Thursday, 7th Jan 2021

After a 10-day rally in the benchmark indices, the Sensex corrected by 264 points on Wednesday. The correction in the market was driven by Reliance Industries and ITC. However, the Nifty closed above the 14,100 mark and the Sensex closed above the 48,100 mark on Wednesday. There was profit booking seen in Bajaj Finance, Hindustan Unilever as well as the technology stocks. The correction started after the Democrats won both the seats in Georgia leading to a majority in both the houses. Markets were apprehensive that such a majority for the Democrats could be mean early reversal of corporate tax cuts.

The Department of Telecom has confirmed that the sixth round of spectrum auctions will commence on March 01. Clearly, the government is looking to book more revenues in the current year itself. The auction will be worth Rs.392,000 crore. The DOT has fixed 05 February as the last date for participating in the auction and the final list of bidders will be declared on 24 February. The DOT will auction 2251.25 Megahertz MHz in a total of 7 frequency bands. Bands above 3300-3600 MHz will be kept aside for the rollout of 5G services. The DOT has made spectrum available across all the 22 telecom circles across the country. Successful bidders have to make upfront payment within 10 days of the acceptance of the bids. There will be a moratorium of 2 years and then spectrum charge will be recovered in 16 instalments.

In an aggressive move to boost infrastructure segment in India, the government is planning to create a special bank with $13.7 billion equity to fund roads, ports and other infrastructure projects. The existing India Infrastructure Finance Company with a rupee corpus of Rs.2000 crore will be merged into the new bank. While the government will initially fund the capital, it will subsequently also invite investors like the NIIF has invited the Canadian Pension Fund. This year, the budget is going to be a tightrope walk with revenues falling short by a fat margin. Infrastructure investments are the key to economic revival. 

While the PMI Manufacturing was marginally higher in Dec-20, the PMI Services for Dec-20 tapered to 52.3 from 53.7 in the month of Nov-20. This is not great news for the GDP picture as services account for nearly 60% of the total GDP. The PMI figure is still above 50, which shows an expansionary mode. However, the loss of momentum over November is evident. According to IHS Markit, the spike in Coronavirus cases added to the prevailing uncertainty in the market and depressed the services sector. While domestic demand was robust, global demand lagged and jobs went into negative territory.

ITC corrected over 3% on Wednesday as the new government Draft Plan was likely to be deeply negative for the cigarette industry. Among other things, the new bill proposes to raise the minimum smoking age from 18 to 21 and restrict the sale of cigarettes in any form within 100 metres vicinity of any educational institution. In addition, the new Draft Bill also proposes to ban loose sale of cigarettes as well as smoking in public places altogether. While ITC has managed to successfully diversify into FMCG, hotels and agri businesses, nearly 85% of profits still come from cigarettes. This makes ITC extremely vulnerable.

As India embarks on the biggest vaccination drive in history in next few days, it needs successful models on distribution. One such model is the Israeli model. Apparently, Israel has managed to inoculate 15% of its population of 9.3 million in just two weeks. Israel paid a premium to get the vaccines early, digitized distribution and stretched the supply chains to the maximum. While the numbers were not confirmed, Israel had paid $30/dose, which is nearly twice the market price to Pfizer-BionTech. On the supply side, Israel also promised the pharma companies quick rollout. Of course, the universal healthcare system and digitized patient data enabled digital distribution. In addition, Israel has also tied up with Moderna for additional supplies of vaccines. Clearly, that is a template that India could emulate or take a cue.

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