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Tuesday, February 25, 2020

economic news of india - world economic news - economics news for students - indian economy news

economic news of india - world economic news - economics news for students - indian economy news


The pig that Rajan warned about is back with more lipstick

Posted:

In November 2013, the then central bank Governor Raghuram Rajan had warned banks against dressing up loans, likening the practice with "putting lipstick on a pig" (that) "will not make a princess." His stance marked the beginning of the end of forbearance. Rajan's successor Urjit Patel, too, continued with the tradition of nixing proposals that kicked the can down the road.But the new RBI regime under Shaktikanta Das has been different. It has already allowed banks to extend the MSME loan recast scheme and allowed restructuring of loans to the real estate sector."The RBI announcement of forbearance towards stressed sectors signifies a gradual shift away from the regulator's earlier efforts to enhance the quality and transparency of asset classification in the Indian banking system," said Saswata Guha, director, financial institutions, Fitch Ratings. "There is a risk that such regulatory forbearance will perpetuate moral hazard, as it follows aggressive lending growth and risk-taking in certain sectors."Indian banks have a poor track record with restructuring. The RBI's asset quality reviews in FY16 and FY18 found that a dominant share of loans restructured after FY12 degraded into non-performing loans (NPLs), according to a Fitch analysis.BLOW HOT, BLOW COLD"You are encouraging bad behaviour by supporting it and demoralising the ones with good behaviour; this is akin to farm loan waiver that leads to bad credit behaviour," said Kuntal Sur, partner – financial risk & regulation, PwC. "This is nothing but kicking the can down the road, this should not be encouraged."The concept of regulatory forbearance arose when the RBI allowed project loans to retain their standard asset classification on extension of their repayment schedule in May 1999. This was extended to treatment of restructured accounts in March 2001 under the Corporate Debt Restructuring (CDR) mechanism, for restructuring of debt without the need for an asset quality downgrade if the restructuring plan met certain conditions. For years, asset quality forbearance was used more as a tool for avoiding recognition of defaults and less for their effective resolution.In 2008-09, after the global financial crisis, the RBI agreed to forbear on certain kinds of stressed loan restructuring, hoping that this was a temporary need pending stronger growth. Unfortunately, for a variety of reasons, the stress has not been temporary, and growth in these sectors has proved elusive. This regulatory forbearance was made available to all types of loan restructuring except commercial real estate exposures, capital market exposures and personal and consumer loans.Since 2008, RBI relaxed norms for restructured loans several times and allowed lower provisioning for select categories of loans. Its regulatory relaxations prevented a rise of nearly Rs 90,000 crore in NPAs. These relaxations include allowing unsecured loans to microfinance companies to be restructured in 2011, and allowing second restructuring of loans on a case-to-case basis. State electricity boards and the aviation sector are two notable examples wherein loans were restructured for a second time, but were not classified as non-performing assets. But, in May 2013, the RBI announced the decision to withdraw forbearance on asset classification effective April 1, 2015. Shortly after this, the RBI began its Asset Quality Review (AQR) exercise to determine the "real" stock of the bad loan problem.After the RBI undertook the AQR that led to recognition as NPA of several loans, which banks had then considered to be standard assets, NPAs went up from 4.62% in 2014-15 to 7.79% in 2015-16, and were as high as 10.41% by December 2017.However, in the wake of mounting NPAs, the RBI allowed asset classification benefits for certain types of restructuring schemes. These included Strategic Debt Restructuring (SDR), Flexible Structuring of Project Loans and the Scheme for Sustainable Structuring of Stressed Assets (S4A). 74310653 HARD TIMESA revival in GDP growth rate is key to the Indian economy, which has slowed to an 11-year-low of 4.5% in the September quarter. Bank of America's India Activity Indicator slipped to 3.1% in December from 4.5% in November. The Index of Industrial Production for December shrunk to 0.3% while retail inflation rose to 7.59% in January."It is not surprising in the current weak operating environment and is in line with a recent trend to weaken asset recognition standards," said Guha of Fitch. "These extensions are only likely to defer asset-quality pressures unless there is a sustained improvement in macroeconomic conditions. Most of these sectors have had above-average lending growth in the last few years, either directly or indirectly via non-banks, and could be at risk were the economy to slow. Moreover, these measures are unlikely to support sustainable credit growth until capitalisation improves meaningfully across banks, in particular among state-owned banks, which account for nearly twothirds of the sector's assets."The MSME sector accounts for over 28% of GDP, more than 40% of exports, while employing approximately 110 million people. The outstanding banking sector credit to MSMEs was Rs 15.11 lakh crore while its gross NPAs were 5.8% of the total credit. Likewise, the real estate sector has been in trouble for quite some time and is the primary reason behind the sustained nonbank lending crisis."In extreme situations, the economic value of not taking any action is too high," says Sur. "If you look at the government's perspective, we are in a slow growth phase; if you allow further defaults, the negative impact could bring down the growth further."Some believe that difficult times warrant some degree of forbearance, some hand-holding to performing and otherwise viable units in tiding over temporary difficulties. But even RBI data shows that restructuring has been often used by banks for 'evergreening' problem accounts, thereby just postponing the recognition of a problem."Forbearance may be a reasonable but risky regulatory strategy when there is some hope that growth will pick up soon and the system will recover on its own," Rajan had said in July 2016. "Everyone – banker, promoter, investors, and government officials – often use such a strategy because it kicks the problem down the road, hopefully for someone else to deal with. The downside is that when growth does not pick up, the bad loan problem is bigger, and dealing with it is more difficult."INSOLVENCY RESOLUTIONCentral bankers on many occasions in the past have said that restructuring schemes were required because India did not have an effective bankruptcy law in place. In 2016, the Insolvency and Bankruptcy Code, 2016 (IBC), which is a comprehensive bankruptcy code, was enacted and notified. The Code envisages timely resolution of borrower defaults through collective decision making by the creditors. But, the success of the law is yet to be proven."The general approach of bankers to stress in large assets has been one of avoiding the de jure recognition of non-performance of such accounts," NS Vishwanathan, RBI deputy governor, had said earlier. "This is why we have a history of a large number of cases of failed restructuring as the schemes were used for avoiding a downgrade rather than resolving the asset. Prolonging the true asset quality recognition suited both the bankers and borrowers."As per the latest data from the Insolvency and Bankruptcy Board of India, 58% of all closed cases under bankruptcy to date were via liquidation while only 14% of cases were resolved with an average haircut of nearly 57% on admitted claims.ENCOURAGE GOOD BEHAVIOUR"Good practices should be encouraged so that there is incentive toward credit discipline. What is the guarantee if the economy goes from bad to worse, these loans will be repaid," says Sur. "Banks have taken excessive risk in the past which is why we are seeing encouragement of bad behaviour."While many say that the RBI move is intended to improve monetary transmission, provide credit support to fields that have multiplier effects within the wider economy, the regulator should also bring in rules to reward those with better credit discipline. The regulator is also aware of the risks that the relaxations bring in, but places the onus on banks to ensure that their books don't have a hole."Sector-specific pockets of stress need policy attention," Governor Das said at a conference this week. "At the same time, proper due diligence and risk pricing in lending are of prime importance so that the health of the banking sector is not compromised while ensuring adequate flow of credit to productive sectors of the economy. Timely mitigation measures like faster resolution, better recovery, etc, need to be continued to bring down gross nonperforming assets.''

SBI Card IPO: Should you go for it?

Posted:

ET Intelligence Group: SBI Cards & Payment Services (SBI Cards), a credit card subsidiary of State Bank of India (SBI) will raise Rs 500 crore through fresh issue of shares and up to Rs 9,854 crore through offer for sale of existing shares. After the IPO, SBI's shareholding will fall to 70 per cent from 74 per cent and that of CA Rover Holdings will reduce to 16 per cent from 26 per cent. Given its dominant position in the domestic credit cards market and strong parentage of SBI, the company is well-positioned to take advantage of the rising trend of digital payments. Investors with a longterm horizon and wanting an exposure to growing consumerism may consider the IPO.BUSINESS AND FINANCIALSThe company is the largest pure play credit card issuer in India. Considering the card services of banks, it is the second largest after HDFC Bank. With 10 million cards in force and Rs 98,500 crore in card spends in the nine months to December 2019, SBI Cards had 18 per cent market share. Nearly half the cards are issued using distribution channels of SBI and other banks while the remaining are through its customer acquisition network across 145 Indian cities.Credit card spends in the country increased by 32 per cent annually to Rs 6.1 trillion between FY15 and FY19 according to RBI and CRISIL following rising awareness of digital payments. The proportion of digital transactions increased to 62 per cent in FY19 from 25 per cent in FY14. These factors augur well for SBI Cards.The company's revenue and net profit doubled to Rs 7,286.8 crore and Rs 862.7 crore respectively between FY17 and FY19. In the nine months to December 2019, net profit crossed the FY19 level to reach Rs 1,161.2 crore while revenue was Rs 7,240.1 crore. Its return on equity (RoE) has remained above 28 per cent since FY17. 74310967 RISKSCompetition from prepaid instruments such as e-wallets and UPI service is rising though they are mainly used for small transactions and do not offer credit period or benefit of reward points unlike credit cards. In addition, SBI Cards has adopted technologies to offer virtual cards on various mobile platforms thereby improving its appeal to tech savvy young generation.Economic slowdown affecting discretionary spend is another major risk. However, so far, the company has not experienced any slowdown in either card issuance or card spending.VALUATIONConsidering the equity after IPO and annualising the net profit in the nine-month to December 2019, the company demands price-earnings multiple (P/E) of nearly 46. It has no listed peers in India. A look at more mature markets such as the US reveals that American Express, which derives over half of the revenue from consumer services including credit cards, trades at a trailing P/E of around 17 with RoE of nearly 30 per cent. Another US company Capital One, which earns nearly two-third revenue from the card business, trades at a P/E of 9.2 and has an RoE of 10 per cent.While SBI Cards' valuation looks aggressive, it reflects the faster growth in the Indian market as well as the company's growth momentum.

Coronavirus could cost world $1 trillion

Posted:

The worrying prospect that the Covid-19 outbreak could become the first truly disruptive pandemic of the globalisation era is renewing doubts over the stability of the world economy. With the death toll approaching 3,000, over 80,000 cases officially recorded and an outbreak in Italy now shutting down the richest chunk of its economy, some economists are beginning to wargame what an untethered outbreak could mean for global growth.Oxford Economics reckons an international health crisis could be enough to wipe more than $1 trillion from global GDP. That would be the economic price tag for a spike in workplace absenteeism, lower productivity, sliding travel, disrupted supply chains and reduced trade and investment.Investors are already nervous, with US stock benchmarks slumping more than 3% on Monday and the S&P 500 Index dropping the most since February 2018.For now, central bankers and governments continue to bet that Covid-19 will not damage the world economy by much, and perhaps allow it to enjoy a rapid rebound once the illness fades. But that confidence is being tested.While the IMF currently reckons the virus will only force it to knock 0.1 percentage point off its 3.3% global growth forecast for 2020, IMF chief economist Gita Gopinath said in an interview that a pandemic declaration would risk "really downside, dire scenarios".The WHO head called the new cases "deeply concerning," but said the outbreak isn't yet a pandemic.Still, the protracted shutdown of Chinese factories that were supposed to be back online and spread of the virus to South Korea, Iran and Italy's industrial heartland raise the spectre of much greater death and disruption. The virus risks tipping Italy into a recession that could hurt the rest of Europe too.Korea's economy is being buffered, with consumer confidence plunging the most in five years.How to assess the risk is complicated by doubt over how far Covid-19 will travel.

We measure our success by economic impact: Nadella

Posted:

Microsoft CEO Satya Nadella said it was important for technology to be regulated as it becomes increasingly critical, although he cautioned that over-regulation could increase costs to businesses, especially entrepreneurs. Calling privacy a human right, Nadella told ET in an interview that Microsoft would conform to India's proposed privacy rules. He also said the company's success was defined by its economic impact and not because of its high market capitalisation. Edited Excerpts:Two of the large technology companies with trillion-dollar market caps are headed by Indians. Is that number important to you?(Amod Malviya), co-founder of Udaan, put it well: What is more important to us is the overall surplus and economic value that gets created in every country and in every community we work in.When I come to India, I make sure we're talking about our technology. (Take) Apollo Hospitals, they created a new AI model for the South Asian population with cardiac issues…A unicorn like Udaan was able to achieve success with just 17-18 people. 74310832 If you're creating that local surplus, we (Microsoft) will even have the permission to operate. That is true in every country — in India, the United States and in the UK.To me that is what is most important.If you just celebrate your own market cap and you don't see success broadly around the world, then I think that market cap is going to be very transitory. 74310838 You have said that we need to build technologies in areas such as health, agriculture and education, not just focused on consumer tech. How can India build for the world?There is nothing wrong with the consumer economy getting lots of innovation. After all, the mobile revolution along with consumer internet companies have really changed the lives of people, in terms of their access to services.The question now is, can we make it broader?Here is a company that says electric vehicles are going to be our future, let us completely create a new grid effectively for batteries. That's a startup here that's relevant everywhere. Or, take this company that says I can build an exoskeleton device for anybody with spinal cord injuries, and they're already taking it to North America.Those are all very innovative ideas coming out of India that have global relevance. 74310847 You have spoken about being open to regulation and about ethics in Artificial Intelligence. Yet, there has been a pushback from local teams every time governments try to bring new policies on data localisation or digital tax. As technology becomes much more pervasive, just like we have regulation in food safety, like we have the Federal Aviation Authority for air traffic (in the United States) and so on, we will always have regulation for things that are very mission critical in our lives and society.Privacy is a human right. We implemented the EU's General Data Protection Regulation, but (also) took the subject rights and implemented them all over the world. In India, there will be equivalent legislation and we will conform to it.Even around AI and AI ethics, it's ultimately a tool. How the tool gets used is something every country and society will need some norms around…one issue with overregulating anything means you fragment things, you increase transaction costs. The last thing you want to do is increase the cost of doing business for successful entrepreneurs from here.Your remarks on the Citizenship Amendment Act recently were seen as controversial. Were you taken aback?I think every country is going to define their own policies around immigration and national security. In democracies, it's the people and governments that decide. I mostly speak from being someone who grew up here…proud of my heritage of a multicultural India and as an immigrant, my hope is that this country continues to be a progressive democracy that really helps more people find that this is the land of their dreams. I think this is what is true about India today and I am very confident that it will be true of India in future.The political discourse in the US recently has been anti-big business. One (Democratic Party) candidate has talked about breaking big tech companies like Facebook. What is your view?Ultimately, every company effectively has the moral licence to operate in any community because what it creates, empowers and enables. Just because you are big doesn't mean anything. One of the things that we all have to re-acquaint ourselves with is, perhaps, what's the social contract of a corporation. It is about finding profitable solutions to the challenges of people on the planet. 74310852 74310857 In your book, you talk about the Gini coefficient, but you are not obviously a believer in extreme equality…Would you like to expound on that?I am not a political scientist or an economist. I get enthusiastic when some of the cutting-edge technologies like HoloLens is being used by first-line workers in a manufacturing (unit) to basically tame the learning curve, which means they are getting better wage support. That's a fantastic use of technology and its implication, even taking broader job creation and wage support. Ultimately, that's what needs to happen.Reliance Industries Chairman Mukesh Ambani talked about a very deep partnership. What are its main elements?Fundamentally, they have really bet on our platform. They are big users (of our products). They're also looking at how they can use the cloud infrastructure to build new types of solutions for some of the ambitious (plans) they have around small and medium-sized businesses… our identity there is to give them the technology and help them realize their ambitions.You transformed Microsoft's culture. Is that here to stay?Nothing gives any company a God given right to stay. It comes down to staying true to your mission every day and a culture that allows you to stay relevant and express your mission with changing technology. I feel really good about the cultural meme we picked around growth mindset…you have to confront your fixed mindset each day. Will it stay? It is a function of each day — whether you wake up and say, I am not perfect and what can I learn, and the day you feel you have even achieved a growth mindset means you don't have a growth mindset. That is the paradox. It applies to human beings, it applies to organisations.

RBI's gradual shift from transparency to forbearance towards stressed sectors

Posted:

In November 2013, the then central bank Governor Raghuram Rajan had warned banks against dressing up loans, likening the practice with "putting lipstick on a pig" (that) "will not make a princess." His stance marked the beginning of the end of forbearance. Rajan's successor Urjit Patel, too, continued with the tradition of nixing proposals that kicked the can down the road.But the new RBI regime under Shaktikanta Das has been different. It has already allowed banks to extend the MSME loan recast scheme and allowed restructuring of loans to the real estate sector."The RBI announcement of forbearance towards stressed sectors signifies a gradual shift away from the regulator's earlier efforts to enhance the quality and transparency of asset classification in the Indian banking system," said Saswata Guha, director, financial institutions, Fitch Ratings. "There is a risk that such regulatory forbearance will perpetuate moral hazard, as it follows aggressive lending growth and risk-taking in certain sectors."Indian banks have a poor track record with restructuring. The RBI's asset quality reviews in FY16 and FY18 found that a dominant share of loans restructured after FY12 degraded into non-performing loans (NPLs), according to a Fitch analysis.BLOW HOT, BLOW COLD"You are encouraging bad behaviour by supporting it and demoralising the ones with good behaviour; this is akin to farm loan waiver that leads to bad credit behaviour," said Kuntal Sur, partner – financial risk & regulation, PwC. "This is nothing but kicking the can down the road, this should not be encouraged."The concept of regulatory forbearance arose when the RBI allowed project loans to retain their standard asset classification on extension of their repayment schedule in May 1999. This was extended to treatment of restructured accounts in March 2001 under the Corporate Debt Restructuring (CDR) mechanism, for restructuring of debt without the need for an asset quality downgrade if the restructuring plan met certain conditions. For years, asset quality forbearance was used more as a tool for avoiding recognition of defaults and less for their effective resolution.In 2008-09, after the global financial crisis, the RBI agreed to forbear on certain kinds of stressed loan restructuring, hoping that this was a temporary need pending stronger growth. Unfortunately, for a variety of reasons, the stress has not been temporary, and growth in these sectors has proved elusive. This regulatory forbearance was made available to all types of loan restructuring except commercial real estate exposures, capital market exposures and personal and consumer loans.Since 2008, RBI relaxed norms for restructured loans several times and allowed lower provisioning for select categories of loans. Its regulatory relaxations prevented a rise of nearly Rs 90,000 crore in NPAs. These relaxations include allowing unsecured loans to microfinance companies to be restructured in 2011, and allowing second restructuring of loans on a case-to-case basis. State electricity boards and the aviation sector are two notable examples wherein loans were restructured for a second time, but were not classified as non-performing assets. But, in May 2013, the RBI announced the decision to withdraw forbearance on asset classification effective April 1, 2015. Shortly after this, the RBI began its Asset Quality Review (AQR) exercise to determine the "real" stock of the bad loan problem.After the RBI undertook the AQR that led to recognition as NPA of several loans, which banks had then considered to be standard assets, NPAs went up from 4.62% in 2014-15 to 7.79% in 2015-16, and were as high as 10.41% by December 2017.However, in the wake of mounting NPAs, the RBI allowed asset classification benefits for certain types of restructuring schemes. These included Strategic Debt Restructuring (SDR), Flexible Structuring of Project Loans and the Scheme for Sustainable Structuring of Stressed Assets (S4A). 74310653 HARD TIMESA revival in GDP growth rate is key to the Indian economy, which has slowed to an 11-year-low of 4.5% in the September quarter. Bank of America's India Activity Indicator slipped to 3.1% in December from 4.5% in November. The Index of Industrial Production for December shrunk to 0.3% while retail inflation rose to 7.59% in January."It is not surprising in the current weak operating environment and is in line with a recent trend to weaken asset recognition standards," said Guha of Fitch. "These extensions are only likely to defer asset-quality pressures unless there is a sustained improvement in macroeconomic conditions. Most of these sectors have had above-average lending growth in the last few years, either directly or indirectly via non-banks, and could be at risk were the economy to slow. Moreover, these measures are unlikely to support sustainable credit growth until capitalisation improves meaningfully across banks, in particular among state-owned banks, which account for nearly twothirds of the sector's assets."The MSME sector accounts for over 28% of GDP, more than 40% of exports, while employing approximately 110 million people. The outstanding banking sector credit to MSMEs was Rs 15.11 lakh crore while its gross NPAs were 5.8% of the total credit. Likewise, the real estate sector has been in trouble for quite some time and is the primary reason behind the sustained nonbank lending crisis."In extreme situations, the economic value of not taking any action is too high," says Sur. "If you look at the government's perspective, we are in a slow growth phase; if you allow further defaults, the negative impact could bring down the growth further."Some believe that difficult times warrant some degree of forbearance, some hand-holding to performing and otherwise viable units in tiding over temporary difficulties. But even RBI data shows that restructuring has been often used by banks for 'evergreening' problem accounts, thereby just postponing the recognition of a problem."Forbearance may be a reasonable but risky regulatory strategy when there is some hope that growth will pick up soon and the system will recover on its own," Rajan had said in July 2016. "Everyone – banker, promoter, investors, and government officials – often use such a strategy because it kicks the problem down the road, hopefully for someone else to deal with. The downside is that when growth does not pick up, the bad loan problem is bigger, and dealing with it is more difficult."INSOLVENCY RESOLUTIONCentral bankers on many occasions in the past have said that restructuring schemes were required because India did not have an effective bankruptcy law in place. In 2016, the Insolvency and Bankruptcy Code, 2016 (IBC), which is a comprehensive bankruptcy code, was enacted and notified. The Code envisages timely resolution of borrower defaults through collective decision making by the creditors. But, the success of the law is yet to be proven."The general approach of bankers to stress in large assets has been one of avoiding the de jure recognition of non-performance of such accounts," NS Vishwanathan, RBI deputy governor, had said earlier. "This is why we have a history of a large number of cases of failed restructuring as the schemes were used for avoiding a downgrade rather than resolving the asset. Prolonging the true asset quality recognition suited both the bankers and borrowers."As per the latest data from the Insolvency and Bankruptcy Board of India, 58% of all closed cases under bankruptcy to date were via liquidation while only 14% of cases were resolved with an average haircut of nearly 57% on admitted claims.ENCOURAGE GOOD BEHAVIOUR"Good practices should be encouraged so that there is incentive toward credit discipline. What is the guarantee if the economy goes from bad to worse, these loans will be repaid," says Sur. "Banks have taken excessive risk in the past which is why we are seeing encouragement of bad behaviour."While many say that the RBI move is intended to improve monetary transmission, provide credit support to fields that have multiplier effects within the wider economy, the regulator should also bring in rules to reward those with better credit discipline. The regulator is also aware of the risks that the relaxations bring in, but places the onus on banks to ensure that their books don't have a hole."Sector-specific pockets of stress need policy attention," Governor Das said at a conference this week. "At the same time, proper due diligence and risk pricing in lending are of prime importance so that the health of the banking sector is not compromised while ensuring adequate flow of credit to productive sectors of the economy. Timely mitigation measures like faster resolution, better recovery, etc, need to be continued to bring down gross nonperforming assets.''

Rajasthan plans to set up 30,000 MW solar capacity in 5 years

Posted:

Jaipur: Rajasthan plans to set up 30,000 MW of solar power plants in next five years and is in talks with leading private and state-run companies to develop energy parks, the state's energy minister BD Kalla told ET.This will add to an already installed capacity of around 50,000 MW in the state, he said."We have come up with a new solar policy in which we are giving a host of incentives, including relaxations in stamp duty, electricity duty and transmission and wheeling charges. We are also allowing banking of energy for captive consumption and third-party sale on yearly basis," Kalla said.Recently, the Centre allocated Rajasthan a 25,000 MW ultra mega renewable energy park. The state government has identified land bank of 125,000 hectares in three districts — Bikaner, Jaisalmer and Jodhpur—for this park."This park would solely be developed by central public sector units engaged in solar power generation," said Ajitabh Sharma, principal secretary at Rajasthan's energy department and chairman of Rajasthan Renewable Energy Corporation, the state's nodal agency for renewables."However, we want to promote both private and public sector equally in Rajasthan, which is also one of the objectives of solar policy. Let us first evaluate the proposition of the ultra mega energy park," Sharma said.He said of the 30,000 MW—the target Rajasthan has set for next five years—the state is looking to install solar plants of 10,000 MW in next three years in the first phase. "We are in talks with many PSUs including NHPC, NTPC, PFC, Tehri Hydro Power and Sutlej Jal Vidyut among few others. While NTPC is looking for 5,000 MW, others are aiming at 1,000 MW each," he said.

Key ratio signals FMCG could be the next cheerleader on D-Street

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ET Intelligence Group: From Benjamin Graham to Peter Lynch, consumer stocks have been among the firm favourites of market mavens extolling the virtues of value investing. They are considered all-weather investments, with no problems of unsupportable debt on their balance sheets or inordinately long working capital cycles. Yet, they have trailed the broader markets of late.But history suggests that trend could reverse. The price ratio of the Nifty FMCG index and the Nifty has dropped to 2.5, a level at which the index for consumption stocks finds strong support. Usually, the ratio rebounds to 2.7-2.9 in the following three to seven months after it drops to the support level of 2.4-2.5. For instance, the price ratio slipped to 2.5 in May 2017 and rebounded to 2.89 by July 2017. Neeraj Agarwal, vicepresident at Antique broking, said the price ratio is closer to support levels, indicating a higher probability of outperformance in the FMCG index over the Nifty. 74310619 The Nifty FMCG index has underperformed the Nifty by 13 per cent in 2019 — the most in the past seven years — although the consumption stock index underperformed the benchmark for three years out of the previous 10.Also, the seasonality factors in the price ratio matrix may support the Nifty FMCG index. The cumulative average return in March and April of the Nifty FMCG index was 7.1 per cent, while the Nifty return was 4.4 per cent in the past 10 years. Stocks such as Godrej Industries, Tata Global, United Breweries, and Colgate have historically recorded the highest degree of outperformance in March and April, Antique Broking's data showed.

Oil may hit $40 if Russia doesn’t support Opec’s production cuts

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In a volatile trading last week, crude oil prices touched one-month high and then fell back as coronavirus fears were back in the markets, with infection and death tolls rising in South Korea, Italy and the Middle East.The coronavirus epidemic is battering economic activity and global oil demand, sending oil prices into a tailspin. Major oil-producing countries and companies have been gradually adjusting to the reality of declining global demand in the mid to long term.On the data front, Japan's economy shrank 1.6 per cent in the fourth quarter of 2019. The decline from the third quarter was the biggest contraction since 2014. The drop was even more severe – a 6.3% plunge – when measured as an annualised rate.The markets were underestimating the effects of the virus, but now it is creating a sudden demand shock.The supply-chain recovery in China could be problematic despite stimulus pledge from Beijing. Total Chinese product demand may drop by about 3.4 Mbpd day in February and average 1.5 Mbpd in the first quarter. Meanwhile, lower Chinese refinery demand has caused floating storage to accumulate offshore in China where most of these idling very large crude carriers have been loaded with March barrels and not yet with April deliveries.The market has also started to see the impact on lower refining margins in Asia and Europe. This is largely as a result of lower demand for petroleum refined products, especially for Jet fuel, which has been affected by global flight restrictions related to coronavirus. Jet fuel prices are now expected to fall to near-record lows. Lower demand for petroleum-refined products in China has led Beijing to cut gasoline and diesel retail prices for the second time in 2020.OpecSaudi Arabia is looking for quick action, presumably to stem the downward spiral in crude prices, but Russia seems non-committal to the output deal proposed. Facts state that Russian oil companies can tolerate Brent below $60. But remember, Moscow has bound itself with a pledge to cooperate with Opec. Doesn't mean it can't be broken, but breaking it now could shock crude into the $40s. If prices stay at these levels, they could start hammering the Middle East and North Africa that are already struggling with regional political conflicts, violent domestic strife, or both. These include Saudi Arabia, Iran, Iraq, Libya and Nigeria.Markets showed little reaction to US sanctioning a trading unit of Russian oil giant Rosneft for its ties with Venezuela's state-run PDVSA, a move which could choke the Opec member's crude exports even further. At the same time, conflict in Libya that has led to a blockade of its ports and oilfields shows no signs of a resolution.Unconfirmed reports suggest that Saudi Arabia is weighing to break its production alliance with Russia amid a disagreement between the oil heavyweights over the effect of China's COVID-19 outbreak on global crude demand. Markets will wait for further new updates on this front.OutlookThe focus would be on the Opec+ decision and the size of supply cuts to bring stability back to the market. An emergency meeting of technical experts over February 4-6 recommended a deepening of collective output cuts to 2.7 Mbpd in the second quarter from the cut of 2.1 Mbpd agreed for January-March.Investors are wagering on the US Federal Reserve to step in with a rate cut to support economic growth after data from US showed that the business activity stalled in February, signalling a contraction for the first time since 2016. The US manufacturing sector also clocked its lowest reading since August. The outlook for crude looks worrisome and not constructive, with expectations that the market will return to surplus over H12020. Global oil demand growth is still languishing and the market will be closely watching to see what Russia does next.(Investors are advised to consult financial advisers before taking an investment calls based on these observations)

We measure our success by economic impact, not market capitalisation: Satya Nadella, CEO, Microsoft

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Microsoft CEO Satya Nadella said it was important for technology to be regulated as it becomes increasingly critical, although he cautioned that over-regulation could increase costs to businesses, especially entrepreneurs. Calling privacy a human right, Nadella told ET in an interview that Microsoft would conform to India's proposed privacy rules. He also said the company's success was defined by its economic impact and not because of its high market capitalisation. Edited Excerpts:Two of the large technology companies with trillion-dollar market caps are headed by Indians. Is that number important to you?(Amod Malviya), co-founder of Udaan, put it well: What is more important to us is the overall surplus and economic value that gets created in every country and in every community we work in.When I come to India, I make sure we're talking about our technology. (Take) Apollo Hospitals, they created a new AI model for the South Asian population with cardiac issues…A unicorn like Udaan was able to achieve success with just 17-18 people. 74310832 If you're creating that local surplus, we (Microsoft) will even have the permission to operate. That is true in every country — in India, the United States and in the UK.To me that is what is most important.If you just celebrate your own market cap and you don't see success broadly around the world, then I think that market cap is going to be very transitory. 74310838 You have said that we need to build technologies in areas such as health, agriculture and education, not just focused on consumer tech. How can India build for the world?There is nothing wrong with the consumer economy getting lots of innovation. After all, the mobile revolution along with consumer internet companies have really changed the lives of people, in terms of their access to services.The question now is, can we make it broader?Here is a company that says electric vehicles are going to be our future, let us completely create a new grid effectively for batteries. That's a startup here that's relevant everywhere. Or, take this company that says I can build an exoskeleton device for anybody with spinal cord injuries, and they're already taking it to North America.Those are all very innovative ideas coming out of India that have global relevance. 74310847 You have spoken about being open to regulation and about ethics in Artificial Intelligence. Yet, there has been a pushback from local teams every time governments try to bring new policies on data localisation or digital tax. As technology becomes much more pervasive, just like we have regulation in food safety, like we have the Federal Aviation Authority for air traffic (in the United States) and so on, we will always have regulation for things that are very mission critical in our lives and society.Privacy is a human right. We implemented the EU's General Data Protection Regulation, but (also) took the subject rights and implemented them all over the world. In India, there will be equivalent legislation and we will conform to it.Even around AI and AI ethics, it's ultimately a tool. How the tool gets used is something every country and society will need some norms around…one issue with overregulating anything means you fragment things, you increase transaction costs. The last thing you want to do is increase the cost of doing business for successful entrepreneurs from here.Your remarks on the Citizenship Amendment Act recently were seen as controversial. Were you taken aback?I think every country is going to define their own policies around immigration and national security. In democracies, it's the people and governments that decide. I mostly speak from being someone who grew up here…proud of my heritage of a multicultural India and as an immigrant, my hope is that this country continues to be a progressive democracy that really helps more people find that this is the land of their dreams. I think this is what is true about India today and I am very confident that it will be true of India in future.The political discourse in the US recently has been anti-big business. One (Democratic Party) candidate has talked about breaking big tech companies like Facebook. What is your view?Ultimately, every company effectively has the moral licence to operate in any community because what it creates, empowers and enables. Just because you are big doesn't mean anything. One of the things that we all have to re-acquaint ourselves with is, perhaps, what's the social contract of a corporation. It is about finding profitable solutions to the challenges of people on the planet. 74310852 74310857 In your book, you talk about the Gini coefficient, but you are not obviously a believer in extreme equality…Would you like to expound on that?I am not a political scientist or an economist. I get enthusiastic when some of the cutting-edge technologies like HoloLens is being used by first-line workers in a manufacturing (unit) to basically tame the learning curve, which means they are getting better wage support. That's a fantastic use of technology and its implication, even taking broader job creation and wage support. Ultimately, that's what needs to happen.Reliance Industries Chairman Mukesh Ambani talked about a very deep partnership. What are its main elements?Fundamentally, they have really bet on our platform. They are big users (of our products). They're also looking at how they can use the cloud infrastructure to build new types of solutions for some of the ambitious (plans) they have around small and medium-sized businesses… our identity there is to give them the technology and help them realize their ambitions.You transformed Microsoft's culture. Is that here to stay?Nothing gives any company a God given right to stay. It comes down to staying true to your mission every day and a culture that allows you to stay relevant and express your mission with changing technology. I feel really good about the cultural meme we picked around growth mindset…you have to confront your fixed mindset each day. Will it stay? It is a function of each day — whether you wake up and say, I am not perfect and what can I learn, and the day you feel you have even achieved a growth mindset means you don't have a growth mindset. That is the paradox. It applies to human beings, it applies to organisations.

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