One of the first global economies to report a deep recession in the aftermath of the COVDI-19 pandemic was the UK, which reported a GDP contraction of -20.4% for the June 2020 quarter. This is the worst contraction reported by any European nation so far and clearly hints at the stress that the economy is under. This is the second successive quarter of contraction reported by the UK, hinting that it is officially in recession. The UK Finance Minister, Rishi Sunak, has warned that this kind of de-growth could result in huge loss of jobs by the end of 2020. UK H1 GDP for 2020 is down -22.1% on a YOY basis.
Equity mutual fund have turned aggressive sellers in the Indian equity markets in the month of July as shares to the tune of Rs.9000 crore were sold during this period. Reliance, HDFC and HDFC Bank were the stocks that showed the maximum extent of profit booking during the month. Most fund managers tried to take advantage of the 7.5% rally in the nifty during July and the overall 16% rally in the last 2 months to book out some of the bounce. However, TCS was one of the most sought after shares during the month. There was a sharp rise in equity fund redemptions at Rs.16,622 crore in Jul-20.
Tata Power reported a 10% rise in net profits at Rs.268 crore for the Jun-20 quarter even as revenues for the quarter fell by nearly 16% at Rs.6540 crore. The company got a boost from lower financing costs during the quarter. Tata Power also reported that its Solar EPC business continued to put pressure on profits. During the quarter, the company also reported that its three subsidiary companies including Coastal Gujarat Power Ltd, Tata Power Solar Systems Ltd and Af-Taab Investments Company would be merged with the parent company to ensure better integration of businesses.
Despite the RBI relaxing the LTV ratio for gold loans from 75% to 90%, a report brought out by India Ratings and Research has pointed out that most banks and financers may not be too keen to use this additional leeway due to the risks involved. The reported pointed out that despite the higher limit, most banks may desist due to their own internal risk management requirements, especially in the light of the recent rally in gold prices. Gold has rallied close to 40% between April and August 2020. Banks are expected to hedge the risk with cautious LTV or shorter tenure gold loans.
It looks like PNB may have a real problem of sticky defaulters in its loan books. It is estimated that a total of 1787 wilful defaulters owe the bank close to Rs.37,000 crore, chief among them being Gitanjali Gems, Winsome Diamonds and ABG Shipyards. This was disclosed in the PNB website as part of its statutory disclosure pertaining to wilful defaulters of above Rs.25 lakhs. Mehul Choksi of the Gitanjali group leads the defaulter pack with Rs.5064 crore of dues to the bank. His nephew, Nirav Modi, had duped PNB to the extent of Rs.14,000 crore by wilfully manipulating the SWIFT system. All these companies were provided loans by PNB as part of consortium lending practices. Gross NPAs of the bank, after all the aggressive provisioning, still stand at 14.21% making it a largely unviable proposition.
Hyderabad based Aurobindo Pharma reported a 22.81% rise in net profits at Rs.781 crore for the Jun-20 quarter. Total revenues of the company were up 10% at Rs.5943 crore. Aurobindo was one of the few pharma companies in India to see good traction in its US formulations business which grew by 15% in the quarter to Rs.3107 crore. The US business accounts for 53% of the total business of Aurobindo. With its steady product line and a sharp focus on operations, the company has been one of the best performers in the stock market since March, when the rally in pharma took off in a big way.