- Eight Core Industries have recorded growth of 5.2 % in June’16, a rebound from 2.8% growth in May. Its cumulative growth for Q1’FY17 stands at 5.4%, much higher than the growth of 2.5% in Q1’FY16. The growth remains constrained by performance of crude oil and natural gas which continue to record decline in production. The core sectors are the building blocks and provide input to the rest of the industrial sector and its improved growth indicates expected improvement in the performance of other segments also.
- It is turning out to be a good quarter for Corporate India in terms of financial performance for quarter ended June’16. Most of the companies have reported an improvement in profits. Among the major companies, Maruti Suzuki reported 23% increase in profits to Rs 1,486 crore aided by sales growth of 12%. Both ACC, Ambuja cement, reported sharp increase of more than 75% in profits. For JSW Steel, the increase was phenomenal at 52 times led by 92% increase in EBITDA. Airtel is among the few large corporate recording decline is profits which fell by 30% even though revenues increased by 8%.
- Within Banking sector, PSBs have largely recorded a decline in profits whereas their private sector counterpart have seen impressive results. Yet, the results are better than that for March’16, when most of them had reported huge losses. PNB reported profits of Rs 306 crore, lower by more than 50% over June’15, yet far better than the loss of more than Rs 5,000 crore in March’16. Yes Bank reports 33% increase in profits.
- Startups continue to go through the phase of churning with the purchase of Jabong, loss making online fashion retailer, by Myntra. Myntra, itself was bought by Flipkart about two years back and has managed to sustain itself. However, whether the acquisition will be value accretive remains a big question for the parent company, Flipkart, which itself is undergoing a painful restructuring exercise and suffered valuation downgrade over last few quarters.
- In an interesting case of legal tangle, Tata Sons fights to honor its commitment to NTT Docomo, the Japanese telecom company. Tata Sons had agreed to buyback the stake from Docomo at a pre-agreed price, which is much higher than the market price. However, RBI has refused permission to do so as the existing Indian laws prohibit such sale/purchase. As an interim measure, the company has agreed to deposit $ 1.2 bn in Delhi High Court. (More on this, later)
- International – Verizon Communications announced the acquisition of Yahoo!’s core internet business for a consideration of $ 4.8 bn, bringing curtains down on the two decade old company. Yahoo! has been among the pioneers of the internet revolution and its fall, having reached a market capitalization of more than $100 bn, reflects the short life span of web based companies and the vulnerability of their business model.
- Japanese government continues its battle to pop up the economy with release of $ 265 bn stimulus package, nearly 6% of its GDP. The stimulus would certainly come at the cost of increase in its debt/GDP ratio, another battle, the country had been fighting for long now.
(Image courtesy of ddpavumba at FreeDigitalPhotos.net)
- The results season for quarter ended June’16 begins. It looks like not-so-good FY17 beginning for IT majors with both Infosys and TCS reporting pressure on margins. While consolidated sales grew by modest 1.2% and 3% on sequential basis, net profit decline by 4.5% and 0.4% respectively. On the other hand, Reliance Industries had a bumper quarter with profits rising by sharp 18% y-o-y, even though net revenue decline by 15% due to lower crude prices. (More on this, later)
We are precisely in the middle of the year..! Time for everyone to take stock.. 🙂
The weekly highlights are –
- RBI releases its Bi-annual Financial Stability report. The report paints a mixed picture where even though the number of “weak” companies has come down, the risk to banking sector has increased. (More on this, in another piece).
- Britain wakes up to the news of ‘Brexit’ with a narrow 51.9 – 48.1% vote..! The exit, specially in the backdrop of polarized election campaign in the US, seems to indicate growing isolationism the world around, shrugging off the economic costs. Even though the Brits leave with an awareness of certain pain of departure, the pain could be more severe and last longer than being assumed. Markets across the world including India react with shock. Pound falls by more than 10% before recovering partially. British Prime Minister, a supporter of staying-in, says he would not be the right person to lead the country through this transition and would step down by October. The unsettling questions now is – Can this trigger further exits within EU. (More on this – https://indiaeconomyandbusiness.com/2016/06/22/brexit/)
- Inflation figures for May’16 released. CPI based inflation rose to 5.76%, second consecutive month of increase after witnessing moderation till March’16 primarily due to increasing food prices. Similarly, WPI based inflation also rose to 0.79%, second month of increase after remaining in the negative zone for more than a year. It may be noted that RBI kept its policy rates constant last week due to fear of rising inflation.
- The week’s highlight was the news from banking sector. While SBI initiates process for merger of its associate banks, PNB shocks with more than Rs 5,000 crore loss in Q4’ 16.
- A week of hectic activity in the Parliament as a number of bills get passed including the Finance bill’ 2016-17, popularly known as “Budget”.