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    Agree to Disagree, Samsung on a Roll et al.

    Professor of Financial Economics and Part-time Value Investor, Transfin.
    Oct 5, 2018 1:10 PM 3 min read

    Good evening reader,

     

    Amidst all the mayhem of towering Crude Oil prices, plunging Rupee and crashing stocks, the Centre managed to engineer a Rs. 2.5 per litre haircut to Petrol and Diesel pump prices. While, Rs. 1.5 is driven of an excise duty cut, Oil Marketing Companies (OMCs) are coerced into absorbing the remaining Re 1. Furthermore, states have been asked to make a matching Rs. 2.5 per litre cut in VAT driving a well-rounded Rs. 5 per litre 'windfall' for consumers. Some states have already responded (mostly BJP-led states) while some have refused (mostly non BJP-led states)...But that's another story.

     

    But...is the fuel price cut too little too late? Lets do a back of the envelope calculation, albeit from an admittedly simplistic perspective.

     

    Lets take Mr X, who commutes 40km daily on average (a reasonable assumption for a big city like Delhi/Mumbai?) and owns a motorbike, which delivers an on-road mileage of 40kms per litre. Consequently, Mr X consumes 1 litre of fuel per day. In that context, Mr X should experience a daily benefit of Rs. 2.5 (or Rs. 5 in states where state governments have matched the Rs. 2.5 cut). This extrapolates to roughly Rs. 2.5 X 30 days = Rs.75 savings per month, or Rs.5 X 30 days = Rs.150 savings per month. While, there are very diverse fuel consumption patterns (and mileage stats depending on the vehicle) across the country, the calculation merely illustrates the somewhat modest level of saving from the fuel price cut. A cynical view perhaps...but...whatever.  

     

    While the impact from the aforementioned fuel-price cut can be debated extensively, there is another interesting read between the lines. The centre's ability to coerce state-run OMC's into taking revenue and margin hits, certainly re-opens the deregulation-regulation conundrum in the Indian crude oil landscape - the pricing reforms of which have seen its share of see-sawing in the recent past. International brokerage firms have been fairly quick in downgrading state-run oil marketing companies (to "Sell" in some cases) citing “high political risk” as a factor. In that context, one wonders how much regulation is warranted in this elusive and opaque oil pricing market, one that is riddled with complex layers of taxation? While on the subject, read this extremely easy but fascinating deconstruct on petrol price mechanics here.

     

    On that note, time to present today's Top 6 Business Stories through our End Of Day Wrap Up:

     

    INDIA

     

    RBI maintains repo rate at 6.5%; INR falls further to 74.1/$.

    Reserve Bank of India’s Monetary Policy Committee held the repo rate unchanged at 6.5% in its fourth bi-monthly Monetary Policy Review, contrary to market expectations. RBI also retained the country’s GDP growth estimate at 7.4% for FY19. After the announcement, Sensex and NIFTY50 closed -2.25% and -2.67% respectively by COB.

     

    Vineet Nayyar appointed Managing Director and Vice Chairman of debt-laden IL&FS.

    IL&FS’ Board appointed Vineet Nayyar as its MD and Vice Chairman. Mr. Nayyar, the Executive Vice Chairman of Tech Mahindra had helped steer Satyam Computer Services in 2009, after government intervention. The decision was taken after the new Board met on Thursday.

     

    Anil Ambani ventures into Health Insurance; ‘Reliance Health Insurance’ to start operations by December quarter.

    Reliance Health Insurance received approval from the Insurance Regulatory and Development Authority (IRDAI) to begin operations by December. It is a wholly owned subsidiary of Anil Ambani’s Reliance Capital.

     

    LIC offers INR12,600cr to buy out 26% equity in IDBI Bank.

    Life Insurance Corporation of India makes an open offer to buy 26% equity of IDBI Bank at INR61.73/share. This would increase the company’s share in IDBI to 51%, leaving the government with 43% and public shareholders with 6%. The government has already approved of LIC’s proposition for purchasing the bank’s controlling stake.

     

    US/INTERNATIONAL

     

    Samsung expects profit to hit its highest mark in Q3.

    Samsung Electronics expects a 20% hike in its operational profit in Q3 vs previous year, owing to strong demand for its memory chips. The company is expected to publish a comprehensive third quarter earnings report, due this month.

     

    Shares of Chinese Tech Companies fall sharply after report on alleged ‘spying’ microchips.

    Lenovo Group and ZTE’s shares fall by 15% and 10% respectively, following the emergence of a report that claimed that the Chinese subjected American companies like Apple and Amazon Web Services (AWS) to surveillance using microchips in tech equipment. Both, Apple and AWS disputed the claims in the report.

     

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