According to a report by Goldman Sachs, the Indian government may cut its fiscal deficit to 5.9% of GDP when it announces its Union Budget on 01st February. That would be a full 50 bps lower than FY23 and a clear glide path that would impress rating agencies and institutional investors. While Goldman sees higher revenues in FY24, it also sees higher outlays on subsidies. It expects capex allocations to be increased to 2.9% of GDP for FY24. However, one broad concern has been that nominal GDP growth could fall in FY24.
On 10th January, the Indian rupee strengthened significantly from 82.36/$ to 81.79/$. There was a sharp fall in demand for dollars from the oil companies. The INR has strengthened 94 paisa against the dollar in the last 2 days. Also, there is likely to be a lot of foreign flow in the FPO of Adani Enterprises to the tune of Rs20,000 crore later this month. RBI also stepped back from buying dollars, which further strengthened the rupee. India’s forex reserves had fallen to a low of $525 billion last year, but bounced to $565 billion.
India’s foremost edtech start-up, Byju’s, has sought more time from creditors to renegotiate a deal over its $1.2 billion loan. The creditors can sign a forbearance agreement, which gives Byju’s time till 10th February to negotiate broader terms on the loan. Byju’s is yet to announce its FY22 annual results. Most creditors are worried about mounting losses at Byju’s and have been unwilling to give more time on debt repayment. Creditors want Byju’s use its cash reserves of $850 million to fast track the loan repayment.
Carlyle Group, one of the world’s leading private equity (PE) investors, acquired majority stake in Indian beauty care and wellness outfit, VLCC. The consideration was $300 million, although it is yet to be officially confirmed. VLCC was one of the IPO candidates, which had shelved its plans due to bad market conditions. In the last 3 years, VLCC has seen its online sales ratio rise from 7% to 22%. VLCC has a network of 210 retail “clinics” in 118 cities across 11 countries. Indian beauty and skincare industry is worth $27.5 billion.
SEBI has revised the framework for share sales through OFS, paving the way for non-promoters to also use this route. The offer for sale (OFS) route would be available to companies with a market cap of Rs1,000 crore and above. A separate window would be created for this purpose. Minimum size of the OFS should be Rs25 crore, although it can be lower if it is just to comply with minimum public shareholding (MPS). It can make OFS a preferred route over bulk deals since it offers greater pricing flexibility and transparency.
The inflation poll by Reuters pegs CPI inflation for December 2022 at 5.90%, at par with November figure of 5.88%. Due to moderation in food prices, inflation is likely to remain within the RBI comfort zone. Core inflation is expected to remain around 6% mark. This is based on a poll of 45 economists in India, wherein forecasts ranged from 5.4% to 6.4%. However, wholesale inflation is expected to have slowed further from 5.85% in November to 5.6% in December as per the poll. CPI Inflation will be announced on Friday.
CLSA has upgraded Tata Motors to “Buy” on the back of recovery in JLR sales volume plus improvement in margin profile. This is likely to boost free cash flows in FY24. CLSA has set a 24% upside target of Rs512 for Tata Motors. JLR has benefited from a gradual improvement in chip supplies. JLR is also likely to gain from relaxation of lockdowns in China, which is a key market. JLR is witnessing a cyclical recovery in sales and that is supporting higher valuations. Tata Motors has fallen 18% in last year giving a good risk-reward.
World Bank cut growth forecasts for most economies and warned of fresh adverse shocks to the global economy. It also expects the global economy to tip into recession. World Bank expects 2023 to be one of the worst years in last 30 years other than 2009 and 2020. Geopolitical risk will stay high due to continued conflict in Ukraine. The US, UK, Europe and China are likely to be among the worst impacted. World Bank has called for a major increase in investments into weaker economies to help them tide through the crisis.