In this edition, we talk about the Reserve Bank of India’s latest measures to stem the rupee’s slide and the government’s move to shore up its revenue. We also talk about the safety scare at Indian airlines just as traffic is picking up and the continued turmoil in the crypto world.
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Ever since international crude oil prices began rising after Russia’s invasion of Ukraine in February, the Indian rupee has been on a downward spiral against the US dollar. It has already gone below the 79.20-mark to a dollar and could breach the 80-mark in coming months, making imports costlier and worsening India’s balance of payments.
The Reserve Bank of India (RBI) seems to have finally woken up to this reality, as it announced a series of measures to increase forex inflows to mitigate the dramatic decline of the rupee. It has, among other measures, allowed foreign investors to invest in short-term corporate debt and buy more government securities.
The central bank has also doubled the limit for Indian companies to borrow overseas, to $1.5 billion, and has temporarily removed the interest rate cap for banks to attract deposits from non-resident Indians. In addition, the central bank has eased the stringent norms set for foreign investors to maintain financial stability.
Interestingly, the central bank and North Block—where the finance ministry is headquartered in New Delhi—seem to be working in tandem. While the RBI wants more dollars, the finance ministry wants to tax petro-dollars to shore up the exchequer.
So, the government did what it does best—imposing taxes. It imposed a new ‘windfall gains’ tax on India’s oil producers and marketing companies that have increased product exports to gain from the higher overseas margins in the wake of the rise in global oil prices following the Ukraine war.
While the government says it wants to boost domestic crude production and supply, and revenue from crude, the real reason is not hidden from anyone. It is cash-strapped and wants a pie of the bounty that oil producers and refiners alike hope to achieve from the windfall gains that they have been getting over the past few months.
The markets though haven’t taken too kindly to this new tax. Nearly all oil companies including the government’s own Oil India and ONGC as well as private majors like Reliance Industries and Vedanta fell this week, as investors saw their margins go down the barrel.
Seeing this, the government did seek to reassure companies and investors that it will withdraw the tax if the price of crude goes down below $40 per barrel.
But given the fact that crude oil prices are flirting with the $100 per barrel mark, that will be a long wait.
Flying into turbulence
While crude oil prices have been sky-high, cash-strapped domestic carrier SpiceJet has flown into some very significant turbulence.
A series of mid-air security lapses and technical snags in recent days forced SpiceJet flights to make emergency landings including in Patna and Karachi, Pakistan. This caused outrage on social and the mainstream media, and prompted the Directorate General of Civil Aviation (DGCA)—the aviation watchdog—to issue the airline a show-cause notice to explain the incidents.
Flyers, too, seem to be shunning the carrier. A recent survey reportedly shows that passengers have begun steering clear of SpiceJet flights, with as many as 44% of the respondents avoiding the airline, versus 21% who are avoiding Air India and IndiGo and 18% for Go First.
To be sure, the Ajay Singh-led SpiceJet is not the only airline reporting snags. Its competitors IndiGo and the Tata group’s Vistara, too, have had glitches, putting a question mark over aviation safety in India in general.
Safety concerns aside, competition from the now Tata-owned Air India and from newer carriers like Rakesh Jhunjhunwala-backed Akasa Air has forced India’s largest airline IndiGo to raise its pilots’ salaries in a bid to keep its flock together. This, after more than half of IndiGo flights were delayed last Saturday, as a bulk of its cabin crew reported sick last weekend, ostensibly to join an Air India recruitment drive!
IndiGo has also reportedly reinstated overtime allowance for pilots to the pre-Covid level. So, the next time your employees or colleagues call sick, beware, your competitor might be out to poach them!
Crypto Crisis
While India’s largest airline might manage to keep most of its flock together, the country’s crypto exchanges may not be so lucky. Trading on Indian crypto exchanges has plunged as a 1% tax deducted at source (TDS) on all crypto transactions kicked in from July 1.
Under the new rule, the buyer of a virtual digital asset or cryptocurrency has to pay 1% of the amount paid to the seller as TDS. The daily trading value on three exchanges—ZebPay, Binance-backed WazirX and CoinDCX—has plunged by 60-87% since July 1. Another exchange Giottus saw trades on its platform plunge by as much as 70%.
Exchanges say while long-term crypto holders are still buying and selling, high-frequency traders and market makers have left the scene, migrating instead to decentralised exchanges.
But there’s been more trouble in the Indian crypto market. Coinbase-backed crypto lending platform Vauld has halted operations, leaving its users high and dry. Investors are unable to make deposits, withdraw or trade.
This is, however, not the end of the road for Vauld, which is reportedly set to be acquired by London-based cryptocurrency lender Nexo.
Chinese Checkers
Meanwhile, India’s heat on Chinese companies—most notably smartphone makers—continues with the Enforcement Directorate (ED) raiding the local premises of Vivo. The ED said that Vivo sent Rs 62,476 crore, or nearly half its turnover, mainly to China to avoid paying taxes. “These remittances were made in order to disclose huge losses in Indian incorporated companies to avoid payment of taxes in India,” the financial crime fighting agency said.
Raids on Vivo follow income tax raids on two other Chinese smartphone majors—Oppo and Xiaomi—in December last year, and the Directorate of Revenue Intelligence—the anti-smuggling agency—searching the factories of Foxconn India’s unit Bharat FIH and Dixon Technologies, both of which are contract manufacturers for Xiaomi.
For perspective, Chinese smartphone brands control almost three-fourths of the Indian market. Xiaomi is the market leader on a standalone basis though BBK Electronics is actually the biggest if all its brands—Oppo, Vivo, Realme and OnePlus—are combined.
Markets and Mutual Funds
The benchmark BSE Sensex and Nifty both ended the week firmly in the green—the third week of gains in a row.
Both the benchmarks were up about 3% each, led by double-digit gains in FMCG majors Hindustan Unilever and Britannia Industries. They were followed by Titan, which rose almost 10%, and by engineering and construction major Larsen & Toubro, financial services firm Bajaj Finserv and agrochemicals manufacturer UPL Ltd.
The list of counters that were most in the red this week was topped by ONGC, which lost nearly 7%. ONGC was followed by Indian Oil, JSW Steel, Cipla and Tata Consultancy Services.
Meanwhile, net inflows into equity mutual funds dropped 16% in June to Rs 15,498 crore compared with May. Industry group AMFI said inflows are likely to remain weak in the July-September quarter due to worries over interest rate hikes and inflation. While MF inflows are slowing, foreign investors continue to move out of Indian equities. Total outflows by foreign portfolio investors in 2022 have crossed $30.3 billion.
Other headlines
- Govt cuts gap between second, precaution doses of COVID vaccine to 6 months
- RBI approves merger of HDFC with HDFC Bank
- Axis Mutual Fund submits investigation report on two fund managers to SEBI
- FADA sees two-wheeler sales at pre-pandemic levels only by FY24
- M&M to spin off EV business, gets $250 million from British International Investment at $9.1 billion valuation
- Titan April-June sales soar 205% year on year, company says first normal quarter in two years
- India June services PMI at 59.2, highest in over 11 years
- India’s June trade deficit touches all-time high of $25.63 billion
- US Fed says may need sharply higher interest rates to control inflation
- Boris Johnson resigns as UK PM after cabinet rebellion
- Former Japan PM Shinzo Abe assassinated
- IMF chief says cannot rule out possible global recession
- Sri Lanka admits bankruptcy, PM Wickremesinghe says crisis to drag through 2023
The week ahead
- The Tractor and Mechanization Association will release tractor sales data for June, giving an indication of the farm sector as monsoon rainfall picks up.
- The Insurance Regulatory and Development Authority of India will release life insurance first-year premium for June.
- The Society of Indian Automobile Manufacturers will release vehicle sales numbers for June.
Until next week, happy investing!
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