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Government Allows 100% FDI in Telecom via Automatic Route and More

Government Allows 100% FDI in Telecom via Automatic Route and More
by 5paisa Research Team 07/10/2021

The government built on its reforms package for the telecom sector. One of the major announcements was 100% FDI in telecom through the automatic route. Currently, while 100% FDI in telecom is permitted, only 49% is allowed through the automatic route. Under the new package, companies like Vodafone Idea would find it easier to raise capital abroad.

The 100% FDI in telecom is not just limited to provision of telecom services. It also covers other business like related telecom services, support services like data centres and telecom infrastructure items like towers and cables. This should come as a boost to companies like Tata Communication and Infratel, which would find it easier to raise foreign money.

This is an important step towards the ease of doing business in all aspects of the telecom sector. The sector has been under a lot of stress in recent times due to the huge AGR burden, high SUC charges payable as well as stiff competition from undercutting of price. This move will enable telecom companies to build adequate funding war-chests.

One of the major objections that the telecom companies had was the steep license fees and spectrum usage charges that were levied by the government. The government has already promised some changes. In the announcement last month, the government promised rationalization of SUC charges and exclusion of non-telecom revenues from ambit of AGR.

However, the issue of huge bank guarantees still remained. These bank guarantee entail huge fee payments to the banks and also had become a major solvency challenge to the telecom companies. In the latest announcement on 06-Oct, the government has made some important changes on the extent of bank and performance guarantees required.

For telecom operators the requirement of bank and performance guarantees has been slashed by 80%, which would be a big boost to telecom players bidding for spectrum. This will be with retrospective effect. It will apply to the old telecom licenses in the UASL category as well as to the Unified licenses issued post 2012.

The government has again done its bit and assured that this is still work in progress. There is hope that more goodies could come the way of telecom companies.

Also Read:-

How the Telecom Relief Package will Impact Stocks

Sector Update - Telecommunication

Outcome of the Telecom Committee Meeting

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Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable

Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable
by 5paisa Research Team 07/10/2021

Just a couple of days after Moody’s upgraded India’s sovereign rating outlook from “Negative” to “Stable”, it has followed up with a more micro rollout of upgrades. It has upgraded the outlook for 18 Indian companies in all, which includes 9 banks and 9 non-banking companies. In all the cases, the outlook was upgraded from Negative to Stable.

Check - Moody’s Upgrades India’s Rating Outlook to “Stable”

In the case of India’s sovereign rating, the overall rating had been maintained at Baa3, which is still the lowest investment grade and holds India at par with Russia and Italy. However, the outlook was raised from Negative to Stable and that adds an important buffer of safety to the India ratings as there is no immediate risk of dipping into speculative grade.

But, back to the banks that were upgraded by Moody’s. The justification for the upgrade in outlook of 9 banks was substantial improvement in asset quality and improved capital buffers. Despite appearing extremely vulnerable during the COVID-19 pandemic, Moody’s pointed out that the Indian banks had done very well and reforms had been supportive.

The list of 9 banks upgraded included 3 private sector banks and 6 PSU banks. The private banks with upgraded outlook were HDFC Bank, Axis Bank and ICICI Bank. The 6 PSU banks that saw their outlook upgraded included SBI, Bank of Baroda, PNB, Canara Bank, Union Bank and EXIM Bank. Out of the 6 PSU banks, EXIM Bank is the only non-listed bank.

Apart from the 9 banks, Moody’s also upgraded the outlook for 9 companies, consisting of 5 PSU companies and 4 private companies. The PSU companies included ONGC, Petronet LNG, Oil India, IOCL and HPCL. The private companies that saw their outlook upgraded included Reliance Industries, TCS, Infosys and Ultratech Cements.

Most of the upgraded companies are heavyweights whose fortunes are closely linked to the macro performance of the Indian economy. In its sovereign outlook upgrade, Moody’s had pointed out that the vicious cycle of the real economy and financial sector debilitating each other had been broken and the economy was on a growth path. That has worked in favour of most of the large corporates too.

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7-Eleven to Open its First Store in India in Partnership with Reliance Retail

7-Eleven to Open its First Store in India
by 5paisa Research Team 07/10/2021

The partnership between Future Group and 7-Eleven was supposed to be the big bang retail story for India. However, things changed dramatically post the pandemic. Future group got deep into debt and was pushed to the point of insolvency, forcing the group to put through a hurried merger deal with Reliance Group worth Rs.25,800 crore.

One of the outcomes of the crisis at Future group was that the much-talked about deal with 7-Eleven could not fructify. Just a couple of weeks, both the Future group and 7-Eleven decided to mutually call off the 2019 deal. That has turned out to be to the advantage of Reliance Retail, which has tied up with 7-Eleven to bring their retail model into India.

Reliance Retail Ventures Limited (RRVL) has now announced that the first 7-Eleven store in India would open at a Mumbai suburb and would be a joint effort of RRVL and 7-Eleven. They have promised a rapid rollout across the city of Mumbai and the clear target of RRVL appears to be to take on the domination of Avenue Supermarts in the discount store space.

Reliance Retail has already been adding stores at a frenetic pace and it actually added 1,500 stores last year. RRVL currently has over 13,000 stores across India and is the largest retailer in India by a margin. However, the deal with 7-Eleven gives RRVL a globally renowned brand as well as the best practices to give stiff competition to the D-Mart model.

The CEO of 7-Eleven worldwide has pointed that India was one of the most exciting consumer stories and retail was the best pathway to the consumer mind space. Many of the large players like Wal-Mart have been eyeing the Indian retail opportunity but their efforts have been patchy and measured at best. 7-Eleven now plans an India-centric model.

Reliance’s approach to retail has been to integrate the business from farm to fork. It is not just the consumer end that RRVL will focus on but on the complete value chain including procurement and supply. That is where the deal with 7-Eleven would come in handy and the digital ecosystem of the Reliance group would be an added advantage.

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SREI Files Writ Petition Against RBI on Insolvency Process

by 5paisa Research Team 07/10/2021

Just a day after the RBI suspended the boards of SREI Infrastructure and SREI Equipment Finance, the promoters of SREI group have filed a writ petition against the RBI. The writ petition has asked the court to strike down the referring of SREI group to the NCLT for initiating insolvency process and distribution of proceeds to creditors.

In 2020, the banks had already taken charge of the cash flows of SREI group and the promoters had been trying to stitch up a mutual resolution deal with the banks. However, there have been a spate of defaults by SREI group in the recent past which forced the consortium led by UCO Bank to approach the RBI to initiate NCLT process against SREI.

The contention of the SREI group is that the problems at SREI were an outcome of the stress in the infrastructure sector, which had resulted in an asset liability mismatch. SREI promoters also underlined that the decision to refer the company to NCLT was unfair as they had abided by all conditions imposed on them by the RBI and the consortium of banks.

The matter is slated for hearing by the court on 07-October. Defending their stance, SREI has underlined that this move was against the principle of “No Coercive Measures” that had been agreed upon, since there had been no delays on loans in the past. RBI had, meanwhile, appointed former CGM of Bank of Baroda, Rajneesh Kumar as the administrator of SREI.

Currently, the banks have already ordered a forensic audit into the books of SREI since they fear that there may have been round tripping of funds and money laundering done by the promoters using the company as a conduit. While that is yet to be confirmed, the RBI took the measure purely as a precautionary measure to prevent losses from escalating.

SREI is the second case in which the RBI has referred an NBFC to the NCLT for resolution. In the previous case of Dewan Housing, the NCLT had done a good job of roping in Piramal Enterprises which ensured that nearly half of the outstanding amounts were paid. That may work in favour of the RBI.

Also Read:-

RBI Supersedes the Board of Directors of SREI Group

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Crude Oil at $83/bbl – Who Gains and Who Loses

Crude Oil at $83/bbl – Who Gains and Who Loses
by 5paisa Research Team 07/10/2021

The price of Brent crude has rallied to above $83/bbl and is now at the highest level that oil has since in last 2014. In short, oil is at the highest level in the last 7 years. What is it that has contributed to this sharp rally in oil prices? It is a mix of demand surge and supply constraints that is pushing oil prices higher.

On the demand side, there has been a surge in oil demand in line with the opening up of economies post pandemic and also as industrial capacities get back to normal. On the supply side, OPEC has confirmed in its latest meet that the cartel would only be raising the supply gradually. US supplies are also constrained by the hurricane in Gulf of Mexico.

The sustained drawdowns in the US inventory in the last few weeks indicate that demand continues to far exceed supply. At a macro level, that has negative repercussions for the Indian trade deficit and the value of the rupee. More importantly, higher crude prices means higher inflation since India relies on imports for 80% of its daily crude needs.

Who gains and who loses from the oil prices spike?

The table below captures some of the key gainers from the spike in oil prices:

Company

Gainer / Loser

Reason

ONGC Ltd and Oil India

Gainer

Higher crude prices improves their realization per barrel and boosts profits. Has a positive impact on gas prices also

IOC Ltd

Gainer

IOCL gains from better gross refining margins (GRM) and higher inventory translation gains on higher crude prices

GAIL Ltd

Gainer

A major beneficiary of higher gas prices since the price of gas is indirectly pegged to crude prices


The table below captures some of the Key Losers from the spike in oil prices:
 

Company

Gainer / Loser

Reason

Asian Paints and Berger

Loser

Paint companies passed on most of their cost spikes to end users but that may not be possible beyond a point. Crude is a key input.

MGL, IGL, Gujarat Gas

Loser

City gas distributors or CGD players will be up against higher input costs that are likely to squeeze margins

Fertilizer Plants

Loser

The gas fired fertilizer plants are likely to see a negative impact of the oil price hike as higher gas prices will be a negative


Higher crude eventually impact all industries as the cost of petrol and diesel have strong externalities.

Also Read: 

Sectors dependent on crude Oil

What is Driving the Rally in Oil Stocks in India?

Crude Oil at $75/bbl – Here comes inflation

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Grey Market Premium of Aditya Birla Sun Life AMC Ltd IPO

Grey Market Premium of Aditya Birla Sun Life AMC Ltd
by 5paisa Research Team 07/10/2021

The Rs.2,768.26 crore offer for sale of Aditya Birla Sun Life AMC Ltd consisted entirely of an offer for sale. The issue had been priced in the band of Rs.695 to Rs.712 per share and the price has been discovered at Rs.712. The issue had closed for subscription on 01-Oct and the basis of allotment had been finalized on 06-Oct.

Shareholders are expected to get their refunds on 07-Oct and their demat credits by 08-Oct and the stock is likely to list on Monday 11th October. Ahead of listing, one of the key parameters for evaluating the potential listing is the GMP or the grey market price.

A word of caution here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has proved to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance would be.

While the GMP is just an informal approximation, it has been generally seen to be a good mirror of the real story. More than the actual price, it is the GMP trend over time that really gives the insights about the stock being upgraded or downgraded.

One of the key factors that impacts the GMP in most cases, is the extent of oversubscription. Now, Aditya Birla Sun Life AMC Ltd IPO was oversubscribed just about 5.25 times overall. On a granular basis, it was the QIB segment that led the way with 10.36X subscription while HNIs were 4.39X and Retail was 3.24X. That has made the GMP premiums robust, if not outstanding, in the informal trading market.

Check - Aditya Birla Sun Life AMC IPO Subscription Day 3

As per updates coming in on Thursday, 07-Oct, the Aditya Birla Sun Life AMC Ltd IPO is commanding a premium of Rs.35 over the issue price in the grey market. The GMP has spiked sharply in the last few days from Rs.10-20 to Rs.35 levels. The previous issue of Paras Defence had a phenomenal listing and the positive sentiments are expected to boost the sentiments surrounding the Aditya Birla Sun Life AMC IPO

The current GMP of Rs.35 for Aditya Birla Sun Life AMC translates into a 4.91% premium over the discovered price of Rs.712. It also hints at a listing price of approximately Rs.747 when the stock lists on Friday 08-Oct. Of course, subsequent price performance will depend on HNI selling as well as institutional interest in the stock.

Also Read:-

1) Aditya Birla Sun Life AMC IPO : 7 Things to Know About

2) Upcoming IPOs in 2021

3) List of Upcoming IPOs in October 2021

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