Morning Scan: All the big stories to get you started for the day

Capex plans hit as 2nd wave derails recovery

Indian companies’ investment appetite got a fresh jolt in the quarter to June 30, says Mint quoting CMIE data.

Why it is important: The pandemic’s second wave and state-wide lockdowns sapped business confidence.

New project investments by companies in the June quarter fell 13 percent to Rs 1.6 trillion from the preceding three months.

The impact: Still, the impact of the second wave on investment decisions was much less pronounced than 2020, when the sequential decline was a steeper 73 percent.

The latest numbers show companies’ eagerness to start new projects weakened again after improving in the preceding March quarter when the pandemic’s first wave appeared to be ebbing.

Government-run firms were more tight-fisted in the June quarter, who announced projects worth Rs 1.2 trillion.

Future Bright: Most analysts believe the economic impact of the second wave may not be felt beyond the June quarter.

 

8 million people regained jobs in June as States relaxed curbs

Around 8 million people re-joined work in June as provincial lockdowns eased and economic activities picked up across India, reports Mint quoting CMIE data.

Why it is important: This comes after almost 23 million jobs were lost in April and May.

By the end of June, the number of people employed in salaried and non-salaried jobs in India went up to 383.28 million up from 375.48 million recorded in May.

The silver lining: The national unemployment rate fell to 9.17 percent by the end of June from 11.9 percent in May.

Urban joblessness dropped to 10.07 percent, down by 4.66 percentage points compared with May.

The job market is still stretched and the recovery in June is because of the reopening of informal businesses in urban India and picking up of activities in mining, real estate, and segments of the manufacturing sector.

 

Supply chain deficit set to raise prices of electronic products

Electronics manufacturers, including Chinese firms, such as Xiaomi, Realme, Tecnno and Oppo, have increased prices of affordable products, such as 4G smartphones, Mint says.

Why it is important: This is due to the crippling shortages in the supply chain.
This, coupled with an unprecedented increase in shipping charges, had an effect on almost all technology players.
Prices of smartphones in India could go up by Rs 100-1,000.
And a 3-6 percent increase expected in prices of smart TVs.

The price correction will affect all affordable products, including 4G smartphones.

 

‘Early’ monsoon may now be ‘most delayed’

The 2021 monsoon’s arrival in the north-west India is the most delayed since 2006, says Hindustan Times.

What makes it odd: Monsoon forecasts have been repeatedly wrong this year.

The monsoon was racing through the country in early June, and the Met predicted it may hit Delhi by June 15, the earliest in the period for which data is available, before it suddenly slowed down and appeared to hit a “break” phase.

Normal rain this month: The country will receive “normal” rain in July, between 94 percent and 106 percent of long period average, but monsoon will revive only during the second week, the IMD said in its forecast.

It also cautioned that subdued monsoon conditions during the next seven days are likely to impact agriculture.

 

Uptick in air traffic; most flying out for meeting family, or vacations

After a sharp drop in passenger traffic at Indira Gandhi International Airport due to the lockdown and flight restrictions, footfall has increased considerably — from around 18,000 passengers per day in mid-May to 62,000 by the end of June, says The Times of India.

Why it is important: The airport said that a survey found that post-relaxation of the lockdown, 48 percent of the passengers flying in were ‘visiting friends and family’,
Followed by those on vacation (25 percent) and for business (19 percent).

In June 2020, only 2 percent of travellers were flying on vacation.

International travel had also picked up in June.

The average international passengers per day has increased from around 4,500 in mid-May to 7,500 by June-end.

Top destinations: Domestically, in May and June this year, Mumbai, Patna, Bengaluru, Pune, Hyderabad, Leh, Chennai, Ahmedabad, Kolkata and Jammu & Kashmir were the top 10 destinations from Delhi.

 

GAIL to pump Rs 5,000 crore into new age energy business

Back from the brink of being split, state-run GAIL has lined up a Rs 5,000-crore war chest to further integrate its fortunes with the government’s carbon-reduction goals, says The Times of India report.

Why it is important: GAIL is looking beyond natural gas to stay relevant in a rapidly changing energy market landscape.

What the major plans are: The company has put a Rs 1,000-crore bet on setting up two plants each for producing ethanol and compressed biogas from municipal waste.

CBG plants will add volumes for its pipeline network as city gas service expands across the country.

The company will invest another Rs 4,000 crore to expand its renewable energy capacity from 120MW to 1GW in the next three-four years.

GAIL Chairman Manoj Jain: “Building pipeline networks to improve access to gas and transportation will remain our core business. We are looking for synergy with new businesses, which are emerging as a result of energy transition, to create new revenue streams for us.”

 

Inverted duty, slabs on GST council radar, says Tarun Bajaj

The GST has significantly lowered the compliance burden on businesses as well as the incidence of taxation on them, The Economic Times reports quoting Revenue Secretary Tarun Bajaj.

Why it is important: To identify a reduction in the slabs and to address the inverted duty structure as next on the agenda for the levy that has marked four years.

Experts have said multiple rates have complicated the GST, the main feature of which is supposed to be a simple, easily administered levy all across the country.

What he says: “We still have issues on inverted duty structure, tax rates.”

“In the next one-two meetings, we will concentrate on these issues to put these before the council to take a decision.”
Bajaj said there is a recommendation that the merger of the 12 percent and 18 percent bands should be considered.
“If I look at my figures, 5 percent is about 22 percent (items), 12 percent is 18 percent, 18 percent is 47 percent — these are the three main rates. These can also, over a period, be brought down to two.”

He said quarterly returns and quarterly payments, or QRQP, needs further discussion.

 

Fuel sales surge in June as curbs ease, economic activity picks up

Fuel sales rebounded in June as the pandemic-linked lockdown restrictions eased and economic activity picked up, says The Economic Times report.

What it shows: Petrol sales increased 18 percent over May and 6 percent from June last year.

Diesel consumption gained 9.5 percent over May but remained 2 percent lower year-on-year.
Compared to pre-COVID-19 levels of June 2019, petrol and diesel sales were 10 percent and 19 percent lower respectively.
Jet fuel sales in June were 10 percent higher year-on-year but 62 percent lower than in June 2019, signalling a long recovery path for the aviation sector.
A wider vaccine rollout too has raised people’s confidence, encouraging them to venture out of their homes.
The demand growth can accelerate in July as the economy gathers pace.

Petrol and diesel prices are up by Rs 27 and Rs 20 per litre respectively in 13 months.

 

Wistron exceeds PLI investment obligation in just 8 months

Apple Inc’s leading contract manufacturer, Taiwanese giant Wistron, has exceeded its investment obligation in India in just eight months, says Business Standard.

Why it is important: This is significant as the government’s production-linked investment (PLI) scheme allowed it to complete the investment in four years.
The speed and quantum of investment is significant as it reflects

Apple Inc’s keenness to transform India into a major global hub for the manufacture and export of its mobile phones, so far concentrated in just one country China.

 

COVID-19 forces realtors to rethink house design

Property developers are either providing or looking to add new-age amenities to attract prospective buyers, says Business Standard.

Why it is important: This is the outcome of a prolonged pandemic and work-from-home rule.

They are rolling out conveniences from touch-free elevators and motion sensor lighting to co-working spaces in new residential projects as part of the COVID-19 safety measures.
Re-engineered ventilation systems, lounges with glass dividers, multiple lobbies, wider lobby stairs, and separate outlets are new plans.

Foot pedals for operating lifts were installed by some developers.

The Future: Tech-enabled developments, such as home automation, the perfect mix of tech and real estate, contactless elevators, WiFi-enabled complexes, and voice-enabled homes, are the way forward.

 

Govt may indemnify PSU buyers from past claims

The government has become flexible to the interests of buyers as it looks to move ahead with its ambitious privatisation drive, reports Business Standard.

Why it is important: The government, in pre-bidding consultations, has informed potential buyers of PSUs that they will not be held liable for any claims arising prior to the sale of state-owned entities.

This will be done through the representation and warranty clause in the share purchase agreement.

This is a shift from the government’s earlier stance of selling assets on an ‘as is where is’ basis.

Air India Case: Development comes as Devas, Cairn have moved US court to seize Air India’s assets.

The buyers of the national carrier will not be liable for any such claims made prior to the sale, and will get unencumbered assets of the state-owned airline.

This will be applicable to all PSUs on the block where buyers will not have to bear any past dues.

 

Mid-, small-caps rally: Asset managers flag concern

Asset managers have flagged concerns over the steep run-up in mid- and small-cap stocks, Business Standard reports.

Why it is significant: This has shrunk the traditional discount available in the segment vis-a-vis large-cap peers.

The mid- and small-cap indices, which underperformed large-caps until early 2020, have covered lost ground, gaining 73 percent and 104 percent, respectively, in the last one year.

Vinit Sambre, head, equities and fund manager, DSP Investment Managers, says: “The euphoric rise in many poor quality small-cap names driven by higher retail participation is a cause for concern.”

On aggregate, the entire universe of flexi-cap schemes, which invest across market capitalisations, had 71.5 percent of their assets invested in large-caps, 23.4 percent in mid-caps, and 5 percent in small-caps.

The steep rally in the mid-and small-caps had made valuations uncomfortable.

 

‘Risk-reward appears to be evenly balanced in market’

Taher Badshah, chief investment officer for equities at Invesco Mutual Fund, tells Business Standard in an interview that India’s economic cycle will improve over the next three-four years, which should support current valuations.

What he says: The risk-reward in the market appears evenly balanced.

In the near term, reopening of the domestic and global economies after the second wave lends confidence from a growth standpoint.

Risks Ahead: There are a few risks lurking, such as expectations of the US Federal Reserve beginning to taper its quantitative easing programme, firm commodity prices and inflation, and the dangers of a third wave.

Any of these has the potential to make the markets vulnerable, particularly at current valuations.

On local factors: Over the next two quarters, markets will be guided by observing the earnings resilience of corporates during the second lockdown, progress of the monsoon and the damage, if any, to rural spending power due to the second wave.