{"id":24413,"date":"2023-06-09T18:54:15","date_gmt":"2023-06-09T13:24:15","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=24413"},"modified":"2023-06-10T01:03:04","modified_gmt":"2023-06-09T19:33:04","slug":"the-weekly-wrap-just-do-it-or-dont","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-just-do-it-or-dont\/","title":{"rendered":"The Weekly Wrap | Just Do It (or don\u2019t)"},"content":{"rendered":"

In this edition, <\/em>we talk <\/span><\/i>about the RBI\u2019s latest monetary policy meeting and two key decisions the government made this week. We also talk about a debt default by Byju\u2019s and what that means for India\u2019s biggest ed-tech company.<\/span><\/i><\/i>\u00a0<\/span><\/i><\/p>\r\n

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Welcome to Kuvera\u2019s weekly digest on the most critical developments related to business, finance, and the markets.<\/em> \u00a0<\/p>\r\n

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tl;dr<\/strong>\u00a0Hear the article in brief instead? \u00a0<\/p>\r\n

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Sometimes, doing nothing is just the right thing to do. That\u2019s exactly what the Reserve Bank of India did this week. Okay, so what did the RBI actually do, or, well, didn\u2019t?<\/p>\r\n

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The RBI\u2019s six-member monetary policy committee kept its key repo rate\u2014the rate at which it lends to commercial banks\u2014unchanged at 6.5% in an unanimous decision.<\/p>\r\n

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This is the second time in a row that the MPC has held back from lifting rates after effecting a cumulative hike of 250 basis points since May 2022 to control inflation.<\/p>\r\n

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The decision was widely expected after headline retail inflation eased to an 18-month low of 4.7% in April and is expected to have cooled further in May.<\/p>\r\n

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So, has inflation now come under control? Will the RBI now start cutting interest rates?<\/p>\r\n

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Well, to answer the second question first, it\u2019s unlikely anytime soon. This is because\u2014and this also answers the first question\u2014inflation remains above the RBI\u2019s medium-term target of 4%. The RBI itself expects retail inflation for 2023-23 at an average of 5.1%, down from 5.2% earlier.<\/p>\r\n

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RBI Governor Shaktikanta Das has himself clarified the central bank\u2019s stand. It\u2019s a \u201cpause\u201d, he said, \u201cnot a pivot\u201d. Now that we are clear about the RBI\u2019s actions, how does this affect us, the common folk?<\/p>\r\n

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For borrowers, this is good news. Lending rates are unlikely to rise much from here on and so they can sit easy.<\/p>\r\n

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Meanwhile, banks, which have largely stopped increasing deposit rates, may now even lower these rates since liquidity has improved, especially after half of the Rs 2,000 notes\u2014or a total of Rs 1.8 trillion\u2014lying with people has returned to banks after the RBI last month decided to withdraw the high-value currency.<\/p>\r\n

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So, if you are a saver and have money to spare, you may want to rush and book a fixed deposit at high rates.<\/a><\/strong><\/p>\r\n

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MSP hike
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Doing nothing may not always be an option.<\/p>\r\n

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The Union Cabinet this week raised the minimum support price, or MSP, for 14 kharif\u2014summer season\u2014crops by 5-10%. The move is linked to inflation, too. Here\u2019s how.<\/p>\r\n

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The MSP is supposed to signal the market the minimum price at which the crops should be sold. Legally speaking, the government doesn\u2019t control crop prices. But it does set the minimum price at which it may buy the crops directly from farmers. Practically, this works only for rice in kharif season and wheat in rabi as the government hardly procures any other crop.<\/p>\r\n

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Most economists have said the hike in the MSP is not steep enough to lead to inflationary pressures. RBI Deputy Governor Michael Patra said the MSP hike will lift retail inflation only by 10-12 basis points.<\/p>\r\n

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There is another reason to allay fears of MSP-led inflation \u2013 chances of higher production. The 7% hike in MSP for paddy, the key kharif crop, may encourage farmers to sow more rice, leading to a bumper production and benign prices.<\/p>\r\n

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Among other crops, the government hiked MSP of pulses by 6-11%, the highest being moong at 10.4%, cotton by 8.9%, sunflower seed by 5.6%, groundnut by 9% and bajra by 6.4%.<\/p>\r\n

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But all these projections may go for a toss, if monsoon rains are not up to mark. The onset of the monsoon has been delayed in Kerala by more than a week, although reports say clouds have started arriving as we write this newsletter. For now, let\u2019s keep our fingers crossed and hope for a bountiful rainfall.<\/p>\r\n

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BSNL revival\u00a0<\/b><\/strong><\/h4>\r\n

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Damned if you do, damned if you don’t. That\u2019s probably how we can best describe the government\u2019s decision this week to approve a gargantuan package of Rs 89,047 crore, or $10.8 billion, to revive Bharat Sanchar Nigam Ltd.<\/p>\r\n

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The package, the government says, will help state-owned BSNL deploy 4G and 5G services.<\/p>\r\n

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Isn\u2019t an attempt to revive a state-owned company a good thing?<\/p>\r\n

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It could be, if the money actually helps revive the company that has failed to compete in a market dominated by private-sector rivals Reliance Jio and Bharti Airtel.<\/p>\r\n

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It could be good for India\u2019s telecom sector, too, if it leads to a meaningful improvement in competition and provides customers a credible third player that can offer good services.<\/p>\r\n

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Still, we have our doubts. For one, BSNL struggles with poor infrastructure and a heavy debt burden. Moreover, it has been posting losses for the past 12 years. In 2021-22, for instance, it recorded a massive loss of Rs 6,982 crore.<\/p>\r\n

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And it is already late to the party. Airtel launched 4G services almost a decade ago. And Jio upended the sector in 2016 when it launched data services for free, eroding rivals\u2019 profit and eventually leading to consolidation.<\/p>\r\n

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In addition, the BSNL revival package seems a lot like the billions of dollars the government spent in rescuing Air India, before selling it to Tata Group.<\/p>\r\n

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But, as we said earlier, we are damned if we don\u2019t even try. So, let\u2019s hope BSNL proves the naysayers wrong.<\/p>\r\n

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Byju\u2019s debt woes
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Talking about a company struggling with debt and losses, ed-giant Byju\u2019s skipped paying $40 million in interest payments on a loan this week and even went a step further\u2014it sued a lender for harassing it!<\/p>\r\n

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Byju\u2019s said it filed a lawsuit in a US court against Redwood, an investment management firm, to challenge the acceleration of a $1.2 billion term loan B facility and disqualify the lender for its \u201cpredatory tactics\u201d.<\/p>\r\n

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The company said that, in March, the lenders \u201cunlawfully accelerated\u201d loan repayments due to certain alleged non- monetary and technical defaults. It said that the lenders undertook \u201cunwarranted enforcement measures\u201d, including seizing control of its US unit, Byju\u2019s Alpha, and appointing its management.<\/p>\r\n

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The company said it won\u2019t make further loan repayments even though it can, until the court decides on the dispute. The latest turn of events compounds problems for Byju\u2019s. The company hasn\u2019t yet filed its financials for 2021-22 and has had to pay higher interest on the loans that it took at dirt-cheap rates a couple of years ago.<\/p>\r\n

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It is also looking to raise fresh equity capital from external private investors, and said this week that it plans to float an IPO of its offline exam preparation unit Aakash Education by mid-2023.<\/p>\r\n

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However, markdowns by big public investors such as BlackRock have queered the pitch. BlackRock, which owns a small stake in Byju\u2019s, estimates the company is now worth less than 60% lower than its peak valuation of $22 billion.<\/p>\r\n

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An investigation by the Enforcement Directorate into Byju\u2019s makes matters worse. The ED had raided three premises linked to Byju\u2019s in April over alleged foreign exchange law violations. Byju\u2019s, of course, has denied the allegations.<\/p>\r\n

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Clearly, Byju\u2019s is in a lot of problems right now. Will it recover? It\u2019s too early to say but we will definitely let you know.<\/p>\r\n

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Crypto conundrum<\/strong><\/h4>\r\n

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Another lawsuit in the US made big news this week. The Securities and Exchange Commission (SEC) sued Binance and Coinbase, two of the world\u2019s biggest cryptocurrency exchanges, for allegedly breaching its rules.<\/p>\r\n

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The SEC\u2019s actions come as US regulators have cracked down on the crypto industry after the collapse of FTX last year.<\/p>\r\n

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The SEC alleges that Coinbase traded at least 13 crypto assets that are securities and which should have been registered. Separately, it accused Binance of offering 12 crypto coins without registering them as securities.<\/p>\r\n


Both Coinbase and Binance have denied the allegations. Still, the SEC\u2019s actions have raised doubts among other crypto exchanges and may prompt at least some of them to delist the tokens in question.<\/p>\r\n

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So, if you are a crypto investor, tread carefully.<\/p>\r\n

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Market Wrap<\/strong><\/h4>\r\n

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Both benchmark stock indices didn\u2019t do much this week, ending marginally down as a slide in IT stocks outweighed optimism from another pause in rates by the RBI and the possibility of the US Fed, too, taking a breather from rate hikes.<\/p>\r\n

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While the 30-script Sensex ended down 0.4%, the 50-share Nifty was down 0.3%.<\/p>\r\n

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The Nifty stocks<\/a><\/span> that gained the most this week included JSW Steel, L&amp;T, Axis Bank, Britannia Industries, Power Grid, Tata Motors, NTPC, Ultratech Cement, M&amp;M, Hero MotoCorp, Maruti Suzuki and IndusInd Bank.<\/p>\r\n

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The Nifty stocks that fell the most included Tech Mahindra, Infosys, TCS, Kotak Mahindra Bank, HCL Tech, Eicher Motors, Wipro and Hindustan Unilever.<\/p>\r\n

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Other headlines<\/b><\/h4>\r\n

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