Transfin.

Top Stories of the Week: Yes Bank Delays Announcement on New Shareholders, Raising Concerns Over Quality of Offers and Others

ADB cuts India's GDP growth forecast for FY20. Govt to sell 100% stake in Air India. Yes Bank defers announcement on new shareholders. Govt increases prices of 21 medicines that are under price regulation to ensure availability. US and China agree on a limited deal to halt the trade war. US Congress likely to approve new US-Mexico-Canada free trade agreement (USMCA), which will replace NAFTA. US Federal Reserve keeps interest rates unchanged after final policy meeting of the year, indicates that there will be no more cuts in 2020.

 

  

INDIA

Govt likely to miss fiscal deficit target for FY20.

Close Miss: Government is likely to miss its budgeted fiscal deficit target of 3.3% for FY20. The actual could be anywhere between 3.5% and 3.8% of the GDP.

 

The Fiscal Responsibility and Budget Management (FRBM) Act, after its amendment in 2018, allows a fiscal deficit slippage of not more than 0.5% for any given year, provided there are justifications, which may include a war, national security, severe collapse in the agriculture sector, a major natural calamity, big structural economic reforms, or the decline in real output growth of a quarter by at least 3 percentage points below its average of the previous four quarters. BS

ADB cuts India's GDP growth forecast for FY20.

A Gloomy Forecast: The Asian Development Bank (ADB) has slashed India's GDP growth forecast for FY20 to 5.1% due to slump in consumption affected by slow job growth and rural distress aggravated by poor harvest.

 

In September, ADB had forecasted India's GDP to grow 6.5% in 2019-20 and 7.2% in the year thereafter. Livemint

Govt might slash employee EPFO to boost take-home salary and consumer spending.

New Rules: The Centre is reportedly planning to reduce employee PF contribution to the Employee Provident Fund Organisation (EPFO) through the Social Security Code Bill to be placed in the current session of Parliament. This is being done with the aim to increase take-home salaries so as to boost consumer spending.

 

The new rules, if passed, could require employees in select organised sectors to pay less than the 12% statutory contribution. The employers' contribution, meanwhile, will remain 12%. The Week

 

COMPANIES

Govt to sell 100% stake in Air India.

Changing Hands: The government is set to sell 100% stake in debt-ridden national carrier Air India under the proposed disinvestment process, said Union Minister Hardeep Singh Puri. 

 

Air India's net loss in 2018-19 is provisionally estimated to be INR8,556.35cr. ToI

Reliance Industries subsidiary acquires 85% stake in NowFloats in a INR142cr deal.

In Other News...: Reliance Industries Ltd (RIL) has announced that its wholly-owned subsidiary Reliance Strategic Business Ventures Ltd (RSBVL) has acquired 85% stake in NowFloats Technologies for a cash consideration of INR141.63cr in a bid to strengthen the group's digital and new commerce initiatives.

 

RSBVL proposes to make a further investment of up to INR75cr, subject to achieving agreed milestones, and is expected to be completed by December 2020, it added. Post the additional investment, the shareholding of RSBVL in NowFloats will increase to 89.66%. Business Today

Saudi Aramco hits $2tr target valuation. 

Stop Only At The Summit: In early trading on Thursday, energy giant Saudi Aramco's share price rose 8% to $10.30, giving it the coveted market capitalization of $2tr, up from the $1.7tr valuation set during the company’s IPO. ET Markets

Huawei secures commitment to build part of Germany's 5G infrastructure. 

Huawei Technologies has secured a commitment from Telefónica SA, one of three major mobile operators in Germany to build part of the country's 5G infrastructure, subject to Huawei equipment meeting government security standards.

 

The deal, if finalised, will strengthen Huawei's position in Europe’s largest economy despite calls from lawmakers to bar the Chinese company. CNN Business

Yes Bank defers announcement on new shareholders. 

Banking On the Edge: The Board of private-lender Yes Bank on Tuesday failed to reach a final decision on potential investors even as it favoured a $500mn offer from Citax Holdings. Shares of Yes Bank slid 15% on Wednesday, the biggest decline since Oct. 1, after dropping 10% in the previous session.

 

This has heightened concerns about the quality of the offers it has received. “The delay is indicating that either there are regulatory issues or maybe the bank is not getting serious offers," said Siddharth Purohit, an analyst at SMC Global Securities. Livemint

 

“If the bank is unable to raise money in the next six months, it poses a grave danger to the financial system,” noted Suresh Ganapathy, an analyst at Macquarie Capital Securities (India).

 

Meanwhile...: Yes Bank's CEO Ravneet Gill in an interview on Wednesday said that the Board didn’t make a final decision on the investment offer from Citax as it is expecting one more investor to commit in the next few days. The lender wants to club both those deals together to raise more than $500 million at the same time, he said. Business Standard

 

REGULATIONS

Govt increases prices of 21 medicines that are under price regulation to ensure availability.

In a first, India’s drug pricing regulator, National Pharmaceutical Pricing Authority (NPPA) has allowed an increase in the maximum retail prices of 21 formulations or medicines currently under price control by as much as 50% in an attempt to ensure their supply and prevent patients opting for costlier alternatives in the face of shortage of these drugs.

 

The pharma industry in India has been lobbying for a price hike for nearly two years, citing a steep rise in prices of active pharmaceutical ingredients (APIs) or bulk drugs largely imported from China. 

 

FYI: The prices of APIs have gone up 5-88%, depending on the products. API prices constitute 40-80% of the formulation cost. For some medicines like paracetamol, the API cost is around 80% of the finished product.

 

These formulations include common medicines like BCG vaccines, penicillin, malaria and leprosy medicines (Dapsone), life-saving drugs like Furosemide (used to treat fluid build-up due to heart failure, liver scarring, or kidney disease), vitamin C, some common antibiotics, and anti-allergy medicines. Indian Express

US regulators considering injunction against Facebook over how its apps interact.

You’ve Been Served: As per a WSJ report, the US Federal Trade Commission (FTC) is considering seeking a preliminary injunction against Facebook over antitrust concerns over how its products interact. In addition to its core social network, Facebook’s family of apps includes Instagram, Messenger and WhatsApp.

 

The regulatory action could seek to halt Facebook’s ongoing plans (which it terms “interoperability”) to integrate its apps into one combined experience/platform. This could be argued on the grounds that such an action would be anticompetitive and monopolistic.

 

US

US Congress likely to approve new US-Mexico-Canada free trade agreement (USMCA), which will replace NAFTA.

2.0: The US Congress is likely to back a new trade deal between the US, Mexico and Canada – the USMCA. The deal was negotiated by the Trump administration as a replacement of the previous avatar of a North American free trade pact – NAFTA.

 

While campaigning for President, Donald Trump had frequently derided NAFTA as being detrimental to the US economy. And soon after winning the 2016 Presidential election he took the US out of it and began negotiating for a new deal with updated terms.

 

USMCA, besides gaining the support of major trade unions, has also garnered bipartisan support, with House Speaker Nancy Pelosi calling it better that 1994’s NAFTA. WSJ

 

Revamped & Revisited: Indeed, the new terms of NAFTA 2.0 look to be more favourable to the US. Besides promising the creation of thousands of new jobs and boosting the auto manufacturing and dairy industries, it also strengthens labour reservations so as to ensure that workers in the US would have a level playing field with their counterparts in Mexico, where wages are lower. CNN

US Federal Reserve keeps interest rates unchanged after final policy meeting of the year, indicates that there will be no more cuts in 2020.

The Final Cut: Following its two-day policy meeting this week – the last of its kind this year – the Federal Reserve held interest rates steady in the 1.5%-1.75% range, as was widely expected, amid persistently low inflation. The decision was unanimous, unlike the previous three meetings which witnessed monetary easing and dissent from some Committee members.

 

Following the previous three cuts, the Central Bank has cumulatively cut interest rates by three quarters of a percentage point so far this year. CNBC

 

No More Easing?: The Fed also indicated that it would hit pause on further rate cuts next year. In its statement explaining the decision, the committee indicated that monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. Meanwhile, the White House has been consistently riling against the Fed for not pursuing more aggressive easing to boost the economy. President Donald Trump has been calling for interest rates to be cut to effectively zero. Washington Post

US China Trade War Latest News: Both agree on a limited deal to halt the trade war.  

A Deal in the Making: The US and China on Friday announced that they have reached a phase one trade deal, which would include some tariff relief, increased agricultural purchases and structural change to intellectual property and technology issue.

 

Zooming In: As part of the deal, China would purchase more products from American farmers and other exports. In return, the US would cancel its next round of tariffs on Chinese goods set to take effect from Sunday. The US would leave 25% tariffs on $250bn in imports in place while cutting existing duties on another $120bn in products to 7.5%.

 

US President Donald Trump called the deal “phenomenal” and said that the US would continue to use the remaining tariffs as leverage in future negotiations with China.

 

Experts Speak: "Rather than a comprehensive deal, he was settling for the one thing that he needed most to secure his re-election, which was a deal on agricultural exports that would boost US exports from farm country to a level higher than they had been before the trade war," noted James Lucier, Managing Director at Capital Alpha Partners. What does the interim US-China trade deal mean, and what it doesn't. More on this here. CNN Politics

 

BREXIT WINDS

Boris Johnson leads Conservative Party to historic victory in UK general election.

Big Time Lucky: Boris Johnson’s gamble to call a snap December general election has paid him a rich dividend. His Conservative Party has won a resounding majority (they won 364 seats in a House that requires 326 for a majority) and its vote share of 45% is its highest since 1970.

 

The Labour Party, on the other hand, failed to capitalise on the enthusiasm that propelled it upwards in the 2017 snap election, which saw a hung Parliament in constant and bitter discord. Guardian

There’s still a long way to go before Brexit saga ends.

Brexit Beckons Bullish Boris: The biggest issue of the election was undoubtedly Brexit. And the biggest takeaway might as well be that the people of the UK are overwhelmingly fed up of years of gridlock and want Brexit to be resolved at the earliest.

 

And this resolution will involve getting Brexit done (which was also the Conservatives’ campaign slogan). Johnson’s deal with the European Union – which both parties have endorsed – will still need Parliament’s approval.

 

While this now seems to be an easy task, considering the Conservatives’ massive majority, it only marks the beginning of the Brexit process. Britain will still have to bilaterally negotiate a trade deal with the EU and other countries. CNN

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