Stock market rally ‘not a blip’: Finance minister Nirmala Sitharaman
Finance minister Nirmala Sitharaman feels there is a definite positive sentiment in the Indian economy and that’s not entirely because of the stupendous stock market rally that has pushed benchmark indexes to record highs.
Sitharaman also believes a “paradigm shift” is happening in the way investors and small savers are looking at their savings in a “completely different way”, as is evident from the gush of money into stock markets.
The comments on a day when the benchmark BSE Sensex climbed above 56,000 for the first time while the Nifty50 breached 16,700. The 30-stockSensex and the Nifty50 have more than doubled from their lows of March 2020 when they had crashed due to worries related to the Covid-19 pandemic.
“I wouldn’t for a minute credit the positivity in the economy purely on the stock markets. There is definitely positivity,” Sitharaman said in an interview with The Economic Times.
Responding to a query whether there wasa disconnect between the stock markets and the real economy, she replied in the negative.
“No, I would say that is a matter of discussion which is going on. But it couldn’t have sustained itself through 2020 Covid and through the second wave [of] Covid and enter into the second half of 2021. So, it’s not a blip is what I feel,” she said.
On inflation and RBI policy
Sitharaman said that the Reserve Bank of India is unlikely to withdraw the excess liquidity in a hurry even though it was concerned about the impact of high fuel prices on inflation.
She said the government has been closely monitoring the prices of several items, including perishable commodities and seasonal products, and that both retail and wholesale inflation numbers have started coming down.
On privatisation and disinvestment
Sitharaman said the government has working to privatise Bharat Petroleum Corp Ltd (BPCL) and national carrier Air India, and hopes to complete the process by the end of the year.
She said that the government has to conduct “far more due diligence” when it divests any assets and that there is a “complete unglamorous backdoor” work. “We are going steadily, but surely,” she said.
The government is also working to privatise two state-run banks, as announced previously, and sell a minority stake in general insurance companies, she said. The planned initial public offering of Life Insurance Corporation is also on course, she said, adding that the government will maintain a minimum in life, general and reinsurance segments.
Responding to a query on whether the government was looking to reduce the Goods and Services Tax (GST) or rationalise the slabs, Sitharaman said there was a need to wait a bit longer.
She said that, purely from the revenue generation point of view, the time may have come to rationalise the slabs and rates. But from the point of view of reviving the economy, it wasn’t the right time, she said.
Sitharaman said the government’s stand on cryptocurrency hasn’t changed. But she admitted that it’s a very big potential area and a lot of global developments are happening.
“We are not saying no to cryptocurrency. We are saying we’ll have to see how this technology can help fintech to maximise the potential that it has,” she said. “But how sophisticated regulation can be is something which I want to work with the Reserve Bank. I can say the work is nearly complete. It is now for the cabinet to go into it.”
Road stocks in the fast lane as govt orders jump
On August 15, while addressing the nation from the ramparts of New Delhi’s Red Fort, Prime Minister Narendra Modi reiterated his government’s resolve to invest Rs 100 trillion into India’s infrastructure sector and transform the transportation sector.
While governments are often notorious for making outlandish claims and devising grandiose schemes that often never fructify, it does appear that some of the promised money has indeed been flowing into the country’s roads sector.
Lion’s share of projects
The Economic Times reports that, among the major infrastructure segments, the roads sector has received a lion’s share of the government’s largesse, with projects worth Rs 22,000 crore being awarded between January and July this year. This, the report says, was three times the figure during the corresponding period last year.
To be sure, a direct comparison may be slightly misleading, as the country was under a nationwide lockdown between the end of March and May last year, and most, if not all, contracting had either come to a halt or had been severely curtailed.
Moreover, since almost the entire labour force had been displaced, project execution was at a virtual standstill.
Yet, as the report says, an uptick in contracting, together with improving execution, increasing labour availability, and timely release of payments by the government, has meant that stocks of road construction companies are witnessing an early Diwali of sorts.
Stocks on fire
So, which companies are benefiting from this largesse?
Almost all marquee road companies including KNR Constructions, PNC Infratech, IRB Infrastructure Developers and Ashoka Buildcon could be the most significant beneficiaries of this rise in order flow as their strong financials would allow them to corner the biggest pie of the business on offer.
Indeed, shares of IRB and Ashoka Buildcon are up 65-70% over the past year, even after paring the gains in recent weeks. Shares of PNC Infratech have almost doubled to around Rs 300 apiece from less than Rs 150 in October last year. KNR Constructions has done even better, with its shares almost tripling to race past Rs 300 apiece earlier this week before trimming the gains on profit-taking.
Roads all the way
The share of contracts awarded to roads companies as a fraction of the total infrastructure spend in the January to July period was 29.2% as compared to 15.3% in the year ago period.
In fact, the next two segments after roads—manufacturing and railways—come a distant second, with the government having spent Rs 16,000 crore and Rs 11,000 crore on them, respectively. The spends on other key infrastructure sectors like mining, real estate and power equipment were even lower at Rs 8,700 crore, Rs 6,000 crore and Rs 5,000 crore, respectively. Even taken together, these three sectors could not attract as much government money as did roads.
Perpetual bonds could be popular again as HDFC Bank mops up $1 bn
HDFC Bank, India’s most valued lender, has shrugged off concerns related to AT1 (additional tier) bonds that arose with the crisis at Yes Bank as it raised $1 billion from overseas investors. India’s biggest private-sector bank raised the amount—thehighest ever by a local lender—by issuing the perpetualbondsata coupon rate of 3.7%, it said on Friday.
HDFC Bank intends to use the money to strengthen its balance sheet as the economy is seeing some signs of revival in credit demand with the severe impact of the Covid-19 pandemic recedingand business activity slowly coming back to its normal course. The bonds are US dollar-denominated, direct, subordinated, unsecured, and Basel III-compliant.The notes are rated Ba3 by Moody’s.
They will be listed on the India International Exchange (IFSC). The bond issue was oversubscribed. This indicates interest of offshore investors in perpetual bonds. The HDFC Bank offering is believed to have seen participation from Singapore sovereign fund GIC and many other marquee investors such as BlackRock, Fidelity, AIG, T Rowe Price, Schroder and Investment Corporation of Dubai.
Why it’s important Investor interest in such securities had taken a knock after the Reserve Bank of India extinguished Yes Bank’sAT1 bonds worth Rs 8,415 crore ($1.15 billion) in March 2020. This happened after the RBI seized Yes Bank in line with terms of a bailout plan. The RBI decision, however, had led to losses for investors in those bonds. This episode led to litigation.
Subsequently, the capital markets regulator Securities and Exchange Board of India came up with new rules for domestic sale of such bonds, effectively closing the window for such issues in India. HDFC Bank’s issue may now prompt other companies to tap the offshore market for similar bonds. State-controlled SBI, the largest lender in the country that had launched the first such overseas perpetual bond issue five years ago, had said two months ago that it was mulling a new AT1 issue. It had said this could be denominated either in dollars or in the local currency.
HDFC Bank’s advances aggregated to about Rs 11,47,500 crore as of June 30, 2021, up 14.4% over the same day a year earlier and rising 1.3% over Rs 11,32,800crore as of March 31, 2021. As per the Basel 2 segment classification, domestic retail loans as of June 30, 2021 grew by around 10.5% over June 30, 2020 and remained at a level similar to that as of March 31, 2021.Domestic wholesale loans grew by around 17% year-on-year and around 2% sequentially.
Among loan categories, retail loans grew around 9% over June 30, 2020 but were down 1% as compared to March 31, 2021.Commercial and rural banking loans grew strong at 25% over a yearago and around 4% over March 31, 2021.Other wholesale loans grew by around 10.5% over June 30, 2020 and 1.5% over March 31, 2021.
Superstar Investor Alert: Mukul Agrawal added four portfolio cos, topped up bets on six firms last quarter
Ace stock market investor Mukul Agrawal added four companies to his personal portfolio and bought additional shares of at least six companies during the quarter ended June 30, 2021, according to shareholding disclosures.
The man behind Param Capital picked up shares of Newgen Software Technologies and carbon credit developer and supplier EKI Energy Services as fresh companies. He also returned to invest in J Kumar Infraprojects and Indian Metals & Ferro Alloys after likely exiting those companies in the stock market correction earlier this year. Agrawal had sold shares of J Kumar Infraprojects late last year but picked the stock again last quarter and owned a 2.8% stake as of June 30. In Indian Metals & Ferro Alloys he had been holding a 1.9% stake for several quarters but probably sold its shares early this year only to pick it again in the three months ended June.
Meanwhile, he also increased his stake in half a dozen companies, all in the small cap space. These include Dishman Carbogen Amcis, a manufacturer of active ingredients for the pharmaceutical industry; and Kingfa Science & Technology, a manufacturer and supplier of modified plastics used in automotive and consumer products. The other companies are air charted services firm TAAL Enterprises, building solutions company Sahyadri Industries, water management firm Ion Exchange (India), and luxury watch retailer KDDL.
Agrawal trimmed his holding in at least nine companies. These were Intellect Design Arena, Gati, Sequent Scientific, MSTC, BEML, Parag Milk Foods, Navkar Corporation, InfoBeans Technologies and Marksans Pharma.
Moreover, in four companies he either exited completely or brought down its holding to less than 1%. These were Fairfax-backed travel tourism firm Thomas Cook (India), sanitaryware maker HSIL, liquor company RadicoKhaitan and IT firm Birlasoft.
In addition, Agrawal stayed put with nearly two dozen existing portfolio companies. This set includes names like Mastek, Religare Enterprises, Apollo Pipes, Indo Count Industries, Tasty Bite Eatables, Greaves Cotton, Delta Corp, Eveready Industries, Neuland Laboratories, Somany Home Innovation and LT Foods.
He also decided to maintain his stake in JTEKT India, Arman Financial Services, Sirca Paints, Stylam Industries, Dynamatic Technologies, GM Breweries, Kamdhenu, Vardhman Special Steels, Repro India, DhabriyaPolywood, Sunshield Chemicals and MITCON Consultancy & Engineering Services.
In total, Agrawal held a stake in at least 42 companies worth about Rs 1,650 crore ($222 million).His overall portfolio is likely to be higher as in some companies he may be holding under 1% stake. Moreover, two companies in which held shares as of March 2021—ThejoEngineering and Jet Freight Logistics—areyet to disclose their latest shareholding pattern.
Typically, he holds a 1-3% stake in listed companies though he has some firms—DhabriyaPolywood, TAAL Enterprises, MITCON Consultancy & Engineering Services, InfoBeans Technologies, Arman Financial Services and Gati—wherehe owned 5-10% stake as of June 30.
Explained: What is govt’s National Monetisation Pipeline?
When your purse is empty, you put the family silver on sale. While the Narendra Modi government is not exactly selling its silver, it nonetheless seeks to make money on it—asmuch as Rs 6 trillion, in the next four years.
On Monday, Finance Minister Nirmala Sitharaman and Niti Aayog chief Amitabh Kant unveiled an ambitious Rs 6 trillion plan to monetize government assets in important sectors like power, roads and railways.
So, what is the National Monetisation Pipeline plan all about?
As its name suggests, the National Monetisation Pipeline (NMP) will seek to unlock the monetary value of the prime infrastructure assets that the government owns. These will typically be public-sector brownfield projects for which the government will either bring on board private companies or transfer operational control to them.
So, is the government actually selling off or divesting its assets?
Not really. Ownership will remain with the government or a government-controlled company or entity that owns the project or asset. So, at least technically, the government is not selling the assets or divesting in them.
In fact, the finance minister said that there will be a “mandatory handback” of the asset once the contract is over.
Which sectors is the government targeting for the NMP?
Apart from the three mentioned above—roads, railways and power—othersectors in which the government is looking to monetise assets include telecom, mining, aviation, ports, natural gas and petroleum pipelines, stadiums and warehouses.
While about two thirds of the Rs 6 trillion is likely to come from the top three sectors, the others will contribute the remaining, the government hopes.
How much does the government expect to get from each of these sectors?
The government hopes that roads and highways alone could generate as much as Rs 1.6 trillion, or more than a fourth of the total targeted amount.Railways could deliver Rs 1.5 trillion.
Power transmission and generation are expected to generate Rs 45,000 crore and Rs 40,000 crore, respectively, while telecom could fetch Rs 35,000 crore.
Warehousing, mining and aviation could each net between Rs 20,000 crore and Rs 27,000 crore, the government hopes.
How will the government use the money it raises via this monetisation scheme?
The government will use the money to create newer infrastructure projects in the country. It is already implementing an ambitious Rs 100 trillion infrastructure spending plan over the next four years.
Will any land transfer be a part of this scheme?
Not really. The government says the NMP is about brownfield projects and no land is involved in the process.
“This entire (NMP) is talking about brownfield projects where investments have already been made, where there is a completed asset which is either languishing or it is not fully monetised or is under-utilised,” Sitharaman said.
“So, by bringing in private participation in this, you will be able to monetise it better and ensure further investment in infrastructure building,” she added.
Aptus Value Housing, Chemplast Sanmar make weak market debuts
Aptus Value Housing Finance India Ltd and speciality chemical maker Chemplast Sanmar Ltd made weak debuts on the stock exchanges on Tuesday with their shares listing at a discount of 3-7% to their respective offer price. Shares of Chennai-based Aptus Value Housing, which is backed by a bunch of venture capital and private equity investors, began trading at Rs 329.95 apiece on the BSE compared with an initial public offering (IPO) price of Rs 353 per share. The stock touched a high of Rs 354.60 and a low of Rs 329.95 during the trading session. The BSE benchmark index was 0.73% higher in late afternoon trade on Tuesday.
The weak debut follows an IPO that was subscribed 17.2 times, led by institutional and non-institutional investors. The IPO comprised a fresh issue of shares worth Rs 500 crore and 64.59 million shares in secondary offering from a bunch of sellers. Meanwhile, shares of Chennai-based Chemplast Sanmar began trading at Rs 525 apiece on the BSE compared with the IPO price of Rs 541.
The stock touched a high of Rs 550 and a low of Rs 510.30 during the trading session. The Chemplast IPO comprised a fresh issue of shares worth Rs 1,300 crore and a secondary market sale of shares worth Rs 2,550 crore.The IPO had sailed through on the final day of the issue Aptus Value and Chemplast have become the 36th and 37th companies to list on the stock exchanges in 2021, a hectic year for public market listing.
These companies have mobilisedover Rs 60,000 crore, as per estimates. An additional two dozen companies have filed for IPOs and aim to go public this year or early 2022 to benefit from excess liquidity in the market. While benchmark indices and frontline stocks touch new highs virtually each day, frothy valuations and partial loss of risk appetite have resulted in a 5-10% correction in mid- and small-cap stocks—agauge for activity in broader markets.