Daily Market Update – Oct 16th

unnamed Daily Market Update   Oct 16th

The Tata group has stated that the Shapoorji Pallonji had not sent any formal proposal to the Tatas to divest ownership in Tata Sons. The SP group currently owns 18.5% in Tata Sons. After the Supreme Court judgment upholding the right of the Tata group to object to the pledging of shares of Tata Sons, the SP group had indicated their desire to opt out of Tata Sons altogether. SP had reiterated its intent to sell if it got a reasonable price for its stake. The SP group is looking at valuations close to Rs.180,000 crore but the Tatas have been non-committal. It looks like eventually they may end up at the negotiating table.

In a temporary relief for most of the states, the central government has affirmed that it will borrow up to Rs.110,000 crore; the estimated revenue shortfall on account of GST implementation and lend the same to the states under the special window. Earlier, the centre had asked the states to borrow on their own. This comes as a small win for opposition ruled states like Punjab, West Bengal, and Chhattisgarh, which have insisted that the Centre should borrow and transfer to states. The amount so borrowed by the centre will be now passed on to the states as a back-to-back loan in lieu of GST compensation cess. This is unlikely to impact the fiscal deficit of the centre as it would be shown as capital receipts of the state governments and as part of financing respective fiscal deficits. This will ensure better borrowing rates.

Software major, Mindtree, reported 19% jump in net profits at Rs.253.70 crore on a sequential basis. The total revenues of Mindtree were up just about 1% in sequential terms at Rs.1926 crore. During the quarter, the company won new deals worth nearly a third of a billion dollars. It also declared a dividend of Rs.7.50 per share on an interim basis. Mindtree had been going through a long management struggle in the previous year as the original management avoided selling the company to L&T. That stand-off had impacted performance. With uncertainty out of the way, the company is back to 18% operating margins.

Tata Steel BSL Limited, which was formed with the acquisition of Bhushan Steel from the NCLT, reported a 21% growth in net sales at Rs.5519 crore for the Sep-20 quarter. This NCLT buyout was done after Bhushan group had defaulted on loans to banks and this was one of the few successful NCLT executed cases. Net profits for the quarter were 229% up at Rs.255 crore, a sharp positive growth on a YOY basis. Tata Steel BSL also reported 126% growth on a YOY basis in EBITDA at Rs.1140 crore. The stock of Tata Steel BSL has rallied nearly 30% in the last 6 months after signals of a turnaround were first visible.

In the US markets, stocks dropped sharply on 15 October after an unexpected spike in weekly jobless claims. This came on back of fears that dimming hopes of fiscal stimulus could stymie any economic recovery. Ironically, this was also the first day of floor trading on the NYSE after it had been shut 6 months back due to COVID-19. However, both the Dow and the NASDAQ scripted a fantastic recovery to close marginally lower, although most of Europe closed on Thursday with deep cuts. Manufacturing data also showed a steeper than anticipated fall. However, declines continued to outnumber advances.

There was some respite for the Indian economy on the trade data front. For the month of Sep-20, the Ministry of Commerce reported Indian exports had grown 6% to $27.6 billion, while imports contracted 19.6% to $30.3 billion. This had resulted in trade deficit of just $2.7 billion. The imports declining faster than exports had led to favourable trade deficit outcome even as it turned into a small surplus earlier this fiscal. . However, the trade deficit was more than compensated by the surplus on the services trade account. For first half of fiscal 2020, India had an overall trade surplus of $17 billion.

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