The World Bank slashed India’s GDP forecast for FY22 to 8.3%, a full 80 bps lower than the RBI estimate. It expects the output to be badly hampered by the unprecedented second wave of COVID leading to lockdowns across the board. However, the World Bank does expect policy support to fill the gaps via higher spending on infrastructure, rural development, and health. This a downward revision of 290 bps from the World Bank’s earlier estimates. COVID is likely to impact household and corporate balance sheets.
It is now estimated that the Indian government will have to spend an additional Rs.80,000 crore or $11 billion to provide free vaccines and food to millions of people devastated by the virus. Out of this additional outlay, Rs.10,000 crore will be for the vaccinations and Rs.70,000 crore for food provisioning. This was after Modi agreed to provide free inoculations, reversing a policy that led to states competing for supplies. That would mean the fiscal maths will worsen, despite the bumper Rs.1 trillion RBI dividend.
It looks like IPOs are back after a break. Shyam Metallics and Energy will launch its Rs.909-crore IPO next week. The promoters will offload a share worth Rs.252 crore with the balance coming by way of a fresh issue. The IPO has been priced in the range of Rs.303 to 306 per share and the issue will remain open from June 14 to June 16. This is the first IPO to hit the markets after Macrotech. Shyam will try to make the best of the recent rally in metals and metal stocks. It will utilize the issue proceeds to retire its Rs.470 crore debt.
Franklin Templeton decided to protest against the SEBI order barring the launch of fresh debt schemes for 2 years and disgorgement of management fees of Rs.512 crore. SEBI had also imposed a penalty of Rs.5 crore on FT. The amount so disgorged will be used to refund the money to investors in the six shuttered debt schemes. Franklin Templeton plans to file an appeal with the SAT against the SEBI order. The SEBI order accused Templeton of severe lapses and senior officials including Vivek Kudva of unfair practices.
Thanks to the pandemic, the global debt has now scaled higher to a record level of $291 trillion by the end of 2020. Moody’s estimates that due to persistent decline in productivity growth, debt could not only increase but also pose a serious threat to many emerging markets. Moody’s expects that the debt servicing capacity of EMs would be severely tested. If you just consider the government debt, it had increased sharply from 88% of global GDP to 105% of global GDP, the highest since the end of World War II.
Sugar stocks rallied for the second day in a row as Balrampur, EID Parry, and Triveni hit all-time highs on the BSE. For example, Triveni had scaled Rs.196 last touched in the peak of 2007. Both Balrampur and EID Parry surpassed their previous highs of May 2021. Many other sugar stocks like Renuka Sugars, Magadh Sugar, Dwarikesh, Dhampur Mills, and Dalmia Bharat also joined the party. Clearly, it looks like the sugar stocks are flattered by the decision of the government to advance 20% ethanol blending to the year 2023.
Sona BLW Precision Forgings, the auto component manufacturer backed by Blackstone, will launch an Rs.5,550 crore IPO in the next week. The IPO is expected to open on 15 June with the anchor allotment happening on the previous working day. Blackstone entity holds 66.28% in the company. The issue will be predominantly an offer for sale. Sona Comstar will use the proceeds from the fresh issue to repay debt. The IPO market stalled in May following tough guidelines for merchant bankers which have been put off.
Experts are of the view that despite the G7 tax deal imposing a minimum tax of 15% on all companies, the net impact may only be marginal. In fact, they expect that post-tax corporate profits may not change at all. Companies often transfer large portions of profitable activities to subsidiaries in low-tax jurisdictions or tax havens, so income appears to be sourced from there. This would entail lifting the corporate veil. The new tax rules may still not have an answer to transfer pricing but may encourage loss reporting.