The RBI Financial Stability Report or FSR for the Sep-20 HY was released late in January. Contrary to fears that there could be substantial deterioration in banking numbers, the actual data has been quite good. The banks saw a sharp fall in gross NPAs in the Sep-20 HY as well as a sharp growth in profitability parameters. Even the capital adequacy was sharply up in the period to Sep-20. The only area of concern is that the FSR has highlighted the risks of the prolonged lockdown and the moratorium to borrowers. The FSR projects the GNPAs to worsen from 7.5% in Sep-20 to 13.5% in Sep-21 with 100 bps extra risk.
According to the GOI, the next phase of India’s growth will be largely driven by coal. The government is pulling no stops on the aggressive plans for coal as the chart for a $5 trillion economy is almost ready. The government has promised single-window clearance for bidders in the Nov-20 coal auction. It has pointed out that many smaller companies are now able to get into coal trading, which was not possible in the past. The paradox has been that despite having the highest coal reserves and huge domestic demand, India ended up being importers of coal. This will lead to reduced dependence on coal imports in the future. The winning bidders for the coal mines include Adani Group, Vedanta, Hindalco, Essel Mining, Jindal Steel, Aditya Birla group etc. Mine bearing states will earn Rs.6600 revenues from coal.
Supreme Court has told the Attorney General represent the Indian government that it may be forced to put the Farm Bills on hold as any further postponement was not warranted. With the farmer’s agitation going on unabated, the SC is likely to put the Farm Bills on hold till a committee studies the same and gives its recommendations. The Supreme Court suggested that it had given a long time to the government and had also allowed them 8 rounds of talks with the farmers. The SC wanted the panel to have representation from the government and the farmers. The final SC order is expected on 12 Jan.
Even as equity funds saw net redemptions for six months in succession, the large cap funds have come under a lot of pressure. For the large cap funds, the ratio of gross purchases to gross sales has been at around 0.45, which is the lowest among the various equity fund categories. This ratio used to be ranging between 1.60 and 1.65 between April 2019 and May 2020. One reason has been that MF investors have looked to book profits at higher levels. However, the bigger reason is that due to portfolio exposure restrictions for large cap funds, most of them have underperformed the benchmark indices in 2020.
There is finally some good news on the telecom front. Both the PSU telecom companies, MTNL and BSNL, are expected to turn EBITDA positive in the first half of the financial year 2020-21. The DOT will also be allocating 4G spectrum to BSNL on a pan-India basis. Nearly 93,000 employees of BSNL and MTNL had opted for the voluntary retirement scheme. As a result of the VRS, the salary bill of BSNL is down 50% at Rs.600 crore while that MTNL is down 75% at Rs.140 crore per month. To keep the company profitable in coming quarters, the sovereign guarantee of Rs.15,000 crore stands extended.
Cement demand is expected to increase at 20% in the next fiscal year FY22 and almost take cement demand back to the FY20 levels. The growth in cement demand will be largely supported by rural demand including rural housing and a plethora of infrastructure projects in rural segments. Due to the growth in volumes, the operating margins of cement companies are expected to increase to 21% in FY22. Even the capacity additions will get back to over 20 MTPA compared to just about 15 MTPA in FY21. Nearly 80% of the capacity additions will happen in the Eastern region, which will drive cement capacity expansion. Even the capacity utilization is expected to increase from 56% in FY21 to 64% in FY22. Cement producers cautioned that the rise in the price of diesel and pet coke prices would necessitate price hikes in the year.