Midnight News – May 04th, 2020

unnamed Midnight News – May 04th, 2020

 

The RBI cancelled the license of CKP Bank with immediate effect over stability concerns. The RBI had first put restrictions on the back way back in 2014. Being a cooperative bank, the Registrar of Cooperative Societies has already been asked to initiate the liquidation process. Nearly 99.2% of the depositors of the bank will get their full deposits back and such payment will be routed through the Deposit Insurance Credit Guarantee Corporation (DICGC), which insures bank deposits up to Rs.5 lakhs. The bank has a deposit base of Rs.485 crore with branches focussed in Mumbai and Thane districts.

In the 2020 AGM of Berkshire Hathaway, Warren Buffett underlined the fact that they had changed their view on airline stocks and exited airline companies altogether. Berkshire had invested close to $7 billion into stocks like Delta, UAL, American Airlines and Southwest but decided to exit after the airline stocks took deep cuts in the midst of the lockdown. Buffett is of the view that airline companies may be in for a troubled future as the economics of the business may have been structurally damaged. Berkshire reported a record $49.70 billion of net loss for the March-20 quarter on investment write-offs.

During the last week of April, the 10 most valuable companies in India in terms of market managed to add Rs.310,000 crore in value. The biggest contributor to the value accretion was TCS which managed to Rs.73,000 crore to its overall valuations. HDFC also added Rs.58,500 crore in market while HDFC Bank added another Rs.35,000 crore. Reliance value accretion was slightly more tepid at Rs.31,500 crore as the markets are still digesting the twin impact of the Facebook deal and the proposed rights issue. All the top 10 companies managed to add value during the week, marked by aggressive short covering.

THE MSME sector may be staring at a total loss of nearly 10 crore jobs if the fallout of the COVID-19 is not immediately contained. According MSME promoters, these small businesses account for nearly 25% of economic output and over 40% of the total exports. They also account for bulk of the jobs created. MSMEs are now demanding direct cash transfers to small units to pay salaries and wages as well as rentals and utility bills. While EMI relaxation has been given to all the MSMEs, they have not got any leeway in GST payments and ESIC dues. MSMEs have been demanding an Rs.1 trillion rescue package.

The Association of Mutual Funds of India (AMFI) has claimed that the net redemptions under credit risk funds had fallen by 81% after the RBI announced the Rs.50,000 crore special window for mutual funds. Currently, credit risk funds constitute about 5% of the total debt fund AUM but have been in the news for the wrong reasons after Templeton decided to summarily shut down six of its funds due to redemption pressures. According to AMFI, net redemptions in credit risk funds had peaked on 27 April but have fallen sharply after that. But the real challenge for these credit risk funds may have pre-empted redemptions by either locking the scheme or taking huge write-offs. The bigger challenge is to have better regulation in fund selection and also ensuring greater transparency of the quality and maturity profile of assets.

Some of the largest FMCG companies like Colgate, P&G, Hindustan Unilever and Coca Cola have complained that they were facing severe supply chain disruptions at this point. The CEO of Colgate even admitted that they did not anticipate that the lockdown would go on for so long. Apart from the supply chain issues, FMCG companies are also worried about sourcing labour and transport to be able to move goods around. The Indian economy has effectively been under lock in for 5 weeks and has already been extended for another 2 weeks. Most FMCG companies are operating at below 50% capacity right now.

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