In this edition, we talk about the RBI’s bonanza to the central exchequer and how this windfall might help the government shore up its fiscal deficit. We also talk about Indigo’s stellar turnaround, the merger between arms of the BSE and NSE being called off, fresh allegations against the Adani Group and Elon Musk’s take on the impact of AI on jobs in future.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
On 4 June, the decision of who the Indian voter wants to govern them, will be known. Whoever is chosen to form the next government, will need to hit to the ground running. And for that, the prime minister at the helm will need lots of money at his or her disposal.
The Reserve Bank of India (RBI) this week came as a knight in shining armour for the exchequer, as its central board of directors declared a bonanza for the central government by approving a massive all-time high surplus transfer of Rs 2.11 lakh crore for FY24. The dividend or surplus transfer by the RBI to the Centre was Rs 87,416 crore for the FY23. The previous high was Rs 1.76 lakh crore in FY19.
The government had budgeted a receipt of Rs 1.02 lakh crore as dividends from the RBI, public sector banks and financial institutions in the interim budget for the fiscal year 2024-25 (April 2024 to March 2025) presented in February this year.
This larger-than-expected dividend should help the government shore up its fiscal deficit number. The central government aims to contain the fiscal deficit or gap between expenditure and revenue to Rs 17.34 lakh crore (5.1% of the GDP) during the current financial year.
The RBI said that during accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the Board had decided to maintain the Contingent Risk Buffer (CRB) at 5.50% of the Reserve Bank’s balance sheet size to support growth and overall economic activity.
“With the revival in economic growth in FY 2022-23, the CRB was increased to 6.00%. As the economy remains robust and resilient, the Board has decided to increase the CRB to 6.50% for FY 2023-24,” the central bank said.
But why did the RBI give the government more money? The transferable surplus for 2023-24, the RBI said, has been arrived at on the basis of the Economic Capital Framework (ECF) adopted by it in August 2019, as per recommendations of the Bimal Jalan-headed expert committee.
But the good news for the government did not just end here. News reports said that in addition to the RBI dividend, spectrum and critical mineral auctions are expected to bring in cash flows in the first half of the current fiscal. Additionally, good performance by the Central Public Sector Enterprises (CPSE) and Public Sector Banks (PSBs) may yield rich dividends, further bolstering the public exchequer, at least one news report said.
These numbers are likely to be factored in the full budget expected in July after the new government is sworn in. There is also an expectation that the fiscal deficit for FY25, as projected in the interim budget, will be revised. The interim budget has projected fiscal deficit at 5.1%. The telecom spectrum auction is slated to begin early next month. The Department of Telecommunications (DoT) is expecting to haul at least Rs 40,000 crore from the auction, estimated through earnest money (Rs 4,350 crore) that the telecom service providers (TSPs) deposited last week, the report said.
The DoT is placing spectrum worth Rs 96,317.65 crore for the upcoming auction, where a total of 10,513.15 MHz of spectrum will be put to auction. Last week, three major telecom services providers — Bharti Airtel, Reliance Jio, and Vodafone-Idea — were selected as pre-qualified bidders for the auction. Airtel has deposited Rs 1,050 crore, Reliance Jio Rs 3,000 crore, and Vodafone Idea Rs 300 crore as earnest money.
Another key source of revenue in the first half of the current fiscal is dividends from CPSE and banks. Better dividend collection can be attributed to the improved profitability of CPSEs and a consistent dividend policy. According to Finance Ministry guidelines announced in 2016, a CPSE would pay an annual dividend of 30% of PAT (profit after tax) or 30% of the government’s equity, whichever is higher.
Later in 2020, an advisory on consistent dividend policy said that the CPSEs, especially companies that pay relatively higher dividends (100% dividend or Rs 10 per share), may consider paying quarterly dividends. For others, the frequency could be half-yearly. Further, all CPSEs should consider paying at least 90% of the projected annual dividend in one or more installments as an interim dividend.
IndiGo’s earnings soar
But it wasn’t just the government that was laughing all the way to the bank (sorry, bad pun we know, but you get the point right?). Indians are taking to the skies like how, with flights across most major domestic and international routes going packed and ticket prices soaring to astronomically high levels. And all of this can only mean an earning bonanza for India’s biggest airline — IndiGo.
IndiGo reported a net profit of Rs 1,894.8 crore for the quarter, meeting analysts’ expectations of Rs 1,900 crore. This profit builds on a record-breaking year for the company, with a full-year profit of Rs 8,172 crore. It marks a significant turnaround from a loss of over Rs 300 crore in the previous fiscal year. This is the sixth consecutive profitable quarter for the airline, driven by robust passenger demand despite rising fuel prices.
The company’s revenue from operations also witnessed a healthy increase of 26% to Rs 17,825.3 crore, compared with Rs 14,161 crore in the previous year. However, it is short of analyst estimates of Rs 19,452 crore.
IndiGo’s profitability is further reflected in a jump in its EBITDAR (earnings before interest, tax, depreciation, amortisation, and rent) to Rs 4,412.3 crore, up from Rs 2,966.5 crore a year ago. This translates to an improved EBITDAR margin of 24.8%, up from 20.9% in the previous year.
This was on account of a rise in passenger traffic, with the airline carrying 235.97 lakh passengers in the quarter, capturing a market share of 60.3%. IndiGo’s profitability is further bolstered by a 7% increase in yields (revenue per available seat km) to Rs 5.19. However, the airline’s load factor, which measures the percentage of available seats filled, improved by only 2.1 percentage points to 86.3%. This suggests IndiGo is prioritising higher fares over maximising passenger capacity.
IndiGo’s financial health appears robust, with a total cash balance of Rs 34,737 crore, including Rs 20,823 crore of free cash. However, the company’s total debt also rose 14.3% year-on-year to Rs 51,280 crore.
Having said all of this, the airline does face competition from new entrants like Akasa Air and the potential merger of Air India and Vistara under the Tata Group. While IndiGo has gained market share following the grounding of GoAir, these new players add a layer of complexity to the Indian aviation market. But remember, more competition is almost always good, for the customer.
So, as we hit peak summer, where are you planning to fly to, for a holiday?
Exchange merger called off
But not everything seems to be going as planned, for everyone. The merger between India INX and NSE IX, the two stock exchange arms of BSE and National Stock Exchange operating at the International Financial Services Centre (IFSC), has been called off, more than a year after talks began. The IFSC is situated at the GIFT City in Gujarat.
The rationale for the merger was to have one common exchange at Gift City that would help India take on competition from the rest of the global financial centres.
According to news reports, BSE said that the discussions had gone on for a while and the bourse had decided to call off the merger.
The average daily number of contracts traded at India INX fell to 62,000 in FY24 from 706,000 in the previous fiscal. NSE-IX’s total turnover stood at $734.5 billion in FY24, 161% higher than the previous year.
Earlier this year, the government permitted the direct listing of Indian companies on Gift IFSC exchanges. Last month, the IFSCA allowed remote trading by foreign stock broking firms on Gift IFSC exchanges, which will help global brokers connect without requiring them to physically relocate to Gift IFSC. Non-bank entities have been allowed to issue offshore derivative instruments.
India INX, a subsidiary of BSE, was the first international stock exchange to be inaugurated by Prime Minister Narendra Modi at GIFT City in January 2017. A wholly-owned subsidiary of the National Stock Exchange, NSE IX, followed soon after and began operations in June 2017.
Another day, another salvo
Meanwhile, this week, fresh allegations of impropriety were made against the Adani Group. The Financial Times citing documents from George Soros-backed Organized Crime and Corruption Reporting Project (OCCRP), in a report, charged the Adani group of fraud and selling low-grade coal as high-value fuel in 2013 to Tamil Nadu Generation and Distribution Company.
OCCRP said that at least 25 shipments originally priced as low-quality coal reached the shores of Tamil Nadu between January and October 2014, which the Adani Group sold to the state power company for triple the amount. According to the report the evidence comes from multiple sources, including invoices and banking documents from several jurisdictions, details of investigations by India’s Directorate of Revenue Intelligence, leaked documents from a key Indonesian coal supplier for Adani Group, and a trove of documents obtained from the Indian state power company Tangedco (Tamil Nadu Generation and Distribution Corporation).
The Adani Group has denied the allegations saying the quality of the coal was independently tested at the point of loading and discharge, as well as by customs authorities and Tangedco officials. “With the supplied coal having passed such an elaborate quality check process by multiple agencies at multiple points, clearly the allegation of supply of low-quality coal is not only baseless and unfair but completely absurd.”
The Adani Group further said its market capitalization on Wednesday regained $200 billion-mark (Rs 16.9 lakh crore) after its listed firms gained Rs 11,300 crore as investors reposed faith on the company.
‘Job as a hobby’
Do you like your job? What if it became ‘optional’ in the years to come? Could such a utopia really come to pass?
Well billionaire businessman Elon Musk certainly thinks the proliferation of artificial intelligence (AI) will make jobs optional.
The Tesla chief said that going forward, individuals can take up jobs as a ‘hobby’. This is because he feels AI robots will provide most goods and services one would want. “If you want to do a job as a hobby, you can do a job. But otherwise, AI and robots will provide any goods and services that you want,” he was heard saying in his virtual address at the event.
Musk predicted a benign scenario and discussed the potential for a future with universal high income and the challenge of finding meaning in a world where AI would be performing most of the tasks.
Do you agree with Musk’s assessment?
Market Wrap
The two benchmark indices Sensex and Nifty seem to have made a habit of hitting all-time highs. This week was no different as the Nifty topped the 23000 mark while the Sensex reached a mark just shy of 75,500 as the market zoomed more than 1.7% on Thursday. While the Sensex ended the last five trading sessions up nearly 2.4%, the Nifty did even better as it rose through this period by 2.7%.
Top Nifty gainers during the week gone by included the likes of Shriram Finance, Adani Enterprises and Adani Ports, Mahindra & Mahindra, Ultratech Cement and Tata Steel. Other Nifty stocks that also rose included Coal India, Divi’s Labs, Larsen & Toubro, Bharti Airtel, Cipla and JSW Steel.
Nifty stocks that went down the most during the week were Sun Pharma, LTIMindTree, Shree Cement, Tata Consultancy Services and Dr. Reddy’s Labs.
Other Headlines
- ITC reports marginal fall in net profit to Rs 5,020 crore in Q4, revenue up 2%
- Adani Enterprises likely to join Sensex, replacing Wipro
- Tata Power planning to raise $1-billion loan for clean energy projects
- Mankind Pharma, Dr. Reddy’s, Torrent Pharma in race to buy JB Chemicals
- Merger with Vistara may be completed by December, says Air India CEO
- Will invest about Rs 65,000 crore in the next 3 years, says JSW Steel Joint MD & CEO
- Taro shareholders approve merger with Sun Pharma, ending long-drawn feud
- Google may manufacture Pixel smartphones at Foxconn unit near Chennai
- RIL to make consumer durables, white goods under Wyzr brand
- After collapse of merger talks, Zee seeks $90 mn termination fees from Sony
- Paytm considering reduction of workforce by 20% amid rising employee costs
- Early general elections in UK may further delay FTA deal with India
That’s it for this week! Until next week, happy investing!
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