In this edition, we talk about India’s gains and misses at the Paris Olympics and the RBI’s latest policy review. We also talk about the government’s decision to provide relief to homebuyers, and the political turmoil in Bangladesh.
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The more things remain the same, the more they change.
Before you call us out on it, we know we owe an apology to the 19th-century French critic and journalist Jean-Baptiste Alphonse Karr, who had said something quite opposite to what we just did.
But hold on, hear us out, allow us to explain. This week, the Reserve Bank of India (RBI) kept its key lending rates unchanged for the ninth consecutive time.
Also, this week, India continued to underperform at the Paris Olympics. We failed to win a single gold medal and lost several likely medals due to a few near misses, a shock disqualification and an unexpectedly stupendous show put up by an athlete from arch-rival Pakistan.
But things aren’t always how they appear on the surface. First, let’s talk about India at the Olympics. Sure, wrestler Vinesh Phogat lost her podium finish as she was disqualified. Still, the girl from Haryana emerged as a national hero.
Sure, ace javelin thrower Neeraj Chopra had to settle for a silver. But he (and his mother) was all praise for Pakistan’s Arshad Nadeem, who created a new Olympic record. After all, humility in victory and grace in defeat count far more than a medal.
Both Phogat and Chopra won our hearts, as did the likes of Manu Bhaker, Sarabjot Singh, Swapnil Kusale, the Indian hockey team, Lakshya Sen and Mirabai Chanu, only to name a handful of our heroes.
And what about the RBI? While the central bank may have chosen not to tinker with interest rates for now, it said that things were beginning to change on the ground, for the better.
RBI governor Shaktikanta Das said that the Indian economy today is more equipped to handle external shocks than before. “The country is far more resilient than what it was earlier. So, we will have to wait for the incoming data and deal with the situation,” he said.
Although the RBI kept India’s growth projections for the current financial year unchanged at 7.2%, it said that manufacturing activities had continued to gain ground, riding on the back of increasing domestic demand, supported by household consumption. It further said that the services sector had remained buoyant although inflation, especially when it came to food prices, remained a concern.
Retail inflation, said Das, was likely to be at 4.5% in FY25 if the monsoon remains normal. Some relief in retail inflation was in sight, if the southwest monsoon picks up, he said.
The Red Flags
The RBI didn’t just express optimism about the macroeconomic situation. It also raised a few concerns. In the monetary policy review, RBI governor Das pointed to the quick pace of growth in home equity loans or top-up loans and said that some banks and non-bank lenders were not adhering to the regulatory prescription relating to loan-to-value ratio, risk weights, and monitoring of end use of funds.
“Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes,” he said, adding that lenders should review such practices and take remedial action.
Das also said that some segments of personal loans continued to record high growth despite pre-emptive steps taken last year. “Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from macro-prudential point of view,” he said.
On the issue of slow growth rate of bank deposits, Das said banks should mobilise household savings through innovative products since alternative investment avenues were becoming more attractive to retail customers.
He also noted that banks were taking recourse to short-term non-retail deposits, which could expose the banking system to structural liquidity issues.
Like we said, the more things remain the same, the more they change.
Indexation is Back
In some much-needed relief for homeowners, the government this week agreed to amend the long-term capital gains tax provision on immovable properties and allowed taxpayers to either switch to the new lower tax rate or remain with the old regime that had a higher rate but carried the indexation benefit.
Before the Lok Sabha passed the union budget, the government revised its original proposal. Essentially, the rules now allow taxpayers to choose between a 12.5% LTCG tax rate without indexation and a 20% rate with indexation for properties bought before July 23, 2024.
The proposals in the budget speech on July 23 had caused much consternation among homeowners across the country since indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability. The amendment will now likely reduce the tax burden on sellers.
The change will especially give relief to the middle class, who had voiced their concerns strongly after the budget speech. The amendment is also expected to boost investor sentiment and the real estate sector at large.
GST Pain
India’s tax authorities seem to be on a spree handing out notices to companies. Barely had the commotion following a Rs 32,000 crore Goods and Services Tax (GST) notice to Infosys settled, insurance companies and foreign airlines received similar missives, demanding thousands of crores in unpaid taxes.
At least 20 insurance companies operating in special economic zones have received notices demanding tax payments of around Rs 2,000 crore. These include HDFC Ergo General Insurance Co, Star Health & Allied Insurance, Cholamandalam MS General Insurance Co, New India Assurance and United India Insurance.
As many as 10 foreign airlines have also received such notices since October last year asking them to pay more than Rs 10,000 crore. British Airways, Lufthansa, Emirates and Singapore Airlines are among the airlines.
Needless to say, industry bodies have opposed these notices. After software industry lobby group Nasscom voiced its opposition to the notice to Infosys, the International Air Transport Association said that the notices could undermine India’s aviation potential.
Bangladesh in Tumult
In a dramatic turn of events in Bangladesh, Prime Minister Sheikh Hasina resigned and fled Dhaka after weeks of protests against a jobs quota law turned violent and protestors stormed her official residence.
As Hasina fled to India, the army took control of the situation and installed an interim regime led by economist and Nobel Prize winner Mohammad Yunus.
The developments in Bangladesh could have significant ramifications for India’s interests in the country as almost a fourth of its textile industry is owned by Indian capital. Apart from textiles, Indian companies are also active in sectors such as power and telecom, with several leading conglomerates having set up units, transmission lines and networks in the country.
The situation in Bangladesh remains volatile with reports of large-scale violence and attacks against minorities coming from across the country. We certainly hope things in our neighbouring country calm down and return to normalcy soon.
Market Wrap
Indian stock markets had a volatile week, much like the rest of the world, after the Bank of Japan raised interest rates and concerns grew about the US economy plunging into a recession.
The Nifty and the Sensex slumped 2.7% each on Monday but recovered a little in the week. For the week, the 30-stock Sensex ended down 1.6% while the 50-stock Nifty lost 1.4%.
Nifty stocks that gained the most in the week were led by three pharma companies—Dr Reddy’s Laboratories, Cipla and Sun Pharma. These were followed by Coal India, JSW Steel, Eicher Motors, HDFC Bank and four FMCG companies—ITC, Hindustan Lever, Nestle India and Britannia.
Among the Nifty losers for the week were Titan, Hindalco, IndusInd, Bajaj Finserv, Asian Paints, Ultratech Cement, Tata Steel and Adani Ports.
Q1 Earnings Snapshot
- LIC profit rises 9.6% year on year to Rs 10,461 crore; looks to buy health insurer
- Biocon profit at Rs 660 crore vs Rs 101 crore on sale of branded formulations business to Eris Lifesciences
- State-run ONGC’s standalone profit falls 15% to Rs 8,938 crore but tops forecasts
- State-run SAIL’ profit falls 61% to Rs 81.78 crore on weak local demand for steel
- State-run Oil India misses estimates as profit falls 9% to Rs 1,467 crore
- Strong Royal Enfield bike sales drives Eicher profit 20% higher to Rs 1,101 crore
- TVS Motor profit rises 23.5% to Rs 577 crore, exceeds estimates
- Godrej Consumer consolidated net profit rises to Rs 451 crore from Rs 319 crore but misses forecasts
- Fevicol maker Pidilite’s consolidated profit climbs 21% to Rs 567 crore, beats estimates
- Tata Power consolidated profit flat at Rs 971 crore but tops forecasts
- Titan profit falls 5% to Rs 715 crore, missing analysts’ expectation
Other Headlines
- Ola Electric’s IPO covered 4.27 times, shares jump 20% on first day of trading
- Unicommerce IPO covered 168 times; FirstCry IPO subscribed 12 times
- Adani Group chairman Gautam Adani plans to retire in early 2030s at the age of 70 and shift control to his sons and nephews, reports Bloomberg
- India’s foreign exchange reserves touch record high of $675 billion
- SEBI proposes new rules to curb use of offshore structures for derivative trades
- IndiGo to launch business class by mid-November
- Go First’s lenders vote for liquidating the grounded airline
- Govt appoints State Bank of India managing director CS Setty as new chairman
- Fortis Healthcare chairman Ravi Rajagopal steps down
- Amazon’s India head Manish Tiwary quits after eight-year stint
- NHAI plans to monetize $2.4 billion of road projects to cut $38 billion debt
- Byju’s gets a reprieve as US court rejects attempt by lenders to block settlement with BCCI
- Google, Amazon, Walmart to join RBI’s digital currency project
That’s all for this week. Until next week, happy investing
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