In a move that was widely anticipated, the government slashed rates on small savings instruments for the Q1-FY22. For example, the rates on the popular PPF was brought down from 7.1%. In addition, the rates on 1-year term deposits was cut from 5.5% to 4.4% while rates on SCSS were cut from 7.4% to 6.5% and for the Sukanya Samriddhi from 7.6% to 6.9%. This should bring down the small savings rates to more competitive levels. The rates on NSC and Kissan Vikas Patra were also cut by 90 bps and 70 bps respectively. The cuts have been across the board and should reduce the distortions in the debt market.
The core sector number for Feb-21 contracted -4.6% as all the 8 core sectors recorded negative growth. The revised estimates for Jan-21 and Nov-20 did see some upgrades, but the current fall is too steep and even the upgrade may not make any meaningful difference. Oil Refining was the worst hit with -10.9% de-growth while steel also contracted after several months of positive growth. Refining and Steel jointly have a weightage of 45% in the core sector basket and make a huge difference to the final number. This is the worst monthly performance since August 2020 when the core sector had contracted by -6.9% due to the pandemic impact. For the 11 months to Feb-21, the overall core sector fell by -8.3% and is likely to put pressure on GDP growth for Mar-21 quarter. March could see core sector expansion on base effect.
Government plans to go aggressive on its borrowing program in FY22 and will auction Rs.724,000 crore of bonds in the first half itself. This was confirmed by the Economic Affairs Secretary, Tarun Bajaj. India will borrow a little over 60% of the full year target in the first half itself. India witnessed a steep increase in borrowing levels in FY21 and FY22 due to the elevated levels of fiscal deficit. Revenues had lagged but the government had to stimulate the economy with a $350 billion package, putting pressure on finances. In the last few weeks, the market has rejected the G-Secs at the auctions due to abysmally low yields.
As fiscal year 2020-21 comes to an end, it clearly belonged to equity investors. Investor wealth grew by Rs.90.82 trillion as the Sensex and Nifty jumped close to 70% in the year. That is nearly $1260 billion added to net wealth of Indian equity investors. While the recovery and the Indian growth story were critical aspects, what really mattered at the end of the day was that central banks infused trillions of dollars of liquidity into the system, which inflated prices of most assets across the globe. During the year, the Sensex crossed the 50,000 mark for the first time and the full-year equity rally was driven by index heavyweights.
BPCL will acquire 36.6% stake in Bharat Oman Refinery Ltd or BORL from its partner, OQ. The stake will be purchased by BPCL for a consideration of Rs.2400 crore. BPCL already holds 63.4% in BORL. The BORL refinery is located in Bina in the state of Madhya Pradesh and boasts of 7.8 MMTPA capacity. It may be recollected that just last week BPCL had merged its gas subsidiary into itself and also approved the sale of its 61.7% stake in Numaligarh Refinery to Oil India Ltd. The central government is currently inviting bidders for its 52.98% stake in BPCL and some of this restructuring was part of the package promised by the GOI.
Despite the crisis in Vedanta’s Tuticorin plant, it looks like Anil Agarwal is still betting on copper in a big way. Vedanta is scouting for locations for a new copper smelter in India. Vedanta plans to set up a 500,000 TPA copper smelter complex with an investment of Rs.10,000 crore. Vedanta’s 400,000 TPA copper factory in Tuticorin in Tamil Nadu is shut since 2018 after the state government ordered the shutdown. Vedanta does not want to miss out at a time when copper prices are at a 9-year. Additionally, India’s copper requirements are all set to grow exponentially in the coming years. Adequate availability of copper is also key to implementing projects in electric vehicles, rapid automated transport and clean energy. Due to the lockdown at Vedanta’s Tuticorin smelter, India was forced to become a net importer of copper.