previously: RBI in its last policy revision on February 7 had cut the repo rate by 25 basis points to 6.25% and changed the monetary policy stance from calibrated tightening to neutral.

Lowering Expectations: The RBI also lowered its GDP growth outlook for FY2019-20, with an expected growth of 7.2% for 2019-20, lower than its February projection of 7.4%.

Steady Decline: The Nikkei India Services Business Activity Index fell to a six-month low of 52 in March vs 52.5 in February, indicating a slowdown in the service industry. The fall comes on the back of slower rate of job creation that has led to weak employment rates. 

Still Growing: Despite the slowdown in growth, the services PMI was still in the expansion territory for the 10th month straight as the PMI score remained above fifty, which is the benchmark score for expansion.

Sinking Ship: The PMI data released for manufacturing also showed a dip in factory activities from 53.8 in February to a six-month low of 52.7 in March.

 

Reduced Hopes: The Asian Development Bank (ADB) has lowered its forecast for India’s growth rate by 40 basis points to 7.2% for FY 2019-20. Despite the mark down, the Indian economy will still be the fastest growing in the world with forecast for FY2020-21 estimated at 7.3%.

ADB also noted that the recent policy measures by the government to boost investment and private consumption is likely to drive economic growth in the next two fiscal.

However: Areas of concern highlighted by the agency include a higher-than-expected moderation in global demand and a potential escalation of trade tensions. Lower-than-targeted tax revenues or a delay in strengthening bank and corporate balance sheets are also potential deterrents.

General Consensus: There is a widespread consensus that the Monetary Policy Committee will cut rates in its meeting tomorrow. Find out what you can expect here.

 

MARKETS 


Sensex registers all-time high, Nifty crosses 11,700 mark. 

Record HighSensex rallied over 349 points to a record high of 39,115 in early trade on Monday before closing at 38,837.18 (+0.42%). This is the second highest closing ever for Sensex.

Runner Up: NIFTY too, was up 88 points trading at 11,733 mark, closing at 11,669 (+0.39%). 

The rise was likely supported by hopes of a rate cut and a pick-up in China factory activity along with the hopes of a breakthrough in US-China trade talks.

 

COMPANIES

Saudi Aramco reveals financial information for the first-time ever ahead of bond debut. SFIO arrests former IL&FS Vice Chairman Hari Sankaran. Supreme Court strikes down RBI’s Feb 12 Circular on bad loans as ‘unconstitutional’.

 

First Time: Credit rating agency Fitch Ratings has given an A+ rating for Saudi Aramco ahead of the state-owned oil giant's first global bond sale. The reports by the agency reveal that Aramco's earnings before interest, tax, depreciation and amortization were $224bn.

One of a Kind: This makes Saudi Aramco the most profitable company in the world. 

The report by Fitch gives us some important new insights into this secretive company and about the Kingdom of Saudi Arabia, but it still leaves very significant questions. Read more here to find out.

 

Serious Arrest: The Serious Fraud Investigation Office (SFIO) has arrested former Infrastructure Leasing & Financial Services (IL&FS) Vice Chairman Hari Sankaran in connection with the ongoing investigations into the IL&FS scam. This is the first major arrest by the SFIO in relation with the case.

 

A special sessions court in Mumbai remanded Sankaran to SFIO custody till Thursday. 

 

Price of Power: According to SFIO, Sankaran had abused his power as vice chairman for granting loans to IL&FS subsidiaries, which were not credit-worthy or were declared as non-performing assets (NPAs). This resulted in wrongful losses to the company and its creditors.

 

Knee Deep: IL&FS had borrowings of more than INR17,000cr from debt instruments and bank loans. Provident funds, pension funds, gratuity funds, mutual funds, public and private sector banks, are among those who have invested in these debt instruments.

 

Watch this video for a deep dive into the matter.

 

Ultra-Denial: The Supreme Court has rejected RBI’s February 12 circular on the resolution of stressed assets and declared it unconstitutional and ultra vires (when a body or an individual is acting beyond its legal power or authority).

 

Flashback: RBI on February 12, 2018 had issued a circular saying that lenders have to provide for resolution plan within 180 days in case of large account of INR2,000cr and above. It said that if a resolution was not found by August 27, NPA accounts should be sent to bankruptcy courts.

 

The Supreme Court, in its previous hearing in September last year, had stayed the circular.

 

 However, following the SC decision to strike down its Feb 12 circular, the RBI has announced that it will issue a revised circular on the resolution of stressed assets.

 

AVIATION 

Leaks reveal new information pertaining to the recent Ethiopian Airlines crash. Boeing to cut 737 Max aircraft production by nearly 20%. DGCA temporarily reallocating Jet Airways unused slots in Mumbai and Delhi airports; lenders invite expression of interest for stake sale.

 

New Info: New details have emerged from the investigation of the Ethiopian Airlines crash that point towards the involvement of the (Maneuvering Characteristics Augmentation System) MCAS system in the crash.
 

Pull Up: According to a WSJ report, in a recording obtained from the wreckage, one of the pilots can be heard speaking to the other, asking him to pitch up repeatedly. This would indicate that the MCAS system was active during the crash.

 

Cutting It Down: Aerospace giant, Boeing reported that it will trim monthly production of its 737 MAX by 10 aircraft to 42 by mid-April.

 

The news comes as the aircraft came under severe scrutiny following two crashes in the span of about five months involving Lion Air and Ethiopian Airlines which lead to the death of over 346 people.

 

FYI: Boeing has a backlog of about 4,600 orders for the Max planes.
 

 

The aircraft manufacturer will also establish a committee that will review the policies and processes Boeing uses to design and develop its airplanes. 

 

Free Real Estate: Aviation regulator, DGCA, has begun reallocating flight slots of Jet Airways that were left unused as a result of the grounding of 75% of its fleet. The move will provide a boost to domestic players who are likely to experience a rise in demand and possibly moderating fares that have surged. 

 

Peak Time: The slots are being allocated for flights between April 16 and July 15, covering the peak summer travel season, when demand for leisure travel increases. 
 

Cashing In: Mumbai airport has allocated close to 40 departure slots for domestic and international flights to IndiGo (13), SpiceJet (10), AirAsia India (7) and Vistara (8), discussions over slots in Delhi Airport are still ongoing. In all, Jet is estimated to have close to 400 unused departure slots across the country. 
 

Emergency Provision: The allocation of slots is temporary, which means Jet should be able to get them back once its planes start flying again. 
 

Chasing Ghosts: The investors of Jet Airways will start inviting Expression of Interests (EOIs) for a stake sale on April 6th. They have set April 9 as the deadline for receiving EOIs, giving investors three days to respond.
 

One Tenth: To prevent Jet from being grounded, lenders’ consortium led by State Bank of India will release INR150cr as an emergency fund to the airline. However, initially the resolution plan prepared by the lenders had estimated an emergency fund of INR1,500cr for the airline.
 

On Support: With the additional funds the airline will be able to manage operations of its remaining fleet of 26 planes, for the next few days. Jet has also assured the government that there will be no further groundings.
 

Hiding in Plain Sight: Credit Rating agency Fitch has commented that the grounding of Boeing 737 Max jets has had a muted impact on the airline industry in Asia. However, they predict that it may worsen in the second quarter of 2019.

 

STARTUPS

Nykaa raises INR100cr in funding. Airbnb invests in OYO’s series E funding round. AngelList launches India-dedicated fund. Sequoia India to raise separate fund for Surge program. 

 

Shades of a Unicorn: Online beauty products retailer Nykaa has closed its latest funding round after raising INR100cr in primary capital from TPG growth, the mid-market investing arm of equity major TPG Capital. 

Double Up: With the close of the latest funding round, the company’s valuation is expected to have topped INR5,000cr, which is 70% more than the previous year’s valuation when the company had raised capital.

Nykaa has in all raised INR355cr till date.

Future Plans: With these funds the company is looking to push its new initiatives like Nykaa Man, fashion and apparel categories along with expanding the company’s offline stores from 35 at present to 70 by March 2020.

Secret Backer: OYO has reportedly raised around $150m - $200m from Airbnb as part of its Series E funding round.

Selfish: Airbnb commented that it expects to leverage the investment in OYO to gain access to franchised and leased hotels as it looks to expand its offerings from its staple home rentals.

Already There: The Series E funding round of OYO led by SoftBank saw the company raise over $1bn from investors including Chinese ride-hailing firm Didi Chuxing, Singaporean ride-hailing company Grab, Lightspeed Venture Partners, Sequoia Capital, and Greenoaks Capital. This funding round valued the company at $5bn.

 

From the Valley: AngelList, a Silicon Valley based online crowdfunding platform has launched an India-dedicated fund named The Collective.

 

‘The Collective’ will deploy funds of about INR1cr each across 60-80 companies annually, along with giving access to quick capital to its Syndicate leads. 

 

Well Known: Backers of the fund include Flipkart co-founder Binny Bansal, Avnish Bajaj (Matrix Partners India), Tarun Davda, Vikram Vaidyanathan, Navroz Udwadia (Falcon Edge Capital), Rahul Mehta (DST Global) and funds like Kalaari Capital, FJ Labs, and Beenext among others.

 

Angel Relief: The Collective’s launch comes at a time when founders of early stage startups have raised concerns over angel tax demands by authorities. Since ‘The Collective’ is a category 1 alternative investment fund, investments made by it are exempt from angel tax scrutiny as per SEBI rules.

 

Surge Protection: Sequoia Capital India is in talks to raise a separate fund of $150-200m for its Surge program. The news comes a day after Rajan Anandan, the former Head of Google India joined Sequoia as the Head of the Surge Program.

First Innings: This is Sequoia's first attempt at starting a seed fund in India. Its entry is expected to intensify the already competitive domestic market for early-stage deals.

 

Startup School: Sequoia had launched its Surge program earlier in the year with the aim of picking up 10-20 companies twice a year. The fund counts Zomato founder Deepinder Goyal, Oyo's Ritesh Agarwal and Cred's Kunal Shah amongst its list of mentors for the program.

 

(Don't want to miss out on these End Of Week Wrap Ups? Subscribe Now to our No Nonsense Email Digest and get the day's Top 6 Business stories straight to your mailbox.)